Companies: 10,652     total market cap: $140.919 T
โ‚ฌEUR๐Ÿ‡ช๐Ÿ‡บโ‚นINR๐Ÿ‡ฎ๐Ÿ‡ณยฃGBP๐Ÿ‡ฌ๐Ÿ‡ง$CAD๐Ÿ‡จ๐Ÿ‡ฆ$AUD๐Ÿ‡ฆ๐Ÿ‡บ$NZD๐Ÿ‡ณ๐Ÿ‡ฟ$HKD๐Ÿ‡ญ๐Ÿ‡ฐ$SGD๐Ÿ‡ธ๐Ÿ‡ฌ
Entergy
ETR
#571
Rank
$42.64 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$95.49
Share price
-0.42%
Change (1 day)
18.89%
Change (1 year)
๐Ÿ”‹ Electricity๐Ÿšฐ Utility companies โšก Energy
Categories
  1. Entergy
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2019 Q2

Entergy - 10-Q quarterly report FY2019 Q2


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

FORM 10-Q
(Mark One)
 
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from ____________ to ____________

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

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






Securities registered pursuant to Section 12(b) of the Act:
Registrant
Title of Class
Trading
Symbol
Name of Each Exchange
on Which Registered
 
 
 
 
Entergy Corporation
Common Stock, $0.01 Par Value
ETR
New York Stock Exchange
 
Common Stock, $0.01 Par Value
ETR
NYSE Chicago, Inc.
 
 
 
 
Entergy Arkansas, LLC
Mortgage Bonds, 4.90% Series due December 2052
EAB
New York Stock Exchange
 
Mortgage Bonds, 4.75% Series due June 2063
EAE
New York Stock Exchange
 
Mortgage Bonds, 4.875% Series due September 2066
EAI
New York Stock Exchange
 
 
 
 
Entergy Louisiana, LLC
Mortgage Bonds, 5.25% Series due July 2052
ELJ
New York Stock Exchange
 
Mortgage Bonds, 4.70% Series due June 2063
ELU
New York Stock Exchange
 
Mortgage Bonds, 4.875% Series due September 2066
ELC
New York Stock Exchange
 
 
 
 
Entergy Mississippi, LLC
Mortgage Bonds, 4.90% Series due October 2066
EMP
New York Stock Exchange
 
 
 
 
Entergy New Orleans, LLC
Mortgage Bonds, 5.0% Series due December 2052
ENJ
New York Stock Exchange
 
Mortgage Bonds, 5.50% Series due April 2066
ENO
New York Stock Exchange
 
 
 
 
Entergy Texas, Inc.
Mortgage Bonds, 5.625% Series due June 2064
EZT
New York Stock Exchange



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

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

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

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

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

Common Stock Outstanding
 
Outstanding at July 31, 2019
Entergy Corporation
($0.01 par value)
198,829,751

Entergy Corporation, Entergy Arkansas, LLC, Entergy Louisiana, LLC, Entergy Mississippi, LLC, Entergy New Orleans, LLC, Entergy Texas, Inc., and System Energy Resources, Inc. separately file this combined Quarterly Report on Form 10-Q.  Information contained herein relating to any individual company is filed by such company on its own behalf.  Each company reports herein only as to itself and makes no other representations whatsoever as to any other company.  This combined Quarterly Report on Form 10-Q supplements and updates the Annual Report on Form 10‑K for the calendar year ended December 31, 2018 and the Quarterly Report for Form 10-Q for the quarter ended March 31, 2019, filed by the individual registrants with the SEC, and should be read in conjunction therewith.


Table of Contents
TABLE OF CONTENTS

 
Page Number
 
 
Forward-looking information
iii
Definitions
vi
 
 
Part I. Financial Information
 
 
Entergy Corporation and Subsidiaries
 
Management’s Financial Discussion and Analysis
1
Consolidated Income Statements   
21
Consolidated Statements of Comprehensive Income 
23
Consolidated Statements of Cash Flows
24
Consolidated Balance Sheets
26
Consolidated Statements of Changes in Equity
28
Selected Operating Results
29
Notes to Financial Statements
 
Note 1. Commitments and Contingencies
30
Note 2. Rate and Regulatory Matters
31
Note 3. Equity
39
Note 4. Revolving Credit Facilities, Lines of Credit, Short-term Borrowings, and Long-term Debt
46
Note 5. Stock-based Compensation
51
Note 6. Retirement and Other Postretirement Benefits
53
Note 7. Business Segment Information
59
Note 8. Risk Management and Fair Values
61
Note 9. Decommissioning Trust Funds
82
Note 10. Income Taxes
89
Note 11. Property, Plant, and Equipment
90
Note 12. Variable Interest Entities
90
Note 13. Revenue Recognition
91
Note 14. Asset Retirement Obligations
94
Note 15. Leases
95
Note 16. Dispositions
103
Item 3. Quantitative and Qualitative Disclosures About Market Risk
104
Item 4. Controls and Procedures
104
Entergy Arkansas, LLC and Subsidiaries
 
Management’s Financial Discussion and Analysis
105
Consolidated Income Statements
114
Consolidated Statements of Cash Flows
115
Consolidated Balance Sheets
116
Consolidated Statements of Changes in Member’s Equity
118
Selected Operating Results
119
Entergy Louisiana, LLC and Subsidiaries
 
Management’s Financial Discussion and Analysis
120
Consolidated Income Statements
129

i
Table of Contents
TABLE OF CONTENTS


 
Page Number
 
 
Consolidated Statements of Comprehensive Income
130
Consolidated Statements of Cash Flows
131
Consolidated Balance Sheets
132
Consolidated Statements of Changes in Equity
134
Selected Operating Results
135
Entergy Mississippi, LLC
 
Management’s Financial Discussion and Analysis
136
Income Statements
144
Statements of Cash Flows
145
Balance Sheets
146
Statements of Changes in Member’s Equity
148
Selected Operating Results
149
Entergy New Orleans, LLC and Subsidiaries
 
Management’s Financial Discussion and Analysis
150
Consolidated Income Statements
159
Consolidated Statements of Cash Flows
161
Consolidated Balance Sheets
162
Consolidated Statements of Changes in Member’s Equity
164
Selected Operating Results
165
Entergy Texas, Inc. and Subsidiaries
 
Management’s Financial Discussion and Analysis
166
Consolidated Income Statements
173
Consolidated Statements of Cash Flows
175
Consolidated Balance Sheets
176
Consolidated Statements of Changes in Common Equity
178
Selected Operating Results
179
System Energy Resources, Inc.
 
Management’s Financial Discussion and Analysis
180
Income Statements
186
Statements of Cash Flows
187
Balance Sheets
188
Statements of Changes in Common Equity
190
 
 
Part II. Other Information
 
 
Item 1. Legal Proceedings
191
Item 1A. Risk Factors
191
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
191
Item 5. Other Information
192
Item 6. Exhibits
193
Signature
195


ii

FORWARD-LOOKING INFORMATION

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

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


iii

FORWARD-LOOKING INFORMATION (Continued)

•
the prices and availability of fuel and power Entergy must purchase for its Utility customers, and Entergy’s ability to meet credit support requirements for fuel and power supply contracts;
•
volatility and changes in markets for electricity, natural gas, uranium, emissions allowances, and other energy-related commodities, and the effect of those changes on Entergy and its customers;
•
changes in law resulting from federal or state energy legislation or legislation subjecting energy derivatives used in hedging and risk management transactions to governmental regulation;
•
changes in environmental laws and regulations, agency positions or associated litigation, including requirements for reduced emissions of sulfur dioxide, nitrogen oxide, greenhouse gases, mercury, particulate matter and other regulated air emissions, heat and other regulated discharges to water, requirements for waste management and disposal and for the remediation of contaminated sites, wetlands protection and permitting, and changes in costs of compliance with environmental laws and regulations;
•
changes in laws and regulations, agency positions, or associated litigation related to protected species and associated critical habitat designations;
•
the effects of changes in federal, state, or local laws and regulations, and other governmental actions or policies, including changes in monetary, fiscal, tax, environmental, trade/tariff, or energy policies;
•
the effects of full or partial shutdowns of the federal government or delays in obtaining government or regulatory actions or decisions;
•
uncertainty regarding the establishment of interim or permanent sites for spent nuclear fuel and nuclear waste storage and disposal and the level of spent fuel and nuclear waste disposal fees charged by the U.S. government or other providers related to such sites;
•
variations in weather and the occurrence of hurricanes and other storms and disasters, including uncertainties associated with efforts to remediate the effects of hurricanes, ice storms, or other weather events and the recovery of costs associated with restoration, including accessing funded storm reserves, federal and local cost recovery mechanisms, securitization, and insurance;
•
effects of climate change, including the potential for increases in extreme weather events and sea levels or coastal land and wetland loss;
•
changes in the quality and availability of water supplies and the related regulation of water use and diversion;
•
Entergy’s ability to manage its capital projects and operation and maintenance costs;
•
Entergy’s ability to purchase and sell assets at attractive prices and on other attractive terms;
•
the economic climate, and particularly economic conditions in Entergy’s Utility service area and the northern United States and events and circumstances that could influence economic conditions in those areas, including power prices, and the risk that anticipated load growth may not materialize;
•
federal income tax reform, including the enactment of the Tax Cuts and Jobs Act, and its intended and unintended consequences on financial results and future cash flows;
•
the effects of Entergy’s strategies to reduce tax payments, especially in light of federal income tax reform;
•
changes in the financial markets and regulatory requirements for the issuance of securities, particularly as they affect access to capital and Entergy’s ability to refinance existing securities, execute share repurchase programs, and fund investments and acquisitions;
•
actions of rating agencies, including changes in the ratings of debt, changes in general corporate ratings, and changes in the rating agencies’ ratings criteria;
•
changes in inflation and interest rates;
•
the effect of litigation and government investigations or proceedings;
•
changes in technology, including (i) Entergy’s ability to implement new or emerging technologies, (ii) the impact of changes relating to new, developing, or alternative sources of generation such as distributed energy and energy storage, renewable energy, energy efficiency, demand side management, and other measures that reduce load, and (iii) competition from other companies offering products and services to Entergy’s customers based on new or emerging technologies or alternative sources of generation;
•
the effects, including increased security costs, of threatened or actual terrorism, cyber-attacks or data security breaches, natural or man-made electromagnetic pulses that affect transmission or generation infrastructure, accidents, and war or a catastrophic event such as a nuclear accident or a natural gas pipeline explosion;
•
Entergy’s ability to attract and retain talented management, directors, and employees with specialized skills;

iv

FORWARD-LOOKING INFORMATION (Concluded)

•
changes in accounting standards and corporate governance;
•
declines in the market prices of marketable securities and resulting funding requirements and the effects on benefits costs for Entergy’s defined benefit pension and other postretirement benefit plans;
•
future wage and employee benefit costs, including changes in discount rates and returns on benefit plan assets;
•
changes in decommissioning trust fund values or earnings or in the timing of, requirements for, or cost to decommission Entergy’s nuclear plant sites and the implementation of decommissioning of such sites following shutdown;
•
the decision to cease merchant power generation at all Entergy Wholesale Commodities nuclear power plants by mid-2022, including the implementation of the planned shutdowns of Indian Point 2, Indian Point 3, and Palisades;
•
the effectiveness of Entergy’s risk management policies and procedures and the ability and willingness of its counterparties to satisfy their financial and performance commitments;
•
factors that could lead to impairment of long-lived assets; and
•
the ability to successfully complete strategic transactions Entergy may undertake, including mergers, acquisitions, divestitures, or restructurings, regulatory or other limitations imposed as a result of any such strategic transaction, and the success of the business following any such strategic transaction.


v

DEFINITIONS

Certain abbreviations or acronyms used in the text and notes are defined below:
Abbreviation or Acronym
Term
 
 
ALJ
Administrative Law Judge
ANO 1 and 2
Units 1 and 2 of Arkansas Nuclear One (nuclear), owned by Entergy Arkansas
APSC
Arkansas Public Service Commission
ASU
Accounting Standards Update issued by the FASB
Board
Board of Directors of Entergy Corporation
Cajun
Cajun Electric Power Cooperative, Inc.
capacity factor
Actual plant output divided by maximum potential plant output for the period
City Council
Council of the City of New Orleans, Louisiana
D.C. Circuit
U.S. Court of Appeals for the District of Columbia Circuit
DOE
United States Department of Energy
Entergy
Entergy Corporation and its direct and indirect subsidiaries
Entergy Corporation
Entergy Corporation, a Delaware corporation
Entergy Gulf States, Inc.
Predecessor company for financial reporting purposes to Entergy Gulf States Louisiana that included the assets and business operations of both Entergy Gulf States Louisiana and Entergy Texas
Entergy Gulf States Louisiana
Entergy Gulf States Louisiana, L.L.C., a Louisiana limited liability company formally created as part of the jurisdictional separation of Entergy Gulf States, Inc. and the successor company to Entergy Gulf States, Inc. for financial reporting purposes.  The term is also used to refer to the Louisiana jurisdictional business of Entergy Gulf States, Inc., as the context requires. Effective October 1, 2015, the business of Entergy Gulf States Louisiana was combined with Entergy Louisiana.
Entergy Louisiana
Entergy Louisiana, LLC, a Texas limited liability company formally created as part of the combination of Entergy Gulf States Louisiana and the company formerly known as Entergy Louisiana, LLC (Old Entergy Louisiana) into a single public utility company and the successor to Old Entergy Louisiana for financial reporting purposes.
Entergy Texas
Entergy Texas, Inc., a Texas corporation formally created as part of the jurisdictional separation of Entergy Gulf States, Inc.  The term is also used to refer to the Texas jurisdictional business of Entergy Gulf States, Inc., as the context requires.
Entergy Wholesale Commodities
Entergy’s non-utility business segment primarily comprised of the ownership, operation, and decommissioning of nuclear power plants, the ownership of interests in non-nuclear power plants, and the sale of the electric power produced by its operating power plants to wholesale customers
EPA
United States Environmental Protection Agency
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
FitzPatrick
James A. FitzPatrick Nuclear Power Plant (nuclear), previously owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which was sold in March 2017
Form 10-K
Annual Report on Form 10-K for the calendar year ended December 31, 2018 filed with the SEC by Entergy Corporation and its Registrant Subsidiaries
Grand Gulf
Unit No. 1 of Grand Gulf Nuclear Station (nuclear), 90% owned or leased by System Energy
GWh
Gigawatt-hour(s), which equals one million kilowatt-hours
Independence
Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power, LLC

vi

DEFINITIONS (Continued)
Abbreviation or Acronym
Term
 
 
Indian Point 2
Unit 2 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
Indian Point 3
Unit 3 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
IRS
Internal Revenue Service
ISO
Independent System Operator
kW
Kilowatt, which equals one thousand watts
kWh
Kilowatt-hour(s)
LPSC
Louisiana Public Service Commission
MISO
Midcontinent Independent System Operator, Inc., a regional transmission organization
MMBtu
One million British Thermal Units
MPSC
Mississippi Public Service Commission
MW
Megawatt(s), which equals one thousand kilowatts
MWh
Megawatt-hour(s)
Net debt to net capital ratio
Gross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents
Net MW in operation
Installed capacity owned and operated
NRC
Nuclear Regulatory Commission
NYPA
New York Power Authority
Palisades
Palisades Nuclear Plant (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
Parent & Other
The portions of Entergy not included in the Utility or Entergy Wholesale Commodities segments, primarily consisting of the activities of the parent company, Entergy Corporation
Pilgrim
Pilgrim Nuclear Power Station (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which ceased power production in May 2019
PPA
Purchased power agreement or power purchase agreement
PUCT
Public Utility Commission of Texas
Registrant Subsidiaries
Entergy Arkansas, LLC, Entergy Louisiana, LLC, Entergy Mississippi, LLC, Entergy New Orleans, LLC, Entergy Texas, Inc., and System Energy Resources, Inc.
River Bend
River Bend Station (nuclear), owned by Entergy Louisiana
SEC
Securities and Exchange Commission
System Agreement
Agreement, effective January 1, 1983, as modified, among the Utility operating companies relating to the sharing of generating capacity and other power resources. The agreement terminated effective August 2016.
System Energy
System Energy Resources, Inc.
TWh
Terawatt-hour(s), which equals one billion kilowatt-hours
Unit Power Sales Agreement
Agreement, dated as of June 10, 1982, as amended and approved by the FERC, among Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, relating to the sale of capacity and energy from System Energy’s share of Grand Gulf
Utility
Entergy’s business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution
Utility operating companies
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas

vii

DEFINITIONS (Concluded)
Abbreviation or Acronym
Term
 
 
Vermont Yankee
Vermont Yankee Nuclear Power Station (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which ceased power production in December 2014 and was disposed of in January 2019
Waterford 3
Unit No. 3 (nuclear) of the Waterford Steam Electric Station, owned by Entergy Louisiana
weather-adjusted usage
Electric usage excluding the effects of deviations from normal weather
White Bluff
White Bluff Steam Electric Generating Station, 57% owned by Entergy Arkansas


viii

ENTERGY CORPORATION AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

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

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

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

Results of Operations

Second Quarter 2019 Compared to Second Quarter 2018

Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing the second quarter 2019 to the second quarter 2018 showing how much the line item increased or (decreased) in comparison to the prior period:
 
 

Utility
 
Entergy
Wholesale
Commodities
 

Parent &
Other (a)
 

Entergy
 
 
(In Thousands)
2nd Quarter 2018 Consolidated Net Income (Loss)
 

$378,394

 

($56,337
)
 

($73,197
)
 

$248,860

 
 
 
 
 
 
 
 
 
Operating revenues
 
16,229

 
(18,819
)
 
29

 
(2,561
)
Fuel, fuel-related expenses, and gas purchased for resale
 
(5,438
)
 
6,932

 
27

 
1,521

Purchased power
 
(68,727
)
 
(2,419
)
 
(27
)
 
(71,173
)
Other regulatory charges (credits)
 
(169,826
)
 
—

 
—

 
(169,826
)
Other operation and maintenance
 
21,823

 
(11,904
)
 
(8,152
)
 
1,767

Asset write-offs, impairments, and related charges
 
—

 
(52,524
)
 
—

 
(52,524
)
Taxes other than income taxes
 
6,951

 
(2,088
)
 
(2
)
 
4,861

Depreciation and amortization
 
13,338

 
(674
)
 
347

 
13,011

Other income
 
13,068

 
23,524

 
(3,388
)
 
33,204

Interest expense
 
5,877

 
416

 
362

 
6,655

Other expenses
 
7,467

 
15,157

 
—

 
22,624

Income taxes
 
261,474

 
20,854

 
(274
)
 
282,054

 
 
 
 
 
 
 
 
 
2nd Quarter 2019 Consolidated Net Income (Loss)
 

$334,752

 

($25,382
)
 

($68,837
)
 

$240,533


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

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


1
Table of Contents
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis


Second quarter 2019 results of operations includes impairment charges of $16 million ($13 million net-of-tax) due to costs being charged directly to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for discussion of management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet.

Second quarter 2018 results of operations includes impairment charges of $69 million ($54 million net-of-tax) due to costs being charged directly to expense as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business and a $52 million income tax benefit recognized by Entergy Louisiana, as a result of the settlement of the 2012-2013 IRS audit, associated with the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet. See Note 3 to the financial statements in the Form 10-K for discussion of the IRS audit settlement.

Utility

Following is an analysis of the change in operating revenues comparing the second quarter 2019 to the second quarter 2018:
 
Amount
 
(In Millions)
2018 operating revenues

$2,360

Fuel, rider, and other revenues that do not significantly affect net income
(113
)
Return of unprotected excess accumulated deferred income taxes to customers
91

Retail electric price
80

Volume/weather
(42
)
2019 operating revenues

$2,376


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

The return of unprotected excess accumulated deferred income taxes to customers resulted from activity at the Utility operating companies in response to the enactment of the Tax Cuts and Jobs Act. The return of unprotected excess accumulated deferred income taxes began in second quarter 2018. In second quarter 2019, $60 million was returned to customers through reductions in operating revenues as compared to $151 million in second quarter 2018. There is no effect on net income as the reductions in operating revenues were offset by reductions in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.     


2
Table of Contents
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis

The retail electric price variance is primarily due to:

•
an increase in formula rate plan rates effective with the first billing cycle of January 2019 at Entergy Arkansas, as approved by the APSC;
•
a base rate increase effective October 2018 at Entergy Texas, as approved by the PUCT;
•
an increase in formula rate plan revenues effective September 2018 at Entergy Louisiana and an interim increase in formula rate plan revenues effective June 2019 due to the inclusion of the first-year revenue requirement for St. Charles Power Station, each as approved by the LPSC; and
•
the implementation of an advanced metering system customer charge effective January 2019 at Entergy Louisiana, as approved by the LPSC.

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

The volume/weather variance is primarily due to a decrease of 439 GWh, or 2%, in billed electricity usage, including the effect of less favorable weather on residential and commercial sales and a decrease in industrial usage. Also contributing to the decrease was decreased usage during the unbilled sales period. The decrease in industrial usage is primarily driven by decreased demand from cogeneration customers and decreased small industrial sales.

Entergy Wholesale Commodities

Operating revenues for Entergy Wholesale Commodities decreased from $309 million for the second quarter 2018 to $290 million for the second quarter 2019 primarily due to the shutdown of Pilgrim in May 2019.

Fuel expenses increased from $19 million for the second quarter 2018 to $26 million for the second quarter 2019 primarily due to the absence of nuclear fuel amortization for Palisades in the second quarter 2018. In December 2016 the carrying value of Palisades’s nuclear fuel was written off as a result of the impairment of plant and related long-lived assets. In September 2017 the decision was made to continue operating Palisades until May 31, 2022, and a refueling at Palisades occurred in fourth quarter 2018 resulting in amortization in 2019 of the nuclear fuel purchases.

Following are key performance measures for Entergy Wholesale Commodities for the second quarters 2019 and 2018:
 
2019
 
2018
Owned capacity (MW) (a)
3,274
 
3,962
GWh billed
7,258
 
7,281
 
 
 
 
Entergy Wholesale Commodities Nuclear Fleet
 
 
 
Capacity factor
92%
 
86%
GWh billed
6,703
 
6,713
Average energy price ($/MWh)
$32.17
 
$32.49
Average capacity price ($/kW-month)
$5.24
 
$7.75
Refueling outage days:
 
 
 
Indian Point 2
—
 
20
Indian Point 3
8
 
—

(a)
The reduction in owned capacity is due to the shutdown of the 688 MW Pilgrim plant in May 2019.


3
Table of Contents
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis


Other Income Statement Items

Utility

Other operation and maintenance expenses increased from $629 million for the second quarter 2018 to $651 million for the second quarter 2019 primarily due to:

•
an increase of $9 million in nuclear generation expenses primarily due to a higher scope of work performed during plant outages in the second quarter 2019 as compared to the second quarter 2018;
•
an increase of $8 million in information technology costs primarily due to higher software maintenance costs and higher contract costs;
•
an increase of $7 million in spending on customer initiatives to explore new technologies and services;
•
an increase of $7 million in fossil-fueled generation expenses due to a higher scope of work performed during plant outages in the second quarter 2019 as compared to the second quarter 2018;
•
an increase of $6 million due to lower nuclear insurance refunds; and
•
an increase of $3 million in advanced metering costs, including customer education costs.

The increase was partially offset by:

•
a decrease of $5 million in storm damage provisions at Entergy Mississippi. See Note 2 to the financial statements herein for discussion of storm cost recovery;
•
a decrease of $5 million in loss provisions; and
•
a decrease of $4 million in vegetation maintenance costs.

Depreciation and amortization expenses increased primarily due to additions to plant in service, including the St. Charles Power Station, partially offset by updated depreciation rates used in calculating Grand Gulf plant depreciation and amortization expenses under the Unit Power Sales Agreement as part of a settlement approved by the FERC in August 2018. See Note 2 to the financial statements in the Form 10-K for further discussion of the Unit Power Sales Agreement.

Other regulatory charges (credits) include the following significant activity:

•
a regulatory charge recorded in second quarter 2018 to reflect the return of unprotected excess accumulated deferred income taxes per an agreement approved by the MPSC in June 2018 that resulted in a reduction in net utility plant of $127 million. There is no effect on net income as the regulatory charge was offset by a reduction in income tax expense in 2018; and
•
regulatory charges of $27 million recorded in second quarter 2018 to reflect the effects of regulatory agreements to return the benefits of the lower income tax rate in 2018 to Entergy Louisiana customers.

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

Other income increased primarily due to changes in decommissioning trust fund activity and an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2019, which included the Lake Charles Power Station, Montgomery County Power Station, and New Orleans Power Station projects.


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Entergy Wholesale Commodities

Other operation and maintenance expenses decreased primarily due to a decrease of $12 million in severance and retention expenses in the second quarter 2019 compared to the second quarter 2018 due to management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to shut down and sell all of the remaining plants in the Entergy Wholesale Commodities’ merchant nuclear fleet.

The asset write-offs, impairments, and related charges variance is primarily due to impairment charges of $16 million ($13 million net-of-tax) in the second quarter 2019 compared to impairment charges of $69 million ($54 million net-of-tax) in the second quarter 2018. The impairment charges are primarily related to nuclear refueling outage spending and expenditures for capital assets, partially offset by the gain on the sale of the Pilgrim switchyard. These costs were charged to expense as incurred as a result of the impaired fair value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet. See Note 14 to the financial statements in the Form 10-K for a discussion of impairment of long-lived assets.

Other income increased primarily due to higher gains on decommissioning trust fund investments in the second quarter 2019 compared to the second quarter 2018. See Notes 8 and 9 to the financial statements herein for a discussion of decommissioning trust fund investments.

Other expenses increased primarily due to an increase in nuclear refueling outage expenses as a result of the amortization in 2019 of costs associated with a refueling outage at Palisades.

Income Taxes

The effective income tax rate was 0.6% for the second quarter 2019. The difference in the effective income tax rate for the second quarter 2019 versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes and certain book and tax differences related to utility plant items, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.

The effective income tax rate was 884.2% for the second quarter 2018. The difference in the effective income tax rate for the second quarter 2018 versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes and an IRS audit settlement for the 2012-2013 tax returns. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 3 to the financial statements in the Form 10-K for a discussion of the IRS audit settlement.


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Management's Financial Discussion and Analysis


Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing the six months ended June 30, 2019 to the six months ended June 30, 2018 showing how much the line item increased or (decreased) in comparison to the prior period:
 
 

Utility
 
Entergy
Wholesale
Commodities
 

Parent &
Other (a)
 

Entergy
 
 
(In Thousands)
2018 Consolidated Net Income (Loss)
 

$596,333

 

($74,116
)
 

($137,158
)
 

$385,059

 
 
 
 
 
 
 
 
 
Operating revenues
 
(112,778
)
 
(4,132
)
 
52

 
(116,858
)
Fuel, fuel-related expenses, and gas purchased for resale
 
24,294

 
12,211

 
50

 
36,555

Purchased power
 
(123,990
)
 
(3,653
)
 
(47
)
 
(127,690
)
Other regulatory charges (credits)
 
(229,797
)
 
—

 
—

 
(229,797
)
Other operation and maintenance
 
19,189

 
(14,021
)
 
(3,934
)
 
1,234

Asset write-offs, impairments, and related charges
 
—

 
(51,470
)
 
—

 
(51,470
)
Taxes other than income taxes
 
4,759

 
(5,695
)
 
(846
)
 
(1,782
)
Depreciation and amortization
 
23,437

 
(785
)
 
647

 
23,299

Other income
 
20,146

 
206,036

 
(5,127
)
 
221,055

Interest expense
 
11,527

 
1,336

 
7,678

 
20,541

Other expenses
 
7,696

 
30,328

 
—

 
38,024

Income taxes
 
197,686

 
87,840

 
(4,364
)
 
281,162

 
 
 
 
 
 
 
 
 
2019 Consolidated Net Income (Loss)
 

$568,900

 

$71,697

 

($141,417
)
 

$499,180


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

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

Results of operations for the six months ended June 30, 2019 include impairment charges of $90 million ($71 million net-of-tax) due to costs being charged directly to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for discussion of management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet.

Results of operations for the six months ended June 30, 2018 include impairment charges of $142 million ($112 million net-of-tax) due to costs being charged directly to expense as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business and a $52 million income tax benefit recognized by Entergy Louisiana, as a result of the settlement of the 2012-2013 IRS audit, associated with the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet. See Note 3 to the financial statements in the Form 10-K for discussion of the IRS audit settlement.

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Utility

Following is an analysis of the change in operating revenues comparing the six months ended June 30, 2019 to the six months ended June 30, 2018:
 
Amount
 
(In Millions)
2018 operating revenues

$4,665

Fuel, rider, and other revenues that do not significantly affect net income
(201
)
Volume/weather
(80
)
Return of unprotected excess accumulated deferred income taxes to customers
30

Retail electric price
138

2019 operating revenues

$4,552


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

The volume/weather variance is primarily due to a decrease of 1,293 GWh, or 2%, in billed electricity usage, including the effect of less favorable weather on residential and commercial sales. Also contributing to the decrease was decreased usage during the unbilled sales period.

The return of unprotected excess accumulated deferred income taxes to customers resulted from activity at the Utility operating companies in response to the enactment of the Tax Cuts and Jobs Act. The return of unprotected excess accumulated deferred income taxes began in second quarter 2018. In the six months ended June 30, 2019, $121 million was returned to customers through reductions in operating revenues as compared to $151 million in the six months ended June 30, 2018. There is no effect on net income as the reductions in operating revenues were offset by reductions in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.     

The retail electric price variance is primarily due to:

•
an increase in formula rate plan rates effective with the first billing cycle of January 2019 at Entergy Arkansas, as approved by the APSC;
•
a base rate increase effective October 2018 at Entergy Texas, as approved by the PUCT;
•
an increase in formula rate plan revenues effective September 2018 at Entergy Louisiana and an interim increase in formula rate plan revenues effective June 2019 due to the inclusion of the first-year revenue requirement for St. Charles Power Station, each as approved by the LPSC; and
•
the implementation of an advanced metering system customer charge effective January 2019 at Entergy Louisiana, as approved by the LPSC.

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


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Entergy Wholesale Commodities

Operating revenues for Entergy Wholesale Commodities decreased from $728 million for the six months ended June 30, 2018 to $723 million for the six months ended June 30, 2019 primarily due to the shutdown of Pilgrim in May 2019, partially offset by higher volume in the Entergy Wholesale Commodities nuclear fleet resulting from fewer non-refueling outage days.

Fuel expenses increased from $39 million for the six months ended June 30, 2018 to $51 million for the six months ended June 30, 2019 primarily due to the absence of nuclear fuel amortization for Palisades in the six months ended June 30, 2018. In December 2016 the carrying value of Palisades’s nuclear fuel was written off as a result of the impairment of plant and related long-lived assets. In September 2017 the decision was made to continue operating Palisades until May 31, 2022, and a refueling at Palisades occurred in fourth quarter 2018 resulting in amortization in 2019 of nuclear fuel purchases.

Following are key performance measures for Entergy Wholesale Commodities for the six months ended June 30, 2019 and 2018:
 
2019
 
2018
Owned capacity (MW) (a)
3,274
 
3,962
GWh billed
14,461
 
14,277
 
 
 
 
Entergy Wholesale Commodities Nuclear Fleet
 
 
 
Capacity factor
89%
 
85%
GWh billed
13,392
 
13,121
Average energy price ($/MWh)
$42.50
 
$42.16
Average capacity price ($/kW-month)
$4.96
 
$5.82
Refueling outage days:
 
 
 
Indian Point 2
—
 
33
Indian Point 3
29
 
—

(a)
The reduction in owned capacity is due to the shutdown of the 688 MW Pilgrim plant in May 2019.

Other Income Statement Items

Utility

Other operation and maintenance expenses increased from $1,217 million for the six months ended June 30, 2018 to $1,236 million for the six months ended June 30, 2019 primarily due to:

•
an increase of $16 million in information technology costs primarily due to higher software maintenance costs and higher contract costs;
•
an increase of $11 million in spending on customer initiatives to explore new technologies and services;
•
an increase of $8 million in fossil-fueled generation expenses due to a higher scope of work performed during plant outages in 2019 as compared to 2018;
•
an increase of $6 million due to lower nuclear insurance refunds; and
•
an increase of $6 million in advanced metering costs, including customer education costs.


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The increase was partially offset by:

•
a decrease of $11 million in nuclear generation expenses primarily due to a lower scope of work performed in 2019 as compared to 2018;
•
a decrease of $10 million in storm damage provisions at Entergy Mississippi. See Note 2 to the financial statements herein for discussion of storm cost recovery;
•
a decrease of $6 million in energy efficiency costs due to the timing of recovery from customers; and
•
a decrease of $5 million in vegetation maintenance costs.

Depreciation and amortization expenses increased primarily due to additions to plant in service, including the St. Charles Power Station, partially offset by updated depreciation rates used in calculating Grand Gulf plant depreciation and amortization expenses under the Unit Power Sales Agreement as part of a settlement approved by the FERC in August 2018. See Note 2 to the financial statements in the Form 10-K for further discussion of the Unit Power Sales Agreement.

Other regulatory charges (credits) include the following significant activity:

•
a regulatory charge recorded in second quarter 2018 to reflect the return of unprotected excess accumulated deferred income taxes per an agreement approved by the MPSC in June 2018 that resulted in a reduction in net utility plant of $127 million. There is no effect on net income as the regulatory charge was offset by a reduction in income tax expense in 2018; and
•
regulatory charges of $55 million recorded in 2018 to reflect the effects of regulatory agreements to return the benefits of the lower income tax rate in 2018 to Entergy Louisiana customers.

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

Other income increased primarily due to an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2019, which included the Lake Charles Power Station, Montgomery County Power Station, and New Orleans Power Station projects and changes in decommissioning trust fund activity.

Interest expense increased primarily due to:

•
the issuance in March 2019 of $525 million of 4.20% Series mortgage bonds by Entergy Louisiana;
•
the issuance in March 2019 of $350 million of 4.20% Series mortgage bonds by Entergy Arkansas; and
•
the issuance in May 2018 of $250 million of 4.00% Series mortgage bonds by Entergy Arkansas.

See Note 5 to the financial statements in the Form 10-K and Note 4 to the financial statements herein for a discussion of long-term debt.

Entergy Wholesale Commodities

Other operation and maintenance expenses decreased primarily due to a decrease of $11 million in nuclear generation expenditures primarily due to a lower scope of work performed during plant outages at Pilgrim and a decrease in regulatory compliance costs as a result of the NRC’s March 2019 decision to move Pilgrim from its “multiple/repetitive degraded cornerstone column,” or Column 4, of its Reactor Oversight Process Action Matrix to its “licensee response column,” or Column 1.

The asset write-offs, impairments, and related charges variance is primarily due to impairment charges of $90 million ($71 million net-of-tax) in the six months ended June 30, 2019 compared to impairment charges of $142 million ($112 million net-of-tax) in the six months ended June 30, 2018. The impairment charges are primarily related to nuclear refueling outage spending and expenditures for capital assets. These costs were charged to expense as incurred

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as a result of the impaired fair value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below and in the Form 10-K for a discussion of management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet. See Note 14 to the financial statements in the Form 10-K for a discussion of impairment of long-lived assets.

Other income increased primarily due to higher gains on decommissioning trust fund investments in the six months ended June 30, 2019 compared to the six months ended June 30, 2018. See Notes 8 and 9 to the financial statements herein for a discussion of decommissioning trust fund investments.

Other expenses increased primarily due to an increase in nuclear refueling outage expenses as a result of the amortization in 2019 of costs associated with a refueling outage at Palisades.

Parent and Other

Interest expense increased due to higher variable interest rates on commercial paper in 2019. See Note 4 to the financial statements herein and in the Form 10-K for a discussion of Entergy’s commercial paper program.

Income Taxes

The effective income tax rate was 8.1% for the six months ended June 30, 2019. The difference in the effective income tax rate for the six months ended June 30, 2019 versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes, partially offset by the tax effects of the disposition of Vermont Yankee. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 10 to the financial statements herein for a discussion of the tax effects of the Vermont Yankee disposition.

The effective income tax rate was (160%) for the six months ended June 30, 2018. The difference in the effective income tax rate for the six months ended June 30, 2018 versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes and an IRS audit settlement for the 2012-2013 tax returns. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 3 to the financial statements in the Form 10-K for a discussion of the IRS audit settlement.

Income Tax Legislation

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

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” in the Form 10-K for a discussion of management’s strategy to shut down and sell all remaining plants in the Entergy Wholesale Commodities’ merchant nuclear fleet.  Following are updates to that discussion.
 

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Vermont Yankee Disposition

As discussed in more detail in Note 16 to the financial statements herein, in January 2019, Entergy transferred 100% of the membership interests in Entergy Nuclear Vermont Yankee, LLC, the owner of the Vermont Yankee plant, to a subsidiary of NorthStar.

Planned Sale of Pilgrim
 
As discussed in the Form 10-K, Entergy entered into a purchase and sale agreement with Holtec International to sell to a Holtec subsidiary 100% of the equity interests in Entergy Nuclear Generation Company, the owner of Pilgrim, for $1,000 (subject to adjustments for net liabilities and other amounts). The sale of Entergy Nuclear Generation Company will include the transfer of the nuclear decommissioning trust and obligation for spent fuel management and plant decommissioning. Subject to the conditions discussed in the Form 10-K, the transaction is expected to close by the end of 2019. The transaction is expected to result in a loss based on the difference between Entergy’s adjusted net investment in Entergy Nuclear Generation Company and the sale price plus any agreed adjustments. As of June 30, 2019, Entergy’s adjusted net investment in Entergy Nuclear Generation Company was $200 million. The primary variables in the ultimate loss that Entergy will incur are the values of the nuclear decommissioning trust and the asset retirement obligation at closing and the level of any unrealized deferred tax balances at closing.
 
Planned Sale of Indian Point Energy Center

In April 2019, Entergy entered into an agreement to sell, directly or indirectly, 100% of the equity interests in the subsidiaries that own Indian Point 1, Indian Point 2, and Indian Point 3, after Indian Point 3 has been shut down and defueled, to a Holtec International subsidiary for decommissioning. The sale includes the transfer of the licenses, spent fuel, decommissioning liabilities, and nuclear decommissioning trusts for the three units.

The transaction is subject to closing conditions, including approval from the NRC. Entergy and Holtec also plan to seek an order from the New York State Public Service Commission disclaiming jurisdiction, or alternatively approving the transaction. Closing is also conditioned on obtaining from the New York State Department of Environmental Conservation an agreement related to Holtec’s decommissioning plan as being consistent with applicable standards. The transaction closing is targeted for third quarter 2021, following the defueling of Indian Point 3.

As consideration for the transfer to Holtec of its interest in Indian Point, Entergy will receive nominal cash consideration. The Indian Point transaction is expected to result in a loss based on the difference between Entergy’s adjusted net investment in the subsidiaries at closing and the sale price net of any agreed adjustments. As of June 30, 2019, Entergy’s adjusted net investment in the Indian Point units was $265 million. The primary variables in the ultimate loss that Entergy will incur are the values of the nuclear decommissioning trusts and the asset retirement obligations at closing, the financial results from plant operations until the closing, and the level of any unrealized deferred tax balances at closing. The terms of the transaction include limitations on withdrawals from the nuclear decommissioning trusts to fund decommissioning activities and controls on how Entergy manages the investment of nuclear decommissioning trust assets between signing and closing; however, the agreement does not require a minimum level of funding in the nuclear decommissioning trusts as a condition to closing.

Costs Associated with Entergy Wholesale Commodities Strategic Transactions

Entergy expects to incur employee retention and severance expenses associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business of approximately $120 million in 2019, of which $56 million has been incurred as of June 30, 2019, and a total of approximately $120 million from 2020 through 2022. In addition, Entergy Wholesale Commodities incurred impairment charges related to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets of $16 million for the three months ended June 30, 2019 and $90 million for the six months ended June 30, 2019. These costs were charged to expense as incurred as a result of the impaired value of certain of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the

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significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business. Entergy expects to continue to incur costs associated with nuclear fuel-related spending and expenditures for capital assets and, except for Palisades, expects to continue to charge these costs to expense as incurred because Entergy expects the value of the plants to continue to be impaired.

Liquidity and Capital Resources

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

Capital Structure

Entergy’s debt to capital ratio is shown in the following table. The decrease in the debt to capital ratio for Entergy as of June 30, 2019 is primarily due to the settlement of the remaining equity forwards in 2019. See Note 3 to the financial statements herein for a discussion of the equity forward sale agreements.
 
June 30,
2019
 
December 31,
2018
Debt to capital
65.5
%
 
66.7
%
Effect of excluding securitization bonds
(0.4
%)
 
(0.6
%)
Debt to capital, excluding securitization bonds (a)
65.1
%
 
66.1
%
Effect of subtracting cash
(0.8
%)
 
(0.6
%)
Net debt to net capital, excluding securitization bonds (a)
64.3
%
 
65.5
%

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

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

Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in September 2023.  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 six months ended June 30, 2019 was 4.05% on the drawn portion of the facility. Following is a summary of the borrowings outstanding and capacity available under the facility as of June 30, 2019:
Capacity
 
Borrowings
 
Letters
of Credit
 
Capacity
Available
(In Millions)
$3,500
 
$150
 
$6
 
$3,344


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Management's Financial Discussion and Analysis

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

Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion. As of June 30, 2019, Entergy Corporation had approximately $1,635 million of commercial paper outstanding. The weighted-average interest rate for the six months ended June 30, 2019 was 2.97%.

In January 2019, Entergy Nuclear Vermont Yankee was transferred to NorthStar and its credit facility was assumed by Vermont Yankee Asset Retirement Management, 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 November 2020. As of June 30, 2019, $139 million in cash borrowings were outstanding under the credit facility.  The weighted average interest rate for the six months ended June 30, 2019 was 4.19% on the drawn portion of the facility. See Note 14 to the financial statements in the Form 10-K and Note 16 to the financial statements herein for discussion of the transfer of Entergy Nuclear Vermont Yankee to NorthStar.

Capital Expenditure Plans and Other Uses of Capital

See the table and discussion in the Form 10-K under “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Capital Expenditure Plans and Other Uses of Capital,” that sets forth the amounts of planned construction and other capital investments by operating segment for 2019 through 2021. Following are updates to that discussion.

Following are the current annual amounts of Entergy’s planned construction and other capital investments by operating segment for 2019 through 2021.

Planned construction and capital investments
 
2019
 
2020
 
2021
 
 
(In Millions)
Utility:
 
 
 
 
 
 
Generation
 

$1,950

 

$1,315

 

$1,455

Transmission
 
1,025

 
1,020

 
640

Distribution
 
1,040

 
1,090

 
1,425

Other
 
560

 
485

 
445

Total
 
4,575

 
3,910

 
3,965

Entergy Wholesale Commodities
 
115

 
45

 
20

Total
 

$4,690

 

$3,955

 

$3,985


The updated capital plan for 2019-2021 reflects incremental capital investments to improve reliability and enable new customer products and services. The capital plan includes specific investments such as the St. Charles Power Station, Lake Charles Power Station, Washington Parish Energy Center, Choctaw Generating Station, Sunflower Solar Facility, New Orleans Power Station, and Montgomery County Power Station; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential

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generation projects; system improvements; investments in Entergy’s nuclear fleet; software and security; and other investments.

St. Charles Power Station

As discussed in the Form 10-K, the LPSC issued an order in December 2016 approving certification that the public necessity and convenience would be served by the construction of the St. Charles Power Station. Commercial operation commenced in May 2019.

Choctaw Generating Station

In August 2018, Entergy Mississippi announced that it signed an asset purchase agreement to acquire from a subsidiary of GenOn Energy Inc. the Choctaw Generating Station, an 810 MW natural gas fired combined-cycle turbine plant located near French Camp, Mississippi.  The purchase price is expected to be approximately $314 million.  Entergy Mississippi also expects to invest in various plant upgrades at the facility after closing and expects the total cost of the acquisition to be approximately $401 million.  The purchase is contingent upon, among other things, obtaining necessary approvals, including full cost recovery, from applicable federal and state regulatory and permitting agencies.  These include regulatory approvals from the MPSC and the FERC. Clearance under the Hart-Scott-Rodino Antitrust Improvements Act has occurred.  In October 2018, Entergy Mississippi filed an application with the MPSC seeking approval of the acquisition and cost recovery. In a separate filing in October 2018, Entergy Mississippi proposed revisions to its formula rate plan that would provide for a mechanism, the interim capacity rate adjustment mechanism, in the formula rate plan to recover the non-fuel related costs of additional owned capacity acquired by Entergy Mississippi, including the non-fuel annual ownership costs of the Choctaw Generating Station, as well as to allow similar cost recovery treatment for other future capacity additions approved by the MPSC. Closing is expected to occur by the end of 2019. Due diligence performed on the plant indicates that there exist potential mechanical and regulatory compliance issues that must be addressed before closing. Progress is being made on these issues, but there remains a possibility that closing could be delayed beyond the fourth quarter 2019.

New Orleans Power Station

In June 2016, Entergy New Orleans filed an application with the City Council seeking a public interest determination and authorization to construct the New Orleans Power Station, a 226 MW advanced combustion turbine in New Orleans, Louisiana, at the site of the existing Michoud generating facility, which was retired effective May 31, 2016. In January 2017 several intervenors filed testimony opposing the construction of the New Orleans Power Station on various grounds. In July 2017, Entergy New Orleans submitted a supplemental and amending application to the City Council seeking approval to construct either the originally proposed 226 MW advanced combustion turbine, or alternatively, a 128 MW unit composed of natural gas-fired reciprocating engines and a related cost recovery plan. The cost estimate for the alternative 128 MW unit is $210 million. In addition, the application renewed the commitment to pursue up to 100 MW of renewable resources to serve New Orleans. In March 2018 the City Council adopted a resolution approving construction of the 128 MW unit. The targeted commercial operation date is mid-2020, subject to receipt of all necessary permits.

In April 2018 intervenors opposing the construction of the New Orleans Power Station filed with the City Council a request for rehearing, which was subsequently denied, and a petition for judicial review of the City Council’s decision, and also filed a lawsuit challenging the City Council’s approval based on Louisiana’s open meeting law. In May 2018 the City Council announced that it would initiate an investigation into allegations that Entergy New Orleans, Entergy, or some other entity paid or participated in paying certain attendees and speakers in support of the New Orleans Power Station to attend or speak at certain meetings organized by the City Council. In June 2018, Entergy New Orleans produced documents in response to a City Council resolution relating to this investigation. In October 2018 investigators for the City Council released their report, concluding that individuals were paid to attend and/or speak in support of the New Orleans Power Station and that Entergy New Orleans “knew or should have known that such conduct occurred or reasonably might occur.”  The City Council issued a resolution requiring Entergy New Orleans to show cause why

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it should not be fined $5 million as a result of the findings in the report. In November 2018, Entergy New Orleans submitted its response to the show cause resolution, disagreeing with certain characterizations and omissions of fact in the report and asserting that the City Council could not legally impose the proposed fine.  Simultaneous with the filing of its response to the show cause resolution, Entergy New Orleans sent a letter to the City Council re-asserting that the City Council’s imposition of the proposed fine would be unlawful, but acknowledging that the actions of a subcontractor, which was retained by an Entergy New Orleans contractor without the knowledge or contractually-required consent of Entergy New Orleans, were contrary to Entergy’s values.  In that letter, Entergy New Orleans offered to donate $5 million to the City Council to resolve the show cause proceeding.  In January 2019, Entergy New Orleans submitted a new settlement proposal to the City Council. The proposal retains the components of the first offer but adds to it a commitment to make reasonable efforts to limit the costs of the project to the $210 million cost estimate with advanced notification of anticipated cost overruns, additional reporting requirements for cost and environmental items, and a commitment regarding reliability investment and to work with the New Orleans Sewerage and Water Board to provide a reliable source of power. In February 2019 the City Council approved a resolution approving the settlement proposal and allowing the construction of the New Orleans Power Station to commence.

Also in February 2019, certain intervenors in the City Council proceeding on the New Orleans Power Station, filed suit in Louisiana state court challenging the Louisiana Department of Environmental Quality’s issuance of the New Orleans Power Station’s air permit. Entergy New Orleans intervened in that lawsuit and, along with the Louisiana Department of Environmental Quality, filed exceptions seeking dismissal of the lawsuit. In June 2019 the state court judge sustained the exceptions and dismissed the plaintiffs’ petition with prejudice. Also in June 2019, a state court judge in New Orleans affirmed the City Council’s approval of the New Orleans Power Station and dismissed the petition for judicial review that had been filed in April 2018. The petitioners have filed an appeal of that ruling. Also in June 2019, with regard to the lawsuit challenging the City Council’s decision on the basis of a violation of the open meetings law, the same state court judge in New Orleans ruled that there was a violation of the open meetings law at the February 2018 meeting of the City Council’s Utilities, Cable, Telecommunications and Technology Committee at which that Committee considered the New Orleans Power Station approval, and further ruled that, although there was no violation of the open meetings law at the March 2018 full City Council meeting at which the New Orleans Power Station was approved, both the approval of the Committee and the approval of the full City Council were void. The City Council filed a motion with the judge to take a suspensive appeal of that ruling, and in July 2019 the judge ruled in favor of the motion. This ruling suspends the effect of the judgment in the open meetings law proceeding while the appeal is being taken. The New Orleans Power Station related settlement that was approved by the full City Council in February 2019 and that allowed Entergy New Orleans to move forward with the construction of the New Orleans Power Station was not affected by the state court judge’s ruling. Construction of the plant is underway and continuing.

Searcy Solar Facility

               In March 2019, Entergy Arkansas announced that it signed an agreement for the purchase of an approximately 100 MW to-be-constructed solar energy facility that will be sited on approximately 800 acres in White County near Searcy, Arkansas.  The purchase is contingent upon, among other things, obtaining necessary approvals from applicable federal and state regulatory and permitting agencies.  The project will be constructed by a subsidiary of NextEra Energy Resources.  Entergy Arkansas will purchase the facility upon completion and after the other purchase contingencies have been met.   Closing is expected to occur by the end of 2021. In May 2019, Entergy Arkansas filed its petition with the APSC seeking a finding that the transaction is in the public interest and requesting all necessary approvals.

Dividends

Declarations of dividends on Entergy’s common stock are made at the discretion of the Board.  Among other things, the Board evaluates the level of Entergy’s common stock dividends based upon earnings per share from the Utility operating segment and the Parent and Other portion of the business, financial strength, and future investment opportunities.  At its July 2019 meeting, the Board declared a dividend of $0.91 per share, which is the same quarterly dividend per share that Entergy has paid since the third quarter 2018.


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Management's Financial Discussion and Analysis


Cash Flow Activity

As shown in Entergy’s Consolidated Statements of Cash Flows, cash flows for the six months ended June 30, 2019 and 2018 were as follows:
 
2019
 
2018
 
(In Millions)
Cash and cash equivalents at beginning of period

$481

 

$781

 
 
 
 
Cash flow provided by (used in):
 

 
 

Operating activities
1,053

 
1,080

Investing activities
(2,025
)
 
(1,929
)
Financing activities
1,127

 
881

Net increase in cash and cash equivalents
155

 
32

 
 
 
 
Cash and cash equivalents at end of period

$636

 

$813


Operating Activities

Net cash flow provided by operating activities decreased $27 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to:

•
the return of unprotected excess accumulated deferred income taxes to Utility customers. See Note 2 to the financial statements herein and in the Form 10-K for a discussion of the regulatory activity regarding the Tax Cuts and Jobs Act;
•
the effect of less favorable weather on billed Utility sales in 2019; and
•
$54 million in severance and retention payments paid in 2019. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” in the Form 10-K for a discussion of management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business.

The decrease was partially offset by:

•
an increase due to the timing of recovery of fuel and purchased power costs in 2019 as compared to the same period in 2018. See Note 2 to the financial statements herein and in the Form 10-K for a discussion of fuel and purchased power cost recovery; and
•
a decrease of $94 million in pension contributions in 2019 as compared to the same period in 2018. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.

Investing Activities

Net cash flow used in investing activities increased $96 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to an increase of $210 million in construction expenditures, primarily in the Utility business, as discussed below, partially offset by:

•
a decrease of $62 million in collateral posted to provide credit support to secure its obligations under agreements to sell power produced by Entergy Wholesale Commodities’ power plants; and

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•
a decrease of $36 million in nuclear fuel purchases due to variations from year to year in the timing and pricing of fuel reload requirements, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle.

The increase in construction expenditures in the Utility business is primarily due to:

•
an increase of $99 million in distribution construction expenditures primarily due to a higher scope of work performed in 2019 on various projects, including investment in the reliability and infrastructure of the Utility’s distribution system;
•
an increase of $98 million in transmission construction expenditures due to a higher scope of work performed in 2019 on various projects; and
•
an increase of $72 million in fossil-fueled generation construction expenditures primarily due to higher spending in 2019 on self-build projects in the Utility business.

The increase in construction expenditures was partially offset by:

•
a decrease of $20 million in nuclear construction expenditures primarily due to lower spending in 2019 on various nuclear projects; and
•
a decrease of $13 million in information technology capital expenditures primarily due to lower spending in 2019 on critical infrastructure protection.

Financing Activities

Net cash flow provided by financing activities increased $246 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to:

•
proceeds of $608 million from the issuance of common stock as a result of the settlement of the remaining equity forwards in May 2019. See Note 3 to the financial statements herein for discussion of the equity forward sale agreements;
•
long-term debt activity providing approximately $1,177 million of cash in 2019 compared to approximately $790 million in 2018;
•
net repayments of short-term borrowings of $72 million in 2018 by the nuclear fuel company variable interest entities; and
•
an increase of $54 million in treasury stock issuances in 2019 due to a larger amount of previously repurchased Entergy Corporation common stock issued in 2019 to satisfy stock option exercises.

The increase was partially offset by:

•
net repayments of $307 million of commercial paper in 2019 compared to net issuances of $478 million in 2018; and
•
the repurchase in first quarter 2019 of $50 million of Class A mandatorily redeemable preferred membership units in Entergy Holdings Company LLC, a wholly-owned Entergy subsidiary, that were held by a third party.

For the details of Entergy’s commercial paper program, the nuclear fuel company variable interest entities’ short-term borrowings, and long-term debt, see Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K.

Rate, Cost-recovery, and Other Regulation

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


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Management's Financial Discussion and Analysis


State and Local Rate Regulation and Fuel-Cost Recovery

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

Federal Regulation

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

Market and Credit Risk Sensitive Instruments

Commodity Price Risk

Power Generation

As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers.  Entergy Wholesale Commodities enters into forward contracts with its customers and also sells energy in the day ahead or spot markets.  Entergy Wholesale Commodities also sells unforced capacity, which allows load-serving entities to meet specified reserve and related requirements placed on them by the ISOs in their respective areas.  Entergy Wholesale Commodities’ forward physical power contracts consist of contracts to sell energy only, contracts to sell capacity only, and bundled contracts in which it sells both capacity and energy.  While the terminology and payment mechanics vary in these contracts, each of these types of contracts requires Entergy Wholesale Commodities to deliver MWh of energy, make capacity available, or both. In addition to its forward physical power contracts, Entergy Wholesale Commodities may also use a combination of financial contracts, including swaps, collars, and options, to manage forward commodity price risk. The sensitivities may not reflect the total maximum upside potential from higher market prices. The information contained in the following table represents projections at a point in time and will vary over time based on numerous factors, such as future market prices, contracting activities, and generation. Following is a summary of Entergy Wholesale Commodities’ current forward capacity and generation contracts as well as total revenue projections based on market prices as of June 30, 2019 (2019 represents the remainder of the year):


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Entergy Wholesale Commodities Nuclear Portfolio
 
 
2019
 
2020
 
2021
 
2022
Energy
 
 
 
 
 
 
 
 
Percent of planned generation under contract (a):
 
 
 
 
 
 
 
 
Unit-contingent (b)
 
98%
 
97%
 
91%
 
66%
Planned generation (TWh) (c) (d)
 
12.1
 
17.7
 
9.6
 
2.8
Average revenue per MWh on contracted volumes:
 
 
 
 
 
 
 
 
Expected based on market prices as of June 30, 2019
 
$36.1
 
$41.7
 
$56.9
 
$58.8
 
 
 
 
 
 
 
 
 
Capacity
 
 
 
 
 
 
 
 
Percent of capacity sold forward (e):
 
 
 
 
 
 
 
 
Bundled capacity and energy contracts (f)
 
28%
 
37%
 
68%
 
97%
Capacity contracts (g)
 
45%
 
27%
 
—%
 
—%
Total
 
73%
 
64%
 
68%
 
97%
Planned net MW in operation (average) (d)
 
3,167
 
2,195
 
1,158
 
338
Average revenue under contract per kW per month (applies to capacity contracts only)
 
$4.1
 
$3.2
 
$—
 
$—
 
 
 
 
 
 
 
 
 
Total Energy and Capacity Revenues (h)
 
 
 
 
 
 
 
 
Expected sold and market total revenue per MWh
 
$39.4
 
$45.1
 
$54.7
 
$46.6
Sensitivity: -/+ $10 per MWh market price change
 
$39.2-$39.6
 
$45.0-$45.2
 
$53.8-$55.5
 
$43.1-$50.0

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

Entergy estimates that a positive $10 per MWh change in the annual average energy price in the markets in which the Entergy Wholesale Commodities nuclear business sells power, based on June 30, 2019 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax income of $3 million

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Management's Financial Discussion and Analysis


for the remainder of 2019. As of June 30, 2018, a positive $10 per MW change would have had a corresponding effect on pre-tax income of $34 thousand for the remainder of 2018. A negative $10 per MWh change in the annual average energy price in the markets based on June 30, 2019 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax income of ($3) million for the remainder of 2019. As of June 30, 2018, a negative $10 per MW change would have had a corresponding effect on pre-tax income of ($34) thousand for the remainder of 2018.

Some of the agreements to sell the power produced by Entergy Wholesale Commodities’ power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations under the agreements. The Entergy subsidiary is required to provide credit support based upon the difference between the current market prices and contracted power prices in the regions where Entergy Wholesale Commodities sells power. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee.  Cash and letters of credit are also acceptable forms of credit support. At June 30, 2019, based on power prices at that time, Entergy had liquidity exposure of $75 million under the guarantees in place supporting Entergy Wholesale Commodities transactions and $21 million of posted cash collateral. In the event of a decrease in Entergy Corporation’s credit rating to below investment grade, based on power prices as of June 30, 2019, Entergy would have been required to provide approximately $30 million of additional cash or letters of credit under some of the agreements. As of June 30, 2019, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by $169 million for a $1 per MMBtu increase in gas prices in both the short- and long-term markets.

As of June 30, 2019, substantially all of the credit exposure associated with the planned energy output under contract for Entergy Wholesale Commodities nuclear plants through 2022 is with counterparties or their guarantors that have public investment grade credit ratings.

Nuclear Matters

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

Pilgrim

In March 2019 the NRC moved Pilgrim from its “multiple/repetitive degraded cornerstone column,” or Column 4, of its Reactor Oversight Process Action Matrix to its “licensee response column,” or Column 1. Pilgrim ceased operations in May 2019.

Critical Accounting Estimates

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

New Accounting Pronouncements

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



20

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
2019
 
2018
 
2019
 
2018
 
(In Thousands, Except Share Data)
OPERATING REVENUES
 
 
 
 
 
 
 
Electric

$2,345,727

 

$2,330,225

 

$4,466,751

 

$4,578,486

Natural gas
30,699

 
29,943

 
85,647

 
86,638

Competitive businesses
289,783

 
308,602

 
723,394

 
727,526

TOTAL
2,666,209

 
2,668,770

 
5,275,792

 
5,392,650

 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
Operation and Maintenance:
 
 
 
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
467,323

 
465,802

 
945,653

 
909,098

Purchased power
345,861

 
417,034

 
685,368

 
813,058

Nuclear refueling outage expenses
50,962

 
35,360

 
101,403

 
78,120

Other operation and maintenance
841,870

 
840,103

 
1,624,921

 
1,623,687

Asset write-offs, impairments, and related charges
16,419

 
68,943

 
90,397

 
141,867

Decommissioning
104,627

 
97,605

 
206,746

 
192,005

Taxes other than income taxes
163,408

 
158,547

 
321,983

 
323,765

Depreciation and amortization
363,496

 
350,485

 
720,770

 
697,471

Other regulatory charges (credits)
(26,532
)
 
143,294

 
(43,478
)
 
186,319

TOTAL
2,327,434

 
2,577,173

 
4,653,763

 
4,965,390

 
 
 
 
 
 
 
 
OPERATING INCOME
338,775

 
91,597

 
622,029

 
427,260

 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
Allowance for equity funds used during construction
37,169

 
31,670

 
75,385

 
60,014

Interest and investment income
96,218

 
71,134

 
324,367

 
88,005

Miscellaneous - net
(45,870
)
 
(48,491
)
 
(110,527
)
 
(79,849
)
TOTAL
87,517

 
54,313

 
289,225

 
68,170

 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
Interest expense
201,112

 
192,314

 
402,105

 
375,237

Allowance for borrowed funds used during construction
(16,811
)
 
(14,668
)
 
(34,260
)
 
(27,933
)
TOTAL
184,301

 
177,646

 
367,845

 
347,304

 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
241,991

 
(31,736
)
 
543,409

 
148,126

 
 
 
 
 
 
 
 
Income taxes
1,458

 
(280,596
)
 
44,229

 
(236,933
)
 
 
 
 
 
 
 
 
CONSOLIDATED NET INCOME
240,533

 
248,860

 
499,180

 
385,059

 
 
 
 
 
 
 
 
Preferred dividend requirements of subsidiaries
4,109

 
3,439

 
8,219

 
6,878

 
 
 
 
 
 
 
 
NET INCOME ATTRIBUTABLE TO ENTERGY CORPORATION

$236,424

 

$245,421

 

$490,961

 

$378,181

 
 
 
 
 
 
 
 
Earnings per average common share:
 
 
 
 
 
 
 
Basic

$1.22

 

$1.36

 

$2.57

 

$2.09

Diluted

$1.22

 

$1.34

 

$2.54

 

$2.08

 
 
 
 
 
 
 
 
Basic average number of common shares outstanding
193,019,269

 
180,823,203

 
191,306,742

 
180,765,708

Diluted average number of common shares outstanding
194,238,315

 
182,982,630

 
193,243,287

 
182,208,328

 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 



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ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
2019
 
2018
 
2019
 
2018
 
(In Thousands)
 
 
 
 
 
 
 
 
Net Income

$240,533

 

$248,860

 

$499,180

 

$385,059


 
 
 
 
 
 
 
Other comprehensive income (loss)
 
 
 
 
 
 
 
Cash flow hedges net unrealized gain (loss) (net of tax expense (benefit) of $25,242, ($17,312), $19,890, and $8,037)
94,982

 
(65,068
)
 
82,556

 
30,359

Pension and other postretirement liabilities (net of tax expense of $3,077, $4,225, $6,326, and $8,793)
11,496

 
15,565

 
23,046

 
32,139

Net unrealized investment gain (loss) (net of tax expense (benefit) of $8,096, ($2,842), $16,169, and $2,533)
14,270

 
(2,641
)
 
27,973

 
(35,497
)
Other comprehensive income (loss)
120,748

 
(52,144
)
 
133,575

 
27,001


 
 
 
 
 
 
 
Comprehensive Income
361,281

 
196,716

 
632,755

 
412,060

Preferred dividend requirements of subsidiaries
4,109

 
3,439

 
8,219

 
6,878

Comprehensive Income Attributable to Entergy Corporation

$357,172

 

$193,277

 

$624,536

 

$405,182

 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 

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ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Consolidated net income
 

$499,180

 

$385,059

Adjustments to reconcile consolidated net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation, amortization, and decommissioning, including nuclear fuel amortization
 
1,068,807

 
1,027,609

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
225,749

 
88,732

Asset write-offs, impairments, and related charges
 
26,684

 
51,503

Changes in working capital:
 
 
 
 
Receivables
 
(127,259
)
 
(45,515
)
Fuel inventory
 
(13,346
)
 
8,512

Accounts payable
 
(18,832
)
 
97,464

Taxes accrued
 
(38,186
)
 
(8,092
)
Interest accrued
 
(144
)
 
(2,056
)
Deferred fuel costs
 
31,796

 
(132,263
)
Other working capital accounts
 
(51,782
)
 
(134,982
)
Changes in provisions for estimated losses
 
4,719

 
27,443

Changes in other regulatory assets
 
(135,936
)
 
106,712

Changes in other regulatory liabilities
 
107,882

 
(247,239
)
Changes in pensions and other postretirement liabilities
 
(66,033
)
 
(181,278
)
Other
 
(460,209
)
 
38,314

Net cash flow provided by operating activities
 
1,053,090

 
1,079,923

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction/capital expenditures
 
(2,095,520
)
 
(1,885,419
)
Allowance for equity funds used during construction
 
75,607

 
60,335

Nuclear fuel purchases
 
(54,523
)
 
(90,321
)
Proceeds from sale of assets
 
19,801

 
9,163

Insurance proceeds received for property damages
 
7,040

 
10,523

Changes in securitization account
 
12,034

 
4,754

Payments to storm reserve escrow account
 
(4,623
)
 
(2,744
)
Decrease (increase) in other investments
 
51,073

 
(10,769
)
Proceeds from nuclear decommissioning trust fund sales
 
2,487,915

 
1,801,170

Investment in nuclear decommissioning trust funds
 
(2,523,805
)
 
(1,826,384
)
Net cash flow used in investing activities
 
(2,025,001
)
 
(1,929,692
)
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

24

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of:
 
 
 
 
Long-term debt
 
5,391,547

 
3,359,193

Treasury stock
 
57,797

 
3,691

Common stock
 
607,650

 
—

Retirement of long-term debt
 
(4,214,495
)
 
(2,569,131
)
Repurchase of preferred membership units
 
(50,000
)
 
—

Changes in credit borrowings and commercial paper - net
 
(306,877
)
 
405,795

Other
 
(5,106
)
 
10,434

Dividends paid:
 
 
 
 
Common stock
 
(345,452
)
 
(321,821
)
Preferred stock
 
(8,219
)
 
(6,878
)
Net cash flow provided by financing activities
 
1,126,845

 
881,283


 
 
 
 
Net increase in cash and cash equivalents
 
154,934

 
31,514


 
 
 
 
Cash and cash equivalents at beginning of period
 
480,975

 
781,273


 
 
 
 
Cash and cash equivalents at end of period
 

$635,909

 

$812,787

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

$388,566

 

$362,629

Income taxes
 

($6,967
)
 

$14,145

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


25

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 2019 and December 31, 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash
 

$61,200

 

$56,690

Temporary cash investments
 
574,709

 
424,285

Total cash and cash equivalents
 
635,909

 
480,975

Accounts receivable:
 
 
 
 
Customer
 
653,027

 
558,494

Allowance for doubtful accounts
 
(6,965
)
 
(7,322
)
Other
 
130,483

 
167,722

Accrued unbilled revenues
 
458,079

 
395,511

Total accounts receivable
 
1,234,624

 
1,114,405

Deferred fuel costs
 
8,685

 
27,251

Fuel inventory - at average cost
 
130,650

 
117,304

Materials and supplies - at average cost
 
787,068

 
752,843

Deferred nuclear refueling outage costs
 
219,269

 
230,960

Prepayments and other
 
267,303

 
234,326

TOTAL
 
3,283,508

 
2,958,064

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 
 
 
Decommissioning trust funds
 
7,069,264

 
6,920,164

Non-utility property - at cost (less accumulated depreciation)
 
324,366

 
304,382

Other
 
443,639

 
437,265

TOTAL
 
7,837,269

 
7,661,811

 
 
 
 
 
PROPERTY, PLANT, AND EQUIPMENT
 
 
 
 
Electric
 
52,015,373

 
49,831,486

Natural gas
 
517,044

 
496,150

Construction work in progress
 
2,678,681

 
2,888,639

Nuclear fuel
 
756,551

 
861,272

TOTAL PROPERTY, PLANT, AND EQUIPMENT
 
55,967,649

 
54,077,547

Less - accumulated depreciation and amortization
 
22,422,914

 
22,103,101

PROPERTY, PLANT, AND EQUIPMENT - NET
 
33,544,735

 
31,974,446

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 
 
 
Regulatory assets:
 
 
 
 
Other regulatory assets (includes securitization property of $306,864 as of June 30, 2019 and $360,790 as of December 31, 2018)
 
4,882,432

 
4,746,496

Deferred fuel costs
 
239,694

 
239,496

Goodwill
 
377,172

 
377,172

Accumulated deferred income taxes
 
67,880

 
54,593

Other
 
333,055

 
262,988

TOTAL
 
5,900,233

 
5,680,745

 
 
 
 
 
TOTAL ASSETS
 

$50,565,745

 

$48,275,066

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

26

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
June 30, 2019 and December 31, 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Currently maturing long-term debt
 

$150,010

 

$650,009

Notes payable and commercial paper
 
1,635,462

 
1,942,339

Accounts payable
 
1,412,607

 
1,496,058

Customer deposits
 
409,531

 
411,505

Taxes accrued
 
216,055

 
254,241

Interest accrued
 
193,047

 
193,192

Deferred fuel costs
 
65,823

 
52,396

Pension and other postretirement liabilities
 
55,054

 
61,240

Current portion of unprotected excess accumulated deferred income taxes
 
189,273

 
248,127

Other
 
195,746

 
134,437

TOTAL
 
4,522,608

 
5,443,544

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
4,391,250

 
4,107,152

Accumulated deferred investment tax credits
 
208,925

 
213,101

Regulatory liability for income taxes-net
 
1,726,770

 
1,817,021

Other regulatory liabilities
 
1,877,241

 
1,620,254

Decommissioning and asset retirement cost liabilities
 
6,788,363

 
6,355,543

Accumulated provisions
 
518,721

 
514,107

Pension and other postretirement liabilities
 
2,556,238

 
2,616,085

Long-term debt (includes securitization bonds of $359,938 as of June 30, 2019 and $423,858 as of December 31, 2018)
 
17,204,288

 
15,518,303

Other
 
754,411

 
1,006,249

TOTAL
 
36,026,207

 
33,767,815

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
Subsidiaries' preferred stock without sinking fund
 
219,427

 
219,402

 
 
 
 
 
COMMON EQUITY
 
 
 
 
Common stock, $.01 par value, authorized 500,000,000 shares; issued 270,035,180 shares in 2019 and 261,587,009 shares in 2018
 
2,700

 
2,616

Paid-in capital
 
6,539,533

 
5,951,431

Retained earnings
 
8,873,465

 
8,721,150

Accumulated other comprehensive loss
 
(430,404
)
 
(557,173
)
Less - treasury stock, at cost (71,349,066 shares in 2019 and 72,530,866 shares in 2018)
 
5,187,791

 
5,273,719

TOTAL
 
9,797,503

 
8,844,305

 
 
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 

$50,565,745

 

$48,275,066

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


27

ENTERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
 



Common Shareholders’ Equity


 
Subsidiaries’ Preferred Stock
 
Common
Stock
 
Treasury
Stock
 
Paid-in
Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total
 
(In Thousands)
Balance at December 31, 2017

$—

 

$2,548

 

($5,397,637
)
 

$5,433,433

 

$7,977,702

 

($23,531
)
 

$7,992,515

Implementation of accounting standards
—

 
—

 
—

 
—

 
576,257

 
(632,617
)
 
(56,360
)
Balance at January 1, 2018

$—

 

$2,548

 

($5,397,637
)
 

$5,433,433

 

$8,553,959

 

($656,148
)
 

$7,936,155

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated net income
6,878

 
—

 
—

 
—

 
378,181

 
—

 
385,059

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
27,001

 
27,001

Common stock issuances related to stock plans
—

 
—

 
23,512

 
(4,029
)
 
—

 
—

 
19,483

Common stock dividends declared
—

 
—

 
—

 
—

 
(321,821
)
 
—

 
(321,821
)
Preferred dividend requirements of subsidiaries
(6,878
)
 
—

 
—

 
—

 
—

 
—

 
(6,878
)
Reclassification pursuant to ASU 2018-02
—

 
—

 
—

 
—

 
(32,043
)
 
15,505

 
(16,538
)
Balance at June 30, 2018

$—

 

$2,548

 

($5,374,125
)
 

$5,429,404

 

$8,578,276

 

($613,642
)
 

$8,022,461

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018

$—

 

$2,616

 

($5,273,719
)
 

$5,951,431

 

$8,721,150

 

($557,173
)
 

$8,844,305

Implementation of accounting standards
—

 
—

 
—

 
—

 
6,806

 
(6,806
)
 
—

Balance at January 1, 2019

$—

 

$2,616

 

($5,273,719
)
 

$5,951,431

 

$8,727,956

 

($563,979
)
 

$8,844,305

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated net income
8,219

 
—

 
—

 
—

 
490,961

 
—

 
499,180

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
133,575

 
133,575

Settlement of equity forwards through common stock issuance
—

 
84

 
—

 
607,566

 
—

 
—

 
607,650

Common stock issuance costs
—

 
—

 
—

 
(7
)
 
—

 
—

 
(7
)
Common stock issuances related to stock plans
—

 
—

 
85,928

 
(19,457
)
 
—

 
—

 
66,471

Common stock dividends declared
—

 
—

 
—

 
—

 
(345,452
)
 
—

 
(345,452
)
Preferred dividend requirements of subsidiaries
(8,219
)
 
—

 
—

 
—

 
—

 
—

 
(8,219
)
Balance at June 30, 2019

$—

 

$2,700

 

($5,187,791
)
 

$6,539,533

 

$8,873,465

 

($430,404
)
 

$9,797,503

 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 


28

ENTERGY CORPORATION AND SUBSIDIARIES
SELECTED OPERATING RESULTS
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Increase/
 
 

 
2019
 
2018
 
(Decrease)
 
%

 
(Dollars in Millions)
 
 
Utility electric operating revenues:
 
 
 
 
 
 
 
 
Residential
 

$770

 

$769

 

$1

 
—

Commercial
 
595

 
582

 
13

 
2

Industrial
 
642

 
625

 
17

 
3

Governmental
 
58

 
57

 
1

 
2

Total billed retail
 
2,065

 
2,033

 
32

 
2

Sales for resale
 
75

 
69

 
6

 
9

Other
 
206

 
228

 
(22
)
 
(10
)
Total
 

$2,346

 

$2,330

 

$16

 
1


 
 
 
 
 
 
 
 
Utility billed electric energy sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
7,652

 
7,749

 
(97
)
 
(1
)
Commercial
 
6,841

 
6,943

 
(102
)
 
(1
)
Industrial
 
11,965

 
12,219

 
(254
)
 
(2
)
Governmental
 
626

 
612

 
14

 
2

Total retail
 
27,084

 
27,523

 
(439
)
 
(2
)
Sales for resale
 
3,170

 
2,566

 
604

 
24

Total
 
30,254

 
30,089

 
165

 
1


 
 
 
 
 
 
 
 
Entergy Wholesale Commodities:
 
 
 
 
 
 
 
 
Operating revenues
 

$290

 

$309

 

($19
)
 
(6
)
Billed electric energy sales (GWh)
 
7,258

 
7,281

 
(23
)
 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
 
Increase/
 
 

 
2019
 
2018
 
(Decrease)
 
%

 
(Dollars in Millions)
 
 
Utility electric operating revenues:
 
 
 
 
 
 
 
 
Residential
 

$1,573

 

$1,661

 

($88
)
 
(5
)
Commercial
 
1,149

 
1,178

 
(29
)
 
(2
)
Industrial
 
1,243

 
1,222

 
21

 
2

Governmental
 
111

 
113

 
(2
)
 
(2
)
Total billed retail
 
4,076

 
4,174

 
(98
)
 
(2
)
Sales for resale
 
160

 
139

 
21

 
15

Other
 
231

 
265

 
(34
)
 
(13
)
Total
 

$4,467

 

$4,578

 

($111
)
 
(2
)

 
 
 
 
 
 
 
 
Utility billed electric energy sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
16,123

 
17,036

 
(913
)
 
(5
)
Commercial
 
13,264

 
13,675

 
(411
)
 
(3
)
Industrial
 
23,648

 
23,624

 
24

 
—

Governmental
 
1,227

 
1,220

 
7

 
1

Total retail
 
54,262

 
55,555

 
(1,293
)
 
(2
)
Sales for resale
 
6,984

 
5,810

 
1,174

 
20

Total
 
61,246

 
61,365

 
(119
)
 
—


 
 
 
 
 
 
 
 
Entergy Wholesale Commodities:
 
 
 
 
 
 
 
 
Operating revenues
 

$723

 

$728

 

($5
)
 
(1
)
Billed electric energy sales (GWh)
 
14,461

 
14,277

 
184

 
1



29

ENTERGY CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

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

Vidalia Purchased Power Agreement

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

ANO Damage, Outage, and NRC Reviews

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

Pilgrim NRC Oversight and Shutdown

See Note 8 to the financial statements in the Form 10-K for a discussion of the NRC’s enhanced inspections of Pilgrim and Entergy’s shutdown of Pilgrim. In March 2019 the NRC moved Pilgrim from its “multiple/repetitive degraded cornerstone column,” or Column 4, of its Reactor Oversight Process Action Matrix to its “licensee response column,” or Column 1. Pilgrim ceased operations in May 2019.

Spent Nuclear Fuel Litigation

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

Nuclear Insurance

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

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

Employment and Labor-related Proceedings

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


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Notes to Financial Statements

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. The following is an update to that discussion.

Capital Funds Agreement (Entergy Corporation and System Energy)

Pursuant to the terms of the Capital Funds Agreement, Entergy Corporation had agreed to supply System Energy with sufficient capital to (i) maintain System Energy’s equity capital at an amount equal to a minimum of 35% of its total capitalization (excluding short-term debt), (ii) permit the continued commercial operation of Grand Gulf, and (iii) pay in full when due all indebtedness for borrowed money of System Energy. Effective July 19, 2019, the Capital Funds Agreement was terminated.


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

Regulatory Assets and Regulatory Liabilities

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

Regulatory activity regarding the Tax Cuts and Jobs Act

System Energy

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

Fuel and purchased power cost recovery

Entergy Arkansas

Production Cost Allocation Rider

In May 2019, Entergy Arkansas filed its annual redetermination pursuant to the production cost allocation rider, which reflected a credit to customers for the recovery of the true-up adjustment resulting from the 2018 over-recovered retail balance of $0.1 million and the recovery of a $4.2 million payment to Entergy Arkansas as a result of the FERC’s May 2018 decision in the 2005 bandwidth proceeding, in which the FERC directed a compliance filing to be made that consisted of the comprehensive recalculation of the bandwidth formula rate with true-up payments and

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Notes to Financial Statements

receipts based on test period data for June 1, 2005 through December 31, 2005. The rates for the 2019 production cost allocation rider update are effective July 2019 through June 2020.

Energy Cost Recovery Rider

In March 2019, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected a decrease from $0.01882 per kWh to $0.01462 per kWh and became effective with the first billing cycle in April 2019. In March 2019 the Arkansas Attorney General filed a response to Entergy Arkansas’s annual adjustment and included with its filing a motion for investigation of alleged overcharges to customers in connection with the FERC’s October 2018 order in the opportunity sales proceeding. Entergy Arkansas filed its response to the Attorney General’s motion in April 2019 in which Entergy Arkansas stated its intent to initiate a proceeding to address recovery issues related to the October 2018 FERC order. In May 2019, Entergy Arkansas initiated the opportunity sales recovery proceeding, discussed below, and requested that the APSC establish that proceeding as the single designated proceeding in which interested parties may assert claims related to the appropriate retail rate treatment of the FERC October 2018 order and related FERC orders in the opportunity sales proceeding. In June 2019 the APSC granted Entergy Arkansas’s request and also denied the Attorney General’s motion in the energy cost recovery proceeding seeking an investigation into Entergy Arkansas’s annual energy cost recovery rider adjustment and referred the evaluation of such matters to the opportunity sales recovery proceeding.

Entergy Louisiana

In July 2014 the LPSC authorized its staff to initiate an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed by Entergy Louisiana through its fuel adjustment clause for the period from 2010 through 2013. In January 2019 the LPSC staff issued its audit report recommending that Entergy Louisiana refund approximately $7.3 million, plus interest, to customers based upon the imputation of a claim of vendor fault in servicing its nuclear plant. Entergy Louisiana recorded a provision in the first quarter 2019 for the potential outcome of the audit. A procedural schedule has been set to address the report and contested issues, with a hearing scheduled in November 2019.

Entergy Mississippi

Mississippi Attorney General Complaint

As discussed in the Form 10-K, the Mississippi Attorney General filed a complaint in state court in December 2008 against Entergy Corporation, Entergy Mississippi, Entergy Services, and Entergy Power alleging, among other things, violations of Mississippi statutes, fraud, and breach of good faith and fair dealing, and requesting an accounting and restitution. The defendants have denied the allegations. In December 2008 the Attorney General’s lawsuit was removed to U.S. District Court in Jackson, Mississippi. Pre-trial and settlement conferences were held in October 2018. In October 2018 the District Court rescheduled the trial to April 2019. In April 2019 the District Court remanded the Attorney General’s lawsuit to the Hinds County Chancery Court in Jackson, Mississippi. A hearing on procedural and dispositive motions is scheduled for August 2019.

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.


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Notes to Financial Statements

Filings with the APSC (Entergy Arkansas)

Retail Rates

2019 Formula Rate Plan Filing

In July 2019, Entergy Arkansas filed with the APSC its 2019 formula rate plan filing to set its formula rate for the 2020 calendar year. The filing contained an evaluation of Entergy Arkansas’s earnings for the projected year 2020 and a netting adjustment for the historical year 2018.  The total proposed formula rate plan rider revenue change designed to produce a target rate of return on common equity of 9.75% is $15.3 million, which is based upon a deficiency of approximately $61.9 million for the 2020 projected year, netted with a credit of approximately $46.6 million in the 2018 historical year netting adjustment. During 2018 Entergy Arkansas experienced higher-than expected sales volume, and actual costs were lower than forecasted.  These changes, coupled with a reduced income tax rate resulting from the Tax Cuts and Jobs Act, resulted in the credit for the historical year netting adjustment. In the fourth quarter 2018 Entergy Arkansas recorded a provision of $35.1 million that reflected the estimate of the historical year netting adjustment that was expected to be included in the 2019 filing. In 2019, Entergy Arkansas recorded additional provisions totaling $11.5 million to reflect the updated estimate of the historical year netting adjustment included in the 2019 filing.   The proposed new formula rates would go into effect in January 2020.

Filings with the LPSC (Entergy Louisiana)

Retail Rates - Electric

2017 Formula Rate Plan Filing

In May 2019, Entergy Louisiana filed an update to its 2017 formula rate plan evaluation report to include the estimated first-year revenue requirement of $109.5 million associated with the St. Charles Power Station. Commercial operation at St. Charles Power Station commenced in May 2019. The resulting interim adjustment to rates became effective with the first billing cycle of June 2019.

2018 Formula Rate Plan Filing

In May 2019, Entergy Louisiana filed its formula rate plan evaluation report for its 2018 calendar year operations. The 2018 test year evaluation report produced an earned return on common equity of 10.61% leading to a base rider formula rate plan revenue decrease of $8.9 million. While base rider formula rate plan revenue will decrease as a result of this filing, overall formula rate plan revenues will increase by approximately $118.7 million. This outcome is primarily driven by a reduction to the credits previously flowed through the tax reform adjustment mechanism and an increase in the transmission recovery mechanism, partially offset by reductions in the additional capacity mechanism revenue requirements and extraordinary cost items. The filing is subject to review by the LPSC with resulting rates to be implemented in September 2019, subject to refund if there are contested issues.

Entergy Louisiana also included in its filing a presentation of an initial proposal to combine the legacy Entergy Louisiana and legacy Entergy Gulf States Louisiana residential rates, which combination, if approved, would be accomplished on a revenue-neutral basis intended not to affect the rates of other customer classes. Entergy Louisiana contemplates that any combination of residential rates resulting from this request would be implemented with the results of the 2019 test year formula rate plan filing.

Investigation of Costs Billed by Entergy Services

In November 2018 the LPSC issued a notice of proceeding initiating an investigation into costs incurred by Entergy Services that are included in the retail rates of Entergy Louisiana. As noted in the notice of proceeding, the LPSC observed an increase in capital construction-related costs that have been incurred by Entergy Services. Discovery

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Notes to Financial Statements

is ongoing and has included efforts to seek highly detailed information on a broad range of matters unrelated to the scope of the audit.

Retail Rates - Gas

2018 Rate Stabilization Plan Filing

As discussed in the Form 10-K, in January 2019, Entergy Louisiana filed with the LPSC its gas rate stabilization for the test year ended September 30, 2018. Entergy Louisiana made a compliance filing in April 2019 and rates were implemented during the first billing cycle of May 2019, subject to refund and final LPSC review.

Filings with the MPSC (Entergy Mississippi)

Formula Rate Plan

In March 2019, Entergy Mississippi submitted its formula rate plan 2019 test year filing and 2018 look-back filing showing Entergy Mississippi’s earned return for the historical 2018 calendar year to be above the formula rate plan bandwidth and projected earned return for the 2019 calendar year to be below the formula rate plan bandwidth. The 2019 test year filing shows a $36.8 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.94% return on rate base, within the formula rate plan bandwidth. The 2018 look-back filing compares actual 2018 results to the approved benchmark return on rate base and shows a $10.1 million interim decrease in formula rate plan revenues is necessary. In the fourth quarter 2018, Entergy Mississippi recorded a provision of $9.3 million that reflected the estimate of the difference between the 2018 expected earned rate of return on rate base and an established performance-adjusted benchmark rate of return under the formula rate plan performance-adjusted bandwidth mechanism. In the first quarter 2019, Entergy Mississippi recorded a $0.8 million increase in the provision to reflect the amount shown in the look-back filing. In June 2019, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a joint stipulation that confirmed that the 2019 test year filing showed that a $32.8 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.93% return on rate base, within the formula rate plan bandwidth. Additionally, pursuant to the joint stipulation, Entergy Mississippi’s 2018 look-back filing reflected an earned return on rate base of 7.81% in calendar year 2018 which is above the look-back benchmark return on rate base of 7.13%, resulting in an $11 million decrease in formula rate plan revenues on an interim basis through June 2020. In the second quarter 2019, Entergy Mississippi recorded an additional $0.9 million increase in the provision to reflect the $11 million shown in the look-back filing. In June 2019 the MPSC approved the joint stipulation with rates effective for the first billing cycle of July 2019.

Filings with the City Council (Entergy New Orleans)

Retail Rates

See the Form 10-K for discussion of the electric and gas base rate case filed by Entergy New Orleans in September 2018. The evidentiary hearing in this proceeding was held in June 2019. The record and post-hearing briefs were submitted in July 2019, with a City Council decision on the matter expected by October 2019.

In August 2019, Entergy New Orleans sent a letter to the City Council proposing a framework for settlement of the rate case.  That framework includes, among other things: (1) a total reduction in revenues of approximately $30 million ($27 million electric, $3 million gas); (2) a reduced return on common equity lower than 10.5%, but still commensurate with Entergy New Orleans’s level of risk, paired with three-year electric and gas formula rate plans with forward-looking features; (3) a demand-side management program intended to achieve greater penetration of the City Council’s Energy Smart programs and make progress towards the City Council’s energy efficiency goals. The letter also sets out proposed next steps to achieve a resolution of the proceeding.


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Filings with the PUCT (Entergy Texas)

Base Rate Case

In January 2019, Entergy Texas filed for recovery of rate case expenses totaling $7.2 million. The amounts requested primarily include internal and external expenses related to litigating the 2018 base rate case. Parties filed testimony in April 2019 recommending a disallowance ranging from $3.2 million to $4.2 million of the $7.2 million requested. In May 2019, Entergy Texas filed rebuttal testimony responding to the parties’ positions. A hearing is scheduled for September 2019.

Other Filings

In March 2019, Entergy Texas filed with the PUCT a request to set a new distribution cost recovery factor (DCRF) rider. The proposed new DCRF rider is designed to collect approximately $3.2 million annually from Entergy Texas’s retail customers based on its capital invested in distribution between January 1, 2018 and December 31, 2018. In June 2019 the ALJ issued an order approving interim rates effective June 2019 at the level proposed in Entergy Texas’s application. The proceeding has been returned to the PUCT for approval of the settlement agreement filed in the proceeding, at which point the interim rates would become permanent.

In December 2018, Entergy Texas filed with the PUCT a request to set a new transmission cost recovery factor (TCRF) rider. The proposed new TCRF rider is designed to collect approximately $2.7 million annually from Entergy Texas’s retail customers based on its capital invested in transmission between January 1, 2018 and September 30, 2018. In April 2019 parties filed testimony proposing a load growth adjustment, which would have fully offset Entergy Texas’s proposed TCRF revenue requirement. In July 2019 the PUCT granted Entergy Texas’s application as filed to begin recovery of the requested $2.7 million annual revenue requirement, rejecting opposing parties’ proposed adjustment; however, the PUCT found that the question of prudence of the actual investment costs should be determined in Entergy Texas’s next rate case similar to the procedure used for the costs recovered through the DCRF rider. 
 
System Agreement Cost Equalization Proceedings

As discussed in the Form 10-K, the hearing on the bandwidth calculation for the seven months June 1, 2005 through December 31, 2005 occurred in July 2016. The presiding judge issued an initial decision in November 2016. In the initial decision, the presiding judge agreed with the Utility operating companies’ position that: (1) interest on the bandwidth payments for the 2005 test period should be accrued from June 1, 2006 until the date that the bandwidth payments for that calculation are paid, which is consistent with how the Utility operating companies performed the calculation; and (2) a portion of Entergy Louisiana’s 2001-vintage Louisiana state net operating loss accumulated deferred income tax that results from the Vidalia tax deduction should be excluded from the 2005 test period bandwidth calculation. Various participants filed briefs on exceptions and/or briefs opposing exceptions related to the initial decision, including the LPSC, the APSC, the FERC trial staff, and Entergy Services. In May 2018 the FERC issued an order affirming the initial decision and ordered a comprehensive recalculation of the bandwidth payments/receipts for the seven months June 1, 2005 through December 31, 2005 and a recalculation of the 2006 and 2007 test years as a result of limited revisions. Entergy filed the comprehensive recalculation of the bandwidth payments/receipts for the seven months June 1, 2005 through December 31, 2005 and the 2006 and 2007 test years in July 2018. The filing shows the additional following payments and receipts among the Utility operating companies:

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Notes to Financial Statements

 
Payments (Receipts)
 
(In Millions)
Entergy Arkansas
($4)
Entergy Louisiana
($23)
Entergy Mississippi
$16
Entergy New Orleans
$5
Entergy Texas
$6


These payments were made in July 2018. In January 2019 the FERC denied the LPSC’s request for rehearing of the May 2018 order. In May 2019 the FERC accepted the July 2018 compliance filing, and the LPSC sought rehearing of that decision in June 2019.

Rough Production Cost Equalization

2010 Rate Filing Based on Calendar Year 2009 Production Costs

In May 2010, Entergy filed with the FERC the 2010 rates in accordance with the FERC’s orders in the System Agreement proceeding, and supplemented the filing in September 2010.  Several parties intervened in the proceeding at the FERC, including the LPSC and the City Council, which also filed protests.  In July 2010 the FERC accepted Entergy’s proposed rates for filing, effective June 1, 2010, subject to refund.  After an abeyance of the proceeding schedule, a hearing was held in March 2014 and in December 2015 the FERC issued an order. Among other things, the December 2015 order directed Entergy to submit a compliance filing. In January 2016 the LPSC, the APSC, and Entergy filed requests for rehearing of the FERC’s December 2015 order. In February 2016, Entergy submitted the compliance filing ordered in the December 2015 order.  The result of the true-up payments and receipts for the recalculation of production costs resulted in the following payments/receipts among the Utility operating companies:
 
Payments (Receipts)
 
(In Millions)
Entergy Arkansas
$2
Entergy Louisiana
$6
Entergy Mississippi
($4)
Entergy New Orleans
($1)
Entergy Texas
($3)

 
In September 2016 the FERC accepted the February 2016 compliance filing subject to a further compliance filing made in November 2016. The further compliance filing was required as a result of an order issued in September 2016 ruling on the January 2016 rehearing requests filed by the LPSC, the APSC, and Entergy. In the order addressing the rehearing requests, the FERC granted the LPSC’s rehearing request and directed that interest be calculated on the payment/receipt amounts. The FERC also granted the APSC’s and Entergy’s rehearing request and ordered the removal of both securitized asset accumulated deferred income taxes and contra-securitization accumulated deferred income taxes from the calculation. In November 2016, Entergy submitted its compliance filing in response to the FERC’s order on rehearing. The compliance filing included a revised calculation of the bandwidth true-up payments and receipts based on 2009 test year data and interest calculations. The LPSC protested the interest calculations. In November 2017 the FERC issued an order rejecting the November 2016 compliance filing. The FERC determined that the payments detailed in the November 2016 compliance filing did not include adequate interest for the payments from Entergy Arkansas to Entergy Louisiana because it did not include interest on the principal portion of the payment that was made in February 2016. In December 2017, Entergy recalculated the interest pursuant to the November 2017 order. As a result of the recalculations, Entergy Arkansas owed very minor payments to Entergy Louisiana, Entergy

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Mississippi, and Entergy New Orleans. In June 2019 the FERC issued an order denying the LPSC’s rehearing request of FERC’s September 2016 order. The LPSC rehearing request asked the FERC to reverse its decision that both securitized asset accumulated deferred income taxes and contra-securitization accumulated deferred income taxes should be removed from the bandwidth calculation.

Entergy Arkansas Opportunity Sales Proceeding

As discussed in the Form 10-K, in December 2018, Entergy made a compliance filing in response to the FERC’s October 2018 order in the opportunity sales proceeding. The compliance filing provided a final calculation of Entergy Arkansas’s payments to the other Utility operating companies, including interest. No protests were filed in response to the December 2018 compliance filing. The December 2018 compliance filing is pending FERC action.
    
In February 2019 the LPSC filed a new complaint relating to two issues that were raised in the opportunity sales proceeding, but that, in its October 2018 order, the FERC held were outside the scope of the proceeding. In March 2019, Entergy Services filed an answer and motion to dismiss the new complaint.

In May 2019, Entergy Arkansas filed an application and supporting testimony with the APSC requesting approval of a special rider tariff to recover the costs of these payments from its retail customers over a 24-month period.  The application requested that the APSC approve the rider to take effect within 30 days or, if suspended by the APSC as allowed by commission rule, approve the rider to take effect in the first billing cycle of the first month occurring 30 days after issuance of the APSC’s order approving the rider. In June 2019 the APSC suspended Entergy Arkansas’s tariff and granted Entergy Arkansas’s motion asking the APSC to establish the proceeding as the single designated proceeding in which interested parties may assert claims related to the appropriate retail rate treatment of the FERC’s October 2018 order and related FERC orders in the opportunity sales proceeding.

Complaints Against System Energy

Return on Equity and Capital Structure Complaints

See the Form 10-K for a discussion of the return on equity complaints filed by the APSC and the MPSC and by the LPSC against System Energy. The LPSC’s complaint also includes a challenge to System Energy’s capital structure. In August 2018 the FERC issued an order dismissing the LPSC’s request to investigate System Energy’s capital structure and setting for hearing the return on equity complaint, with a refund effective date of April 2018. The portion of the LPSC’s complaint dealing with return on equity was subsequently consolidated with the APSC and MPSC complaint for hearing. The consolidated hearing has been scheduled for September 2019, and the parties are required to address an order (issued in a separate proceeding involving New England transmission owners) that proposed modifying the FERC’s standard methodology for determining return on equity. In September 2018, System Energy filed a request for rehearing and the LPSC filed a request for rehearing or reconsideration of the FERC’s August 2018 order. The LPSC’s request referenced an amended complaint that it filed on the same day raising the same capital structure claim the FERC had earlier dismissed. The FERC initiated a new proceeding for the amended capital structure complaint, and System Energy submitted a response in October 2018. In January 2019 the FERC set the amended capital structure complaint for settlement and hearing proceedings. Settlement procedures in the capital structure proceeding commenced in February 2019. As noted below, in June 2019 settlement discussions were terminated and the amended capital structure complaint was consolidated with the ongoing return on equity proceeding.

In January 2019 the LPSC and the APSC and MPSC filed direct testimony in the return on equity proceeding. For the refund period January 23, 2017 through April 23, 2018, the LPSC argues for an authorized return on equity for System Energy of 7.81% and the APSC and MPSC argue for an authorized return on equity for System Energy of 8.24%. For the refund period April 27, 2018 through July 27, 2019, and for application on a prospective basis, the LPSC argues for an authorized return on equity for System Energy of 7.97% and the APSC and MPSC argue for an authorized return on equity for System Energy of 8.41%. In March 2019, System Energy submitted answering testimony in the return on equity proceeding. For the first refund period, System Energy’s testimony argues for a return on equity

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of 10.10% (median) or 10.70% (midpoint). For the second refund period, System Energy’s testimony shows that the calculated returns on equity for the first period fall within the range of presumptively just and reasonable returns on equity, and thus the second complaint should be dismissed (and the first period return on equity used going forward). If the FERC nonetheless were to set a new return on equity for the second period (and going forward), System Energy argues the return on equity should be either 10.32% (median) or 10.69% (midpoint).

In May 2019 the FERC staff filed its direct and answering testimony in the return on equity proceeding. For the first refund period, the FERC staff calculates an authorized return on equity for System Energy of 9.89% based on the application of FERC’s proposed methodology. The FERC staff’s direct and answering testimony noted that an authorized return on equity of 9.89% for the first refund period was within the range of presumptively just and reasonable returns on equity for the second refund period, as calculated using a study period ending January 31, 2019 for the second refund period.

In June 2019, System Entergy filed testimony responding to the testimony filed by the FERC staff. Among other things, System Energy’s testimony rebutted arguments raised by the FERC staff and provided updated calculations for the second refund period based on the study period ending May 31, 2019. For that refund period, System Energy’s testimony shows that strict application of the return on equity methodology proposed by the FERC staff indicates that the second complaint would not be dismissed, and the new return on equity would be set at 9.65% (median) or 9.74% (midpoint). System Energy’s testimony argues that these results are insufficient in light of benchmarks such as state returns on equity and treasury bond yields, and instead proposes that the calculated returns on equity for the second period should be either 9.91% (median) or 10.3% (midpoint). System Energy’s testimony also argues that, under application of its proposed modified methodology, the 10.10% return on equity calculated for the first refund period would fall within the range of presumptively just and reasonable returns on equity for the second refund period. System Energy is recording a provision against revenue for the potential outcome of this proceeding.

Also in June 2019, the FERC’s Chief ALJ issued an order terminating settlement discussions in the amended complaint addressing System Energy’s capital structure. The ALJ consolidated the amended complaint with the ongoing return on equity proceeding and set new procedural deadlines for the consolidated hearing, such that the hearing will commence in January 2020 and the initial decision will be due in June 2020.

Grand Gulf Sale-leaseback Renewal Complaint

As discussed in the Form 10-K, in May 2018 the LPSC filed a complaint against System Energy and Entergy Services related to System Energy’s renewal of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1.

In February 2019 the presiding ALJ ruled that the hearing ordered by the FERC includes the issue of whether specific subcategories of accumulated deferred income tax should be included in, or excluded from, System Energy’s formula rate. In March 2019 the LPSC, MPSC, APSC and City Council filed direct testimony. The LPSC testimony seeks refunds that include the renewal lease payments (approximately $17.2 million per year since July 2015), rate base reductions for accumulated deferred income taxes associated with uncertain tax positions (claimed to be approximately $334.5 million as of December 2018), and the cost of capital additions associated with the sale-leaseback interest (claimed to be approximately $274.8 million), as well as interest on those amounts. The direct testimony of the City Council and the APSC and MPSC address various issues raised by the LPSC. System Energy disputes that any refunds are owed for billings under the Unit Power Sales Agreement. A hearing has been scheduled for November 2019.

In June 2019 System Energy filed answering testimony in the sale-leaseback complaint proceeding arguing that the FERC should reject all claims for refunds.  Among other things, System Energy argued that claims for refunds of the costs of lease renewal payments and capital additions should be rejected because those costs were recovered consistent with the Unit Power Sales Agreement formula rate, System Energy was not over or double recovering any costs, and ratepayers will save approximately $850 million over initial and renewal terms of the leases.  System Energy

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argued that claims for refunds associated with liabilities arising from uncertain tax positions should be rejected because the liabilities do not provide cost-free capital, the repayment timing of the liabilities is uncertain, and the outcome of the underlying tax positions is uncertain.  System Energy’s testimony also challenged the refund calculations supplied by the other parties.

Storm Cost Recovery Filings with Retail Regulators

Entergy Mississippi

As discussed in the Form 10-K, Entergy Mississippi has approval from the MPSC to collect a storm damage provision of $1.75 million per month. If Entergy Mississippi’s accumulated storm damage provision balance exceeds $15 million, the collection of the storm damage provision ceases until such time that the accumulated storm damage provision becomes less than $10 million. As of May 31, 2019, Entergy Mississippi’s storm damage provision balance was less than $10 million. Accordingly, Entergy Mississippi resumed billing the monthly storm damage provision effective with July 2019 bills.


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 June 30,
 
2019
 
2018
 
(In Millions, Except Per Share Data)
 
Income
 
Shares
 
$/share
 
Income
 
Shares
 
$/share
Basic earnings per share
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Entergy Corporation

$236.4

 
193.0

 

$1.22

 

$245.4

 
180.8

 

$1.36

Average dilutive effect of:
 
 
 
 
 
 
 
 
 
 
 
Stock options
 
 
0.5

 
—

 
 
 
0.3

 
—

Other equity plans
 
 
0.7

 
—

 
 
 
0.7

 
(0.01
)
Equity forwards
 
 
—

 
—

 
 
 
1.2

 
(0.01
)
Diluted earnings per share

$236.4

 
194.2

 

$1.22

 

$245.4

 
183.0

 

$1.34


The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 1.1 million for the three months ended June 30, 2018.

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Notes to Financial Statements

 
For the Six Months Ended June 30,
 
2019
 
2018
 
(In Millions, Except Per Share Data)
 
Income
 
Shares
 
$/share
 
Income
 
Shares
 
$/share
Basic earnings per share
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Entergy Corporation

$491.0

 
191.3

 

$2.57

 

$378.2

 
180.8

 

$2.09

Average dilutive effect of:
 
 
 
 
 
 
 
 
 
 
 
Stock options
 
 
0.5

 
(0.01
)
 
 
 
0.3

 
—

Other equity plans
 
 
0.6

 
(0.01
)
 
 
 
0.5

 
—

Equity forwards
 
 
0.8

 
(0.01
)
 
 
 
0.6

 
(0.01
)
Diluted earnings per share

$491.0

 
193.2

 

$2.54

 

$378.2

 
182.2

 

$2.08



The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 0.3 million for the six months ended June 30, 2019 and approximately 1.1 million for the six months ended June 30, 2018.

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

Dividends declared per common share were $0.91 for the three months ended June 30, 2019 and $0.89 for the three months ended June 30, 2018. Dividends declared per common share were $1.82 for the six months ended June 30, 2019 and $1.78 for the six months ended June 30, 2018.

Equity Forward Sale Agreements

As discussed in Note 7 to the financial statements in the Form 10-K, in June 2018, Entergy marketed an equity offering of 15.3 million shares of common stock. In lieu of issuing equity at the time of the offering, Entergy entered into forward sale agreements with various investment banks. In December 2018, Entergy physically settled a portion of its obligations under the forward sale agreements by delivering 6,834,221 shares of common stock in exchange for cash proceeds of approximately $500 million. In May 2019, Entergy physically settled the remaining 8,448,171 shares of common stock in exchange for cash proceeds of approximately $608 million.

Treasury Stock

During the six months ended June 30, 2019, Entergy Corporation issued 1,181,800 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 six months ended June 30, 2019.

Retained Earnings

On July 26, 2019, Entergy Corporation’s Board of Directors declared a common stock dividend of $0.91 per share, payable on September 3, 2019, to holders of record as of August 8, 2019.

Entergy implemented ASU No. 2017-12 “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” effective January 1, 2019. The ASU makes a number of amendments to hedge accounting, most significantly changing the recognition and presentation of highly effective hedges. Entergy implemented this standard using a modified retrospective method, and recorded an adjustment increasing retained earnings and increasing accumulated other comprehensive loss by approximately $8 million as of January 1, 2019 for the cumulative effect of the ineffectiveness portion of designated hedges on nuclear power sales.


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Notes to Financial Statements

Entergy implemented ASU 2017-08 “Receivables (Topic 310): Nonrefundable Fees and Other Costs” effective January 1, 2019. The ASU amends the amortization period for certain purchased callable debt securities held at a premium to the earliest call date. Entergy implemented this standard using the modified retrospective approach, and recorded an adjustment decreasing retained earnings and decreasing accumulated other comprehensive loss by approximately $1 million as of January 1, 2019 for the cumulative effect of the amended amortization period.

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 June 30, 2019 by component:
 
Cash flow
hedges
net
unrealized
gain (loss)
 
Pension
and
other
postretirement
liabilities
 
Net
unrealized
investment
gain (loss)
 
Total
Accumulated
Other
Comprehensive
Income (Loss)
 
(In Thousands)
Beginning balance, April 1, 2019

($43,246
)
 

($520,372
)
 

$12,466

 

($551,152
)
Other comprehensive income (loss) before reclassifications
99,359

 
—

 
15,834

 
115,193

Amounts reclassified from accumulated other comprehensive income (loss)
(4,377
)
 
11,496

 
(1,564
)
 
5,555

Net other comprehensive income (loss) for the period
94,982

 
11,496

 
14,270

 
120,748

Ending balance, June 30, 2019

$51,736

 

($508,876
)
 

$26,736

 

($430,404
)

The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended June 30, 2018 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, April 1, 2018

$50,194

 

($605,491
)
 

($6,201
)
 

($561,498
)
Other comprehensive income (loss) before reclassifications
(62,981
)
 
—

 
(7,509
)
 
(70,490
)
Amounts reclassified from accumulated other comprehensive income (loss)
(2,087
)
 
15,565

 
4,868

 
18,346

Net other comprehensive income (loss) for the period
(65,068
)
 
15,565

 
(2,641
)
 
(52,144
)
Ending balance, June 30, 2018

($14,874
)
 

($589,926
)
 

($8,842
)
 

($613,642
)


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Notes to Financial Statements

The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the six months ended June 30, 2019 by component:
 
Cash flow
hedges
net
unrealized
gain (loss)
 
Pension
and
other
postretirement
liabilities
 
Net
unrealized
investment
gain (loss)
 
Total
Accumulated
Other
Comprehensive
Income (Loss)
 
(In Thousands)
Ending balance, December 31, 2018

($23,135
)
 

($531,922
)
 

($2,116
)
 

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

 
879

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

($30,820
)
 

($531,922
)
 

($1,237
)
 

($563,979
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
127,670

 
—

 
29,373

 
157,043

Amounts reclassified from accumulated other comprehensive income (loss)
(45,114
)
 
23,046

 
(1,400
)
 
(23,468
)
Net other comprehensive income (loss) for the period
82,556

 
23,046

 
27,973

 
133,575

Ending balance, June 30, 2019

$51,736

 

($508,876
)
 

$26,736

 

($430,404
)

The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the six months ended June 30, 2018 by component:
 
Cash flow
hedges
net
unrealized
gain (loss)
 
Pension
and
other
postretirement
liabilities
 
Net
unrealized
investment
gain (loss)
 
Total
Accumulated
Other
Comprehensive
Income (Loss)
 
(In Thousands)
Ending balance, December 31, 2017

($37,477
)
 

($531,099
)
 

$545,045

 

($23,531
)
Implementation of accounting standards
—

 
—

 
(632,617
)
 
(632,617
)
Beginning balance, January 1, 2018

($37,477
)
 

($531,099
)
 

($87,572
)
 

($656,148
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
8,585

 
—

 
(43,785
)
 
(35,200
)
Amounts reclassified from accumulated other comprehensive income (loss)
21,774

 
32,139

 
8,288

 
62,201

Net other comprehensive income (loss) for the period
30,359

 
32,139

 
(35,497
)
 
27,001

 
 
 
 
 
 
 
 
Reclassification pursuant to ASU 2018-02
(7,756
)
 
(90,966
)
 
114,227

 
15,505

 
 
 
 
 
 
 
 
Ending balance, June 30, 2018

($14,874
)
 

($589,926
)
 

($8,842
)
 

($613,642
)



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Notes to Financial Statements

The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the three months ended June 30, 2019 and 2018:
 
 
Pension and Other
Postretirement Liabilities
 
 
2019
 
2018
 
 
(In Thousands)
Beginning balance, April 1,
 

($7,122
)
 

($56,950
)
Amounts reclassified from accumulated other
comprehensive income (loss)
 
(969
)
 
(501
)
Net other comprehensive income (loss) for the period
 
(969
)
 
(501
)
Ending balance, June 30,
 

($8,091
)
 

($57,451
)

    
The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the six months ended June 30, 2019 and 2018:
 
 
Pension and Other
Postretirement Liabilities
 
 
2019
 
2018
 
 
(In Thousands)
Beginning balance, January 1,
 

($6,153
)
 

($46,400
)
Amounts reclassified from accumulated other
comprehensive income (loss)
 
(1,938
)
 
(1,002
)
Net other comprehensive income (loss) for the period
 
(1,938
)
 
(1,002
)
 
 
 
 
 
Reclassification pursuant to ASU 2018-02
 
—

 
(10,049
)
 
 
 
 
 
Ending balance, June 30,
 

($8,091
)
 

($57,451
)


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Notes to Financial Statements

    
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy for the three months ended June 30, 2019 and 2018 are as follows:

Amounts reclassified
from AOCI

Income Statement Location
 
2019
 
2018
 
 

(In Thousands)


Cash flow hedges net unrealized gain (loss)

 
 


   Power contracts

$5,589

 

$2,735


Competitive business operating revenues
   Interest rate swaps
(48
)
 
(93
)

Miscellaneous - net
Total realized gain (loss) on cash flow hedges
5,541

 
2,642




(1,164
)
 
(555
)

Income taxes
Total realized gain (loss) on cash flow hedges (net of tax)

$4,377

 

$2,087






 
 


Pension and other postretirement liabilities


 
 


   Amortization of prior-service credit

$5,325

 

$5,424


(a)
   Amortization of loss
(18,980
)
 
(24,808
)

(a)
   Settlement loss
(918
)
 
(406
)

(a)
Total amortization
(14,573
)
 
(19,790
)



3,077

 
4,225


Income taxes
Total amortization (net of tax)

($11,496
)
 

($15,565
)




 
 


Net unrealized investment gain (loss)

 
 


Realized gain (loss)

$2,475

 

($7,702
)

Interest and investment income

(911
)
 
2,834


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

$1,564

 

($4,868
)





 
 


Total reclassifications for the period (net of tax)

($5,555
)
 

($18,346
)




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


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Notes to Financial Statements

Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy for the six months ended June 30, 2019 and 2018 are as follows:
 
Amounts reclassified
from AOCI
 
Income Statement Location
 
2019
 
2018
 
 
 
(In Thousands)
 
 
Cash flow hedges net unrealized gain (loss)
 
 
 
 
 
   Power contracts

$57,204

 

($27,347
)
 
Competitive business operating revenues
   Interest rate swaps
(97
)
 
(215
)
 
Miscellaneous - net
Total realized gain (loss) on cash flow hedges
57,107

 
(27,562
)
 
 
 
(11,993
)
 
5,788

 
Income taxes
Total realized gain (loss) on cash flow hedges (net of tax)

$45,114

 

($21,774
)
 
 
 
 
 
 
 
 
Pension and other postretirement liabilities
 
 
 
 
 
   Amortization of prior-service credit

$10,652

 

$10,850

 
(a)
   Amortization of loss
(37,969
)
 
(49,760
)
 
(a)
   Settlement loss
(2,055
)
 
(2,022
)
 
(a)
Total amortization
(29,372
)
 
(40,932
)
 
 
 
6,326

 
8,793

 
Income taxes
Total amortization (net of tax)

($23,046
)
 

($32,139
)
 
 
 
 
 
 
 
 
Net unrealized investment gain (loss)
 
 
 
 
 
Realized gain (loss)

$2,216

 

($13,114
)
 
Interest and investment income
 
(816
)
 
4,826

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

$1,400

 

($8,288
)
 
 
 
 
 
 
 
 
Total reclassifications for the period (net of tax)

$23,468

 

($62,201
)
 
 

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

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Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy Louisiana for the three months ended June 30, 2019 and 2018 are as follows:
 
 
Amounts reclassified
from AOCI
 
Income Statement Location
 
 
2019
 
2018
 
 
 
 
(In Thousands)
 
 
Pension and other postretirement liabilities
 
 
 
 
 
 
   Amortization of prior-service credit
 

$1,837

 

$1,934

 
(a)
   Amortization of loss
 
(526
)
 
(1,256
)
 
(a)
Total amortization
 
1,311

 
678

 
 
 
 
(342
)
 
(177
)
 
Income taxes
Total amortization (net of tax)
 
969

 
501

 
 
 
 
 
 
 
 
 
Total reclassifications for the period (net of tax)
 

$969

 

$501

 
 


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

Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy Louisiana for the six months ended June 30, 2019 and 2018 are as follows:
 
 
Amounts reclassified
from AOCI
 
Income Statement Location
 
 
2019
 
2018
 
 
 
 
(In Thousands)
 
 
Pension and other postretirement liabilities
 
 
 
 
 
 
   Amortization of prior-service credit
 

$3,674

 

$3,868

 
(a)
   Amortization of loss
 
(1,052
)
 
(2,513
)
 
(a)
Total amortization
 
2,622

 
1,355

 
 
 
 
(684
)
 
(353
)
 
Income taxes
Total amortization (net of tax)
 
1,938

 
1,002

 
 
 
 
 
 
 
 
 
Total reclassifications for the period (net of tax)
 

$1,938

 

$1,002

 
 


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


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

Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in September 2023.  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 six months ended June 30, 2019 was 4.05% on the drawn portion of the facility.  Following is a summary of the borrowings outstanding and capacity available under the facility as of June 30, 2019.

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Notes to Financial Statements

Capacity
 
Borrowings
 
Letters
of Credit
 
Capacity
Available
(In Millions)
$3,500
 
$150
 
$6
 
$3,344


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

Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion.  At June 30, 2019, Entergy Corporation had approximately $1,635 million of commercial paper outstanding.  The weighted-average interest rate for the six months ended June 30, 2019 was 2.97%.

Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each had credit facilities available as of June 30, 2019 as follows:
Company
 
Expiration
Date
 
Amount of
Facility
 
Interest Rate (a)
 
Amount Drawn
as of
June 30, 2019
 
Letters of Credit
Outstanding as of
June 30, 2019
Entergy Arkansas
 
April 2020
 
$20 million (b)
 
3.57%
 
$—
 
$—
Entergy Arkansas
 
September 2023
 
$150 million (c)
 
3.57%
 
$—
 
$—
Entergy Louisiana
 
September 2023
 
$350 million (c)
 
3.57%
 
$—
 
$—
Entergy Mississippi
 
May 2020
 
$37.5 million (d)
 
3.82%
 
$—
 
$—
Entergy Mississippi
 
May 2020
 
$35 million (d)
 
3.82%
 
$—
 
$—
Entergy Mississippi
 
May 2020
 
$10 million (d)
 
3.82%
 
$—
 
$—
Entergy New Orleans
 
November 2021
 
$25 million (c)
 
3.59%
 
$—
 
$0.8 million
Entergy Texas
 
September 2023
 
$150 million (c)
 
3.82%
 
$—
 
$1.3 million

(a)
The interest rate is the estimated interest rate as of June 30, 2019 that would have been applied to outstanding borrowings under the facility.
(b)
Borrowings under the Entergy Arkansas credit facility may be secured by a security interest in its accounts receivable at Entergy Arkansas’s option.
(c)
The credit facility includes fronting commitments for the issuance of letters of credit against a portion of the borrowing capacity of the facility as follows: $5 million for Entergy Arkansas; $15 million for Entergy Louisiana; $10 million for Entergy New Orleans; and $30 million for Entergy Texas.
(d)
Borrowings under the Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable at Entergy Mississippi’s option.

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

In addition, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each entered into uncommitted standby letter of credit facilities as a means to post collateral to support its obligations to MISO. Following is a summary of the uncommitted standby letter of credit facilities as of June 30, 2019:

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Notes to Financial Statements

Company
 
Amount of
Uncommitted Facility
 
Letter of Credit Fee
 
Letters of Credit
Issued as of
June 30, 2019 (a)
Entergy Arkansas
 
$25 million
 
0.70%
 
$1 million
Entergy Louisiana
 
$125 million
 
0.70%
 
$37.8 million
Entergy Mississippi
 
$40 million
 
0.70%
 
$10.9 million
Entergy New Orleans
 
$15 million
 
1.00%
 
$1 million
Entergy Texas
 
$50 million
 
0.70%
 
$29.5 million


(a)
As of June 30, 2019, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi, $10.2 thousand for Entergy New Orleans, and $2.2 million for Entergy Texas. See Note 8 to the financial statements herein for discussion of financial transmission rights.

The short-term borrowings of the Registrant Subsidiaries are limited to amounts authorized by the FERC.  The current FERC-authorized limits for Entergy New Orleans are effective through October 31, 2019. The current FERC-authorized limits for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy Texas, and System Energy are effective through November 8, 2020. In addition to borrowings from commercial banks, these companies may also borrow from the Entergy System money pool and from other internal short-term borrowing arrangements.  The money pool and the other internal borrowing arrangements are inter-company borrowing arrangements designed to reduce the Utility subsidiaries’ dependence on external short-term borrowings.  Borrowings from internal and external short-term borrowings combined may not exceed the FERC-authorized limits.  The following are the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings as of June 30, 2019 (aggregating both internal and external short-term borrowings) for the Registrant Subsidiaries:
 
Authorized
 
Borrowings
 
(In Millions)
Entergy Arkansas
$250
 
$—
Entergy Louisiana
$450
 
$—
Entergy Mississippi
$175
 
$—
Entergy New Orleans
$150
 
$36
Entergy Texas
$200
 
$169
System Energy
$200
 
$—


Vermont Yankee Asset Retirement Management, LLC Credit Facility

In January 2019, Entergy Nuclear Vermont Yankee was transferred to NorthStar and its credit facility was assumed by Vermont Yankee Asset Retirement Management, 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 November 2020. The commitment fee is currently 0.20% of the undrawn commitment amount.  As of June 30, 2019, $139 million in cash borrowings were outstanding under the credit facility.  The weighted average interest rate for the six months ended June 30, 2019 was 4.19% on the drawn portion of the facility. See Note 14 to the financial statements in the Form 10-K and Note 16 to the financial statements herein for discussion of the transfer of Entergy Nuclear Vermont Yankee to NorthStar.

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

See Note 17 to the financial statements in the Form 10-K for a discussion of the consolidation of the nuclear fuel company variable interest entities (VIEs).  To finance the acquisition and ownership of nuclear fuel, the nuclear fuel company VIEs have credit facilities and three of the four VIEs have commercial paper programs in place. Following is a summary as of June 30, 2019:

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Notes to Financial Statements

Company
 
Expiration
Date
 
Amount
of
Facility
 
Weighted Average Interest Rate on Borrowings (a)
 
Amount
Outstanding as of
June 30, 2019
 
 

 
(Dollars in Millions)
Entergy Arkansas VIE
 
September 2021
 
$80
 
3.40%
 
$20.6
Entergy Louisiana River Bend VIE
 
September 2021
 
$105
 
3.40%
 
$87.5
Entergy Louisiana Waterford VIE
 
September 2021
 
$105
 
3.40%
 
$79.2
System Energy VIE
 
September 2021
 
$120
 
3.40%
 
$74.4


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

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

The nuclear fuel company variable interest entities had notes payable that are included in debt on the respective balance sheets as of June 30, 2019 as follows:
Company
 
Description
 
Amount
Entergy Arkansas VIE
 
3.65% Series L due July 2021
 
$90 million
Entergy Arkansas VIE
 
3.17% Series M due December 2023
 
$40 million
Entergy Louisiana River Bend VIE
 
3.38% Series R due August 2020
 
$70 million
Entergy Louisiana Waterford VIE
 
3.92% Series H due February 2021
 
$40 million
Entergy Louisiana Waterford VIE
 
3.22% Series I due December 2023
 
$20 million
System Energy VIE
 
3.42% Series J due April 2021
 
$100 million


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

Debt Issuances and Retirements

(Entergy Arkansas)

In March 2019, Entergy Arkansas issued $350 million of 4.20% Series mortgage bonds due April 2049. Entergy Arkansas is using the proceeds for general corporate purposes.

(Entergy Louisiana)

In March 2019, Entergy Louisiana issued $525 million of 4.20% Series mortgage bonds due April 2050. Entergy Louisiana is using the proceeds, together with other funds, to finance the construction of the Lake Charles Power Station and the St. Charles Power Station, and for general corporate purposes.


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(Entergy Mississippi)

In June 2019, Entergy Mississippi issued $300 million of 3.85% Series mortgage bonds due June 2049. Entergy Mississippi used the proceeds to repay, at maturity, its $150 million of 6.64% Series mortgage bonds due July 2019 and for general corporate purposes.

(Entergy Texas)

In January 2019, Entergy Texas issued $300 million of 4.0% Series mortgage bonds due March 2029 and $400 million of 4.5% Series mortgage bonds due March 2039. Entergy Texas used the proceeds to repay, at maturity, its $500 million of 7.125% Series mortgage bonds due February 2019 and for general corporate purposes.

(System Energy)

In March 2019, System Energy issued $134 million of 2.50% Series 2019 revenue refunding bonds due April 2022. The proceeds were used to redeem, prior to maturity, $134 million of 5.875% Series 1998 pollution control revenue refunding bonds due April 2022.

Fair Value

The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of June 30, 2019 are as follows:
 
Book Value
of Long-Term Debt
 
Fair Value
of Long-Term Debt (a) (b)
 
(In Thousands)
Entergy

$17,354,298

 

$18,126,143

Entergy Arkansas

$3,527,146

 

$3,523,519

Entergy Louisiana

$7,359,935

 

$7,892,133

Entergy Mississippi

$1,619,420

 

$1,680,869

Entergy New Orleans

$478,514

 

$511,691

Entergy Texas

$1,664,936

 

$1,786,350

System Energy

$590,646

 

$571,693


(a)
The fair value excludes lease obligations of $34 million at System Energy and long-term DOE obligations of $189 million at Entergy Arkansas, and include debt due within one year.
(b)
Fair values are classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements herein.


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Notes to Financial Statements

The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of December 31, 2018 were as follows:
 
Book Value
of Long-Term Debt
 
Fair Value
of Long-Term Debt (a) (b)
 
(In Thousands)
Entergy

$16,168,312

 

$15,880,239

Entergy Arkansas

$3,225,759

 

$3,002,627

Entergy Louisiana

$6,805,768

 

$6,834,134

Entergy Mississippi

$1,325,750

 

$1,276,452

Entergy New Orleans

$483,704

 

$491,569

Entergy Texas

$1,513,735

 

$1,528,828

System Energy

$630,750

 

$596,123


(a)
The values exclude the lease obligations of $34 million at System Energy and long-term DOE obligations of $187 million at Entergy Arkansas, and include debt due within one year.
(b)
Fair values are classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements herein.


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 693,161 shares of its common stock under the 2015 Equity Ownership Plan during the first quarter 2019 with a fair value of $8.32 per option.  As of June 30, 2019, there were options on 2,912,294 shares of common stock outstanding with a weighted-average exercise price of $78.64.  The intrinsic value, which has no effect on net income, of the outstanding stock options is calculated by the positive difference between the weighted average exercise price of the stock options granted and Entergy Corporation’s common stock price as of June 30, 2019.  The aggregate intrinsic value of the stock options outstanding as of June 30, 2019 was $70.8 million.

The following table includes financial information for outstanding stock options for the three months ended June 30, 2019 and 2018:
 
2019
 
2018
 
(In Millions)
Compensation expense included in Entergy’s net income

$1.0

 

$1.1

Tax benefit recognized in Entergy’s net income

$0.3

 

$0.3

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

$0.3

 

$0.2


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Notes to Financial Statements

The following table includes financial information for outstanding stock options for the six months ended June 30, 2019 and 2018:
 
2019
 
2018
 
(In Millions)
Compensation expense included in Entergy’s net income

$2.0

 

$2.2

Tax benefit recognized in Entergy’s net income

$0.5

 

$0.6

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

$0.6

 

$0.4



Other Equity Awards

In January 2019, the Board approved and Entergy granted 355,537 restricted stock awards and 180,824 long-term incentive awards under the 2015 Equity Ownership Plan.  The restricted stock awards were made effective as of January 31, 2019 and were valued at $89.19 per share, which was the closing price of Entergy’s common stock on that date.  One-third of the restricted stock awards will vest upon each anniversary of the grant date.  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.

In addition, long-term incentive awards were also granted in the form of performance units that represent the value of, and are settled with, one share of Entergy Corporation common stock at the end of the three-year performance period, plus dividends accrued during the performance period on the number of performance units earned. For the 2019-2021 performance period, performance will be measured based eighty percent on relative total shareholder return and twenty percent on a cumulative adjusted earnings per share metric.  The performance units were granted as of January 31, 2019 and eighty percent were valued at $102.07 per share based on various factors, primarily market conditions; and twenty percent were valued at $89.19 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 June 30, 2019 and 2018:
 
2019
 
2018
 
(In Millions)
Compensation expense included in Entergy’s net income

$8.4

 

$8.7

Tax benefit recognized in Entergy’s net income

$2.2

 

$2.2

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

$2.9

 

$2.5


The following table includes financial information for other outstanding equity awards for the six months ended June 30, 2019 and 2018:
 
2019
 
2018
 
(In Millions)
Compensation expense included in Entergy’s net income

$17.2

 

$17.5

Tax benefit recognized in Entergy’s net income

$4.4

 

$4.4

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

$5.8

 

$4.8




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Notes to Financial Statements

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

Components of Qualified Net Pension Cost

Entergy’s qualified pension cost, including amounts capitalized, for the second quarters of 2019 and 2018, included the following components:
 
2019
 
2018
 
(In Thousands)
Service cost - benefits earned during the period

$33,606

 

$38,752

Interest cost on projected benefit obligation
73,912

 
66,854

Expected return on assets
(103,859
)
 
(110,535
)
Amortization of prior service cost
—

 
99

Amortization of net loss
58,420

 
68,526

Settlement charges
162

 
—

Net pension costs

$62,241

 

$63,696


Entergy’s qualified pension cost, including amounts capitalized, for the six months ended June 30, 2019 and 2018, included the following components:
 
2019
 
2018
 
(In Thousands)
Service cost - benefits earned during the period

$67,213

 

$77,504

Interest cost on projected benefit obligation
147,853

 
133,708

Expected return on assets
(207,743
)
 
(221,070
)
Amortization of prior service cost
—

 
198

Amortization of net loss
116,838

 
137,052

Settlement charges
1,299

 
—

Net pension costs

$125,460

 

$127,392



The Registrant Subsidiaries’ qualified pension cost, including amounts capitalized, for their employees for the second quarters of 2019 and 2018, included the following components:
2019
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
 Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 
 
(In Thousands)
Service cost - benefits earned during the period
 

$5,261

 

$7,284

 

$1,629

 

$569

 

$1,350

 

$1,550

Interest cost on projected benefit obligation
 
14,175

 
15,882

 
4,068

 
1,874

 
3,612

 
3,363

Expected return on assets
 
(20,176
)
 
(22,652
)
 
(5,968
)
 
(2,697
)
 
(5,862
)
 
(4,677
)
Amortization of net loss
 
11,841

 
11,643

 
3,105

 
1,530

 
2,334

 
2,850

Net pension cost
 

$11,101

 

$12,157

 

$2,834

 

$1,276

 

$1,434

 

$3,086


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Notes to Financial Statements

2018
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
 Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 
 
(In Thousands)
Service cost - benefits earned during the period
 

$6,189

 

$8,446

 

$1,822

 

$673

 

$1,589

 

$1,776

Interest cost on projected benefit obligation
 
13,004

 
14,940

 
3,769

 
1,813

 
3,348

 
3,227

Expected return on assets
 
(21,851
)
 
(24,809
)
 
(6,502
)
 
(2,993
)
 
(6,523
)
 
(4,991
)
Amortization of net loss
 
13,412

 
14,450

 
3,610

 
1,954

 
2,626

 
3,715

Net pension cost
 

$10,754

 

$13,027

 

$2,699

 

$1,447

 

$1,040

 

$3,727


The Registrant Subsidiaries’ qualified pension cost, including amounts capitalized, for their employees for the six months ended June 30, 2019 and 2018, included the following components:
2019
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
 Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 
 
(In Thousands)
Service cost - benefits earned during the period
 

$10,522

 

$14,568

 

$3,258

 

$1,138

 

$2,700

 

$3,100

Interest cost on projected benefit obligation
 
28,350

 
31,764

 
8,136

 
3,748

 
7,224

 
6,727

Expected return on assets
 
(40,352
)
 
(45,304
)
 
(11,936
)
 
(5,393
)
 
(11,724
)
 
(9,354
)
Amortization of net loss
 
23,682

 
23,286

 
6,209

 
3,059

 
4,668

 
5,700

Net pension cost
 

$22,202

 

$24,314

 

$5,667

 

$2,552

 

$2,868

 

$6,173

2018
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
 Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 
 
(In Thousands)
Service cost - benefits earned during the period
 

$12,378

 

$16,892

 

$3,644

 

$1,346

 

$3,178

 

$3,552

Interest cost on projected benefit obligation
 
26,008

 
29,880

 
7,538

 
3,626

 
6,696

 
6,454

Expected return on assets
 
(43,702
)
 
(49,618
)
 
(13,004
)
 
(5,986
)
 
(13,046
)
 
(9,982
)
Amortization of net loss
 
26,824

 
28,900

 
7,220

 
3,908

 
5,252

 
7,430

Net pension cost
 

$21,508

 

$26,054

 

$5,398

 

$2,894

 

$2,080

 

$7,454



Non-Qualified Net Pension Cost

Entergy recognized $7.6 million and $6.6 million in pension cost for its non-qualified pension plans in the second quarters of 2019 and 2018, respectively. Reflected in the pension cost for non-qualified pension plans in the second quarters of 2019 and 2018 were settlement charges of $3.7 million and $2.4 million, respectively, related to the payment of lump sum benefits out of the plan. Entergy recognized $11.6 million and $15.5 million in pension cost for its non-qualified pension plans for the six months ended June 30, 2019 and 2018, respectively. Reflected in the pension cost for non-qualified pension plans for the six months ended June 30, 2019 and 2018 were settlement charges of $3.7 million and $6.8 million, respectively, related to the payment of lump sum benefits out of the plan.


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Notes to Financial Statements

The Registrant Subsidiaries recognized the following pension cost for their employees for their non-qualified pension plans for the second quarters of 2019 and 2018:
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
(In Thousands)
2019

$71

 

$41

 

$113

 

$6

 

$122

2018

$122

 

$46

 

$77

 

$21

 

$270


Reflected in Entergy Mississippi’s non-qualified pension costs in the second quarter of 2019 were settlement charges of $40 thousand related to the payment of lump sum benefits out of the plan. Reflected in Entergy Arkansas’s non-qualified pension costs in the second quarter of 2018 were settlement charges of $10 thousand related to the payment of lump sum benefits out of the plan. Reflected in Entergy Texas’s non-qualified pension costs in the second quarter of 2018 were settlement charges of $139 thousand related to the payment of lump sum benefits out of the plan.

The Registrant Subsidiaries recognized the following pension cost for their employees for their non-qualified pension plans for the six months ended June 30, 2019 and 2018:
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
(In Thousands)
2019

$144

 

$84

 

$188

 

$11

 

$246

2018

$254

 

$96

 

$157

 

$42

 

$407


Reflected in Entergy Mississippi’s non-qualified pension costs for the six months ended June 30, 2019 were settlement charges of $40 thousand related to the payment of lump sum benefits out of the plan. Reflected in Entergy Arkansas’s non-qualified pension costs for the six months ended June 30, 2018 were settlement charges of $22 thousand related to the payment of lump sum benefits out of the plan. Reflected in Entergy Texas’s non-qualified pension costs for the six months ended June 30, 2018 were settlement charges of $139 thousand related to the payment of lump sum benefits out of the plan.

Components of Net Other Postretirement Benefit Cost

Entergy’s other postretirement benefit cost, including amounts capitalized, for the second quarters of 2019 and 2018, included the following components:
 
2019
 
2018
 
(In Thousands)
Service cost - benefits earned during the period

$4,675

 

$6,782

Interest cost on accumulated postretirement benefit obligation (APBO)
11,975

 
12,681

Expected return on assets
(9,562
)
 
(10,373
)
Amortization of prior service credit
(8,844
)
 
(9,251
)
Amortization of net loss
358

 
3,432

Net other postretirement benefit cost (income)

($1,398
)
 

$3,271


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Notes to Financial Statements


Entergy’s other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 2019 and 2018, included the following components:
 
2019
 
2018
 
(In Thousands)
Service cost - benefits earned during the period

$9,350

 

$13,564

Interest cost on accumulated postretirement benefit obligation (APBO)
23,950

 
25,362

Expected return on assets
(19,124
)
 
(20,746
)
Amortization of prior service credit
(17,688
)
 
(18,502
)
Amortization of net loss
716

 
6,864

Net other postretirement benefit cost (income)

($2,796
)
 

$6,542



The Registrant Subsidiaries’ other postretirement benefit cost, including amounts capitalized, for their employees for second quarters of 2019 and 2018, included the following components:
2019
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 
 
(In Thousands)
Service cost - benefits earned during the period
 

$591

 

$1,160

 

$262

 

$92

 

$236

 

$243

Interest cost on APBO
 
1,807

 
2,666

 
670

 
395

 
854

 
476

Expected return on assets
 
(3,991
)
 
—

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

 
(174
)
 
181

 
58

 
121

 
89

Net other postretirement benefit cost (income)
 

($2,687
)
 

$1,815

 

($525
)
 

($863
)
 

($1,626
)
 

($252
)
2018
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 
 
(In Thousands)
Service cost - benefits earned during the period
 

$793

 

$1,556

 

$321

 

$129

 

$330

 

$306

Interest cost on APBO
 
1,997

 
2,789

 
683

 
417

 
939

 
500

Expected return on assets
 
(4,342
)
 
—

 
(1,303
)
 
(1,313
)
 
(2,446
)
 
(783
)
Amortization of prior service credit
 
(1,278
)
 
(1,934
)
 
(456
)
 
(186
)
 
(579
)
 
(378
)
Amortization of net loss
 
289

 
388

 
377

 
34

 
206

 
233

Net other postretirement benefit cost (income)
 

($2,541
)
 

$2,799

 

($378
)
 

($919
)
 

($1,550
)
 

($122
)


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Entergy Corporation and Subsidiaries
Notes to Financial Statements

The Registrant Subsidiaries’ other postretirement benefit cost, including amounts capitalized, for their employees for the six months ended June 30, 2019 and 2018, included the following components:
2019
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 
 
(In Thousands)
Service cost - benefits earned during the period
 

$1,182

 

$2,320

 

$524

 

$184

 

$472

 

$486

Interest cost on APBO
 
3,614

 
5,332

 
1,340

 
790

 
1,708

 
952

Expected return on assets
 
(7,982
)
 
—

 
(2,398
)
 
(2,474
)
 
(4,552
)
 
(1,394
)
Amortization of prior service credit
 
(2,476
)
 
(3,674
)
 
(878
)
 
(342
)
 
(1,122
)
 
(726
)
Amortization of net (gain) loss
 
288

 
(348
)
 
362

 
116

 
242

 
178

Net other postretirement benefit cost (income)
 

($5,374
)
 

$3,630

 

($1,050
)
 

($1,726
)
 

($3,252
)
 

($504
)

2018
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 
 
(In Thousands)
Service cost - benefits earned during the period
 

$1,586

 

$3,112

 

$642

 

$258

 

$660

 

$612

Interest cost on APBO
 
3,994

 
5,578

 
1,366

 
834

 
1,878

 
1,000

Expected return on assets
 
(8,684
)
 
—

 
(2,606
)
 
(2,626
)
 
(4,892
)
 
(1,566
)
Amortization of prior service credit
 
(2,556
)
 
(3,868
)
 
(912
)
 
(372
)
 
(1,158
)
 
(756
)
Amortization of net loss
 
578

 
776

 
754

 
68

 
412

 
466

Net other postretirement benefit cost (income)
 

($5,082
)
 

$5,598

 

($756
)
 

($1,838
)
 

($3,100
)
 

($244
)


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 second quarters of 2019 and 2018:
2019
 
Qualified
Pension
Costs
 
Other
Postretirement
Costs
 
Non-Qualified
Pension Costs
 
Total
 
 
(In Thousands)
 
 
Entergy
 
 
 
 
 
 
 
 
Amortization of prior service (cost) credit
 

$—

 

$5,375

 

($50
)
 

$5,325

Amortization of net gain (loss)
 
(18,736
)
 
308

 
(552
)
 
(18,980
)
Settlement loss
 
(162
)
 
—

 
(756
)
 
(918
)
 
 

($18,898
)
 

$5,683

 

($1,358
)
 

($14,573
)
Entergy Louisiana
 
 
 
 
 
 
 
 
Amortization of prior service credit
 

$—

 

$1,837

 

$—

 

$1,837

Amortization of net gain (loss)
 
(699
)
 
174

 
(1
)
 
(526
)
 
 

($699
)
 

$2,011

 

($1
)
 

$1,311


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Notes to Financial Statements

2018

Qualified
Pension
Costs

Other
Postretirement
Costs

Non-Qualified
Pension Costs

Total


(In Thousands)


Entergy








Amortization of prior service (cost) credit


($99
)


$5,594



($71
)


$5,424

Amortization of net loss

(21,957
)

(1,933
)

(918
)

(24,808
)
Settlement loss

—


—


(406
)

(406
)



($22,056
)


$3,661



($1,395
)


($19,790
)
Entergy Louisiana








Amortization of prior service credit


$—



$1,934



$—



$1,934

Amortization of net loss

(867
)

(387
)

(2
)

(1,256
)



($867
)


$1,547



($2
)


$678


Entergy and Entergy Louisiana reclassified the following costs out of accumulated other comprehensive income (loss) (before taxes and including amounts capitalized) for the six months ended June 30, 2019 and 2018:
2019

Qualified
Pension
Costs

Other
Postretirement
Costs

Non-Qualified
Pension Costs

Total


(In Thousands)


Entergy








Amortization of prior service (cost) credit


$—



$10,750



($98
)


$10,652

Amortization of net gain (loss)

(37,470
)

615


(1,114
)

(37,969
)
Settlement loss

(1,299
)

—


(756
)

(2,055
)



($38,769
)


$11,365



($1,968
)


($29,372
)
Entergy Louisiana








Amortization of prior service credit


$—



$3,674



$—



$3,674

Amortization of net gain (loss)

(1,397
)

348


(3
)

(1,052
)



($1,397
)


$4,022



($3
)


$2,622

2018
 
Qualified
Pension
Costs
 
Other
Postretirement
Costs
 
Non-Qualified
Pension Costs
 
Total
 
 
(In Thousands)
 
 
Entergy
 
 
 
 
 
 
 
 
Amortization of prior service (cost) credit
 

($198
)
 

$11,189

 

($141
)
 

$10,850

Amortization of net loss
 
(43,914
)
 
(3,865
)
 
(1,981
)
 
(49,760
)
Settlement loss
 
—

 
—

 
(2,022
)
 
(2,022
)
 
 

($44,112
)
 

$7,324

 

($4,144
)
 

($40,932
)
Entergy Louisiana
 
 
 
 
 
 
 
 
Amortization of prior service credit
 

$—

 

$3,868

 

$—

 

$3,868

Amortization of net loss
 
(1,734
)
 
(775
)
 
(4
)
 
(2,513
)
 
 

($1,734
)
 

$3,093

 

($4
)
 

$1,355




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Entergy Corporation and Subsidiaries
Notes to Financial Statements

Employer Contributions

Based on current assumptions, Entergy expects to contribute $176.9 million to its qualified pension plans in 2019.  As of June 30, 2019, Entergy had contributed $65.5 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 2019:
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New Orleans
 
Entergy
Texas
 
System
Energy
 
(In Thousands)
Expected 2019 pension contributions

$27,112

 

$26,451

 

$7,701

 

$1,800

 

$1,645

 

$8,285

Pension contributions made through June 2019

$9,338

 

$10,093

 

$2,671

 

$674

 

$739

 

$2,944

Remaining estimated pension contributions to be made in 2019

$17,774

 

$16,358

 

$5,030

 

$1,126

 

$906

 

$5,341




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

Entergy Corporation

Entergy’s reportable segments as of June 30, 2019 are Utility and Entergy Wholesale Commodities.  Utility includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Louisiana, Mississippi, and Texas, and natural gas utility service in portions of Louisiana.  Entergy Wholesale Commodities includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers.  Entergy Wholesale Commodities also includes the ownership of interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers.  “All Other” includes the parent company, Entergy Corporation, and other business activity.

Entergy’s segment financial information for the second quarters of 2019 and 2018 is as follows:
 
 
Utility
 
Entergy
Wholesale
Commodities
 
All Other
 
Eliminations
 
Entergy
 
 
(In Thousands)
2019
 
 
 
 
 
 
 
 
 
 
Operating revenues
 

$2,376,437

 

$289,783

 

$2

 

($13
)
 

$2,666,209

Income taxes
 

$21,150

 

($9,290
)
 

($10,402
)
 

$—

 

$1,458

Consolidated net income (loss)
 

$334,752

 

($25,382
)
 

($36,939
)
 

($31,898
)
 

$240,533

2018
 
 
 
 
 
 
 
 
 
 
Operating revenues
 

$2,360,208

 

$308,602

 

$—

 

($40
)
 

$2,668,770

Income taxes
 

($240,324
)
 

($30,144
)
 

($10,128
)
 

$—

 

($280,596
)
Consolidated net income (loss)
 

$378,394

 

($56,337
)
 

($41,299
)
 

($31,898
)
 

$248,860



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Entergy Corporation and Subsidiaries
Notes to Financial Statements

Entergy’s segment financial information for the six months ended June 30, 2019 and 2018 is as follows:
 
 
Utility
 
Entergy
Wholesale
Commodities
 
All Other
 
Eliminations
 
Entergy
 
 
(In Thousands)
2019
 
 
 
 
 
 
 
 
 
 
Operating revenues
 
$4,552,419
 
$723,394
 
$2
 
($23)
 
$5,275,792
Income taxes
 
$9,586
 
$56,618
 
($21,975)
 

$—

 
$44,229
Consolidated net income (loss)
 
$568,900
 
$71,697
 
($77,620)
 
($63,797)
 
$499,180
Total assets as of June 30, 2019
 
$47,297,832
 
$5,211,771
 
$493,962
 
($2,437,820)
 
$50,565,745
2018
 
 
 
 
 
 
 
 
 
 
Operating revenues
 
$4,665,197
 
$727,526
 

$—

 
($73)
 
$5,392,650
Income taxes
 
($188,100)
 
($31,222)
 
($17,611)
 

$—

 
($236,933)
Consolidated net income (loss)
 
$596,333
 
($74,116)
 
($73,361)
 
($63,797)
 
$385,059
Total assets as of December 31, 2018
 
$44,777,167
 
$5,459,275
 
$733,366
 
($2,694,742)
 
$48,275,066

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 the remaining plants in the merchant nuclear fleet. These decisions and transactions resulted in asset impairments; employee retention and severance expenses and other benefits-related costs; and contracted economic development contributions.

Total restructuring charges for the second quarters of 2019 and 2018 were comprised of the following:
 
2019
 
2018
 
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 April 1,

$213

 

$14

 

$227

 

$109

 

$14

 

$123

Restructuring costs accrued
22

 
—

 
22

 
34

 
—

 
34

Cash paid out
54

 
—

 
54

 
—

 
—

 
—

Balance as of June 30,

$181

 

$14

 

$195

 

$143

 

$14

 

$157


In addition, Entergy Wholesale Commodities incurred $16 million in the second quarter 2019 and $69 million in the second quarter 2018 of impairment and other related charges associated with these strategic decisions and transactions.


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Entergy Corporation and Subsidiaries
Notes to Financial Statements

Total restructuring charges for the six months ended June 30, 2019 and 2018 were comprised of the following:
 
2019
 
2018
 
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,

$179

 

$14

 

$193

 

$83

 

$14

 

$97

Restructuring costs accrued
56

 
—

 
56

 
60

 
—

 
60

Cash paid out
54

 
—

 
54

 
—

 
—

 
—

Balance as of June 30,

$181

 

$14

 

$195

 

$143

 

$14

 

$157


In addition, Entergy Wholesale Commodities incurred $90 million in the six months ended June 30, 2019 and $142 million in the six months ended June 30, 2018 of impairment and other related charges associated with these strategic decisions and transactions.

Going forward, Entergy Wholesale Commodities expects to incur employee retention and severance expenses associated with management’s strategy to exit the merchant power business of approximately $120 million in 2019, of which $56 million has been incurred as of June 30, 2019, and a total of approximately $120 million from 2020 through mid-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.


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Notes to Financial Statements

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

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

Derivatives

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

Entergy enters into derivatives to manage natural risks inherent in its physical or financial assets or liabilities.  Electricity over-the-counter instruments and futures contracts that financially settle against day-ahead power pool prices are used to manage price exposure for Entergy Wholesale Commodities generation.  The maximum length of time over which Entergy Wholesale Commodities is currently hedging the variability in future cash flows with derivatives for forecasted power transactions at June 30, 2019 is approximately 1.75 years.  Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 98% for the remainder of 2019, of which approximately 72% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts.  Total planned generation for the remainder of 2019 is 12.1 TWh.

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

Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations depending on the mark-to-market values of the contracts. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee.  As of June 30, 2019, there were no derivative contracts with counterparties in a liability position. In addition to the corporate guarantee, $13 million in cash collateral were required to be posted by the Entergy subsidiary

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to its counterparties and $2 million in cash and $51 million in letters of credit were required to be posted by its counterparties to the Entergy subsidiary. As of December 31, 2018, derivative contracts with six counterparties were in a liability position (approximately $34 million total). In addition to the corporate guarantee, $19 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties. If the Entergy Corporation credit rating falls below investment grade, Entergy would have to post collateral equal to the estimated outstanding liability under the contract at the applicable date.   

Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Louisiana and Entergy New Orleans) and Entergy Mississippi through the purchase of 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 June 30, 2019 is 4.75 years for Entergy Louisiana and the maximum length of time over which Entergy has executed natural gas swaps as of June 30, 2019 is 9 months for Entergy Mississippi. The total volume of natural gas swaps and options outstanding as of June 30, 2019 is 41,300,000 MMBtu for Entergy, including 34,720,000 MMBtu for Entergy Louisiana and 6,580,000 MMBtu for Entergy Mississippi. Credit support for these natural gas swaps and options is covered by master agreements that do not require Entergy to provide collateral based on mark-to-market value, but do carry adequate assurance language that may lead to requests for collateral.

During the second quarter 2019, Entergy participated in the annual financial transmission rights auction process for the MISO planning year of June 1, 2019 through May 31, 2020. Financial transmission rights are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records financial transmission rights at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on financial transmission rights held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on financial transmission rights. The total volume of financial transmission rights outstanding as of June 30, 2019 is 110,968 GWh for Entergy, including 25,480 GWh for Entergy Arkansas, 50,209 GWh for Entergy Louisiana, 14,072 GWh for Entergy Mississippi, 5,160 GWh for Entergy New Orleans, and 15,608 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 June 30, 2019 and December 31, 2018. Letters of credit posted with MISO covered the financial transmission rights exposure for Entergy Mississippi, Entergy New Orleans, and Entergy Texas as of June 30, 2019 and Entergy Mississippi and Entergy Texas as of December 31, 2018.


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The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of June 30, 2019 are shown in the table below.  Certain investments, including those not designated as hedging instruments, are subject to master netting agreements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument
 
Balance Sheet Location
 
Fair Value (a)
 
Offset (b)
 
Net (c) (d)
 
Business
 
 
 
 
(In Millions)
 
 
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Prepayments and other (current portion)
 
$51
 
($2)
 
$49
 
Entergy Wholesale Commodities
Electricity swaps and options
 
Other deferred debits and other assets (non-current portion)
 
$21
 
($2)
 
$19
 
Entergy Wholesale Commodities
Liabilities:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Other current liabilities (current portion)
 
$3
 
($3)
 
$—
 
Entergy Wholesale Commodities
Electricity swaps and options
 
Other non-current liabilities (non-current portion)
 
$2
 
($2)
 
$—
 
Entergy Wholesale Commodities
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Prepayments and other (current portion)
 
$8
 
($3)
 
$5
 
Entergy Wholesale Commodities
Electricity swaps and options
 
Other deferred debits and other assets (non-current portion)
 
$1
 
($1)
 
$—
 
Entergy Wholesale Commodities
Natural gas swaps and options
 
Other deferred debits and other assets (non-current portion)
 
$1
 
$—
 
$1
 
Utility
Financial transmission rights
 
Prepayments and other
 
$31
 
($2)
 
$29
 
Utility and Entergy Wholesale Commodities
Liabilities:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Other current liabilities
(current portion)
 
$3
 
($3)
 
$—
 
Entergy Wholesale Commodities
Electricity swaps and options
 
Other non-current liabilities (non-current portion)
 
$2
 
($1)
 
$1
 
Entergy Wholesale Commodities
Natural gas swaps and options
 
Other current liabilities
(current portion)
 
$5
 
$—
 
$5
 
Utility
Natural gas swaps and options
 
Other non-current liabilities (non-current portion)
 
$1
 
$—
 
$1
 
Utility

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The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2018 are shown in the table below.  Certain investments, including those not designated as hedging instruments, are subject to master netting agreements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument
 
Balance Sheet Location
 
Fair Value (a)
 
Offset (b)
 
Net (c) (d)
 
Business
 
 
 
 
(In Millions)
 
 
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Prepayments and other (current portion)
 
$32
 
($32)
 
$—
 
Entergy Wholesale Commodities
Electricity swaps and options
 
Other deferred debits and other assets (non-current portion)
 
$7
 
($7)
 
$—
 
Entergy Wholesale Commodities
Liabilities:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Other current liabilities (current portion)
 
$54
 
($33)
 
$21
 
Entergy Wholesale Commodities
Electricity swaps and options
 
Other non-current liabilities (non-current portion)
 
$20
 
($7)
 
$13
 
Entergy Wholesale Commodities
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Prepayments and other (current portion)
 
$4
 
($2)
 
$2
 
Entergy Wholesale Commodities
Electricity swaps and options
 
Other deferred debits and other assets (non-current portion)
 
$1
 
$—
 
$1
 
Entergy Wholesale Commodities
Natural gas swaps and options
 
Other deferred debits and other assets (non-current portion)
 
$2
 
$—
 
$2
 
Utility
Financial transmission rights
 
Prepayments and other
 
$16
 
($1)
 
$15
 
Utility and Entergy Wholesale Commodities
Liabilities:
 
 
 
 
 
 
 
 
 
 
Electricity swaps and options
 
Other current liabilities (current portion)
 
$1
 
($1)
 
$—
 
Entergy Wholesale Commodities
Natural gas swaps and options
 
Other current liabilities
 
$1
 
$—
 
$1
 
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 $2 million held and $13 million posted as of June 30, 2019 and $19 million posted as of December 31, 2018. Also excludes letters of credit in the amount of $51 million held and $2 million posted as of June 30, 2019 and $4 million posted as of December 31, 2018.

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The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended June 30, 2019 and 2018 are as follows:
Instrument
 
Amount of gain (loss)
recognized in other
comprehensive income
 
Income Statement location
 
Amount of gain
reclassified from
accumulated other comprehensive income into income (a)
 
 
(In Millions)
 
 
 
(In Millions)
2019
 
 
 
 
 
 
Electricity swaps and options
 
$126
 
Competitive businesses operating revenues
 
$6
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
Electricity swaps and options
 
($80)
 
Competitive businesses operating revenues
 
$3

(a)
Before taxes of $1 million and $1 million for the three months ended June 30, 2019 and 2018, respectively

The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the six months ended June 30, 2019 and 2018 are as follows:
Instrument
 
Amount of gain 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)
2019
 
 
 
 
 
 
Electricity swaps and options
 
$152
 
Competitive businesses operating revenues
 
$57
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
Electricity swaps and options
 
$11
 
Competitive businesses operating revenues
 
($27)

    
(a)
Before taxes of $12 million and ($6) million for the six months ended June 30, 2019 and 2018, respectively

Prior to the adoption of ASU 2017-12, Entergy measured its hedges for ineffectiveness. Any ineffectiveness was recognized in earnings during the period. The ineffective portion of cash flow hedges was recorded in competitive businesses operating revenues. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended June 30, 2018 was ($15) million. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the six months ended June 30, 2018 was ($2) million.

Based on market prices as of June 30, 2019, unrealized gains (losses) recorded in accumulated other comprehensive income on cash flow hedges relating to power sales totaled $67 million of net unrealized losses.  Approximately $48 million is expected to be reclassified from accumulated other comprehensive income to operating revenues in the next twelve months.  The actual amount reclassified from accumulated other comprehensive income, however, could vary due to future changes in market prices.    

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

The effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended June 30, 2019 and 2018 are as follows:
Instrument
 
Amount of gain (loss) recognized in accumulated other comprehensive income
 
Income Statement
location
 
Amount of gain (loss)
recorded in the income statement
 
 
(In Millions)
 
 
 
(In Millions)
2019
 
 
 
 
 
 
Natural gas swaps
 
$—
 
Fuel, fuel-related expenses, and gas purchased for resale
(a)
($6)
Financial transmission rights
 
$—
 
Purchased power expense
(b)
$32
Electricity swaps and options
 
$—
(c)
Competitive business operating revenues
 
($2)
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
Natural gas swaps
 
$—
 
Fuel, fuel-related expenses, and gas purchased for resale
(a)
$6
Financial transmission rights
 
$—
 
Purchased power expense
(b)
$41
Electricity swaps and options
 
$—
(c)
Competitive business operating revenues
 
$1


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The effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the six months ended June 30, 2019 and 2018 are as follows:
Instrument

Amount of gain (loss) recognized in accumulated other comprehensive income

Income Statement
location

Amount of gain (loss)
recorded in the income statement
 
 
(In Millions)
 
 
 
(In Millions)
2019
 

 
 
 
 
Natural gas swaps and options
 
$—
 
Fuel, fuel-related expenses, and gas purchased for resale
(a)
($7)
Financial transmission rights

$—

Purchased power expense
(b)
$53
Electricity swaps and options
 
$—
(c)
Competitive business operating revenues
 
$3
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
Natural gas swaps
 
$—
 
Fuel, fuel-related expenses, and gas purchased for resale
(a)
$6
Financial transmission rights
 
$—
 
Purchased power expense
(b)
$73
Electricity swaps and options
 
$—
(c)
Competitive business operating revenues
 
$1


(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)
Amount of gain recognized in accumulated other comprehensive income from electricity swaps and options de-designated as hedged items.


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The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of June 30, 2019 are shown in the table below. Certain investments are subject to master netting agreements and are presented on the balance sheets on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument
 
Balance Sheet Location
 
Fair Value (a)
 
Offset (b)
 
Net (c) (d)
 
Registrant
 
 
 
 
(In Millions)
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Natural gas swaps and options
 
Prepayments and other
 
$0.1
 
$—
 
$0.1
 
Entergy Louisiana
Natural gas swaps and options
 
Other deferred debits and other assets (non-current portion)
 
$1.4
 
$—
 
$1.4
 
Entergy Louisiana
 
 
 
 
 
 
 
 
 
 
 
Financial transmission rights
 
Prepayments and other
 
$8.3
 
($0.1)
 
$8.2
 
Entergy Arkansas
Financial transmission rights
 
Prepayments and other
 
$15.9
 
($0.3)
 
$15.6
 
Entergy Louisiana
Financial transmission rights
 
Prepayments and other
 
$2.8
 
$—
 
$2.8
 
Entergy Mississippi
Financial transmission rights
 
Prepayments and other
 
$2.1
 
($0.1)
 
$2.0
 
Entergy New Orleans
Financial transmission rights
 
Prepayments and other
 
$2.1
 
($1.5)
 
$0.6
 
Entergy Texas
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Natural gas swaps and options
 
Other current liabilities
 
$1.9
 
$—
 
$1.9
 
Entergy Louisiana
Natural gas swaps and options
 
Other non-current liabilities
 
$0.7
 
$—
 
$0.7
 
Entergy Louisiana
Natural gas swaps
 
Other current liabilities
 
$3.1
 
$—
 
$3.1
 
Entergy Mississippi


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The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2018 are as follows:
Instrument
 
Balance Sheet Location
 
Fair Value (a)
 
Offset (b)
 
Net (c) (d)
 
Registrant
 
 
 
 
(In Millions)
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Natural gas swaps and options
 
Prepayments and other
 
$0.3
 
$—
 
$0.3
 
Entergy Louisiana
Natural gas swaps and options
 
Other deferred debits and other assets
 
$1.6
 
$—
 
$1.6
 
Entergy Louisiana
 
 
 
 
 
 
 
 
 
 
 
Financial transmission rights
 
Prepayments and other
 
$3.6
 
($0.2)
 
$3.4
 
Entergy Arkansas
Financial transmission rights
 
Prepayments and other
 
$8.4
 
($0.1)
 
$8.3
 
Entergy Louisiana
Financial transmission rights
 
Prepayments and other
 
$2.2
 
$—
 
$2.2
 
Entergy Mississippi
Financial transmission rights
 
Prepayments and other
 
$1.3
 
$—
 
$1.3
 
Entergy New Orleans
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Financial transmission rights
 
Other current liabilities
 
$0.9
 
($1.4)
 
($0.5)
 
Entergy Texas
 
 
 
 
 
 
 
 
 
 
 
Natural gas swaps and options
 
Other current liabilities
 
$1.1
 
$—
 
$1.1
 
Entergy Louisiana
Natural gas swaps
 
Other current liabilities
 
$0.1
 
$—
 
$0.1
 
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 June 30, 2019, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi, $10.2 thousand for Entergy New Orleans, and $2.2 million for Entergy Texas. As of December 31, 2018, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi, and $4.1 million for Entergy Texas.



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The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended June 30, 2019 and 2018 are as follows:
Instrument
 
Income Statement Location
 
Amount of gain
(loss) recorded
in the income statement
 
Registrant
 
 
 
 
(In Millions)
 
 
2019
 
 
 
 
 
 
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
($2.7)
(a)
Entergy Louisiana
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
($3.5)
(a)
Entergy Mississippi
 
 
 
 
 
 
 
Financial transmission rights
 
Purchased power expense
 
$3.6
(b)
Entergy Arkansas
Financial transmission rights
 
Purchased power expense
 
$17.7
(b)
Entergy Louisiana
Financial transmission rights
 
Purchased power expense
 
$2.2
(b)
Entergy Mississippi
Financial transmission rights
 
Purchased power expense
 
$0.7
(b)
Entergy New Orleans
Financial transmission rights
 
Purchased power expense
 
$7.8
(b)
Entergy Texas
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
$4.9
(a)
Entergy Louisiana
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
$0.9
(a)
Entergy Mississippi
 
 
 
 
 
 
 
Financial transmission rights
 
Purchased power expense
 
$2.1
(b)
Entergy Arkansas
Financial transmission rights
 
Purchased power expense
 
$25.8
(b)
Entergy Louisiana
Financial transmission rights
 
Purchased power expense
 
$9.8
(b)
Entergy Mississippi
Financial transmission rights
 
Purchased power expense
 
$5.2
(b)
Entergy New Orleans
Financial transmission rights
 
Purchased power expense
 
($1.8)
(b)
Entergy Texas


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The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the six months ended June 30, 2019 and 2018 are as follows:
Instrument

Income Statement Location

Amount of gain
(loss) recorded
in the income statement

Registrant
 
 
 
 
(In Millions)
 
 
2019
 
 
 

 
 
Natural gas swaps and options
 
Fuel, fuel-related expenses, and gas purchased for resale
 
($1.9)
(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
 
$0.2
(a)
Entergy New Orleans
 
 
 
 
 
 
 
Financial transmission rights
 
Purchased power expense
 
$12.0
(b)
Entergy Arkansas
Financial transmission rights
 
Purchased power expense
 
$26.5
(b)
Entergy Louisiana
Financial transmission rights
 
Purchased power expense
 
$3.3
(b)
Entergy Mississippi
Financial transmission rights
 
Purchased power expense
 
$2.6
(b)
Entergy New Orleans
Financial transmission rights
 
Purchased power expense
 
$8.1
(b)
Entergy Texas
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
$4.9
(a)
Entergy Louisiana
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
$0.7
(a)
Entergy Mississippi
Natural gas swaps
 
Fuel, fuel-related expenses, and gas purchased for resale
 
($0.1)
(a)
Entergy New Orleans
 
 
 
 
 
 
 
Financial transmission rights
 
Purchased power expense
 
$10.1
(b)
Entergy Arkansas
Financial transmission rights
 
Purchased power expense
 
$43.4
(b)
Entergy Louisiana
Financial transmission rights
 
Purchased power expense
 
$17.6
(b)
Entergy Mississippi
Financial transmission rights
 
Purchased power expense
 
$8.4
(b)
Entergy New Orleans
Financial transmission rights
 
Purchased power expense
 
($5.3)
(b)
Entergy Texas


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

Fair Values

The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling.  Considerable judgment is required in developing the estimates

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of fair value.  Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange.  Gains or losses realized on financial instruments other than those instruments held by the Entergy Wholesale Commodities business are reflected in future rates and therefore do not affect net income. Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments.

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

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

The three levels of the fair value hierarchy are:

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

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

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

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

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

The values for power contract assets or liabilities are based on both observable inputs including public market prices and interest rates, and unobservable inputs such as implied volatilities, unit contingent discounts, expected basis differences, and credit adjusted counterparty interest rates.  They are classified as Level 3 assets and liabilities.  The valuations of these assets and liabilities are performed by the Business Unit Risk Control group and the Accounting

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Entergy Corporation and Subsidiaries
Notes to Financial Statements

Policy and Entergy Wholesale Commodities Accounting group.  The primary functions of the Business Unit Risk Control group include: gathering, validating and reporting market data, providing market risk analyses and valuations in support of Entergy Wholesale Commodities’ commercial transactions, developing and administering protocols for the management of market risks, and implementing and maintaining controls around changes to market data in the energy trading and risk management system.  The Business Unit Risk Control group is also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis.  The Accounting Policy and Entergy Wholesale Commodities Accounting group performs functions related to market and counterparty settlements, revenue reporting and analysis and financial accounting. The Business Unit Risk Control group reports to the Vice President and Treasurer while the Accounting Policy and Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer.

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

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

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

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



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Entergy Corporation and Subsidiaries
Notes to Financial Statements

The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that are accounted for at fair value on a recurring basis as of June 30, 2019 and December 31, 2018.  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.
2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$575

 

$—

 

$—

 

$575

Decommissioning trust funds (a):
 
 
 
 
 
 
 
 
Equity securities
 
1,293

 
—

 
—

 
1,293

Debt securities
 
1,630

 
1,783

 
—

 
3,413

Common trusts (b)
 
 
 
 
 
 
 
2,363

Power contracts
 
—

 
—

 
73

 
73

Securitization recovery trust account
 
39

 
—

 
—

 
39

Escrow accounts
 
408

 
—

 
—

 
408

Gas hedge contracts
 
—

 
1

 
—

 
1

Financial transmission rights
 
—

 
—

 
29

 
29

 
 

$3,945

 

$1,784

 

$102

 

$8,194

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Power contracts
 

$—

 

$—

 

$1

 

$1

Gas hedge contracts
 
5

 
1

 
—

 
6

 
 

$5

 

$1

 

$1

 

$7


2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$424

 

$—

 

$—

 

$424

Decommissioning trust funds (a):
 
 
 
 
 
 
 
 
Equity securities
 
1,686

 
—

 
—

 
1,686

Debt securities
 
1,259

 
1,625

 
—

 
2,884

Common trusts (b)
 
 
 
 
 
 
 
2,350

Power contracts
 
—

 
—

 
3

 
3

Securitization recovery trust account
 
51

 
—

 
—

 
51

Escrow accounts
 
403

 
—

 
—

 
403

Gas hedge contracts
 
—

 
2

 
—

 
2

Financial transmission rights
 
—

 
—

 
15

 
15

 
 

$3,823

 

$1,627

 

$18

 

$7,818

Liabilities:
 
 
 
 
 
 
 
 
Power contracts
 

$—

 

$—

 

$34

 

$34

Gas hedge contracts
 
1

 
—

 
—

 
1

 
 

$1

 

$—

 

$34

 

$35



(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.

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Notes to Financial Statements

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

The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended June 30, 2019 and 2018:
 
2019
 
2018
 
Power Contracts
 
Financial transmission rights
 
Power Contracts
 
Financial transmission rights
 
(In Millions)
Balance as of April 1,

($46
)
 

$5

 

$75

 

$8

Total gains (losses) for the period (a)
 
 
 
 
 
 
 
Included in earnings
(2
)
 
—

 
(15
)
 
—

Included in other comprehensive income
126

 
—

 
(80
)
 
—

Included as a regulatory liability/asset
—

 
21

 
—

 
28

Issuances of financial transmission rights
—

 
35

 
—

 
46

Settlements
(6
)
 
(32
)
 
(5
)
 
(41
)
Balance as of June 30,

$72

 

$29

 

($25
)
 

$41



(a)
Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period is $1.4 million for the three months ended June 30, 2019 and ($0.8) million for the three months ended June 30, 2018.

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 six months ended June 30, 2019 and 2018:
 
2019
 
2018
 
Power Contracts
 
Financial transmission rights
 
Power Contracts
 
Financial transmission rights

(In Millions)
Balance as of January 1,

($31
)
 

$15

 

($65
)
 

$21

Total gains (losses) for the period (a)
 
 
 
 
 
 
 
Included in earnings
3

 
—

 
(1
)
 
(1
)
Included in other comprehensive income
152

 
—

 
11

 
—

Included as a regulatory liability/asset
—

 
32

 
—

 
48

Issuances of financial transmission rights
—

 
35

 
—

 
46

Settlements
(52
)
 
(53
)
 
30

 
(73
)
Balance as of June 30,

$72

 

$29

 

($25
)
 

$41



(a)
Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period is ($3.5) million for the six months ended June 30, 2019 and ($0.7) million for the six months ended June 30, 2018.


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Notes to Financial Statements

The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy and significant unobservable inputs to each which cause that classification as of June 30, 2019:
Transaction Type
 
Fair Value
as of
June 30, 2019
 
Significant
Unobservable Inputs
 
Range
from
Average
%
 
Effect on
Fair Value
 
 
(In Millions)
 
 
 
 
 
 
(In Millions)
Power contracts - electricity swaps
 
$72
 
Unit contingent discount
 
+/-
4% - 4.75%
 
$6 - $7


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 June 30, 2019 and December 31, 2018.  The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels.

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

$29.1

 

$—

 

$—

 

$29.1

Decommissioning trust funds (a):
 
 
 
 
 
 
 
 
Equity securities
 
5.1

 
—

 
—

 
5.1

Debt securities
 
107.5

 
294.1

 
—

 
401.6

Common trusts (b)
 
 
 
 
 
 
 
625.1

Securitization recovery trust account
 
3.8

 
—

 
—

 
3.8

Financial transmission rights
 
—

 
—

 
8.2

 
8.2

 
 

$145.5

 

$294.1

 

$8.2

 

$1,072.9


2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Decommissioning trust funds (a):
 
 
 
 
 
 
 
 
Equity securities
 

$4.0

 

$—

 

$—

 

$4.0

Debt securities
 
94.8

 
286.5

 
—

 
381.3

Common trusts (b)
 
 
 
 
 
 
 
526.7

Securitization recovery trust account
 
4.7

 
—

 
—

 
4.7

Financial transmission rights
 
—

 
—

 
3.4

 
3.4

 
 

$103.5

 

$286.5

 

$3.4

 

$920.1




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Notes to Financial Statements

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

$44.5

 

$—

 

$—

 

$44.5

Decommissioning trust funds (a):
 
 
 
 
 
 
 
 
Equity securities
 
8.6

 
—

 
—

 
8.6

Debt securities
 
191.3

 
385.0

 
—

 
576.3

Common trusts (b)
 
 
 
 
 
 
 
876.2

Escrow accounts
 
292.9

 
—

 
—

 
292.9

Securitization recovery trust account
 
3.2

 
—

 
—

 
3.2

Gas hedge contracts
 
0.1

 
1.4

 
—

 
1.5

Financial transmission rights
 
—

 
—

 
15.6

 
15.6

 
 

$540.6

 

$386.4

 

$15.6

 

$1,818.8

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Gas hedge contracts
 

$1.9

 

$0.7

 

$—

 

$2.6


2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$43.1

 

$—

 

$—

 

$43.1

Decommissioning trust funds (a):
 
 

 
 

 
 

 
 

Equity securities
 
13.3

 
—

 
—

 
13.3

Debt securities
 
162.0

 
370.9

 
—

 
532.9

Common trusts (b)
 
 
 
 
 
 
 
738.8

Escrow accounts
 
289.5

 
—

 
—

 
289.5

Securitization recovery trust account
 
3.6

 
—

 
—

 
3.6

Gas hedge contracts
 
—

 
1.9

 
—

 
1.9

Financial transmission rights
 
—

 
—

 
8.3

 
8.3

 
 

$511.5

 

$372.8

 

$8.3

 

$1,631.4

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Gas hedge contracts
 

$0.7

 

$0.4

 

$—

 

$1.1



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

$123.7

 

$—

 

$—

 

$123.7

Escrow accounts
 
32.8

 
—

 
—

 
32.8

Financial transmission rights
 
—

 
—

 
2.8

 
2.8

 
 

$156.5

 

$—

 

$2.8

 

$159.3

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Gas hedge contracts
 

$3.1

 

$—

 

$—

 

$3.1



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Entergy Corporation and Subsidiaries
Notes to Financial Statements

2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$36.9

 

$—

 

$—

 

$36.9

Escrow accounts
 
32.4

 
—

 
—

 
32.4

Financial transmission rights
 
—

 
—

 
2.2

 
2.2

 
 

$69.3

 

$—

 

$2.2

 

$71.5



Entergy New Orleans
2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Securitization recovery trust account
 

$1.5

 

$—

 

$—

 

$1.5

Escrow accounts
 
81.8

 
—

 
—

 
81.8

Financial transmission rights
 
—

 
—

 
2.0

 
2.0

 
 

$83.3

 

$—

 

$2.0

 

$85.3


2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$19.7

 

$—

 

$—

 

$19.7

Securitization recovery trust account
 
2.2

 
—

 
—

 
2.2

Escrow accounts
 
80.9

 
—

 
—

 
80.9

Financial transmission rights
 
—

 
—

 
1.3

 
1.3

 
 

$102.8

 

$—

 

$1.3

 

$104.1

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Gas hedge contracts
 

$0.1

 

$—

 

$—

 

$0.1



Entergy Texas
2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Securitization recovery trust account
 

$30.2

 

$—

 

$—

 

$30.2

Financial transmission rights
 
—

 
—

 
0.6

 
0.6

 
 

$30.2

 

$—

 

$0.6

 

$30.8


2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Securitization recovery trust account
 

$40.2

 

$—

 

$—

 

$40.2

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Financial transmission rights
 

$—

 

$—

 

$0.5

 

$0.5




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Notes to Financial Statements

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

$82.9

 

$—

 

$—

 

$82.9

Decommissioning trust funds (a):
 
 
 
 
 
 
 
 
Equity securities
 
5.2

 
—

 
—

 
5.2

Debt securities
 
229.9

 
156.7

 
—

 
386.6

Common trusts (b)
 
 
 
 
 
 
 
595.0

 
 

$318.0

 

$156.7

 

$—

 

$1,069.7


2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In Millions)
Assets:
 
 
 
 
 
 
 
 
Temporary cash investments
 

$95.6

 

$—

 

$—

 

$95.6

Decommissioning trust funds (a):
 
 
 
 
 
 
 
 
Equity securities
 
4.4

 
—

 
—

 
4.4

Debt securities
 
224.5

 
139.7

 
—

 
364.2

Common trusts (b)
 
 
 
 
 
 
 
500.9

 
 

$324.5

 

$139.7

 

$—

 

$965.1



(a)
The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices.  Fixed income securities are held in various governmental and corporate securities.  See Note 9 to the financial statements herein for additional information on the investment portfolios.
(b)
Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the net asset value and trades settle at a later date.

The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended June 30, 2019.
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 
(In Millions)
Balance as of April 1,

$1.1

 

$2.8

 

$0.7

 

$0.5

 

($0.3
)
Issuances of financial transmission rights
9.6

 
18.7

 
3.9

 
2.7

 
0.1

Gains included as a regulatory liability/asset
1.1

 
11.8

 
0.4

 
(0.5
)
 
8.6

Settlements
(3.6
)
 
(17.7
)
 
(2.2
)
 
(0.7
)
 
(7.8
)
Balance as of June 30,

$8.2

 

$15.6

 

$2.8

 

$2.0

 

$0.6


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Notes to Financial Statements


The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended June 30, 2018.
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 
(In Millions)
Balance as of April 1,

$1.8

 

$3.4

 

$0.9

 

$0.7

 

$1.4

Issuances of financial transmission rights
11.8

 
20.0

 
4.5

 
3.7

 
6.1

Gains included as a regulatory liability/asset
(1.0
)
 
20.6

 
8.8

 
3.8

 
(4.6
)
Settlements
(2.1
)
 
(25.8
)
 
(9.8
)
 
(5.2
)
 
1.8

Balance as of June 30,

$10.5

 

$18.2

 

$4.4

 

$3.0

 

$4.7


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 six months ended June 30, 2019.
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 
(In Millions)
Balance as of January 1,

$3.4

 

$8.3

 

$2.2

 

$1.3

 

($0.5
)
Issuances of financial transmission rights
9.6

 
18.7

 
3.9

 
2.7

 
0.1

Gains (losses) included as a regulatory liability/asset
7.2

 
15.1

 
—

 
0.6

 
9.1

Settlements
(12.0
)
 
(26.5
)
 
(3.3
)
 
(2.6
)
 
(8.1
)
Balance as of June 30,

$8.2

 

$15.6

 

$2.8

 

$2.0

 

$0.6


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 six months ended June 30, 2018.
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 
(In Millions)
Balance as of January 1,

$3.0

 

$10.2

 

$2.1

 

$2.2

 

$3.4

Issuances of financial transmission rights
11.8

 
20.0

 
4.5

 
3.7

 
6.1

Gains (losses) included as a regulatory liability/asset
5.8

 
31.4

 
15.4

 
5.5

 
(10.1
)
Settlements
(10.1
)
 
(43.4
)
 
(17.6
)
 
(8.4
)
 
5.3

Balance as of June 30,

$10.5

 

$18.2

 

$4.4

 

$3.0

 

$4.7





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Notes to Financial Statements

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

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

As discussed in Note 16 to the financial statements herein and Note 14 to the financial statements in the Form 10-K, in January 2019, Entergy completed the transfer of the Vermont Yankee plant to NorthStar. As part of the transaction, Entergy transferred the Vermont Yankee decommissioning trust fund to NorthStar. As of December 31, 2018, the fair value of the decommissioning trust fund was $532 million.

Entergy records decommissioning trust funds on the balance sheet at their fair value.  Because of the ability of the Registrant Subsidiaries to recover decommissioning costs in rates and in accordance with the regulatory treatment for decommissioning trust funds, the Registrant Subsidiaries have recorded an offsetting amount of unrealized gains/(losses) on investment securities in other regulatory liabilities/assets.  For the 30% interest in River Bend formerly owned by Cajun, Entergy Louisiana records an offsetting amount in other deferred credits for the unrealized trust earnings not currently expected to be needed to decommission the plant.  Decommissioning trust funds for Pilgrim, Indian Point 1, Indian Point 2, Indian Point 3, and Palisades do not meet the criteria for regulatory accounting treatment.  Accordingly, unrealized gains/(losses) recorded on the equity securities in the trust funds are recognized in earnings. Unrealized gains recorded on the available-for-sale debt securities in the trust funds are recognized in the accumulated other comprehensive income component of shareholders’ equity.  Unrealized losses (where cost exceeds fair market value) on the available-for-sale debt securities in the trust funds are also recorded in the accumulated other comprehensive income component of shareholders’ equity unless the unrealized loss is other than temporary and therefore recorded in earnings. A portion of Entergy’s decommissioning trust funds are held in a wholly-owned registered investment company, and unrealized gains and losses on both the equity and debt securities held in the registered investment company are recognized in earnings. Generally, Entergy records gains and losses on its debt and equity securities using the specific identification method to determine the cost basis of its securities.

The unrealized gains/(losses) recognized during the three and six months ended June 30, 2019 on equity securities still held as of June 30, 2019 were $7 million and $278 million, respectively. The equity securities are generally held in funds that are designed to approximate or somewhat exceed the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index or the Russell 3000 Index. The debt securities are generally held in individual government and credit issuances.

The available-for-sale securities held as of June 30, 2019 and December 31, 2018 are summarized as follows:
 
 
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
 
 
(In Millions)
2019
 
 
 
 
 
 
Debt Securities (a)
 

$2,914

 

$92

 

$2

 
 
 
 
 
 
 
2018
 
 
 
 
 
 
Debt Securities (a)
 

$2,495

 

$19

 

$35



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(a)
Debt securities presented herein do not include the $499 million and $389 million of debt securities held in the wholly-owned registered investment company as of June 30, 2019 and December 31, 2018, respectively, which are not accounted for as available-for-sale.

The unrealized gains/(losses) above are reported before deferred taxes of $15 million as of June 30, 2019 and ($1) million as of December 31, 2018 for debt securities. The amortized cost of available-for-sale debt securities was $2,849 million as of June 30, 2019 and $2,511 million as of December 31, 2018.  As of June 30, 2019, available-for-sale debt securities have an average coupon rate of approximately 3.15%, an average duration of approximately 5.33 years, and an average maturity of approximately 8.51 years.

The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of June 30, 2019:
 
 
Fair
Value
 
Gross
Unrealized
Losses
 
 
(In Millions)
Less than 12 months
 

$163

 

$—

More than 12 months
 
180

 
2

Total
 

$343

 

$2


The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2018:
 
Fair
Value
 
Gross
Unrealized
Losses
 
(In Millions)
Less than 12 months

$652

 

$9

More than 12 months
782

 
26

Total

$1,434

 

$35



The fair value of available-for-sale debt securities, summarized by contractual maturities, as of June 30, 2019 and December 31, 2018 are as follows:
 
2019
 
2018
 
(In Millions)
Less than 1 year

$226

 

$199

1 year - 5 years
1,342

 
1,066

5 years - 10 years
654

 
544

10 years - 15 years
64

 
77

15 years - 20 years
91

 
78

20 years+
537

 
531

Total

$2,914

 

$2,495



During the three months ended June 30, 2019 and 2018, proceeds from the dispositions of available-for-sale securities amounted to $361 million and $710 million, respectively.  During the three months ended June 30, 2019 and 2018, gross gains of $6 million and $1 million, respectively, and gross losses of $1 million and $15 million, respectively, related to available-for-sale securities were reclassified out of other comprehensive income or other regulatory liabilities/assets into earnings.


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During the six months ended June 30, 2019 and 2018, proceeds from the dispositions of available-for-sale securities amounted to $726 million and $1,801 million, respectively.  During the six months ended June 30, 2019 and 2018, gross gains of $8 million and $2 million, respectively, and gross losses of $3 million and $22 million, respectively, related to available-for-sale securities were reclassified out of other comprehensive income or other regulatory liabilities/assets into earnings.

The fair values of the decommissioning trust funds related to the Entergy Wholesale Commodities nuclear plants as of June 30, 2019 are $525 million for Indian Point 1, $664 million for Indian Point 2, $876 million for Indian Point 3, $489 million for Palisades, and $1,035 million for Pilgrim. The fair values of the decommissioning trust funds related to the Entergy Wholesale Commodities nuclear plants as of December 31, 2018 are $471 million for Indian Point 1, $598 million for Indian Point 2, $781 million for Indian Point 3, $444 million for Palisades, $1,028 million for Pilgrim, and $532 million for Vermont Yankee. The fair values of the decommissioning trust funds for the Registrant Subsidiaries’ nuclear plants are detailed below.

Entergy Arkansas

Entergy Arkansas holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts.  The available-for-sale securities held as of June 30, 2019 and December 31, 2018 are summarized as follows:
 
 
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
 
 
(In Millions)
2019
 
 
 
 
 
 
Debt Securities
 

$401.6

 

$8.8

 

$0.5

 
 
 
 
 
 
 
2018
 
 
 
 
 
 
Debt Securities
 

$381.3

 

$0.6

 

$8.2



The amortized cost of available-for-sale debt securities was $393.2 million as of June 30, 2019 and $389 million as of December 31, 2018.  As of June 30, 2019, available-for-sale debt securities have an average coupon rate of approximately 2.75%, an average duration of approximately 4.76 years, and an average maturity of approximately 7.22 years.

The unrealized gains/(losses) recognized during the three and six months ended June 30, 2019 on equity securities still held as of June 30, 2019 were $23 million and $93.8 million, respectively. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.

The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of June 30, 2019:
 
 
Fair
Value
 
Gross
Unrealized
Losses
 
 
(In Millions)
Less than 12 months
 

$0.5

 

$—

More than 12 months
 
52.7

 
0.5

Total
 

$53.2

 

$0.5



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The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2018:
 
Fair
Value
 
Gross
Unrealized
Losses
 
(In Millions)
Less than 12 months

$65.8

 

$0.5

More than 12 months
231.1

 
7.7

Total

$296.9

 

$8.2



The fair value of available-for-sale debt securities, summarized by contractual maturities, as of June 30, 2019 and December 31, 2018 are as follows:
 
2019
 
2018
 
(In Millions)
Less than 1 year

$59.5

 

$32.5

1 year - 5 years
143.2

 
170.3

5 years - 10 years
129.0

 
114.0

10 years - 15 years
11.1

 
10.3

15 years - 20 years
9.7

 
8.1

20 years+
49.1

 
46.1

Total

$401.6

 

$381.3



During the three months ended June 30, 2019 and 2018, proceeds from the dispositions of available-for-sale securities amounted to $22.3 million and $86.5 million, respectively.  During the three months ended June 30, 2019 and 2018, gross gains of $0.1 million and $0.01 million, respectively, and gross losses of $18 thousand and $2.3 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.

During the six months ended June 30, 2019 and 2018, proceeds from the dispositions of available-for-sale securities amounted to $33.2 million and $121.4 million, respectively.  During the six months ended June 30, 2019 and 2018, gross gains of $0.1 million and $0.1 million, respectively, and gross losses of $0.1 million and $2.4 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 June 30, 2019 and December 31, 2018 are summarized as follows:
 
 
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
 
 
(In Millions)
2019
 
 
 
 
 
 
Debt Securities
 

$576.3

 

$26.6

 

$0.3

 
 
 
 
 
 
 
2018
 
 
 
 
 
 
Debt Securities
 

$532.9

 

$4.1

 

$6.0



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The amortized cost of available-for-sale debt securities was $550 million as of June 30, 2019 and $534.8 million as of December 31, 2018.  As of June 30, 2019, the available-for-sale debt securities have an average coupon rate of approximately 3.87%, an average duration of approximately 6.46 years, and an average maturity of approximately 12.99 years.

The unrealized gains/(losses) recognized during the three and six months ended June 30, 2019 on equity securities still held as of June 30, 2019 were $32.3 million and $131.1 million, respectively. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.

The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of June 30, 2019:
 
 
Fair
Value
 
Gross
Unrealized
Losses
 
 
(In Millions)
Less than 12 months
 

$5.0

 

$—

More than 12 months
 
31.7

 
0.3

Total
 

$36.7

 

$0.3


The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2018:
 
Fair
Value
 
Gross
Unrealized
Losses
 
(In Millions)
Less than 12 months

$170.1

 

$2.1

More than 12 months
145.8

 
3.9

Total

$315.9

 

$6.0


The fair value of available-for-sale debt securities, summarized by contractual maturities, as of June 30, 2019 and December 31, 2018 are as follows:
 
2019
 
2018
 
(In Millions)
Less than 1 year

$52.5

 

$31.1

1 year - 5 years
128.7

 
130.5

5 years - 10 years
134.4

 
111.0

10 years - 15 years
27.6

 
29.0

15 years - 20 years
44.3

 
37.1

20 years+
188.8

 
194.2

Total

$576.3

 

$532.9


During the three months ended June 30, 2019 and 2018, proceeds from the dispositions of available-for-sale securities amounted to $39.5 million and $43.9 million, respectively.  During the three months ended June 30, 2019 and 2018, gross gains of $1.4 million and $0.01 million, respectively, and gross losses of $0.05 million and $0.4 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.

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During the six months ended June 30, 2019 and 2018, proceeds from the dispositions of available-for-sale securities amounted to $95.7 million and $169.4 million, respectively.  During the six months ended June 30, 2019 and 2018, gross gains of $1.7 million and $0.5 million, respectively, and gross losses of $0.2 million and $1.2 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 June 30, 2019 and December 31, 2018 are summarized as follows:
 
 
Fair
Value
 
Total
Unrealized
Gains
 
Total
Unrealized
Losses
 
 
(In Millions)
2019
 
 
 
 
 
 
Debt Securities
 

$386.6

 

$14.1

 

$0.2

 
 
 
 
 
 
 
2018
 
 
 
 
 
 
Debt Securities
 

$364.2

 

$2.9

 

$5.8


The amortized cost of available-for-sale debt securities was $372.7 million as of June 30, 2019 and $367.1 million as of December 31, 2018.  As of June 30, 2019, available-for-sale debt securities have an average coupon rate of approximately 2.98%, an average duration of approximately 6.56 years, and an average maturity of approximately 9.13 years.

The unrealized gains/(losses) recognized during the three and six months ended June 30, 2019 on equity securities still held as of June 30, 2019 were $21.8 million and $89.2 million, respectively. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.

The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of June 30, 2019:
 
 
Fair
Value
 
Gross
Unrealized
Losses
 
(In Millions)
Less than 12 months
 

$42.6

 

$0.1

More than 12 months
 
14.1

 
0.1

Total
 

$56.7

 

$0.2



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The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2018:
 
Fair
Value
 
Gross
Unrealized
Losses
 
(In Millions)
Less than 12 months

$89.7

 

$2.4

More than 12 months
79.8

 
3.4

Total

$169.5

 

$5.8


The fair value of available-for-sale debt securities, summarized by contractual maturities, as of June 30, 2019 and December 31, 2018 are as follows:
 
2019
 
2018
 
(In Millions)
Less than 1 year

$11.3

 

$22.8

1 year - 5 years
197.6

 
188.0

5 years - 10 years
90.5

 
73.4

10 years - 15 years
1.7

 
5.2

15 years - 20 years
3.2

 
10.2

20 years+
82.3

 
64.6

Total

$386.6

 

$364.2


During the three months ended June 30, 2019 and 2018, proceeds from the dispositions of available-for-sale securities amounted to $87.7 million and $145.2 million, respectively.  During the three months ended June 30, 2019 and 2018, gross gains of $1.5 million and $0.2 million, respectively, and gross losses of $0.3 million and $3.9 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.

During the six months ended June 30, 2019 and 2018, proceeds from the dispositions of available-for-sale securities amounted to $129.8 million and $199.4 million, respectively.  During the six months ended June 30, 2019 and 2018, gross gains of $1.9 million and $0.3 million, respectively, and gross losses of $0.4 million and $4.5 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.

Other-than-temporary impairments and unrealized gains and losses

Entergy evaluates the available-for-sale debt securities in the Entergy Wholesale Commodities’ nuclear decommissioning trust funds with unrealized losses at the end of each period to determine whether an other-than-temporary impairment has occurred.  The assessment of whether an investment in a debt security has suffered an other-than-temporary impairment is based on whether Entergy has the intent to sell or more likely than not will be required to sell the debt security before recovery of its amortized costs.  Further, if Entergy does not expect to recover the entire amortized cost basis of the debt security, an other-than-temporary impairment is considered to have occurred and it is measured by the present value of cash flows expected to be collected less the amortized cost basis (credit loss).  Entergy did not have any material other-than-temporary impairments relating to credit losses on debt securities for the three and six months ended June 30, 2019 and 2018.  Entergy’s trusts are managed by third parties who operate in accordance with agreements that define investment guidelines and place restrictions on the purchases and sales of investments. 



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

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

Tax Cuts and Jobs Act

During the second quarter 2018, Registrant Subsidiaries began returning unprotected excess accumulated deferred income taxes, associated with the effects of the Tax Cuts and Jobs Act, to their customers through rate riders and other means approved by their respective regulatory commissions. Return of the unprotected excess accumulated deferred income taxes results in a reduction in the regulatory liability for income taxes and a corresponding reduction in income tax expense. This has a significant effect on the effective tax rate for the period as compared to the statutory tax rate. The return of unprotected excess accumulated deferred income taxes reduced the Registrant Subsidiaries’ regulatory liability for income taxes for the three months ended June 30, 2019 and 2018 and the six months ended June 30, 2019 and 2018, as follows:
 
Three Months
Ended June 30,
 
Six Months
Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(In Millions)
Entergy Arkansas

$25

 

$108

 

$57

 

$108

Entergy Louisiana
7

 
31

 
14

 
31

Entergy Mississippi
—

 
129

 
—

 
129

Entergy New Orleans
2

 
—

 
2

 
—

Entergy Texas
20

 
—

 
42

 
—

System Entergy
7

 
11

 
7

 
11



Other Tax Matters    

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

Vermont Yankee

The Vermont Yankee transaction resulted in Entergy generating a net deferred tax asset in January 2019.  The deferred tax asset could not be fully realized by Entergy in the first quarter of 2019; accordingly, Entergy accrued a net tax expense of $29 million on the disposition of Vermont Yankee. See Note 16 to the financial statements herein for discussion of the Vermont Yankee transaction.



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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 June 30, 2019 are $292 million for Entergy, $37.9 million for Entergy Arkansas, $71.3 million for Entergy Louisiana, $10.8 million for Entergy Mississippi, $9.9 million for Entergy New Orleans, $52.4 million for Entergy Texas, and $19.7 million for System Energy.  Construction expenditures included in accounts payable at December 31, 2018 are $311 million for Entergy, $35.7 million for Entergy Arkansas, $104.6 million for Entergy Louisiana, $13.6 million for Entergy Mississippi, $5.8 million for Entergy New Orleans, $55.6 million for Entergy Texas, and $26.3 million for System Energy.


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

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

System Energy is considered to hold a variable interest in the lessor from which it leases an undivided interest representing approximately 11.5% of the Grand Gulf nuclear plant. System Energy is the lessee under this arrangement, which is described in more detail in Note 10 to the financial statements in the Form 10-K. System Energy made payments under this arrangement, including interest, of $8.6 million in the six months ended June 30, 2019 and in the six months ended June 30, 2018.



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

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 June 30, 2019 and 2018 are as follows:
 
 
2019
 
2018
 
 
(In Thousands)
Utility:
 
 
 
 
Residential
 

$770,373

 

$768,710

Commercial
 
595,025

 
581,899

Industrial
 
641,733

 
624,818

Governmental
 
57,623

 
56,823

    Total billed retail
 
2,064,754

 
2,032,250

 
 
 
 
 
Sales for resale (a)
 
75,318

 
69,212

Other electric revenues (b)
 
195,952

 
219,391

Non-customer revenues (c)
 
9,703

 
9,372

    Total electric revenues
 
2,345,727

 
2,330,225

 
 
 
 
 
Natural gas
 
30,699

 
29,943

 
 
 
 
 
Entergy Wholesale Commodities:
 
 
 
 
Competitive businesses sales (a)
 
280,398

 
331,562

Non-customer revenues (c)
 
9,385

 
(22,960
)
    Total competitive businesses
 
289,783

 
308,602

 
 
 
 
 
    Total operating revenues
 

$2,666,209

 

$2,668,770




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Notes to Financial Statements

Entergy’s total revenues for the six months ended June 30, 2019 and 2018 are as follows:
 
 
2019
 
2018
 
 
(In Thousands)
Utility:
 
 
 
 
Residential
 

$1,572,911

 

$1,660,795

Commercial
 
1,149,082

 
1,177,620

Industrial
 
1,242,734

 
1,222,004

Governmental
 
110,584

 
113,301

    Total billed retail
 
4,075,311

 
4,173,720

 
 
 
 
 
Sales for resale (a)
 
159,753

 
138,738

Other electric revenues (b)
 
211,422

 
246,822

Non-customer revenues (c)
 
20,265

 
19,206

    Total electric revenues
 
4,466,751

 
4,578,486

 
 
 
 
 
Natural gas
 
85,647

 
86,638

 
 
 
 
 
Entergy Wholesale Commodities:
 
 
 
 
Competitive businesses sales (a)
 
640,869

 
740,697

Non-customer revenues (c)
 
82,525

 
(13,171
)
    Total competitive businesses
 
723,394

 
727,526

 
 
 
 
 
    Total operating revenues
 

$5,275,792

 

$5,392,650



The Registrant Subsidiaries’ total revenues for the three months ended June 30, 2019 and 2018 were as follows:
2019
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 
 
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
Residential
 

$157,714

 

$290,366

 

$116,801

 

$58,621

 

$146,871

Commercial
 
125,555

 
232,134

 
102,275

 
53,981

 
81,080

Industrial
 
118,913

 
384,919

 
38,739

 
8,490

 
90,672

Governmental
 
4,971

 
17,925

 
10,521

 
18,984

 
5,222

    Total billed retail
 
407,153


925,344


268,336


140,076


323,845

 
 
 
 
 
 
 
 
 
 
 
Sales for resale (a)
 
74,501

 
83,208

 
4,994

 
8,579

 
14,772

Other electric revenues (b)
 
58,209

 
80,307

 
26,982

 
7,263

 
24,656

Non-customer revenues (c)
 
3,066

 
5,400

 
2,425

 
1,234

 
307

    Total electric revenues
 
542,929


1,094,259


302,737


157,152


363,580

 
 
 
 
 
 
 
 
 
 
 
Natural gas
 
—

 
12,058

 
—

 
18,641

 
—

 
 
 
 
 
 
 
 
 
 
 
    Total operating revenues
 

$542,929



$1,106,317



$302,737



$175,793



$363,580



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Notes to Financial Statements


2018
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 
 
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
Residential
 

$159,130

 

$267,915

 

$132,730

 

$58,232

 

$150,703

Commercial
 
93,741

 
221,740

 
117,351

 
54,524

 
94,544

Industrial
 
97,973

 
368,678

 
46,129

 
9,267

 
102,771

Governmental
 
3,766

 
16,705

 
11,452

 
18,448

 
6,452

    Total billed retail
 
354,610

 
875,038

 
307,662

 
140,471

 
354,470

 
 
 
 
 
 
 
 
 
 
 
Sales for resale (a)
 
53,195

 
111,801

 
11,776

 
6,190

 
25,177

Other electric revenues (b)
 
84,102

 
70,027

 
31,696

 
11,623

 
23,468

Non-customer revenues (c)
 
2,698

 
4,823

 
2,555

 
1,318

 
371

    Total electric revenues
 
494,605

 
1,061,689

 
353,689

 
159,602

 
403,486

 
 
 
 
 
 
 
 
 
 
 
Natural gas
 
—

 
11,099

 
—

 
18,844

 
—

 
 
 
 
 
 
 
 
 
 
 
    Total operating revenues
 

$494,605

 

$1,072,788

 

$353,689

 

$178,446

 

$403,486



The Registrant Subsidiaries’ total revenues for the six months ended June 30, 2019 and 2018 were as follows:
2019
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 
 
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
Residential
 

$367,581

 

$554,431

 

$245,610

 

$110,697

 

$294,592

Commercial
 
250,133

 
438,912

 
200,189

 
99,723

 
160,125

Industrial
 
240,491

 
731,598

 
76,436

 
15,740

 
178,470

Governmental
 
9,869

 
34,817

 
20,557

 
34,886

 
10,455

    Total billed retail
 
868,074

 
1,759,758

 
542,792

 
261,046

 
643,642

 
 
 
 
 
 
 
 
 
 
 
Sales for resale (a)
 
154,085

 
167,164

 
9,808

 
18,803

 
31,548

Other electric revenues (b)
 
60,514

 
92,746

 
27,387

 
5,556

 
28,153

Non-customer revenues (c)
 
6,068

 
11,284

 
4,994

 
2,630

 
711

    Total electric revenues
 
1,088,741

 
2,030,952

 
584,981

 
288,035

 
704,054

 
 
 
 
 
 
 
 
 
 
 
Natural gas
 
—

 
34,695

 
—

 
50,952

 
—

 
 
 
 
 
 
 
 
 
 
 
    Total operating revenues
 

$1,088,741

 

$2,065,647

 

$584,981

 

$338,987

 

$704,054



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2018
 
Entergy
Arkansas
 
Entergy
Louisiana
 
Entergy
Mississippi
 
Entergy
New
Orleans
 
Entergy
Texas
 
 
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
Residential
 

$394,654

 

$563,433

 

$281,073

 

$122,807

 

$298,828

Commercial
 
214,375

 
446,667

 
227,811

 
108,796

 
179,971

Industrial
 
209,450

 
721,014

 
88,629

 
16,838

 
186,073

Governmental
 
8,414

 
34,015

 
22,300

 
36,139

 
12,433

    Total billed retail
 
826,893

 
1,765,129

 
619,813

 
284,580

 
677,305

 
 
 
 
 
 
 
 
 
 
 
Sales for resale (a)
 
119,299

 
201,056

 
13,769

 
19,527

 
48,538

Other electric revenues (b)
 
94,125

 
90,529

 
30,977

 
8,511

 
25,733

Non-customer revenues (c)
 
5,312

 
10,081

 
4,873

 
2,802

 
850

    Total electric revenues
 
1,045,629

 
2,066,795

 
669,432

 
315,420

 
752,426

 
 
 
 
 
 
 
 
 
 
 
Natural gas
 
—

 
35,337

 
—

 
51,301

 
—

 
 
 
 
 
 
 
 
 
 
 
    Total operating revenues
 

$1,045,629

 

$2,102,132

 

$669,432

 

$366,721

 

$752,426


(a)
Sales for resale and competitive businesses sales include day-ahead sales of energy in a market administered by an ISO. These sales represent financially binding commitments for the sale of physical energy the next day. These sales are adjusted to actual power generated and delivered in the real time market. Given the short duration of these transactions, Entergy does not consider them to be derivatives subject to fair value adjustments, and includes them as part of customer revenues.
(b)
Other electric revenues consist primarily of transmission and ancillary services provided to participants of an ISO-administered market and unbilled revenue.
(c)
Non-customer revenues include the settlement of financial hedges, occasional sales of inventory, alternative revenue programs, provisions for revenue subject to refund, and late fees.


NOTE 14. ASSET RETIREMENT OBLIGATIONS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

See Note 9 to the financial statements in the Form 10-K for a discussion of asset retirement obligations. The following are updates to that discussion.

In the first quarter 2019, Entergy Arkansas recorded a revision to its estimated decommissioning cost liabilities for ANO 1 and ANO 2 as a result of a revised decommissioning cost study. The revised estimates resulted in a $126.2 million increase in its decommissioning cost liabilities, along with corresponding increases in the related asset retirement cost assets that will be depreciated over the remaining lives of the units.

In the second quarter 2019, Entergy Louisiana recorded a revision to its estimated decommissioning cost liability for Waterford 3 as a result of a revised decommissioning cost study. The revised estimate resulted in a $147.5 million increase in its decommissioning cost liability, along with a corresponding increase in the related asset retirement cost asset that will be depreciated over the remaining useful life of the unit.



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NOTE 15. LEASES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Entergy implemented ASU 2016-02, “Leases (Topic 842),” effective January 1, 2019. The ASU’s core principle is that “a lessee should recognize the assets and liabilities that arise from leases.” The ASU considers that “all leases create an asset and a liability,” and accordingly requires recording the assets and liabilities related to all leases with a term greater than 12 months. Concurrent with the implementation of ASU 2016-02, Entergy implemented ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,” which provided Entergy the option to elect not to evaluate existing land easements that are not currently accounted for under the previous lease standard, and ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” which intended to simplify the transition requirement giving Entergy the option to apply the transition provisions of the new standard at the date of adoption instead of at the earliest comparative period. In implementing these ASUs, Entergy elected the options provided in both ASU 2018-01 and ASU 2018-11. This accounting was applied to all lease agreements using the modified retrospective method, which required an adjustment to retained earnings for the cumulative effect of adopting the standard as of the effective date, and when implemented with ASU 2018-11, allowed Entergy to recognize the leased assets and liabilities on its balance sheet beginning on January 1, 2019 without restating prior periods. In adopting the standard, in January 2019 Entergy recognized right-of-use assets and corresponding lease liabilities totaling approximately $263 million, including $59 million for Entergy Arkansas, $51 million for Entergy Louisiana, $26 million for Entergy Mississippi, $7 million for Entergy New Orleans, and $16 million for Entergy Texas. Implementation of the standards had no material effect on consolidated net income; therefore, no adjustment to retained earnings was recorded. The adoption of the standards had no effect on cash flows.

General

As of June 30, 2019, Entergy and the Registrant Subsidiaries held operating and financing leases for fleet vehicles used in operations, real estate, and aircraft. Excluded from this are power purchase agreements not meeting the definition of a lease, nuclear fuel leases, and the Grand Gulf sale-leaseback which were determined not to be leases.

Leases have remaining terms of one year to 61 years. Real estate leases generally include at least one five-year renewal option; however, renewal is not typically considered reasonably certain unless Entergy or a Registrant Subsidiary makes significant leasehold improvements or other modifications which would hinder its ability to easily move. In certain of the lease agreements for fleet vehicles used in operations, Entergy and the Registrant Subsidiaries provide residual value guarantees to the lessor; however, due to the nature of the agreements and Entergy’s continuing relationship with the lessor, Entergy and the Registrant Subsidiaries expect to renegotiate or refinance the leases prior to conclusion of the lease. As such, Entergy and the Registrant Subsidiaries do not believe it is probable that they will be required to pay anything pertaining to the residual value guarantee, and the lease liabilities and right-of-use assets are measured accordingly.

Entergy incurred the following total lease costs for the three months ended June 30, 2019:
 
 
(In Thousands)
Operating lease cost
 

$15,255

Financing lease cost:
 
 
Amortization of right-of-use assets
 

$4,980

Interest on lease liabilities
 

$1,081



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Entergy incurred the following total lease costs for the six months ended June 30, 2019:
 
 
(In Thousands)
Operating lease cost
 

$30,976

Financing lease cost:
 
 
Amortization of right-of-use assets
 

$7,892

Interest on lease liabilities
 

$1,834



The lease costs disclosed above materially approximate the cash flows used by Entergy for leases with all costs included within operating activities on the Consolidated Statements of Cash Flows, except for the financing lease costs which are included in financing activities.

The Registrant Subsidiaries incurred the following lease costs for the three months ended June 30, 2019:
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy
New Orleans
 
Entergy Texas
 
(In Thousands)
Operating lease cost

$3,124

 

$2,824

 

$1,716

 

$351

 

$977

Financing lease cost:
 
 
 
 
 
 
 
 
 
Amortization of right-of-use assets

$1,198

 

$1,975

 

$691

 

$342

 

$325

Interest on lease liabilities

$198

 

$299

 

$117

 

$55

 

$53


The Registrant Subsidiaries incurred the following lease costs for the six months ended June 30, 2019:
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy
New Orleans
 
Entergy Texas
 
(In Thousands)
Operating lease cost

$6,419

 

$5,850

 

$3,468

 

$709

 

$2,062

Financing lease cost:
 
 
 
 
 
 
 
 
 
Amortization of right-of-use assets

$1,828

 

$3,000

 

$1,039

 

$518

 

$630

Interest on lease liabilities

$303

 

$451

 

$176

 

$85

 

$99



The lease costs disclosed above materially approximate the cash flows used by the Registrant Subsidiaries for leases with all costs included within operating activities on the respective Statements of Cash Flows, except for the financing lease costs which are included in financing activities.
 
 
 
 
 
 
 
 
 
 
 
 
Entergy has elected to account for short-term leases in accordance with policy options provided by accounting guidance; therefore, there are no related lease liabilities or right-of-use assets for the costs recognized above by Entergy or by its Registrant Subsidiaries in the table below.

Included within Property, Plant, and Equipment on Entergy’s consolidated balance sheet at June 30, 2019 are $234 million related to operating leases and $60 million related to financing leases.


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Included within Utility Plant on the Registrant Subsidiaries’ respective balance sheets at June 30, 2019 are the following amounts:
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
(In Thousands)
Operating leases

$48,567

 

$33,054

 

$18,791

 

$4,172

 

$12,540

Financing leases

$11,167

 

$16,846

 

$6,671

 

$2,991

 

$5,439



The following lease-related liabilities are recorded within the respective Other lines on Entergy’s consolidated balance sheet as of June 30, 2019:
 
 
(In Thousands)
Current liabilities:
 
 
Operating leases
 

$51,885

Financing leases
 

$11,177

Non-current liabilities:
 
 
Operating leases
 

$182,236

Financing leases
 

$53,375



The following lease-related liabilities are recorded within the respective Other lines on the Registrant Subsidiaries’ respective balance sheets at June 30, 2019:
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
(In Thousands)
Current liabilities:
 
 
 
 
 
 
 
 
 
Operating leases

$10,374

 

$9,727

 

$6,180

 

$1,218

 

$3,251

Financing leases

$2,408

 

$3,840

 

$1,402

 

$662

 

$1,240

Non-current liabilities:
 
 
 
 
 
 
 
 
Operating leases

$38,195

 

$23,333

 

$12,812

 

$2,953

 

$9,375

Financing leases

$8,756

 

$13,000

 

$5,269

 

$2,329

 

$4,112



The following information contains the weighted average remaining lease term in years and the weighted average discount rate for the operating and financing leases of Entergy at June 30, 2019:
Weighted average remaining lease terms:
 
 
Operating leases
 
5.42

Financing leases
 
6.94

Weighted average discount rate:
 
 
Operating leases
 
3.93
%
Financing leases
 
4.71
%



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The following information contains the weighted average remaining lease term in years and the weighted average discount rate for the operating and financing leases of the Registrant Subsidiaries at June 30, 2019:
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
 
Weighted average remaining lease terms:
 
 
 
 
 
 
 
 
 
Operating leases
6.22

 
4.27

 
5.11

 
4.04

 
4.52

Financing leases
5.55

 
5.27

 
5.42

 
5.80

 
5.23

Weighted average discount rate:
 
 
 
 
 
 
 
 
 
Operating leases
3.79
%
 
3.80
%
 
3.80
%
 
3.96
%
 
3.93
%
Financing leases
3.78
%
 
3.78
%
 
3.77
%
 
3.95
%
 
3.89
%


Maturity of the lease liabilities for Entergy as of June 30, 2019 are as follows:
Year
 
Operating Leases
 
Financing Leases
 
 
(In Thousands)
 
 
 
 
 
Remainder for 2019
 

$30,913

 

$7,067

2020
 
57,615

 
13,052

2021
 
49,126

 
11,505

2022
 
40,519

 
10,307

2023
 
32,907

 
9,231

Years thereafter
 
53,491

 
25,696

Minimum lease payments
 
264,571

 
76,858

Less: amount representing interest
 
30,450

 
12,306

Present value of net minimum lease payments
 

$234,121

 

$64,552




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Maturity of the lease liabilities for the Registrant Subsidiaries as of June 30, 2019 are as follows:

Operating Leases
Year
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
 
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
Remainder of 2019
 

$6,070

 

$5,419

 

$3,580

 

$680

 

$1,924

2020
 
11,014

 
9,797

 
5,888

 
1,225

 
3,776

2021
 
9,117

 
8,046

 
4,759

 
954

 
3,026

2022
 
6,782

 
5,267

 
3,338

 
632

 
2,061

2023
 
5,619

 
3,391

 
1,237

 
470

 
1,704

Years thereafter
 
15,771

 
3,777

 
2,340

 
693

 
1,862

Minimum lease payments
 
54,373

 
35,697

 
21,142

 
4,654

 
14,353

Less: amount representing interest
 
5,804

 
2,637

 
2,150

 
483

 
1,726

Present value of net minimum lease payments
 

$48,569

 

$33,060

 

$18,992

 

$4,171

 

$12,627


Financing Leases
Year
 
Entergy Arkansas
 
Entergy Louisiana
 
Entergy Mississippi
 
Entergy New Orleans
 
Entergy Texas
 
 
(In Thousands)
 
 
 
 
 
 
 
 
 
 
 
Remainder of 2019
 

$1,398

 

$2,235

 

$813

 

$403

 

$727

2020
 
2,560

 
4,032

 
1,549

 
645

 
1,297

2021
 
2,164

 
3,377

 
1,384

 
535

 
1,104

2022
 
1,875

 
2,937

 
1,191

 
484

 
897

2023
 
1,648

 
2,489

 
977

 
437

 
759

Years thereafter
 
2,698

 
3,453

 
1,444

 
834

 
1,111

Minimum lease payments
 
12,343

 
18,523

 
7,358

 
3,338

 
5,895

Less: amount representing interest
 
1,179

 
1,683

 
687

 
347

 
543

Present value of net minimum lease payments
 

$11,164

 

$16,840

 

$6,671

 

$2,991

 

$5,352



In allocating consideration in lease contracts to the lease and non-lease components, Entergy and the Registrant Subsidiaries have made the accounting policy election to combine lease and non-lease components related to fleet vehicles used in operations, fuel storage agreements, and purchased power agreements and to allocate the contract consideration to both lease and non-lease components for real estate leases.

In accordance with ASU 2018-11, below is the lease disclosure from Note 10 to the financial statements in the Form 10-K.


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General

As of December 31, 2018, Entergy had capital leases and non-cancelable operating leases for equipment, buildings, vehicles, and fuel storage facilities with minimum lease payments as follows (excluding power purchase agreement operating leases, nuclear fuel leases, and the Grand Gulf sale and leaseback transaction, all of which are discussed elsewhere):
 
Year
 
Operating
Leases
 
Capital
Leases
 
 
(In Thousands)
2019
 

$94,043

 

$2,887

2020
 
82,191

 
2,887

2021
 
75,147

 
2,887

2022
 
60,808

 
2,887

2023
 
47,391

 
2,887

Years thereafter
 
88,004

 
16,117

Minimum lease payments
 
447,584

 
30,552

Less:  Amount representing interest
 
—

 
8,555

Present value of net minimum lease payments
 

$447,584

 

$21,997



Total rental expenses for all leases (excluding power purchase agreement operating leases, nuclear fuel leases, and the Grand Gulf and Waterford 3 sale and leaseback transactions) amounted to $47.8 million in 2018, $53.1 million in 2017, and $44.4 million in 2016.

As of December 31, 2018 the Registrant Subsidiaries had non-cancelable operating leases for equipment, buildings, vehicles, and fuel storage facilities with minimum lease payments as follows (excluding power purchase agreement operating leases, nuclear fuel leases, and the Grand Gulf lease obligation, all of which are discussed elsewhere):

Operating Leases
 
 
Year
 
 
Entergy
Arkansas
 
 
Entergy
Louisiana
 
 
Entergy
Mississippi
 
Entergy
New Orleans
 
 
Entergy
Texas
 
 
(In Thousands)
2019
 

$20,421

 

$25,970

 

$9,344

 

$2,493

 

$5,744

2020
 
13,918

 
21,681

 
8,763

 
2,349

 
4,431

2021
 
11,931

 
19,514

 
7,186

 
1,901

 
3,625

2022
 
9,458

 
15,756

 
5,675

 
1,314

 
2,218

2023
 
7,782

 
12,092

 
2,946

 
1,043

 
1,561

Years thereafter
 
23,297

 
22,003

 
4,417

 
2,323

 
2,726

Minimum lease payments
 

$86,807

 

$117,016

 

$38,331

 

$11,423

 

$20,305




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Rental Expenses
 
 
Year
 
 
Entergy
Arkansas
 
 
Entergy
Louisiana
 
 
Entergy
Mississippi
 
Entergy
New Orleans
 
 
Entergy
Texas
 
 
System
Energy
 
 
(In Millions)
2018
 

$6.2

 

$20.2

 

$4.6

 

$2.5

 

$3.1

 

$1.9

2017
 

$7.5

 

$23.0

 

$5.6

 

$2.5

 

$3.4

 

$2.2

2016
 

$8.0

 

$17.8

 

$4.0

 

$0.9

 

$2.8

 

$1.6



In addition to the above rental expense, railcar operating lease payments and oil tank facilities lease payments are recorded in fuel expense in accordance with regulatory treatment.  Railcar operating lease payments were $2.8 million in 2018, $4 million in 2017, and $3.4 million in 2016 for Entergy Arkansas and $0.4 million in 2018, $0.3 million in 2017, and $0.3 million in 2016 for Entergy Louisiana.  Oil tank facilities lease payments for Entergy Mississippi were $0.1 million in 2018, $1.6 million in 2017, and $1.6 million in 2016.

On January 1, 2019, Entergy implemented ASU No. 2016-02, “Leases (Topic 842)” along with the practical expedients provided by ASU No. 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,” and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements.”  See Note 1 to the financial statements in the Form 10-K for further discussion of ASU No. 2016-02.

Power Purchase Agreements

As of December 31, 2018, Entergy Texas had a power purchase agreement that is accounted for as an operating lease under the accounting standards. The lease payments are recovered in fuel expense in accordance with regulatory treatment. The minimum lease payments under the power purchase agreement are as follows:
Year
 
Entergy Texas (a)
 
Entergy
 
 
(In Thousands)
2019
 

$31,159

 

$31,159

2020
 
31,876

 
31,876

2021
 
32,609

 
32,609

2022
 
10,180

 
10,180

Minimum lease payments
 

$105,824

 

$105,824


(a)
Amounts reflect 100% of minimum payments. Under a separate contract, which expires May 31, 2022, Entergy Louisiana purchases 50% of the capacity and energy from the power purchase agreement from Entergy Texas.

Total capacity expense under the power purchase agreement accounted for as an operating lease at Entergy Texas was $30.5 million in 2018, $34.1 million in 2017, and $26.1 million in 2016.

Sales and Leaseback Transactions

Waterford 3 Lease Obligation

In 1989, in three separate but substantially identical transactions, Entergy Louisiana sold and leased back undivided interests in Waterford 3 for the aggregate sum of $353.6 million.  The leases were scheduled to expire in July 2017.  Entergy Louisiana was required to report the sale-leaseback as a financing transaction in its financial statements.


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In December 2015, Entergy Louisiana agreed to purchase the undivided interests in Waterford 3 that were previously being leased. The purchase was accomplished in a two-step transaction in which Entergy Louisiana first acquired the equity participant’s beneficial interest in the leased assets, followed by a termination of the leases and transfer of the leased assets to Entergy Louisiana when the outstanding lessor debt is paid.

In March 2016, Entergy Louisiana completed the first step in the two-step transaction by acquiring the equity participant’s beneficial interest in the leased assets. Entergy Louisiana paid $60 million in cash and $52 million through the issuance of a non-interest bearing collateral trust mortgage note, payable in installments through July 2017. Entergy Louisiana continued to make payments on the lessor debt that remained outstanding and which matured in January 2017. The combination of payments on the $52 million collateral trust mortgage note issued and the debt service on the lessor debt was equal in timing and amount to the remaining lease payments due from the closing of the transaction through the end of the lease term in July 2017.

Throughout the term of the lease, Entergy Louisiana had accrued a liability for the amount it expected to pay to retain the use of the undivided interests in Waterford 3 at the end of the lease term. Since the sale-leaseback transaction was accounted for as a financing transaction, the accrual of this liability was accounted for as additional interest expense. As of December 2015, the balance of this liability was $62.7 million. Upon entering into the agreement to purchase the equity participant’s beneficial interest in the undivided interests, Entergy Louisiana reduced the balance of the liability to $60 million, and recorded the $2.7 million difference as a credit to interest expense. The $60 million remaining liability was eliminated upon payment of the cash portion of the purchase price in 2016.

As of December 31, 2016, Entergy Louisiana, in connection with the Waterford 3 lease obligation, had a future minimum lease payment (reflecting an interest rate of 8.09%) of $57.5 million, including $2.3 million in interest, due January 2017 that was recorded as long-term debt.

In February 2017 the leases were terminated and the leased assets were conveyed to Entergy Louisiana.

Grand Gulf Lease Obligations

In 1988, in two separate but substantially identical transactions, System Energy sold and leased back undivided ownership interests in Grand Gulf for the aggregate sum of $500 million.  The initial term of the leases expired in July 2015.  System Energy renewed the leases in December 2013 for fair market value with renewal terms expiring in July 2036. At the end of the new lease renewal terms, System Energy has the option to repurchase the leased interests in Grand Gulf or renew the leases at fair market value.  In the event that System Energy does not renew or purchase the interests, System Energy would surrender such interests and their associated entitlement of Grand Gulf’s capacity and energy.

System Energy is required to report the sale-leaseback as a financing transaction in its financial statements.  For financial reporting purposes, System Energy expenses the interest portion of the lease obligation and the plant depreciation.  However, operating revenues include the recovery of the lease payments because the transactions are accounted for as a sale and leaseback for ratemaking purposes.  Consistent with a recommendation contained in a FERC audit report, System Energy initially recorded as a net regulatory asset the difference between the recovery of the lease payments and the amounts expensed for interest and depreciation and continues to record this difference as a regulatory asset or liability on an ongoing basis, resulting in a zero net balance for the regulatory asset at the end of the lease term.  The amount was a net regulatory liability of $55.6 million as of December 31, 2018 and 2017.


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As of December 31, 2018, System Energy, in connection with the Grand Gulf sale and leaseback transactions, had future minimum lease payments that are recorded as long-term debt, as follows, which reflects the effect of the December 2013 renewal:
 
Amount
 
(In Thousands)
 
 
2019

$17,188

2020
17,188

2021
17,188

2022
17,188

2023
17,188

Years thereafter
223,437

Total
309,377

Less: Amount representing interest
275,025

Present value of net minimum lease payments

$34,352




NOTE 16.  DISPOSITIONS (Entergy Corporation)

Vermont Yankee

As discussed in Note 14 to the financial statements in the Form 10-K, in January 2019, Entergy transferred 100% of the membership interests in Entergy Nuclear Vermont Yankee, LLC, the owner of the Vermont Yankee plant, to a subsidiary of NorthStar.

Entergy Nuclear Vermont Yankee had an outstanding credit facility that was used to pay for dry fuel storage costs. This credit facility was guaranteed by Entergy Corporation. Vermont Yankee Asset Retirement Management, LLC, a subsidiary of Entergy, assumed the obligations under the credit facility. At the closing of the transaction, NorthStar caused Entergy Nuclear Vermont Yankee, renamed NorthStar Vermont Yankee, to issue a $139 million promissory note to Vermont Yankee Asset Retirement Management. The amount of the note included the balance outstanding on the credit facility, as well as borrowing fees and costs incurred by Entergy in connection with the credit facility.

Upon closing of the transaction in January 2019, the Vermont Yankee decommissioning trust, along with the decommissioning obligation for the plant, was transferred to NorthStar. The Vermont Yankee spent fuel disposal contract was assigned to NorthStar as part of the transaction. The Vermont Yankee transaction resulted in Entergy generating a net deferred tax asset in January 2019.  The deferred tax asset could not be fully realized by Entergy in the first quarter of 2019; accordingly, Entergy accrued a net tax expense of $29 million on the disposition of Vermont Yankee. The transaction also resulted in other charges of $5.4 million ($4.2 million after-tax) in the first quarter 2019.
________________

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


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

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

Part I, Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of June 30, 2019, evaluations were performed under the supervision and with the participation of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy (individually “Registrant” and collectively the “Registrants”) management, including their respective Principal Executive Officers (PEO) and Principal Financial Officers (PFO). The evaluations assessed the effectiveness of the Registrants’ disclosure controls and procedures. Based on the evaluations, each PEO and PFO has concluded that, as to the Registrant or Registrants for which they serve as PEO or PFO, the Registrant’s or Registrants’ disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms; and that the Registrant’s or Registrants’ disclosure controls and procedures are also effective in reasonably assuring that such information is accumulated and communicated to the Registrant’s or Registrants’ management, including their respective PEOs and PFOs, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

Under the supervision and with the participation of each Registrants’ management, including its respective PEO and PFO, each Registrant evaluated changes in internal control over financial reporting that occurred during the quarter ended June 30, 2019 and found no change that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.







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ENTERGY ARKANSAS, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Second Quarter 2019 Compared to Second Quarter 2018

Net income decreased $32.3 million primarily due to lower volume/weather, higher other operation and maintenance expenses, higher interest expense, and higher depreciation and amortization expenses, partially offset by an increase in retail electric price.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Net income decreased $29.4 million primarily due to lower volume/weather, higher interest expense, higher depreciation and amortization expenses, and higher other operation and maintenance expenses, partially offset by an increase in retail electric price and lower nuclear refueling outage expenses.

Operating Revenues

Second Quarter 2019 Compared to Second Quarter 2018

Following is an analysis of the change in operating revenues comparing the second quarter 2019 to the second quarter 2018:
 
Amount
 
(In Millions)
2018 operating revenues

$494.6

Fuel, rider, and other revenues that do not significantly affect net income
(9.2
)
Return of unprotected excess accumulated deferred income taxes to customers
82.1

Retail electric price
12.8

Volume/weather
(37.4
)
2019 operating revenues

$542.9


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

The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through a tax adjustment rider beginning in April 2018. In second quarter 2019, $25.5 million was returned to customers as compared to $107.6 million in second quarter 2018. There is no effect on net income as the reduction in operating revenues was offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.


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The retail electric price variance is primarily due to an increase in formula rate plan rates effective with the first billing cycle of January 2019, as approved by the APSC. See Note 2 to the financial statements in the Form 10-K for further discussion of the formula rate plan filing.

The volume/weather variance is primarily due to a decrease of 272 GWh, or 5%, in billed electricity usage, including the effect of less favorable weather on residential and commercial sales and a decrease in industrial usage. The decrease in industrial usage is primarily due to a decrease in small industrial sales and a decrease in demand from an existing customer in the petroleum refining industry.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Following is an analysis of the change in operating revenues comparing the six months ended June 30, 2019 to the six months ended June 30, 2018:
 
Amount
 
(In Millions)
2018 operating revenues

$1,045.6

Fuel, rider, and other revenues that do not significantly affect net income
5.3

Return of unprotected excess accumulated deferred income taxes to customers
50.4

Retail electric price
23.2

Volume/weather
(35.8
)
2019 operating revenues

$1,088.7


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

The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through a tax adjustment rider beginning in April 2018. In the six months ended June 30, 2019, $57.2 million was returned to customers as compared to $107.6 million in the six months ended June 30, 2018. There is no effect on net income as the reduction in operating revenues was offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

The retail electric price variance is primarily due to an increase in formula rate plan rates effective with the first billing cycle of January 2019, as approved by the APSC. See Note 2 to the financial statements in the Form 10-K for further discussion of the formula rate plan filing.
    
The volume/weather variance is primarily due to a decrease of 417 GWh, or 4%, in billed electricity usage, including the effect of less favorable weather on residential and commercial sales and a decrease in industrial usage. The decrease in industrial usage is primarily due to a decrease in small industrial sales and a decrease in demand from cogeneration customers.
 

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Other Income Statement Variances

Second Quarter 2019 Compared to Second Quarter 2018

Other operation and maintenance expenses increased primarily due to:

•
an increase of $4.9 million in fossil-fueled generation expenses primarily due to a higher scope of work performed during plant outages in 2019 as compared to the same period in 2018;
•
lower nuclear insurance refunds of $2.9 million; and
•
an increase of $2.1 million due to spending on customer initiatives to explore new technologies and services.

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

Interest expense increased primarily due to the issuance of $250 million of 4.00% Series mortgage bonds in May 2018 and the issuance of $350 million of 4.20% Series mortgage bonds in March 2019.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Nuclear refueling outage expenses decreased primarily due to the amortization of lower costs associated with the most recent outages as compared to previous outages.

Other operation and maintenance expenses increased primarily due to:

•
an increase of $5.7 million in fossil-fueled generation expenses primarily due to a higher scope of work performed during plant outages in 2019 as compared to the same period in 2018;
•
an increase of $3.3 million in information technology costs primarily due to higher software maintenance costs and higher labor costs;
•
lower nuclear insurance refunds of $3 million; and
•
an increase of $2.6 million due to spending on customer initiatives to explore new technologies and services.

The increase was offset by a decrease of $7.4 million in nuclear generation expenses primarily due to a lower scope of work performed in 2019 as compared to the same period in 2018.

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

Interest expense increased primarily due to the issuance of $250 million of 4.00% Series mortgage bonds in May 2018 and the issuance of $350 million of 4.20% Series mortgage bonds in March 2019.

Income Taxes

The effective income tax rates were (31.9%) for the second quarter 2019 and (63.9%) for the six months ended June 30, 2019. The differences in the effective income tax rates for the second quarter 2019 and the six months ended June 30, 2019 versus the federal statutory rate of 21% were primarily due to the amortization of excess accumulated deferred income taxes and certain book and tax differences related to utility plant items, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.

The effective income tax rate was (10,762.6%) for the second quarter 2018. The difference in the effective income tax rate for the second quarter 2018 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes, certain book and tax differences related to utility plant items, and book and tax differences related to the allowance for equity funds used during construction, partially offset by an IRS audit settlement for the 2012-2013 tax returns. See Note 10 to the financial statements herein and Notes 2 and 3 to the

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financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 3 to the financial statements in the Form 10-K for a discussion of the IRS audit settlement.

The effective income tax rate was (155.6%) for the six months ended June 30, 2018. The difference in the effective income tax rate for the six months ended June 30, 2018 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes, and certain book and tax differences related to utility plant items. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.

Income Tax Legislation

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

Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2019 and 2018 were as follows:
 
2019
 
2018
 
(In Thousands)
Cash and cash equivalents at beginning of period

$119

 

$6,216

 
 
 
 
Cash flow provided by (used in):


 
 
Operating activities
353,554

 
226,595

Investing activities
(321,030
)
 
(392,234
)
Financing activities
(700
)
 
392,491

Net increase in cash and cash equivalents
31,824

 
226,852

 
 
 
 
Cash and cash equivalents at end of period

$31,943

 

$233,068


Operating Activities

Net cash flow provided by operating activities increased $127 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to the following activity:

•
the timing of recovery of fuel and purchased power costs;
•
a decrease of $24.9 million in spending on nuclear refueling outages in 2019; and
•
a decrease of $20.1 million in pension contributions in 2019. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.


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Investing Activities

Net cash flow used in investing activities decreased $71.2 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to:

•
a decrease of $51.2 million in nuclear construction expenditures primarily due to a lower scope of work performed on various nuclear projects in 2019 as compared to the same period in 2018;
•
money pool activity; and
•
a decrease of $16.5 million in fossil-fueled generation construction expenditures due to a decrease in spending on various fossil-fueled generation projects in 2019 as compared to the same period in 2018.

The decrease was partially offset by an increase of $24.7 million in distribution construction expenditures primarily due to a higher scope of work performed in 2019 as compared to the same period in 2018, including investment in the reliability and infrastructure of Entergy Arkansas’s distribution system including increased spending on advanced metering infrastructure.

Increases in Entergy Arkansas’s receivable from the money pool are a use of cash flow, and Entergy Arkansas’s receivable from the money pool increased by $25.2 million for the six months ended June 30, 2019 compared to increasing by $57.7 million for the six months ended June 30, 2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Entergy Arkansas’s financing activities used $0.7 million of cash for the six months ended June 30, 2019 compared to providing $392.5 million of cash for the six months ended June 30, 2018 primarily due to the following activity:

•
a $350 million capital contribution from Entergy Corporation in 2018 in anticipation of the return of unprotected excess accumulated deferred income taxes to customers and upcoming planned capital investments;
•
a common equity distribution of $115 million in 2019 in order to maintain the targeted capital structure;
•
net repayments of long-term borrowings of $39 million in 2019 compared to net long-term borrowings of $16.8 million in 2018 on the Entergy Arkansas nuclear fuel company variable interest entity credit facility;
•
money pool activity;
•
the issuance of $350 million of 4.20% Series mortgage bonds in March 2019;
•
the issuance of $250 million of 4.00% Series mortgage bonds in May 2018; and
•
net repayments of short term borrowings of $50 million on the Entergy Arkansas nuclear fuel company variable interest entity credit facility in 2018.

Decreases in Entergy Arkansas’s payable to the money pool are a use of cash flow, and Entergy Arkansas’s payable to the money pool decreased by $182.7 million in 2019 compared to decreasing by $166.1 million in 2018.

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


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Capital Structure

Entergy Arkansas’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio is primarily due to the issuance of $350 million of mortgage bonds in March 2019.
 
June 30,
2019
 
December 31,
2018
Debt to capital
54.5
%
 
52.0
%
Effect of excluding the securitization bonds
(0.1
%)
 
(0.2
%)
Debt to capital, excluding securitization bonds (a)
54.4
%
 
51.8
%
Effect of subtracting cash
(0.3
%)
 
—
%
Net debt to net capital, excluding securitization bonds (a)
54.1
%
 
51.8
%

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

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

Uses and Sources of Capital

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

The current annual amounts of Entergy Arkansas’s planned construction and other capital investments are as follows:
 
2019
 
2020
 
2021
 
(In Millions)
Planned construction and capital investment:
 
 
 
 
 
Generation

$200

 

$230

 

$445

Transmission
155

 
105

 
40

Distribution
230

 
235

 
215

Utility Support
145

 
130

 
90

Total

$730

 

$700

 

$790


The updated capital plan for 2019-2021 reflects incremental capital investments to improve reliability and enable new customer products and services. The capital plan includes specific investments such as transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation projects; system improvements; investments in ANO 1 and 2; software and security; and other investments.


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Entergy Arkansas’s receivables from or (payables to) the money pool were as follows:
June 30,
 2019
 
December 31,
2018
 
June 30,
 2018
 
December 31,
2017
(In Thousands)
$25,166
 
($182,738)
 
$57,708
 
($166,137)

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

Entergy Arkansas has a credit facility in the amount of $150 million scheduled to expire in September 2023. Entergy Arkansas also has a $20 million credit facility scheduled to expire in April 2020. The $150 million credit facility includes fronting commitments for the issuance of letters of credit against $5 million of the borrowing capacity of the facility. As of June 30, 2019, no cash borrowings and no letters of credit were outstanding under the credit facilities. In addition, Entergy Arkansas is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of June 30, 2019, a $1 million letter of credit was outstanding under Entergy Arkansas’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

The Entergy Arkansas nuclear fuel company variable interest entity has a credit facility in the amount of $80 million scheduled to expire in September 2021.  As of June 30, 2019, $20.6 million in loans were outstanding under the credit facility for the Entergy Arkansas nuclear fuel company variable interest entity. See Note 4 to the financial statements herein for additional discussion of the nuclear fuel company variable interest entity credit facility.

Searcy Solar Facility

In March 2019, Entergy Arkansas announced that it signed an agreement for the purchase of an approximately 100 MW to-be-constructed solar energy facility that will be sited on approximately 800 acres in White County near Searcy, Arkansas.  The purchase is contingent upon, among other things, obtaining necessary approvals from applicable federal and state regulatory and permitting agencies.  The project will be constructed by a subsidiary of NextEra Energy Resources.  Entergy Arkansas will purchase the facility upon completion and after the other purchase contingencies have been met.   Closing is expected to occur by the end of 2021. In May 2019, Entergy Arkansas filed its petition with the APSC seeking a finding that the transaction is in the public interest and requesting all necessary approvals.

State and Local Rate Regulation and Fuel-Cost Recovery

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

Retail Rates

2019 Formula Rate Plan Filing

In July 2019, Entergy Arkansas filed with the APSC its 2019 formula rate plan filing to set its formula rate for the 2020 calendar year. The filing contained an evaluation of Entergy Arkansas’s earnings for the projected year 2020 and a netting adjustment for the historical year 2018.  The total proposed formula rate plan rider revenue change designed to produce a target rate of return on common equity of 9.75% is $15.3 million, which is based upon a deficiency of approximately $61.9 million for the 2020 projected year, netted with a credit of approximately $46.6 million in the 2018 historical year netting adjustment. During 2018 Entergy Arkansas experienced higher-than expected sales volume, and actual costs were lower than forecasted.  These changes, coupled with a reduced income tax rate resulting from the Tax Cuts and Jobs Act, resulted in the credit for the historical year netting adjustment. In the fourth quarter 2018 Entergy Arkansas recorded a provision of $35.1 million that reflected the estimate of the historical year netting

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adjustment that was expected to be included in the 2019 filing. In 2019, Entergy Arkansas recorded additional provisions totaling $11.5 million to reflect the updated estimate of the historical year netting adjustment included in the 2019 filing.   The proposed new formula rates would go into effect in January 2020. 

Production Cost Allocation Rider

In May 2019, Entergy Arkansas filed its annual redetermination pursuant to the production cost allocation rider, which reflected a credit to customers for the recovery of the true-up adjustment resulting from the 2018 over-recovered retail balance of $0.1 million and the recovery of a $4.2 million payment to Entergy Arkansas as a result of the FERC’s May 2018 decision in the 2005 bandwidth proceeding, in which the FERC directed a compliance filing to be made that consisted of the comprehensive recalculation of the bandwidth formula rate with true-up payments and receipts based on test period data for June 1, 2005 through December 31, 2005. The rates for the 2019 production cost allocation rider update are effective July 2019 through June 2020.

Energy Cost Recovery Rider

In March 2019, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected a decrease from $0.01882 per kWh to $0.01462 per kWh and became effective with the first billing cycle in April 2019. In March 2019 the Arkansas Attorney General filed a response to Entergy Arkansas’s annual adjustment and included with its filing a motion for investigation of alleged overcharges to customers in connection with the FERC’s October 2018 order in the opportunity sales proceeding. Entergy Arkansas filed its response to the Attorney General’s motion in April 2019 in which Entergy Arkansas stated its intent to initiate a proceeding to address recovery issues related to the October 2018 FERC order. In May 2019, Entergy Arkansas initiated the opportunity sales recovery proceeding, discussed below, and requested that the APSC establish that proceeding as the single designated proceeding in which interested parties may assert claims related to the appropriate retail rate treatment of the FERC October 2018 order and related FERC orders in the opportunity sales proceeding. In June 2019 the APSC granted Entergy Arkansas’s request and also denied the Attorney General’s motion in the energy cost recovery proceeding seeking an investigation into Entergy Arkansas’s annual energy cost recovery rider adjustment and referred the evaluation of such matters to the opportunity sales recovery proceeding.

Opportunity Sales Proceeding

As discussed in the Form 10-K, in December 2018, Entergy made a compliance filing in response to the FERC’s October 2018 order in the opportunity sales proceeding. The compliance filing provided a final calculation of Entergy Arkansas’s payments to the other Utility operating companies, including interest. No protests were filed in response to the December 2018 compliance filing. The December 2018 compliance filing is pending FERC action.
    
In February 2019 the LPSC filed a new complaint relating to two issues that were raised in the opportunity sales proceeding, but that, in its October 2018 order, the FERC held were outside the scope of the proceeding. In March 2019, Entergy Services filed an answer and motion to dismiss the new complaint.

In May 2019, Entergy Arkansas filed an application and supporting testimony with the APSC requesting approval of a special rider tariff to recover the costs of these payments from its retail customers over a 24-month period.  The application requested that the APSC approve the rider to take effect within 30 days or, if suspended by the APSC as allowed by commission rule, approve the rider to take effect in the first billing cycle of the first month occurring 30 days after issuance of the APSC’s order approving the rider. In June 2019 the APSC suspended Entergy Arkansas’s tariff and granted Entergy Arkansas’s motion asking the APSC to establish the proceeding as the single designated proceeding in which interested parties may assert claims related to the appropriate retail rate treatment of the FERC’s October 2018 order and related FERC orders in the opportunity sales proceeding.


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Net Metering Legislation

An Arkansas law was enacted effective July 2019 that, among other things, expands the definition of a “net metering customer” to include two additional types of customers: (1) customers that lease net metering facilities, subject to certain leasing arrangements, and (2) government entities or other entities exempt from state and federal income taxes that enter into a service contract for a net metering facility. The latter provision would allow eligible entities, many of whom are small and large general service customers, to purchase renewable energy directly from third party providers and receive bill credits for these purchases. The APSC was given authority under this law to address certain matters, such as cost shifting and the appropriate compensation for net metered energy, and has initiated proceedings for this purpose. Because of the size and number of customers eligible under this new law, there is a risk of loss of load and the shifting of costs to customers.

Federal Regulation

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

Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

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

In the first quarter 2019, Entergy Arkansas recorded a revision to its estimated decommissioning cost liabilities for ANO 1 and ANO 2 as a result of a revised decommissioning cost study. The revised estimates resulted in a $126.2 million increase in its decommissioning cost liabilities, along with corresponding increases in the related asset retirement cost assets that will be depreciated over the remaining lives of the units.

New Accounting Pronouncements

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


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ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
 
2019
 
2018
 
2019
 
2018
 
 
(In Thousands)
 
(In Thousands)
OPERATING REVENUES
 
 
 
 
 
 
 
 
Electric
 

$542,929

 

$494,605

 

$1,088,741

 

$1,045,629

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
Operation and Maintenance:
 
 
 
 
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
108,596

 
106,496

 
260,755

 
214,802

Purchased power
 
48,285

 
64,839

 
95,343

 
136,811

Nuclear refueling outage expenses
 
17,194

 
19,159

 
34,442

 
42,561

Other operation and maintenance
 
188,006

 
177,792

 
354,466

 
347,150

Decommissioning
 
17,168

 
14,985

 
32,929

 
29,745

Taxes other than income taxes
 
27,181

 
24,445

 
55,544

 
52,350

Depreciation and amortization
 
77,061

 
72,701

 
152,908

 
144,682

Other regulatory credits - net
 
(10,336
)
 
(12,313
)
 
(9,891
)
 
(15,620
)
TOTAL
 
473,155

 
468,104

 
976,496

 
952,481

 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
69,774

 
26,501

 
112,245

 
93,148

 
 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
 
Allowance for equity funds used during construction
 
3,372

 
4,471

 
6,800

 
8,479

Interest and investment income
 
4,222

 
2,478

 
10,405

 
9,292

Miscellaneous - net
 
(4,728
)
 
(3,881
)
 
(8,418
)
 
(7,752
)
TOTAL
 
2,866

 
3,068

 
8,787

 
10,019

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
Interest expense
 
35,827

 
30,917

 
69,210

 
60,683

Allowance for borrowed funds used during construction
 
(1,329
)
 
(2,108
)
 
(2,743
)
 
(3,998
)
TOTAL
 
34,498

 
28,809

 
66,467

 
56,685

 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
38,142

 
760

 
54,565

 
46,482

 
 
 
 
 
 
 
 
 
Income taxes
 
(12,157
)
 
(81,796
)
 
(34,855
)
 
(72,329
)
 
 
 
 
 
 
 
 
 
NET INCOME
 
50,299

 
82,556

 
89,420

 
118,811

 
 
 
 
 
 
 
 
 
Preferred dividend requirements
 
—

 
357

 
—

 
714

 
 
 
 
 
 
 
 
 
EARNINGS APPLICABLE TO COMMON EQUITY
 

$50,299

 

$82,199

 

$89,420

 

$118,097

 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 





114

ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Net income
 

$89,420

 

$118,811

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation, amortization, and decommissioning, including nuclear fuel amortization
 
231,968

 
221,935

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
45,680

 
(32,906
)
Changes in assets and liabilities:
 
 
 
 
Receivables
 
4,920

 
(6,091
)
Fuel inventory
 
(4,707
)
 
12,289

Accounts payable
 
(14,280
)
 
(25,035
)
Taxes accrued
 
(19,961
)
 
66,500

Interest accrued
 
4,155

 
1,260

Deferred fuel costs
 
56,182

 
(5,896
)
Other working capital accounts
 
23,275

 
(8,750
)
Provisions for estimated losses
 
11,619

 
12,453

Other regulatory assets
 
(57,516
)
 
8,587

Other regulatory liabilities
 
70,958

 
(111,600
)
Pension and other postretirement liabilities
 
(12,487
)
 
(37,601
)
Other assets and liabilities
 
(75,672
)
 
12,639

Net cash flow provided by operating activities
 
353,554

 
226,595

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(309,696
)
 
(350,429
)
Allowance for equity funds used during construction
 
6,964

 
8,732

Nuclear fuel purchases
 
(6,691
)
 
(23,342
)
Proceeds from sale of nuclear fuel
 
22,834

 
30,907

Proceeds from nuclear decommissioning trust fund sales
 
83,407

 
121,440

Investment in nuclear decommissioning trust funds
 
(93,516
)
 
(128,598
)
Change in money pool receivable - net
 
(25,166
)
 
(57,708
)
Changes in securitization account
 
834

 
(279
)
Insurance proceeds
 
—

 
7,043

Net cash flow used in investing activities
 
(321,030
)
 
(392,234
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of long-term debt
 
659,913

 
464,544

Retirement of long-term debt
 
(361,823
)
 
(206,843
)
Capital contribution from parent
 
—

 
350,000

Changes in short-term borrowings - net
 
—

 
(49,974
)
Changes in money pool payable - net
 
(182,738
)
 
(166,137
)
Distributions/dividends paid:
 
 
 
 
Common equity
 
(115,000
)
 
—

Preferred stock
 
—

 
(714
)
Other
 
(1,052
)
 
1,615

Net cash flow provided by (used in) financing activities
 
(700
)
 
392,491

 
 
 
 
 
Net increase in cash and cash equivalents
 
31,824

 
226,852

Cash and cash equivalents at beginning of period
 
119

 
6,216

Cash and cash equivalents at end of period
 

$31,943

 

$233,068

 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
 

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

$62,486

 

$56,900

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

115

ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 2019 and December 31, 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash
 

$2,795

 

$118

Temporary cash investments
 
29,148

 
1

Total cash and cash equivalents
 
31,943

 
119

Securitization recovery trust account
 
3,831

 
4,666

Accounts receivable:
 
 
 
 
Customer
 
119,183

 
94,348

Allowance for doubtful accounts
 
(1,066
)
 
(1,264
)
Associated companies
 
56,244

 
48,184

Other
 
36,059

 
64,393

Accrued unbilled revenues
 
123,579

 
108,092

Total accounts receivable
 
333,999

 
313,753

Deferred fuel costs
 
—

 
19,235

Fuel inventory - at average cost
 
27,855

 
23,148

Materials and supplies - at average cost
 
211,874

 
196,314

Deferred nuclear refueling outage costs
 
44,868

 
78,966

Prepayments and other
 
19,682

 
14,553

TOTAL
 
674,052

 
650,754

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 
 
 
Decommissioning trust funds
 
1,031,762

 
912,049

Other
 
5,477

 
5,480

TOTAL
 
1,037,239

 
917,529

 
 
 
 
 
UTILITY PLANT
 
 
 
 
Electric
 
11,860,519

 
11,611,041

Construction work in progress
 
327,273

 
243,731

Nuclear fuel
 
202,998

 
220,602

TOTAL UTILITY PLANT
 
12,390,790

 
12,075,374

Less - accumulated depreciation and amortization
 
4,926,197

 
4,864,818

UTILITY PLANT - NET
 
7,464,593

 
7,210,556

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 
 
 
Regulatory assets:
 
 
 
 
Other regulatory assets (includes securitization property of $8,594 as of June 30, 2019 and $14,329 as of December 31, 2018)
 
1,592,493

 
1,534,977

Deferred fuel costs
 
67,492

 
67,294

Other
 
22,704

 
20,486

TOTAL
 
1,682,689

 
1,622,757

 
 
 
 
 
TOTAL ASSETS
 

$10,858,573

 

$10,401,596

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

116

ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
June 30, 2019 and December 31, 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Accounts payable:
 
 
 
 
Associated companies
 

$68,185

 

$251,768

Other
 
191,038

 
187,387

Customer deposits
 
100,284

 
99,053

Taxes accrued
 
36,928

 
56,889

Interest accrued
 
23,048

 
18,893

Deferred fuel costs
 
37,145

 
—

Current portion of unprotected excess accumulated deferred income taxes
 
75,139

 
99,316

Other
 
45,402

 
23,943

TOTAL
 
577,169

 
737,249

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
1,127,393

 
1,085,545

Accumulated deferred investment tax credits
 
32,302

 
32,903

Regulatory liability for income taxes - net
 
486,342

 
505,748

Other regulatory liabilities
 
517,209

 
402,668

Decommissioning
 
1,207,514

 
1,048,428

Accumulated provisions
 
60,598

 
48,979

Pension and other postretirement liabilities
 
300,760

 
313,295

Long-term debt (includes securitization bonds of $13,939 as of June 30, 2019 and $20,898 as of December 31, 2018)
 
3,527,146

 
3,225,759

Other
 
64,617

 
17,919

TOTAL
 
7,323,881

 
6,681,244

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
EQUITY
 
 
 
 
Member's equity
 
2,957,523

 
2,983,103

TOTAL
 
2,957,523

 
2,983,103

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$10,858,573

 

$10,401,596

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


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ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
 
 
 
Member's Equity
 
 
(In Thousands)
 
 
 
Balance at December 31, 2017
 

$2,376,754

 
 
 
Net income
 
118,811

Capital contribution from parent
 
350,000

Preferred stock dividends
 
(714
)
 
 
 
Balance at June 30, 2018
 

$2,844,851

 
 
 
 
 
 
Balance at December 31, 2018
 

$2,983,103

 
 
 
Net income
 
89,420

Common equity distributions
 
(115,000
)
 
 
 
Balance at June 30, 2019
 

$2,957,523

 
 
 
See Notes to Financial Statements.
 
 


118

ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
SELECTED OPERATING RESULTS
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Increase/
 
 

 
2019
 
2018
 
(Decrease)
 
%

 
(Dollars In Millions)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
Residential
 

$158

 

$159

 

($1
)
 
(1
)
Commercial
 
125

 
94

 
31

 
33

Industrial
 
119

 
98

 
21

 
21

Governmental
 
5

 
4

 
1

 
25

Total billed retail
 
407

 
355

 
52

 
15

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
30

 
26

 
4

 
15

Non-associated companies
 
45

 
27

 
18

 
67

Other
 
61

 
87

 
(26
)
 
(30
)
Total
 

$543

 

$495

 

$48

 
10

 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
1,546

 
1,644

 
(98
)
 
(6
)
Commercial
 
1,346

 
1,396

 
(50
)
 
(4
)
Industrial
 
1,830

 
1,953

 
(123
)
 
(6
)
Governmental
 
57

 
58

 
(1
)
 
(2
)
Total retail
 
4,779

 
5,051

 
(272
)
 
(5
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
509

 
236

 
273

 
116

Non-associated companies
 
2,037

 
1,171

 
866

 
74

Total
 
7,325

 
6,458

 
867

 
13

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
 
Increase/
 
 

 
2019
 
2018
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
Residential
 

$368

 

$395

 

($27
)
 
(7
)
Commercial
 
250

 
214

 
36

 
17

Industrial
 
240

 
210

 
30

 
14

Governmental
 
10

 
8

 
2

 
25

Total billed retail
 
868

 
827

 
41

 
5

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
59

 
56

 
3

 
5

Non-associated companies
 
95

 
63

 
32

 
51

Other
 
67

 
100

 
(33
)
 
(33
)
Total
 

$1,089

 

$1,046

 

$43

 
4

 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
3,751

 
3,973

 
(222
)
 
(6
)
Commercial
 
2,672

 
2,761

 
(89
)
 
(3
)
Industrial
 
3,675

 
3,781

 
(106
)
 
(3
)
Governmental
 
114

 
114

 
—

 
—

Total retail
 
10,212

 
10,629

 
(417
)
 
(4
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
1,106

 
723

 
383

 
53

Non-associated companies
 
4,556

 
2,888

 
1,668

 
58

Total
 
15,874

 
14,240

 
1,634

 
11


119


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Second Quarter 2019 Compared to Second Quarter 2018

Net income decreased $1.3 million primarily due to a higher effective income tax rate, primarily due to an IRS audit settlement in the second quarter 2018 for the 2012-2013 tax returns that is discussed in Note 3 to the financial statements in the Form 10-K, and higher depreciation and amortization expenses. The decrease was substantially offset by an increase in retail electric price.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Net income increased $14.8 million primarily due to an increase in retail electric price and lower other operation and maintenance expenses. The increase was partially offset by a higher effective income tax rate, primarily due to an IRS audit settlement in 2018 for the 2012-2013 tax returns that is discussed in Note 3 to the financial statements in the Form 10-K, higher depreciation and amortization expenses, and lower volume/weather.

Operating Revenues

Second Quarter 2019 Compared to Second Quarter 2018

Following is an analysis of the change in operating revenues comparing the second quarter 2019 to the second quarter 2018:
 
Amount
 
(In Millions)
2018 operating revenues

$1,072.8

Fuel, rider, and other revenues that do not significantly affect net income
(59.9
)
Retail electric price
68.4

Return of unprotected excess accumulated deferred income taxes to customers
25.0

2019 operating revenues

$1,106.3


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

The retail electric price variance is primarily due to:

•
an increase in formula rate plan revenues effective September 2018 and an increase in formula rate plan revenues effective June 2019 due to the inclusion of the St. Charles Power Station, each as approved by the LPSC; and
•
the implementation of an advanced metering system customer charge, as approved by the LPSC, effective January 2019.


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Management's Financial Discussion and Analysis

See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the formula rate plan proceedings and advanced metering system customer charge.

The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through changes in the formula rate plan effective May 2018. In second quarter 2019, $6.5 million was returned to customers as compared to $31.5 million in second quarter 2018. There is no effect on net income as the reduction in operating revenues was offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Following is an analysis of the change in operating revenues comparing the six months ended June 30, 2019 to the six months ended June 30, 2018:
 
Amount
 
(In Millions)
2018 operating revenues

$2,102.1

Fuel, rider, and other revenues that do not significantly affect net income
(141.9
)
Volume/weather
(26.9
)
Return of unprotected excess accumulated deferred income taxes to customers
17.9

Retail electric price
114.4

2019 operating revenues

$2,065.6

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

The volume/weather variance is primarily due to a decrease of 216 GWh, or 1%, in billed electricity usage, including the effect of less favorable weather on residential and commercial sales. The decrease was partially offset by an increase in industrial usage primarily due to an increase in demand from expansion projects, primarily in the chemicals industry.

The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through changes in the formula rate plan effective May 2018. In the six months ended June 30, 2019, $13.6 million was returned to customers as compared to $31.5 million in the six months ended June 30, 2018. There is no effect on net income as the reduction in operating revenues was offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

The retail electric price variance is primarily due to:

•
an increase in formula rate plan revenues effective September 2018 and an interim increase in formula rate plan revenues effective June 2019 due to the inclusion of the first-year revenue requirement for the St. Charles Power Station, each as approved by the LPSC; and
•
the implementation of an advanced metering system customer charge, as approved by the LPSC, effective January 2019.


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Management's Financial Discussion and Analysis

See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the formula rate plan proceedings and advanced metering system customer charge.

Other Income Statement Variances

Second Quarter 2019 Compared to Second Quarter 2018

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

Other regulatory charges (credits) include regulatory charges of $27.4 million recorded in second quarter 2018 to reflect the effects of a provision in the settlement reached in the formula rate plan extension proceeding to return the benefits of the lower federal income tax rate in 2018 to customers. See Note 2 to the financial statements in the Form 10-K for discussion of the formula rate plan extension proceeding.

Other income increased primarily due to an increase in the allowance for borrowed funds used during construction due to higher construction work in progress in 2019, including the Lake Charles Power Station project, and a change in decommissioning trust fund investment activity.

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

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Other operation and maintenance expenses decreased primarily due to:

•
a decrease of $4.3 million in loss provisions, including a decrease in asbestos loss provisions;
•
a decrease of $4.2 million in transmission expenses primarily due to a lower scope of work in 2019 as compared to the same period in 2018;
•
a decrease of $3.8 million in energy efficiency costs due to the timing of recovery from customers;
•
a decrease of $3.4 million in vegetation maintenance costs; and
•
a decrease of $3.3 million in nuclear generation expenses primarily due to a lower scope of work performed during plant outages in 2019 as compared to the same period in 2018.

The decrease was partially offset by:

•
an increase of $4.7 million in information technology costs primarily due to higher software maintenance costs and higher contract costs;
•
an increase of $4.1 million due to spending on customer initiatives to explore new technologies and services; and
•
an increase of $2.8 million in advanced metering costs, including customer education costs.

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

Other regulatory charges (credits) include regulatory charges of $55 million recorded in 2018 to reflect the effects of a provision in the settlement reached in the formula rate plan extension proceeding to return the benefits of the lower federal income tax rate in 2018 to customers. See Note 2 to the financial statements in the Form 10-K for discussion of the formula rate plan extension proceeding.


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Other income increased primarily due to an increase in the allowance for borrowed funds used during construction due to higher construction work in progress in 2019, including the Lake Charles Power Station project. The increase was partially offset by a change in decommissioning trust fund investment activity.

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

Income Taxes

The effective income tax rates were 17.3% for the second quarter 2019 and 15% for the six months ended June 30, 2019. The differences in the effective income tax rates for the second quarter 2019 and the six months ended June 30, 2019 versus the federal statutory rate of 21% were primarily due to book and tax differences related to the non-taxable income distributions earned on preferred membership interests, the amortization of excess accumulated deferred income taxes, and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.

The effective income tax rates were (42.7%) for the second quarter 2018 and (12.7%) for the six months ended June 30, 2018. The differences in the effective income tax rates for the second quarter 2018 and the six months ended June 30, 2018 versus the federal statutory rate of 21% were primarily due to an IRS audit settlement for the 2012-2013 tax returns, amortization of excess accumulated deferred income taxes, book and tax differences related to the non-taxable income distributions earned on preferred membership interests, certain book and tax differences related to utility plant items, and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 3 to the financial statements in the Form 10-K for a discussion of the IRS audit settlement.

Income Tax Legislation

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


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Management's Financial Discussion and Analysis

Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2019 and 2018 were as follows:
 
2019
 
2018
 
(In Thousands)
Cash and cash equivalents at beginning of period

$43,364

 

$35,907

 
 
 
 
Cash flow provided by (used in):
 
 
 
    Operating activities
473,220

 
583,192

    Investing activities
(920,658
)
 
(838,202
)
    Financing activities
448,813

 
248,131

Net increase (decrease) in cash and cash equivalents
1,375

 
(6,879
)
 
 
 
 
Cash and cash equivalents at end of period

$44,739

 

$29,028


Operating Activities

Net cash flow provided by operating activities decreased $110 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to:

•
the timing of collection of receivables from customers;
•
the timing of payments to vendors; and
•
an increase of $64.6 million in spending on nuclear refueling outages.

The decrease was partially offset by a decrease of $23 million in pension contributions in 2019 as compared to 2018. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.

Investing Activities

Net cash flow used in investing activities increased $82.5 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to:

•
an increase of $84.6 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and service deliveries, and the timing of cash payments during the nuclear fuel cycle;
•
an increase of $76.4 million in nuclear construction expenditures primarily due to increased spending on various nuclear projects in 2019; and
•
an increase of $34.3 million in distribution construction expenditures primarily due to a higher scope of work, including increased spending on advanced metering infrastructure, in 2019 as compared to 2018.

The increase was partially offset by a decrease of $91.9 million in fossil-fueled generation construction expenditures primarily due to lower spending on the St. Charles Power Station and Lake Charles Power Station projects in 2019.
    
Financing Activities

Net cash flow provided by financing activities increased $200.7 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to:

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Management's Financial Discussion and Analysis


•
the issuance of $525 million of 4.20% Series mortgage bonds in March 2019;
•
net long-term borrowings of $46.1 million on the nuclear fuel company variable interest entities’ credit facilities in 2019 compared to net repayments of long-term borrowings of $11.8 million on the nuclear fuel company variable interest entities’ credit facilities in 2018; and
•
net repayments of short-term borrowings of $43.5 million in 2018 on the nuclear fuel company variable interest entities’ credit facilities.

The increase was partially offset by:

•
the issuance of $750 million of 4.00% Series mortgage bonds in March 2018. A portion of the proceeds was used to repay $375 million of 6.0% Series mortgage bonds in May 2018; and
•
an increase of $46 million in common equity distributions in 2019 primarily to maintain Entergy Louisiana’s targeted capital structure.

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

Capital Structure

Entergy Louisiana’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio is primarily due to the issuance of $525 million of mortgage bonds in March 2019.
 
 
June 30,
2019
 
December 31,
2018
Debt to capital
54.7
%
 
53.6
%
Effect of excluding securitization bonds
(0.2
%)
 
(0.3
%)
Debt to capital, excluding securitization bonds (a)
54.5
%
 
53.3
%
Effect of subtracting cash
(0.1
%)
 
(0.1
%)
Net debt to net capital, excluding securitization bonds (a)
54.4
%
 
53.2
%
(a)
Calculation excludes the securitization bonds, which are non-recourse to Entergy Louisiana.

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

Uses and Sources of Capital

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


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Management's Financial Discussion and Analysis

The current annual amounts of Entergy Louisiana’s planned construction and other capital investments are as follows:
 
2019
 
2020
 
2021
 
(In Millions)
Planned construction and capital investment:
 
 
 
 
 
Generation

$625

 

$600

 

$530

Transmission
475

 
510

 
440

Distribution
365

 
370

 
460

Utility Support
190

 
160

 
160

Total

$1,655

 

$1,640

 

$1,590


The updated capital plan for 2019-2021 reflects incremental capital investments to improve reliability and enable new customer products and services. The capital plan includes specific investments such as the Washington Parish Energy Center, St. Charles Power Station, and Lake Charles Power Station; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to maintain reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation projects; system improvements; investments in River Bend and Waterford 3; software and security; and other investments.

Entergy Louisiana’s receivables from the money pool were as follows:
June 30,
2019
 
December 31, 2018
 
June 30,
2018
 
December 31,
2017
(In Thousands)
$37,212
 
$46,845
 
$6,779
 
$11,173

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

Entergy Louisiana has a credit facility in the amount of $350 million scheduled to expire in September 2023.  The credit facility includes fronting commitments for the issuance of letters of credit against $15 million of the borrowing capacity of the facility. As of June 30, 2019, there were no cash borrowings and no letters of credit outstanding under the credit facility.  In addition, Entergy Louisiana is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of June 30, 2019, a $37.8 million letter of credit was outstanding under Entergy Louisiana’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

The Entergy Louisiana nuclear fuel company variable interest entities have two separate credit facilities, each in the amount of $105 million and scheduled to expire in September 2021.  As of June 30, 2019, $87.5 million in loans were outstanding under the credit facility for the Entergy Louisiana River Bend nuclear fuel company variable interest entity. As of June 30, 2019, $79.2 million in loans were outstanding under the credit facility for the Entergy Louisiana Waterford nuclear fuel company variable interest entity. See Note 4 to the financial statements herein for additional discussion of the nuclear fuel company variable interest entity credit facilities.

St. Charles Power Station

As discussed in the Form 10-K, the LPSC issued an order in December 2016 approving certification that the public necessity and convenience would be served by the construction of the St. Charles Power Station. Commercial operation commenced in May 2019.


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Management's Financial Discussion and Analysis

State and Local Rate Regulation and Fuel-Cost Recovery

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

Retail Rates - Electric

2017 Formula Rate Plan Filing

In May 2019, Entergy Louisiana filed an update to its 2017 formula rate plan evaluation report to include the estimated first-year revenue requirement of $109.5 million associated with the St. Charles Power Station. Commercial operation at St. Charles Power Station commenced in May 2019. The resulting interim adjustment to rates became effective with the first billing cycle of June 2019.

2018 Formula Rate Plan Filing

In May 2019, Entergy Louisiana filed its formula rate plan evaluation report for its 2018 calendar year operations. The 2018 test year evaluation report produced an earned return on common equity of 10.61% leading to a base rider formula rate plan revenue decrease of $8.9 million. While base rider formula rate plan revenue will decrease as a result of this filing, overall formula rate plan revenues will increase by approximately $118.7 million. This outcome is primarily driven by a reduction to the credits previously flowed through the tax reform adjustment mechanism and an increase in the transmission recovery mechanism, partially offset by reductions in the additional capacity mechanism revenue requirements and extraordinary cost items. The filing is subject to review by the LPSC with resulting rates to be implemented in September 2019, subject to refund if there are contested issues.

Entergy Louisiana also included in its filing a presentation of an initial proposal to combine the legacy Entergy Louisiana and legacy Entergy Gulf States Louisiana residential rates, which combination, if approved, would be accomplished on a revenue-neutral basis intended not to affect the rates of other customer classes. Entergy Louisiana contemplates that any combination of residential rates resulting from this request would be implemented with the results of the 2019 test year formula rate plan filing.

Investigation of Costs Billed by Entergy Services

In November 2018 the LPSC issued a notice of proceeding initiating an investigation into costs incurred by Entergy Services that are included in the retail rates of Entergy Louisiana. As noted in the notice of proceeding, the LPSC observed an increase in capital construction-related costs that have been incurred by Entergy Services. Discovery is ongoing and has included efforts to seek highly detailed information on a broad range of matters unrelated to the scope of the audit.

Retail Rates - Gas

2018 Rate Stabilization Plan Filing

As discussed in the Form 10-K, in January 2019, Entergy Louisiana filed with the LPSC its gas rate stabilization for the test year ended September 30, 2018. Entergy Louisiana made a compliance filing in April 2019 and rates were implemented during the first billing cycle of May 2019, subject to refund and final LPSC review.

Fuel and purchased power recovery

In July 2014 the LPSC authorized its staff to initiate an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed by Entergy Louisiana through its fuel

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Management's Financial Discussion and Analysis

adjustment clause for the period from 2010 through 2013. In January 2019 the LPSC staff issued its audit report recommending that Entergy Louisiana refund approximately $7.3 million, plus interest, to customers based upon the imputation of a claim of vendor fault in servicing its nuclear plant. Entergy Louisiana recorded a provision in the first quarter 2019 for the potential outcome of the audit. A procedural schedule has been set to address the report and contested issues, with a hearing scheduled in November 2019.

Industrial and Commercial Customers

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

Federal Regulation

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

Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

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

In the second quarter 2019, Entergy Louisiana recorded a revision to its estimated decommissioning cost liability for Waterford 3 as a result of a revised decommissioning cost study. The revised estimate resulted in a $147.5 million increase in its decommissioning cost liability, along with a corresponding increase in the related asset retirement cost asset that will be depreciated over the remaining useful life of the unit.

New Accounting Pronouncements

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

128


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
 
2019
 
2018
 
2019
 
2018
 
 
(In Thousands)
 
(In Thousands)
OPERATING REVENUES
 
 
 
 
 
 
 
 
Electric
 

$1,094,259

 

$1,061,689

 

$2,030,952

 

$2,066,795

Natural gas
 
12,058

 
11,099

 
34,695

 
35,337

TOTAL
 
1,106,317

 
1,072,788

 
2,065,647

 
2,102,132

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
Operation and Maintenance:
 
 
 
 
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
220,472

 
200,528

 
367,821

 
381,309

Purchased power
 
223,014

 
266,614

 
480,320

 
518,386

Nuclear refueling outage expenses
 
13,391

 
12,671

 
26,199

 
25,770

Other operation and maintenance
 
250,835

 
250,994

 
476,723

 
485,374

Decommissioning
 
14,059

 
13,480

 
27,938

 
26,252

Taxes other than income taxes
 
46,658

 
47,147

 
96,340

 
98,427

Depreciation and amortization
 
130,246

 
122,177

 
256,380

 
242,920

Other regulatory charges (credits) - net
 
(33,878
)
 
9,017

 
(61,538
)
 
32,214

TOTAL
 
864,797

 
922,628

 
1,670,183

 
1,810,652

 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
241,520

 
150,160

 
395,464

 
291,480

 
 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
 
Allowance for equity funds used during construction
 
20,671

 
19,124

 
44,585

 
36,869

Interest and investment income
 
49,498

 
46,853

 
121,484

 
90,128

Miscellaneous - net
 
(22,306
)
 
(22,770
)
 
(64,650
)
 
(30,435
)
TOTAL
 
47,863

 
43,207

 
101,419

 
96,562

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
Interest expense
 
77,631

 
73,582

 
152,334

 
143,678

Allowance for borrowed funds used during construction
 
(9,737
)
 
(9,451
)
 
(21,104
)
 
(18,214
)
TOTAL
 
67,894

 
64,131

 
131,230

 
125,464

 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
221,489

 
129,236

 
365,653

 
262,578

 
 
 
 
 
 
 
 
 
Income taxes
 
38,405

 
(55,122
)
 
54,936

 
(33,374
)
 
 
 
 
 
 
 
 
 
NET INCOME
 

$183,084

 

$184,358

 

$310,717

 

$295,952

 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 



129

ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
2019
 
2018
 
2019
 
2018
 
(In Thousands)
 
(In Thousands)
 
 
 
 
 
 
 
 
Net Income

$183,084

 

$184,358

 

$310,717

 

$295,952

Other comprehensive loss
 
 
 
 
 
 
 
Pension and other postretirement liabilities (net of tax benefit of $342, $177, $684, and $353)
(969
)
 
(501
)
 
(1,938
)
 
(1,002
)
Other comprehensive loss
(969
)
 
(501
)
 
(1,938
)
 
(1,002
)
Comprehensive Income

$182,115

 

$183,857

 

$308,779

 

$294,950

 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 


130

ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Net income
 

$310,717

 

$295,952

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation, amortization, and decommissioning, including nuclear fuel amortization
 
316,343

 
323,188

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
99,015

 
119,378

Changes in working capital:
 
 
 
 
Receivables
 
(75,330
)
 
(23,815
)
Fuel inventory
 
(1,651
)
 
(2,581
)
Accounts payable
 
(25,686
)
 
17,324

Prepaid taxes and taxes accrued
 
46,654

 
(56,076
)
Interest accrued
 
1,918

 
790

Deferred fuel costs
 
(40,096
)
 
(68,741
)
Other working capital accounts
 
(64,715
)
 
(6,053
)
Changes in provisions for estimated losses
 
1,612

 
5,803

Changes in other regulatory assets
 
(88,911
)
 
42,203

Changes in other regulatory liabilities
 
26,565

 
(8,811
)
Changes in pension and other postretirement liabilities
 
(7,513
)
 
(32,970
)
Other
 
(25,702
)
 
(22,399
)
Net cash flow provided by operating activities
 
473,220

 
583,192

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(900,264
)
 
(880,785
)
Allowance for equity funds used during construction
 
44,585

 
36,869

Nuclear fuel purchases
 
(63,026
)
 
(14,740
)
Proceeds from the sale of nuclear fuel
 
—

 
36,301

Payments to storm reserve escrow account
 
(3,382
)
 
(1,984
)
Changes to securitization account
 
406

 
(1,423
)
Proceeds from nuclear decommissioning trust fund sales
 
195,433

 
169,407

Investment in nuclear decommissioning trust funds
 
(211,083
)
 
(189,721
)
Changes in money pool receivable - net
 
9,633

 
4,394

Insurance proceeds
 
7,040

 
3,480

Net cash flow used in investing activities
 
(920,658
)
 
(838,202
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of long-term debt
 
1,883,990

 
1,088,941

Retirement of long-term debt
 
(1,332,807
)
 
(744,222
)
Changes in short-term borrowings - net
 
—

 
(43,540
)
Distributions paid:
 
 
 
 
Common equity
 
(102,000
)
 
(56,000
)
Other
 
(370
)
 
2,952

Net cash flow provided by financing activities
 
448,813

 
248,131

 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
1,375

 
(6,879
)
Cash and cash equivalents at beginning of period
 
43,364

 
35,907

Cash and cash equivalents at end of period
 

$44,739

 

$29,028

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

$146,256

 

$138,625

Income taxes
 

$—

 

($2,973
)
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

131

ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 2019 and December 31, 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash
 

$252

 

$252

Temporary cash investments
 
44,487

 
43,112

Total cash and cash equivalents
 
44,739

 
43,364

Accounts receivable:
 
 
 
 
Customer
 
259,321

 
199,903

Allowance for doubtful accounts
 
(1,919
)
 
(1,813
)
Associated companies
 
109,752

 
123,363

Other
 
48,165

 
60,879

Accrued unbilled revenues
 
192,722

 
167,052

Total accounts receivable
 
608,041

 
549,384

Deferred fuel costs
 
8,685

 
—

Fuel inventory
 
36,069

 
34,418

Materials and supplies - at average cost
 
333,943

 
324,627

Deferred nuclear refueling outage costs
 
85,483

 
24,406

Prepayments and other
 
44,682

 
38,715

TOTAL
 
1,161,642

 
1,014,914

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

 
1,390,587

Decommissioning trust funds
 
1,461,061

 
1,284,996

Storm reserve escrow account
 
292,907

 
289,525

Non-utility property - at cost (less accumulated depreciation)
 
305,964

 
286,555

Other
 
15,302

 
14,927

TOTAL
 
3,465,821

 
3,266,590

 
 
 
 
 
UTILITY PLANT
 
 
 
 
Electric
 
21,957,846

 
20,532,312

Natural gas
 
224,044

 
211,421

Construction work in progress
 
1,294,844

 
1,864,582

Nuclear fuel
 
302,982

 
298,022

TOTAL UTILITY PLANT
 
23,779,716

 
22,906,337

Less - accumulated depreciation and amortization
 
8,907,647

 
8,837,596

UTILITY PLANT - NET
 
14,872,069

 
14,068,741

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 
 
 
Regulatory assets:
 
 
 
 
Other regulatory assets (includes securitization property of $39,603 as of June 30, 2019 and $49,753 as of December 31, 2018)
 
1,193,988

 
1,105,077

Deferred fuel costs
 
168,122

 
168,122

Other
 
33,429

 
28,371

TOTAL
 
1,395,539

 
1,301,570

 
 
 
 
 
TOTAL ASSETS
 

$20,895,071

 

$19,651,815

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

132

ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
June 30, 2019 and December 31, 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Currently maturing long-term debt
 

$2

 

$2

Accounts payable:
 
 
 
 
Associated companies
 
87,090

 
102,749

Other
 
330,748

 
390,367

Customer deposits
 
153,705

 
155,314

Taxes accrued
 
77,522

 
30,868

Interest accrued
 
85,368

 
83,450

Deferred fuel costs
 
—

 
31,411

Current portion of unprotected excess accumulated deferred income taxes
 
35,532

 
31,457

Other
 
76,596

 
49,202

TOTAL
 
846,563

 
874,820

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
2,334,983

 
2,226,721

Accumulated deferred investment tax credits
 
114,564

 
116,999

Regulatory liability for income taxes - net
 
545,272

 
581,001

Other regulatory liabilities
 
807,002

 
748,784

Decommissioning
 
1,460,783

 
1,280,272

Accumulated provisions
 
312,367

 
310,755

Pension and other postretirement liabilities
 
635,488

 
643,171

Long-term debt (includes securitization bonds of $45,320 as of June 30, 2019 and $55,682 as of December 31, 2018)
 
7,359,933

 
6,805,766

Other
 
368,444

 
160,608

TOTAL
 
13,938,836

 
12,874,077

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
EQUITY
 
 
 
 
Member's equity
 
6,117,763

 
5,909,071

Accumulated other comprehensive loss
 
(8,091
)
 
(6,153
)
TOTAL
 
6,109,672

 
5,902,918

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$20,895,071

 

$19,651,815

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


133

ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
Common Equity
 
 
 
Member’s
Equity
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
(In Thousands)
 
 
 
 
 
 
Balance at December 31, 2017

$5,355,204

 

($46,400
)
 

$5,308,804

 
 
 
 
 
 
Net income
295,952

 
—

 
295,952

Other comprehensive loss
—

 
(1,002
)
 
(1,002
)
Common equity distributions
(56,000
)
 
—

 
(56,000
)
Reclassification pursuant to ASU 2018-02
6,262

 
(10,049
)
 
(3,787
)
Other
13

 
—

 
13

 
 
 
 
 
 
Balance at June 30, 2018

$5,601,431

 

($57,451
)
 

$5,543,980

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018

$5,909,071

 

($6,153
)
 

$5,902,918

 
 
 
 
 
 
Net income
310,717

 
—

 
310,717

Other comprehensive loss
—

 
(1,938
)
 
(1,938
)
Common equity distributions
(102,000
)
 
—

 
(102,000
)
Other
(25
)
 
—

 
(25
)
 
 
 
 
 
 
Balance at June 30, 2019

$6,117,763

 

($8,091
)
 

$6,109,672

 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 


134

ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
SELECTED OPERATING RESULTS
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Increase/
 
 
 
 
2019
 
2018
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
 
 
Residential
 

$290

 

$268

 

$22

 
8

Commercial
 
232

 
222

 
10

 
5

Industrial
 
385

 
369

 
16

 
4

Governmental
 
18

 
17

 
1

 
6

Total billed retail
 
925

 
876

 
49

 
6

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
67

 
97

 
(30
)
 
(31
)
Non-associated companies
 
16

 
15

 
1

 
7

Other
 
86

 
74

 
12

 
16

Total
 

$1,094

 

$1,062

 

$32

 
3

 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
3,121

 
3,104

 
17

 
1

Commercial
 
2,720

 
2,738

 
(18
)
 
(1
)
Industrial
 
7,493

 
7,492

 
1

 
—

Governmental
 
205

 
196

 
9

 
5

Total retail
 
13,539

 
13,530

 
9

 
—

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
854

 
1,540

 
(686
)
 
(45
)
Non-associated companies
 
402

 
355

 
47

 
13

Total
 
14,795

 
15,425

 
(630
)
 
(4
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
 
Increase/
 
 
 
 
2019
 
2018
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
 
 
Residential
 

$554

 

$563

 

($9
)
 
(2
)
Commercial
 
439

 
447

 
(8
)
 
(2
)
Industrial
 
732

 
721

 
11

 
2

Governmental
 
35

 
34

 
1

 
3

Total billed retail
 
1,760

 
1,765

 
(5
)
 
—

Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
135

 
171

 
(36
)
 
(21
)
Non-associated companies
 
32

 
30

 
2

 
7

Other
 
104

 
101

 
3

 
3

Total
 

$2,031

 

$2,067

 

($36
)
 
(2
)
 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
6,201

 
6,563

 
(362
)
 
(6
)
Commercial
 
5,239

 
5,399

 
(160
)
 
(3
)
Industrial
 
14,836

 
14,541

 
295

 
2

Governmental
 
408

 
397

 
11

 
3

Total retail
 
26,684

 
26,900

 
(216
)
 
(1
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
1,934

 
2,554

 
(620
)
 
(24
)
Non-associated companies
 
907

 
868

 
39

 
4

Total
 
29,525

 
30,322

 
(797
)
 
(3
)
 
 
 
 
 
 
 
 
 

135


ENTERGY MISSISSIPPI, LLC

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Second Quarter 2019 Compared to Second Quarter 2018

Net income decreased $11.6 million primarily due to lower volume/weather.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Net income decreased $19 million primarily due to lower volume/weather and a decrease in retail electric price.

Operating Revenues

Second Quarter 2019 Compared to Second Quarter 2018

Following is an analysis of the change in operating revenues comparing the second quarter 2019 to the second quarter 2018:
 
Amount
 
(In Millions)
2018 operating revenues

$353.7

Fuel, rider, and other revenues that do not significantly affect net income
(40.7
)
Volume/weather
(10.3
)
2019 operating revenues

$302.7


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

The volume/weather variance is primarily due to a decrease of 119 GWh, or 4%, in billed electricity usage, including the effect of less favorable weather on residential and commercial sales and a decrease in industrial usage. The decrease in industrial usage is primarily due to decreased small industrial sales and a decrease in demand from existing customers in the primary metals industry.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Following is an analysis of the change in operating revenues comparing the six months ended June 30, 2019 to the six months ended June 30, 2018:

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Management's Financial Discussion and Analysis

 
Amount
 
(In Millions)
2018 operating revenues

$669.4

Fuel, rider, and other revenues that do not significantly affect net income
(64.3
)
Volume/weather
(15.5
)
Retail electric price
(4.6
)
2019 operating revenues

$585.0


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

The volume/weather variance is primarily due to a decrease of 345 GWh, or 5%, in billed electricity usage, including the effect of less favorable weather on residential sales and a decrease in industrial usage. The decrease in industrial usage is primarily due to decreased small industrial sales.

The retail electric price variance is primarily due to lower storm damage rider revenues. Entergy Mississippi resumed billing the storm damage rider effective with the September 2017 billing cycle and ceased billing the storm damage rider effective with the August 2018 billing cycle. The decrease was partially offset by higher ad valorem tax adjustment rider revenues resulting from a rate increase effective October 2018. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the storm damage rider.

Other Income Statement Variances

Second Quarter 2019 Compared to Second Quarter 2018

Other operation and maintenance expenses increased primarily due to an increase of $3.6 million in fossil-fueled generation expenses primarily due to an overall higher scope of work performed during plant outages, an increase of $1.3 million in spending on customer initiatives to explore new technologies and services, and several individually insignificant items. The increase was partially offset by a decrease of $4.7 million in storm damage provisions. See Note 2 to the financial statements herein and in the Form 10-K for a discussion of storm cost recovery.

Taxes other than income taxes increased primarily due to an increase in ad valorem taxes resulting from higher millage rates due to a rate increase effective October 2018.

Other regulatory charges (credits) include a regulatory charge recorded in second quarter 2018 to reflect the return of unprotected excess accumulated deferred income taxes per an agreement approved by the MPSC in June 2018 that resulted in a reduction in net utility plant of $127.2 million. There is no effect on net income as the regulatory charge was offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity related to the Tax Cuts and Jobs Act.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Other operation and maintenance expenses increased primarily due to an increase of $4.7 million in fossil-fueled generation expenses primarily due to an overall higher scope of work performed during plant outages, an increase of $1.6 million in spending on customer initiatives to explore new technologies and services, and several individually insignificant items. The increase was partially offset by a decrease of $9.9 million in storm damage provisions. See Note 2 to the financial statements herein and in the Form 10-K for a discussion of storm cost recovery.


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Management's Financial Discussion and Analysis

Taxes other than income taxes increased primarily due to an increase in ad valorem taxes, partially offset by lower local franchise taxes. Ad valorem taxes increased primarily due to higher millage rates due to a rate increase effective October 2018. Local franchise taxes decreased primarily due to lower residential and commercial revenues in 2019 compared to 2018.

Other regulatory charges (credits) include a regulatory charge recorded in second quarter 2018 to reflect the return of unprotected excess accumulated deferred income taxes per an agreement approved by the MPSC in June 2018 that resulted in a reduction in net utility plant of $127.2 million. There is no effect on net income as the regulatory charge was offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity related to the Tax Cuts and Jobs Act.

Income Taxes

The effective income tax rates were 20.8% for the second quarter 2019 and 19.9% for the six months ended June 30, 2019. The differences in the effective income tax rates for the second quarter 2019 and the six months ended June 30, 2019 versus the federal statutory rate of 21% were primarily due to book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes.

The effective income tax rates were 150.1% for the second quarter 2018 and 231.4% for the six months ended June 30, 2018. The differences in the effective income tax rates for the second quarter 2018 and the six months ended June 30, 2018 versus the federal statutory rate of 21% were primarily due to the amortization of excess accumulated deferred income taxes and state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.

Income Tax Legislation

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


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Management's Financial Discussion and Analysis

Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2019 and 2018 were as follows:
 
2019
 
2018
 
(In Thousands)
Cash and cash equivalents at beginning of period

$36,954

 

$6,096

 
 
 
 
Cash flow provided by (used in):
 
 
 
Operating activities
70,969

 
106,818

Investing activities
(271,691
)
 
(182,349
)
Financing activities
288,216

 
69,453

Net increase (decrease) in cash and cash equivalents
87,494

 
(6,078
)
 
 
 
 
Cash and cash equivalents at end of period

$124,448

 

$18


Operating Activities

Net cash flow provided by operating activities decreased $35.8 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to the timing of payments to vendors and the effect of less favorable volume/weather on billed sales. The decrease was partially offset by the timing of collection of receivables from customers and the timing of recovery of fuel and purchased power costs.

Investing Activities

Net cash flow used in investing activities increased $89.3 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to:

•
money pool activity;
•
an increase of $10.6 million primarily due to investment in the infrastructure of Entergy Mississippi’s distribution system, including increased spending on advanced metering infrastructure, in 2019 as compared to 2018; and
•
an increase of $8.7 million in storm spending in 2019.

Increases in Entergy Mississippi’s receivable from the money pool are a use of cash flow, and Entergy Mississippi’s receivable from the money pool increased by $65.4 million for the six months ended June 30, 2019 compared to decreasing by $1.6 million for the six months ended June 30, 2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Net cash flow provided by financing activities increased $218.8 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to the issuance of $300 million of 3.85% Series mortgage bonds in June 2019, partially offset by money pool activity.

Increases in Entergy Mississippi’s payable to the money pool are a source of cash flow, and Entergy Mississippi’s payable to the money pool increased by $63.4 million for the six months ended June 30, 2018.

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

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Management's Financial Discussion and Analysis


Capital Structure

Entergy Mississippi’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio for Entergy Mississippi is primarily due to the issuance of $300 million of mortgage bonds in June 2019.
 
June 30,
2019
 
December 31, 2018
Debt to capital
54.9
%
 
50.6
%
Effect of subtracting cash
(1.9
%)
 
(0.7
%)
Net debt to net capital
53.0
%
 
49.9
%

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

Uses and Sources of Capital

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy Mississippi’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.
    
The current annual amounts of Entergy Mississippi’s planned construction and other capital investments are as follows:

 
2019
 
2020
 
2021
 
(In Millions)
Planned construction and capital investment:
 
 
 
 
 
Generation

$405

 

$50

 

$265

Transmission
125

 
150

 
60

Distribution
190

 
195

 
195

Utility Support
80

 
60

 
50

Total

$800

 

$455

 

$570


The updated capital plan for 2019-2021 reflects incremental capital investments to improve reliability and enable new customer products and services. The capital plan includes amounts associated with specific investments such as the Choctaw Generating Station and the Sunflower Solar Facility; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation projects; system improvements; software and security; and other investments.


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Management's Financial Discussion and Analysis

Entergy Mississippi’s receivables from or (payables to) the money pool were as follows:
June 30,
2019
 
December 31, 2018
 
June 30,
2018
 
December 31, 2017
(In Thousands)
$106,760
 
$41,380
 
($63,394)
 
$1,633

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

Entergy Mississippi has three separate credit facilities in the aggregate amount of $82.5 million scheduled to expire in May 2020. No borrowings were outstanding under the credit facilities as of June 30, 2019.  In addition, Entergy Mississippi is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of June 30, 2019, $10.9 million of letters of credit were outstanding under Entergy Mississippi’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

Choctaw Generating Station

In August 2018, Entergy Mississippi announced that it signed an asset purchase agreement to acquire from a subsidiary of GenOn Energy Inc. the Choctaw Generating Station, an 810 MW natural gas fired combined-cycle turbine plant located near French Camp, Mississippi.  The purchase price is expected to be approximately $314 million.  Entergy Mississippi also expects to invest in various plant upgrades at the facility after closing and expects the total cost of the acquisition to be approximately $401 million.  The purchase is contingent upon, among other things, obtaining necessary approvals, including full cost recovery, from applicable federal and state regulatory and permitting agencies.  These include regulatory approvals from the MPSC and the FERC. Clearance under the Hart-Scott-Rodino Antitrust Improvements Act has occurred.  In October 2018, Entergy Mississippi filed an application with the MPSC seeking approval of the acquisition and cost recovery. In a separate filing in October 2018, Entergy Mississippi proposed revisions to its formula rate plan that would provide for a mechanism, the interim capacity rate adjustment mechanism, in the formula rate plan to recover the non-fuel related costs of additional owned capacity acquired by Entergy Mississippi, including the non-fuel annual ownership costs of the Choctaw Generating Station, as well as to allow similar cost recovery treatment for other future capacity additions approved by the MPSC. Closing is expected to occur by the end of 2019. Due diligence performed on the plant indicates that there exist potential mechanical and regulatory compliance issues that must be addressed before closing. Progress is being made on these issues, but there remains a possibility that closing could be delayed beyond the fourth quarter 2019.

State and Local Rate Regulation and Fuel-Cost Recovery

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

Mississippi Attorney General Complaint

As discussed in the Form 10-K, the Mississippi Attorney General filed a complaint in state court in December 2008 against Entergy Corporation, Entergy Mississippi, Entergy Services, and Entergy Power alleging, among other things, violations of Mississippi statutes, fraud, and breach of good faith and fair dealing, and requesting an accounting and restitution. The defendants have denied the allegations. In December 2008 the Attorney General’s lawsuit was removed to U.S. District Court in Jackson, Mississippi. Pre-trial and settlement conferences were held in October 2018. In October 2018 the District Court rescheduled the trial to April 2019. In April 2019 the District Court remanded the Attorney General’s lawsuit to the Hinds County Chancery Court in Jackson, Mississippi. A hearing on procedural and dispositive motions is scheduled for August 2019.


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Management's Financial Discussion and Analysis

Formula Rate Plan

In March 2019, Entergy Mississippi submitted its formula rate plan 2019 test year filing and 2018 look-back filing showing Entergy Mississippi’s earned return for the historical 2018 calendar year to be above the formula rate plan bandwidth and projected earned return for the 2019 calendar year to be below the formula rate plan bandwidth. The 2019 test year filing shows a $36.8 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.94% return on rate base, within the formula rate plan bandwidth. The 2018 look-back filing compares actual 2018 results to the approved benchmark return on rate base and shows a $10.1 million interim decrease in formula rate plan revenues is necessary. In the fourth quarter 2018, Entergy Mississippi recorded a provision of $9.3 million that reflected the estimate of the difference between the 2018 expected earned rate of return on rate base and an established performance-adjusted benchmark rate of return under the formula rate plan performance-adjusted bandwidth mechanism. In the first quarter 2019, Entergy Mississippi recorded a $0.8 million increase in the provision to reflect the amount shown in the look-back filing. In June 2019, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a joint stipulation that confirmed that the 2019 test year filing showed that a $32.8 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.93% return on rate base, within the formula rate plan bandwidth. Additionally, pursuant to the joint stipulation, Entergy Mississippi’s 2018 look-back filing reflected an earned return on rate base of 7.81% in calendar year 2018 which is above the look-back benchmark return on rate base of 7.13%, resulting in an $11 million decrease in formula rate plan revenues on an interim basis through June 2020. In the second quarter 2019, Entergy Mississippi recorded an additional $0.9 million increase in the provision to reflect the $11 million shown in the look-back filing. In June 2019 the MPSC approved the joint stipulation with rates effective for the first billing cycle of July 2019.

Storm Cost Recovery Filings with Retail Regulators

As discussed in the Form 10-K, Entergy Mississippi has approval from the MPSC to collect a storm damage provision of $1.75 million per month. If Entergy Mississippi’s accumulated storm damage provision balance exceeds $15 million, the collection of the storm damage provision ceases until such time that the accumulated storm damage provision becomes less than $10 million. As of May 31, 2019, Entergy Mississippi’s storm damage provision balance was less than $10 million. Accordingly, Entergy Mississippi resumed billing the monthly storm damage provision effective with July 2019 bills.

Federal Regulation

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

Nuclear Matters

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

Environmental Risks

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


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Management's Financial Discussion and Analysis

Critical Accounting Estimates

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

New Accounting Pronouncements

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


143

ENTERGY MISSISSIPPI, LLC
INCOME STATEMENTS
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
2019
 
2018
 
2019
 
2018
 
 
(In Thousands)
 
(In Thousands)
OPERATING REVENUES
 
 
 
 
 
 
 
 
Electric
 

$302,737

 

$353,689

 

$584,981

 

$669,432

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
Operation and Maintenance:
 
 
 
 
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
47,391

 
65,663

 
100,620

 
129,191

Purchased power
 
73,720

 
97,154

 
145,175

 
184,610

Other operation and maintenance
 
66,921

 
64,585

 
126,104

 
124,043

Taxes other than income taxes
 
25,813

 
23,794

 
51,940

 
49,188

Depreciation and amortization
 
39,718

 
38,359

 
78,806

 
76,541

Other regulatory charges - net
 
3,567

 
127,935

 
5,937

 
128,228

TOTAL
 
257,130

 
417,490

 
508,582

 
691,801

 
 
 
 
 
 
 
 
 
OPERATING INCOME (LOSS)
 
45,607

 
(63,801
)
 
76,399

 
(22,369
)
 
 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
 
Allowance for equity funds used during construction
 
2,349

 
2,122

 
4,262

 
4,100

Interest and investment income
 
397

 
—

 
549

 
25

Miscellaneous - net
 
(327
)
 
(1,411
)
 
(590
)
 
(1,982
)
TOTAL
 
2,419

 
711

 
4,221

 
2,143

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
Interest expense
 
15,342

 
14,061

 
29,882

 
27,966

Allowance for borrowed funds used during construction
 
(1,006
)
 
(890
)
 
(1,791
)
 
(1,718
)
TOTAL
 
14,336

 
13,171

 
28,091

 
26,248

 
 
 
 
 
 
 
 
 
INCOME (LOSS) BEFORE INCOME TAXES
 
33,690

 
(76,261
)
 
52,529

 
(46,474
)
 
 
 
 
 
 
 
 
 
Income taxes
 
7,023

 
(114,503
)
 
10,464

 
(107,559
)
 
 
 
 
 
 
 
 
 
NET INCOME
 
26,667

 
38,242

 
42,065

 
61,085

 
 
 
 
 
 
 
 
 
Preferred dividend requirements and other
 
—

 
239

 
—

 
477

 
 
 
 
 
 
 
 
 
EARNINGS APPLICABLE TO COMMON EQUITY
 

$26,667

 

$38,003

 

$42,065

 

$60,608

 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 


144

ENTERGY MISSISSIPPI, LLC
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Net income
 

$42,065

 

$61,085

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation and amortization
 
78,806

 
76,541

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
19,924

 
29,577

Changes in assets and liabilities:
 
 
 
 
Receivables
 
(6,288
)
 
(32,365
)
Fuel inventory
 
(4,265
)
 
(977
)
Accounts payable
 
4,545

 
29,476

Taxes accrued
 
(46,815
)
 
(45,736
)
Interest accrued
 
2,022

 
(3,792
)
Deferred fuel costs
 
26,126

 
6,532

Other working capital accounts
 
1,850

 
(9,698
)
Provisions for estimated losses
 
(6,274
)
 
7,242

Other regulatory assets
 
(13,248
)
 
(666
)
Other regulatory liabilities
 
(17,754
)
 
(127,047
)
Pension and other postretirement liabilities
 
(3,323
)
 
(9,336
)
Other assets and liabilities
 
(6,402
)
 
125,982

Net cash flow provided by operating activities
 
70,969

 
106,818

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(210,263
)
 
(187,219
)
Allowance for equity funds used during construction
 
4,262

 
4,100

Changes in money pool receivable - net
 
(65,380
)
 
1,633

Other
 
(310
)
 
(863
)
Net cash flow used in investing activities
 
(271,691
)
 
(182,349
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of long-term debt
 
293,051

 
—

Changes in money pool payable - net
 
—

 
63,394

Distributions/dividends paid:
 
 
 
 
Preferred stock
 
—

 
(477
)
Other
 
(4,835
)
 
6,536

Net cash flow provided by financing activities
 
288,216

 
69,453

 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
87,494

 
(6,078
)
Cash and cash equivalents at beginning of period
 
36,954

 
6,096

Cash and cash equivalents at end of period
 

$124,448

 

$18

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

$26,563

 

$30,490

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


145

ENTERGY MISSISSIPPI, LLC
BALANCE SHEETS
ASSETS
June 30, 2019 and December 31, 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash
 

$791

 

$11

Temporary cash investments
 
123,657

 
36,943

Total cash and cash equivalents
 
124,448

 
36,954

Accounts receivable:
 
 

 
 

Customer
 
74,761

 
73,205

Allowance for doubtful accounts
 
(488
)
 
(563
)
Associated companies
 
112,850

 
51,065

Other
 
10,975

 
8,647

Accrued unbilled revenues
 
56,095

 
50,171

Total accounts receivable
 
254,193

 
182,525

Deferred fuel costs
 
—

 
8,016

Fuel inventory - at average cost
 
16,196

 
11,931

Materials and supplies - at average cost
 
49,665

 
47,255

Prepayments and other
 
9,118

 
9,365

TOTAL
 
453,620

 
296,046

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 

 
 

Non-utility property - at cost (less accumulated depreciation)
 
4,568

 
4,576

Storm reserve escrow account
 
32,756

 
32,447

TOTAL
 
37,324

 
37,023

 
 
 
 
 
UTILITY PLANT
 
 

 
 

Electric
 
4,884,462

 
4,780,720

Construction work in progress
 
179,763

 
128,149

TOTAL UTILITY PLANT
 
5,064,225

 
4,908,869

Less - accumulated depreciation and amortization
 
1,650,732

 
1,641,821

UTILITY PLANT - NET
 
3,413,493

 
3,267,048

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 

 
 

Regulatory assets:
 
 

 
 

Other regulatory assets
 
356,297

 
343,049

Other
 
12,799

 
3,638

TOTAL
 
369,096

 
346,687

 
 
 
 
 
TOTAL ASSETS
 

$4,273,533

 

$3,946,804

 
 
 
 
 
See Notes to Financial Statements.
 
 

 
 


146

ENTERGY MISSISSIPPI, LLC
BALANCE SHEETS
LIABILITIES AND EQUITY
June 30, 2019 and December 31, 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
CURRENT LIABILITIES
 
 

 
 

Currently maturing long-term debt
 

$150,000

 

$150,000

Accounts payable:
 
 

 
 

Associated companies
 
41,245

 
42,928

Other
 
82,727

 
79,117

Customer deposits
 
86,238

 
85,085

Taxes accrued
 
30,737

 
77,552

Interest accrued
 
22,253

 
20,231

Deferred fuel costs
 
18,110

 
—

Other
 
18,057

 
7,526

TOTAL
 
449,367

 
462,439

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 

 
 

Accumulated deferred income taxes and taxes accrued
 
576,233

 
551,869

Accumulated deferred investment tax credits
 
10,106

 
10,186

Regulatory liability for income taxes - net
 
241,939

 
246,402

Other regulatory liabilities
 
20,331

 
33,622

Asset retirement cost liabilities
 
9,463

 
9,206

Accumulated provisions
 
44,868

 
51,142

Pension and other postretirement liabilities
 
89,688

 
93,100

Long-term debt
 
1,469,420

 
1,175,750

Other
 
27,827

 
20,862

TOTAL
 
2,489,875

 
2,192,139

 
 
 
 
 
Commitments and Contingencies
 
 

 
 

 
 
 
 
 
EQUITY
 
 

 
 

Member's equity
 
1,334,291

 
1,292,226

TOTAL
 
1,334,291

 
1,292,226

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$4,273,533

 

$3,946,804

 
 
 
 
 
See Notes to Financial Statements.
 
 

 
 



147

ENTERGY MISSISSIPPI, LLC
STATEMENTS OF CHANGES IN MEMBER'S EQUITY
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
 
 
 
Member's Equity
 
 
(In Thousands)
 
 
 
Balance at December 31, 2017
 

$1,177,870

 
 
 
Net income
 
61,085

Preferred stock dividends
 
(477
)
 
 
 
Balance at June 30, 2018
 

$1,238,478

 
 
 
 
 
 
Balance at December 31, 2018
 

$1,292,226

 
 
 
Net income
 
42,065

 
 
 
Balance at June 30, 2019
 

$1,334,291

 
 
 
See Notes to Financial Statements.
 
 



148

ENTERGY MISSISSIPPI, LLC
SELECTED OPERATING RESULTS
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Increase/
 
 

 
2019
 
2018
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
 
 
Residential
 

$117

 

$133

 

($16
)
 
(12
)
Commercial
 
102

 
117

 
(15
)
 
(13
)
Industrial
 
39

 
46

 
(7
)
 
(15
)
Governmental
 
11

 
12

 
(1
)
 
(8
)
Total billed retail
 
269

 
308

 
(39
)
 
(13
)
Sales for resale:
 
 

 
 

 
 

 
 

Non-associated companies
 
5

 
12

 
(7
)
 
(58
)
Other
 
29

 
34

 
(5
)
 
(15
)
Total
 

$303

 

$354

 

($51
)
 
(14
)
 
 
 

 
 

 
 

 
 

Billed Electric Energy Sales (GWh):
 
 

 
 

 
 

 
 

Residential
 
1,160

 
1,199

 
(39
)
 
(3
)
Commercial
 
1,105

 
1,147

 
(42
)
 
(4
)
Industrial
 
588

 
627

 
(39
)
 
(6
)
Governmental
 
103

 
102

 
1

 
1

Total retail
 
2,956

 
3,075

 
(119
)
 
(4
)
Sales for resale:
 
 

 
 

 
 

 
 

Non-associated companies
 
214

 
407

 
(193
)
 
(47
)
Total
 
3,170

 
3,482

 
(312
)
 
(9
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
 
Increase/
 
 


 
2019
 
2018
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 

Electric Operating Revenues:
 
 

 
 

 
 

 
 

Residential
 

$246

 

$281

 

($35
)
 
(12
)
Commercial
 
200

 
228

 
(28
)
 
(12
)
Industrial
 
76

 
89

 
(13
)
 
(15
)
Governmental
 
21

 
22

 
(1
)
 
(5
)
Total billed retail
 
543

 
620

 
(77
)
 
(12
)
Sales for resale:
 
 

 
 

 
 

 
 

Non-associated companies
 
10

 
13

 
(3
)
 
(23
)
Other
 
32

 
36

 
(4
)
 
(11
)
Total
 

$585

 

$669

 

($84
)
 
(13
)
 
 
 

 
 

 
 

 
 

Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
2,475

 
2,648

 
(173
)
 
(7
)
Commercial
 
2,145

 
2,247

 
(102
)
 
(5
)
Industrial
 
1,154

 
1,224

 
(70
)
 
(6
)
Governmental
 
201

 
201

 
—

 
—

Total retail
 
5,975

 
6,320

 
(345
)
 
(5
)
Sales for resale:
 
 

 
 

 
 

 
 

Non-associated companies
 
380

 
600

 
(220
)
 
(37
)
Total
 
6,355

 
6,920

 
(565
)
 
(8
)


149


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Second Quarter 2019 Compared to Second Quarter 2018

Net income decreased $5.3 million primarily due to higher other operation and maintenance expenses and lower volume/weather, partially offset by higher other income.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Net income decreased $7.1 million primarily due to higher other operation and maintenance expenses and lower volume/weather, partially offset by higher other income.

Operating Revenues

Second Quarter 2019 Compared to Second Quarter 2018

Following is an analysis of the change in operating revenues comparing the second quarter 2019 to the second quarter 2018:
 
Amount
 
(In Millions)
2018 operating revenues

$178.4

Fuel, rider, and other revenues that do not significantly affect net income
(0.2
)
Volume/weather
(1.4
)
Return of unprotected excess accumulated deferred income taxes to customers
(1.0
)
2019 operating revenues

$175.8


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

The volume/weather variance is primarily due to a decrease in usage during the unbilled sales period.

The return of unprotected excess accumulated deferred income taxes to customers variance is due to the return of unprotected excess accumulated deferred income taxes through the fuel adjustment clause beginning in July 2018. There is no effect on net income as the reduction in operating revenues is offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
    

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Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Following is an analysis of the change in operating revenues comparing the six months ended June 30, 2019 to the six months ended June 30, 2018:
 
Amount
 
(In Millions)
2018 operating revenues

$366.7

Fuel, rider, and other revenues that do not significantly affect net income
(24.0
)
Volume/weather
(2.7
)
Return of unprotected excess accumulated deferred income taxes to customers
(1.0
)
2019 operating revenues

$339.0


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

The volume/weather variance is primarily due to the effect of less favorable weather on residential and commercial sales.
    
The return of unprotected excess accumulated deferred income taxes to customers variance is due to the return of unprotected excess accumulated deferred income taxes through the fuel adjustment clause beginning in July 2018. There is no effect on net income as the reduction in operating revenues is offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

Other Income Statement Variances

Second Quarter 2019 Compared to Second Quarter 2018

Other operation and maintenance expenses increased primarily due to:

•
an increase of $2.4 million in information technology costs primarily due to higher software maintenance costs and higher contract costs;
•
an increase of $0.8 million in costs related to customer initiatives to explore new technologies and services;
•
an increase of $0.7 million in grid modernization and advanced metering costs; and
•
an increase of $0.7 million in energy efficiency costs.

Other income increased primarily due to an increase in allowance for equity funds used during construction resulting from higher construction work in progress in 2019, including the New Orleans Power Station project.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Other operation and maintenance expenses increased primarily due to:

•
an increase of $3.9 million in information technology costs primarily due to higher software maintenance costs and higher contract costs;
•
an increase of $1.6 million in energy efficiency costs;

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•
an increase of $1.1 million in customer service costs primarily due to higher labor costs, including contract labor; and
•
an increase of $1 million in costs related to customer initiatives to explore new technologies and services.

The increase was partially offset by a decrease of $1.7 million in distribution expenses primarily due to lower contract labor costs.

Other income increased primarily due to an increase in allowance for equity funds used during construction resulting from higher construction work in progress in 2019, including the New Orleans Power Station project.

Income Taxes

The effective income tax rate was 9.5% for the second quarter 2019. The difference in the effective income tax rate for the second quarter 2019 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes, flow-through tax accounting, certain book and tax differences related to utility plant items, and book and tax differences related to the allowance for equity funds used during construction, partially offset by the provision for uncertain tax positions and state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.

The effective income tax rate was 16.7% for the six months ended June 30, 2019. The difference in the effective income tax rate for the six months ended June 30, 2019 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes, certain book and tax differences related to utility plant items, book and tax differences related to the allowance for equity funds used during construction, and flow through tax accounting, partially offset by the provision for uncertain tax positions and state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.

The effective income tax rate was 21.1% for the second quarter 2018. The difference in the effective income tax rate for the second quarter 2018 versus the federal statutory rate of 21% was primarily due to state income taxes and the provision for uncertain tax positions, partially offset by flow-through tax accounting and certain book and tax differences related to utility plant items.

The effective income tax rate was 20.5% for the six months ended June 30, 2018. The difference in the effective income tax rate for the six months ended June 30, 2018 versus the federal statutory rate of 21% was primarily due to flow-through tax accounting and certain book and tax differences related to utility plant items, partially offset by state income taxes and the provision for uncertain tax positions.

Income Tax Legislation

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


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Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2019 and 2018 were as follows:
 
2019
 
2018
 
(In Thousands)
Cash and cash equivalents at beginning of period

$19,677

 

$32,741

 
 
 
 
Cash flow provided by (used in):
 
 
 
Operating activities
29,365

 
33,939

Investing activities
(78,716
)
 
(71,085
)
Financing activities
29,973

 
4,431

Net decrease in cash and cash equivalents
(19,378
)
 
(32,715
)
 
 
 
 
Cash and cash equivalents at end of period

$299

 

$26


Operating Activities

Net cash flow provided by operating activities decreased $4.6 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to the timing of payments to vendors, partially offset by the timing of recovery of fuel and purchased power costs and a decrease of $2.7 million in pension contributions in 2019 as compared to 2018. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.

Investing Activities

Net cash flow used in investing activities increased $7.6 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to:

•
an increase of $9.8 million in transmission construction expenditures primarily due to a higher scope of work performed in 2019 as compared to the same period in 2018, including investment in Entergy New Orleans’s system reliability and infrastructure; and
•
an increase of $6.5 million in fossil-fueled generation construction expenditures primarily due to higher spending on the New Orleans Power Station and New Orleans Solar projects in 2019 as compared to the same period in 2018.

The increase was partially offset by money pool activity.

Decreases in Entergy New Orleans’s receivable from the money pool are a source of cash flow, and Entergy New Orleans’s receivable from the money pool decreased $22 million for the six months ended June 30, 2019 compared to decreasing $12.7 million for the six months ended June 30, 2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Net cash flow provided by financing activities increased $25.5 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to money pool activity and $14.5 million in common equity distributions in 2018. There were no common equity distributions made in 2019 in anticipation of planned capital investments.

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Increases in Entergy New Orleans’s payable to the money pool are a source of cash flow, and Entergy New Orleans’s payable to the money pool increased $36.3 million for the six months ended June 30, 2019 compared to increasing $23.1 million for the six months ended June 30, 2018.

Capital Structure

Entergy New Orleans’s debt to capital ratio is shown in the following table. The decrease in the debt to capital ratio is primarily due to an increase in member’s equity in 2019.
 
June 30,
2019
 
December 31,
2018
Debt to capital
50.8
%
 
52.1
%
Effect of excluding securitization bonds
(3.3
%)
 
(3.5
%)
Debt to capital, excluding securitization bonds (a)
47.5
%
 
48.6
%
Effect of subtracting cash
—
%
 
(1.2
%)
Net debt to net capital, excluding securitization bonds (a)
47.5
%
 
47.4
%

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

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

Uses and Sources of Capital

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

The current annual amounts of Entergy New Orleans’s planned construction and other capital investments are as follows:
 
2019
 
2020
 
2021
 
(In Millions)
Planned construction and capital investment:
 
 
 
 
 
Generation

$110

 

$60

 

$10

Transmission
10

 
20

 
20

Distribution
95

 
110

 
150

Utility Support
30

 
15

 
35

Total

$245

 

$205

 

$215


The updated capital plan for 2019-2021 reflects incremental capital investments to improve reliability and enable new customer products and services. The capital plan includes specific investments such as the New Orleans Power Station;

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transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; system improvements; software and security; and other investments.

Entergy New Orleans’s receivables from or (payables to) the money pool were as follows:
June 30,
 2019
 
December 31,
2018
 
June 30,
 2018
 
December 31,
2017
(In Thousands)
($36,303)
 
$22,016
 
($23,080)
 
$12,723

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

Entergy New Orleans has a credit facility in the amount of $25 million scheduled to expire in November 2021. The credit facility includes fronting commitments for the issuance of letters of credit against $10 million of the borrowing capacity of the facility. As of June 30, 2019, there were no cash borrowings and a $0.8 million letter of credit was outstanding under the facility. In addition, Entergy New Orleans is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of June 30, 2019, a $1 million letter of credit was outstanding under Entergy New Orleans’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

New Orleans Power Station

In June 2016, Entergy New Orleans filed an application with the City Council seeking a public interest determination and authorization to construct the New Orleans Power Station, a 226 MW advanced combustion turbine in New Orleans, Louisiana, at the site of the existing Michoud generating facility, which was retired effective May 31, 2016. In January 2017 several intervenors filed testimony opposing the construction of the New Orleans Power Station on various grounds. In July 2017, Entergy New Orleans submitted a supplemental and amending application to the City Council seeking approval to construct either the originally proposed 226 MW advanced combustion turbine, or alternatively, a 128 MW unit composed of natural gas-fired reciprocating engines and a related cost recovery plan. The cost estimate for the alternative 128 MW unit is $210 million. In addition, the application renewed the commitment to pursue up to 100 MW of renewable resources to serve New Orleans. In March 2018 the City Council adopted a resolution approving construction of the 128 MW unit. The targeted commercial operation date is mid-2020, subject to receipt of all necessary permits.

In April 2018 intervenors opposing the construction of the New Orleans Power Station filed with the City Council a request for rehearing, which was subsequently denied, and a petition for judicial review of the City Council’s decision, and also filed a lawsuit challenging the City Council’s approval based on Louisiana’s open meeting law. In May 2018 the City Council announced that it would initiate an investigation into allegations that Entergy New Orleans, Entergy, or some other entity paid or participated in paying certain attendees and speakers in support of the New Orleans Power Station to attend or speak at certain meetings organized by the City Council. In June 2018, Entergy New Orleans produced documents in response to a City Council resolution relating to this investigation. In October 2018 investigators for the City Council released their report, concluding that individuals were paid to attend and/or speak in support of the New Orleans Power Station and that Entergy New Orleans “knew or should have known that such conduct occurred or reasonably might occur.”  The City Council issued a resolution requiring Entergy New Orleans to show cause why it should not be fined $5 million as a result of the findings in the report. In November 2018, Entergy New Orleans submitted its response to the show cause resolution, disagreeing with certain characterizations and omissions of fact in the report and asserting that the City Council could not legally impose the proposed fine.  Simultaneous with the filing of its response to the show cause resolution, Entergy New Orleans sent a letter to the City Council re-asserting that the City Council’s imposition of the proposed fine would be unlawful, but acknowledging that the actions of a subcontractor, which was retained by an Entergy New Orleans contractor without the knowledge or contractually-required consent of Entergy New Orleans, were contrary to Entergy’s values.  In that letter, Entergy New Orleans offered to donate $5 million to the City Council to resolve the show cause proceeding.  In January 2019, Entergy New

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Orleans submitted a new settlement proposal to the City Council. The proposal retains the components of the first offer but adds to it a commitment to make reasonable efforts to limit the costs of the project to the $210 million cost estimate with advanced notification of anticipated cost overruns, additional reporting requirements for cost and environmental items, and a commitment regarding reliability investment and to work with the New Orleans Sewerage and Water Board to provide a reliable source of power. In February 2019 the City Council approved a resolution approving the settlement proposal and allowing the construction of the New Orleans Power Station to commence.

Also in February 2019, certain intervenors in the City Council proceeding on the New Orleans Power Station, filed suit in Louisiana state court challenging the Louisiana Department of Environmental Quality’s issuance of the New Orleans Power Station’s air permit. Entergy New Orleans intervened in that lawsuit and, along with the Louisiana Department of Environmental Quality, filed exceptions seeking dismissal of the lawsuit. In June 2019 the state court judge sustained the exceptions and dismissed the plaintiffs’ petition with prejudice. Also in June 2019, a state court judge in New Orleans affirmed the City Council’s approval of the New Orleans Power Station and dismissed the petition for judicial review that had been filed in April 2018. The petitioners have filed an appeal of that ruling. Also in June 2019, with regard to the lawsuit challenging the City Council’s decision on the basis of a violation of the open meetings law, the same state court judge in New Orleans ruled that there was a violation of the open meetings law at the February 2018 meeting of the City Council’s Utilities, Cable, Telecommunications and Technology Committee at which that Committee considered the New Orleans Power Station approval, and further ruled that, although there was no violation of the open meetings law at the March 2018 full City Council meeting at which the New Orleans Power Station was approved, both the approval of the Committee and the approval of the full City Council were void. The City Council filed a motion with the judge to take a suspensive appeal of that ruling, and in July 2019 the judge ruled in favor of the motion. This ruling suspends the effect of the judgment in the open meetings law proceeding while the appeal is being taken. The New Orleans Power Station related settlement that was approved by the full City Council in February 2019 and that allowed Entergy New Orleans to move forward with the construction of the New Orleans Power Station was not affected by the state court judge’s ruling. Construction of the plant is underway and continuing.

Renewables

As discussed in the Form 10-K, in July 2018, Entergy New Orleans filed an application with the City Council requesting approval of three utility-scale solar projects totaling 90 MW. In December 2018 the City Council advisors requested that Entergy New Orleans pursue alternative deal structures for the Washington Parish project and attempt to reduce costs for the 20 MW Orleans Parish project. As a result of settlement discussions, in March 2019, Entergy New Orleans revised its application to convert the build-own transfer acquisition of the 50 MW facility in Washington Parish to a power purchase agreement. In June 2019 the parties to the proceeding executed a stipulated settlement term sheet, which recommends that the City Council approve Entergy New Orleans’s revised application as to all three projects. In July 2019 the City Council approved the stipulated settlement.

State and Local Rate Regulation

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

Retail Rates

See the Form 10-K for discussion of the electric and gas base rate case filed by Entergy New Orleans in September 2018. The evidentiary hearing in this proceeding was held in June 2019. The record and post-hearing briefs were submitted in July 2019, with a City Council decision on the matter expected by October 2019.

In August 2019, Entergy New Orleans sent a letter to the City Council proposing a framework for settlement of the rate case.  That framework includes, among other things: (1) a total reduction in revenues of approximately $30 million ($27 million electric, $3 million gas); (2) a reduced return on common equity lower than 10.5%, but still

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commensurate with Entergy New Orleans’s level of risk, paired with three-year electric and gas formula rate plans with forward-looking features; (3) a demand-side management program intended to achieve greater penetration of the City Council’s Energy Smart programs and make progress towards the City Council’s energy efficiency goals. The letter also sets out proposed next steps to achieve a resolution of the proceeding.

Reliability Investigation

In August 2017 the City Council established a docket to investigate the reliability of the Entergy New Orleans distribution system and to consider implementing certain reliability standards and possible financial penalties for not meeting any such standards. In April 2018 the City Council adopted a resolution directing Entergy New Orleans to demonstrate that it has been prudent in the management and maintenance of the reliability of its distribution system. The resolution also called for Entergy New Orleans to file a revised reliability plan addressing the current state of its distribution system and proposing remedial measures for increasing reliability. In June 2018, Entergy New Orleans filed its response to the City Council’s resolution regarding the prudence of its management and maintenance of the reliability of its distribution system.  In July 2018, Entergy New Orleans filed its revised reliability plan discussing the various reliability programs that it uses to improve distribution system reliability and discussing generally the positive effect that advanced meter deployment and grid modernization can have on future reliability.  Entergy New Orleans retained a national consulting firm with expertise in distribution system reliability to conduct a review of Entergy New Orleans’s distribution system reliability-related practices and procedures and to provide recommendations for improving distribution system reliability. The report was filed with the City Council in October 2018. The City Council also approved a resolution that opens a prudence investigation into whether Entergy New Orleans was imprudent for not acting sooner to address outages in New Orleans and whether fines should be imposed. In January 2019, Entergy New Orleans filed testimony in response to the prudence investigation and asserting that it had been prudent in managing system reliability. In April 2019 the City Council advisors filed comments and testimony asserting that Entergy New Orleans did not act prudently in maintaining and improving its distribution system reliability in recent years and recommending that a financial penalty in the range of $1.5 million to $2 million should be assessed.  Entergy New Orleans disagrees with the recommendation and submitted rebuttal testimony and rebuttal comments in June 2019. The procedural schedule does not call for an evidentiary hearing, and the hearing officer is expected to certify the record to the City Council in August 2019 based on the filings made in the proceeding.

Renewable Portfolio Standard Rulemaking

In March 2019 the City Council initiated a rulemaking proceeding to consider whether to establish a renewable portfolio standard. The rulemaking will consider, among other issues, whether to adopt a renewable portfolio standard, whether such standard should be voluntary or mandatory, what kinds of technologies should qualify for inclusion in the rules, what level, if any, of renewable generation should be required, and whether penalties are an appropriate component of the proposed rules. Parties to the proceeding submitted initial comments in June 2019 and reply comments in July 2019. The City Council advisors will issue a proposed rule in September 2019 and the parties will have additional opportunities to comment on the proposed rule. Entergy New Orleans recommends that the City Council adopt a voluntary clean energy standard of 70% of generation being clean energy by 2030, as so defined, which would include nuclear, beneficial electrification, and demand-side management as compliant technologies. Several other industry leaders, academic researchers, and environmental advocates filed comments also supporting a clean energy standard. Other parties, including many representatives of the solar and wind industry, are recommending mandatory, renewables-only requirements of up to 100% renewable resources by 2040.

Federal Regulation

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


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Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

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

New Accounting Pronouncements

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


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ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
2019
 
2018
 
2019
 
2018
 
 
(In Thousands)
 
(In Thousands)
OPERATING REVENUES
 
 
 
 
 
 
 
 
Electric
 

$157,152

 

$159,602

 

$288,035

 

$315,420

Natural gas
 
18,641

 
18,844

 
50,952

 
51,301

TOTAL
 
175,793

 
178,446

 
338,987

 
366,721

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
Operation and Maintenance:
 
 
 
 
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
27,190

 
15,366

 
57,950

 
39,105

Purchased power
 
66,981

 
73,789

 
127,630

 
156,945

Other operation and maintenance
 
32,252

 
28,420

 
62,550

 
56,719

Taxes other than income taxes
 
13,135

 
12,851

 
26,677

 
27,983

Depreciation and amortization
 
14,226

 
13,950

 
28,390

 
27,697

Other regulatory charges - net
 
4,500

 
6,127

 
2,145

 
12,460

TOTAL
 
158,284

 
150,503

 
305,342

 
320,909

 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
17,509

 
27,943

 
33,645

 
45,812

 
 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
 
Allowance for equity funds used during construction
 
2,686

 
1,217

 
4,976

 
2,068

Interest and investment income
 
64

 
207

 
243

 
300

Miscellaneous - net
 
(942
)
 
(1,404
)
 
(2,448
)
 
(1,741
)
TOTAL
 
1,808

 
20

 
2,771

 
627

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
Interest expense
 
6,019

 
5,269

 
11,955

 
10,548

Allowance for borrowed funds used during construction
 
(1,073
)
 
(450
)
 
(1,987
)
 
(764
)
TOTAL
 
4,946

 
4,819

 
9,968

 
9,784

 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
14,371

 
23,144

 
26,448

 
36,655

 
 
 
 
 
 
 
 
 
Income taxes
 
1,368

 
4,875

 
4,422

 
7,504

 
 
 
 
 
 
 
 
 
NET INCOME
 

$13,003

 

$18,269

 

$22,026

 

$29,151

 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 


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160

ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Net income
 

$22,026

 

$29,151

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation and amortization
 
28,390

 
27,697

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
15,053

 
22,813

Changes in assets and liabilities:
 
 
 
 
Receivables
 
(9,614
)
 
(10,930
)
Fuel inventory
 
(336
)
 
1,833

Accounts payable
 
(3,412
)
 
5,073

Prepaid taxes and taxes accrued
 
(6,189
)
 
(10,602
)
Interest accrued
 
(289
)
 
(459
)
Deferred fuel costs
 
2,028

 
(27,056
)
Other working capital accounts
 
(13,204
)
 
(9,524
)
Provisions for estimated losses
 
399

 
438

Other regulatory assets
 
(16,470
)
 
11,957

Other regulatory liabilities
 
(8,574
)
 
3,042

Pension and other postretirement liabilities
 
(3,627
)
 
(7,725
)
Other assets and liabilities
 
23,184

 
(1,769
)
Net cash flow provided by operating activities
 
29,365

 
33,939

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(105,545
)
 
(85,324
)
Allowance for equity funds used during construction
 
4,976

 
2,068

Changes in money pool receivable - net
 
22,016

 
12,723

Receipts from storm reserve escrow account
 
—

 
3

Payments to storm reserve escrow account
 
(931
)
 
(544
)
Changes in securitization account
 
768

 
(11
)
Net cash flow used in investing activities
 
(78,716
)
 
(71,085
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Retirement of long-term debt
 
(5,420
)
 
(5,342
)
Change in money pool payable - net
 
36,303

 
23,080

Distributions paid:
 
 
 
 
Common equity
 
—

 
(14,500
)
Other
 
(910
)
 
1,193

Net cash flow provided by financing activities
 
29,973

 
4,431

 
 
 
 
 
Net decrease in cash and cash equivalents
 
(19,378
)
 
(32,715
)
Cash and cash equivalents at beginning of period
 
19,677

 
32,741

Cash and cash equivalents at end of period
 

$299

 

$26

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

$11,726

 

$10,483

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


161

ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 2019 and December 31, 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents
 
 
 
 
Cash
 

$299

 

$26

Temporary cash investments
 
—

 
19,651

Total cash and cash equivalents
 
299

 
19,677

Securitization recovery trust account
 
1,457

 
2,224

Accounts receivable:
 
 
 
 

Customer
 
53,204

 
43,890

Allowance for doubtful accounts
 
(3,063
)
 
(3,222
)
Associated companies
 
1,693

 
27,938

Other
 
6,219

 
4,090

Accrued unbilled revenues
 
21,148

 
18,907

Total accounts receivable
 
79,201

 
91,603

Fuel inventory - at average cost
 
1,869

 
1,533

Materials and supplies - at average cost
 
12,276

 
12,133

Prepayments and other
 
18,501

 
6,905

TOTAL
 
113,603

 
134,075

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

 
1,016

Storm reserve escrow account
 
81,784

 
80,853

TOTAL
 
82,800

 
81,869

 
 
 
 
 
UTILITY PLANT
 
 
 
 
Electric
 
1,388,533

 
1,364,091

Natural gas
 
293,000

 
284,728

Construction work in progress
 
194,846

 
146,668

TOTAL UTILITY PLANT
 
1,876,379

 
1,795,487

Less - accumulated depreciation and amortization
 
687,877

 
670,135

UTILITY PLANT - NET
 
1,188,502

 
1,125,352

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

 
4,080

Other regulatory assets (includes securitization property of $55,707 as of June 30, 2019 and $60,453 as of December 31, 2018)
 
246,266

 
229,796

Other
 
2,919

 
1,416

TOTAL
 
253,265

 
235,292

 
 
 
 
 
TOTAL ASSETS
 

$1,638,170

 

$1,576,588

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

162

ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
June 30, 2019 and December 31, 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Payable due to associated company
 

$1,979

 

$1,979

Accounts payable:
 
 
 
 
Associated companies
 
79,296

 
43,416

Other
 
37,871

 
36,686

Customer deposits
 
28,647

 
28,667

Taxes accrued
 
—

 
4,068

Interest accrued
 
6,077

 
6,366

Deferred fuel costs
 
3,316

 
1,288

Current portion of unprotected excess accumulated deferred income taxes
 
23,211

 
25,301

Other
 
7,835

 
9,521

TOTAL CURRENT LIABILITIES
 
188,232

 
157,292

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
342,071

 
323,595

Accumulated deferred investment tax credits
 
2,175

 
2,219

Regulatory liability for income taxes - net
 
54,707

 
60,249

Asset retirement cost liabilities
 
3,405

 
3,291

Accumulated provisions
 
86,993

 
86,594

Pension and other postretirement liabilities
 
1,999

 
5,626

Long-term debt (includes securitization bonds of $58,322 as of June 30, 2019 and $63,620 as of December 31, 2018)
 
462,168

 
467,358

Long-term payable due to associated company
 
14,367

 
14,367

Other
 
15,077

 
11,047

TOTAL NON-CURRENT LIABILITIES
 
982,962

 
974,346

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
EQUITY
 
 
 
 
Member's equity
 
466,976

 
444,950

TOTAL
 
466,976

 
444,950

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$1,638,170

 

$1,576,588

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


163

ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
Member’s Equity
 
(In Thousands)
 
 
Balance at December 31, 2017

$415,548

 
 
Net income
29,151

Common equity distributions
(14,500
)
 
 
Balance at June 30, 2018

$430,199

 
 
 
 
Balance at December 31, 2018

$444,950

 
 
Net income
22,026

 
 
Balance at June 30, 2019

$466,976

 
 
See Notes to Financial Statements.
 



164

ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
SELECTED OPERATING RESULTS
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Increase/
 
 
 
 
2019
 
2018
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
 
 
Residential
 

$58

 

$58

 

$—

 
—

Commercial
 
54

 
55

 
(1
)
 
(2
)
Industrial
 
8

 
9

 
(1
)
 
(11
)
Governmental
 
19

 
18

 
1

 
6

Total billed retail
 
139

 
140

 
(1
)
 
(1
)
Sales for resale:
 
 

 
 

 
 

 
 

Non-associated companies
 
9

 
6

 
3

 
50

Other
 
9

 
14

 
(5
)
 
(36
)
Total
 

$157

 

$160

 

($3
)
 
(2
)
 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 

 
 

 
 

 
 

Residential
 
517

 
490

 
27

 
6

Commercial
 
549

 
527

 
22

 
4

Industrial
 
105

 
111

 
(6
)
 
(5
)
Governmental
 
198

 
185

 
13

 
7

Total retail
 
1,369

 
1,313

 
56

 
4

Sales for resale:
 
 

 
 

 
 

 
 

Non-associated companies
 
461

 
310

 
151

 
49

Total
 
1,830

 
1,623

 
207

 
13

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
 
Increase/
 
 

 
 
2019
 
2018
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 

Electric Operating Revenues:
 
 
 
 

 
 

 
 

Residential
 

$110

 

$123

 

($13
)
 
(11
)
Commercial
 
100

 
109

 
(9
)
 
(8
)
Industrial
 
16

 
17

 
(1
)
 
(6
)
Governmental
 
35

 
36

 
(1
)
 
(3
)
Total billed retail
 
261

 
285

 
(24
)
 
(8
)
Sales for resale:
 
 

 
 

 
 

 
 

  Non-associated companies
 
19

 
19

 
—

 
—

Other
 
8

 
11

 
(3
)
 
(27
)
Total
 

$288

 

$315

 

($27
)
 
(9
)
 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 

 
 

 
 

 
 

Residential
 
1,028

 
1,067

 
(39
)
 
(4
)
Commercial
 
1,041

 
1,051

 
(10
)
 
(1
)
Industrial
 
202

 
210

 
(8
)
 
(4
)
Governmental
 
379

 
366

 
13

 
4

Total retail
 
2,650

 
2,694

 
(44
)
 
(2
)
Sales for resale:
 
 

 
 

 
 

 
 

Non-associated companies
 
989

 
937

 
52

 
6

Total
 
3,639

 
3,631

 
8

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

165


ENTERGY TEXAS, INC. AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Second Quarter 2019 Compared to Second Quarter 2018

Net income increased $8.1 million primarily due to an increase in retail electric price, higher other income, and lower interest expense, partially offset by higher depreciation and amortization expenses.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Net income increased $12.1 million primarily due to an increase in retail electric price, higher other income, lower interest expense, and a lower effective income tax rate, partially offset by higher other operation and maintenance expenses and higher depreciation and amortization expenses.

Operating Revenues
      
Second Quarter 2019 Compared to Second Quarter 2018

Following is an analysis of the change in operating revenues comparing the second quarter 2019 to the second quarter 2018:
 
Amount
 
(In Millions)
2018 operating revenues

$403.5

Fuel, rider, and other revenues that do not significantly affect net income
(26.7
)
Return of unprotected excess accumulated deferred income taxes to customers
(20.3
)
Retail electric price
7.1

2019 operating revenues

$363.6


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

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

The retail electric price variance is primarily due to an annual base rate increase effective October 2018 as approved by the PUCT. See Note 2 to the financial statements in the Form 10-K for further discussion of the rate case filing.


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Management's Financial Discussion and Analysis

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Following is an analysis of the change in operating revenues comparing the six months ended June 30, 2019 to the six months ended June 30, 2018:
 
Amount
 
(In Millions)
2018 operating revenues

$752.4

Fuel, rider, and other revenues that do not significantly affect net income
(23.4
)
Return of unprotected excess accumulated deferred income taxes to customers
(42.6
)
Retail electric price
17.7

2019 operating revenues

$704.1


Entergy Texas’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
    
The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through a rider effective October 2018. There is no effect on net income as the reduction in operating revenues is offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

The retail electric price variance is primarily due to an annual base rate increase effective October 2018 as approved by the PUCT. See Note 2 to the financial statements in the Form 10-K for further discussion of the rate case filing.

Other Income Statement Variances

Second Quarter 2019 Compared to Second Quarter 2018

Depreciation and amortization expenses increased primarily as a result of new rates established in the settlement of the 2018 base rate case and additions to plant in service.

Other income increased primarily due to an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2019, including the Montgomery County Power Station project.

Interest expense decreased primarily due to an increase in the allowance for borrowed funds used during construction due to higher construction work in progress in 2019, including the Montgomery County Power Station project.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Other operation and maintenance expenses increased primarily due to:

•
an increase of $3 million in fossil-fueled generation expenses primarily due to a higher scope of work performed during plant outages in 2019 as compared to 2018;
•
an increase of $1.9 million in information technology costs primarily due to higher labor costs and higher software maintenance costs in 2019 as compared to 2018;

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Management's Financial Discussion and Analysis

•
an increase of $1.9 million in advanced metering costs, including customer education; and
•
an increase of $1.6 million in costs related to customer initiatives to explore new technologies and services.

Depreciation and amortization expenses increased primarily as a result of new rates established in the settlement of the 2018 base rate case and additions to plant in service.

Other income increased primarily due to an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2019 primarily due to the Montgomery County Power Station project.

Interest expense decreased primarily due to an increase in the allowance for borrowed funds used during construction due to higher construction work in progress in 2019 primarily due to the Montgomery County Power Station project.

Income Taxes

The effective income tax rates were (43.5%) for the second quarter 2019 and (98.3%) for the six months ended June 30, 2019. The differences in the effective income tax rates for the second quarter 2019 and the six months ended June 30, 2019 versus the federal statutory rate of 21% were primarily due to the amortization of excess accumulated deferred income taxes, certain book and tax differences related to utility plant items, and book and tax differences related to the allowance for equity funds used during construction. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.

The effective income tax rate was 22% for the second quarter 2018. The difference in the effective income tax rate for the second quarter 2018 versus the federal statutory rate of 21% was primarily due to an IRS audit settlement for the 2012-2013 tax returns. See Note 3 to the financial statements in the Form 10-K for a discussion of the IRS audit settlement.

The effective income tax rate was 22.1% for the six months ended June 30, 2018. The difference in the effective income tax rate for the six months ended June 30, 2018 versus the federal statutory rate of 21% was primarily due to the write-off of a stock-based compensation deferred tax asset in 2018.

Income Tax Legislation

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


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Management's Financial Discussion and Analysis

Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2019 and 2018 were as follows:
 
2019
 
2018
 
(In Thousands)
Cash and cash equivalents at beginning of period

$56

 

$115,513

 
 
 
 
Cash flow provided by (used in):
 
 
 
Operating activities
106,877

 
90,479

Investing activities
(402,651
)
 
(124,925
)
Financing activities
297,565

 
(40,668
)
Net increase (decrease) in cash and cash equivalents
1,791

 
(75,114
)
 
 
 
 
Cash and cash equivalents at end of period

$1,847

 

$40,399


Operating Activities

Net cash flow provided by operating activities increased $16.4 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to the timing of recovery of fuel and purchased power costs.

Investing Activities

Net cash flow used in investing activities increased $277.7 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to:

•
an increase of $168.2 million in fossil-fueled generation construction expenditures primarily due to increased spending on the Montgomery County Power Station;
•
an increase of $65.6 million in transmission construction expenditures primarily due to a higher scope of work performed in 2019 as compared to 2018; and
•
money pool activity.

Decreases in Entergy Texas’s receivable from the money pool are a source of cash flow, and Entergy Texas’s receivable from the money pool decreased by $34.9 million for the six months ended June 30, 2018. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Entergy Texas’s financing activities provided $297.6 million of cash for the six months ended June 30, 2019 compared to using $40.7 million of cash for the six months ended June 30, 2018 primarily due to the issuance of $300 million of 4.0% Series mortgage bonds and $400 million of 4.5% Series mortgage bonds in January 2019, partially offset by the repayment, at maturity, of $500 million of 7.125% Series mortgage bonds in February 2019 and money pool activity.

Increases in Entergy Texas’s payable to the money pool are a source of cash flow, and Entergy Texas’s payable to the money pool increased by $146.3 million for the six months ended June 30, 2019.


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Management's Financial Discussion and Analysis

Capital Structure

Entergy Texas’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio for Entergy Texas is primarily due to the net issuance of $200 million of mortgage bonds in 2019.
 
June 30,
2019
 
December 31, 2018
Debt to capital
53.0
%
 
51.6
%
Effect of excluding the securitization bonds
(3.9
%)
 
(5.2
%)
Debt to capital, excluding securitization bonds (a)
49.1
%
 
46.4
%
Effect of subtracting cash
(0.1
%)
 
—
%
Net debt to net capital, excluding securitization bonds (a)
49.0
%
 
46.4
%

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

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

Uses and Sources of Capital

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

The current annual amounts of Entergy Texas’s planned construction and other capital investments are as follows:
 
2019
 
2020
 
2021
 
(In Millions)
Planned construction and capital investment:
 
 
 
 
 
Generation

$465

 

$215

 

$130

Transmission
260

 
235

 
80

Distribution
160

 
180

 
405

Utility Support
60

 
45

 
40

Total

$945

 

$675

 

$655


The updated capital plan for 2019-2021 reflects incremental capital investments to improve reliability and enable new customer products and services. The capital plan includes specific investments such as the Montgomery County Power Station; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; system improvements; software and security; and other investments.


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Management's Financial Discussion and Analysis

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

June 30,
2019
 
December 31,
2018
 
June 30,
2018
 
December 31,
2017
(In Thousands)
($168,664)
 
($22,389)
 
$10,001
 
$44,903

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

Entergy Texas has a credit facility in the amount of $150 million scheduled to expire in September 2023.  The credit facility includes fronting commitments for the issuance of letters of credit against $30 million of the borrowing capacity of the facility. As of June 30, 2019, there were no cash borrowings and $1.3 million of letters of credit outstanding under the credit facility.  In addition, Entergy Texas is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of June 30, 2019, a $29.5 million letter of credit was outstanding under Entergy Texas’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

State and Local Rate Regulation and Fuel-Cost Recovery

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

Base Rate Case

In January 2019, Entergy Texas filed for recovery of rate case expenses totaling $7.2 million. The amounts requested primarily include internal and external expenses related to litigating the 2018 base rate case. Parties filed testimony in April 2019 recommending a disallowance ranging from $3.2 million to $4.2 million of the $7.2 million requested. In May 2019, Entergy Texas filed rebuttal testimony responding to the parties’ positions. A hearing is scheduled for September 2019.

Distribution Cost Recovery Factor (DCRF) Rider

In March 2019, Entergy Texas filed with the PUCT a request to set a new DCRF rider. The proposed new DCRF rider is designed to collect approximately $3.2 million annually from Entergy Texas’s retail customers based on its capital invested in distribution between January 1, 2018 and December 31, 2018. In June 2019 the ALJ issued an order approving interim rates effective June 2019 at the level proposed in Entergy Texas’s application. The proceeding has been returned to the PUCT for approval of the settlement agreement filed in the proceeding, at which point the interim rates would become permanent.

Transmission Cost Recovery Factor (TCRF) Rider

In December 2018, Entergy Texas filed with the PUCT a request to set a new TCRF rider. The proposed new TCRF rider is designed to collect approximately $2.7 million annually from Entergy Texas’s retail customers based on its capital invested in transmission between January 1, 2018 and September 30, 2018. In April 2019 parties filed testimony proposing a load growth adjustment, which would have fully offset Entergy Texas’s proposed TCRF revenue requirement. In July 2019 the PUCT granted Entergy Texas’s application as filed to begin recovery of the requested $2.7 million annual revenue requirement, rejecting opposing parties’ proposed adjustment; however, the PUCT found that the question of prudence of the actual investment costs should be determined in Entergy Texas’s next rate case similar to the procedure used for the costs recovered through the DCRF rider. 


171
Table of Contents
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis

Federal Regulation

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

Industrial and Commercial Customers

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

Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

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

New Accounting Pronouncements

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


172

ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
2019
 
2018
 
2019
 
2018
 
 
(In Thousands)
 
(In Thousands)
OPERATING REVENUES
 
 
 
 
 
 
 
 
Electric
 

$363,580

 

$403,486

 

$704,054

 

$752,426

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
Operation and Maintenance:
 
 
 
 
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
16,971

 
57,089

 
65,074

 
75,795

Purchased power
 
171,133

 
150,568

 
312,001

 
310,260

Other operation and maintenance
 
61,426

 
59,848

 
121,052

 
112,522

Taxes other than income taxes
 
21,263

 
20,306

 
39,903

 
40,709

Depreciation and amortization
 
37,312

 
31,141

 
74,349

 
61,907

Other regulatory charges - net
 
19,453

 
25,897

 
38,912

 
51,514

TOTAL
 
327,558

 
344,849

 
651,291

 
652,707

 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
36,022

 
58,637

 
52,763

 
99,719

 
 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
 
Allowance for equity funds used during construction
 
6,413

 
1,833

 
11,494

 
3,494

Interest and investment income
 
374

 
542

 
2,056

 
1,097

Miscellaneous - net
 
1,228

 
(735
)
 
865

 
(622
)
TOTAL
 
8,015

 
1,640

 
14,415

 
3,969

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
Interest expense
 
20,153

 
21,835

 
42,613

 
43,886

Allowance for borrowed funds used during construction
 
(3,256
)
 
(1,033
)
 
(5,836
)
 
(1,971
)
TOTAL
 
16,897

 
20,802

 
36,777

 
41,915

 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
27,140

 
39,475

 
30,401

 
61,773

 
 
 
 
 
 
 
 
 
Income taxes
 
(11,796
)
 
8,686

 
(29,877
)
 
13,634

 
 
 
 
 
 
 
 
 
NET INCOME
 

$38,936

 

$30,789

 

$60,278

 

$48,139

 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 





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174

ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Net income
 

$60,278

 

$48,139

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation and amortization
 
74,349

 
61,907

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
8,895

 
(19,785
)
Changes in assets and liabilities:
 
 
 
 
Receivables
 
25,236

 
(25,987
)
Fuel inventory
 
(589
)
 
(1,710
)
Accounts payable
 
(15,596
)
 
906

Taxes accrued
 
(9,091
)
 
20,439

Interest accrued
 
(7,787
)
 
(678
)
Deferred fuel costs
 
(12,445
)
 
(37,103
)
Other working capital accounts
 
1,998

 
9,614

Provisions for estimated losses
 
(3,294
)
 
434

Other regulatory assets
 
28,742

 
39,592

Other regulatory liabilities
 
(50,817
)
 
10,072

Pension and other postretirement liabilities
 
(3,899
)
 
(13,330
)
Other assets and liabilities
 
10,897

 
(2,031
)
Net cash flow provided by operating activities
 
106,877

 
90,479

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(424,229
)
 
(169,856
)
Allowance for equity funds used during construction
 
11,551

 
3,562

Changes in money pool receivable - net
 
—

 
34,902

Changes in securitization account
 
10,027

 
6,467

Net cash flow used in investing activities
 
(402,651
)
 
(124,925
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of long-term debt
 
691,808

 
—

Retirement of long-term debt
 
(541,442
)
 
(39,722
)
Change in money pool payable - net
 
146,275

 
—

Other
 
924

 
(946
)
Net cash flow provided by (used in) financing activities
 
297,565

 
(40,668
)
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
1,791

 
(75,114
)
Cash and cash equivalents at beginning of period
 
56

 
115,513

Cash and cash equivalents at end of period
 

$1,847

 

$40,399

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

$49,229

 

$43,188

Income taxes
 

$2,292

 

($624
)
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


175

ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 2019 and December 31, 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash
 

$1,816

 

$26

Temporary cash investments
 
31

 
30

Total cash and cash equivalents
 
1,847

 
56

Securitization recovery trust account
 
30,159

 
40,185

Accounts receivable:
 
 
 
 
Customer
 
78,561

 
69,714

Allowance for doubtful accounts
 
(429
)
 
(461
)
Associated companies
 
19,121

 
64,441

Other
 
10,233

 
12,275

Accrued unbilled revenues
 
64,535

 
51,288

Total accounts receivable
 
172,021

 
197,257

Fuel inventory - at average cost
 
43,256

 
42,667

Materials and supplies - at average cost
 
43,697

 
41,883

Prepayments and other
 
6,852

 
15,903

TOTAL
 
297,832

 
337,951

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 
 
 
Investments in affiliates - at equity
 
424

 
448

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

 
376

Other
 
19,647

 
19,218

TOTAL
 
20,447

 
20,042

 
 
 
 
 
UTILITY PLANT
 
 
 
 
Electric
 
4,958,751

 
4,773,984

Construction work in progress
 
514,289

 
325,193

TOTAL UTILITY PLANT
 
5,473,040

 
5,099,177

Less - accumulated depreciation and amortization
 
1,716,977

 
1,684,569

UTILITY PLANT - NET
 
3,756,063

 
3,414,608

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 
 
 
Regulatory assets:
 
 
 
 
Other regulatory assets (includes securitization property of $202,972 as of June 30, 2019 and $236,336 as of December 31, 2018)
 
569,306

 
598,048

Other
 
31,235

 
29,371

TOTAL
 
600,541

 
627,419

 
 
 
 
 
TOTAL ASSETS
 

$4,674,883

 

$4,400,020

 
 
 
 
 
See Notes to Financial Statements.
 
 

 
 


176

ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
June 30, 2019 and December 31, 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Currently maturing long-term debt
 

$—

 

$500,000

Accounts payable:
 
 
 
 
Associated companies
 
215,725

 
119,371

Other
 
181,804

 
150,679

Customer deposits
 
40,657

 
43,387

Taxes accrued
 
44,422

 
53,513

Interest accrued
 
16,568

 
24,355

Current portion of unprotected excess accumulated deferred income taxes
 
55,391

 
87,627

Deferred fuel costs
 
7,252

 
19,697

Other
 
8,366

 
6,353

TOTAL
 
570,185

 
1,004,982

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
564,171

 
552,535

Accumulated deferred investment tax credits
 
10,867

 
11,176

Regulatory liability for income taxes - net
 
249,912

 
264,623

Other regulatory liabilities
 
44,014

 
47,884

Asset retirement cost liabilities
 
7,423

 
7,222

Accumulated provisions
 
10,562

 
13,856

Pension and other postretirement liabilities
 
905

 
4,834

Long-term debt (includes securitization bonds of $242,357 as of June 30, 2019 and $283,659 as of December 31, 2018)
 
1,664,936

 
1,013,735

Other
 
69,228

 
56,771

TOTAL
 
2,622,018

 
1,972,636

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
COMMON EQUITY
 
 
 
 
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 46,525,000 shares in 2019 and 2018
 
49,452

 
49,452

Paid-in capital
 
596,994

 
596,994

Retained earnings
 
836,234

 
775,956

TOTAL
 
1,482,680

 
1,422,402

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$4,674,883

 

$4,400,020

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


177

ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
Common Equity
 
 
 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Total
 
(In Thousands)
 
 
 
 
 
 
 
 
Balance at December 31, 2017

$49,452

 

$596,994

 

$613,721

 

$1,260,167

 
 
 
 
 
 
 
 
Net income
—

 
—

 
48,139

 
48,139

 
 
 
 
 
 
 
 
Balance at June 30, 2018

$49,452

 

$596,994

 

$661,860

 

$1,308,306

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018

$49,452

 

$596,994

 

$775,956

 

$1,422,402

 
 
 
 
 
 
 
 
Net income
—

 
—

 
60,278

 
60,278

 
 
 
 
 
 
 
 
Balance at June 30, 2019

$49,452

 

$596,994

 

$836,234

 

$1,482,680

 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 


178

ENTERGY TEXAS, INC. AND SUBSIDIARIES
SELECTED OPERATING RESULTS
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Increase/
 
 
 
 
2019
 
2018
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
 
 
Residential
 

$147

 

$151

 

($4
)
 
(3
)
Commercial
 
81

 
95

 
(14
)
 
(15
)
Industrial
 
91

 
103

 
(12
)
 
(12
)
Governmental
 
6

 
6

 
—

 
—

Total billed retail
 
325

 
355

 
(30
)
 
(8
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
14

 
15

 
(1
)
 
(7
)
Non-associated companies
 
—

 
10

 
(10
)
 
(100
)
Other
 
25

 
23

 
2

 
9

Total
 

$364

 

$403

 

($39
)
 
(10
)
 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
1,308

 
1,312

 
(4
)
 
—

Commercial
 
1,122

 
1,135

 
(13
)
 
(1
)
Industrial
 
1,949

 
2,036

 
(87
)
 
(4
)
Governmental
 
63

 
72

 
(9
)
 
(13
)
Total retail
 
4,442

 
4,555

 
(113
)
 
(2
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
383

 
387

 
(4
)
 
(1
)
Non-associated companies
 
56

 
323

 
(267
)
 
(83
)
Total
 
4,881

 
5,265

 
(384
)
 
(7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
 
Increase/
 
 
 
 
2019
 
2018
 
(Decrease)
 
%
 
 
(Dollars In Millions)
 
 
Electric Operating Revenues:
 
 
 
 
 
 
 
 
Residential
 

$295

 

$299

 

($4
)
 
(1
)
Commercial
 
160

 
180

 
(20
)
 
(11
)
Industrial
 
178

 
186

 
(8
)
 
(4
)
Governmental
 
11

 
12

 
(1
)
 
(8
)
Total billed retail
 
644

 
677

 
(33
)
 
(5
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
28

 
28

 
—

 
—

Non-associated companies
 
3

 
20

 
(17
)
 
(85
)
Other
 
29

 
27

 
2

 
7

Total
 

$704

 

$752

 

($48
)
 
(6
)
 
 
 
 
 
 
 
 
 
Billed Electric Energy Sales (GWh):
 
 
 
 
 
 
 
 
Residential
 
2,668

 
2,786

 
(118
)
 
(4
)
Commercial
 
2,168

 
2,218

 
(50
)
 
(2
)
Industrial
 
3,780

 
3,868

 
(88
)
 
(2
)
Governmental
 
125

 
142

 
(17
)
 
(12
)
Total retail
 
8,741

 
9,014

 
(273
)
 
(3
)
Sales for resale:
 
 
 
 
 
 
 
 
Associated companies
 
785

 
753

 
32

 
4

Non-associated companies
 
152

 
517

 
(365
)
 
(71
)
Total
 
9,678

 
10,284

 
(606
)
 
(6
)

179


SYSTEM ENERGY RESOURCES, INC.

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

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

Second Quarter 2019 Compared to Second Quarter 2018

Net income increased $1.1 million primarily due to the increase in operating revenues resulting from changes in rate base as compared to the prior year.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Net income increased $2.4 million primarily due to the increase in operating revenues resulting from changes in rate base as compared to the prior year.

Income Tax Legislation

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

Liquidity and Capital Resources

Cash Flow

Cash flows for the six months ended June 30, 2019 and 2018 were as follows:
 
2019
 
2018
 
(In Thousands)
Cash and cash equivalents at beginning of period

$95,685

 

$287,187

 
 
 
 
Cash flow provided by (used in):
 
 
 
Operating activities
130,376

 
122,760

Investing activities
(13,477
)
 
(158,956
)
Financing activities
(128,623
)
 
7,786

Net decrease in cash and cash equivalents
(11,724
)
 
(28,410
)
 
 
 
 
Cash and cash equivalents at end of period

$83,961

 

$258,777



180
Table of Contents
System Energy Resources, Inc.
Management's Financial Discussion and Analysis

Operating Activities

Net cash flow provided by operating activities increased by $7.6 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to a decrease in spending of $33.5 million on nuclear refueling outages in 2019 as compared to the same period in 2018, partially offset by the timing of collections of receivables.

Investing Activities

Net cash flow used in investing activities decreased $145.5 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to:

•
a decrease of $115.5 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle; and
•
a decrease of $47.1 million in nuclear construction expenditures as a result of work performed in 2018 on Grand Gulf outage projects.

The decrease was partially offset by money pool activity.

Decreases in System Energy’s receivable from the money pool are a source of cash flow and System Energy’s receivable from the money pool decreased by $35.6 million for the six months ended June 30, 2019 compared to decreasing by $47.5 million for the six months ended June 30, 2018.  The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

System Energy’s financing activities used $128.6 million of cash for the six months ended June 30, 2019 compared to providing $7.8 million of cash for the six months ended June 30, 2018 primarily due to the following activity:

•
the issuance in March 2018 of $100 million of 3.42% Series J notes by the System Energy nuclear fuel company variable interest entity;
•
an increase of $24.8 million in common stock dividends and distributions in 2019. Common stock dividends and distributions were lower in 2018 in anticipation of the excess accumulated deferred income taxes being returned to customers as a result of the Tax Cuts and Jobs Act;
•
net short-term borrowings of $21 million in 2018 on the nuclear fuel company variable interest entity’s credit facility; and
•
net repayments of long-term borrowings of $39.5 million in 2019 on the nuclear fuel company variable interest entity’s credit facility compared to net repayments of long-term borrowings of $50 million in 2018 on the nuclear fuel company variable interest entity’s credit facility.

In March 2019, System Energy issued $134 million of 2.50% Series 2019 revenue refunding bonds due April 2022. The proceeds were used to redeem, prior to maturity, $134 million of 5.875% Series 1998 pollution control revenue refunding bonds due April 2022. See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.


181
Table of Contents
System Energy Resources, Inc.
Management's Financial Discussion and Analysis

Capital Structure

System Energy’s debt to capital ratio is shown in the following table.
 
June 30,
2019
 
December 31, 2018
Debt to capital
45.9
%
 
46.1
%
Effect of subtracting cash
(3.8
%)
 
(4.0
%)
Net debt to net capital
42.1
%
 
42.1
%

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

Uses and Sources of Capital

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

The current annual amounts of System Energy’s planned construction and other capital investments are as follows:
 
2019
 
2020
 
2021
 
(In Millions)
Planned construction and capital investment:
 
 
 
 
 
Generation

$145

 

$160

 

$75

Utility Support
10

 
20

 
15

Total

$155

 

$180

 

$90


The updated capital plan for 2019-2021 reflects capital plan refinements and includes specific Grand Gulf investments and initiatives.

System Energy’s receivables from the money pool were as follows:
June 30,
2019
 
December 31,
2018
 
June 30,
2018
 
December 31,
2017
(In Thousands)
$71,534
 
$107,122
 
$64,136
 
$111,667

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


182
Table of Contents
System Energy Resources, Inc.
Management's Financial Discussion and Analysis

The System Energy nuclear fuel company variable interest entity has a credit facility in the amount of $120 million scheduled to expire in September 2021. As of June 30, 2019, $74.4 million in letters of credit to support a like amount of commercial paper issued were outstanding under the System Energy nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements herein for additional discussion of the variable interest entity credit facility.

Capital Funds Agreement

Pursuant to the terms of the Capital Funds Agreement, Entergy Corporation had agreed to supply System Energy with sufficient capital to (i) maintain System Energy’s equity capital at an amount equal to a minimum of 35% of its total capitalization (excluding short-term debt), (ii) permit the continued commercial operation of Grand Gulf, and (iii) pay in full when due all indebtedness for borrowed money of System Energy. Effective July 19, 2019, the Capital Funds Agreement was terminated.

Federal Regulation

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

Complaints Against System Energy

Return on Equity and Capital Structure Complaints

See the Form 10-K for a discussion of the return on equity complaints filed by the APSC and the MPSC and by the LPSC against System Energy. The LPSC’s complaint also includes a challenge to System Energy’s capital structure. In August 2018 the FERC issued an order dismissing the LPSC’s request to investigate System Energy’s capital structure and setting for hearing the return on equity complaint, with a refund effective date of April 2018. The portion of the LPSC’s complaint dealing with return on equity was subsequently consolidated with the APSC and MPSC complaint for hearing. The consolidated hearing has been scheduled for September 2019, and the parties are required to address an order (issued in a separate proceeding involving New England transmission owners) that proposed modifying the FERC’s standard methodology for determining return on equity. In September 2018, System Energy filed a request for rehearing and the LPSC filed a request for rehearing or reconsideration of the FERC’s August 2018 order. The LPSC’s request referenced an amended complaint that it filed on the same day raising the same capital structure claim the FERC had earlier dismissed. The FERC initiated a new proceeding for the amended capital structure complaint, and System Energy submitted a response in October 2018. In January 2019 the FERC set the amended capital structure complaint for settlement and hearing proceedings. Settlement procedures in the capital structure proceeding commenced in February 2019. As noted below, in June 2019 settlement discussions were terminated and the amended capital structure complaint was consolidated with the ongoing return on equity proceeding.

In January 2019 the LPSC and the APSC and MPSC filed direct testimony in the return on equity proceeding. For the refund period January 23, 2017 through April 23, 2018, the LPSC argues for an authorized return on equity for System Energy of 7.81% and the APSC and MPSC argue for an authorized return on equity for System Energy of 8.24%. For the refund period April 27, 2018 through July 27, 2019, and for application on a prospective basis, the LPSC argues for an authorized return on equity for System Energy of 7.97% and the APSC and MPSC argue for an authorized return on equity for System Energy of 8.41%. In March 2019, System Energy submitted answering testimony in the return on equity proceeding. For the first refund period, System Energy’s testimony argues for a return on equity of 10.10% (median) or 10.70% (midpoint). For the second refund period, System Energy’s testimony shows that the calculated returns on equity for the first period fall within the range of presumptively just and reasonable returns on equity, and thus the second complaint should be dismissed (and the first period return on equity used going forward). If the FERC nonetheless were to set a new return on equity for the second period (and going forward), System Energy argues the return on equity should be either 10.32% (median) or 10.69% (midpoint).

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Management's Financial Discussion and Analysis


In May 2019 the FERC staff filed its direct and answering testimony in the return on equity proceeding. For the first refund period, the FERC staff calculates an authorized return on equity for System Energy of 9.89% based on the application of FERC’s proposed methodology. The FERC staff’s direct and answering testimony noted that an authorized return on equity of 9.89% for the first refund period was within the range of presumptively just and reasonable returns on equity for the second refund period, as calculated using a study period ending January 31, 2019 for the second refund period.

In June 2019, System Entergy filed testimony responding to the testimony filed by the FERC staff. Among other things, System Energy’s testimony rebutted arguments raised by the FERC staff and provided updated calculations for the second refund period based on the study period ending May 31, 2019. For that refund period, System Energy’s testimony shows that strict application of the return on equity methodology proposed by the FERC staff indicates that the second complaint would not be dismissed, and the new return on equity would be set at 9.65% (median) or 9.74% (midpoint). System Energy’s testimony argues that these results are insufficient in light of benchmarks such as state returns on equity and treasury bond yields, and instead proposes that the calculated returns on equity for the second period should be either 9.91% (median) or 10.3% (midpoint). System Energy’s testimony also argues that, under application of its proposed modified methodology, the 10.10% return on equity calculated for the first refund period would fall within the range of presumptively just and reasonable returns on equity for the second refund period. System Energy is recording a provision against revenue for the potential outcome of this proceeding.

Also in June 2019, the FERC’s Chief ALJ issued an order terminating settlement discussions in the amended complaint addressing System Energy’s capital structure. The ALJ consolidated the amended complaint with the ongoing return on equity proceeding and set new procedural deadlines for the consolidated hearing, such that the hearing will commence in January 2020 and the initial decision will be due in June 2020.

Grand Gulf Sale-leaseback Renewal Complaint

As discussed in the Form 10-K, in May 2018 the LPSC filed a complaint against System Energy and Entergy Services related to System Energy’s renewal of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1.

In February 2019 the presiding ALJ ruled that the hearing ordered by the FERC includes the issue of whether specific subcategories of accumulated deferred income tax should be included in, or excluded from, System Energy’s formula rate. In March 2019 the LPSC, MPSC, APSC and City Council filed direct testimony. The LPSC testimony seeks refunds that include the renewal lease payments (approximately $17.2 million per year since July 2015), rate base reductions for accumulated deferred income taxes associated with uncertain tax positions (claimed to be approximately $334.5 million as of December 2018), and the cost of capital additions associated with the sale-leaseback interest (claimed to be approximately $274.8 million), as well as interest on those amounts. The direct testimony of the City Council and the APSC and MPSC address various issues raised by the LPSC. System Energy disputes that any refunds are owed for billings under the Unit Power Sales Agreement. A hearing has been scheduled for November 2019.

In June 2019 System Energy filed answering testimony in the sale-leaseback complaint proceeding arguing that the FERC should reject all claims for refunds.  Among other things, System Energy argued that claims for refunds of the costs of lease renewal payments and capital additions should be rejected because those costs were recovered consistent with the Unit Power Sales Agreement formula rate, System Energy was not over or double recovering any costs, and ratepayers will save approximately $850 million over initial and renewal terms of the leases.  System Energy argued that claims for refunds associated with liabilities arising from uncertain tax positions should be rejected because the liabilities do not provide cost-free capital, the repayment timing of the liabilities is uncertain, and the outcome of the underlying tax positions is uncertain.  System Energy’s testimony also challenged the refund calculations supplied by the other parties.


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Management's Financial Discussion and Analysis

Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

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

New Accounting Pronouncements

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

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SYSTEM ENERGY RESOURCES, INC.
INCOME STATEMENTS
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
2019
 
2018
 
2019
 
2018
 
 
(In Thousands)
 
(In Thousands)
OPERATING REVENUES
 
 
 
 
 
 
 
 
Electric
 

$139,009

 

$112,456

 

$279,113

 

$260,899

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
Operation and Maintenance:
 
 
 
 
 
 
 
 
Fuel, fuel-related expenses, and gas purchased for resale
 
21,026

 
2,030

 
42,587

 
30,455

Nuclear refueling outage expenses
 
8,415

 
2,820

 
16,601

 
6,792

Other operation and maintenance
 
52,468

 
48,695

 
97,750

 
94,034

Decommissioning
 
8,888

 
8,541

 
17,687

 
16,998

Taxes other than income taxes
 
7,176

 
6,866

 
14,715

 
13,963

Depreciation and amortization
 
26,574

 
33,467

 
53,148

 
66,788

Other regulatory credits - net
 
(9,838
)
 
(13,369
)
 
(19,043
)
 
(22,478
)
TOTAL
 
114,709

 
89,050

 
223,445

 
206,552

 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
24,300

 
23,406

 
55,668

 
54,347

 
 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
 
Allowance for equity funds used during construction
 
1,678

 
2,904

 
3,267

 
5,004

Interest and investment income
 
6,371

 
2,943

 
13,362

 
9,829

Miscellaneous - net
 
(1,490
)
 
(1,794
)
 
(2,718
)
 
(2,970
)
TOTAL
 
6,559

 
4,053

 
13,911

 
11,863

 
 
 
 
 
 
 
 
 
INTEREST EXPENSE
 
 
 
 
 
 
 
 
Interest expense
 
8,524

 
9,656

 
17,921

 
18,981

Allowance for borrowed funds used during construction
 
(410
)
 
(736
)
 
(799
)
 
(1,268
)
TOTAL
 
8,114

 
8,920

 
17,122

 
17,713

 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
22,745

 
18,539

 
52,457

 
48,497

 
 
 
 
 
 
 
 
 
Income taxes
 
(1,727
)
 
(4,848
)
 
4,407

 
2,802

 
 
 
 
 
 
 
 
 
NET INCOME
 

$24,472

 

$23,387

 

$48,050

 

$45,695

 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 
 
 
 




186

SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
OPERATING ACTIVITIES
 
 
 
 
Net income
 

$48,050

 

$45,695

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
 
Depreciation, amortization, and decommissioning, including nuclear fuel amortization
 
106,972

 
109,682

Deferred income taxes, investment tax credits, and non-current taxes accrued
 
4,799

 
7,010

Changes in assets and liabilities:
 
 
 
 
Receivables
 
(15,402
)
 
14,093

Accounts payable
 
(6,770
)
 
32,681

Prepaid taxes and taxes accrued
 
(3,196
)
 
(7,100
)
Interest accrued
 
(1,275
)
 
785

Other working capital accounts
 
1,205

 
(64,758
)
Other regulatory assets
 
(7,238
)
 
(16,939
)
Other regulatory liabilities
 
87,502

 
(12,894
)
Pension and other postretirement liabilities
 
(2,121
)
 
(6,551
)
Other assets and liabilities
 
(82,150
)
 
21,056

Net cash flow provided by operating activities
 
130,376

 
122,760

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Construction expenditures
 
(58,714
)
 
(105,035
)
Allowance for equity funds used during construction
 
3,267

 
5,004

Nuclear fuel purchases
 
(1,964
)
 
(99,164
)
Proceeds from the sale of nuclear fuel
 
18,280

 
—

Proceeds from nuclear decommissioning trust fund sales
 
190,975

 
199,403

Investment in nuclear decommissioning trust funds
 
(200,909
)
 
(206,695
)
Changes in money pool receivable - net
 
35,588

 
47,531

Net cash flow used in investing activities
 
(13,477
)
 
(158,956
)
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Proceeds from the issuance of long-term debt
 
847,380

 
99,985

Retirement of long-term debt
 
(888,003
)
 
(50,002
)
Changes in short-term borrowings - net
 
—

 
21,043

Common stock dividends and distributions
 
(88,000
)
 
(63,240
)
Net cash flow provided by (used in) financing activities
 
(128,623
)
 
7,786

 
 
 
 
 
Net decrease in cash and cash equivalents
 
(11,724
)
 
(28,410
)
Cash and cash equivalents at beginning of period
 
95,685

 
287,187

Cash and cash equivalents at end of period
 

$83,961

 

$258,777

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

$12,462

 

$8,592

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


187

SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEETS
ASSETS
June 30, 2019 and December 31, 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents:
 
 
 
 
Cash
 

$1,109

 

$68

Temporary cash investments
 
82,852

 
95,617

Total cash and cash equivalents
 
83,961

 
95,685

Accounts receivable:
 
 
 
 
Associated companies
 
128,409

 
148,571

Other
 
5,366

 
5,390

Total accounts receivable
 
133,775

 
153,961

Materials and supplies - at average cost
 
103,902

 
97,225

Deferred nuclear refueling outage costs
 
28,129

 
44,424

Prepaid taxes
 
8,611

 
5,415

Prepayments and other
 
11,399

 
2,985

TOTAL
 
369,777

 
399,695

 
 
 
 
 
OTHER PROPERTY AND INVESTMENTS
 
 
 
 
Decommissioning trust funds
 
986,761

 
869,543

TOTAL
 
986,761

 
869,543

 
 
 
 
 
UTILITY PLANT
 
 
 
 
Electric
 
5,033,870

 
5,036,116

Construction work in progress
 
107,187

 
70,156

Nuclear fuel
 
167,886

 
234,889

TOTAL UTILITY PLANT
 
5,308,943

 
5,341,161

Less - accumulated depreciation and amortization
 
3,249,715

 
3,212,080

UTILITY PLANT - NET
 
2,059,228

 
2,129,081

 
 
 
 
 
DEFERRED DEBITS AND OTHER ASSETS
 
 
 
 
Regulatory assets:
 
 
 
 
Other regulatory assets
 
453,609

 
446,371

Other
 
3,937

 
4,124

TOTAL
 
457,546

 
450,495

 
 
 
 
 
TOTAL ASSETS
 

$3,873,312

 

$3,848,814

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 

188

SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEETS
LIABILITIES AND EQUITY
June 30, 2019 and December 31, 2018
(Unaudited)
 
 
2019
 
2018
 
 
(In Thousands)
CURRENT LIABILITIES
 
 
 
 
Currently maturing long-term debt
 

$8

 

$6

Accounts payable:
 
 
 
 
Associated companies
 
4,936

 
11,031

Other
 
40,273

 
47,565

Interest accrued
 
12,020

 
13,295

Current portion of unprotected excess accumulated deferred income taxes
 
—

 
4,426

Other
 
2,833

 
2,832

TOTAL
 
60,070

 
79,155

 
 
 
 
 
NON-CURRENT LIABILITIES
 
 
 
 
Accumulated deferred income taxes and taxes accrued
 
815,895

 
805,296

Accumulated deferred investment tax credits
 
38,034

 
38,673

Regulatory liability for income taxes - net
 
148,598

 
158,998

Other regulatory liabilities
 
484,215

 
381,887

Decommissioning
 
913,687

 
896,000

Pension and other postretirement liabilities
 
96,518

 
98,639

Long-term debt
 
590,638

 
630,744

Other
 
28,409

 
22,224

TOTAL
 
3,115,994

 
3,032,461

 
 
 
 
 
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
COMMON EQUITY
 
 
 
 
Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares in 2019 and 2018
 
601,850

 
601,850

Retained earnings
 
95,398

 
135,348

TOTAL
 
697,248

 
737,198

 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 

$3,873,312

 

$3,848,814

 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 


189

SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CHANGES IN COMMON EQUITY
For the Six Months Ended June 30, 2019 and 2018
(Unaudited)
 
 
 
 
 
Common Equity
 
 
 
Common
Stock
 
Retained
Earnings
 
Total
 
(In Thousands)
 
 
 
 
 
 
Balance at December 31, 2017

$658,350

 

$52,459

 

$710,809

 
 
 
 
 
 
Net income
—

 
45,695

 
45,695

Common stock dividends and distributions
(56,500
)
 
(6,740
)
 
(63,240
)
 
 
 
 
 
 
Balance at June 30, 2018

$601,850

 

$91,414

 

$693,264

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018

$601,850

 

$135,348

 

$737,198

 
 
 
 
 
 
Net income
—

 
48,050

 
48,050

Common stock dividends
—

 
(88,000
)
 
(88,000
)
 
 
 
 
 
 
Balance at June 30, 2019

$601,850

 

$95,398

 

$697,248

 
 
 
 
 
 
See Notes to Financial Statements.
 
 
 
 
 



190

ENTERGY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

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

Item 1A.  Risk Factors

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

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

Issuer Purchases of Equity Securities (a)
Period
 
Total Number of
Shares Purchased
 
Average Price Paid
per Share
 
Total Number of
Shares Purchased
as Part of a
Publicly
Announced Plan
 
Maximum $
Amount
of Shares that May
Yet be Purchased
Under a Plan (b)
 
 
 
 
 
 
 
 
 
4/01/2019-4/30/2019
 
—

 

$—

 
—

 

$350,052,918

5/01/2019-5/31/2019
 
—

 

$—

 
—

 

$350,052,918

6/01/2019-6/30/2019
 
—

 

$—

 
—

 

$350,052,918

Total
 
—

 

$—

 
—

 
 

In accordance with Entergy’s stock-based compensation plans, Entergy periodically grants stock options to key employees, which may be exercised to obtain shares of Entergy’s common stock.  According to the plans, these shares can be newly issued shares, treasury stock, or shares purchased on the open market.  Entergy’s management has been authorized by the Board to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans.  In addition to this authority, the Board has authorized share repurchase programs to enable opportunistic purchases in response to market conditions. In October 2010 the Board granted authority for a $500 million share repurchase program. The amount of share repurchases under these programs may vary as a result of material changes in business results or capital spending or new investment opportunities.  In addition, in the first quarter 2019, Entergy withheld 76,735 shares of its common stock at $86.03 per share, 82,550 shares of its common stock at $86.51 per share, 38,326 shares of its common stock at $87.10 per share, 932 shares of its common stock at $89.19 per share, and 2,280 shares of its common stock at $93.25 per share to pay income taxes due upon vesting of restricted stock granted and payout of performance units as part of its long-term incentive program.

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


191

Item 5.  Other Information

Regulation of the Nuclear Power Industry

Following is an update to the “Regulation of the Nuclear Power Industry” section of Part I, Item 1 of the Form 10-K.

Nuclear Waste Policy Act of 1982

Nuclear Plant Decommissioning

In March 2019 filings with the NRC were made reporting on decommissioning funding for all of Entergy subsidiaries’ nuclear plants.  Those reports showed that decommissioning funding for each of the nuclear plants met the NRC’s financial assurance requirements.

Environmental Regulation

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

Clean Air Act and Subsequent Amendments

Potential Legislative, Regulatory, and Judicial Developments

As discussed in the Form 10-K, Entergy continues to support national legislation that would increase planning certainty for electric utilities while addressing carbon dioxide emissions in a responsible and flexible manner. Entergy voluntarily conducted a climate scenario analysis and published a comprehensive report in March 2019. The report follows the framework and recommendations of the Task Force on Climate-related Disclosures, describing climate-related governance, strategy, risk management, and metrics and targets. Scenario analysis resulted in Entergy developing and publishing a new goal of reducing the Utility’s emission rate by 50 percent from 2000 levels by 2030.

New and Existing Source Performance Standards for Greenhouse Gas Emissions

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

192

Clean Air Act. In December 2017 the EPA issued an advanced notice of proposed rulemaking regarding section 111(d), seeking comment on the form and content of a replacement for the Clean Power Plan, if one is promulgated. In July 2019 the EPA released its repeal and replacement of the Clean Power Plan. The Affordable Clean Energy Rule, which applies only to existing coal-fired electric generating units, determines that heat rate improvements are the best system of emission reductions and lists six candidate technologies for consideration by states at each coal unit. The rule provides states discretion in determining how the best system for emission reductions applies to individual units, including through the consideration of technical feasibility and the remaining useful life of the facility. Entergy is evaluating the final rule’s impacts on its coal units and will monitor anticipated litigation.

Groundwater at Certain Nuclear Sites

As discussed in the Form 10-K, in February 2016, Entergy disclosed that elevated tritium levels had been detected in samples from several monitoring wells that are part of Indian Point’s groundwater monitoring program.  Investigation of the source of elevated tritium determined that the source was related to a temporary system to process water in preparation for the regularly scheduled refueling outage at Indian Point 2. The NRC had issued a notice of violation related to the adequacy of Entergy’s controls to prevent the introduction of radioactivity into the site groundwater. Entergy completed corrective actions and, in February 2019, the NRC concluded that Entergy had achieved full compliance and closed the violation.

Steam Electric Effluent Guidelines

The 2015 Steam Electric Effluent Limitations Guidelines (ELG) rule requires, among other things, that there be no discharge of bottom ash transport water. The no-discharge requirement contains no exceptions and could be a problem for Entergy’s coal facilities during storm events and under certain non-routine operational conditions. The ELG rule’s compliance dates currently are delayed while the EPA reconsiders the rule. Additionally, the Fifth Circuit Court of Appeals recently vacated and remanded the provisions of the rule related to legacy wastewater and leachate. A proposed rule revision on bottom ash transport water is expected in the third quarter 2019 which may allow some flexibility for storm events and non-routine operations, with a final rule expected by the end of the year. A separate rulemaking is expected to address the legacy wastewater and leachate issues.


Item 6.  Exhibits
 
4(a) -
Thirty-eighth Supplemental Indenture, dated as of June 1, 2019, to Entergy Mississippi Mortgage and Deed of Trust, dated as of February 1, 1988 (4.46 to Form 8-K filed June 5, 2019 in 1-31508).
 
 
 
 
+10(a) -
2019 Entergy Corporation Omnibus Incentive Plan (Appendix B to 2019 Proxy Statement, dated March 22, 2019 in 1-11299).
 
 
 
 
*+10(b) -
The 2019 Entergy Corporation Non-Employee Director Stock Program.
 
 
 
 
*+10(c) -
2019 Entergy Corporation Non-Employee Director Service Recognition Program.
 
 
 
 
*31(a) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Corporation.
 
 
 
 
*31(b) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Corporation.
 
 
 
 
*31(c) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Arkansas.
 
 
 
 
*31(d) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Arkansas.
 
 
 
 
*31(e) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Louisiana.
 
 
 
 
*31(f) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Louisiana.
 
 
 
 
*31(g) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Mississippi.
 
 
 
 
*31(h) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Mississippi.
 
 
 

193

 
*31(i) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy New Orleans.
 
 
 
 
*31(j) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy New Orleans.
 
 
 
 
*31(k) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Texas.
 
 
 
 
*31(l) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Texas.
 
 
 
 
*31(m) -
Rule 13a-14(a)/15d-14(a) Certification for System Energy.
 
 
 
 
*31(n) -
Rule 13a-14(a)/15d-14(a) Certification for System Energy.
 
 
 
 
*32(a) -
Section 1350 Certification for Entergy Corporation.
 
 
 
 
*32(b) -
Section 1350 Certification for Entergy Corporation.
 
 
 
 
*32(c) -
Section 1350 Certification for Entergy Arkansas.
 
 
 
 
*32(d) -
Section 1350 Certification for Entergy Arkansas.
 
 
 
 
*32(e) -
Section 1350 Certification for Entergy Louisiana.
 
 
 
 
*32(f) -
Section 1350 Certification for Entergy Louisiana.
 
 
 
 
*32(g) -
Section 1350 Certification for Entergy Mississippi.
 
 
 
 
*32(h) -
Section 1350 Certification for Entergy Mississippi.
 
 
 
 
*32(i) -
Section 1350 Certification for Entergy New Orleans.
 
 
 
 
*32(j) -
Section 1350 Certification for Entergy New Orleans.
 
 
 
 
*32(k) -
Section 1350 Certification for Entergy Texas.
 
 
 
 
*32(l) -
Section 1350 Certification for Entergy Texas.
 
 
 
 
*32(m) -
Section 1350 Certification for System Energy.
 
 
 
 
*32(n) -
Section 1350 Certification for System Energy.
 
 
 
 
*101 INS -
Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
 
 
 
*101 SCH -
Inline XBRL Schema Document.
 
 
 
 
*101 PRE -
Inline XBRL Presentation Linkbase Document.
 
 
 
 
*101 LAB -
Inline XBRL Label Linkbase Document.
 
 
 
 
*101 CAL -
Inline XBRL Calculation Linkbase Document.
 
 
 
 
*101 DEF -
Inline XBRL Definition Linkbase Document.
 
 
 
 
*104 -
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibits 101).
___________________________
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Entergy Corporation agrees to furnish to the Commission upon request any instrument with respect to long-term debt that is not registered or listed herein as an Exhibit because the total amount of securities authorized under such agreement does not exceed ten percent of the total assets of Entergy Corporation and its subsidiaries on a consolidated basis.
*
Filed herewith.
+
Management contracts or compensatory plans or arrangements.

194

SIGNATURE

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

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


Date:    August 6, 2019


195

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