NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. COMMITMENTS AND CONTINGENCIES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy and the Registrant Subsidiaries are involved in a number of legal, regulatory, and tax proceedings before various courts, regulatory authorities, and governmental agencies in the ordinary course of business. While management is unable to predict with certainty the outcome of such proceedings, management does not believe that the ultimate resolution of these matters will have a material adverse effect on Entergy’s results of operations, cash flows, or financial condition, except as otherwise discussed in the Form 10-K or in this report. Entergy discusses regulatory proceedings in Note 2 to the financial statements in the Form 10-K and herein and discusses tax proceedings in Note 3 to the financial statements in the Form 10-K and Note 10 to the financial statements herein.
Vidalia Purchased Power Agreement
See Note 8 to the financial statements in the Form 10-K for information on Entergy Louisiana’s Vidalia purchased power agreement.
ANO Damage, Outage, and NRC Reviews
See Note 8 to the financial statements in the Form 10-K for a discussion of the ANO stator incident, subsequent NRC reviews, and the deferral of replacement power costs.
Spent Nuclear Fuel Litigation
See Note 8 to the financial statements in the Form 10-K for information on Entergy’s spent nuclear fuel litigation.
In March 2023 the DOE submitted an offer of judgment to resolve claims in the fourth round ANO damages case. The $41 million offer was accepted by Entergy Arkansas, and the U.S. Court of Federal Claims issued a judgment in that amount in favor of Entergy Arkansas and against the DOE. Entergy Arkansas received payment from the U.S. Treasury in April 2023. The effects of recording the judgment were reductions to plant, nuclear fuel expense, other operation and maintenance expense, materials and supplies, and taxes other than income taxes. The ANO damages awarded included $18 million related to costs previously capitalized, $10 million related to costs previously recorded as other operation and maintenance expense, $8 million related to costs previously recorded as nuclear fuel expense, $3 million related to costs previously recorded as materials and supplies, and $2 million related to costs previously recorded as taxes other than income taxes.
Nuclear Insurance
See Note 8 to the financial statements in the Form 10-K for information on nuclear liability and property insurance associated with Entergy’s nuclear power plants.
Non-Nuclear Property Insurance
See Note 8 to the financial statements in the Form 10-K for information on Entergy’s non-nuclear property insurance program.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Employment and Labor-related Proceedings
See Note 8 to the financial statements in the Form 10-K for information on Entergy’s employment and labor-related proceedings.
Asbestos Litigation (Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas)
See Note 8 to the financial statements in the Form 10-K for information regarding asbestos litigation.
Grand Gulf - Related Agreements
See Note 8 to the financial statements in the Form 10-K for information regarding Grand Gulf-related agreements.
Nelson Industrial Steam Company
Entergy Louisiana is a partner in the Nelson Industrial Steam Company (NISCO) partnership which owns two petroleum coke generating units. In April 2023 these generating units suspended operations in the MISO market, and Entergy Louisiana currently is working with the partners to wind up the NISCO partnership, which will ultimately result in ownership of the generating units transferring to Entergy Louisiana. Entergy Louisiana is evaluating the effect of this on its financial condition, results of operations, and cash flows but at this time does not expect the effects to be material.
NOTE 2. RATE AND REGULATORY MATTERS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Regulatory Assets and Regulatory Liabilities
See Note 2 to the financial statements in the Form 10-K for information regarding regulatory assets and regulatory liabilities in the Utility business presented on the balance sheets of Entergy and the Registrant Subsidiaries. The following are updates to that discussion.
Fuel and purchased power cost recovery
Entergy Arkansas
Energy Cost Recovery Rider
In March 2023, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase from $0.01639 per kWh to $0.01883 per kWh. The primary reason for the rate increase is a large under-recovered balance as a result of higher natural gas prices in 2022 and a $32 million deferral related to the 2021 February winter storms consistent with APSC general staff’s request in 2022. The under-recovered balance included in the filing was partially offset by the proceeds of the $41.7 million refund that System Energy made to Entergy Arkansas in January 2023 related to the sale-leaseback renewal costs and depreciation litigation as calculated in System Energy’s January 2023 compliance report filed with the FERC. The redetermined rate of $0.01883 per kWh became effective with the first billing cycle in April 2023 through the normal operation of the tariff. See Note 2 to the financial statements in the Form 10-K for information on the 2021 February winter storm investigation proceeding.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Texas
As discussed in the Form 10-K, in September 2022, Entergy Texas filed an application with the PUCT to reconcile its fuel and purchased power costs for the period from April 2019 through March 2022. During the reconciliation period, Entergy Texas incurred approximately $1.7 billion in eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. As of the end of the reconciliation period, Entergy Texas’s cumulative under-recovery balance was approximately $103.1 million, including interest, which Entergy Texas requested authority to carry over as the beginning balance for the subsequent reconciliation period beginning April 2022, pending future surcharges or refunds as approved by the PUCT. In November 2022 the PUCT referred the proceeding to the State Office of Administrative Hearings. In March 2023 municipal intervenors filed testimony proposing a $5.2 million disallowance for fuel purchased during Winter Storm Uri. PUCT staff proposed no disallowance. Entergy Texas filed rebuttal testimony in April 2023 and a hearing on the merits is set for May 2023. A PUCT decision is expected in September 2023.
Retail Rate Proceedings
See Note 2 to the financial statements in the Form 10-K for information regarding retail rate proceedings involving the Utility operating companies. The following are updates to that discussion.
Filings with the APSC (Entergy Arkansas)
COVID-19 Orders
See Note 2 to the financial statements in the Form 10-K for discussion of APSC orders issued in light of the COVID-19 pandemic. As of March 31, 2023, Entergy Arkansas had a regulatory asset of $39 million for costs associated with the COVID-19 pandemic.
Filings with the LPSC (Entergy Louisiana)
COVID-19 Orders
As discussed in the Form 10-K, in April 2020 the LPSC issued an order authorizing utilities to record as a regulatory asset expenses incurred from the suspension of disconnections and collection of late fees imposed by LPSC orders associated with the COVID-19 pandemic. In April 2023, Entergy Louisiana filed an application proposing to utilize approximately $1.6 billion in certain low interest debt to generate earnings to apply toward the reduction of the COVID-19 regulatory asset. In that filing, Entergy Louisiana proposed to delay repayment of certain shorter-term first mortgage bonds that were issued to finance storm restoration costs until the costs could be securitized, and to invest the funds that otherwise would be used to repay those bonds in the money pool to take advantage of the spread between prevailing interest rates on investments in the money pool and the interest rates on the bonds. In the event the LPSC approves Entergy Louisiana’s requested relief, subsequent filings will be required to permit the LPSC to review the COVID-19 regulatory asset. As of March 31, 2023, Entergy Louisiana had a regulatory asset of $47.8 million for costs associated with the COVID-19 pandemic.
Filings with the MPSC (Entergy Mississippi)
Retail Rates
2023 Formula Rate Plan Filing
In March 2023, Entergy Mississippi submitted its formula rate plan 2023 test year filing and 2022 look-back filing showing Entergy Mississippi’s earned return on rate base for the historical 2022 calendar year to be below the formula rate plan bandwidth and projected earned return for the 2023 calendar year to be below the
Entergy Corporation and Subsidiaries
Notes to Financial Statements
formula rate plan bandwidth. The 2023 test year filing shows a $39.8 million rate increase is necessary to reset Entergy Mississippi’s earned return on rate base to the specified point of adjustment of 6.67%, within the formula rate plan bandwidth. The 2022 look-back filing compares actual 2022 results to the approved benchmark return on rate base and reflects the need for a $19.8 million temporary increase in formula rate plan revenues, including the refund of a $1.3 million over-recovery resulting from the demand-side management costs true-up for 2022. In fourth quarter 2022, Entergy Mississippi recorded a regulatory asset of $18.2 million in connection with the look-back feature of the formula rate plan to reflect that the 2022 estimated earned return was below the formula rate plan bandwidth. In accordance with the provisions of the formula rate plan, Entergy Mississippi implemented a $27.9 million interim rate increase, reflecting a cap equal to 2% of 2022 retail revenues, effective in April 2023.
Filings with the City Council (Entergy New Orleans)
Retail Rates
2023 Formula Rate Plan Filing
In April 2023, Entergy New Orleans submitted to the City Council its formula rate plan 2022 test year filing. The 2022 test year evaluation report produced an electric earned return on equity of 7.34% and a gas earned return on equity of 3.52% compared to the authorized return on equity for each of 9.35%. Entergy New Orleans seeks approval of a $25.6 million rate increase based on the formula set by the City Council in the 2018 rate case. The formula results in an increase in authorized electric revenues of $17.4 million and an increase in authorized gas revenues of $8.2 million. Entergy New Orleans also seeks to commence collecting $3.4 million in electric revenues that were previously approved by the City Council for collection through the formula rate plan. The filing is subject to review by the City Council and other parties over a 75-day review period, followed by a 25-day period to resolve any disputes among the parties. Resulting rates will be effective with the first billing cycle of September 2023 pursuant to the formula rate plan tariff. For any disputed rate adjustments, however, the City Council would set a procedural schedule that would extend the process for City Council approval of disputed rate adjustments.
Filings with the PUCT and Texas Cities (Entergy Texas)
Retail Rates
Generation Cost Recovery Rider
As discussed in the Form 10-K, in August 2022 the PUCT approved a unanimous settlement agreement adjusting Entergy Texas’s generation cost recovery rider to recover an annual revenue requirement of approximately $92.8 million related to Entergy Texas’s actual investment in the acquisition of the Hardin County Peaking Facility, and rates became effective. In September 2022, Entergy Texas filed a relate-back rider designed to collect over three months an additional approximately $5.7 million, which is the revenue requirement, plus carrying costs, associated with Entergy Texas’s acquisition of Hardin County Peaking Facility from June 2021 through August 2022 when the updated revenue requirement took effect. In April 2023 the PUCT approved Entergy Texas’s as-filed request.
COVID-19 Orders
As discussed in the Form 10-K, in March 2020 the PUCT authorized electric utilities to record as a regulatory asset expenses resulting from the effects of the COVID-19 pandemic. In future proceedings, the PUCT will consider whether each utility's request for recovery of these regulatory assets is reasonable and necessary, the appropriate period of recovery, and any amount of carrying costs thereon. As part of its 2022 base rate case filing, Entergy Texas requested recovery of its regulatory asset over a three-year period beginning December 2022. As of
Entergy Corporation and Subsidiaries
Notes to Financial Statements
March 31, 2023, Entergy Texas had a regulatory asset of $10.4 million for costs associated with the COVID-19 pandemic.
Entergy Arkansas Opportunity Sales Proceeding
See Note 2 to the financial statements in the Form 10-K for discussion of the Entergy Arkansas opportunity sales proceeding. As discussed in the Form 10-K, in January 2023, Arkansas Electric Energy Consumers, Inc., an industrial customer association, filed a notice of appeal of the U.S. District Court for the Eastern District of Arkansas’s order denying its motion to intervene to the United States Court of Appeals for the Eighth Circuit and a motion with the district court to stay the proceedings pending the appeal, which was denied. In February 2023, Arkansas Electric Energy Consumers, Inc. filed a motion with the United States Court of Appeals for the Eighth District to stay the proceedings pending the appeal, which also was denied. The trial was held in February 2023. Following the trial, Entergy Arkansas filed a motion with the United States Court of Appeals for the Eighth District to expedite the appeal filed by Arkansas Electric Energy Consumers, Inc. The court granted Entergy Arkansas’s request and oral arguments are scheduled for June 2023.
Complaints Against System Energy
See Note 2 to the financial statements in the Form 10-K for information regarding pending complaints against System Energy. The following are updates to that discussion.
Return on Equity and Capital Structure Complaints
As discussed in the Form 10-K, in March 2021 the FERC ALJ issued an initial decision in the proceeding initiated by the LPSC, the MPSC, the APSC, and the City Council against System Energy regarding the return on equity component of the Unit Power Sales Agreement. With regard to System Energy’s authorized return on equity, the ALJ determined that the existing return on equity of 10.94% is no longer just and reasonable, and that the replacement authorized return on equity, based on application of the Opinion No. 569-A methodology, should be 9.32%. The ALJ further determined that System Energy should pay refunds for a fifteen-month refund period (January 2017-April 2018) based on the difference between the current return on equity and the replacement authorized return on equity. The ALJ determined that the April 2018 complaint concerning the authorized return on equity should be dismissed, and that no refunds for a second fifteen-month refund period should be due. With regard to System Energy’s capital structure, the ALJ determined that System Energy’s actual equity ratio is excessive and that the just and reasonable equity ratio is 48.15% equity, based on the average equity ratio of the proxy group used to evaluate the return on equity for the second complaint. The ALJ further determined that System Energy should pay refunds for a fifteen-month refund period (September 2018-December 2019) based on the difference between the actual equity ratio and the 48.15% equity ratio. If the ALJ’s initial decision is upheld, the estimated refund for this proceeding is approximately $38 million, which includes interest through March 31, 2023, and the estimated resulting annual rate reduction would be approximately $31 million. As a result of the 2022 settlement agreement with the MPSC, both the estimated refund and rate reduction exclude Entergy Mississippi's portion. See “System Energy Settlement with the MPSC” in the Form 10-K for discussion of the settlement. The estimated refund will continue to accrue interest until a final FERC decision is issued.
The ALJ initial decision is an interim step in the FERC litigation process, and an ALJ’s determinations made in an initial decision are not controlling on the FERC. In April 2021, System Energy filed its brief on exceptions, in which it challenged the initial decision’s findings on both the return on equity and capital structure issues. Also in April 2021 the LPSC, APSC, MPSC, City Council, and the FERC trial staff filed briefs on exceptions. Reply briefs opposing exceptions were filed in May 2021 by System Energy, the FERC trial staff, the LPSC, APSC, MPSC, and the City Council. Refunds, if any, that might be required will only become due after the FERC issues its order reviewing the initial decision.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Grand Gulf Sale-leaseback Renewal Complaint and Uncertain Tax Position Rate Base Issue
As discussed in the Form 10-K, in May 2018 the LPSC filed a complaint against System Energy and Entergy Services related to System Energy’s renewal of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1. The APSC, the MPSC, and the City Council subsequently intervened in the proceeding. A hearing was held before a FERC ALJ in November 2019. In April 2020 the ALJ issued the initial decision, and in December 2022 the FERC issued an order on the ALJ’s initial decision, which affirmed it in part and modified it in part. The FERC’s order directed System Energy to calculate refunds on three issues, and to provide a compliance report detailing the calculations. The FERC’s order also disallows the future recovery of sale-leaseback renewal costs, which is estimated at approximately $11.5 million annually for purchases from Entergy Arkansas, Entergy Louisiana, and Entergy New Orleans through July 2036. The three refund issues are rental expenses related to the renewal of the sale-leaseback arrangements; refunds, if any, for the revenue requirement impact of including accumulated deferred income taxes resulting from the decommissioning uncertain tax positions from 2004 through the present; and refunds for the net effect of correcting the depreciation inputs for capital additions attributable to the portion of plant subject to the sale-leaseback.
In January 2023, System Energy filed its compliance report with the FERC. With respect to the sale-leaseback renewal costs, System Energy calculated a refund of $89.8 million, which represented all of the sale-leaseback renewal rental costs that System Energy recovered in rates, with interest. With respect to the decommissioning uncertain tax position issue, System Energy calculated that no additional refunds are owed because it had already provided a one-time historical credit (for the period January 2016 through September 2020) of $25.2 million based on the accumulated deferred income taxes that resulted from the IRS’s partial acceptance of the decommissioning tax position, and because it has been providing an ongoing rate base credit for the accumulated deferred income taxes that resulted from the IRS’s partial acceptance of the decommissioning tax position since October 2020. With respect to the depreciation refund, System Energy calculated a refund of $13.7 million, which is the net total of a refund to customers for excess depreciation expense previously collected, plus interest, offset by the additional return on rate base that System Energy previously did not collect, without interest. See “System Energy Settlement with the MPSC” in the Form 10-K for discussion of the regulatory charge and corresponding regulatory liability recorded in June 2022 related to these proceedings. In January 2023, System Energy paid the refunds of $103.5 million, which included refunds of $41.7 million to Entergy Arkansas, $27.8 million to Entergy Louisiana, and $34 million to Entergy New Orleans. Based on the December 2022 FERC order and analysis of the remaining litigation, management determined that System Energy’s regulatory liability related to complaints against System Energy as of March 31, 2023 is adequate.
In January 2023, System Energy filed a request for rehearing of the FERC’s determinations in the December 2022 order on sale-leaseback refund issues and future lease cost disallowances, the FERC’s prospective policy on uncertain tax positions, and the proper accounting of System Energy’s accumulated deferred income taxes adjustment for the Tax Cuts and Jobs Act of 2017; and a motion for confirmation of its interpretation of the December 2022 order’s remedy concerning the decommissioning tax position. In January 2023 the retail regulators filed a motion for confirmation of their interpretation of the refund requirement in the December 2022 FERC order and a provisional request for rehearing. In February 2023 the FERC issued a notice that the rehearing requests have been deemed denied by operation of law. The deemed denial of the rehearing request initiates the sixty-day period in which aggrieved parties may petition for federal appellate court review of the underlying FERC orders; however the FERC may issue a substantive order on rehearing as long as it continues to have jurisdiction over the case. In March 2023, System Energy filed in the United States Court of Appeals for the Fifth Circuit a petition for review of the December 2022 order. In March 2023, System Energy also filed an unopposed motion to stay the proceeding in the Fifth Circuit pending the FERC’s disposition of the pending motions, and the court granted the motion to stay.
In February 2023, System Energy submitted a tariff compliance filing with the FERC to clarify that, consistent with the releases provided in the MPSC settlement, Entergy Mississippi will continue to be charged for its allocation of the sale-leaseback renewal costs under the Unit Power Sales Agreement. See “System Energy Settlement with the MPSC” in the Form 10-K for discussion of the settlement. In March 2023, the MPSC filed a
Entergy Corporation and Subsidiaries
Notes to Financial Statements
protest to System Energy’s tariff compliance filing. The MPSC argues that the settlement did not specifically address post-settlement sale-leaseback renewal costs and that the sale-leaseback renewal costs may not be recovered under the Unit Power Sales Agreement. Entergy Mississippi’s allocated sale-leaseback renewal costs are estimated at $5.7 million annually for the remaining term of the sale-leaseback renewal.
LPSC Additional Complaints
As discussed in the Form 10-K, in May 2020 the LPSC authorized its staff to file additional complaints at the FERC related to the rates charged by System Energy for Grand Gulf energy and capacity supplied to Entergy Louisiana under the Unit Power Sales Agreement. The following are updates to that discussion.
Unit Power Sales Agreement Complaint
As discussed in the Form 10-K, the first of the additional complaints was filed by the LPSC, the APSC, the MPSC, and the City Council in September 2020. The first complaint raises two sets of rate allegations: violations of the filed rate and a corresponding request for refunds for prior periods; and elements of the Unit Power Sales Agreement are unjust and unreasonable and a corresponding request for refunds for the 15-month refund period and changes to the Unit Power Sales Agreement prospectively. In May 2021 the FERC issued an order addressing the complaint, establishing a refund effective date of September 21, 2020, establishing hearing procedures, and holding those procedures in abeyance pending the FERC’s review of the initial decision in the Grand Gulf sale-leaseback renewal complaint discussed above.
In November 2021 the LPSC, the APSC, and the City Council filed direct testimony and requested the FERC to order refunds for prior periods and prospective amendments to the Unit Power Sales Agreement. System Energy filed answering testimony in January 2022. In March 2022, the FERC trial staff filed direct and answering testimony recommending refunds and prospective modifications to the Unit Power Sales Agreement.
In April 2022, System Energy filed cross-answering testimony in response to the FERC trial staff’s recommendations. In June 2022, the FERC trial staff submitted revised answering testimony, in which it recommended additional refunds associated with the accumulated deferred income tax balances in account 190. Also in June 2022, System Energy filed revised and supplemental cross-answering testimony to respond to the FERC trial staff’s testimony and to oppose its revised recommendation.
In May 2022, the LPSC, the APSC, and the City Council filed rebuttal testimony and asserted new claims. In June 2022 a new procedural schedule was adopted, providing for additional rounds of testimony and for the hearing to begin in September 2022. The hearing concluded in December 2022. Also in December 2022, a motion to extend the briefing schedule and the deadline for the initial decision was granted. The initial decision is due in May 2023.
In November 2022, System Energy filed a partial settlement agreement with the APSC, the City Council, and the LPSC that resolves the following issues raised in the Unit Power Sales Agreement complaint: advance collection of lease payments, aircraft costs, executive incentive compensation, money pool borrowings, advertising expenses, deferred nuclear refueling outage costs, industry association dues, and termination of the capital funds agreement. The settlement provides that System Energy will provide a black-box refund of $18 million (inclusive of interest), plus additional refund amounts with interest to be calculated for certain issues to be distributed to Entergy Arkansas, Entergy Louisiana, and Entergy New Orleans as the Utility operating companies other than Entergy Mississippi purchasing under the Unit Power Sales Agreement. The settlement further provides that if the APSC, the City Council, or the LPSC agrees to the global settlement System Energy entered into with the MPSC (see “System Energy Settlement with the MPSC” in the Form 10-K for discussion of the settlement), and such global settlement includes a black-box refund amount, then the black-box refund for this settlement agreement shall not be incremental or in addition to the global black-box refund amount. The settlement agreement addresses other matters as well, including adjustments to rate base beginning in October 2022, exclusion of certain other costs, and
Entergy Corporation and Subsidiaries
Notes to Financial Statements
inclusion of money pool borrowings, if any, in short-term debt within the cost of capital calculation used in the Unit Power Sales Agreement. In April 2023, the FERC approved the settlement agreement. The refund provided for in the settlement agreement will be included in the May 2023 service month bills under the Unit Power Sales Agreement.
System Energy Formula Rate Annual Protocols Formal Challenge Concerning 2021 Calendar Year Bills
In March 2023, pursuant to the protocols procedures discussed in Note 2 to the financial statements in the Form 10-K, the LPSC, the APSC, and the City Council filed with the FERC a formal challenge to System Energy’s implementation of the formula rate during calendar year 2021. The formal challenge alleges: (1) that it was imprudent for System Energy to accept the IRS’s partial acceptance of a previously uncertain tax position; (2) that System Energy used incorrect inputs for retained earnings that are used to determine the capital structure; (3) that the equity ratio charged in rates was excessive; and (4) that all issues in the ongoing Unit Power Sales Agreement complaint proceeding should also be reflected in calendar year 2021 bills. The first, third, and fourth allegations are identical to issues that were raised in the formal challenge to the calendar year 2020 bills. The formal challenge to the calendar year 2021 bills states that the impact of the first allegation is “tens of millions of dollars,” but it does not provide an estimate of the financial impact of the remaining allegations.
In May 2023, System Energy filed an answer to the formal challenge in which it requested that the FERC deny the formal challenge as a matter of law, or else hold the proceeding in abeyance pending the resolution of related dockets.
Storm Cost Recovery Filings with Retail Regulators
See Note 2 to the financial statements in the Form 10-K for discussion regarding storm cost recovery filings. The following is an update to that discussion.
Entergy Louisiana
Hurricane Laura, Hurricane Delta, Hurricane Zeta, Winter Storm Uri, and Hurricane Ida
As discussed in the Form 10-K, in August 2020 and October 2020, Hurricane Laura, Hurricane Delta, and Hurricane Zeta caused significant damage to portions of Entergy Louisiana’s service area. The storms resulted in widespread outages, significant damage to distribution and transmission infrastructure, and the loss of sales during the outages. Additionally, as a result of Hurricane Laura’s extensive damage to the grid infrastructure serving the impacted area, large portions of the underlying transmission system required nearly a complete rebuild. In February 2021 two winter storms (collectively, Winter Storm Uri) brought freezing rain and ice to Louisiana. Ice accumulation sagged or downed trees, limbs, and power lines, causing damage to Entergy Louisiana’s transmission and distribution systems. The additional weight of ice caused trees and limbs to fall into power lines and other electric equipment. When the ice melted, it affected vegetation and electrical equipment, causing additional outages. In August 2021, Hurricane Ida caused extensive damage to Entergy Louisiana’s distribution and, to a lesser extent, transmission systems resulting in widespread power outages.
In April 2022, Entergy Louisiana filed an application with the LPSC relating to Hurricane Ida restoration costs. Total restoration costs for the repair and/or replacement of Entergy Louisiana’s electric facilities damaged by Hurricane Ida were estimated to be approximately $2.54 billion, including approximately $1.96 billion in capital costs and approximately $586 million in non-capital costs. Including carrying costs of $57 million through December 2022, Entergy Louisiana was seeking an LPSC determination that $2.60 billion was prudently incurred and, therefore, eligible for recovery from customers. As part of this filing, Entergy Louisiana also was seeking an LPSC determination that an additional $32 million in costs associated with the restoration of Entergy Louisiana’s electric facilities damaged by Hurricane Laura, Hurricane Delta, and Hurricane Zeta as well as Winter Storm Uri was prudently incurred. This amount was exclusive of the requested $3 million in carrying costs through December
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Notes to Financial Statements
2022. In total, Entergy Louisiana was requesting an LPSC determination that $2.64 billion was prudently incurred and, therefore, eligible for recovery from customers. As discussed in the Form 10-K, in March 2022 the LPSC approved financing of a $1 billion storm escrow account from which funds were withdrawn to finance costs associated with Hurricane Ida restoration. In June 2022, Entergy Louisiana supplemented the application with a request regarding the financing and recovery of the recoverable storm restoration costs. Specifically, Entergy Louisiana requested approval to securitize its restoration costs pursuant to Louisiana Act 55 financing, as supplemented by Act 293 of the Louisiana Legislature’s Regular Session of 2021. In October 2022 the LPSC staff recommended a finding that the requested storm restoration costs of $2.64 billion, including associated carrying costs of $59.1 million, were prudently incurred and are eligible for recovery from customers. The LPSC staff further recommended approval of Entergy Louisiana’s plans to securitize these costs, net of the $1 billion in funds withdrawn from the storm escrow account described above. The parties negotiated and executed an uncontested stipulated settlement which was filed with the LPSC in December 2022. The settlement agreement contains the following key terms: $2.57 billion of restoration costs from Hurricane Ida, Hurricane Laura, Hurricane Delta, Hurricane Zeta, and Winter Storm Uri were prudently incurred and were eligible for recovery; carrying costs of $59.2 million were recoverable; and Entergy Louisiana was authorized to finance $1.657 billion utilizing the securitization process authorized by Act 55, as supplemented by Act 293. In January 2023 the LPSC approved the stipulated settlement subject to certain modifications. These modifications include the recognition of accumulated deferred income tax benefits related to damaged assets and system restoration costs as a reduction of the amount authorized to be financed utilizing the securitization process authorized by Act 55, as supplemented by Act 293, from $1.657 billion to $1.491 billion. These modifications did not affect the LPSC’s conclusion that all system restoration costs sought by Entergy Louisiana were reasonable and prudent. In February 2023 the Louisiana Bond Commission voted to authorize the Louisiana Local Government Environmental Facilities and Community Development Authority (LCDA), a political subdivision of the State of Louisiana, to issue the bonds authorized in the LPSC’s financing order.
In March 2023 the Hurricane Ida securitization financing closed, resulting in the issuance of approximately $1.491 billion principal amount of bonds by the LCDA and a remaining regulatory asset of $180 million to be recovered through the exclusion of the accumulated deferred income taxes related to damaged assets and system restoration costs from the determination of future rates. The securitization was authorized pursuant to the Louisiana Utilities Restoration Corporation Act, Part VIII of Chapter 9 of Title 45 of the Louisiana Revised Statutes, as supplemented by Act 293 of the Louisiana Legislature’s Regular Session of 2021. The LCDA loaned the proceeds to the LURC. Pursuant to Act 293, the LURC contributed the net bond proceeds to a State legislatively authorized and LURC-sponsored trust, Restoration Law Trust II (the storm trust II).
Pursuant to Act 293, the net proceeds of the bonds were used by the storm trust II to purchase 14,576,757.48 Class B preferred, non-voting membership interest units (the preferred membership interests) issued by Entergy Finance Company, LLC, a majority-owned indirect subsidiary of Entergy. Entergy Finance Company is required to make annual distributions (dividends) commencing on December 15, 2023 on the preferred membership interests issued to the storm trust II. These annual dividends received by the storm trust II will be distributed to Entergy Louisiana and the LURC, as beneficiaries of the storm trust II. Specifically, 1% of the annual dividends received by the storm trust II will be distributed to the LURC for the benefit of customers, and 99% will be distributed to Entergy Louisiana, net of storm trust expenses. The preferred membership interests have a stated annual cumulative cash dividend rate of 7.5% and a liquidation price of $100 per unit. The terms of the preferred membership interests include certain financial covenants to which Entergy Finance Company is subject. Semi-annual redemptions of the preferred membership interests, subject to certain conditions, are expected to occur over the next 15 years.
Entergy and Entergy Louisiana do not report the bonds issued by the LCDA on their balance sheets because the bonds are the obligation of the LCDA. The bonds are secured by system restoration property, which is the right granted by law to the LURC to collect a system restoration charge from customers. The system restoration charge is adjusted at least semi-annually to ensure that it is sufficient to service the bonds. Entergy Louisiana collects the system restoration charge on behalf of the LURC and remits the collections to the bond indenture trustee. Entergy
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Louisiana began collecting the system restoration charge effective with the first billing cycle of April 2023 and the system restoration charge is expected to remain in place up to 15 years. Entergy and Entergy Louisiana do not report the collections as revenue because Entergy Louisiana is merely acting as a billing and collection agent for the LCDA and the LURC. In the remote possibility that the system restoration charge, as well as any funds in the excess subaccount and funds in the debt service reserve account, are insufficient to service the bonds resulting in a payment default, the storm trust II is required to liquidate Entergy Finance Company preferred membership interests in an amount equal to what would be required to cure the default. The estimated value of this indirect guarantee is immaterial.
From the proceeds from the issuance of the preferred membership interests, Entergy Finance Company loaned approximately $1.5 billion to Entergy, which was indirectly contributed to Entergy Louisiana as a capital contribution.
As discussed in Note 10 to the financial statements herein, the securitization resulted in recognition of a net reduction of income tax expense of approximately $133 million, after taking into account a provision for uncertain tax positions, by Entergy Louisiana. Entergy’s recognition of reduced income tax expense was offset by other tax charges resulting in a net reduction of income tax expense of $129 million, after taking into account a provision for uncertain tax positions. In recognition of its obligations related to an LPSC ancillary order issued as part of the securitization regulatory proceeding, Entergy Louisiana recorded in first quarter 2023 a $103 million ($76 million net-of-tax) regulatory charge and a corresponding regulatory liability to reflect its obligation to share the benefits of the securitization with customers.
As discussed in Note 3 and Note 12 to the financial statements herein, Entergy Louisiana consolidates the storm trust II as a variable interest entity and the LURC’s 1% beneficial interest is shown as noncontrolling interest in the financial statements. In first quarter 2023, Entergy Louisiana recorded a charge of $14.6 million in other income to reflect the LURC’s beneficial interest in the storm trust II.
NOTE 3. EQUITY (Entergy Corporation and Entergy Louisiana)
Common Stock
Earnings per Share
The following table presents Entergy’s basic and diluted earnings per share calculations included on the consolidated income statements:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, |
| 2023 | | 2022 |
| (In Millions, Except Per Share Data) |
| Income | | Shares | | $/share | | Income | | Shares | | $/share |
| Basic earnings per share | | | | | | | | | | | |
| Net income attributable to Entergy Corporation | $310.9 | | | 211.4 | | | $1.47 | | | $276.4 | | | 202.9 | | | $1.36 | |
| Average dilutive effect of: | | | | | | | | | | | |
| Stock options | | | 0.3 | | | — | | | | | 0.5 | | | — | |
| Other equity plans | | | 0.4 | | | — | | | | | 0.4 | | | — | |
| Equity forwards | | | — | | | — | | | | | 0.1 | | | — | |
| Diluted earnings per share | $310.9 | | | 212.1 | | | $1.47 | | | $276.4 | | | 203.9 | | | $1.36 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 1.2 million for the three months ended March 31, 2023 and approximately 0.9 million for the three months ended March 31, 2022.
Entergy’s stock options and other equity compensation plans are discussed in Note 5 to the financial statements herein and in Note 12 to the financial statements in the Form 10-K.
Dividends declared per common share were $1.07 for the three months ended March 31, 2023 and $1.01 for the three months ended March 31, 2022.
Equity Distribution Program
In January 2021, Entergy entered into an equity distribution sales agreement with several counterparties establishing an at the market equity distribution program, pursuant to which Entergy may offer and sell from time to time shares of its common stock. The sales agreement provides that, in addition to the issuance and sale of shares of Entergy common stock, Entergy may enter into forward sale agreements for the sale of its common stock. The aggregate number of shares of common stock sold under this sales agreement and under any forward sale agreement may not exceed an aggregate gross sales price of $2 billion. As of March 31, 2023, shares at an aggregate gross sales price of approximately $1,077.8 million have been sold under the at the market equity distribution program.
In March 2022, Entergy entered into a forward sale agreement for 1,538,010 shares of common stock. No amounts were recorded on Entergy’s balance sheet with respect to the equity offering until settlements of the equity forward sale agreement occurred in November 2022. The forward sale agreement required Entergy to, at its election prior to September 29, 2023, either (i) physically settle the transactions by issuing the total of 1,538,010 shares of its common stock to the forward counterparty in exchange for net proceeds at the then-applicable forward sale price specified by the agreement (initially approximately $108.14 per share) or (ii) net settle the transaction in whole or in part through the delivery or receipt of cash or shares. The forward sale price was subject to adjustment on a daily basis based on a floating interest rate factor and will decrease by other fixed amounts specified in the agreement. In connection with the forward sale agreement, the forward seller, or its affiliates, borrowed from third parties and sold 1,538,010 shares of Entergy Corporation’s common stock. The gross sales price of these shares totaled approximately $168 million. In connection with the sale of these shares, Entergy paid the forward sellers fees of approximately $1.7 million, which have not been deducted from the gross sales price. Entergy did not receive any proceeds from such sales of borrowed shares.
Until settlement of the forward sale agreements, earnings per share dilution resulting from the agreement, if any, was determined under the treasury stock method. Share dilution occurs when the average market price of Entergy’s common stock is higher than the average forward sales price. For the three months ended March 31, 2022, 1,775,251 shares under the forward sale agreements were not included in the calculation of diluted earnings per share because their effect would have been antidilutive.
In November 2022, Entergy physically settled its obligations under the forward sale agreements by delivering 7,688,419 shares of common stock in exchange for cash proceeds of $853.3 million. See Note 7 to the financial statements in the Form 10-K for discussion of the common stock issued and forward sale agreements settled under the market equity distribution program. There were no shares of common stock issued under the at the market equity distribution program for the three months ended March 31, 2023, and there were no forward sale agreements in place as of March 31, 2023.
Treasury Stock
During the three months ended March 31, 2023, Entergy Corporation issued 269,546 shares of its previously repurchased common stock to satisfy stock option exercises, vesting of shares of restricted stock, and
Entergy Corporation and Subsidiaries
Notes to Financial Statements
other stock-based awards. Entergy Corporation did not repurchase any of its common stock during the three months ended March 31, 2023.
Retained Earnings
On April 10, 2023, Entergy Corporation’s Board of Directors declared a common stock dividend of $1.07 per share, payable on June 1, 2023 to holders of record as of May 4, 2023.
Comprehensive Income
Accumulated other comprehensive income (loss) is included in the equity section of the balance sheets of Entergy and Entergy Louisiana. The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended March 31, 2023:
| | | | | |
| Pension and Other Postretirement Liabilities |
| (In Thousands) |
| Beginning balance, January 1, 2023 | ($191,754) | |
| |
| |
| Amounts reclassified from accumulated other comprehensive income (loss) | 2,027 | |
| Net other comprehensive income for the period | 2,027 | |
| |
| Ending balance, March 31, 2023 | ($189,727) | |
The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended March 31, 2022 by component:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash flow
hedges
net
unrealized
gain (loss) | | Pension
and
other
postretirement
liabilities | | Net
unrealized
investment
gain (loss) | | | | Total
Accumulated
Other
Comprehensive
Income (Loss) |
| (In Thousands) |
| | | | | | | | | |
| | | | | | | | | |
| Beginning balance, January 1, 2022 | ($1,035) | | | ($338,647) | | | $7,154 | | | | | ($332,528) | |
| | | | | | | | | |
| Other comprehensive income (loss) before reclassifications | (14) | | | — | | | (15,875) | | | | | (15,889) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | 38 | | | 8,328 | | | 3,473 | | | | | 11,839 | |
| Net other comprehensive income (loss) for the period | 24 | | | 8,328 | | | (12,402) | | | | | (4,050) | |
| | | | | | | | | |
| Ending balance, March 31, 2022 | ($1,011) | | | ($330,319) | | | ($5,248) | | | | | ($336,578) | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The following table presents changes in accumulated other comprehensive income (loss) for Entergy Louisiana for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | |
| | Pension and Other
Postretirement Liabilities |
| | 2023 | | 2022 |
| | (In Thousands) |
| Beginning balance, January 1, | | $55,370 | | | $8,278 | |
| | | | |
| | | | |
| Amounts reclassified from accumulated other comprehensive income (loss) | | (786) | | | (613) | |
| Net other comprehensive income (loss) for the period | | (786) | | | (613) | |
| | | | |
| | | | |
| | | | |
| Ending balance, March 31, | | $54,584 | | | $7,665 | |
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy for the three months ended March 31, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | | | | |
| Amounts reclassified
from AOCI | | Income Statement Location |
| 2023 | | 2022 | | |
| (In Thousands) | | |
| Cash flow hedges net unrealized loss | | | | | |
| | | | | |
| Interest rate swaps | $— | | | ($48) | | | Miscellaneous - net |
| Total realized loss on cash flow hedges | — | | | (48) | | | |
| Income taxes | — | | | 10 | | | Income taxes |
| Total realized loss on cash flow hedges (net of tax) | $— | | | ($38) | | | |
| | | | | |
| Pension and other postretirement liabilities | | | | | |
| Amortization of prior-service credit | $3,397 | | | $3,837 | | | (a) |
| Amortization of gain (loss) | 1,661 | | | (13,925) | | | (a) |
| | | | | |
| Settlement loss | (7,816) | | | (782) | | | (a) |
| Total amortization | (2,758) | | | (10,870) | | | |
| Income taxes | 731 | | | 2,542 | | | Income taxes |
| Total amortization (net of tax) | ($2,027) | | | ($8,328) | | | |
| | | | | |
| Net unrealized investment loss | | | | | |
| Realized loss | $— | | | ($5,495) | | | Interest and investment income |
| Income taxes | — | | | 2,022 | | | Income taxes |
| Total realized investment loss (net of tax) | $— | | | ($3,473) | | | |
| | | | | |
| Total reclassifications for the period (net of tax) | ($2,027) | | | ($11,839) | | | |
(a)These accumulated other comprehensive income (loss) components were included in the computation of net periodic pension and other postretirement cost. See Note 6 to the financial statements herein for additional details.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Total reclassifications out of accumulated other comprehensive income (loss) (AOCI) into income for Entergy Louisiana for the three months ended March 31, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Amounts reclassified
from AOCI | | Income Statement Location |
| | 2023 | | 2022 | | |
| | (In Thousands) | | |
| Pension and other postretirement liabilities | | | | | | |
| Amortization of prior-service credit | | $951 | | | $1,158 | | | (a) |
| Amortization of gain (loss) | | 1,565 | | | (319) | | | (a) |
| Settlement loss | | (1,440) | | | — | | | (a) |
| Total amortization | | 1,076 | | | 839 | | | |
| Income taxes | | (290) | | | (226) | | | Income taxes |
| Total amortization (net of tax) | | 786 | | | 613 | | | |
| | | | | | |
| Total reclassifications for the period (net of tax) | | $786 | | | $613 | | | |
(a)These accumulated other comprehensive income (loss) components were included in the computation of net periodic pension and other postretirement cost. See Note 6 to the financial statements herein for additional details.
Noncontrolling Interests
The dollar value of noncontrolling interests for Entergy Louisiana as of March 31, 2023 and December 31, 2022 is presented below:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (In Thousands) |
| Entergy Louisiana Noncontrolling Interests | | | |
| Restoration Law Trust I (a) | $31,813 | | | $31,735 | |
Restoration Law Trust II (b) | 14,583 | | | — | |
| Total Noncontrolling Interests | $46,396 | | | $31,735 | |
(a)See Note 17 to the financial statements in the Form 10-K for discussion of Restoration Law Trust I.
(b)Restoration Law Trust II (the storm trust II) was established as part of the Act 293 securitization of Entergy Louisiana’s Hurricane Ida storm restoration costs. The storm trust II holds preferred membership interests issued by Entergy Finance Company, and Entergy Finance Company is required to make annual distributions (dividends) on the preferred membership interests. These annual dividends paid on the Entergy Finance Company preferred membership interests will be distributed 1% to the LURC and 99% to Entergy Louisiana. Entergy Louisiana, as the primary beneficiary, consolidates the storm trust II and the LURC’s 1% beneficial interest in noncontrolling interests in the consolidated financial statements for Entergy Louisiana and Entergy. See Note 2 to the financial statements herein for a discussion of the Entergy Louisiana March 2023 storm securitization.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 4. REVOLVING CREDIT FACILITIES, LINES OF CREDIT, SHORT-TERM BORROWINGS, AND LONG-TERM DEBT (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in June 2027. The facility includes fronting commitments for the issuance of letters of credit against $20 million of the total borrowing capacity of the credit facility. The commitment fee is currently 0.225% of the undrawn commitment amount. Commitment fees and interest rates on loans under the credit facility can fluctuate depending on the senior unsecured debt ratings of Entergy Corporation. The weighted average interest rate for the three months ended March 31, 2023 was 6.12% on the drawn portion of the facility. As of March 31, 2023, amounts outstanding and capacity available under the $3.5 billion credit facility are:
| | | | | | | | | | | | | | | | | | | | |
| Capacity | | Borrowings | | Letters
of Credit | | Capacity
Available |
| (In Millions) |
| $3,500 | | $150 | | $3 | | $3,347 |
Entergy Corporation’s credit facility requires Entergy to maintain a consolidated debt ratio, as defined, of 65% or less of its total capitalization. Entergy is in compliance with this covenant. If Entergy fails to meet this ratio, or if Entergy Corporation or one of the Utility operating companies (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the Entergy Corporation credit facility’s maturity date may occur.
Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion. As of March 31, 2023, Entergy Corporation had $865.6 million of commercial paper outstanding. The weighted-average interest rate for the three months ended March 31, 2023 was 4.93%.
Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each had credit facilities available as of March 31, 2023 as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company | | Expiration
Date | | Amount of
Facility | | Interest Rate
(a) | | Amount Drawn
as of
March 31, 2023 | | Letters of Credit
Outstanding as of
March 31, 2023 |
| Entergy Arkansas | | April 2023 (e) | | $25 million (b) | | 6.56% | | $— | | $— |
| Entergy Arkansas | | June 2027 | | $150 million (c) | | 6.03% | | $— | | $— |
| Entergy Louisiana | | June 2027 | | $350 million (c) | | 6.16% | | $— | | $— |
| Entergy Mississippi | | April 2023 (f) | | $45 million (d) | | 6.41% | | $— | | $— |
| Entergy Mississippi | | April 2023 (f) | | $40 million (d) | | 6.41% | | $— | | $— |
| Entergy Mississippi | | April 2023 (f) | | $10 million (d) | | 6.41% | | $— | | $— |
| Entergy Mississippi | | July 2024 | | $150 million | | 5.98% | | $100 million | | $— |
| Entergy New Orleans | | June 2024 | | $25 million (c) | | 6.47% | | $— | | $— |
| Entergy Texas | | June 2027 | | $150 million (c) | | 6.16% | | $— | | $1.1 million |
(a)The interest rate is the estimated interest rate as of March 31, 2023 that would have been applied to outstanding borrowings under the facility.
(b)Borrowings under this Entergy Arkansas credit facility may be secured by a security interest in its accounts receivable at Entergy Arkansas’s option.
(c)The credit facility includes fronting commitments for the issuance of letters of credit against a portion of the borrowing capacity of the facility as follows: $5 million for Entergy Arkansas; $15 million for Entergy Louisiana; $10 million for Entergy New Orleans; and $30 million for Entergy Texas.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
(d)Borrowings under the short-term Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable at Entergy Mississippi’s option.
(e)In April 2023, Entergy Arkansas renewed and extended the expiration of the credit facility to April 2024.
(f)In April 2023, Entergy Mississippi extended the expiration of the credit facilities to July 2023.
The commitment fees on the credit facilities range from 0.075% to 0.375% of the undrawn commitment amount for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy Texas, and of the entire facility amount for Entergy New Orleans. Each of the credit facilities requires the Registrant Subsidiary borrower to maintain a debt ratio, as defined, of 65% or less of its total capitalization. Each Registrant Subsidiary is in compliance with this covenant.
In addition, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each entered into an uncommitted standby letter of credit facility as a means to post collateral to support its obligations to MISO. Following is a summary of the uncommitted standby letter of credit facilities as of March 31, 2023:
| | | | | | | | | | | | | | | | | | | | |
| Company | | Amount of
Uncommitted Facility | | Letter of Credit Fee | | Letters of Credit
Issued as of
March 31, 2023
(a) (b) |
| Entergy Arkansas | | $25 million | | 0.78% | | $5.6 million |
| Entergy Louisiana | | $125 million | | 0.78% | | $20 million |
| Entergy Mississippi | | $65 million | | 0.78% | | $6.7 million |
| Entergy New Orleans | | $15 million | | 1.625% | | $1 million |
| Entergy Texas | | $80 million | | 0.875% | | $8.8 million |
(a)As of March 31, 2023, letters of credit posted with MISO covered financial transmission right exposure of $0.1 million for Entergy Arkansas, $0.3 million for Entergy Mississippi, and $0.5 million for Entergy Texas. See Note 8 to the financial statements herein for discussion of financial transmission rights.
(b)As of March 31, 2023, in addition to the $6.7 million MISO letters of credit, Entergy Mississippi had $9.2 million in non-MISO letters of credit outstanding under this facility.
The short-term borrowings of the Registrant Subsidiaries are limited to amounts authorized by the FERC. As of March 31, 2023, the FERC-authorized short-term borrowing limits for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas were effective through October 2023. The FERC-authorized short-term borrowing limit for System Energy is effective through March 2025. In April 2023, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas received FERC-authorized short-term borrowing limits effective through April 2025. 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 intercompany borrowing arrangements designed to reduce the Utility subsidiaries’ dependence on external short-term borrowings. Borrowings from internal and external short-term borrowings combined may not exceed the FERC-authorized limits. The following were the FERC-authorized limits for short-term borrowings and the outstanding short-term
Entergy Corporation and Subsidiaries
Notes to Financial Statements
borrowings as of March 31, 2023 (aggregating both internal and external short-term borrowings) for the Registrant Subsidiaries:
| | | | | | | | | | | |
| | Authorized | | Borrowings |
| | (In Millions) |
| Entergy Arkansas | $250 | | $— |
| Entergy Louisiana | $450 | | $— |
| Entergy Mississippi | $200 | | $— |
| Entergy New Orleans | $150 | | $— |
| Entergy Texas | $200 | | $— |
| System Energy | $200 | | $— |
Vermont Yankee Credit Facility (Entergy Corporation)
In January 2019, Entergy Nuclear Vermont Yankee was transferred to NorthStar and its credit facility was assumed by Entergy Assets Management Operations, LLC (formerly Vermont Yankee Asset Retirement, LLC), Entergy Nuclear Vermont Yankee’s parent company that remains an Entergy subsidiary after the transfer. The credit facility has a borrowing capacity of $139 million and expires in December 2023. The commitment fee is currently 0.20% of the undrawn commitment amount. As of March 31, 2023, $139 million in cash borrowings were outstanding under the credit facility. The weighted average interest rate for the three months ended March 31, 2023 was 6.14% on the drawn portion of the facility.
Variable Interest Entities (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy)
See Note 17 to the financial statements in the Form 10-K for a discussion of the consolidation of the nuclear fuel company variable interest entities (VIEs). To finance the acquisition and ownership of nuclear fuel, the nuclear fuel company VIEs have credit facilities and three of the four VIEs also issue commercial paper, details of which follow as of March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company | | Expiration
Date | | Amount
of
Facility | | Weighted
Average Interest
Rate on
Borrowings (a) | | Amount
Outstanding as of
March 31, 2023 |
| | | | (Dollars in Millions) |
| Entergy Arkansas VIE | | June 2025 | | $80 | | 5.70% | | $31.5 |
| Entergy Louisiana River Bend VIE | | June 2025 | | $105 | | 5.67% | | $58.5 |
| Entergy Louisiana Waterford VIE | | June 2025 | | $105 | | 5.59% | | $52.1 |
| System Energy VIE | | June 2025 | | $120 | | 5.59% | | $55.9 |
(a)Includes letter of credit fees and bank fronting fees on commercial paper issuances by the nuclear fuel company VIEs for Entergy Arkansas, Entergy Louisiana, and System Energy. The nuclear fuel company VIE for Entergy Louisiana River Bend does not issue commercial paper, but borrows directly on its bank credit facility.
The commitment fees on the credit facilities are 0.100% of the undrawn commitment amount for the Entergy Arkansas, Entergy Louisiana, and System Energy VIEs. Each credit facility requires the respective lessee of nuclear fuel (Entergy Arkansas, Entergy Louisiana, or Entergy Corporation as guarantor for System Energy) to maintain a consolidated debt ratio, as defined, of 70% or less of its total capitalization. Each lessee is in compliance with this covenant.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The nuclear fuel company VIEs had notes payable that were included in debt on the respective balance sheets as of March 31, 2023 as follows:
| | | | | | | | | | | | | | |
| Company | | Description | | Amount |
| Entergy Arkansas VIE | | 3.17% Series M due December 2023 | | $40 million |
| Entergy Arkansas VIE | | 1.84% Series N due July 2026 | | $90 million |
| Entergy Louisiana River Bend VIE | | 2.51% Series V due June 2027 | | $70 million |
| Entergy Louisiana Waterford VIE | | 3.22% Series I due December 2023 | | $20 million |
| System Energy VIE | | 2.05% Series K due September 2027 | | $90 million |
In accordance with regulatory treatment, interest on the nuclear fuel company VIEs’ credit facilities, commercial paper, and long-term notes payable is reported in fuel expense.
As of March 31, 2023, Entergy Arkansas and Entergy Louisiana each had financing authorization from the FERC that extended through October 2023 and System Energy has obtained financing authorization from the FERC that extends through March 2025 for issuances by its nuclear fuel company VIEs. In April 2023, Entergy Arkansas and Entergy Louisiana obtained financing authorizations from the FERC that extend through April 2025.
Debt Issuances and Retirements
(Entergy Arkansas)
In January 2023, Entergy Arkansas issued $425 million of 5.15% Series mortgage bonds due January 2033. Entergy Arkansas expects to use the proceeds, together with other funds, to repay, on or prior to maturity, its $250 million of 3.05% Series mortgage bonds due June 2023 and for general corporate purposes.
(System Energy)
In March 2023, System Energy issued $325 million of 6.00% Series mortgage bonds due April 2028. System Energy used the proceeds, together with other funds, to repay, prior to maturity, its $50 million term loan due November 2023, and to repay, at maturity, its $250 million of 4.10% Series mortgage bonds due April 2023, and for general corporate purposes.
Fair Value
The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of March 31, 2023 were as follows:
| | | | | | | | | | | |
| Book Value
of Long-Term Debt | | Fair Value
of Long-Term Debt (a) |
| (In Thousands) |
| Entergy | $26,723,309 | | | $24,057,455 | |
| Entergy Arkansas | $4,620,604 | | | $4,126,440 | |
| Entergy Louisiana | $10,690,832 | | | $9,718,246 | |
| Entergy Mississippi | $2,431,365 | | | $2,156,919 | |
| Entergy New Orleans | $766,242 | | | $711,545 | |
| Entergy Texas | $2,896,522 | | | $2,566,690 | |
| System Energy | $1,020,211 | | | $979,621 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
(a)Fair values were classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements herein.
The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of December 31, 2022 were as follows:
| | | | | | | | | | | |
| Book Value
of Long-Term Debt | | Fair Value
of Long-Term Debt (a) |
| (In Thousands) |
| Entergy | $25,932,549 | | | $22,573,837 | |
| Entergy Arkansas | $4,166,500 | | | $3,538,930 | |
| Entergy Louisiana | $10,698,922 | | | $9,444,665 | |
| Entergy Mississippi | $2,331,096 | | | $1,987,154 | |
| Entergy New Orleans | $775,632 | | | $707,872 | |
| Entergy Texas | $2,895,913 | | | $2,485,705 | |
| System Energy | $777,905 | | | $702,473 | |
(a)Fair values were classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements herein.
NOTE 5. STOCK-BASED COMPENSATION (Entergy Corporation)
Entergy grants stock and stock-based awards, which are described more fully in Note 12 to the financial statements in the Form 10-K. Awards under Entergy’s plans generally vest over three years.
Stock Options
Entergy granted options on 281,874 shares of its common stock under the 2019 Omnibus Incentive Plan during the first quarter 2023 with a fair value of $20.07 per option. As of March 31, 2023, there were options on 2,985,788 shares of common stock outstanding with a weighted-average exercise price of $97.57. The intrinsic value, which has no effect on net income, of the outstanding stock options is calculated by the positive difference between the weighted average exercise price of the stock options granted and Entergy Corporation’s common stock price as of March 31, 2023. The aggregate intrinsic value of the stock options outstanding as of March 31, 2023 was $42.8 million.
The following table includes financial information for outstanding stock options for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (In Millions) |
| Compensation expense included in Entergy’s consolidated net income | $1.1 | | | $1.1 | |
| Tax benefit recognized in Entergy’s consolidated net income | $0.3 | | | $0.3 | |
| Compensation cost capitalized as part of fixed assets and materials and supplies | $0.5 | | | $0.4 | |
Other Equity Awards
In January 2023 the Board approved and Entergy granted 345,983 restricted stock awards and 143,212 long-term incentive awards under the 2019 Omnibus Incentive Plan. The restricted stock awards were made effective on January 26, 2023 and were valued at $108.47 per share, which was the closing price of Entergy’s
Entergy Corporation and Subsidiaries
Notes to Financial Statements
common stock on that date. Shares of restricted stock have the same dividend and voting rights as other common stock, are considered issued and outstanding shares of Entergy upon vesting, and are expensed ratably over the three-year vesting period. One-third of the restricted stock awards and accrued dividends will vest upon each anniversary of the grant date.
In addition, long-term incentive awards were also granted in the form of performance units that represent the value of, and are settled with, one share of Entergy Corporation common stock at the end of the three-year performance period, plus dividends accrued during the performance period on the number of performance units earned. To emphasize the importance of strong cash generation for the long-term health of its business, a credit measure – adjusted funds from operations/debt ratio – was selected as one of the performance measures for the 2023-2025 performance period. Performance will be measured based eighty percent on relative total shareholder return and twenty percent on the credit measure. The performance units were granted on January 26, 2023 and eighty percent were valued at $130.65 per share based on various factors, primarily market conditions; and twenty percent were valued at $108.47 per share, the closing price of Entergy’s common stock on that date. Performance units have the same dividend rights as shares of Entergy common stock and are considered issued and outstanding shares of Entergy upon vesting. Performance units are expensed ratably over the three-year vesting period and compensation cost for the portion of the award based on cumulative adjusted earnings per share will be adjusted based on the number of units that ultimately vest. See Note 12 to the financial statements in the Form 10-K for a description of the Long-Term Performance Unit Program.
The following table includes financial information for other outstanding equity awards for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (In Millions) |
| Compensation expense included in Entergy’s consolidated net income | $7.7 | | | $11.4 | |
| Tax benefit recognized in Entergy’s consolidated net income | $2.0 | | | $2.9 | |
| Compensation cost capitalized as part of fixed assets and materials and supplies | $3.2 | | | $4.4 | |
NOTE 6. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Components of Qualified Net Pension Cost
Entergy’s qualified pension costs, including amounts capitalized, for the first quarters of 2023 and 2022, included the following components:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (In Thousands) |
| Service cost - benefits earned during the period | $25,678 | | | $37,660 | |
| Interest cost on projected benefit obligation | 75,701 | | | 51,119 | |
| Expected return on assets | (98,133) | | | (103,607) | |
| | | |
| Amortization of net loss | 22,347 | | | 60,579 | |
| Settlement charges | 138,427 | | | — | |
| | | |
| Net pension costs | $164,020 | | | $45,751 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Registrant Subsidiaries’ qualified pension costs, including amounts capitalized, for their employees for the first quarters of 2023 and 2022, included the following components:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| | (In Thousands) |
| Service cost - benefits earned during the period | | $4,749 | | | $6,280 | | | $1,482 | | | $491 | | | $1,107 | | | $1,467 | |
| Interest cost on projected benefit obligation | | 14,280 | | | 15,379 | | | 3,930 | | | 1,715 | | | 3,242 | | | 3,528 | |
| Expected return on assets | | (18,076) | | | (19,233) | | | (4,884) | | | (2,267) | | | (4,152) | | | (4,538) | |
| | | | | | | | | | | | |
| Amortization of net loss | | 6,969 | | | 4,964 | | | 1,765 | | | 513 | | | 990 | | | 1,461 | |
| Settlement charges | | 22,174 | | | 35,999 | | | 11,655 | | | 1,693 | | | 9,678 | | | 4,799 | |
| Net pension cost | | $30,096 | | | $43,389 | | | $13,948 | | | $2,145 | | | $10,865 | | | $6,717 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| | (In Thousands) |
| Service cost - benefits earned during the period | | $6,858 | | | $9,137 | | | $2,130 | | | $752 | | | $1,632 | | | $2,045 | |
| Interest cost on projected benefit obligation | | 9,317 | | | 10,499 | | | 2,678 | | | 1,139 | | | 2,175 | | | 2,338 | |
| Expected return on assets | | (19,247) | | | (21,133) | | | (5,203) | | | (2,515) | | | (4,937) | | | (4,623) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Amortization of net loss | | 13,426 | | | 12,597 | | | 3,810 | | | 1,368 | | | 2,555 | | | 3,266 | |
| | | | | | | | | | | | |
| Net pension cost | | $10,354 | | | $11,100 | | | $3,415 | | | $744 | | | $1,425 | | | $3,026 | |
Non-Qualified Net Pension Cost
Entergy recognized $9.2 million and $10.2 million in pension cost for its non-qualified pension plans in the first quarters of 2023 and 2022, respectively. Reflected in the pension cost for non-qualified pension plans in the first quarters of 2023 and 2022 were settlement charges of $4.8 million and $5.3 million, respectively, related to the payment of lump sum benefits out of the plan.
The Registrant Subsidiaries recognized the following pension cost for their employees for their non-qualified pension plans for the first quarters of 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas |
| (In Thousands) |
| 2023 | $450 | | | $27 | | | $552 | | | $33 | | | $63 | |
| 2022 | $72 | | | $27 | | | $80 | | | $29 | | | $215 | |
Reflected in Entergy Arkansas’ non-qualified pension costs in the first quarter of 2023 were settlement charges of $379 thousand related to the payment of lump sum benefits out of the plan. Reflected in Entergy Mississippi’s non-qualified pension costs in the first quarter of 2023 were settlement charges of $453 thousand related to the payment of lump sum benefits out of the plan. Reflected in Entergy Texas’ non-qualified pension costs in the first quarter of 2022 were settlement charges of $119 thousand related to the payment of lump sum benefits out of the plan.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Components of Net Other Postretirement Benefit Cost (Income)
Entergy’s other postretirement benefit income, including amounts capitalized, for the first quarters of 2023 and 2022, included the following components:
| | | | | | | | | | | |
| | 2023 | | 2022 |
| | (In Thousands) |
| Service cost - benefits earned during the period | $3,664 | | | $6,184 | |
| Interest cost on accumulated postretirement benefit obligation (APBO) | 10,568 | | | 6,827 | |
| Expected return on assets | (9,183) | | | (10,855) | |
| | | |
| Amortization of prior service credit | (5,640) | | | (6,388) | |
| Amortization of net (gain)/loss | (2,862) | | | 1,083 | |
| Net other postretirement benefit income | ($3,453) | | | ($3,149) | |
The Registrant Subsidiaries’ other postretirement benefit cost (income), including amounts capitalized, for their employees for the first quarters of 2023 and 2022, included the following components:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| | (In Thousands) |
| Service cost - benefits earned during the period | | $741 | | | $845 | | | $220 | | | $59 | | | $202 | | | $189 | |
| Interest cost on APBO | | 2,001 | | | 2,233 | | | 543 | | | 290 | | | 649 | | | 432 | |
| Expected return on assets | | (3,778) | | | — | | | (1,179) | | | (1,316) | | | (2,194) | | | (634) | |
| Amortization of prior service cost/(credit) | | 524 | | | (951) | | | (239) | | | (229) | | | (1,093) | | | (73) | |
| Amortization of net (gain) loss | | 43 | | | (1,764) | | | 21 | | | 117 | | | 229 | | | — | |
| Net other postretirement benefit cost (income) | | ($469) | | | $363 | | | ($634) | | | ($1,079) | | | ($2,207) | | | ($86) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| | (In Thousands) |
| Service cost - benefits earned during the period | | $1,114 | | | $1,408 | | | $339 | | | $99 | | | $331 | | | $310 | |
| Interest cost on APBO | | 1,263 | | | 1,443 | | | 350 | | | 174 | | | 399 | | | 279 | |
| Expected return on assets | | (4,483) | | | — | | | (1,394) | | | (1,499) | | | (2,568) | | | (791) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Amortization of prior service cost/(credit) | | 471 | | | (1,158) | | | (443) | | | (229) | | | (1,093) | | | (80) | |
| Amortization of net (gain) loss | | 218 | | | (186) | | | 56 | | | (225) | | | 162 | | | 30 | |
| Net other postretirement benefit cost (income) | | ($1,417) | | | $1,507 | | | ($1,092) | | | ($1,680) | | | ($2,769) | | | ($252) | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | Qualified
Pension
Costs | | Other
Postretirement
Costs | | Non-Qualified
Pension Costs | | Total |
| | (In Thousands) | | |
| Entergy | | | | | | | | |
| Amortization of prior service (cost) credit | | $— | | | $3,510 | | | ($113) | | | $3,397 | |
| Amortization of net gain (loss) | | (1,040) | | | 2,898 | | | (197) | | | 1,661 | |
| | | | | | | | |
| Settlement loss | | (6,647) | | | — | | | (1,169) | | | (7,816) | |
| | ($7,687) | | | $6,408 | | | ($1,479) | | | ($2,758) | |
| Entergy Louisiana | | | | | | | | |
| Amortization of prior service credit | | $— | | | $951 | | | $— | | | $951 | |
| Amortization of net gain (loss) | | (199) | | | 1,764 | | | — | | | 1,565 | |
| Settlement loss | | (1,440) | | | — | | | — | | | (1,440) | |
| | ($1,639) | | | $2,715 | | | $— | | | $1,076 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Qualified
Pension
Costs | | Other
Postretirement
Costs | | Non-Qualified
Pension Costs | | Total |
| | (In Thousands) | | |
| Entergy | | | | | | | | |
| Amortization of prior service (cost) credit | | $— | | | $4,014 | | | ($177) | | | $3,837 | |
| Amortization of net loss | | (12,910) | | | (596) | | | (419) | | | (13,925) | |
| | | | | | | | |
| Settlement loss | | — | | | — | | | (782) | | | (782) | |
| | ($12,910) | | | $3,418 | | | ($1,378) | | | ($10,870) | |
| Entergy Louisiana | | | | | | | | |
| Amortization of prior service credit | | $— | | | $1,158 | | | $— | | | $1,158 | |
| Amortization of net gain (loss) | | (504) | | | 186 | | | (1) | | | (319) | |
| | | | | | | | |
| | ($504) | | | $1,344 | | | ($1) | | | $839 | |
Accounting for Pension and Other Postretirement Benefits
In accordance with ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” the other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations and are presented by Entergy in miscellaneous - net in other income.
Qualified Pension Settlement Costs
Year-to-date lump sum benefit payments from the Entergy Corporation Retirement Plan for Bargaining Employees and the Entergy Corporation Retirement Plan for Non-Bargaining Employees exceeded the sum of the Plans’ 2023 service and interest cost, resulting in settlement costs. In accordance with accounting standards, settlement accounting requires immediate recognition of the portion of previously unrecognized losses associated with the settled portion of the plan’s pension liability. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi,
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy New Orleans, Entergy Texas, and System Energy each participate in one or both of the Entergy Corporation Retirement Plan for Bargaining Employees and the Entergy Corporation Retirement Plan for Non-Bargaining Employees and incurred settlement costs. Similar to other pension costs, the settlement costs were included with employee labor costs and charged to expense and capital in the same manner that labor costs were charged. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans each received regulatory approval to defer the expense portion of the settlement costs, with future amortization of the deferred settlement expense over the period in which the expense otherwise would be recorded had the immediate recognition not occurred.
Entergy Texas Reserve
In September 2020, Entergy Texas elected to establish a reserve, in accordance with PUCT regulations, for the difference between the amount recorded for pension and other postretirement benefits expense under generally accepted accounting principles during 2019, the first year that rates from Entergy Texas’s last general rate proceeding were in effect, and the annual amount of actuarially determined pension and other postretirement benefits chargeable to Entergy Texas’s expense. The reserve amount was included in the base rate case that was filed with the PUCT in July 2022. At March 31, 2023, the balance in this reserve was approximately $39.9 million.
Employer Contributions
Based on current assumptions, Entergy expects to contribute $267 million to its qualified pension plans in 2023. As of March 31, 2023, Entergy had contributed $33 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 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New Orleans | | Entergy
Texas | | System
Energy |
| (In Thousands) |
| Expected 2023 pension contributions | $54,468 | | | $44,565 | | | $21,110 | | | $1,420 | | | $5,314 | | | $15,543 | |
| Pension contributions made through March 2023 | $6,436 | | | $3,169 | | | $2,470 | | | $— | | | $146 | | | $2,191 | |
| Remaining estimated pension contributions to be made in 2023 | $48,032 | | | $41,396 | | | $18,640 | | | $1,420 | | | $5,168 | | | $13,352 | |
NOTE 7. BUSINESS SEGMENT INFORMATION (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Entergy has a single reportable segment, Utility, which includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Louisiana, Mississippi, and Texas, and operation of a small natural gas distribution business in portions of Louisiana. The Utility segment reflects management’s primary basis of organization with a predominant focus on its utility operations in the Gulf South. Parent & Other includes the parent company, Entergy Corporation, and other business activity, including Entergy’s non-utility operations business which owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers and also provides decommissioning services to nuclear power plants owned by non-affiliated entities in the United States.
As discussed in Note 13 to the financial statements in the Form 10-K, Entergy completed its multi-year strategy to exit the merchant nuclear power business in 2022 and upon completion of all transition activities, effective January 1, 2023, Entergy Wholesale Commodities is no longer a reportable segment. See Note 13 and Note 14 to the financial statements in the Form 10-K for discussion of the asset impairments and restructuring
Entergy Corporation and Subsidiaries
Notes to Financial Statements
charges related to the decision to exit the merchant nuclear power business. Remaining business activity previously reported under Entergy Wholesale Commodities is now included under Parent & Other. Historical segment financial information presented herein has been restated for the first quarter 2022 to reflect the change in reportable segments. The change in reportable segments had no effect on Entergy’s consolidated financial statements or historical segment financial information for the Utility reportable segment.
Entergy’s segment financial information for the first quarters of 2023 and 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Utility | | Parent & Other | | Eliminations | | Consolidated |
| | (In Thousands) |
| 2023 | | | | | | | | |
| Operating revenues | | $2,947,992 | | | $33,070 | | | ($3) | | | $2,981,059 | |
| Income taxes | | ($66,126) | | | ($12,849) | | | $— | | | ($78,975) | |
| Consolidated net income (loss) | | $398,167 | | | ($30,394) | | | ($55,474) | | | $312,299 | |
| Total assets as of March 31, 2023 | | $63,443,534 | | | $860,341 | | | ($5,100,599) | | | $59,203,276 | |
| 2022 | | | | | | | | |
| Operating revenues | | $2,728,156 | | | $149,777 | | | ($8) | | | $2,877,925 | |
| Income taxes | | $75,359 | | | ($8,862) | | | $— | | | $66,497 | |
| Consolidated net income (loss) | | $343,156 | | | ($31,617) | | | ($31,946) | | | $279,593 | |
| Total assets as of December 31, 2022 | | $61,399,243 | | | $884,442 | | | ($3,688,494) | | | $58,595,191 | |
Eliminations are primarily intersegment activity. Almost all of Entergy’s goodwill is related to the Utility segment.
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 are 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. Management allocates resources and assesses financial performance on a consolidated basis.
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.
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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option’s contractual strike or exercise price also affects the level of market risk. A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk. Hedging instruments and volumes are chosen based on ability to mitigate risk associated with future energy and capacity prices; however, other considerations are factored into hedge product and volume decisions including corporate liquidity, corporate credit ratings, counterparty credit risk, hedging costs, firm settlement risk, and product availability in the marketplace. Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy’s risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods. These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy’s objectives.
Derivatives
Some derivative instruments are classified as cash flow hedges due to their financial settlement provisions while others are classified as normal purchase/normal sale transactions due to their physical settlement provisions. Normal purchase/normal sale risk management tools include power purchase and sales agreements, fuel purchase agreements, capacity contracts, and tolling agreements. Financially-settled cash flow hedges can include natural gas and electricity swaps and options. Entergy may enter into financially-settled swap and option contracts to manage market risk that may or may not be designated as hedging instruments.
Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Louisiana and Entergy New Orleans) and Entergy Mississippi through the purchase of natural gas swaps and options that financially settle against either the average Henry Hub Gas Daily prices or the NYMEX Henry Hub. These swaps and options are marked-to-market through fuel expense with offsetting regulatory assets or liabilities. All benefits or costs of the program are recorded in fuel costs. The notional volumes of these swaps are based on a portion of projected annual exposure to gas price volatility for electric generation at Entergy Louisiana and Entergy Mississippi and projected winter purchases for gas distribution at Entergy New Orleans. The maximum length of time over which Entergy has executed natural gas swaps and options as of March 31, 2023 is 1 year, each, for Entergy Louisiana and Entergy Mississippi. The total volume of natural gas swaps and options outstanding as of March 31, 2023 is 28,141,800 MMBtu for Entergy, including 7,320,000 MMBtu for Entergy Louisiana and 20,821,800 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 2022, Entergy participated in the annual financial transmission rights auction process for the MISO planning year of June 1, 2022 through May 31, 2023. Financial transmission rights are derivative instruments that represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records financial transmission rights at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on financial transmission rights held by Entergy’s non-utility operations are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on financial transmission rights. The total volume of financial transmission rights outstanding as of March 31, 2023 is 24,016 GWh for Entergy, including 5,351 GWh for Entergy Arkansas, 11,049 GWh for Entergy Louisiana, 2,592 GWh for Entergy Mississippi, 1,054 GWh for Entergy New Orleans, and 3,939 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’s non-utility operations is covered by cash. No cash or letters of credit were required to be posted for financial transmission rights exposure for Entergy’s non-utility operations as of March 31, 2023 and December 31, 2022. Letters of credit posted with MISO covered the financial transmission rights exposure for Entergy Arkansas, Entergy Mississippi,
Entergy Corporation and Subsidiaries
Notes to Financial Statements
and Entergy Texas as of March 31, 2023 and for Entergy Mississippi, Entergy New Orleans, and Entergy Texas as of December 31, 2022.
The fair values of Entergy’s derivative instruments not designated as hedging instruments on the consolidated balance sheet as of March 31, 2023 and December 31, 2022 are shown in the tables below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Instrument | | Balance Sheet Location | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) |
| | | | (In Millions) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| 2023 | | | | | | | | |
| Assets: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Natural gas swaps and options | | Prepayments and other | | $2 | | $— | | $2 |
| | | | | | | | |
| Financial transmission rights | | Prepayments and other | | $8 | | ($1) | | $7 |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Natural gas swaps and options | | Other current liabilities | | $22 | | $— | | $22 |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| 2022 | | | | | | | | |
| Assets: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Natural gas swaps and options | | Prepayments and other | | $13 | | $— | | $13 |
| Natural gas swaps and options | | Other deferred debits and other assets | | $3 | | $— | | $3 |
| Financial transmission rights | | Prepayments and other | | $21 | | ($2) | | $19 |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Natural gas swaps and options | | Other current liabilities | | $25 | | $— | | $25 |
| | | | | | | | |
(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 Sheets
(d)Excludes cash collateral in the amount of $8 million posted as of December 31, 2022. Also excludes letters of credit in the amount of $1 million posted as of March 31, 2023 and $3 million posted as of December 31, 2022.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | |
| Instrument | | Income Statement
location | | Amount of gain (loss)
recorded in the income statement |
| | | | (In Millions) |
| 2023 | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($37) |
| Financial transmission rights | | Purchased power expense | (b) | $16 |
| | | | |
| | | | |
| 2022 | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | (a) | $55 |
| Financial transmission rights | | Purchased power expense | (b) | $23 |
| | | | |
(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.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of March 31, 2023 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Instrument | | Balance Sheet Location | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) | | Registrant |
| | | | (In Millions) | | |
| Assets: | | | | | | | | | | |
| Natural gas swaps and options | | Prepayments and other | | $2.4 | | $— | | $2.4 | | Entergy Louisiana |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Financial transmission rights | | Prepayments and other | | $4.0 | | $— | | $4.0 | | Entergy Arkansas |
| Financial transmission rights | | Prepayments and other | | $2.7 | | ($0.2) | | $2.5 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | | $0.2 | | $— | | $0.2 | | Entergy Mississippi |
| Financial transmission rights | | Prepayments and other | | $0.3 | | $— | | $0.3 | | Entergy New Orleans |
| | | | | | | | | | |
| | | | | | | | | | |
| Liabilities: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Natural gas swaps | | Other current liabilities | | ($21.8) | | $— | | ($21.8) | | Entergy Mississippi |
| | | | | | | | | | |
| | | | | | | | | | |
| Financial transmission rights | | Other current liabilities | | $0.4 | | ($0.5) | | ($0.1) | | Entergy Texas |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Instrument | | Balance Sheet Location | | Gross Fair Value (a) | | Offsetting Position (b) | | Net Fair Value (c) (d) | | Registrant |
| | | | (In Millions) | | |
| Assets: | | | | | | | | | | |
| Natural gas swaps and options | | Prepayments and other | | $13.1 | | $— | | $13.1 | | Entergy Louisiana |
| Natural gas swaps and options | | Other deferred debits and other assets | | $3.4 | | $— | | $3.4 | | Entergy Louisiana |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Financial transmission rights | | Prepayments and other | | $10.3 | | $— | | $10.3 | | Entergy Arkansas |
| Financial transmission rights | | Prepayments and other | | $7.7 | | ($0.4) | | $7.3 | | Entergy Louisiana |
| Financial transmission rights | | Prepayments and other | | $0.6 | | $— | | $0.6 | | Entergy Mississippi |
| Financial transmission rights | | Prepayments and other | | $0.8 | | $— | | $0.8 | | Entergy New Orleans |
| Financial transmission rights | | Prepayments and other | | $1.2 | | ($1.1) | | $0.1 | | Entergy Texas |
| | | | | | | | | | |
| Liabilities: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Natural gas swaps | | Other current liabilities | | $24.0 | | $— | | $24.0 | | Entergy Mississippi |
| Natural gas swaps | | Other current liabilities | | $1.5 | | $— | | $1.5 | | Entergy New Orleans |
(a)Represents the gross amounts of recognized assets/liabilities
(b)Represents the netting of fair value balances with the same counterparty
(c)Represents the net amounts of assets/liabilities presented on the Registrant Subsidiaries’ balance sheets
(d)As of March 31, 2023, letters of credit posted with MISO covered financial transmission rights exposure of $0.1 million for Entergy Arkansas, $0.3 million for Entergy Mississippi, and $0.5 million for Entergy Texas. As of December 31, 2022, letters of credit posted with MISO covered financial transmission rights exposure of $0.2 million for Entergy Mississippi, $0.2 million for Entergy New Orleans, and $2.4 million for Entergy Texas.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| Instrument | | Income Statement Location | | Amount of gain
(loss) recorded
in the income statement | | Registrant |
| | | | (In Millions) | | |
| 2023 | | | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | ($6.6) | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($28.6) | (a) | Entergy Mississippi |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | ($2.2) | (a) | Entergy New Orleans |
| | | | | | |
| Financial transmission rights | | Purchased power expense | | $3.9 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power expense | | $8.8 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power expense | | $1.5 | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power expense | | $0.9 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power expense | | $0.7 | (b) | Entergy Texas |
| | | | | | |
| 2022 | | | | | | |
| Natural gas swaps and options | | Fuel, fuel-related expenses, and gas purchased for resale | | $11.1 | (a) | Entergy Louisiana |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $42.8 | (a) | Entergy Mississippi |
| Natural gas swaps | | Fuel, fuel-related expenses, and gas purchased for resale | | $1.1 | (a) | Entergy New Orleans |
| | | | | | |
| Financial transmission rights | | Purchased power expense | | $7.5 | (b) | Entergy Arkansas |
| Financial transmission rights | | Purchased power expense | | $9.4 | (b) | Entergy Louisiana |
| Financial transmission rights | | Purchased power expense | | $1.0 | (b) | Entergy Mississippi |
| Financial transmission rights | | Purchased power expense | | $0.8 | (b) | Entergy New Orleans |
| Financial transmission rights | | Purchased power expense | | $3.8 | (b) | Entergy Texas |
(a)Due to regulatory treatment, the natural gas swaps and options are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps and options are settled are recovered or refunded through fuel cost recovery mechanisms.
(b)Due to regulatory treatment, the changes in the estimated fair value of financial transmission rights for the Utility operating companies are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as purchased power expense when the financial transmission rights for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms.
Fair Values
The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling. Considerable judgment is required in developing the
Entergy Corporation and Subsidiaries
Notes to Financial Statements
estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. Gains or losses realized on financial instruments are reflected in future rates and therefore do not affect net income. Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments.
Accounting standards define fair value as an exit price, or the price that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between knowledgeable market participants at the date of measurement. Entergy and the Registrant Subsidiaries use assumptions or market input data that market participants would use in pricing assets or liabilities at fair value. The inputs can be readily observable, corroborated by market data, or generally unobservable. Entergy and the Registrant Subsidiaries endeavor to use the best available information to determine fair value.
Accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy establishes the highest priority for unadjusted market quotes in an active market for the identical asset or liability and the lowest priority for unobservable inputs.
The three levels of the fair value hierarchy are:
•Level 1 - Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of individually owned common stocks, cash equivalents (temporary cash investments, securitization recovery trust account, and escrow accounts), debt instruments, and gas swaps traded on exchanges with active markets. Cash equivalents includes all unrestricted highly liquid debt instruments with an original or remaining maturity of three months or less at the date of purchase.
•Level 2 - Level 2 inputs are inputs other than quoted prices included in Level 1 that are, either directly or indirectly, observable for the asset or liability at the measurement date. Assets are valued based on prices derived by independent third parties that use inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Prices are reviewed and can be challenged with the independent parties and/or overridden by Entergy if it is believed such would be more reflective of fair value. Level 2 inputs include the following:
–quoted prices for similar assets or liabilities in active markets;
–quoted prices for identical assets or liabilities in inactive markets;
–inputs other than quoted prices that are observable for the asset or liability; or
–inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 2 consists primarily of individually-owned debt instruments and gas swaps and options valued using observable inputs.
•Level 3 - Level 3 inputs are pricing inputs that are generally less observable or unobservable from objective sources. These inputs are used with internally developed methodologies to produce management’s best estimate of fair value for the asset or liability. Level 3 consists primarily of financial transmission rights.
The values of financial transmission rights are based on unobservable inputs, including estimates of congestion costs in MISO between applicable generation and load pricing nodes based on the 50th percentile of historical prices. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Office of Corporate Risk Oversight. The values are calculated internally and verified against
Entergy Corporation and Subsidiaries
Notes to Financial Statements
the data published by MISO. Entergy’s Accounting group reviews these valuations for reasonableness, with the assistance of others within the organization with knowledge of the various inputs and assumptions used in the valuation. The Office of Corporate Risk Oversight reports to the Vice President and Treasurer. The Accounting group reports to the Chief Accounting Officer.
The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2023 and December 31, 2022. 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $1,908 | | | $— | | | $— | | | $1,908 | |
| | | | | | | | |
| Decommissioning trust funds (a): | | | | | | | | |
| Temporary cash investments | | 1 | | | — | | | — | | | 1 | |
| Equity securities | | 26 | | | — | | | — | | | 26 | |
| Debt securities | | 571 | | | 1,136 | | | — | | | 1,707 | |
| Common trusts (b) | | | | | | | | 2,616 | |
| | | | | | | | |
| Securitization recovery trust account | | 17 | | | — | | | — | | | 17 | |
| Escrow accounts | | 406 | | | — | | | — | | | 406 | |
| Gas hedge contracts | | 2 | | | — | | | — | | | 2 | |
| Financial transmission rights | | — | | | — | | | 7 | | | 7 | |
| | $2,931 | | | $1,136 | | | $7 | | | $6,690 | |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| | | | | | | | |
| Gas hedge contracts | | $22 | | | $— | | | $— | | | $22 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $109 | | | $— | | | $— | | | $109 | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 24 | | | — | | | — | | | 24 | |
| Debt securities | | 534 | | | 1,122 | | | — | | | 1,656 | |
| Common trusts (b) | | | | | | | | 2,442 | |
| | | | | | | | |
| Securitization recovery trust account | | 13 | | | — | | | — | | | 13 | |
| Escrow accounts | | 402 | | | — | | | — | | | 402 | |
| Gas hedge contracts | | 13 | | | 3 | | | — | | | 16 | |
| Financial transmission rights | | — | | | — | | | 19 | | | 19 | |
| | | $1,095 | | | $1,125 | | | $19 | | | $4,681 | |
| Liabilities: | | | | | | | | |
| | | | | | | | |
| Gas hedge contracts | | $25 | | | $— | | | $— | | | $25 | |
| | | | | | | | |
(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
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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 financial transmission rights classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | |
| | | 2023 | | 2022 |
| | | | | |
| | | (In Millions) |
| Balance as of January 1, | | | $19 | | | $4 | |
| Total gains (losses) for the period | | | | | |
| | | | | |
| | | | | |
| Included as a regulatory liability/asset | | | 4 | | | 20 | |
| | | | | |
| | | | | |
| Settlements | | | (16) | | | (23) | |
| Balance as of March 31, | | | $7 | | | $1 | |
The fair values of the Level 3 financial transmission rights are based on unobservable inputs calculated internally and verified against historical pricing data published by MISO.
The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2023 and December 31, 2022. 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
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $156.7 | | | $— | | | $— | | | $156.7 | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 10.4 | | | — | | | — | | | 10.4 | |
| Debt securities | | 135.9 | | | 343.5 | | | — | | | 479.4 | |
| Common trusts (b) | | | | | | | | 775.7 | |
| | | | | | | | |
| | | | | | | | |
| Financial transmission rights | | — | | | — | | | 4.0 | | | 4.0 | |
| | $303.0 | | | $343.5 | | | $4.0 | | | $1,426.2 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $3.4 | | | $— | | | $— | | | $3.4 | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 4.5 | | | — | | | — | | | 4.5 | |
| Debt securities | | 126.8 | | | 343.9 | | | — | | | 470.7 | |
| Common trusts (b) | | | | | | | | 724.7 | |
| | | | | | | | |
| | | | | | | | |
| Financial transmission rights | | — | | | — | | | 10.3 | | | 10.3 | |
| | $134.7 | | | $343.9 | | | $10.3 | | | $1,213.6 | |
Entergy Louisiana
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $1,079.3 | | | $— | | | $— | | | $1,079.3 | |
| | | | | | | | |
| Decommissioning trust funds (a): | | | | | | | | |
| Temporary cash investments | | 1.5 | | | — | | | — | | | 1.5 | |
| Equity securities | | 7.5 | | | — | | | — | | | 7.5 | |
| Debt securities | | 230.7 | | | 528.3 | | | — | | | 759.0 | |
| Common trusts (b) | | | | | | | | 1,111.6 | |
| Escrow accounts | | 296.4 | | | — | | | — | | | 296.4 | |
| | | | | | | | |
| Gas hedge contracts | | 2.4 | | | — | | | — | | | 2.4 | |
| Financial transmission rights | | — | | | — | | | 2.5 | | | 2.5 | |
| | $1,617.8 | | | $528.3 | | | $2.5 | | | $3,260.2 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $6.3 | | | $— | | | $— | | | $6.3 | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 16.8 | | | — | | | — | | | 16.8 | |
| Debt securities | | 209.4 | | | 515.7 | | | — | | | 725.1 | |
| Common trusts (b) | | | | | | | | 1,037.2 | |
| Escrow accounts | | 293.4 | | | — | | | — | | | 293.4 | |
| | | | | | | | |
| Gas hedge contracts | | 13.1 | | | 3.4 | | | — | | | 16.5 | |
| Financial transmission rights | | — | | | — | | | 7.3 | | | 7.3 | |
| | | $539.0 | | | $519.1 | | | $7.3 | | | $2,102.6 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Mississippi
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $35.3 | | | $— | | | $— | | | $35.3 | |
| Escrow accounts | | 33.9 | | | — | | | — | | | 33.9 | |
| | | | | | | | |
| Financial transmission rights | | — | | | — | | | 0.2 | | | 0.2 | |
| | $69.2 | | | $— | | | $0.2 | | | $69.4 | |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | | $21.8 | | | $— | | | $— | | | $21.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $17.0 | | | $— | | | $— | | | $17.0 | |
| Escrow accounts | | 33.5 | | | — | | | — | | | 33.5 | |
| | | | | | | | |
| Financial transmission rights | | — | | | — | | | 0.6 | | | 0.6 | |
| | | $50.5 | | | $— | | | $0.6 | | | $51.1 | |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | | $24.0 | | | $— | | | $— | | | $24.0 | |
Entergy New Orleans
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $175.5 | | | $— | | | $— | | | $175.5 | |
| Securitization recovery trust account | | 5.3 | | | — | | | — | | | 5.3 | |
| Escrow accounts | | 75.8 | | | — | | | — | | | 75.8 | |
| | | | | | | | |
| Financial transmission rights | | — | | | — | | | 0.3 | | | 0.3 | |
| | $256.6 | | | $— | | | $0.3 | | | $256.9 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $4.4 | | | $— | | | $— | | | $4.4 | |
| Securitization recovery trust account | | 2.2 | | | — | | | — | | | 2.2 | |
| Escrow accounts | | 75.0 | | | — | | | — | | | 75.0 | |
| | | | | | | | |
| Financial transmission rights | | — | | | — | | | 0.8 | | | 0.8 | |
| | $81.6 | | | $— | | | $0.8 | | | $82.4 | |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| Gas hedge contracts | | $1.5 | | | $— | | | $— | | | $1.5 | |
Entergy Texas
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
| Temporary cash investments | | $91.2 | | | $— | | | $— | | | $91.2 | |
| Securitization recovery trust account | | 11.7 | | | — | | | — | | | 11.7 | |
| | | | | | | | |
| | $102.9 | | | $— | | | $— | | | $102.9 | |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| Financial transmission rights | | $— | | | $— | | | $0.1 | | | $0.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
Assets: | | | | | | | | |
| Temporary cash investments | | $3.0 | | | $— | | | $— | | | $3.0 | |
| Securitization recovery trust account | | 10.9 | | | — | | | — | | | 10.9 | |
| Financial transmission rights | | — | | | — | | | 0.1 | | | 0.1 | |
| | $13.9 | | | $— | | | $0.1 | | | $14.0 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
System Energy
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $259.3 | | | $— | | | $— | | | $259.3 | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 8.3 | | | — | | | — | | | 8.3 | |
| Debt securities | | 204.0 | | | 264.1 | | | — | | | 468.1 | |
| Common trusts (b) | | | | | | | | 728.4 | |
| | $471.6 | | | $264.1 | | | $— | | | $1,464.1 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In Millions) |
| Assets: | | | | | | | | |
| Temporary cash investments | | $2.9 | | | $— | | | $— | | | $2.9 | |
| Decommissioning trust funds (a): | | | | | | | | |
| Equity securities | | 2.8 | | | — | | | — | | | 2.8 | |
| Debt securities | | 197.5 | | | 262.2 | | | — | | | 459.7 | |
| Common trusts (b) | | | | | | | | 680.4 | |
| | $203.2 | | | $262.2 | | | $— | | | $1,145.8 | |
(a)The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
(b)Common trust funds are not publicly quoted and are valued by the fund administrators using net asset value as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the net asset value and trades settle at a later date.
The following table sets forth a reconciliation of changes in the net assets for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Millions) |
| Balance as of January 1, | $10.3 | | | $7.3 | | | $0.6 | | | $0.8 | | | $0.1 | |
| | | | | | | | | |
| Gains (losses) included as a regulatory liability/asset | (2.4) | | | 4.0 | | | 1.1 | | | 0.4 | | | 0.5 | |
| Settlements | (3.9) | | | (8.8) | | | (1.5) | | | (0.9) | | | (0.7) | |
| Balance as of March 31, | $4.0 | | | $2.5 | | | $0.2 | | | $0.3 | | | ($0.1) | |
The following table sets forth a reconciliation of changes in the net assets for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Millions) |
| Balance as of January 1, | $2.3 | | | $0.6 | | | $0.3 | | | $0.1 | | | $0.8 | |
| | | | | | | | | |
| Gains (losses) included as a regulatory liability/asset | 5.6 | | | 9.1 | | | 0.9 | | | 0.8 | | | 3.5 | |
| Settlements | (7.5) | | | (9.4) | | | (1.0) | | | (0.8) | | | (3.8) | |
| Balance as of March 31, | $0.4 | | | $0.3 | | | $0.2 | | | $0.1 | | | $0.5 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 9. DECOMMISSIONING TRUST FUNDS (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, and System Energy)
The NRC requires Entergy subsidiaries to maintain nuclear decommissioning trusts to fund the costs of decommissioning ANO 1, ANO 2, River Bend, Waterford 3, and Grand Gulf. Entergy’s nuclear decommissioning trust funds invest in equity securities, fixed-rate debt securities, and cash and cash equivalents.
Entergy records decommissioning trust funds on the balance sheet at their fair value. Because of the ability of the Registrant Subsidiaries to recover decommissioning costs in rates and in accordance with the regulatory treatment for decommissioning trust funds, the Registrant Subsidiaries have recorded an offsetting amount of unrealized gains/(losses) on investment securities in other regulatory liabilities/assets. For the 30% interest in River Bend formerly owned by Cajun, Entergy Louisiana records an offsetting amount in other deferred credits for the unrealized trust earnings not currently expected to be needed to decommission the plant. Decommissioning trust funds for the Palisades non-utility nuclear plant did not meet the criteria for regulatory accounting treatment. Accordingly, unrealized gains/(losses) recorded on the equity securities in the trust funds were recognized in earnings. Unrealized gains recorded on the available-for-sale debt securities in the trust funds are recognized in the accumulated other comprehensive income component of shareholders’ equity. Unrealized losses (where cost exceeds fair market value) on the available-for-sale debt securities in the trust funds are also recorded in the accumulated other comprehensive income component of shareholders’ equity unless the unrealized loss is other than temporary and therefore recorded in earnings. Generally, Entergy records gains and losses on its debt and equity securities using the specific identification method to determine the cost basis of its securities.
As discussed in Note 14 to the financial statements in the Form 10-K, in June 2022, Entergy completed the sale of Palisades to Holtec. As part of the transaction, Entergy transferred the Palisades decommissioning trust fund to Holtec. The disposition-date fair value of the decommissioning trust fund was approximately $552 million.
The unrealized gains/(losses) recognized during the three months ended March 31, 2023 on equity securities still held as of March 31, 2023 were $161 million. The equity securities are generally held in funds that are designed to approximate or somewhat exceed the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index or the Russell 3000 Index. The debt securities are generally held in individual government and credit issuances.
The available-for-sale securities held as of March 31, 2023 and December 31, 2022 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fair
Value | | Total
Unrealized
Gains | | Total
Unrealized
Losses |
| | (In Millions) |
| 2023 | | | | | | |
| Debt Securities | | $1,707 | | | $8 | | | $160 | |
| | | | | | |
| 2022 | | | | | | |
| Debt Securities | | $1,655 | | | $4 | | | $201 | |
As of March 31, 2023 and December 31, 2022, there were no deferred taxes on unrealized gains/(losses). The amortized cost of available-for-sale debt securities was $1,858 million as of March 31, 2023 and $1,852 million as of December 31, 2022. As of March 31, 2023, available-for-sale debt securities had an average coupon rate of approximately 3.07%, an average duration of approximately 6.45 years, and an average maturity of approximately 10.81 years.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities had been in a continuous loss position, were as follows as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| | (In Millions) |
| Less than 12 months | | $391 | | | $13 | | | $840 | | | $63 | |
| More than 12 months | | 961 | | | 147 | | | 666 | | | 138 | |
| Total | | $1,352 | | | $160 | | | $1,506 | | | $201 | |
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 2023 and December 31, 2022 were as follows:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (In Millions) |
| Less than 1 year | $70 | | | $62 | |
| 1 year - 5 years | 516 | | | 520 | |
| 5 years - 10 years | 496 | | | 461 | |
| 10 years - 15 years | 111 | | | 117 | |
| 15 years - 20 years | 161 | | | 161 | |
| 20 years+ | 353 | | | 334 | |
| Total | $1,707 | | | $1,655 | |
During the three months ended March 31, 2023 and 2022, proceeds from the dispositions of available-for-sale debt securities amounted to $124 million and $303 million, respectively. During the three months ended March 31, 2023, there were no gross gains and $9 million in gross losses reclassified out of other regulatory liabilities/assets into earnings. During the three months ended March 31, 2022, there were gross gains of $1 million and gross losses of $12 million reclassified out of other regulatory liabilities/assets into earnings.
Entergy Arkansas
Entergy Arkansas holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts. The available-for-sale securities held as of March 31, 2023 and December 31, 2022 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fair
Value | | Total
Unrealized
Gains | | Total
Unrealized
Losses |
| | (In Millions) |
| 2023 | | | | | | |
| Debt Securities | | $479.4 | | | $0.9 | | | $56.8 | |
| | | | | | |
| 2022 | | | | | | |
| Debt Securities | | $470.7 | | | $0.2 | | | $69.3 | |
The amortized cost of available-for-sale debt securities was $535.4 million as of March 31, 2023 and $539.8 million as of December 31, 2022. As of March 31, 2023, the available-for-sale debt securities had an
Entergy Corporation and Subsidiaries
Notes to Financial Statements
average coupon rate of approximately 2.38%, an average duration of approximately 6.04 years, and an average maturity of approximately 7.51 years.
The unrealized gains/(losses) recognized during the three months ended March 31, 2023 on equity securities still held as of March 31, 2023 were $47.3 million. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities had been in a continuous loss position, were as follows as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| | (In Millions) |
| Less than 12 months | | $52.3 | | | $1.4 | | | $197.6 | | | $18.8 | |
| More than 12 months | | 380.4 | | | 55.4 | | | 260.1 | | | 50.5 | |
| Total | | $432.7 | | | $56.8 | | | $457.7 | | | $69.3 | |
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 2023 and December 31, 2022 were as follows:
| | | | | | | | | | | |
| | 2023 | | 2022 |
| | (In Millions) |
| Less than 1 year | $28.7 | | | $21.2 | |
| 1 year - 5 years | 153.6 | | | 159.7 | |
| 5 years - 10 years | 194.2 | | | 191.7 | |
| 10 years - 15 years | 41.6 | | | 38.0 | |
| 15 years - 20 years | 43.0 | | | 42.6 | |
| 20 years+ | 18.3 | | | 17.5 | |
| Total | $479.4 | | | $470.7 | |
During the three months ended March 31, 2023 and 2022, proceeds from the dispositions of available-for-sale debt securities amounted to $15.7 million and $7.2 million, respectively. During the three months ended March 31, 2023, there were no gross gains and $1.6 million in gross losses reclassified out of other regulatory liabilities/assets into earnings. During the three months ended March 31, 2022, there were gross gains of $0.03 million and gross losses of $0.2 million reclassified out of other regulatory liabilities/assets into earnings.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Entergy Louisiana
Entergy Louisiana holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts. The available-for-sale securities held as of March 31, 2023 and December 31, 2022 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fair
Value | | Total
Unrealized
Gains | | Total
Unrealized
Losses |
| | (In Millions) |
| 2023 | | | | | | |
| Debt Securities | | $759.0 | | | $5.4 | | | $50.4 | |
| | | | | | |
| 2022 | | | | | | |
| Debt Securities | | $725.1 | | | $3.5 | | | $67.5 | |
The amortized cost of available-for-sale debt securities was $804.1 million as of March 31, 2023 and $789.1 million as of December 31, 2022. As of March 31, 2023, the available-for-sale debt securities had an average coupon rate of approximately 3.72%, an average duration of approximately 6.64 years, and an average maturity of approximately 13.12 years.
The unrealized gains/(losses) recognized during the three months ended March 31, 2023 on equity securities still held as of March 31, 2023 were $69.4 million. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities had been in a continuous loss position, were as follows as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| | (In Millions) |
| Less than 12 months | | $258.1 | | | $6.7 | | | $409.9 | | | $24.6 | |
| More than 12 months | | 304.8 | | | 43.7 | | | 207.5 | | | 42.9 | |
| Total | | $562.9 | | | $50.4 | | | $617.4 | | | $67.5 | |
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 2023 and December 31, 2022 were as follows:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (In Millions) |
| Less than 1 year | $37.1 | | | $33.6 | |
| 1 year - 5 years | 168.4 | | | 159.1 | |
| 5 years - 10 years | 176.4 | | | 161.7 | |
| 10 years - 15 years | 62.8 | | | 67.1 | |
| 15 years - 20 years | 80.0 | | | 83.3 | |
| 20 years+ | 234.3 | | | 220.3 | |
| Total | $759.0 | | | $725.1 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
During the three months ended March 31, 2023 and 2022, proceeds from the dispositions of available-for-sale debt securities amounted to $67.4 million and $120.5 million, respectively. During the three months ended March 31, 2023 and 2022, gross gains of $0.4 million and $0.9 million, respectively, and gross losses of $4.9 million and $5.5 million, respectively, related to available-for-sale securities were reclassified out of other regulatory liabilities/assets into earnings.
System Energy
System Energy holds equity securities and available-for-sale debt securities in nuclear decommissioning trust accounts. The available-for-sale securities held as of March 31, 2023 and December 31, 2022 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fair
Value | | Total
Unrealized
Gains | | Total
Unrealized
Losses |
| | (In Millions) |
| 2023 | | | | | | |
| Debt Securities | | $468.1 | | | $2.1 | | | $52.6 | |
| | | | | | |
| 2022 | | | | | | |
| Debt Securities | | $459.7 | | | $0.7 | | | $63.7 | |
The amortized cost of available-for-sale debt securities was $518.6 million as of March 31, 2023 and $522.7 million as of December 31, 2022. As of March 31, 2023, the available-for-sale debt securities had an average coupon rate of approximately 2.74%, an average duration of approximately 6.56 years, and an average maturity of approximately 10.51 years.
The unrealized gains/(losses) recognized during the three months ended March 31, 2023 on equity securities still held as of March 31, 2023 were $44.5 million. The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index. A relatively small percentage of the equity securities are held in funds intended to replicate the return of the Wilshire 4500 Index.
The fair value and gross unrealized losses of available-for-sale debt securities, summarized by length of time that the securities had been in a continuous loss position, were as follows as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| (In Millions) |
| Less than 12 months | | $80.8 | | | $4.3 | | | $231.9 | | | $19.2 | |
| More than 12 months | | 275.2 | | | 48.3 | | | 198.0 | | | 44.5 | |
| Total | | $356.0 | | | $52.6 | | | $429.9 | | | $63.7 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The fair value of available-for-sale debt securities, summarized by contractual maturities, as of March 31, 2023 and December 31, 2022 were as follows:
| | | | | | | | | | | |
| 2023 | | 2022 |
| (In Millions) |
| Less than 1 year | $3.8 | | | $6.8 | |
| 1 year - 5 years | 193.9 | | | 201.7 | |
| 5 years - 10 years | 125.2 | | | 107.1 | |
| 10 years - 15 years | 6.8 | | | 11.7 | |
| 15 years - 20 years | 38.1 | | | 35.0 | |
| 20 years+ | 100.3 | | | 97.4 | |
| Total | $468.1 | | | $459.7 | |
During the three months ended March 31, 2023 and 2022, proceeds from the dispositions of available-for-sale debt securities amounted to $41.3 million and $36.2 million, respectively. During the three months ended March 31, 2023, there were no gross gains and $2.3 million in gross losses reclassified out of other regulatory liabilities/assets into earnings. During the three months ended March 31, 2022, there were gross gains of $0.1 million and gross losses of $0.7 million reclassified out of other regulatory liabilities/assets into earnings.
Allowance for expected credit losses
Entergy estimates the expected credit losses for its available-for-sale securities based on the current credit rating and remaining life of the securities. To the extent an individual security is determined to be uncollectible, it is written off against this allowance. Entergy’s available-for-sale securities are held in trusts managed by third parties who operate in accordance with agreements that define investment guidelines and place restrictions on the purchases and sales of investments. Specifically, available-for-sale securities are subject to credit worthiness restrictions, with requirements for both the average credit rating of the portfolio and minimum credit ratings for individual debt securities. Entergy did not have an allowance for expected credit losses related to available-for-sale securities as of March 31, 2023 and December 31, 2022. Entergy did not record any impairments of available-for-sale debt securities for the three months ended March 31, 2023. Entergy recorded $1.5 million in impairments of available-for-sale debt securities for the three months ended March 31, 2022.
NOTE 10. INCOME TAXES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
See “Income Tax Audits” and “Other Tax Matters” in Note 3 to the financial statements in the Form 10-K for a discussion of income tax audits, the Tax Cuts and Jobs Act, and other income tax matters involving Entergy. The following are updates to that discussion.
Tax Cuts and Jobs Act
During the second quarter 2018, the Registrant Subsidiaries began returning unprotected excess accumulated deferred income taxes, associated with the effects of the Tax Cuts and Jobs Act, to their customers through rate riders and other means approved by their respective regulatory authorities. Return of the unprotected excess accumulated deferred income taxes results in a reduction in the regulatory liability for income taxes and a corresponding reduction in income tax expense. This manner of regulatory accounting affects the effective tax rate for the period as compared to the statutory tax rate. There was no return of unprotected excess accumulated deferred income taxes for Entergy or the Registrant Subsidiaries for the three months ended March 31, 2023. For the three months ended March 31, 2022, the return of unprotected excess accumulated deferred income taxes reduced
Entergy Corporation and Subsidiaries
Notes to Financial Statements
the regulatory liability for income taxes by $17 million for Entergy, including $9 million for Entergy Louisiana, $1 million for Entergy New Orleans, and $7 million for Entergy Texas.
Other Tax Matters
Act 293 Securitization
As described in Note 2 to the financial statements herein, Entergy Louisiana implemented a securitization authorized under Act 293 of the Louisiana Legislature’s Regular Session of 2021 in the first quarter 2023. Act 293 provides that the LURC contribute the net bond proceeds to a LURC-sponsored trust. Over the 15-year term of the Act 293 bonds, the storm trust II will make distributions to Entergy Louisiana, a beneficiary of the storm trust II, that will not be taxable to Entergy Louisiana. Additionally, Entergy Louisiana will not include the receipt of the system restoration charges in taxable income because the right to receive the system restoration charges has been granted directly to the LURC, and Entergy Louisiana only acts as an agent to collect those charges on behalf of the LURC.
Accordingly, the securitization provides for a tax accounting permanent difference resulting in a net reduction of income tax expense of approximately $133 million, after taking into account a provision for uncertain tax positions, by Entergy Louisiana. Entergy’s recognition of reduced income tax expense was offset by other tax charges resulting in a net reduction of income tax expense of $129 million, after taking into account a provision for uncertain tax positions.
In recognition of its obligations related to an LPSC ancillary order issued as part of the securitization regulatory proceeding, Entergy Louisiana recorded in first quarter 2023 a $103 million ($76 million net-of-tax) regulatory charge and a corresponding regulatory liability to reflect its obligation to share the benefits of the securitization with its customers. See Note 2 to the financial statements herein for discussion of the Entergy Louisiana March 2023 storm securitization.
Arkansas Corporate Income Tax Rate Change
In April 2023, Arkansas Act 532 reduced the Arkansas corporate income tax rate from 5.3% to 5.1%. In accordance with GAAP, the adoption of the rate change will be recorded in the second quarter of 2023. The rate change is not expected to have a significant effect on the financial position, results of operations, or cash flows of Entergy Arkansas, the Utility, or Entergy.
NOTE 11. PROPERTY, PLANT, AND EQUIPMENT (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Construction Expenditures in Accounts Payable
Construction expenditures included in accounts payable at March 31, 2023 were $426 million for Entergy, $64.4 million for Entergy Arkansas, $117.3 million for Entergy Louisiana, $57.6 million for Entergy Mississippi, $5.7 million for Entergy New Orleans, $104.8 million for Entergy Texas, and $36.6 million for System Energy. Construction expenditures included in accounts payable at December 31, 2022 were $459 million for Entergy, $93.2 million for Entergy Arkansas, $154.3 million for Entergy Louisiana, $59.5 million for Entergy Mississippi, $11.2 million for Entergy New Orleans, $68.9 million for Entergy Texas, and $29 million for System Energy.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
NOTE 12. VARIABLE INTEREST ENTITIES (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
See Note 17 to the financial statements in the Form 10-K for a discussion of variable interest entities. See Note 4 to the financial statements herein for details of the nuclear fuel companies’ credit facilities, commercial paper borrowings, and long-term debt. See Note 6 to the financial statements in the Form 10-K and Note 3 to the financial statements herein for discussion of noncontrolling interests.
Restoration Law Trust I (the storm trust I), a trust consolidated by Entergy Louisiana, is a variable interest entity and Entergy Louisiana is the primary beneficiary. As of March 31, 2023 and December 31, 2022, the primary asset held by the storm trust I was $3.1 billion and $3.2 billion, respectively, of outstanding Entergy Finance Company preferred membership interests, which is reflected as an investment in affiliate preferred membership interests on the consolidated balance sheet of Entergy Louisiana. The LURC’s 1% beneficial interest in the storm trust I is presented as noncontrolling interest in the consolidated balance sheets of Entergy and Entergy Louisiana, with balances of $31.8 million as of March 31, 2023 and $31.7 million as of December 31, 2022.
Restoration Law Trust II (the storm trust II), a trust consolidated by Entergy Louisiana, is a variable interest entity and Entergy Louisiana is the primary beneficiary. The storm trust II was established as part of the Act 293 securitization of Entergy Louisiana’s Hurricane Ida restoration costs, less Hurricane Ida amounts previously financed in May 2022 in a prior securitization transaction. Entergy Louisiana is the primary beneficiary of the storm trust II because it was created to facilitate the financing of Entergy Louisiana’s storm restoration costs and Entergy Louisiana is entitled to receive a majority of the proceeds received by the storm trust II. As of March 31, 2023, the primary asset held by the storm trust II is the $1.5 billion of outstanding Entergy Finance Company preferred membership interests, which is reflected as an investment in affiliate preferred membership interests on the consolidated balance sheet of Entergy Louisiana. The holders of the securitization bonds do not have recourse to the assets or revenues of the storm trust II or to any Entergy affiliate and the bonds are not reflected in the consolidated balance sheets of Entergy or Entergy Louisiana. The LURC’s 1% beneficial interest in the storm trust II is presented as noncontrolling interest in the consolidated balance sheets of Entergy and Entergy Louisiana, with a balance of $14.6 million as of March 31, 2023. See Note 2 to the financial statements herein for additional discussion of the securitization bonds and the preferred membership interests.
System Energy is considered to hold a variable interest in the lessor from which it leases an undivided interest representing approximately 11.5% of the Grand Gulf nuclear plant. System Energy is the lessee under this arrangement, which is described in more detail in Note 5 to the financial statements in the Form 10-K. System Energy made payments under this arrangement, including interest, of $8.6 million in each of the three months ended March 31, 2023 and the three months ended March 31, 2022.
AR Searcy Partnership, LLC, is a tax equity partnership that qualifies as a variable interest entity, which Entergy Arkansas is required to consolidate as it is the primary beneficiary. As of March 31, 2023, AR Searcy Partnership, LLC recorded assets equal to $137.6 million, primarily consisting of property, plant, and equipment, and the carrying value of Entergy Arkansas’s ownership interest in the partnership was approximately $110 million. As of December 31, 2022, AR Searcy Partnership, LLC recorded assets equal to $138.3 million, primarily consisting of property, plant, and equipment, and the carrying value of Entergy Arkansas’s ownership interest in the partnership was approximately $109 million. The tax equity investor’s ownership interest is recorded as noncontrolling interest.
MS Sunflower Partnership, LLC, is a tax equity partnership that qualifies as a variable interest entity, which Entergy Mississippi is required to consolidate as it is the primary beneficiary. As of March 31, 2023, MS Sunflower Partnership, LLC recorded assets equal to $152.6 million, primarily consisting of property, plant, and equipment, and the carrying value of Entergy Mississippi’s ownership interest in the partnership was approximately $117.8 million. As of December 31, 2022, MS Sunflower Partnership, LLC recorded assets equal to $154.5 million, primarily consisting of property, plant, and equipment, and the carrying value of Entergy
Entergy Corporation and Subsidiaries
Notes to Financial Statements
Mississippi’s ownership interest in the partnership was approximately $117.2 million. The tax equity investor’s ownership interest is recorded as noncontrolling interest.
NOTE 13. REVENUE (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)
Operating Revenues
See Note 19 to the financial statements in the Form 10-K for a discussion of revenue recognition. Entergy’s total revenues for the three months ended March 31, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| | (In Thousands) |
| Utility: | | | | |
| Residential | | $1,041,460 | | | $986,023 | |
| Commercial | | 714,300 | | | 634,626 | |
| Industrial | | 863,723 | | | 743,634 | |
| Governmental | | 67,337 | | | 57,292 | |
| Total billed retail | | 2,686,820 | | | 2,421,575 | |
| | | | |
| Sales for resale (a) | | 107,947 | | | 128,959 | |
| Other electric revenues (b) | | 44,457 | | | 93,880 | |
| Revenues from contracts with customers | | 2,839,224 | | | 2,644,414 | |
| Other Utility revenues (c) | | 44,187 | | | 11,362 | |
| Electric revenues | | 2,883,411 | | | 2,655,776 | |
| | | | |
| Natural gas revenues | | 64,581 | | | 72,361 | |
| | | | |
| Other revenues (d) | | 33,067 | | | 149,788 | |
| | | | |
| Total operating revenues | | $2,981,059 | | | $2,877,925 | |
Entergy Corporation and Subsidiaries
Notes to Financial Statements
The Utility operating companies’ total revenues for the three months ended March 31, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Thousands) |
| | | | | | | | | | |
| Residential | | $239,499 | | | $360,647 | | | $169,389 | | | $63,566 | | | $208,359 | |
| Commercial | | 125,336 | | | 278,178 | | | 133,676 | | | 54,069 | | | 123,041 | |
| Industrial | | 131,237 | | | 509,904 | | | 51,415 | | | 7,413 | | | 163,754 | |
| Governmental | | 4,660 | | | 23,074 | | | 13,883 | | | 17,798 | | | 7,922 | |
| Total billed retail | | 500,732 | | | 1,171,803 | | | 368,363 | | | 142,846 | | | 503,076 | |
| Sales for resale (a) | | 66,018 | | | 83,237 | | | 38,743 | | | 24,910 | | | 2,445 | |
| Other electric revenues (b) | | 13,718 | | | 26,567 | | | 2,874 | | | 417 | | | 2,224 | |
| Revenues from contracts with customers | | 580,468 | | | 1,281,607 | | | 409,980 | | | 168,173 | | | 507,745 | |
| Other Utility revenues (c) | | 2,281 | | | 38,145 | | | 2,448 | | | 1,522 | | | (239) | |
| Electric revenues | | 582,749 | | | 1,319,752 | | | 412,428 | | | 169,695 | | | 507,506 | |
| Natural gas revenues | | — | | | 25,456 | | | — | | | 39,125 | | | — | |
| Total operating revenues | | $582,749 | | | $1,345,208 | | | $412,428 | | | $208,820 | | | $507,506 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Thousands) |
| | | | | | | | | | |
| Residential | | $227,786 | | | $353,567 | | | $152,939 | | | $58,658 | | | $193,073 | |
| Commercial | | 113,238 | | | 257,591 | | | 110,661 | | | 45,572 | | | 107,564 | |
| Industrial | | 109,675 | | | 451,954 | | | 39,157 | | | 6,272 | | | 136,576 | |
| Governmental | | 4,460 | | | 19,016 | | | 12,000 | | | 15,033 | | | 6,783 | |
| Total billed retail | | 455,159 | | | 1,082,128 | | | 314,757 | | | 125,535 | | | 443,996 | |
| Sales for resale (a) | | 70,414 | | | 107,701 | | | 21,641 | | | 26,540 | | | 17,644 | |
| Other electric revenues (b) | | 30,572 | | | 41,482 | | | 10,337 | | | 1,393 | | | 11,449 | |
| Revenues from contracts with customers | | 556,145 | | | 1,231,311 | | | 346,735 | | | 153,468 | | | 473,089 | |
| Other Utility revenues (c) | | 2,811 | | | 5,926 | | | 2,294 | | | 1,178 | | | (607) | |
| Electric revenues | | 558,956 | | | 1,237,237 | | | 349,029 | | | 154,646 | | | 472,482 | |
| Natural gas revenues | | — | | | 28,735 | | | — | | | 43,626 | | | — | |
| Total operating revenues | | $558,956 | | | $1,265,972 | | | $349,029 | | | $198,272 | | | $472,482 | |
(a)Sales for resale includes day-ahead sales of energy in a market administered by an ISO. These sales represent financially binding commitments for the sale of physical energy the next day. These sales are adjusted to actual power generated and delivered in the real time market. Given the short duration of these transactions, Entergy does not consider them to be derivatives subject to fair value adjustments, and includes them as part of customer revenues.
(b)Other electric revenues consist primarily of transmission and ancillary services provided to participants of an ISO-administered market, unbilled revenue, and certain customer credits as directed by regulators.
Entergy Corporation and Subsidiaries
Notes to Financial Statements
(c)Other Utility revenues include the equity component of carrying costs related to securitization, settlement of financial hedges, occasional sales of inventory, alternative revenue programs, provisions for revenue subject to refund, and late fees.
(d)Other revenues includes competitive business sales including day-ahead sale of energy in a market administered by an ISO, operation and management services fees, and amortization of a below-market power purchase agreement.
Allowance for doubtful accounts
The allowance for doubtful accounts reflects Entergy’s best estimate of expected losses on its accounts receivable balances. Due to the essential nature of utility services, Entergy has historically experienced a low rate of default on its accounts receivables. The following tables set forth a reconciliation of changes in the allowance for doubtful accounts for the three months ended March 31, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Millions) |
| Balance as of December 31, 2022 | $30.9 | | | $6.5 | | | $7.6 | | | $2.5 | | | $11.9 | | | $2.4 | |
| Provisions | 6.1 | | | 1.3 | | | 4.0 | | | 0.7 | | | (1.1) | | | 1.2 | |
| Write-offs | (34.4) | | | (9.4) | | | (15.1) | | | (1.7) | | | (3.4) | | | (4.8) | |
| Recoveries | 20.7 | | | 6.9 | | | 9.2 | | | 0.7 | | | 0.9 | | | 3.0 | |
| Balance as of March 31, 2023 | $23.3 | | | $5.3 | | | $5.7 | | | $2.2 | | | $8.3 | | | $1.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entergy | | Entergy
Arkansas | | Entergy
Louisiana | | Entergy
Mississippi | | Entergy
New
Orleans | | Entergy
Texas |
| | (In Millions) |
| Balance as of December 31, 2021 | $68.6 | | | $13.1 | | | $29.2 | | | $7.2 | | | $13.3 | | | $5.8 | |
| Provisions (a) | (5.9) | | | 3.7 | | | (6.1) | | | (0.9) | | | (2.4) | | | (0.2) | |
| Write-offs | (45.3) | | | (14.4) | | | (17.5) | | | (4.1) | | | (5.4) | | | (3.9) | |
| Recoveries | 14.1 | | | 4.1 | | | 5.5 | | | 1.2 | | | 2.2 | | | 1.1 | |
| Balance as of March 31, 2022 | $31.5 | | | $6.5 | | | $11.1 | | | $3.4 | | | $7.7 | | | $2.8 | |
(a)Provisions include estimated incremental bad debt expenses, and revisions to those estimates, resulting from the COVID-19 pandemic of ($11.0) million for Entergy, $1.8 million for Entergy Arkansas, ($8.5) million for Entergy Louisiana, ($3.0) million for Entergy New Orleans, and ($1.3) million for Entergy Texas that have been deferred as regulatory assets. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the COVID-19 orders issued by retail regulators.
The allowance for currently expected credit losses is calculated as the historical rate of customer write-offs multiplied by the current accounts receivable balance, taking into account the length of time the receivable balances have been outstanding. The rate of customer write-offs has historically experienced minimal variation, although general economic conditions, such as the COVID-19 pandemic or other economic hardships, can affect the rate of customer write-offs. Management monitors the current condition of individual customer accounts to manage collections and ensure bad debt expense is recorded in a timely manner.
________________
In the opinion of the management of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy, the accompanying unaudited financial
Entergy Corporation and Subsidiaries
Notes to Financial Statements
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.
