Item 1A. & 1B

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Item 1A. & 1B

Entergy Corporation, Utility operating companies, and System Energy

financial statements and the “Utility - System Energy and Related Agreements” section of Part I, Item 1.

(Entergy Corporation)

As a holding company, Entergy Corporation depends on cash distributions from its subsidiaries to meet its debt service and other financial obligations and to pay dividends on its common stock.

Entergy Corporation is a holding company with no material revenue generating operations of its own or material assets other than the stock of its subsidiaries. Accordingly, all of its operations are conducted by its subsidiaries. Entergy Corporation’s ability to satisfy its financial obligations, including the payment of interest and principal on its outstanding debt, and to pay dividends on its common stock depends on the payment to it of dividends or distributions by its subsidiaries. The subsidiaries of Entergy Corporation are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any dividends or make distributions to Entergy Corporation. The ability of such subsidiaries to make payments of dividends or distributions to Entergy Corporation depends on their results of operations and cash flows and other items affecting retained earnings, and on any applicable legal, regulatory, or contractual limitations on subsidiaries’ ability to pay such dividends or distributions. Prior to providing funds to Entergy Corporation, such subsidiaries have financial and regulatory obligations that must be satisfied, including among others, debt service and, in the case of Entergy Utility Holding Company and Entergy Texas, dividends and distributions on preferred securities. Any distributions from the Registrant Subsidiaries other than Entergy Texas and System Energy are paid directly to Entergy Utility Holding Company and are therefore subject to prior payment of distributions on its preferred securities.

ENTERGY ARKANSAS, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

The COVID-19 Pandemic

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

February 2021 Winter Storms

See the “February 2021 Winter Storms” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the February 2021 winter storms. Entergy Arkansas’s preliminary estimate for the cost of mobilizing crews and restoring power is approximately $10 million. Natural gas purchases for Entergy Arkansas for February 1st through 25th, 2021 are approximately $105 million compared to natural gas purchases for February 2020 of $10 million.

Results of Operations

2020 Compared to 2019

Net Income

Net income decreased $17.7 million primarily due to lower volume/weather, a formula rate plan provision recorded in 2020 to reflect the 2019 historical year netting adjustment, and higher depreciation and amortization expenses, partially offset by higher retail electric price and lower other operation and maintenance expenses. See Note 2 to the financial statements for discussion of the 2019 historical year netting adjustment.

Operating Revenues

Following is an analysis of the change in operating revenues comparing 2020 to 2019:


			Amount
			(In Millions)
2019 operating revenues			$2,259.6
Fuel, rider, and other revenues that do not significantly affect net income			(278.5)
Volume/weather			(72.2)
Retail electric price			57.4
Return of unprotected excess accumulated deferred income taxes to customers			118.2
2020 operating revenues			$2,084.5

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

The volume/weather variance is primarily due to a decrease of 1,069 GWh, or 5%, in billed electricity usage, including decreased commercial and industrial usage as a result of the COVID-19 pandemic, and the effect of less favorable weather on residential and commercial sales, partially offset by an increase in residential usage as a

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

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

The retail electric price variance is primarily due to the $56.5 million annual formula rate plan increase related to the 2020 projected test year included in the 2019 formula rate plan filing effective with the first billing cycle of January 2020. See Note 2 to the financial statements for further discussion of the formula rate plan filing.

The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through a tax adjustment rider beginning in April 2018. In 2020, $8.1 million was returned to customers as compared to $126.3 million in 2019. There is no effect on net income as the reduction in operating revenues in each period was offset by a reduction in income tax expense. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

Other Income Statement Variances

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

Other operation and maintenance expenses decreased primarily due to:

a decrease of $18.3 million in nuclear generation expenses primarily due to lower nuclear labor costs, including contract labor, in part as a result of the COVID-19 pandemic;
a decrease of $13.2 million in non-nuclear generation expenses primarily due to lower long-term service agreement expenses;
an $11.2 million write-off in 2019 of specific costs related to the potential construction of scrubbers at the White Bluff plant. See Note 2 to the financial statements for discussion of the write-off;
higher nuclear insurance refunds of $7.8 million;
a decrease of $5.9 million primarily due to contract costs in 2019 related to initiatives to explore new customer products and services; and
a decrease of $5.8 million in energy efficiency costs.

The decrease was partially offset by the effects of recording in 2019 a final judgment to resolve claims in the ANO damages case against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $11.9 million of spent nuclear fuel storage costs previously recorded as other operation and maintenance expense. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation.

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

Other income increased primarily due to changes in decommissioning trust fund investment activity.

Other regulatory credits - net for 2020 includes a provision of $43.5 million to reflect the 2019 historical year netting adjustment included in the APSC’s December 2020 order in the 2020 formula rate plan proceeding. See Note 2 to the financial statements for discussion of the 2020 formula rate plan proceeding.

The effective income tax rates were 16.3% for 2020 and (21.6%) for 2019. The difference in the effective income tax rate versus the federal statutory rate of 21% for 2019 was primarily due to the amortization of excess accumulated deferred income taxes. See Notes 2 and 3 to the financial statements for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 21% to the effective income tax rates.

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

2019 Compared to 2018

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Item 7 of Entergy Arkansas’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020, for discussion of results of operations for 2019 compared to 2018.

Liquidity and Capital Resources

Cash Flow

Cash flows for the years ended December 31, 2020, 2019, and 2018 were as follows:


	2020	2019	2018
	(In Thousands)
Cash and cash equivalents at beginning of period	$3,519	$119	$6,216

Net cash provided by (used in):
Operating activities	659,818	677,766	211,825
Investing activities	(795,709)	(676,293)	(688,727)
Financing activities	324,500	1,927	470,805
Net increase (decrease) in cash and cash equivalents	188,609	3,400	(6,097)

Cash and cash equivalents at end of period	$192,128	$3,519	$119

2020 Compared to 2019

Operating Activities

Net cash flow provided by operating activities decreased $17.9 million in 2020 primarily due to:

the timing of recovery of fuel and purchased power costs;
lower collections of receivables from customers, in part due to the COVID-19 pandemic; and
the timing of payments to vendors.

The decrease was partially offset by:

a decrease in the return of unprotected excess accumulated deferred income taxes to customers in 2020 as compared to 2019. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act;
$25 million in proceeds received from the DOE in 2020 resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; and
a decrease of $15.8 million in pension contributions in 2020. See “Critical Accounting Estimates” below and Note 11 to the financial statements for a discussion of qualified pension and other postretirement benefits funding.

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Investing Activities

Net cash flow used in investing activities increased $119.4 million in 2020 primarily due to:

an increase of $79.5 million in storm spending;
an increase of $47.3 million in non-nuclear generation construction expenditures primarily due to increased spending on various projects in 2020;
an increase of $39.4 million in nuclear construction expenditures primarily as a result of work performed in 2020 on various ANO 2 outage projects;
an increase of $38.5 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and service deliveries, and the timing of cash payments during the nuclear fuel cycle; and
an increase of $30.3 million in distribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy Arkansas’s distribution system, including increased spending on advanced metering infrastructure.

The increase was partially offset by:

a decrease of $56 million in transmission construction expenditures primarily due to a lower scope of work performed in 2020 as compared to 2019; and
$55 million in proceeds received from the DOE in 2020 resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation.

Financing Activities

Net cash flow provided by financing activities increased $322.6 million in 2020 primarily due to:

issuances of $100 million of 4.0% Series mortgage bonds in March 2020 and $675 million of 2.65% Series mortgage bonds in September 2020;
money pool activity;
a decrease of $41.6 million in net long-term repayments in 2020 on the Entergy Arkansas nuclear fuel company variable interest entity credit facility; and
a decrease of $20 million in common equity distributions in 2020 in order to maintain Entergy Arkansas’s capital structure.

The increase was partially offset by:

the issuance of $350 million of 4.20% Series mortgage bonds in March 2019;
the repayment in October 2020 of $200 million of 4.90% Series mortgage bonds due December 2052; and
the repayment in October 2020 of $125 million of 4.75% Series mortgage bonds due June 2063.

Decreases in Entergy Arkansas’s payable to the money pool are a use of cash flow, and Entergy Arkansas’s payable to the money pool decreased by $21.6 million in 2020 compared to decreasing by $161.1 million in 2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

See Note 5 to the financial statements for further details of long-term debt.

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

2019 Compared to 2018

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in Item 7 of Entergy Arkansas’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020, for discussion of operating, investing, and financing cash flow activities for 2019 compared to 2018.

Capital Structure

Entergy Arkansas’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio is primarily due to the net issuances of long-term debt in 2020.


	December 31, 2020		December 31, 2019
Debt to capital	54.8	%	53.0	%
Effect of excluding the securitization bonds	—	%	—	%
Debt to capital, excluding securitization bonds (a)	54.8	%	53.0	%
Effect of subtracting cash	(1.2	%)	—	%
Net debt to net capital, excluding securitization bonds (a)	53.6	%	53.0	%

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

Net debt consists of debt less cash and cash equivalents. Debt consists of short-term borrowings, finance lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and equity. Net capital consists of capital less cash and cash equivalents. Entergy Arkansas uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Arkansas’s financial condition because the securitization bonds, which have been repaid as of December 31, 2020, were non-recourse to Entergy Arkansas, as more fully described in Note 5 to the financial statements. Entergy Arkansas also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Arkansas’s financial condition because net debt indicates Entergy Arkansas’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.

Entergy Arkansas seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a distribution, or both, in appropriate amounts to maintain the capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy Arkansas may issue incremental debt or reduce distributions, or both, to maintain its capital structure. In addition, in certain infrequent circumstances, such as financing of large transactions that would materially alter the capital structure if financed entirely with debt and reducing distributions, Entergy Arkansas may receive equity contributions to maintain its capital structure.

Uses of Capital

Entergy Arkansas requires capital resources for:

construction and other capital investments;
debt maturities or retirements;
working capital purposes, including the financing of fuel and purchased power costs; and
distribution and interest payments.

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Following are the amounts of Entergy Arkansas’s planned construction and other capital investments.


	2021	2022	2023
	(In Millions)
Planned construction and capital investment:
Generation	$340	$355	$430
Transmission	40	45	190
Distribution	95	255	420
Utility Support	105	80	75
Total	$580	$735	$1,115

Following are the amounts of Entergy Arkansas’s existing debt and lease obligations (includes estimated interest payments) and other purchase obligations.


	2021	2022-2023	2024-2025	After 2025	Total
	(In Millions)
Long-term debt (a)	$611	$543	$581	$4,713	$6,448
Operating leases (b)	$14	$21	$15	$11	$61
Finance leases (b)	$3	$5	$3	$2	$13
Purchase obligations (c)	$452	$618	$509	$3,882	$5,461

(a)Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements.

(b)Lease obligations are discussed in Note 10 to the financial statements.

(c)Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Arkansas, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Unit Power Sales Agreement, which are discussed in Note 8 to the financial statements.

In addition to the contractual obligations given above, Entergy Arkansas currently expects to contribute approximately $66.6 million to its qualified pension plans and approximately $517 thousand to its other postretirement health care and life insurance plans in 2021, although the 2021 required pension contributions will be known with more certainty when the January 1, 2021 valuations are completed, which is expected by April 1, 2021. See “Critical Accounting Estimates – Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.

Also in addition to the contractual obligations, Entergy Arkansas has $252 million of unrecognized tax benefits and interest net of unused tax attributes for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.

In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy Arkansas includes specific investments in renewables such as the Searcy Solar Facility, Walnut Bend Solar Facility, and West Memphis Solar Facility; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation and renewables projects; system improvements; investments in ANO 1 and 2; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital. Management provides more information on long-term debt maturities in Note 5 to the financial statements.

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

As a wholly-owned subsidiary of Entergy Utility Holding Company, LLC, Entergy Arkansas pays distributions from its earnings at a percentage determined monthly.

Renewables

Searcy Solar Facility

In March 2019, Entergy Arkansas announced that it signed an agreement for the purchase of an approximately 100 MW solar energy facility that will be sited on approximately 800 acres in White County near Searcy, Arkansas. The purchase is contingent upon, among other things, obtaining necessary approvals from applicable federal and state regulatory and permitting agencies. The project is being constructed by a subsidiary of NextEra Energy Resources. Entergy Arkansas will purchase the facility upon mechanical completion and after the other purchase contingencies have been met. Closing is expected to occur by the end of 2021. In May 2019, Entergy Arkansas filed a petition with the APSC seeking a finding that the transaction is in the public interest and requesting all necessary approvals. In September 2019 other parties filed testimony largely supporting the resource acquisition but disputing Entergy Arkansas’s proposed method of cost recovery. Entergy Arkansas filed its rebuttal testimony in October 2019. In February 2020, Entergy Arkansas, the Attorney General, and the APSC general staff filed a partial settlement agreement asking the APSC to approve, based on the record in the proceeding, all issues except certain issues that are submitted to the APSC for determination. In April 2020 the APSC issued an order approving Entergy Arkansas’s acquisition of the Searcy Solar facility as being in the public interest, but declined to approve Entergy Arkansas’s preferred cost recovery rider mechanism, finding instead, based on the particular facts and circumstances presented, that the formula rate plan rider was a sufficient recovery mechanism for this resource.

Walnut Bend Solar Facility

In October 2020, Entergy Arkansas filed a petition with the APSC seeking a finding that the purchase of the 100 MW Walnut Bend Solar Facility is in the public interest. Entergy Arkansas requested a decision by the APSC by June 15, 2021 and primarily requests cost recovery through the formula rate plan rider. A procedural schedule was established with a hearing scheduled in April 2021. Closing is expected to occur in 2022.

West Memphis Solar Facility

In January 2021, Entergy Arkansas filed a petition with the APSC seeking a finding that the purchase of the 180 MW West Memphis Solar Facility is in the public interest. Entergy Arkansas requested a decision by the APSC by September 7, 2021 and primarily requests cost recovery through the formula rate plan rider. Closing is expected to occur in 2023.

Sources of Capital

Entergy Arkansas’s sources to meet its capital requirements include:

internally generated funds;
cash on hand;
debt or preferred membership interest issuances, including debt issuances to refund or retire currently outstanding or maturing indebtedness;
capital contributions; and
bank financing under new or existing facilities.

Entergy Arkansas may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and interest rates are favorable.

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

All debt and common and preferred membership interest issuances by Entergy Arkansas require prior regulatory approval. Debt issuances are also subject to issuance tests set forth in Entergy Arkansas’s bond indentures and other agreements. Entergy Arkansas has sufficient capacity under these tests to meet its foreseeable capital needs.

Entergy Arkansas’s receivables from or (payables to) the money pool were as follows as of December 31 for each of the following years.


2020	2019	2018	2017
(In Thousands)
$3,110	($21,634)	($182,738)	($166,137)

See Note 4 to the financial statements for a description of the money pool.

Entergy Arkansas has a credit facility in the amount of $150 million scheduled to expire in September 2024. Entergy Arkansas also has a $25 million credit facility scheduled to expire in April 2021. The $150 million credit facility includes fronting commitments for the issuance of letters of credit against $5 million of the borrowing capacity of the facility. As of December 31, 2020, there were no cash borrowings and no letters of credit outstanding under the credit facilities. In addition, Entergy Arkansas is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of December 31, 2020, a $1 million letter of credit was outstanding under Entergy Arkansas’s uncommitted letter of credit facility. See Note 4 to the financial statements for further discussion of the credit facilities.

The Entergy Arkansas nuclear fuel company variable interest entity has a credit facility in the amount of $80 million scheduled to expire in September 2022. As of December 31, 2020, $12.2 million in loans were outstanding under the credit facility for the Entergy Arkansas nuclear fuel company variable interest entity. See Note 4 to the financial statements for further discussion of the nuclear fuel company variable interest entity credit facility.

Entergy Arkansas obtained authorization from the FERC through July 2022 for short-term borrowings not to exceed an aggregate amount of $250 million at any time outstanding and borrowings by its nuclear fuel company variable interest entity. See Note 4 to the financial statements for further discussion of Entergy Arkansas’s short-term borrowing limits. The long-term securities issuances of Entergy Arkansas are limited to amounts authorized by the FERC. The APSC has concurrent jurisdiction over Entergy Arkansas’s first mortgage bond/secured issuances. Entergy Arkansas has obtained long-term financing authorization from the FERC that extends through July 2022. Entergy Arkansas has obtained first mortgage bond/secured financing authorization from the APSC that extends through December 2022.

State and Local Rate Regulation and Fuel-Cost Recovery

Retail Rates

2018 Formula Rate Plan Filing

In July 2018, Entergy Arkansas filed with the APSC its 2018 formula rate plan filing to set its formula rate for the 2019 calendar year. The filing showed Entergy Arkansas’s projected earned return on common equity for the twelve months ended December 31, 2019 test period to be below the formula rate plan bandwidth. Additionally, the filing included the first netting adjustment under the current formula rate plan for the historical test year 2017, reflecting the change in formula rate plan revenues associated with actual 2017 results when compared to the allowed rate of return on equity. The filing included a projected $73.4 million revenue deficiency for 2019 and a $95.6 million revenue deficiency for the 2017 historical test year, for a total revenue requirement of $169 million for this filing. By operation of the formula rate plan, Entergy Arkansas’s recovery of the revenue requirement is

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

subject to a four percent annual revenue constraint. Because Entergy Arkansas’s revenue requirement in this filing exceeded the constraint, the resulting increase was limited to four percent of total revenue, which originally was $65.4 million but was increased to $66.7 million based upon the APSC staff’s updated calculation of 2018 revenue. In October 2018, Entergy Arkansas and the parties to the proceeding filed joint motions to approve a partial settlement agreement as to certain factual issues and agreed to brief contested legal issues. In November 2018 the APSC held a hearing and was briefed on a contested legal issue. In December 2018 the APSC issued a decision related to the initial legal brief, approved the partial settlement agreement and $66.7 million revenue requirement increase, as well as Entergy Arkansas’s formula rate plan, with updated rates going into effect for the first billing cycle of January 2019.

2019 Formula Rate Plan Filing

In July 2019, Entergy Arkansas filed with the APSC its 2019 formula rate plan filing to set its formula rate for the 2020 calendar year. The filing contained an evaluation of Entergy Arkansas’s earnings for the projected year 2020 and a netting adjustment for the historical year 2018. The total proposed formula rate plan rider revenue change designed to produce a target rate of return on common equity of 9.75% is $15.3 million, which is based upon a deficiency of approximately $61.9 million for the 2020 projected year, netted with a credit of approximately $46.6 million in the 2018 historical year netting adjustment. During 2018 Entergy Arkansas experienced higher-than expected sales volume, and actual costs were lower than forecasted. These changes, coupled with a reduced income tax rate resulting from the Tax Cuts and Jobs Act, resulted in the credit for the historical year netting adjustment. In the fourth quarter 2018, Entergy Arkansas recorded a provision of $35.1 million that reflected the estimate of the historical year netting adjustment that was expected to be included in the 2019 filing. In 2019, Entergy Arkansas recorded additional provisions totaling $11.5 million to reflect the updated estimate of the historical year netting adjustment included in the 2019 filing. In October 2019 other parties in the proceeding filed their errors and objections requesting certain adjustments to Entergy Arkansas’s filing that would reduce or eliminate Entergy Arkansas’s proposed revenue change. Entergy Arkansas filed its response addressing the requested adjustments in October 2019. In its response, Entergy Arkansas accepted certain of the adjustments recommended by the General Staff of the APSC that would reduce the proposed formula rate plan rider revenue change to $14 million. Entergy Arkansas disputed the remaining adjustments proposed by the parties. In October 2019, Entergy Arkansas filed a unanimous settlement agreement with the other parties in the proceeding seeking APSC approval of a revised total formula rate plan rider revenue change of $10.1 million. In its July 2019 formula rate plan filing, Entergy Arkansas proposed to recover an $11.2 million regulatory asset, amortized over five years, associated with specific costs related to the potential construction of scrubbers at the White Bluff plant. Although Entergy Arkansas does not concede that the regulatory asset lacks merit, for purposes of reaching a settlement on the total formula rate plan rider amount, Entergy Arkansas agreed not to include the White Bluff scrubber regulatory asset cost in the 2019 formula rate plan filing or future filings. Entergy Arkansas recorded a write-off in 2019 of the $11.2 million White Bluff scrubber regulatory asset. In December 2019 the APSC approved the settlement as being in the public interest and approved Entergy Arkansas’s compliance tariff effective with the first billing cycle of January 2020.

2020 Formula Rate Plan Filing

In July 2020, Entergy Arkansas filed with the APSC its 2020 formula rate plan filing to set its formula rate for the 2021 calendar year. The filing contained an evaluation of Entergy Arkansas’s earnings for the projected year 2021, as amended through subsequent filings in the proceeding, and a netting adjustment for the historical year 2019. The filing showed that Entergy Arkansas’s earned rate of return on common equity for the 2021 projected year is 8.22% resulting in a revenue deficiency of $64.3 million. The earned rate of return on common equity for the 2019 historical year was 9.07% resulting in a $23.9 million netting adjustment. The total proposed revenue change for the 2021 projected year and 2019 historical year netting adjustment was $88.2 million. By operation of the formula rate plan, Entergy Arkansas’s recovery of the revenue requirement is subject to a four percent annual revenue constraint. Because Entergy Arkansas’s revenue requirement in this filing exceeded the constraint, the resulting increase was limited to $74.3 million. In October 2020 other parties in the proceeding filed their errors

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

and objections recommending certain adjustments, and Entergy Arkansas filed responsive testimony disputing these adjustments. As part of the formula rate plan tariff the calculation for the revenue constraint was updated based on actual revenues which had the effect of reducing the initially-proposed $74.3 million revenue requirement increase to $72.6 million. In October 2020, Entergy Arkansas filed with the APSC a unanimous settlement agreement reached with the other parties that resolved all but one issue. As a result of the settlement agreement, Entergy Arkansas’s requested revenue increase was $68.4 million, including a $44.5 million increase for the projected 2021 year and a $23.9 million netting adjustment. The remaining issue litigated concerned the methodology used to calculate the netting adjustment within the formula rate plan. In December 2020 the APSC issued an order rejecting the netting adjustment method used by Entergy Arkansas. Applying the approach ordered by the APSC changed the netting adjustment for the 2019 historical year from a $23.9 million deficiency to $43.5 million excess. Overall, the decision reduced Entergy Arkansas’s revenue adjustment for 2021 to $1 million. In December 2020, Entergy Arkansas filed a petition for rehearing of the APSC’s decision, and in January 2021 the APSC granted further consideration of Entergy Arkansas’s petition. Based on the progress of the proceeding to date, in December 2020, Entergy Arkansas recorded a regulatory liability of $43.5 million to reflect the netting adjustment for 2019, as included in the APSC’s December 2020 order, which would be returned to customers in 2021. Also with the formula rate plan filing, Entergy Arkansas is requesting an extension of the formula rate plan rider for a second five-year term. Decisions by the APSC on the netting adjustment rehearing and the extension are expected in March 2021.

Internal Restructuring

In November 2017, Entergy Arkansas filed an application with the APSC seeking authorization to undertake a restructuring that would result in the transfer of substantially all of the assets and operations of Entergy Arkansas to a new entity, which would ultimately be owned by an existing Entergy subsidiary holding company. In July 2018, Entergy Arkansas filed a settlement, reached by all parties in the APSC proceeding, resolving all issues. The APSC approved the settlement agreement and restructuring in August 2018. Pursuant to the settlement agreement, Entergy Arkansas will credit retail customers $39.6 million over six years, beginning in 2019. Entergy Arkansas also received the required FERC and NRC approvals.

In November 2018, Entergy Arkansas undertook a multi-step restructuring, including the following:

Entergy Arkansas, Inc. redeemed its outstanding preferred stock at the aggregate redemption price of approximately $32.7 million.
Entergy Arkansas, Inc. converted from an Arkansas corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy Arkansas, Inc. allocated substantially all of its assets to a new subsidiary, Entergy Arkansas Power, LLC, a Texas limited liability company (Entergy Arkansas Power), and Entergy Arkansas Power assumed substantially all of the liabilities of Entergy Arkansas, Inc., in a transaction regarded as a merger under the TXBOC. Entergy Arkansas, Inc. remained in existence and held the membership interests in Entergy Arkansas Power.
Entergy Arkansas, Inc. contributed the membership interests in Entergy Arkansas Power to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy Arkansas Power is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.

In December 2018, Entergy Arkansas, Inc. changed its name to Entergy Utility Property, Inc., and Entergy Arkansas Power then changed its name to Entergy Arkansas, LLC. Entergy Arkansas, LLC holds substantially all of the assets, and assumed substantially all of the liabilities, of Entergy Arkansas, Inc. The transaction was accounted for as a transaction between entities under common control.

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Production Cost Allocation Rider

The APSC approved a production cost allocation rider for recovery from customers of the retail portion of the costs allocated to Entergy Arkansas as a result of the System Agreement proceedings, which are discussed in the “System Agreement Cost Equalization Proceedings” section in Note 2 to the financial statements.

Energy Cost Recovery Rider

Entergy Arkansas’s retail rates include an energy cost recovery rider to recover fuel and purchased energy costs in monthly customer bills. The rider utilizes the prior calendar-year energy costs and projected energy sales for the twelve-month period commencing on April 1 of each year to develop an energy cost rate, which is redetermined annually and includes a true-up adjustment reflecting the over- or under-recovery, including carrying charges, of the energy costs for the prior calendar year. The energy cost recovery rider tariff also allows an interim rate request depending upon the level of over- or under-recovery of fuel and purchased energy costs.

In January 2014, Entergy Arkansas filed a motion with the APSC relating to its upcoming energy cost rate redetermination filing that was made in March 2014. In that motion, Entergy Arkansas requested that the APSC authorize Entergy Arkansas to exclude from the redetermination of its 2014 energy cost rate $65.9 million of incremental fuel and replacement energy costs incurred in 2013 as a result of the ANO stator incident. Entergy Arkansas requested that the APSC authorize Entergy Arkansas to retain that amount in its deferred fuel balance, with recovery to be reviewed in a later period after more information was available regarding various claims associated with the ANO stator incident. In February 2014 the APSC approved Entergy Arkansas’s request to retain that amount in its deferred fuel balance. In July 2017, Entergy Arkansas filed for a change in rates pursuant to its formula rate plan rider. In that proceeding, the APSC approved a settlement agreement agreed upon by the parties, including a provision that requires Entergy Arkansas to initiate a regulatory proceeding for the purpose of recovering funds currently withheld from rates and related to the stator incident, including the $65.9 million of deferred fuel and purchased energy costs previously noted, subject to certain timelines and conditions set forth in the settlement agreement. See the “ANO Damage, Outage, and NRC Reviews” section in Note 8 to the financial statements for further discussion of the ANO stator incident.

In March 2017, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the rate from $0.01164 per kWh to $0.01547 per kWh. The APSC staff filed testimony in March 2017 recommending that the redetermined rate be implemented with the first billing cycle of April 2017 under the normal operation of the tariff. Accordingly, the redetermined rate went into effect on March 31, 2017 pursuant to the tariff. In July 2017 the Arkansas Attorney General requested additional information to support certain of the costs included in Entergy Arkansas’s 2017 energy cost rate redetermination.

In March 2018, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase in the rate from $0.01547 per kWh to $0.01882 per kWh. The Arkansas Attorney General filed a response to Entergy Arkansas’s annual redetermination filing requesting that the APSC suspend the proposed tariff to investigate the amount of the redetermination or, alternatively, to allow recovery subject to refund. Among the reasons the Attorney General cited for suspension were questions pertaining to how Entergy Arkansas forecasted sales and potential implications of the Tax Act. Entergy Arkansas replied to the Attorney General’s filing and stated that, to the extent there are questions pertaining to its load forecasting or the operation of the energy cost recovery rider, those issues exceed the scope of the instant rate redetermination. Entergy Arkansas also stated that potential effects of the Tax Act are appropriately considered in the APSC’s separate proceeding regarding potential implications of the tax law. The APSC general staff filed a reply to the Attorney General’s filing and agreed that Entergy Arkansas’s filing complied with the terms of the energy cost recovery rider. The redetermined rate became effective with the first billing cycle of April 2018. Subsequently in April 2018 the APSC issued an order declining to suspend Entergy Arkansas’s energy cost recovery rider rate and declining to require further investigation at that time of the issues suggested by the Attorney General in the

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

proceeding. Following a period of discovery, the Attorney General filed a supplemental response in October 2018 raising new issues with Entergy Arkansas’s March 2018 rate redetermination and asserting that $45.7 million of the increase should be collected subject to refund pending further investigation. Entergy Arkansas filed to dismiss the Attorney General’s supplemental response, the APSC general staff filed a motion to strike the Attorney General’s filing, and the Attorney General filed a supplemental response disputing Entergy Arkansas and the APSC staff’s filing. Applicable APSC rules and processes authorize its general staff to initiate periodic audits of Entergy Arkansas’s energy cost recovery rider. In late-2018 the APSC general staff notified Entergy Arkansas it has initiated an audit of the 2017 fuel costs. The time in which the audit will be complete is uncertain at this time.

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

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

Opportunity Sales Proceeding

In June 2009 the LPSC filed a complaint requesting that the FERC determine that certain of Entergy Arkansas’s sales of electric energy to third parties: (a) violated the provisions of the System Agreement that allocated the energy generated by Entergy System resources; (b) imprudently denied the Entergy System and its ultimate consumers the benefits of low-cost Entergy System generating capacity; and (c) violated the provision of the System Agreement that prohibited sales to third parties by individual companies absent an offer of a right-of-first-refusal to other Utility operating companies. The LPSC’s complaint challenged sales made beginning in 2002 and requested refunds. In July 2009 the Utility operating companies filed a response to the complaint arguing among other things that the System Agreement contemplates that the Utility operating companies may make sales to third parties for their own account, subject to the requirement that those sales be included in the load (or load shape) for the applicable Utility operating company. The FERC subsequently ordered a hearing in the proceeding.

After a hearing, the ALJ issued an initial decision in December 2010. The ALJ found that the System Agreement allowed for Entergy Arkansas to make the sales to third parties but concluded that the sales should be accounted for in the same manner as joint account sales. The ALJ concluded that “shareholders” should make refunds of the damages to the Utility operating companies, along with interest. Entergy disagreed with several aspects of the ALJ’s initial decision and in January 2011 filed with the FERC exceptions to the decision.

The FERC issued a decision in June 2012 and held that, while the System Agreement is ambiguous, it does provide authority for individual Utility operating companies to make opportunity sales for their own account and Entergy Arkansas made and priced these sales in good faith. The FERC found, however, that the System Agreement does not provide authority for an individual Utility operating company to allocate the energy associated

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

with such opportunity sales as part of its load but provides a different allocation authority. The FERC further found that the after-the-fact accounting methodology used to allocate the energy used to supply the sales was inconsistent with the System Agreement. The FERC in its decision established further hearing procedures to quantify the effect of repricing the opportunity sales in accordance with the FERC’s June 2012 decision. The hearing was held in May 2013 and the ALJ issued an initial decision in August 2013. The LPSC, the APSC, the City Council, and FERC staff filed briefs on exceptions and/or briefs opposing exceptions. Entergy filed a brief on exceptions requesting that the FERC reverse the initial decision and a brief opposing certain exceptions taken by the LPSC and FERC staff.

In April 2016 the FERC issued orders addressing requests for rehearing filed in July 2012 and the ALJ’s August 2013 initial decision. The first order denied Entergy’s request for rehearing and affirmed the FERC’s earlier rulings that Entergy’s original methodology for allocating energy costs to the opportunity sales was incorrect and, as a result, Entergy Arkansas must make payments to the other Utility operating companies to put them in the same position that they would have been in absent the incorrect allocation. The FERC clarified that interest should be included with the payments. The second order affirmed in part, and reversed in part, the rulings in the ALJ’s August 2013 initial decision regarding the methodology that should be used to calculate the payments Entergy Arkansas is to make to the other Utility operating companies. The FERC affirmed the ALJ’s ruling that a full re-run of intra-system bills should be performed but required that methodology be modified so that the sales have the same priority for purposes of energy allocation as joint account sales. The FERC reversed the ALJ’s decision that any payments by Entergy Arkansas should be reduced by 20%. The FERC also reversed the ALJ’s decision that adjustments to other System Agreement service schedules and excess bandwidth payments should not be taken into account when calculating the payments to be made by Entergy Arkansas. The FERC held that such adjustments and excess bandwidth payments should be taken into account but ordered further proceedings before an ALJ to address whether a cap on any reduction due to bandwidth payments was necessary and to implement the other adjustments to the calculation methodology.

In May 2016, Entergy Services filed a request for rehearing of the FERC’s April 2016 order arguing that payments made by Entergy Arkansas should be reduced as a result of the timing of the LPSC’s approval of certain contracts. Entergy Services also filed a request for clarification and/or rehearing of the FERC’s April 2016 order addressing the ALJ’s August 2013 initial decision. The APSC and the LPSC also filed requests for rehearing of the FERC’s April 2016 order. In September 2017 the FERC issued an order denying the request for rehearing on the issue of whether any payments by Entergy Arkansas to the other Utility operating companies should be reduced due to the timing of the LPSC’s approval of Entergy Arkansas’s wholesale baseload contract with Entergy Louisiana. In November 2017 the FERC issued an order denying all of the remaining requests for rehearing of the April 2016 order. In November 2017, Entergy Services filed a petition for review in the D.C. Circuit of the FERC’s orders in the first two phases of the opportunity sales case. In December 2017 the D.C. Circuit granted Entergy Services’ request to hold the appeal in abeyance pending final resolution of the related proceeding before the FERC. In January 2018 the APSC and the LPSC filed separate petitions for review in the D.C. Circuit, and the D.C. Circuit consolidated the appeals with Entergy Services’ appeal.

The hearing required by the FERC’s April 2016 order was held in May 2017. In July 2017 the ALJ issued an initial decision addressing whether a cap on any reduction due to bandwidth payments was necessary and whether to implement the other adjustments to the calculation methodology. In August 2017 the Utility operating companies, the LPSC, the APSC, and FERC staff filed individual briefs on exceptions challenging various aspects of the initial decision. In September 2017 the Utility operating companies, the LPSC, the APSC, the MPSC, the City Council, and FERC staff filed separate briefs opposing exceptions taken by various parties.

Based on testimony previously submitted in the case and its assessment of the April 2016 FERC orders, in the first quarter 2016, Entergy Arkansas recorded a liability of $87 million, which included interest, for its estimated increased costs and payment to the other Utility operating companies, and a deferred fuel regulatory asset of $75 million. Following its assessment of the course of the proceedings, including the FERC’s denial of rehearing in

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

November 2017 described above, in the fourth quarter 2017, Entergy Arkansas recorded an additional liability of $35 million and a regulatory asset of $31 million.

In October 2018 the FERC issued an order addressing the ALJ’s July 2017 initial decision. The FERC reversed the ALJ’s decision to cap the reduction in Entergy Arkansas’s payment to account for the increased bandwidth payments that Entergy Arkansas made to the other operating companies. The FERC also reversed the ALJ’s decision that Grand Gulf sales from January through September 2000 should be included in the calculation of Entergy Arkansas’s payment. The FERC affirmed on other grounds the ALJ’s rejection of the LPSC’s claim that certain joint account sales should be accounted for as part of the calculation of Entergy Arkansas’s payment. In November 2018 the LPSC requested rehearing of the FERC’s October 2018 decision. In December 2019 the FERC denied the LPSC’s request for rehearing. In January 2020 the LPSC appealed the December 2019 decision to the D.C. Circuit.

In December 2018, Entergy made a compliance filing in response to the FERC’s October 2018 order. The compliance filing provided a final calculation of Entergy Arkansas’s payments to the other Utility operating companies, including interest. No protests were filed in response to the December 2018 compliance filing. The December 2018 compliance filing is pending FERC action. Refunds and interest in the following amounts were paid by Entergy Arkansas to the other operating companies in December 2018:


	Total refunds including interest
	Payment/(Receipt)
	(In Millions)
	Principal	Interest	Total
Entergy Arkansas	$68	$67	$135
Entergy Louisiana	($30)	($29)	($59)
Entergy Mississippi	($18)	($18)	($36)
Entergy New Orleans	($3)	($4)	($7)
Entergy Texas	($17)	($16)	($33)

Entergy Arkansas previously recognized a regulatory asset with a balance of $116 million as of December 31, 2018 for a portion of the payments due as a result of this proceeding.

As described above, the FERC’s opportunity sales orders have been appealed to the D.C. Circuit. In February 2020 all of the appeals were consolidated and in April 2020 the D.C. Circuit established a briefing schedule. Briefing was completed in September 2020 and oral argument was heard in December 2020.

In February 2019 the LPSC filed a new complaint relating to two issues that were raised in the opportunity sales proceeding, but that, in its October 2018 order, the FERC held were outside the scope of the proceeding. In March 2019, Entergy Services filed an answer and motion to dismiss the new complaint. In November 2019 the FERC issued an order denying the LPSC’s complaint. The order concluded that the settlement agreement approved by the FERC in December 2015 terminating the System Agreement barred the LPSC’s new complaint. In December 2019 the LPSC requested rehearing of the FERC’s November 2019 order, and in July 2020 the FERC issued an order dismissing the LPSC’s request for rehearing. In September 2020 the LPSC appealed to the D.C. Circuit the FERC’s orders dismissing the new opportunity sales complaint. In November 2020 the D.C. Circuit issued an order establishing that briefing will occur in January 2021 through April 2021.

In May 2019, Entergy Arkansas filed an application and supporting testimony with the APSC requesting approval of a special rider tariff to recover the costs of these payments from its retail customers over a 24-month period. The application requested that the APSC approve the rider to take effect within 30 days or, if suspended by the APSC as allowed by commission rule, approve the rider to take effect in the first billing cycle of the first month occurring 30 days after issuance of the APSC’s order approving the rider. In June 2019 the APSC suspended

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Entergy Arkansas’s tariff and granted Entergy Arkansas’s motion asking the APSC to establish the proceeding as the single designated proceeding in which interested parties may assert claims related to the appropriate retail rate treatment of the FERC’s October 2018 order and related FERC orders in the opportunity sales proceeding. In January 2020 the APSC adopted a procedural schedule with a hearing in April 2020. In January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed a joint motion seeking to dismiss Entergy Arkansas’s application alleging that the APSC, in a prior proceeding, ruled on the issues addressed in the application and determined that Entergy Arkansas’s requested relief violates the filed rate doctrine and the prohibition against retroactive ratemaking. Entergy Arkansas responded to the joint motion in February 2020 rebutting these arguments, including demonstrating that the claims in this proceeding differ substantially from those the APSC addressed previously and that the payment resulting from a FERC tariff violation for which Entergy Arkansas seeks retail cost recovery in this proceeding differs materially from the refunds resulting from a FERC tariff amendment that the APSC previously rejected on filed rate doctrine and the retroactive ratemaking grounds. In addition, in January 2020 the Attorney General and Arkansas Electric Energy Consumers, Inc. filed testimony opposing the recovery by Entergy Arkansas of the opportunity sales payment but also claiming that certain components of the payment should be segregated and refunded to customers. In March 2020, Entergy Arkansas filed rebuttal testimony.

In July 2020 the APSC issued a decision finding that Entergy Arkansas’s application is not in the public interest. The order also directed Entergy Arkansas to refund to its retail customers within 30 days of the order the FERC-determined over-collection of $13.7 million, plus interest, associated with a recalculated bandwidth remedy. In addition to these primary findings, the order also denied the Attorney General’s request for Entergy Arkansas to prepare a compliance filing detailing all of the retail impacts from the opportunity sales and denied a request by the Arkansas Electric Energy Consumers to recalculate all costs using the revised responsibility ratio. Entergy Arkansas filed a motion for temporary stay of the 30-day requirement to allow Entergy Arkansas a reasonable opportunity to seek rehearing of the APSC order, but in July 2020 the APSC denied Entergy Arkansas’s request for a stay and directed Entergy Arkansas to refund to its retail customers the component of the total FERC-determined opportunity sales payment that was associated with increased bandwidth remedy payments of $13.7 million, plus interest. The refunds were issued in the August 2020 billing cycle. While the APSC denied Entergy Arkansas’s stay request, Entergy Arkansas believes its actions were prudent and, therefore, the costs, including the $13.7 million, plus interest, are recoverable. In July 2020, Entergy Arkansas requested rehearing of the APSC order, which rehearing was denied by the APSC in August 2020. In September 2020, Entergy Arkansas filed a complaint in the U. S. District Court for the Eastern District of Arkansas challenging the APSC’s order denying Entergy Arkansas’s request to recover the costs of these payments. In October 2020 the APSC filed a motion to dismiss Entergy Arkansas’s complaint, to which Entergy Arkansas responded. Also in December 2020, Entergy Arkansas and the APSC held a pre-trial conference, and filed a report with the court in January 2021. The court scheduled a hearing for February 26, 2021 regarding issues addressed in the pre-trial conference report.

Net Metering Legislation

An Arkansas law was enacted effective July 2019 that, among other things, expands the definition of a “net metering customer” to include two additional types of customers: (1) customers that lease net metering facilities, subject to certain leasing arrangements, and (2) government entities or other entities exempt from state and federal income taxes that enter into a service contract for a net metering facility. The latter provision would allow eligible entities, many of whom are small and large general service customers, to purchase renewable energy directly from third party providers and receive bill credits for these purchases. The APSC was given authority under this law to address certain matters, such as cost shifting and the appropriate compensation for net metered energy and has initiated proceedings for this purpose. Because of the size and number of customers eligible under this new law, there is a risk of loss of load and the shifting of costs to customers. A hearing was held in December 2019, with utilities, cooperatives, the Arkansas Attorney General, industrial customers, and Entergy Arkansas advocating the need for establishment of a reasonable rate structure that takes into account impacts to non-net metering customers; an additional hearing was conducted in February 2020 for purposes of public comment only. The APSC issued an order in June 2020, and in July 2020 several parties, including Entergy Arkansas, filed for rehearing on multiple

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

grounds, including for the reasons that it imposes an unreasonable rate structure and allows facilities to net meter that do not meet the statutory definition of net metering facilities. After granting the rehearing requests, the APSC issued an order in September 2020 largely upholding its June 2020 order. In October 2020, Entergy Arkansas and several other parties filed an appeal of the APSC’s September 2020 order.

Separately, as directed by the APSC general staff, the APSC opened a proceeding to compel utilities to amend their net metering tariffs to incorporate the provisions of the legislation that the APSC general staff considered “black letter law.” Entergy Arkansas, the Arkansas Attorney General, and other intervenors opposed this directive pending the development of the rules for implementation that are being considered in the separate net metering rulemaking docket. Nevertheless, reserving its rights, Entergy Arkansas has complied with the directive to amend its tariffs. Asserting procedural and due process violations, in January 2020, Entergy Arkansas and the Arkansas Attorney General separately appealed certain APSC orders in the proceeding.

COVID-19 Orders

In April 2020, in light of the COVID-19 pandemic, the APSC issued an order requiring utilities, to the extent they had not already done so, to suspend service disconnections during the remaining pendency of the Arkansas Governor’s emergency declaration or until the APSC rescinds the directive. The order also authorizes utilities to establish a regulatory asset to record costs resulting from the suspension of service disconnections, directs that in future proceedings the APSC will consider whether the request for recovery of these regulatory assets is reasonable and necessary, and requires utilities to track and report the costs and any savings directly attributable to suspension of disconnects. In May 2020 the APSC approved Entergy Arkansas expanding deferred payment agreements to assist customers during the COVID-19 pandemic. Quarterly reporting began in August 2020 and the APSC ordered additional reporting in October 2020 regarding utilities’ transitional plans for ending the moratorium on service disconnects. In February 2021 the APSC issued an order finding that it is not in the public interest to immediately lift the moratorium on service disconnects, but to announce a target date of May 3, 2021. In March 2021 the APSC will issue an order either confirming the lifting of the moratorium on service disconnects or extending the moratorium. As of December 31, 2020, Entergy Arkansas recorded a regulatory asset of $10.5 million for costs associated with the COVID-19 pandemic.

Federal Regulation

See the “Rate, Cost-recovery, and Other Regulation – Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis and Note 2 to the financial statements for a discussion of federal regulation.

Nuclear Matters

Entergy Arkansas owns and, through an affiliate, operates the ANO 1 and ANO 2 nuclear power plants. Entergy Arkansas is, therefore, subject to the risks related to owning and operating nuclear plants. These include risks related to: the use, storage, and handling and disposal of high-level and low-level radioactive materials; the substantial financial requirements, both for capital investments and operational needs, to position Entergy’s nuclear fleet to meet its operational goals; the performance and capacity factors of these nuclear plants including the financial requirements to address emerging issues like stress corrosion cracking of certain materials within the plant systems; regulatory requirements and potential future regulatory changes, including changes affecting the regulations governing nuclear plant ownership, operations, license amendments, and decommissioning; the availability of interim or permanent sites for the disposal of spent nuclear fuel and nuclear waste, including the fees charged for such disposal; the sufficiency of nuclear decommissioning trust fund assets and earnings to complete decommissioning of each site when required; and limitations on the amounts and types of insurance commercially available for losses in connection with nuclear plant operations and catastrophic events such as a nuclear accident. In the event of an unanticipated early shutdown of either ANO 1 or ANO 2, Entergy Arkansas may be required to

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

file with the APSC a rate mechanism to provide additional funds or credit support to satisfy regulatory requirements for decommissioning. ANO 1’s operating license expires in 2034 and ANO 2’s operating license expires in 2038.

Environmental Risks

Entergy Arkansas’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy Arkansas is in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.

Critical Accounting Estimates

The preparation of Entergy Arkansas’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements that could produce estimates that would have a material effect on the presentation of Entergy Arkansas’s financial position or results of operations.

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

Nuclear Decommissioning Costs

See “Nuclear Decommissioning Costs” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates inherent in accounting for nuclear decommissioning costs.

Utility Regulatory Accounting

See “Utility Regulatory Accounting” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of accounting for the effects of rate regulation.

Impairment of Long-lived Assets

See “Impairment of Long-lived Assets” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the estimates associated with the impairment of long-lived assets.

Taxation and Uncertain Tax Positions

See “Taxation and Uncertain Tax Positions” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion.

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Qualified Pension and Other Postretirement Benefits

Entergy Arkansas’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.

Costs and Sensitivities

The following chart reflects the sensitivity of qualified pension cost and qualified projected benefit obligation to changes in certain actuarial assumptions (dollars in thousands).


Actuarial Assumption	Change in Assumption	Impact on 2021 Qualified Pension Cost	Impact on 2020 Qualified Projected Benefit Obligation
		Increase/(Decrease)
Discount rate	(0.25%)	$2,406	$46,791
Rate of return on plan assets	(0.25%)	$2,914	$—
Rate of increase in compensation	0.25%	$1,838	$8,922

The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in thousands).


Actuarial Assumption	Change in Assumption	Impact on 2021 Postretirement Benefit Cost	Impact on 2020 Accumulated Postretirement Benefit Obligation
		Increase/(Decrease)
Discount rate	(0.25%)	$174	$6,576
Health care cost trend	0.25%	$225	$4,516

Each fluctuation above assumes that the other components of the calculation are held constant.

Costs and Employer Contributions

Total qualified pension cost for Entergy Arkansas in 2020 was $81.7 million, including $21.1 million in settlement costs. Entergy Arkansas anticipates 2021 qualified pension cost to be $61.6 million. Entergy Arkansas contributed $60 million to its qualified pension plans in 2020 and estimates pension contributions will be approximately $66.6 million in 2021, although the 2021 required pension contributions will be known with more certainty when the January 1, 2021 valuations are completed, which is expected by April 1, 2021.

Total other postretirement health care and life insurance benefit income for Entergy Arkansas in 2020 was $10.1 million. Entergy Arkansas expects 2021 postretirement health care and life insurance benefit income of approximately $11.1 million. Entergy Arkansas contributed $2.2 million to its other postretirement plans in 2020 and estimates 2021 contributions will be approximately $517 thousand.

Entergy Arkansas, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Other Contingencies

See “Other Contingencies” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the estimates associated with environmental, litigation, and other risks.

New Accounting Pronouncements

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the member and Board of Directors of

Entergy Arkansas, LLC and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Entergy Arkansas, LLC and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, cash flows and changes in member’s equity (pages 332 through 336 and applicable items in pages 51 through 238), for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Rate and Regulatory Matters —Entergy Arkansas, LLC and Subsidiaries — Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company is subject to rate regulation by the Arkansas Public Service Commission (the “APSC”), which has jurisdiction with respect to the rates of electric companies in Arkansas, and to wholesale rate regulation by the Federal Energy Regulatory Commission (“FERC”). Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant, and equipment;

regulatory assets and liabilities; income taxes; operating revenues; operation and maintenance expense; and depreciation and amortization expense.

The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Because the APSC and the FERC set the rates the Company is allowed to charge customers based on allowable costs, including a reasonable return on equity, the Company applies accounting standards that require the financial statements to reflect the effects of rate regulation, including the recording of regulatory assets and liabilities. The Company assesses whether the regulatory assets and regulatory liabilities continue to meet the criteria for probable future recovery or settlement at each balance sheet date and when regulatory events occur. This assessment includes consideration of recent rate orders, historical regulatory treatment for similar costs, and factors such as changes in applicable regulatory and political environments. While the Company has indicated it expects to recover costs from customers through regulated rates, there is a risk that the APSC and the FERC will not approve: (1) full recovery of the costs of providing utility service, or (2) full recovery of amounts invested in the utility business and a reasonable return on that investment.

We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of recovery in future rates of incurred costs, including costs related to the Opportunity Sales Proceeding and refunds to customers. Auditing management’s judgments regarding the outcome of future decisions by the APSC and the FERC, involved especially subjective judgment and specialized knowledge of accounting for rate regulation and the rate setting process.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the uncertainty of future decisions by the APSC and the FERC included the following, among others:

We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the initial recognition of amounts as property, plant, and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
We read relevant regulatory orders issued by the APSC and the FERC for the Company and other public utilities, regulatory statutes, interpretations, procedural memorandums, filings made by intervenors, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the APSC’s and the FERC’s treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness.
For regulatory matters in process, including the Opportunity Sales Proceeding, we inspected the Company’s filings with the APSC and the FERC, including the annual formula rate plan filing, and considered the filings with the APSC and the FERC by intervenors that may impact the Company’s future rates, for any evidence that might contradict management’s assertions*.*
We obtained an analysis from management and support from internal and external legal counsel, as appropriate, regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order, including the Opportunity Sales Proceeding, to assess management’s assertion that amounts are probable of recovery or a future reduction in rates.

/s/ DELOITTE & TOUCHE LLP

New Orleans, Louisiana

February 26, 2021

We have served as the Company’s auditor since 2001.


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS

	For the Years Ended December 31,
	2020	2019	2018
	(In Thousands)

OPERATING REVENUES
Electric	$2,084,494	$2,259,594	$2,060,643

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	271,896	458,907	517,245
Purchased power	187,690	204,640	252,390
Nuclear refueling outage expenses	55,737	68,769	77,915
Other operation and maintenance	669,518	720,217	724,831
Decommissioning	73,319	68,030	60,420
Taxes other than income taxes	121,057	115,869	104,771
Depreciation and amortization	338,029	307,351	292,649
Other regulatory credits - net	(35,310)	(11,186)	(14,807)
TOTAL	1,681,936	1,932,597	2,015,414

OPERATING INCOME	402,558	326,997	45,229

OTHER INCOME
Allowance for equity funds used during construction	15,019	15,499	16,557
Interest and investment income	35,579	26,020	25,406
Miscellaneous - net	(21,908)	(18,566)	(14,874)
TOTAL	28,690	22,953	27,089

INTEREST EXPENSE
Interest expense	144,834	140,087	124,459
Allowance for borrowed funds used during construction	(6,595)	(6,332)	(7,781)
TOTAL	138,239	133,755	116,678

INCOME (LOSS) BEFORE INCOME TAXES	293,009	216,195	(44,360)

Income taxes	47,777	(46,769)	(297,067)

NET INCOME	245,232	262,964	252,707

Preferred dividend requirements	—	—	1,249

EARNINGS APPLICABLE TO COMMON EQUITY	$245,232	$262,964	$251,458

See Notes to Financial Statements.


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2020	2019	2018
	(In Thousands)
OPERATING ACTIVITIES
Net income	$245,232	$262,964	$252,707
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation, amortization, and decommissioning, including nuclear fuel amortization	490,457	465,299	443,698
Deferred income taxes, investment tax credits, and non-current taxes accrued	87,019	94,368	129,524
Changes in assets and liabilities:
Receivables	(24,507)	(58,077)	4,294
Fuel inventory	(10,066)	(10,597)	6,210
Accounts payable	(22,773)	3,059	(126,405)
Prepaid taxes and taxes accrued	6	24,942	9,568
Interest accrued	(43)	3,895	678
Deferred fuel costs	(1,186)	72,560	43,869
Other working capital accounts	(11,061)	18,783	(30,118)
Provisions for estimated losses	6,289	14,901	14,250
Other regulatory assets	(165,534)	(131,873)	32,460
Other regulatory liabilities	106,878	39,293	(341,682)

Pension and other postretirement liabilities	42,576	5,831	(40,157)
Other assets and liabilities	(83,469)	(127,582)	(187,071)
Net cash flow provided by operating activities	659,818	677,766	211,825
INVESTING ACTIVITIES
Construction expenditures	(775,595)	(641,525)	(660,044)
Allowance for equity funds used during construction	15,019	15,306	17,013
Nuclear fuel purchases	(100,678)	(54,344)	(99,417)
Proceeds from sale of nuclear fuel	30,638	22,782	54,810

Proceeds from nuclear decommissioning trust fund sales	321,360	317,377	300,801
Investment in nuclear decommissioning trust funds	(336,392)	(336,519)	(315,163)
Payment for purchase of assets	(5,988)	—	—
Changes in money pool receivable - net	(3,110)	—	—



Litigation proceeds for reimbursement of spent nuclear fuel storage costs	55,001	—	—

Insurance proceeds	—	—	14,790
Other	4,036	630	(1,517)
Net cash flow used in investing activities	(795,709)	(676,293)	(688,727)
FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	1,071,121	834,038	958,434
Retirement of long-term debt	(632,175)	(548,952)	(690,488)
Capital contribution from parent	—	—	350,000
Redemption of preferred stock	—	—	(32,660)
Change in money pool payable - net	(21,634)	(161,104)	16,601
Changes in short-term borrowings - net	—	—	(49,974)
Distributions/dividends paid:
Common equity	(95,000)	(115,000)	(91,751)
Preferred stock	—	—	(1,606)
Other	2,188	(7,055)	12,249
Net cash flow provided by financing activities	324,500	1,927	470,805
Net increase (decrease) in cash and cash equivalents	188,609	3,400	(6,097)
Cash and cash equivalents at beginning of period	3,519	119	6,216
Cash and cash equivalents at end of period	$192,128	$3,519	$119
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest - net of amount capitalized	$140,735	$131,134	$118,731
Income taxes	($21,971)	($33,989)	$44,393
See Notes to Financial Statements.


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS

	December 31,
	2020	2019
	(In Thousands)

CURRENT ASSETS
Cash and cash equivalents:
Cash	$24,108	$3,519
Temporary cash investments	168,020	—
Total cash and cash equivalents	192,128	3,519
Securitization recovery trust account	—	4,036
Accounts receivable:
Customer	183,719	117,679
Allowance for doubtful accounts	(18,334)	(1,169)
Associated companies	34,216	29,178
Other	35,845	117,653
Accrued unbilled revenues	109,000	108,489
Total accounts receivable	344,446	371,830


Fuel inventory - at average cost	43,811	33,745
Materials and supplies - at average cost	237,640	211,320
Deferred nuclear refueling outage costs	32,692	48,875


Prepayments and other	13,296	14,096

TOTAL	864,013	687,421

OTHER PROPERTY AND INVESTMENTS
Decommissioning trust funds	1,273,921	1,101,283

Other	341	345
TOTAL	1,274,262	1,101,628

UTILITY PLANT
Electric	12,905,322	12,293,483

Construction work in progress	234,213	197,775
Nuclear fuel	163,044	195,547
TOTAL UTILITY PLANT	13,302,579	12,686,805
Less - accumulated depreciation and amortization	5,255,355	5,019,826
UTILITY PLANT - NET	8,047,224	7,666,979

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets (includes securitization property of $— as of December 31, 2020 and $1,706 as of December 31, 2019)	1,832,384	1,666,850
Deferred fuel costs	68,220	67,690
Other	14,028	15,065
TOTAL	1,914,632	1,749,605

TOTAL ASSETS	$12,100,131	$11,205,633

See Notes to Financial Statements.


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY

	December 31,
	2020	2019
	(In Thousands)

CURRENT LIABILITIES
Currently maturing long-term debt	$485,000	$—

Accounts payable:
Associated companies	59,448	111,785
Other	208,591	202,201
Customer deposits	98,506	101,411
Taxes accrued	81,837	81,831

Interest accrued	22,745	22,788
Deferred fuel costs	53,065	53,721
Current portion of unprotected excess accumulated deferred income taxes	—	9,296
Other	40,628	38,760
TOTAL	1,049,820	621,793

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	1,286,123	1,183,126
Accumulated deferred investment tax credits	30,500	31,701
Regulatory liability for income taxes - net	467,031	478,174
Other regulatory liabilities	686,872	559,555
Decommissioning	1,314,160	1,242,616
Accumulated provisions	70,169	63,880
Pension and other postretirement liabilities	361,682	319,075
Long-term debt (includes securitization bonds of $— as of December 31, 2020 and $6,772 as of December 31, 2019)	3,482,507	3,517,208
Other	75,098	62,568
TOTAL	7,774,142	7,457,903

Commitments and Contingencies



EQUITY
Member's equity	3,276,169	3,125,937
TOTAL	3,276,169	3,125,937

TOTAL LIABILITIES AND EQUITY	$12,100,131	$11,205,633

See Notes to Financial Statements.


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY
For the Years Ended December 31, 2020, 2019, and 2018


			Member's Equity
			(In Thousands)

Balance at December 31, 2017			$2,376,754
Net income			252,707
Capital contributions from parent			350,000

Common equity distributions			(91,751)
Non-cash contribution from parent			94,335
Preferred stock dividends			(1,249)
Other			2,307
Balance at December 31, 2018			$2,983,103
Net income			262,964


Common equity distributions			(115,000)


Other			(5,130)
Balance at December 31, 2019			$3,125,937
Net income			245,232


Common equity distributions			(95,000)



Balance at December 31, 2020			$3,276,169

See Notes to Financial Statements.


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON

	2020	2019	2018	2017	2016
	(In Thousands)

Operating revenues	$2,084,494	$2,259,594	$2,060,643	$2,139,919	$2,086,608
Net income	$245,232	$262,964	$252,707	$139,844	$167,212
Total assets	$12,100,131	$11,205,633	$10,401,596	$10,134,029	$9,606,117
Long-term obligations (a)	$3,482,507	$3,517,208	$3,225,759	$2,983,749	$2,746,435

(a) Includes long-term debt (excluding currently maturing debt) and preferred stock without sinking fund.

	2020	2019	2018	2017	2016
	(Dollars In Millions)

Electric Operating Revenues:
Residential	$841	$795	$807	$768	$789
Commercial	466	539	426	495	495
Industrial	462	521	434	472	446
Governmental	18	21	17	19	18
Total billed retail	1,787	1,876	1,684	1,754	1,748
Sales for resale:
Associated companies	105	118	104	128	49
Non-associated companies	68	140	145	121	118
Other	124	126	128	137	172
Total	$2,084	$2,260	$2,061	$2,140	$2,087

Billed Electric Energy Sales (GWh):
Residential	7,584	7,996	8,248	7,298	7,618
Commercial	5,356	5,822	5,967	5,825	5,988
Industrial	7,586	7,759	8,071	7,528	6,795
Governmental	223	241	239	237	237
Total retail	20,749	21,818	22,525	20,888	20,638
Sales for resale:
Associated companies	1,659	2,180	1,773	1,782	1,609
Non-associated companies	4,198	7,206	6,447	6,549	7,115
Total	26,606	31,204	30,745	29,219	29,362

ENTERGY LOUISIANA, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

The COVID-19 Pandemic

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

Hurricane Laura, Hurricane Delta, and Hurricane Zeta

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. Total restoration costs for the repair and/or replacement of Entergy Louisiana’s electric facilities damaged by Hurricane Laura, Hurricane Delta, and Hurricane Zeta are currently estimated to be approximately $2.0 billion, including approximately $1.67 billion in capital costs and approximately $330 million in non-capital costs. This estimate includes all costs to restore power and repair or replace the damages from the hurricanes, except for the cost to repair or replace damage incurred to an Entergy Louisiana transmission line in southeast Louisiana, and the amount of that cost could be significant. The restoration plan for this transmission line and the related cost estimate is still being evaluated. Also, Entergy Louisiana’s revenues were adversely affected in 2020, primarily due to power outages resulting from the hurricanes. Entergy Louisiana is considering all reasonable avenues to recover storm-related costs from Hurricane Laura, Hurricane Delta, and Hurricane Zeta, including securitization. Storm cost recovery or financing will be subject to review by applicable regulatory authorities.

Entergy Louisiana recorded accounts payable and corresponding construction work in progress and regulatory assets for the estimated costs incurred that were necessary to return customers to service. Entergy Louisiana recorded the regulatory assets in accordance with its accounting policies and based on the historic treatment of such costs in its service area because management believes that recovery through some form of regulatory mechanism is probable. There are well established mechanisms and precedent for addressing these catastrophic events and providing for recovery of prudently incurred storm costs in accordance with applicable regulatory and legal principles. Because Entergy Louisiana has not gone through the regulatory process regarding these storm costs, there is an element of risk, and Entergy is unable to predict with certainty the degree of success it may have in its recovery initiatives, the amount of restoration costs that it may ultimately recover, or the timing of such recovery.

In October 2020, Entergy Louisiana filed an application at the LPSC seeking approval of certain ratemaking adjustments to facilitate issuance of shorter-term bonds to provide interim financing for restoration costs associated with Hurricane Laura, Hurricane Delta, and Hurricane Zeta. Subsequently, Entergy Louisiana and the LPSC staff filed a joint motion seeking approval to exclude from the derivation of Entergy Louisiana’s capital structure and cost rate of debt for ratemaking purposes, including the allowance for funds used during construction, shorter-term debt up to $1.1 billion issued by Entergy Louisiana to fund costs associated with Hurricane Laura, Hurricane Delta, and Hurricane Zeta costs on an interim basis. In November 2020 the LPSC issued an order approving the joint motion, and Entergy Louisiana issued $1.1 billion of 0.62% Series mortgage bonds due November 2023. Also in November 2020, Entergy Louisiana drew $257 million from its funded storm reserves.

In December 2020, Entergy Louisiana provided the LPSC with notification that it intends to initiate a storm cost recovery proceeding in the near future, which will permit the LPSC to retain any outside consultants and counsel needed to review the storm cost recovery application. In February 2021 the LPSC voted to retain outside counsel and consultants to assist in the review of Entergy Louisiana’s upcoming storm cost recovery application, which is expected to be filed in March 2021.

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

February 2021 Winter Storms

See the “February 2021 Winter Storms” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the February 2021 winter storms. Entergy Louisiana’s preliminary estimate for the cost of mobilizing crews and restoring power is approximately $50 million to $60 million. Natural gas purchases for Entergy Louisiana for February 1st through 25th, 2021 are approximately $190 million compared to natural gas purchases for February 2020 of $39 million.

Results of Operations

2020 Compared to 2019

Net Income

Net income increased $390.8 million primarily due to the $382.8 million reduction in deferred income tax expense related to the basis of assets contributed in the 2015 Entergy Louisiana and Entergy Gulf States Louisiana business combination as a result of the resolution of the 2014-2015 IRS audit in the fourth quarter 2020 and the $58 million reduction in income tax expense resulting from an IRS settlement in the first quarter 2020 related to the uncertain tax position regarding the Hurricane Isaac Louisiana Act 55 financing, which also resulted in a $29 million ($21 million net-of-tax) regulatory charge to reflect Entergy Louisiana’s agreement to share the savings with customers. Also contributing to the increase were higher retail electric price, lower other operation and maintenance expenses, and a lower effective income tax rate. The increase was partially offset by higher depreciation and amortization expenses, lower volume/weather, lower other income, higher interest expense, and higher taxes other than income taxes. See Note 3 to the financial statements for further discussion of the tax audit resolution and the tax settlement.

Operating Revenues

Following is an analysis of the change in operating revenues comparing 2020 to 2019:


			Amount
			(In Millions)
2019 operating revenues			$4,285.2
Fuel, rider, and other revenues that do not significantly affect net income			(330.3)
Volume/weather			(68.8)
Return of unprotected excess accumulated deferred income taxes to customers			7.5
Retail electric price			176.3
2020 operating revenues			$4,069.9

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

The volume/weather variance is primarily due to decreased commercial and industrial usage as a result of the COVID-19 pandemic, the effects of Hurricane Laura, Hurricane Delta, and Hurricane Zeta on sales, and the effect of less favorable weather on residential sales, partially offset by increased residential usage as a result of the COVID-19 pandemic. The decrease in industrial usage is partially offset by an increase in demand from expansion projects, primarily in the transportation and chemicals industries. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

COVID-19 pandemic. See “Hurricane Laura, Hurricane Delta, and Hurricane Zeta” above for discussion of the storms.

The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through changes in the formula rate plan effective May 2018. In 2020, $31.1 million was returned to customers as compared to $38.6 million in 2019. There was no effect on net income as the reduction in operating revenues was offset by a reduction in income tax expense. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

The retail electric price variance is primarily due to an increase in formula rate plan revenues effective June 2019 due to the inclusion of the first-year revenue requirement for the J. Wayne Leonard Power Station (formerly St. Charles Power Station) and effective April 2020 due to the inclusion of the first-year revenue requirement for the Lake Charles Power Station and increases in formula rate plan revenues effective September 2019 and September 2020. See Note 2 to the financial statements for further discussion of the formula rate plan proceedings.

Other Income Statement Variances

Other operation and maintenance expenses decreased primarily due to:

a decrease of $10.2 million in nuclear generation expenses primarily due to a lower scope of work performed in 2020 as compared to 2019, in part as a result of the COVID-19 pandemic;
a decrease of $9.5 million primarily due to contract costs in 2019 related to initiatives to explore new customer products and services;
a decrease of $6.8 million in loss provisions;
higher nuclear insurance refunds of $5.9 million;
a decrease of $5.8 million in energy efficiency costs due to the timing of recovery from customers; and
a decrease of $4.3 million in non-nuclear generation expenses primarily due to a lower scope of work performed during plant outages in 2020 as compared to the same period in 2019, partially offset by increases resulting from the J. Wayne Leonard Power Station (formerly St. Charles Power Station) and the Lake Charles Power Station being placed in service.

The decrease was partially offset by:

an increase of $4.1 million in compensation and benefits costs primarily due to an increase in net periodic pension and other postretirement benefits costs as a result of a decrease in the discount rate used to value the benefit liabilities. See “Critical Accounting Estimates” below and Note 11 to the financial statements for further discussion of pension and other postretirement benefit costs; and
several individually insignificant items.

Taxes other than income taxes increased primarily due to increases in ad valorem taxes resulting from higher property assessments.

Depreciation and amortization expenses increased primarily due to additions to plant in service, including the J. Wayne Leonard Power Station (formerly St. Charles Power Station), which was placed into service in May 2019 and the Lake Charles Power Station, which was placed in service in March 2020.

Other regulatory charges (credits) include regulatory charges of $32.6 million recorded in the fourth quarter 2020 due to a settlement with the IRS related to the uncertain tax position regarding Hurricane Katrina and Hurricane Rita Louisiana Act 55 financing because the savings will be shared with customers and $29 million recorded in the first quarter 2020 due to a settlement with the IRS related to the uncertain tax position regarding Hurricane Isaac Louisiana Act 55 financing because the savings will be shared with customers. See Note 3 to the financial statements for further discussion of the settlements and savings obligations.

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Other income decreased primarily due to:

a decrease in the allowance for equity funds used during construction due to higher construction work in progress in 2019, including the J. Wayne Leonard Power Station (formerly St. Charles Power Station) and the Lake Charles Power Station projects; and
changes in decommissioning trust fund activity.

Interest expense increased primarily due to:

the issuances of $300 million of 4.20% Series mortgage bonds and $350 million of 2.90% Series mortgage bonds, each in March 2020;
the issuance of $525 million of 4.20% Series mortgage bonds in March 2019; and
a decrease in the allowance for borrowed funds used during construction due to higher construction work in progress in 2019, including the J. Wayne Leonard Power Station (formerly St. Charles Power Station) and Lake Charles Power Station projects.

The effective income tax rates were (54.6%) for 2020 and 15% for 2019. The difference in the effective income tax rate versus the federal statutory rate of 21% for 2020 was primarily due to completion of the 2014-2015 IRS audit effectively settling the tax positions for those years. The difference in the effective income tax rate versus the federal statutory rate of 21% for 2019 was primarily due to the amortization of excess accumulated deferred income taxes. See Notes 2 and 3 to the financial statements for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 3 to the financial statements for a reconciliation of the federal statutory rates of 21% to the effective income tax rates.

2019 Compared to 2018

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Item 7 of Entergy Louisiana’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020, for discussion of results of operations for 2019 compared to 2018.

Liquidity and Capital Resources

Cash Flow

Cash flows for the years ended December 31, 2020, 2019, and 2018 were as follows:


	2020	2019	2018
	(In Thousands)
Cash and cash equivalents at beginning of period	$2,006	$43,364	$35,907

Net cash provided by (used in):
Operating activities	1,072,986	1,236,002	1,395,204
Investing activities	(1,944,671)	(1,653,634)	(1,878,208)
Financing activities	1,597,699	376,274	490,461
Net increase (decrease) in cash and cash equivalents	726,014	(41,358)	7,457

Cash and cash equivalents at end of period	$728,020	$2,006	$43,364

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

2020 Compared to 2019

Operating Activities

Net cash flow provided by operating activities decreased $163 million in 2020 primarily due to:

an increase of $186.1 million in storm spending in 2020, primarily due to Hurricane Laura, Hurricane Delta, and Hurricane Zeta restoration efforts. See “Hurricane Laura, Hurricane Delta, and Hurricane Zeta” above for discussion of storm restoration efforts;
lower collections of receivables from customers, in part due to the COVID-19 pandemic;
the timing of recovery of fuel and purchased power costs; and
an increase of $21.5 million in interest paid.

The decrease was partially offset by:

a decrease in $43.7 million in spending on nuclear refueling outages;
the timing of payments to vendors; and
income tax refunds of $14.7 million in 2020 compared to $15.3 million in income tax payments in 2019. Entergy Louisiana had income tax refunds in 2020 and income tax payments in 2019 in accordance with an intercompany tax allocation agreement. Entergy Louisiana had income tax refunds in 2020 as a result of a refund of an overpayment on a prior year state income tax return.

Investing Activities

Net cash flow used in investing activities increased $291 million in 2020 primarily due to:

an increase of $709.7 million in storm spending 2020, primarily due to Hurricane Laura, Hurricane Delta, and Hurricane Zeta restoration efforts, See “Hurricane Laura, Hurricane Delta, and Hurricane Zeta” above for discussion of storm restoration efforts;
the purchase of Washington Parish Energy Center in November 2020 for approximately $222 million. See Note 14 to the financial statements for further discussion of the Washington Parish Energy Center purchase;
an increase of $16.7 million in distribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy Louisiana’s distribution system, including increased spending on advanced metering infrastructure; and
money pool activity.

The increase was partially offset by:

an increase of $302.2 million in net receipts from storm reserve escrow accounts;
a decrease of $207.8 million in non-nuclear generation construction expenditures due to higher spending in 2019 on the Lake Charles Power Station and J. Wayne Leonard Power Station (formerly St. Charles Power Station) projects;
a decrease of $133.1 million in transmission construction expenditures primarily due to a lower scope of work performed on various projects in 2020 as compared to 2019;
a decrease of $89.5 million in nuclear construction expenditures primarily due to a lower scope of work performed on various nuclear projects in 2020 as compared to 2019; and
a decrease of $26.1 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material, and service deliveries, and the timing of cash payments during the nuclear fuel cycle.

Increases in Entergy Louisiana’s receivable from the money pool are a use of cash flow, and Entergy Louisiana’s receivable from the money pool increased by $13.4 million in 2020 compared to decreasing by $46.8

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

million in 2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Net cash flow provided by financing activities increased $1,221.4 million in 2020 primarily due to:

the issuance of $1.1 billion of 0.62% Series mortgage bonds in November 2020;
the issuance of $350 million of 2.90% Series mortgage bonds and $300 million of 4.20% Series mortgage bonds, each in March 2020;
the issuance of $300 million of 2.90% Series mortgage bonds and $300 million of 1.60% Series mortgage bonds, each in November 2020; and
a decrease of $186.5 million in common equity distributions in 2020 primarily due to upcoming capital expenditures.

The increase was partially offset by:

the issuance of $525 million of 4.20% Series mortgage bonds in March 2019;
the repayment in August 2020 of $250 million of 3.95% Series mortgage bonds due October 2020;
the repayment in December 2020 of $200 million of 5.25% Series mortgage bonds due July 2052;
money pool activity;
the repayment in December 2020 of $100 million of 4.70% Series mortgage bonds due June 2063; and
net repayments of long-term borrowings of $62 million in 2020 on the nuclear fuel company variable interest entities’ credit facilities.

Decreases in Entergy Louisiana’s payable to the money pool are a use of cash flow, and Entergy Louisiana’s payable to the money pool decreased by $82.8 million in 2020 compared to increasing by $82.8 million in 2019.

See Note 5 to the financial statements for details of long-term debt.

2019 Compared to 2018

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in Item 7 of Entergy Louisiana’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020, for discussion of operating, investing, and financing cash flow activities for 2019 compared to 2018.

Capital Structure

Entergy Louisiana’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio for Entergy Louisiana is primarily due to the net issuances of long-term debt in 2020.


	December 31, 2020		December 31, 2019
Debt to capital	54.8	%	53.4	%
Effect of excluding securitization bonds	0.0	%	(0.1	%)
Debt to capital, excluding securitization bonds (a)	54.8	%	53.3	%
Effect of subtracting cash	(2.1	%)	(0.1	%)
Net debt to net capital, excluding securitization bonds (a)	52.7	%	53.2	%

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

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

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

Entergy Louisiana seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a distribution, or both, in appropriate amounts to maintain the capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy Louisiana may issue incremental debt or reduce distributions, or both, to maintain its capital structure. In addition, in certain infrequent circumstances, such as financing of large transactions that would materially alter the capital structure if financed entirely with debt and reducing distributions, Entergy Louisiana may receive equity contributions to maintain its capital structure.

Uses of Capital

Entergy Louisiana requires capital resources for:

construction and other capital investments;
debt maturities or retirements;
working capital purposes, including the financing of fuel and purchased power costs; and
distribution and interest payments.

Following are the amounts of Entergy Louisiana’s planned construction and other capital investments.


	2021	2022	2023
	(In Millions)
Planned construction and capital investment:
Generation	$365	$460	$785
Transmission	425	340	230
Distribution	540	485	500
Utility Support	160	130	115
Total	$1,490	$1,415	$1,630

In addition to the planned spending in the table above, Entergy Louisiana also expects to pay for $845 million of capital investments in 2021 related to Hurricane Laura, Hurricane Delta, and Hurricane Zeta restoration work that have been accrued as of December 31, 2020.

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Following are the amounts of Entergy Louisiana’s existing debt and lease obligations (includes estimated interest payments) and other purchase obligations.


	2021	2022-2023	2024-2025	After 2025	Total
	(In Millions)
Long-term debt (a)	$557	$2,294	$1,495	$9,506	$13,852
Operating leases (b)	$13	$19	$10	$4	$46
Finance leases (b)	$4	$7	$4	$2	$17
Purchase obligations (c)	$687	$1,463	$1,472	$4,838	$8,460

(a)Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements.

(b)Lease obligations are discussed in Note 10 to the financial statements.

(c)Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Louisiana, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Vidalia purchased power agreement and the Unit Power Sales Agreement, both of which are discussed in Note 8 to the financial statements.

In addition to the contractual obligations given above, Entergy Louisiana currently expects to contribute approximately $59.9 million to its qualified pension plans and approximately $15.6 million to its other postretirement health care and life insurance plans in 2021, although the 2021 required pension contributions will be known with more certainty when the January 1, 2021 valuations are completed, which is expected by April 1, 2021. See “Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.

In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy Louisiana includes specific investments such as transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to maintain reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation and renewables projects; system improvements; investments in River Bend and Waterford 3; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.

As a wholly-owned subsidiary of Entergy Utility Holding Company, LLC, Entergy Louisiana pays distributions from its earnings at a percentage determined monthly.

Sources of Capital

Entergy Louisiana’s sources to meet its capital requirements include:

internally generated funds;
cash on hand;
storm reserve escrow accounts;
debt or preferred membership interest issuances, including debt issuances to refund or retire currently outstanding or maturing indebtedness;
capital contributions; and
bank financing under new or existing facilities.

Entergy Louisiana may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and interest rates are favorable.

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

All debt and common and preferred membership interest issuances by Entergy Louisiana require prior regulatory approval. Debt issuances are also subject to issuance tests set forth in its bond indentures and other agreements. Entergy Louisiana has sufficient capacity under these tests to meet its foreseeable capital needs.

Entergy Louisiana’s receivables from or (payables to) the money pool were as follows as of December 31 for each of the following years.


2020	2019	2018	2017
(In Thousands)
$13,426	($82,826)	$46,843	$11,173

See Note 4 to the financial statements for a description of the money pool.

Entergy Louisiana has a credit facility in the amount of $350 million scheduled to expire in September 2024. The credit facility includes fronting commitments for the issuance of letters of credit against $15 million of the borrowing capacity of the facility. As of December 31, 2020, there were no cash borrowings and no letters of credit outstanding under the credit facility. In addition, Entergy Louisiana is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of December 31, 2020, $2.2 million in letters of credit were outstanding under Entergy Louisiana’s uncommitted letter of credit facility. See Note 4 to the financial statements for additional discussion of the credit facilities.

The Entergy Louisiana nuclear fuel company variable interest entities have two separate credit facilities, each in the amount of $105 million and scheduled to expire in September 2022. As of December 31, 2020, $18.9 million of loans were outstanding under the credit facility for the Entergy Louisiana River Bend nuclear fuel company variable interest entity. As of December 31, 2020, $39.3 million in loans were outstanding under the Entergy Louisiana Waterford nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements for additional discussion of the nuclear fuel company variable interest entity credit facilities.

Entergy Louisiana obtained authorizations from the FERC through July 2022 for the following:

short-term borrowings not to exceed an aggregate amount of $450 million at any time outstanding;
long-term borrowings and security issuances; and
borrowings by its nuclear fuel company variable interest entities.

See Note 4 to the financial statements for further discussion of Entergy Louisiana’s short-term borrowing limits.

Hurricane Isaac

In June 2014 the LPSC voted to approve a series of orders which (i) quantified $290.8 million of Hurricane Isaac system restoration costs as prudently incurred; (ii) determined $290 million as the level of storm reserves to be re-established; (iii) authorized Entergy Louisiana to utilize Louisiana Act 55 financing for Hurricane Isaac system restoration costs; and (iv) granted other requested relief associated with storm reserves and Act 55 financing of Hurricane Isaac system restoration costs. Entergy Louisiana committed to pass on to customers a minimum of $30.8 million of customer benefits through annual customer credits of approximately $6.2 million for five years. Approvals for the Act 55 financings were obtained from the Louisiana Utilities Restoration Corporation and the Louisiana State Bond Commission. See Note 2 to the financial statements for a discussion of the August 2014 issuance of bonds under Act 55 of the Louisiana Legislature.

Little Gypsy Repowering Project

In April 2007, Entergy Louisiana announced that it intended to pursue the solid fuel repowering of a 538 MW unit at its Little Gypsy plant. In March 2009 the LPSC voted in favor of a motion directing Entergy Louisiana

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

to temporarily suspend the repowering project and, based upon an analysis of the project’s economic viability, to make a recommendation regarding whether to proceed with the project. This action was based upon a number of factors including the recent decline in natural gas prices, as well as environmental concerns, the unknown costs of carbon legislation and changes in the capital/financial markets. In April 2009, Entergy Louisiana complied with the LPSC’s directive and recommended that the project be suspended for an extended period of time of three years or more. In May 2009 the LPSC issued an order declaring that Entergy Louisiana’s decision to place the Little Gypsy project into a longer-term suspension of three years or more is in the public interest and prudent.

In October 2009, Entergy Louisiana made a filing with the LPSC seeking permission to cancel the Little Gypsy repowering project and seeking project cost recovery over a five-year period. In June 2010 and August 2010, the LPSC staff and intervenors filed testimony. The LPSC staff (1) agreed that it was prudent to move the project from long-term suspension to cancellation and that the timing of the decision to suspend on a longer-term basis was not imprudent; (2) indicated that, except for $0.8 million in compensation-related costs, the costs incurred should be deemed prudent; (3) recommended recovery from customers over ten years but stated that the LPSC may want to consider 15 years; (4) allowed for recovery of carrying costs and earning a return on project costs, but at a reduced rate approximating the cost of debt, while also acknowledging that the LPSC may consider ordering no return; and (5) indicated that Entergy Louisiana should be directed to securitize project costs, if legally feasible and in the public interest. In the third quarter 2010, in accordance with accounting standards, Entergy Louisiana determined that it was probable that the Little Gypsy repowering project would be abandoned and accordingly reclassified $199.8 million of project costs from construction work in progress to a regulatory asset. A hearing on the issues, except for cost allocation among customer classes, was held before the ALJ in November 2010. In January 2011 all parties participated in a mediation on the disputed issues, resulting in a settlement of all disputed issues, including cost recovery and cost allocation. The settlement provides for Entergy Louisiana to recover $200 million as of March 31, 2011, and carrying costs on that amount on specified terms thereafter. The settlement also provides for Entergy Louisiana to recover the approved project costs by securitization. In April 2011, Entergy Louisiana filed an application with the LPSC to authorize the securitization of the investment recovery costs associated with the project and to issue a financing order by which Entergy Louisiana could accomplish such securitization. In August 2011 the LPSC issued an order approving the settlement and also issued a financing order for the securitization. See Note 5 to the financial statements for a discussion of the September 2011 issuance of the securitization bonds.

State and Local Rate Regulation and Fuel-Cost Recovery

The rates that Entergy Louisiana charges for its services significantly influence its financial position, results of operations, and liquidity. Entergy Louisiana is regulated and the rates charged to its customers are determined in regulatory proceedings. A governmental agency, the LPSC, is primarily responsible for approval of the rates charged to customers.

Retail Rates - Electric

Filings with the LPSC

2017 Formula Rate Plan Filing

In June 2018, Entergy Louisiana filed its formula rate plan evaluation report for its 2017 calendar year operations. The 2017 test year evaluation report produced an earned return on equity of 8.16%, due in large part to revenue-neutral realignments to other recovery mechanisms. Without these realignments, the evaluation report produces an earned return on equity of 9.88% and a resulting base rider formula rate plan revenue increase of $4.8 million. Excluding the Tax Act credits provided for by the tax reform adjustment mechanisms, total formula rate plan revenues were further increased by a total of $98 million as a result of the evaluation report due to adjustments to the additional capacity and MISO cost recovery mechanisms of the formula rate plan, and implementation of the transmission recovery mechanism. In August 2018, Entergy Louisiana filed a supplemental formula rate plan

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

evaluation report to reflect changes from the 2016 test year formula rate plan proceedings, a decrease to the transmission recovery mechanism to reflect lower actual capital additions, and a decrease to evaluation period expenses to reflect the terms of a new power sales agreement. Based on the August 2018 update, Entergy Louisiana recognized a total decrease in formula rate plan revenue of approximately $17.6 million. Results of the updated 2017 evaluation report filing were implemented with the September 2018 billing month subject to refund and review by the LPSC staff and intervenors. In accordance with the terms of the formula rate plan, in September 2018 the LPSC staff and intervenors submitted their responses to Entergy Louisiana’s original formula rate plan evaluation report and supplemental compliance updates. The LPSC staff asserted objections/reservations regarding 1) Entergy Louisiana’s proposed rate adjustments associated with the return of excess accumulated deferred income taxes pursuant to the Tax Act and the treatment of accumulated deferred income taxes related to reductions of rate base; 2) Entergy Louisiana’s reservation regarding treatment of a regulatory asset related to certain special orders by the LPSC; and 3) test year expenses billed from Entergy Services to Entergy Louisiana. Intervenors also objected to Entergy Louisiana’s treatment of the regulatory asset related to certain special orders by the LPSC. A procedural schedule has not yet been established to resolve these issues.

Commercial operation at J. Wayne Leonard Power Station (formerly St. Charles Power Station) commenced in May 2019. In May 2019, Entergy Louisiana filed an update to its 2017 formula rate plan evaluation report to include the estimated first-year revenue requirement of $109.5 million associated with the J. Wayne Leonard Power Station. The resulting interim adjustment to rates became effective with the first billing cycle of June 2019. In June 2020, Entergy Louisiana submitted information to the LPSC to review the prudence of Entergy Louisiana’s management of the project. In August 2020 discovery commenced and a procedural schedule was established with a hearing in July 2021.

2018 Formula Rate Plan Filing

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

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

Several parties intervened in the proceeding and the LPSC staff filed its report of objections/reservations in accordance with the applicable provisions of the formula rate plan. In its report the LPSC staff re-urged reservations with respect to the outstanding issues from the 2017 test year formula rate plan filing and disputed the inclusion of certain affiliate costs for test years 2017 and 2018. The LPSC staff objected to Entergy Louisiana’s proposal to combine residential rates but proposed the setting of a status conference to establish a procedural schedule to more fully address the issue. The LPSC staff also reserved its right to object to the treatment of the sale of Willow Glen reflected in the evaluation report and to the August 2019 compliance update, which was made primarily to update the capital additions reflected in the formula rate plan’s transmission recovery mechanism,

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

based on limited time to review it. Additionally, since the completion of certain transmission projects, the LPSC staff issued supplemental data requests addressing the prudence of Entergy Louisiana’s expenditures in connection with those projects. Entergy Louisiana has responded to all such requests.

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

In an effort to narrow the remaining issues in formula rate plan test years 2017 and 2018, Entergy Louisiana provided notice to the parties in October 2020 that it was withdrawing its request to combine residential rates. Entergy Louisiana noted that the withdrawal is without prejudice to Entergy Louisiana’s right to seek to combine residential rates in a future proceeding.

2019 Formula Rate Plan Filing

In May 2020, Entergy Louisiana filed with the LPSC its formula rate plan evaluation report for its 2019 calendar year operations. The 2019 test year evaluation report produced an earned return on common equity of 9.66%. As such, no change to base rider formula rate plan revenue is required. Although base rider formula rate plan revenue will not change as a result of this filing, overall formula rate plan revenues will increase by approximately $103 million. This outcome is driven by the removal of prior year credits associated with the sale of the Willow Glen Power Station and an increase in the transmission recovery mechanism. Also contributing to the overall change is an increase in legacy formula rate plan revenue requirements driven by legacy Entergy Louisiana capacity cost true-ups and higher annualized legacy Entergy Gulf States Louisiana revenues due to higher billing determinants, offset by reductions in MISO cost recovery mechanism and tax reform adjustment mechanism revenue requirements. In August 2020 the LPSC staff submitted a list of items for which it needs additional information to confirm the accuracy and compliance of the 2019 test year evaluation report. The LPSC staff objected to a proposed revenue neutral adjustment regarding a certain rider as being beyond the scope of permitted formula rate plan adjustments. Rates reflected in the May 2020 filing, with the exception of the revenue neutral rider adjustment, and as updated in an August 2020 filing, were implemented in September 2020, subject to refund. Entergy Louisiana is in the process of providing additional information and details on the May 2020 filing as requested by the LPSC staff.

In November 2020, Entergy Louisiana accepted ownership of the Washington Parish Energy Center and filed an update to its 2019 formula rate plan evaluation report to include the estimated first-year revenue requirement of $35 million associated with the Washington Parish Energy Center. The resulting interim adjustment to rates became effective with the first billing cycle of December 2020. In January 2021, Entergy Louisiana filed an update to its 2019 formula rate plan evaluation report to include the implementation of a scheduled step-up in its nuclear decommissioning revenue requirement and a true-up for under-collections of nuclear decommissioning expenses. The total rate adjustment would increase formula rate plan revenues by approximately $1.2 million. The resulting interim adjustment to rates became effective with the first billing cycle of February 2021.

Request for Extension and Modification of Formula Rate Plan

In May 2020, Entergy Louisiana filed with the LPSC its application for authority to extend its formula rate plan. In its application, Entergy Louisiana seeks to maintain a 9.8% return on equity, with a bandwidth of 60 basis points above and below the midpoint, with a first-year midpoint reset. Entergy Louisiana also seeks to maintain its existing additional capacity mechanism, tax reform adjustment mechanism, transmission recovery mechanism, and the MISO cost recovery mechanism. Entergy Louisiana also seeks to add a distribution cost recovery mechanism which operates in substantially the same manner as the transmission recovery mechanism, seeks to utilize end of period rate base to calculate cost of service, and requests a deferral of certain expenses incurred for outside of right-of-way vegetation programs. Settlement discussions are ongoing.

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Investigation of Costs Billed by Entergy Services

In November 2018 the LPSC issued a notice of proceeding initiating an investigation into costs incurred by Entergy Services that are included in the retail rates of Entergy Louisiana. As stated in the notice of proceeding, the LPSC observed an increase in capital construction-related costs incurred by Entergy Services. Discovery was issued and included efforts to seek highly detailed information on a broad range of matters unrelated to the scope of the audit. There has been no further activity in the investigation since May 2019.

Fuel and purchased power recovery

Entergy Louisiana recovers electric fuel and purchased power costs for the billing month based upon the level of such costs incurred two months prior to the billing month. Entergy Louisiana’s purchased gas adjustments include estimates for the billing month adjusted by a surcharge or credit that arises from an annual reconciliation of fuel costs incurred with fuel cost revenues billed to customers, including carrying charges.

In July 2014 the LPSC authorized its staff to initiate an audit of the fuel adjustment clause filings by Entergy Gulf States Louisiana, whose business was combined with Entergy Louisiana in 2015. The audit includes a review of the reasonableness of charges flowed through Entergy Gulf States Louisiana’s fuel adjustment clause for the period from 2010 through 2013. In January 2019, the LPSC staff consultant issued its audit report. In its report, the LPSC staff consultant recommended that Entergy Louisiana refund approximately $900,000, plus interest, to customers based upon the imputation of a claim of vendor fault in servicing its nuclear plant. Entergy Louisiana recorded a provision in first quarter 2019 for the potential outcome of the audit. In August 2019, Entergy Louisiana filed direct testimony challenging the basis for the LPSC staff’s recommended disallowance and providing an alternative calculation of replacement power costs should it be determined that a disallowance is appropriate. Entergy Louisiana’s calculation would require no refund to customers.

In July 2014 the LPSC authorized its staff to initiate an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed by Entergy Louisiana through its fuel adjustment clause for the period from 2010 through 2013. In January 2019 the LPSC staff consultant issued its audit report. In its report, the LPSC staff consultant recommended that Entergy Louisiana refund approximately $7.3 million, plus interest, to customers based upon the imputation of a claim of vendor fault in servicing its nuclear plant. Entergy Louisiana recorded a provision in the first quarter 2019 for the potential outcome of the audit. In August 2019, Entergy Louisiana filed direct testimony challenging the basis for the LPSC staff’s recommended disallowance and providing an alternative calculation of replacement power costs should it be determined that a disallowance is appropriate. Entergy Louisiana’s calculation would require a refund to customers of approximately $4.3 million, plus interest, as compared to the LPSC staff’s recommendation of $7.3 million, plus interest. Responsive testimony was filed by the LPSC staff and intervenors in September 2019; all parties either agreed with or did not oppose Entergy Louisiana’s alternative calculation of replacement power costs.

In November 2019 the pending LPSC proceedings for the 2010-2013 Entergy Louisiana and Entergy Gulf States Louisiana audits were consolidated to facilitate a settlement of both fuel audits. In December 2019 an unopposed settlement was reached that requires a refund to legacy Entergy Louisiana customers of approximately $2.3 million, including interest, and no refund to legacy Entergy Gulf States Louisiana customers. The LPSC approved the settlement in January 2020. A one-time refund was made in February 2020.

In June 2016 the LPSC issued notice of audits of Entergy Louisiana’s fuel adjustment clause filings for the period 2014 through 2015 and purchased gas adjustment clause filings for the period 2012 through 2015. In recognition of the business combination that occurred in 2015, the audit notice was issued to Entergy Louisiana and also includes a review of charges to legacy Entergy Gulf States Louisiana customers prior to the business combination. The audits include a review of the reasonableness of charges flowed through Entergy Louisiana’s fuel adjustment clause for the period from 2014 through 2015 and charges flowed through Entergy Louisiana’s

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

purchased gas adjustment clause for the period from 2012 through 2015. Regarding the fuel adjustment clause filing, the LPSC staff issued a report in January 2021 that did not recommend a disallowance for the period 2014 through 2015 recoveries, but did propose various reporting requirements. Entergy Louisiana is currently reviewing the LPSC staff recommendations regarding reporting requirements. Regarding the purchased gas adjustment clause filings, the LPSC staff issued a report in February 2020 that did not recommend a disallowance for the period 2012 through 2015 recoveries. The LPSC issued an order in September 2020 accepting the LPSC staff’s report.

In May 2018 the LPSC staff provided notice of audits of Entergy Louisiana’s purchased gas adjustment clause filings. The audit includes a review of the reasonableness of charges flowed through Entergy Louisiana’s purchased gas adjustment clause for the period from 2016 through 2017. In February 2020 the LPSC staff issued an audit report recommending a disallowance of approximately $29 thousand Entergy Louisiana submitted a letter disputing the basis of the proposed disallowance but indicated that due to the amount at issue it would not oppose the recommended refund. The LPSC staff and Entergy Louisiana submitted a joint report noting each party’s position on the substantive issues in the matter and recommending resolution of the matters. The LPSC issued an order in September 2020 resolving the matter and ordering a refund of approximately $29 thousand. In January 2021 the LPSC issued a notice closing the matter.

In March 2020 the LPSC staff provided notice of an audit of Entergy Louisiana’s fuel adjustment clause filings. The audit includes a review of the reasonableness of charges flowed through Entergy Louisiana’s fuel adjustment clause for the period from 2016 through 2019. Discovery commenced in September 2020 and is ongoing.

COVID-19 Orders

In April 2020 the LPSC issued an order authorizing utilities to record as a regulatory asset expenses incurred from the suspension of disconnections and collection of late fees imposed by LPSC orders associated with the COVID-19 pandemic. In addition, utilities may seek future recovery, subject to LPSC review and approval, of losses and expenses incurred due to compliance with the LPSC’s COVID-19 orders. The suspension of late fees and disconnects for non-pay was extended until the first billing cycle after July 16, 2020. In January 2021, Entergy Louisiana resumed disconnections for customers in all customer classes with past-due balances that have not made payment arrangements. Utilities seeking to recover the regulatory asset must formally petition the LPSC to do so, identifying the direct and indirect costs for which recovery is sought. Any such request is subject to LPSC review and approval. As of December 31, 2020, Entergy Louisiana recorded a regulatory asset of $48.8 million for costs associated with the COVID-19 pandemic.

Net Metering Rulemaking

In September 2019 the LPSC issued an order modifying its rules regarding net metering installations. Among other things, the rule provides for 2-channel billing for net metering with excess energy put to the grid being compensated at the utility’s avoided cost. However, the rule does provide that net meter installations in place as of December 31, 2019 will be subject to 1:1 net metering with excess energy put to the grid being compensated at the full retail rate for a period of 15 years (through December 31, 2034), after which those installations will be subject to 2-channel billing. The rule also eliminates the existing limit on the cumulative number of net meter installations.

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Industrial and Commercial Customers

Entergy Louisiana’s large industrial and commercial customers continually explore ways to reduce their energy costs. In particular, cogeneration is an option available to a portion of Entergy Louisiana’s industrial customer base. Entergy Louisiana responds by working with industrial and commercial customers and negotiating electric service contracts to provide competitive rates that match specific customer needs and load profiles. Entergy Louisiana actively participates in economic development, customer retention, and reclamation activities to increase industrial and commercial demand, from both new and existing customers.

Federal Regulation

Nuclear Matters

Entergy Louisiana owns and, through an affiliate, operates the River Bend and Waterford 3 nuclear power plants. Entergy Louisiana is, therefore, subject to the risks related to owning and operating nuclear plants. These include risks related to: the use, storage, and handling and disposal of high-level and low-level radioactive materials; the substantial financial requirements, both for capital investments and operational needs, to position Entergy’s nuclear fleet to meet its operational goals; the performance and capacity factors of these nuclear plants; regulatory requirements and potential future regulatory changes, including changes affecting the regulations governing nuclear plant ownership, operations, license amendments, and decommissioning; the availability of interim or permanent sites for the disposal of spent nuclear fuel and nuclear waste, including the fees charged for such disposal; the sufficiency of nuclear decommissioning trust fund assets and earnings to complete decommissioning of each site when required; and limitations on the amounts and types of insurance commercially available for losses in connection with nuclear plant operations and catastrophic events such as a nuclear accident. In the event of an unanticipated early shutdown of River Bend or Waterford 3, Entergy Louisiana may be required to provide additional funds or credit support to satisfy regulatory requirements for decommissioning. Waterford 3’s operating license expires in 2044 and River Bend’s operating license expires in 2045.

Environmental Risks

Entergy Louisiana’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy Louisiana is in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.

Critical Accounting Estimates

The preparation of Entergy Louisiana’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements that could produce estimates that would have a material effect on the presentation of Entergy Louisiana’s financial position or results of operations.

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Nuclear Decommissioning Costs

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

Utility Regulatory Accounting

Impairment of Long-lived Assets

Taxation and Uncertain Tax Positions

Qualified Pension and Other Postretirement Benefits

Entergy Louisiana’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.

Cost Sensitivity

The following chart reflects the sensitivity of qualified pension cost and qualified projected benefit obligation to changes in certain actuarial assumptions (dollars in thousands).


Actuarial Assumption	Change in Assumption	Impact on 2021 Qualified Pension Cost	Impact on 2020 Projected Qualified Benefit Obligation
		Increase/(Decrease)
Discount rate	(0.25%)	$3,053	$52,030
Rate of return on plan assets	(0.25%)	$3,338	$—
Rate of increase in compensation	0.25%	$2,313	$11,706

Entergy Louisiana, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in thousands).


Actuarial Assumption	Change in Assumption	Impact on 2021 Postretirement Benefit Cost	Impact on 2020 Accumulated postretirement Benefit Obligation
		Increase/(Decrease)
Discount rate	(0.25%)	$872	$8,226
Health care cost trend	0.25%	$964	$5,853

Each fluctuation above assumes that the other components of the calculation are held constant.

Costs and Employer Contributions

Total qualified pension cost for Entergy Louisiana in 2020 was $70.6 million, including $8.1 million in settlement costs. Entergy Louisiana anticipates 2021 qualified pension cost to be $65.1 million. Entergy Louisiana contributed $55.4 million to its qualified pension plans in 2020 and estimates pension contributions will be approximately $59.9 million in 2021, although the 2021 required pension contributions will be known with more certainty when the January 1, 2021 valuations are completed, which is expected by April 1, 2021.

Total postretirement health care and life insurance benefit costs for Entergy Louisiana in 2020 were $5.6 million. Entergy Louisiana expects 2021 postretirement health care and life insurance benefit costs of approximately $5.4 million. Entergy Louisiana contributed $16.1 million to its other postretirement plans in 2020 and estimates that 2021 contributions will be approximately $15.6 million.

Other Contingencies

New Accounting Pronouncements

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the member and Board of Directors of

Entergy Louisiana, LLC and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Entergy Louisiana, LLC and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, cash flows, and changes in equity (pages 357 through 362 and applicable items in pages 51 through 238), for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

Critical Audit Matter

Rate and Regulatory Matters —Entergy Louisiana, LLC and Subsidiaries — Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company is subject to rate regulation by the Louisiana Public Service Commission (the “LPSC”), which has jurisdiction with respect to the rates of electric companies in Louisiana, and to wholesale rate regulation by the Federal Energy Regulatory Commission (“FERC”). Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying

the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant, and equipment; regulatory assets and liabilities; income taxes; operating revenues; operation and maintenance expense; and depreciation and amortization expense.

The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Because the LPSC and the FERC set the rates the Company is allowed to charge customers based on allowable costs, including a reasonable return on equity, the Company applies accounting standards that require the financial statements to reflect the effects of rate regulation, including the recording of regulatory assets and liabilities. The Company assesses whether the regulatory assets and regulatory liabilities continue to meet the criteria for probable future recovery or settlement at each balance sheet date and when regulatory events occur. This assessment includes consideration of recent rate orders, historical regulatory treatment for similar costs, and factors such as changes in applicable regulatory and political environments. While the Company has indicated it expects to recover costs from customers through regulated rates, there is a risk that the LPSC and the FERC will not approve: (1) full recovery of the costs of providing utility service, or (2) full recovery of amounts invested in the utility business and a reasonable return on that investment.

We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of recovery in future rates of incurred costs and refunds to customers. Auditing management’s judgments regarding the outcome of future decisions by the LPSC and the FERC, involved especially subjective judgment and specialized knowledge of accounting for rate regulation and the rate setting process.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the uncertainty of future decisions by the LPSC and the FERC included the following, among others:

We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the initial recognition of amounts as property, plant, and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
We read relevant regulatory orders issued by the LPSC and the FERC for the Company and other public utilities, regulatory statutes, interpretations, procedural memorandums, filings made by intervenors, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the LPSC’s and the FERC’s treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness.
For regulatory matters in process, we inspected the Company’s filings with the LPSC and the FERC, including the annual formula rate plan filing, and considered the filings with the LPSC and the FERC by intervenors that may impact the Company’s future rates, for any evidence that might contradict management’s assertions*.*
We obtained an analysis from management and support from internal and external legal counsel, as appropriate, regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery or a future reduction in rates.

/s/ DELOITTE & TOUCHE LLP

New Orleans, Louisiana

February 26, 2021

We have served as the Company’s auditor since 2001.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS

	For the Years Ended December 31,
	2020	2019	2018
	(In Thousands)

OPERATING REVENUES
Electric	$4,019,063	$4,223,027	$4,232,541
Natural gas	50,799	62,148	63,779
TOTAL	4,069,862	4,285,175	4,296,320

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	700,152	845,108	915,410
Purchased power	596,480	810,462	960,272
Nuclear refueling outage expenses	55,305	54,170	51,626
Other operation and maintenance	969,630	994,637	959,185
Decommissioning	65,225	59,346	53,736
Taxes other than income taxes	208,902	194,222	183,745
Depreciation and amortization	609,931	535,791	492,179
Other regulatory charges (credits) - net	(584)	(105,203)	4,396
TOTAL	3,205,041	3,388,533	3,620,549

OPERATING INCOME	864,821	896,642	675,771

OTHER INCOME
Allowance for equity funds used during construction	38,151	74,023	79,922
Interest and investment income	225,627	231,985	141,882
Miscellaneous - net	(116,366)	(115,427)	(27,530)
TOTAL	147,412	190,581	194,274

INTEREST EXPENSE
Interest expense	331,352	309,493	288,658
Allowance for borrowed funds used during construction	(19,147)	(35,430)	(39,616)
TOTAL	312,205	274,063	249,042

INCOME BEFORE INCOME TAXES	700,028	813,160	621,003

Income taxes	(382,324)	121,623	(54,611)

NET INCOME	$1,082,352	$691,537	$675,614





See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	For the Years Ended December 31,
	2020	2019	2018
	(In Thousands)

Net Income	$1,082,352	$691,537	$675,614

Other comprehensive income (loss)
Pension and other postretirement liabilities
(net of tax expense (benefit) of ($83), $3,781, and $17,743)	(235)	10,715	50,296
Other comprehensive income (loss)	(235)	10,715	50,296

Comprehensive Income	$1,082,117	$702,252	$725,910

See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2020	2019	2018
	(In Thousands)
OPERATING ACTIVITIES
Net income	$1,082,352	$691,537	$675,614
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation, amortization, and decommissioning, including nuclear fuel amortization	783,616	685,062	662,390
Deferred income taxes, investment tax credits, and non-current taxes accrued	(356,256)	196,533	174,063
Changes in working capital:
Receivables	(79,451)	13,942	89,701
Fuel inventory	(9,067)	(7,195)	5,310
Accounts payable	160,659	(33,375)	11,372
Prepaid taxes and taxes accrued	50,576	(38,827)	12,711
Interest accrued	4,505	4,294	7,922
Deferred fuel costs	(57,895)	24,234	(40,036)
Other working capital accounts	(76,284)	(62,536)	(5,809)
Changes in provisions for estimated losses	(295,480)	9,664	8,307
Changes in other regulatory assets	(410,855)	(210,134)	40,765
Changes in other regulatory liabilities	71,698	(35,881)	(125,185)

Changes in pension and other postretirement liabilities	12,199	35,162	(106,269)
Other	192,669	(36,478)	(15,652)
Net cash flow provided by operating activities	1,072,986	1,236,002	1,395,204
INVESTING ACTIVITIES
Construction expenditures	(1,960,787)	(1,673,194)	(1,805,641)
Allowance for equity funds used during construction	38,151	74,023	79,922
Nuclear fuel purchases	(92,831)	(85,984)	(111,329)
Proceeds from the sale of nuclear fuel	44,511	11,596	53,603


Payments to storm reserve escrow account	(1,488)	(6,353)	(4,770)
Receipts from storm reserve escrow account	297,363	—	4
Changes in securitization account	951	(32)	(1,655)
Proceeds from nuclear decommissioning trust fund sales	347,021	412,559	1,055,690
Investment in nuclear decommissioning trust funds	(372,227)	(442,501)	(1,097,204)
Changes in money pool receivable - net	(13,426)	46,843	(35,672)
Proceeds from sale of assets	—	—	11,987
Payment for purchase of assets	(236,999)	—	(26,623)

Insurance proceeds	—	7,040	3,480
Litigation proceeds for reimbursement of spent nuclear fuel storage costs	5,090	2,369	—
Net cash flow used in investing activities	(1,944,671)	(1,653,634)	(1,878,208)
FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	3,675,083	2,691,133	2,319,799

Retirement of long-term debt	(1,962,635)	(2,199,053)	(1,664,354)


Change in money pool payable - net	(82,826)	82,826	—
Changes in short-term borrowings - net	—	—	(43,540)
Distributions paid:
Common equity	(21,500)	(208,000)	(128,000)

Other	(10,423)	9,368	6,556
Net cash flow provided by financing activities	1,597,699	376,274	490,461
Net increase (decrease) in cash and cash equivalents	726,014	(41,358)	7,457
Cash and cash equivalents at beginning of period	2,006	43,364	35,907
Cash and cash equivalents at end of period	$728,020	$2,006	$43,364
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest - net of amount capitalized	$318,352	$296,842	$272,335
Income taxes	($14,714)	$15,272	($105,157)


See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS

	December 31,
	2020	2019
	(In Thousands)

CURRENT ASSETS
Cash and cash equivalents:
Cash	$1,303	$488
Temporary cash investments	726,717	1,518
Total cash and cash equivalents	728,020	2,006

Accounts receivable:
Customer	317,905	194,869
Allowance for doubtful accounts	(45,693)	(1,902)
Associated companies	81,624	77,212
Other	41,760	42,179
Accrued unbilled revenues	178,840	169,201
Total accounts receivable	574,436	481,559

Deferred fuel costs	2,250	—
Fuel inventory	50,680	41,613
Materials and supplies - at average cost	437,933	354,020
Deferred nuclear refueling outage costs	48,407	56,743
Prepaid taxes	—	7,959

Prepayments and other	36,813	37,837
TOTAL	1,878,539	981,737

OTHER PROPERTY AND INVESTMENTS
Investment in affiliate preferred membership interests	1,390,587	1,390,587
Decommissioning trust funds	1,794,042	1,563,812
Storm reserve escrow account	—	295,875
Non-utility property - at cost (less accumulated depreciation)	323,110	312,896
Other	13,399	13,476
TOTAL	3,521,138	3,576,646

UTILITY PLANT
Electric	25,619,789	22,620,365
Natural gas	262,744	235,678

Construction work in progress	667,281	1,383,603
Nuclear fuel	210,128	267,779
TOTAL UTILITY PLANT	26,759,942	24,507,425
Less - accumulated depreciation and amortization	9,372,224	9,118,524
UTILITY PLANT - NET	17,387,718	15,388,901

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets (includes securitization property of $5,088 as of December 31, 2020 and $27,596 as of December 31, 2019)	1,726,066	1,315,211
Deferred fuel costs	168,122	168,122
Other	23,924	33,491
TOTAL	1,918,112	1,516,824

TOTAL ASSETS	$24,705,507	$21,464,108

See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY

	December 31,
	2020	2019
	(In Thousands)

CURRENT LIABILITIES
Currently maturing long-term debt	$240,000	$320,002

Accounts payable:
Associated companies	103,148	187,615
Other	1,450,008	357,206
Customer deposits	152,612	153,097
Taxes accrued	42,617	—

Interest accrued	92,249	87,744
Deferred fuel costs	—	55,645



Current portion of unprotected excess accumulated deferred income taxes	31,138	31,138
Other	62,968	64,668
TOTAL	2,174,740	1,257,115

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	2,138,522	2,464,513
Accumulated deferred investment tax credits	107,317	112,128
Regulatory liability for income taxes - net	447,628	500,083
Other regulatory liabilities	918,293	794,140
Decommissioning	1,573,307	1,497,349
Accumulated provisions	24,939	320,419
Pension and other postretirement liabilities	692,728	677,619
Long-term debt (includes securitization bonds of $10,278 as of December 31, 2020 and $33,220 as of December 31, 2019)	8,787,451	6,983,667

Other	382,894	459,957
TOTAL	15,073,079	13,809,875

Commitments and Contingencies

EQUITY

Member’s equity	7,453,361	6,392,556
Accumulated other comprehensive income	4,327	4,562
TOTAL	7,457,688	6,397,118

TOTAL LIABILITIES AND EQUITY	$24,705,507	$21,464,108

See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Years Ended December 31, 2020, 2019, and 2018

		Common Equity
		Member’s Equity	Accumulated Other Comprehensive Income (Loss)	Total
	(In Thousands)

Balance at December 31, 2017		$5,355,204	($46,400)	$5,308,804
Net income		675,614	—	675,614

Other comprehensive income		—	50,296	50,296



Distributions declared on common equity		(128,000)	—	(128,000)

Reclassification pursuant to ASU 2018-02		6,262	(10,049)	(3,787)
Other		(9)	—	(9)
Balance at December 31, 2018		$5,909,071	($6,153)	$5,902,918
Net income		691,537	—	691,537

Other comprehensive income		—	10,715	10,715



Distributions declared on common equity		(208,000)	—	(208,000)


Other		(52)	—	(52)
Balance at December 31, 2019		$6,392,556	$4,562	$6,397,118
Net income		1,082,352	—	1,082,352
Other comprehensive loss		—	(235)	(235)



Distributions declared on common equity		(21,500)	—	(21,500)



Other		(47)	—	(47)
Balance at December 31, 2020		$7,453,361	$4,327	$7,457,688

See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON

	2020	2019	2018	2017	2016
	(In Thousands)

Operating revenues	$4,069,862	$4,285,175	$4,296,320	$4,300,550	$4,177,048
Net income	$1,082,352	$691,537	$675,614	$316,347	$622,047
Total assets	$24,705,507	$21,464,108	$19,651,815	$18,448,864	$17,701,271
Long-term obligations (a)	$8,787,451	$6,983,667	$6,805,766	$5,469,069	$5,612,593

(a) Includes long-term debt (excluding currently maturing debt).

	2020	2019	2018	2017	2016
	(Dollars In Millions)

Electric Operating Revenues:
Residential	$1,270	$1,271	$1,244	$1,198	$1,196
Commercial	887	947	941	956	930
Industrial	1,314	1,451	1,462	1,534	1,350
Governmental	69	71	69	69	67
Total billed retail	3,540	3,740	3,716	3,757	3,543
Sales for resale:
Associated companies	276	273	295	278	368
Non-associated companies	58	60	62	64	50
Other	145	150	160	147	165
Total	$4,019	$4,223	$4,233	$4,246	$4,126

Billed Electric Energy Sales (GWh):
Residential	13,771	14,046	14,494	13,357	13,810
Commercial	10,465	11,353	11,578	11,342	11,478
Industrial	28,881	29,801	29,255	29,754	28,517
Governmental	779	827	823	790	794
Total retail	53,896	56,027	56,150	55,243	54,599
Sales for resale:
Associated companies	5,585	4,813	5,498	4,793	7,345
Non-associated companies	2,365	1,924	1,762	1,711	1,690
Total	61,846	62,764	63,410	61,747	63,634

ENTERGY MISSISSIPPI, LLC

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

The COVID-19 Pandemic

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

February 2021 Winter Storms

See the “February 2021 Winter Storms” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the February 2021 winter storms. Entergy Mississippi’s preliminary estimate for the cost of mobilizing crews and restoring power is approximately $50 million to $60 million. Natural gas purchases for Entergy Mississippi for February 1st through 25th, 2021 are approximately $45 million compared to natural gas purchases for February 2020 of $14 million.

Results of Operations

2020 Compared to 2019

Net Income

Net income increased $20.7 million primarily due to higher retail electric price, partially offset by higher depreciation and amortization expenses, higher other operation and maintenance expenses, and lower volume/weather.

Operating Revenues

Following is an analysis of the change in operating revenues comparing 2020 to 2019.


			Amount
			(In Millions)
2019 operating revenues			$1,323.0
Fuel, rider, and other revenues that do not significantly affect net income			(153.2)
Volume/weather			(17.6)
Retail electric price			95.7
2020 operating revenues			1,247.9

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

The volume/weather variance is primarily due to decreased commercial and industrial usage as a result of the COVID-19 pandemic and the effect of less favorable weather on residential sales, partially offset by increased residential usage as a result of the COVID-19 pandemic. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic.

Entergy Mississippi, LLC

Management’s Financial Discussion and Analysis

The retail electric price variance is primarily due to:

increases in the formula rate plan rates effective with the first billing cycles of July 2019 and April 2020 and an interim capacity rate adjustment to the formula rate plan effective January 2020 to recover non-fuel related costs of acquiring and operating the Choctaw Generating Station; and
the implementation of a vegetation management rider effective with the April 2020 billing cycle.

See Note 2 to the financial statements for further discussion of the formula rate plan filings and the vegetation management rider.

Other Income Statement Variances

Other operation and maintenance expenses increased primarily due to:

an increase of $13.5 million in non-nuclear generation expenses primarily due to an increase in costs after the purchase of the Choctaw Generating Station in October 2019, partially offset by a decrease of $11.1 million primarily due to a lower scope of work performed during plant outages in 2020 as compared to the same period in 2019, including a delay in plant outages as a result of the COVID-19 pandemic;
an increase of $8.1 million in storm damage provisions. See Note 2 to the financial statements for a discussion of storm cost recovery;
an increase of $4.7 million in distribution operations costs due to a higher scope of work, including contract costs in 2020 as compared to the same period in 2019;
an increase of $2.5 million in energy efficiency costs due to the timing of recovery from customers; and
several individually insignificant items.

The increase was partially offset by a decrease of $3.7 million primarily due to contract costs in 2019 related to initiatives to explore new customer products and services.

Depreciation and amortization expenses increased primarily as a result of higher depreciation rates effective July 2019, as approved by the MPSC, and additions to plant in service, including the Choctaw Generating Station, which was purchased in October 2019.

The effective income tax rates were 16.2% for 2020 and 20.5% for 2019. See Note 3 to the financial statements for a reconciliation of the federal statutory rates of 21% to the effective income tax rates.

2019 Compared to 2018

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Item 7 of Entergy Mississippi’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020, for discussion of results of operations for 2019 compared to 2018.

Entergy Mississippi, LLC

Management’s Financial Discussion and Analysis

Liquidity and Capital Resources

Cash Flow

Cash flows for the years ended December 31, 2020, 2019, and 2018 were as follows:


	2020	2019	2018
	(In Thousands)
Cash and cash equivalents at beginning of period	$51,601	$36,954	$6,096

Net cash provided by (used in):
Operating activities	300,314	339,952	418,382
Investing activities	(530,762)	(733,684)	(419,453)
Financing activities	178,865	408,379	31,929
Net increase (decrease) in cash and cash equivalents	(51,583)	14,647	30,858

Cash and cash equivalents at end of period	$18	$51,601	$36,954

2020 Compared to 2019

Operating Activities

Net cash flow provided by operating activities decreased $39.6 million in 2020 primarily due to:

the timing of recovery of fuel and purchased power;
lower collections of receivables from customers, in part due to the COVID-19 pandemic; and
an increase of $10.3 million in storm spending in 2020.

The decrease was partially offset by the timing of payments to vendors and a decrease of $8.2 million in pension contributions in 2020. See “Critical Accounting Estimates” below and Note 11 to the financial statements for a discussion of qualified pension and other postretirement benefits funding.

Investing Activities

Net cash flow used in investing activities decreased $202.9 million in 2020 primarily due to:

the purchase of the Choctaw Generating Station in October 2019 for approximately $305 million. See Note 14 to the financial statements for further discussion of the Choctaw Generating Station purchase; and
money pool activity.

The decrease was partially offset by:

an increase of $47.3 million in storm spending in 2020;
an increase of $40.9 million in distribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy Mississippi’s distribution system, including increased spending on advanced metering infrastructure;
an increase of $25.8 million in non-nuclear construction expenditures primarily due to increased expenditures after the purchase of the Choctaw Generating Station in October 2019 and higher long-term service agreement expenses;
$24.6 million in plant upgrades for Choctaw Generating Station in March 2020; and

Entergy Mississippi, LLC

Management’s Financial Discussion and Analysis

an increase of $22.4 million in transmission construction expenditures primarily due to a higher scope of work performed in 2020 as compared to 2019.

Decreases in Entergy Mississippi’s receivable from the money pool are a source of cash flow, and Entergy Mississippi’s receivable from the money pool decreased by $44.7 million in 2020 compared to increasing by $3.3 million in 2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Net cash flow provided by financing activities decreased $229.5 million in 2020 primarily due to:

the issuance of $170 million of 3.5% Series mortgage bonds in 2020 compared to the issuance of $435 million of 3.85% Series mortgage bonds in 2019; and
a capital contribution of $130 million in October 2019 in anticipation of the purchase of the Choctaw Generating Station.

The decrease was partially offset by the repayment, at maturity, of $150 million of 6.64% Series mortgage bonds in July 2019 and money pool activity.

Increases in Entergy Mississippi’s payable to the money pool are a source of cash flow, and Entergy Mississippi’s payable to the money pool increased $16.5 million in 2020.

See Note 5 to the financial statements for details on long-term debt.

2019 Compared to 2018

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in Item 7 of Entergy Mississippi’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020, for discussion of operating, investing, and financing cash flow activities for 2019 compared to 2018.

Capital Structure

Entergy Mississippi’s debt to capital ratio is shown in the following table.


	December 31, 2020		December 31, 2019
Debt to capital	51.7	%	51.2	%
Effect of subtracting cash	—	%	(0.8	%)
Net debt to net capital	51.7	%	50.4	%

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

Entergy Mississippi, LLC

Management’s Financial Discussion and Analysis

Entergy Mississippi seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a distribution, or both, in appropriate amounts to maintain the capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy Mississippi may issue incremental debt or reduce distributions, or both, to maintain its capital structure. In addition, in certain infrequent circumstances, such as financing of large transactions that would materially alter the capital structure if financed entirely with debt and reducing distributions, Entergy Mississippi may receive equity contributions to maintain its capital structure.

Uses of Capital

Entergy Mississippi requires capital resources for:

construction and other capital investments;
debt maturities or retirements;
working capital purposes, including the financing of fuel and purchased power costs; and
distributions and interest payments.

Following are the amounts of Entergy Mississippi’s planned construction and other capital investments.


	2021	2022	2023
	(In Millions)
Planned construction and capital investment:
Generation	$180	$140	$180
Transmission	120	75	55
Distribution	210	200	225
Utility Support	80	85	30
Total	$590	$500	$490

Following are the amounts of Entergy Mississippi’s existing debt obligations and lease obligations (includes estimated interest payments) and other purchase obligations.


	2021	2022-2023	2024-2025	After 2025	Total
	(In Millions)
Long-term debt (a)	$65	$376	$209	$2,575	$3,225
Operating leases (b)	$6	$8	$2	$2	$18
Finance leases (b)	$2	$3	$2	$1	$8
Purchase obligations (c)	$223	$434	$412	$3,779	$4,848

(a)Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements.

(b)Lease obligations are discussed in Note 10 to the financial statements.

(c)Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Mississippi, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Unit Power Sales Agreement, which is discussed in Note 8 to the financial statements.

In addition to the contractual obligations given above, Entergy Mississippi currently expects to contribute approximately $13.7 million to its qualified pension plans and approximately $130 thousand to other postretirement health care and life insurance plans in 2021, although the 2021 required pension contributions will be known with more certainty when the January 1, 2021 valuations are completed, which is expected by April 1, 2021. See

Entergy Mississippi, LLC

Management’s Financial Discussion and Analysis

“Critical Accounting Estimates – Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.

Also, in addition to the contractual obligations, Entergy Mississippi has $84 million of unrecognized tax benefits and interest net of unused tax attributes for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.

In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy Mississippi includes amounts associated with specific investments such as the Sunflower Solar Facility; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation and renewables projects; system improvements; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.

As a wholly-owned subsidiary of Entergy Utility Holding Company, LLC, Entergy Mississippi pays distributions from its earnings at a percentage determined monthly.

Sunflower Solar Facility

In November 2018, Entergy Mississippi announced that it signed an agreement for the purchase of an approximately 100 MW solar photovoltaic facility that will be sited on approximately 1,000 acres in Sunflower County, Mississippi. The estimated base purchase price is approximately $138.4 million. The estimated total investment, including the base purchase price and other related costs, for Entergy Mississippi to acquire the Sunflower Solar Facility is approximately $153.2 million. The purchase is contingent upon, among other things, obtaining necessary approvals, including full cost recovery, from applicable federal and state regulatory and permitting agencies. The project is being built by Sunflower County Solar Project, LLC, an indirect subsidiary of Recurrent Energy, LLC. Entergy Mississippi will purchase the facility upon mechanical completion and after the other purchase contingencies have been met. In December 2018, Entergy Mississippi filed a joint petition with Sunflower Solar Project with the MPSC for Sunflower Solar Project to construct and for Entergy Mississippi to acquire and thereafter own, operate, improve, and maintain the solar facility. Entergy Mississippi proposed revisions to its formula rate plan that would provide for a mechanism, the interim capacity rate adjustment mechanism, in the formula rate plan to recover the non-fuel related costs of additional owned capacity acquired by Entergy Mississippi, including the annual ownership costs of the Sunflower Solar Facility. In December 2019 the MPSC approved Entergy Mississippi’s proposed revisions to its formula rate plan to provide for an interim capacity rate adjustment mechanism. Recovery through the interim capacity rate adjustment requires MPSC approval for each new resource. In August 2019 consultants retained by the Mississippi Public Utilities Staff filed a report expressing concerns regarding the project economics. In March 2020, Entergy Mississippi filed supplemental testimony addressing questions and observations raised by the consultants retained by the Mississippi Public Utilities Staff and proposing an alternative structure for the transaction that would reduce its cost. A hearing before the MPSC was held in March 2020. In April 2020 the MPSC issued an order approving certification of the Sunflower Solar Facility and its recovery through the interim capacity rate adjustment mechanism, subject to certain conditions including: (i) that Entergy Mississippi pursue a partnership structure through which the partnership would acquire and own the facility under the build-own-transfer agreement and (ii) that if Entergy Mississippi does not consummate the partnership structure under the terms of the order, there will be a cap of $136 million on the level of recoverable costs. Closing is targeted to occur by the end of 2021.

Entergy Mississippi, LLC

Management’s Financial Discussion and Analysis

Sources of Capital

Entergy Mississippi’s sources to meet its capital requirements include:

internally generated funds;
cash on hand;
storm reserve escrow accounts;
debt or preferred membership interest issuances, including debt issuances to refund or retire currently outstanding or maturing indebtedness;
capital contributions; and
bank financing under new or existing facilities.

Entergy Mississippi may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and interest rates are favorable.

All debt and preferred membership interest issuances by Entergy Mississippi require prior regulatory approval. Debt issuances are also subject to issuance tests set forth in its bond indenture and other agreements. Entergy Mississippi has sufficient capacity under these tests to meet its foreseeable capital needs.

Entergy Mississippi’s receivables from or (payables to) the money pool were as follows as of December 31 for each of the following years.


2020	2019	2018	2017
(In Thousands)
($16,516)	$44,693	$41,380	$1,633

See Note 4 to the financial statements for a description of the money pool.

Entergy Mississippi has three separate credit facilities in the aggregate amount of $82.5 million scheduled to expire in April 2021. No borrowings were outstanding under the credit facilities as of December 31, 2020. In addition, Entergy Mississippi is a party to an uncommitted letter of credit facility primarily as a means to post collateral to support its obligations to MISO. As of December 31, 2020, $1 million of MISO letters of credit and $1 million of non-MISO letters of credit were outstanding under this facility. See Note 4 to the financial statements for additional discussion of the credit facilities.

Entergy Mississippi obtained authorization from the FERC through July 2022 for short-term borrowings not to exceed an aggregate amount of $175 million at any time outstanding and long-term borrowings and security issuances. See Note 4 to the financial statements for further discussion of Entergy Mississippi’s short-term borrowing limits.

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

State and Local Rate Regulation and Fuel-Cost Recovery

The rates that Entergy Mississippi charges for electricity significantly influence its financial position, results of operations, and liquidity. Entergy Mississippi is regulated and the rates charged to its customers are determined in regulatory proceedings. A governmental agency, the MPSC, is primarily responsible for approval of the rates charged to customers.

Entergy Mississippi, LLC

Management’s Financial Discussion and Analysis

Formula Rate Plan Filings

In October 2018, Entergy Mississippi proposed revisions to its formula rate plan that would provide for a mechanism in the formula rate plan, the interim capacity rate adjustment mechanism, to recover the non-fuel related costs of additional owned capacity acquired by Entergy Mississippi, including the non-fuel annual ownership costs of the Choctaw Generating Station, as well as to allow similar cost recovery treatment for other future capacity acquisitions, such as the Sunflower Solar Facility, that are approved by the MPSC. In December 2019 the MPSC approved Entergy Mississippi’s proposed revisions to its formula rate plan to provide for an interim capacity rate adjustment mechanism to recover the $59 million first-year annual revenue requirement associated with the non-fuel ownership costs of the Choctaw Generating Station, which Entergy Mississippi began billing in January 2020. The MPSC must approve recovery through the interim capacity rate adjustment for each new resource. In addition, the MPSC approved revisions to the formula rate plan which allows Entergy Mississippi to begin billing rate adjustments effective April 1 of the filing year on a temporary basis subject to refund or credit to customers, subject to final MPSC order. The MPSC also authorized Entergy Mississippi to remove vegetation management costs from the formula rate plan and recover these costs through the establishment of a vegetation management rider. Effective with the April 2020 billing cycle, Entergy Mississippi implemented a rider to recover $22 million in vegetation management costs.

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

In March 2020, Entergy Mississippi submitted its formula rate plan 2020 test year filing and 2019 look-back filing showing Entergy Mississippi’s earned return for the historical 2019 calendar year to be below the formula rate plan bandwidth and projected earned return for the 2020 calendar year to be below the formula rate plan bandwidth. The 2020 test year filing shows a $24.6 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.51% return on rate base, within the formula rate plan bandwidth. The 2019 look-back filing compares actual 2019 results to the approved benchmark return on rate base and reflects the need for a $7.3 million interim increase in formula rate plan revenues. In accordance with the MPSC-approved revisions to the formula rate plan, Entergy Mississippi implemented a $24.3 million interim rate increase, reflecting a cap equal to 2% of 2019 retail revenues, effective with the April 2020 billing cycle, subject to refund. In June 2020, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a joint stipulation that confirmed that the 2020 test year filing showed that a $23.8 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of

Entergy Mississippi, LLC

Management’s Financial Discussion and Analysis

adjustment of 6.51% return on rate base, within the formula rate plan bandwidth. Pursuant to the joint stipulation, Entergy Mississippi’s 2019 look-back filing reflected an earned return on rate base of 6.75% in calendar year 2019, which is within the look-back bandwidth. As a result, there is no change in formula rate plan revenues in the 2019 look-back filing. In June 2020 the MPSC approved the joint stipulation with rates effective for the first billing cycle of July 2020. In the June 2020 order the MPSC directed Entergy Mississippi to submit revisions to its formula rate plan to realign recovery of costs from its energy efficiency cost recovery rider to its formula rate plan. In November 2020 the MPSC approved Entergy Mississippi’s revisions to its formula rate plan providing for the realignment of energy efficiency costs to its formula rate plan, the deferral of energy efficiency expenditures into a regulatory asset, and the elimination of its energy efficiency cost recovery rider effective with the January 2022 billing cycle.

COVID-19 Order

In March 2020 the MPSC issued an order suspending disconnections for a period of sixty days. The MPSC extended the order on disconnections through May 26, 2020. In April 2020 the MPSC issued an order authorizing utilities to defer incremental costs and expenses associated with COVID-19 compliance and to seek future recovery through rates of the prudently incurred incremental costs and expenses. In December 2020, Entergy Mississippi resumed disconnections for commercial, industrial, and governmental customers with past-due balances that have not made payment arrangements. In January 2021, Entergy Mississippi resumed disconnecting service for residential customers with past-due balances that have not made arrangements. As of December 31, 2020, Entergy Mississippi recorded a regulatory asset of $19.2 million for costs associated with the COVID-19 pandemic.

Internal Restructuring

In March 2018, Entergy Mississippi filed an application with the MPSC seeking authorization to undertake a restructuring that would result in the transfer of substantially all of the assets and operations of Entergy Mississippi to a new entity, which would ultimately be held by an existing Entergy subsidiary holding company. In September 2018, Entergy Mississippi and the Mississippi Public Utilities Staff entered into and filed a joint stipulation regarding the restructuring filing. In September 2018 the MPSC issued an order accepting the stipulation in its entirety and approving the restructuring and credits of $27 million to retail customers over six years, consisting of annual payments of $4.5 million for the years 2019-2024. Entergy Mississippi also received the required FERC approval.

In November 2018, Entergy Mississippi undertook a multi-step restructuring, including the following:

Entergy Mississippi, Inc. redeemed its outstanding preferred stock, at the aggregate redemption price of approximately $21.2 million.
Entergy Mississippi, Inc. converted from a Mississippi corporation to a Texas corporation.
Under the Texas Business Organizations Code (TXBOC), Entergy Mississippi, Inc. allocated substantially all of its assets to a new subsidiary, Entergy Mississippi Power and Light, LLC, a Texas limited liability company (Entergy Mississippi Power and Light), and Entergy Mississippi Power and Light assumed substantially all of the liabilities of Entergy Mississippi, Inc., in a transaction regarded as a merger under the TXBOC. Entergy Mississippi, Inc. remained in existence and held the membership interests in Entergy Mississippi Power and Light.
Entergy Mississippi, Inc. contributed the membership interests in Entergy Mississippi Power and Light to an affiliate (Entergy Utility Holding Company, LLC, a Texas limited liability company and subsidiary of Entergy Corporation). As a result of the contribution, Entergy Mississippi Power and Light is a wholly-owned subsidiary of Entergy Utility Holding Company, LLC.

In December 2018, Entergy Mississippi, Inc. changed its name to Entergy Utility Enterprises, Inc., and Entergy Mississippi Power and Light then changed its name to Entergy Mississippi, LLC. Entergy Mississippi, LLC holds substantially all of the assets, and assumed substantially all of the liabilities, of Entergy Mississippi, Inc. The restructuring was accounted for as a transaction between entities under common control.

Entergy Mississippi, LLC

Management’s Financial Discussion and Analysis

In December 2018, Entergy Mississippi filed its notice of intent to implement the restructuring credit rider to allow Entergy Mississippi to return credits of $27 million to retail customers over six years. In January 2019 the MPSC approved the proposed restructuring credit adjustment factor, which is effective for bills rendered beginning February 2019.

Fuel and Purchased Power Cost Recovery

Entergy Mississippi’s rate schedules include an energy cost recovery rider that is adjusted annually to reflect accumulated over- or under-recoveries. Entergy Mississippi’s fuel cost recoveries are subject to annual audits conducted pursuant to the authority of the MPSC.

In January 2017 the MPSC certified to the Mississippi Legislature the audit reports of its independent auditors for the fuel year ending September 30, 2016. In November 2017 the Mississippi Public Utilities Staff separately engaged a consultant to review the September 2016 outage at the Grand Gulf Nuclear Station and to review ongoing operations at Grand Gulf. This engagement continues, and subsequently, was expanded to include all outages at Grand Gulf that occurred through 2019.

In November 2017, Entergy Mississippi filed its annual redetermination of the annual factor to be applied under the energy cost recovery rider. The calculation of the annual factor included an under-recovery of approximately $61.5 million as of September 30, 2017. In January 2018 the MPSC approved the proposed energy cost factors effective for February 2018 bills.

In November 2018, Entergy Mississippi filed its annual redetermination of the annual factor to be applied under the energy cost recovery rider. The calculation of the annual factor included an under-recovery of approximately $57 million as of September 30, 2018. In January 2019 the MPSC approved the proposed energy cost factor effective for February 2019 bills.

In November 2019, Entergy Mississippi filed its annual redetermination of the annual factor to be applied under the energy cost recovery rider. The calculation included $39.6 million of prior over-recovery flowing back to customers beginning September 2020. Entergy Mississippi’s balance in its deferred fuel account did not decrease as expected after implementation of the new factor. In an effort to assist customers during the COVID-19 pandemic, in May 2020, Entergy Mississippi requested an interim adjustment to the energy cost recovery rider to credit approximately $50 million from the over-recovered balance in the deferred fuel account to customers over four consecutive billing months. The MPSC approved this interim adjustment in May 2020 effective for June through September 2020 bills.

In November 2020, Entergy Mississippi filed its annual redetermination of the annual factor to be applied under the energy cost recovery rider. The calculation of the annual factor included an over-recovery of approximately $24.4 million as of September 30, 2020. In January 2021 the MPSC approved the proposed energy cost factor effective for February 2021 bills.

Storm Cost Recovery Filings with Retail Regulators

Entergy Mississippi has approval from the MPSC to collect a storm damage provision of $1.75 million per month. If Entergy Mississippi’s accumulated storm damage provision balance exceeds $15 million, the collection of the storm damage provision ceases until such time that the accumulated storm damage provision becomes less than $10 million. Entergy Mississippi’s storm damage provision balance has been less than $10 million since May 2019, and Entergy Mississippi has been billing the monthly storm damage provision since July 2019.

Entergy Mississippi, LLC

Management’s Financial Discussion and Analysis

Federal Regulation

Nuclear Matters

See the “Nuclear Matters” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of nuclear matters.

Environmental Risks

Entergy Mississippi’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy Mississippi is in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.

Critical Accounting Estimates

The preparation of Entergy Mississippi’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and there is the potential for future changes in the assumptions and measurements that could produce estimates that would have a material impact on the presentation of Entergy Mississippi’s financial position or results of operations.

Utility Regulatory Accounting

Impairment of Long-lived Assets

Taxation and Uncertain Tax Positions

Qualified Pension and Other Postretirement Benefits

Entergy Mississippi’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified

Entergy Mississippi, LLC

Management’s Financial Discussion and Analysis

Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.

Cost Sensitivity

The following chart reflects the sensitivity of qualified pension cost and qualified projected benefit obligation to changes in certain actuarial assumptions (dollars in thousands).


Actuarial Assumption	Change in Assumption	Impact on 2021 Qualified Pension Cost	Impact on 2020 Projected Qualified Benefit Obligation
		Increase/(Decrease)
Discount rate	(0.25%)	$654	$12,777
Rate of return on plan assets	(0.25%)	$828	$—
Rate of increase in compensation	0.25%	$533	$2,720

The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in thousands).


Actuarial Assumption	Change in Assumption	Impact on 2021 Postretirement Benefit Cost	Impact on 2020 Accumulated Postretirement Benefit Obligation
		Increase/(Decrease)
Discount rate	(0.25%)	$59	$1,970
Health care cost trend	0.25%	$73	$1,402

Each fluctuation above assumes that the other components of the calculation are held constant.

Costs and Employer Contributions

Total qualified pension cost for Entergy Mississippi in 2020 was $20.2 million, including $3.4 million in settlement costs. Entergy Mississippi anticipates 2021 qualified pension cost to be $19.6 million. Entergy Mississippi contributed $12.6 million to its qualified pension plans in 2020 and estimates 2021 pension contributions will be approximately $13.7 million, although the 2021 required pension contributions will be known with more certainty when the January 1, 2021 valuations are completed, which is expected by April 1, 2021.

Total postretirement health care and life insurance benefit income for Entergy Mississippi in 2020 was $3.6 million. Entergy Mississippi expects 2021 postretirement health care and life insurance benefit income of approximately $4.7 million. Entergy Mississippi contributed $343 thousand to its other postretirement plans in 2020 and estimates that 2021 contributions will be approximately $130 thousand.

Other Contingencies

Entergy Mississippi, LLC

Management’s Financial Discussion and Analysis

New Accounting Pronouncements

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the member and Board of Directors of

Entergy Mississippi, LLC

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Entergy Mississippi, LLC (the “Company”) as of December 31, 2020 and 2019, the related statements of income, cash flows and changes in member’s equity (pages 379 through 384 and applicable items in pages 51 through 238), for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Rate and Regulatory Matters —Entergy Mississippi, LLC — Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company is subject to rate regulation by the Mississippi Public Service Commission (the “MPSC”), which has jurisdiction with respect to the rates of electric companies in Mississippi, and to wholesale rate regulation by the Federal Energy Regulatory Commission (“FERC”). Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant, and equipment;

regulatory assets and liabilities; income taxes; operating revenues; operation and maintenance expense; and depreciation and amortization expense.

The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Because the MPSC and the FERC set the rates the Company is allowed to charge customers based on allowable costs, including a reasonable return on equity, the Company applies accounting standards that require the financial statements to reflect the effects of rate regulation, including the recording of regulatory assets and liabilities. The Company assesses whether the regulatory assets and regulatory liabilities continue to meet the criteria for probable future recovery or settlement at each balance sheet date and when regulatory events occur. This assessment includes consideration of recent rate orders, historical regulatory treatment for similar costs, and factors such as changes in applicable regulatory and political environments. While the Company has indicated it expects to recover costs from customers through regulated rates, there is a risk that the MPSC and the FERC will not approve: (1) full recovery of the costs of providing utility service, or (2) full recovery of amounts invested in the utility business and a reasonable return on that investment.

We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of recovery in future rates of incurred costs and refunds to customers. Auditing management’s judgments regarding the outcome of future decisions by the MPSC and the FERC, involved especially subjective judgment and specialized knowledge of accounting for rate regulation and the rate setting process.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the uncertainty of future decisions by the MPSC and the FERC included the following, among others:

We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the initial recognition of amounts as property, plant, and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
We read relevant regulatory orders issued by the MPSC and the FERC for the Company and other public utilities, regulatory statutes, interpretations, procedural memorandums, filings made by intervenors, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the MPSC’s and FERC’s treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness.
For regulatory matters in process, we inspected the Company’s filings with the MPSC and the FERC, including the annual formula rate plan filing, and considered the filings with the MPSC and the FERC by intervenors that may impact the Company’s future rates, for any evidence that might contradict management’s assertions*.*
We obtained an analysis from management and support from internal and external legal counsel, as appropriate, regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery or a future reduction in rates.

/s/ DELOITTE & TOUCHE LLP

New Orleans, Louisiana

February 26, 2021

We have served as the Company’s auditor since 2001.


ENTERGY MISSISSIPPI, LLC
INCOME STATEMENTS

	For the Years Ended December 31,
	2020	2019	2018
	(In Thousands)

OPERATING REVENUES
Electric	$1,247,854	$1,323,043	$1,335,112

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	187,087	277,425	260,198
Purchased power	240,471	284,492	364,575
Other operation and maintenance	288,543	266,175	261,613

Taxes other than income taxes	101,525	105,318	101,999
Depreciation and amortization	209,252	170,886	152,577
Other regulatory charges (credits) - net	(15,219)	14,993	147,704
TOTAL	1,011,659	1,119,289	1,288,666

OPERATING INCOME	236,195	203,754	46,446

OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction	6,726	8,356	8,710
Interest and investment income	272	1,412	135
Miscellaneous - net	(9,253)	(4,478)	(2,732)
TOTAL	(2,255)	5,290	6,113

INTEREST EXPENSE
Interest expense	68,945	61,785	55,905
Allowance for borrowed funds used during construction	(2,778)	(3,532)	(3,651)
TOTAL	66,167	58,253	52,254

INCOME BEFORE INCOME TAXES	167,773	150,791	305

Income taxes	27,190	30,866	(125,773)

NET INCOME	140,583	119,925	126,078

Preferred dividend requirements and other	—	—	834

EARNINGS APPLICABLE TO COMMON EQUITY	$140,583	$119,925	$125,244

See Notes to Financial Statements.

(Page left blank intentionally)


ENTERGY MISSISSIPPI, LLC
STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2020	2019	2018
	(In Thousands)

OPERATING ACTIVITIES
Net income	$140,583	$119,925	$126,078
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation and amortization	209,252	170,886	152,577
Deferred income taxes, investment tax credits, and non-current taxes accrued	36,827	32,547	56,502
Changes in assets and liabilities:
Receivables	(1,889)	(17,245)	37,762
Fuel inventory	(1,978)	(3,208)	33,675
Accounts payable	22,794	(226)	(7,472)
Taxes accrued	17,423	13,109	(5,291)
Interest accrued	1,989	(1,331)	(2,670)
Deferred fuel costs	(55,711)	78,418	24,428
Other working capital accounts	630	(5,557)	(9,902)
Provisions for estimated losses	(3,517)	(1,121)	6,378
Other regulatory assets	(89,369)	(34,923)	54,860
Other regulatory liabilities	(18,672)	(21,524)	(131,856)

Pension and other postretirement liabilities	11,319	6,534	(8,405)
Other assets and liabilities	30,633	3,668	91,718
Net cash flow provided by operating activities	300,314	339,952	418,382
INVESTING ACTIVITIES
Construction expenditures	(555,287)	(432,600)	(387,293)
Allowance for equity funds used during construction	6,726	8,356	8,710



Changes in money pool receivable - net	44,692	(3,313)	(39,747)


Payment for purchase of plant or assets	(28,612)	(305,472)	—
Other	1,719	(655)	(1,123)
Net cash flow used in investing activities	(530,762)	(733,684)	(419,453)
FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	165,385	437,153	54,449
Retirement of long-term debt	—	(150,000)	—
Changes in money pool payable - net	16,516	—	—
Redemption of preferred stock	—	—	(21,208)
Capital contributions from parent	—	130,000	—
Distributions/dividends paid:
Common equity	(10,000)	—	(10,000)
Preferred stock	—	—	(993)
Other	6,964	(8,774)	9,681
Net cash flow provided by financing activities	178,865	408,379	31,929
Net increase (decrease) in cash and cash equivalents	(51,583)	14,647	30,858
Cash and cash equivalents at beginning of period	51,601	36,954	6,096
Cash and cash equivalents at end of period	$18	$51,601	$36,954
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest - net of amount capitalized	$64,536	$60,533	$56,037
Income taxes	($8,084)	($12,204)	($19,118)
See Notes to Financial Statements.


ENTERGY MISSISSIPPI, LLC
BALANCE SHEETS
ASSETS

	December 31,
	2020	2019
	(In Thousands)

CURRENT ASSETS
Cash and cash equivalents:
Cash	$11	$11
Temporary cash investments	7	51,590
Total cash and cash equivalents	18	51,601
Accounts receivable:
Customer	105,732	92,050
Allowance for doubtful accounts	(19,527)	(636)
Associated companies	2,740	49,257
Other	11,821	14,986
Accrued unbilled revenues	59,514	47,426
Total accounts receivable	160,280	203,083


Fuel inventory - at average cost	17,117	15,139
Materials and supplies - at average cost	59,542	57,972

Prepayments and other	4,876	7,149
TOTAL	241,833	334,944

OTHER PROPERTY AND INVESTMENTS
Non-utility property - at cost (less accumulated depreciation)	4,543	4,560
Escrow accounts	64,635	80,201

TOTAL	69,178	84,761

UTILITY PLANT
Electric	6,084,730	5,672,589

Construction work in progress	134,854	88,373
TOTAL UTILITY PLANT	6,219,584	5,760,962
Less - accumulated depreciation and amortization	2,005,087	1,894,000
UTILITY PLANT - NET	4,214,497	3,866,962

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets	467,341	377,972
Other	14,413	10,105
TOTAL	481,754	388,077

TOTAL ASSETS	$5,007,262	$4,674,744

See Notes to Financial Statements.


ENTERGY MISSISSIPPI, LLC
BALANCE SHEETS
LIABILITIES AND EQUITY

	December 31,
	2020	2019
	(In Thousands)

CURRENT LIABILITIES


Accounts payable:
Associated companies	$61,727	$48,090
Other	117,629	94,729
Customer deposits	86,200	85,938
Taxes accrued	108,084	90,661

Interest accrued	20,889	18,900
Deferred fuel costs	14,691	70,402

Other	34,270	32,667
TOTAL	443,490	441,387

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	646,674	594,832
Accumulated deferred investment tax credits	9,062	9,602
Regulatory liability for income taxes - net	224,000	236,988

Other regulatory liabilities	15,828	21,512
Asset retirement cost liabilities	9,762	9,727
Accumulated provisions	46,504	50,021
Pension and other postretirement liabilities	110,901	99,406
Long-term debt	1,780,577	1,614,129
Other	47,730	54,989
TOTAL	2,891,038	2,691,206

Commitments and Contingencies



EQUITY
Member's equity	1,672,734	1,542,151
TOTAL	1,672,734	1,542,151

TOTAL LIABILITIES AND EQUITY	$5,007,262	$4,674,744

See Notes to Financial Statements.


ENTERGY MISSISSIPPI, LLC
STATEMENTS OF CHANGES IN MEMBER'S EQUITY
For the Years Ended December 31, 2020, 2019, and 2018


			Member's Equity
			(In Thousands)

Balance at December 31, 2017			$1,177,870
Net income			126,078
Common equity distributions			(10,000)
Preferred stock dividends			(834)
Other			(888)
Balance at December 31, 2018			$1,292,226
Net income			119,925
Capital contribution from parent			130,000


Balance at December 31, 2019			$1,542,151
Net income			140,583

Common equity distributions			(10,000)


Balance at December 31, 2020			$1,672,734

See Notes to Financial Statements.


ENTERGY MISSISSIPPI, LLC
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON

	2020	2019	2018	2017	2016
	(In Thousands)

Operating revenues	$1,247,854	$1,323,043	$1,335,112	$1,198,229	$1,094,649
Net income	$140,583	$119,925	$126,078	$110,032	$109,184
Total assets	$5,007,262	$4,674,744	$3,946,804	$3,879,375	$3,602,140
Long-term obligations (a)	$1,780,577	$1,614,129	$1,175,750	$1,290,503	$1,141,924

(a) Includes long-term debt (excluding currently maturing debt), non-current capital lease obligations, and preferred stock without sinking fund.

	2020	2019	2018	2017	2016
	(Dollars In Millions)

Electric Operating Revenues:
Residential	$523	$562	$579	$502	$459
Commercial	396	444	462	423	374
Industrial	145	165	175	159	134
Governmental	42	44	44	41	38
Total billed retail	1,106	1,215	1,260	1,125	1,005
Sales for resale:
Associated companies	—	—	1	—	1
Non-associated companies	78	39	25	18	30
Other	64	69	49	55	59
Total	$1,248	$1,323	$1,335	$1,198	$1,095

Billed Electric Energy Sales (GWh):
Residential	5,378	5,659	5,829	5,308	5,617
Commercial	4,283	4,698	4,865	4,783	4,894
Industrial	2,343	2,443	2,559	2,536	2,493
Governmental	398	436	438	421	439
Total retail	12,402	13,236	13,691	13,048	13,443
Sales for resale:

Non-associated companies	4,316	1,776	1,060	857	1,021
Total	16,718	15,012	14,751	13,905	14,464

ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

The COVID-19 Pandemic

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

Hurricane Zeta

In October 2020, Hurricane Zeta caused significant damage to Entergy New Orleans’s service area. The storm resulted in widespread power outages, significant damage to distribution and transmission infrastructure, and the loss of sales during the power outages. Total restoration costs for the repair and/or replacement of Entergy New Orleans’s electric facilities damaged by Hurricane Zeta are currently estimated to be approximately $40 million, including approximately $30 million in capital costs and approximately $10 million in non-capital costs. Entergy New Orleans is considering all available avenues to recover storm-related costs from Hurricane Zeta, including accessing funded storm reserve escrows and securitization. Storm cost recovery or financing will be subject to review by applicable regulatory authorities.

Entergy New Orleans recorded accounts payable and corresponding construction work in progress and regulatory assets for the estimated costs incurred that were necessary to return customers to service. Entergy New Orleans recorded the regulatory assets in accordance with its accounting policies and based on the historic treatment of such costs in its service area because management believes that recovery through some form of regulatory mechanism is probable. There are well established mechanisms and precedent for addressing these catastrophic events and providing for recovery of prudently incurred storm costs in accordance with applicable regulatory and legal principles. Because Entergy New Orleans has not gone through the regulatory process regarding these storm costs, there is an element of risk, and Entergy New Orleans is unable to predict with certainty the degree of success it may have in its recovery initiatives, the amount of restoration costs that it may ultimately recover, or the timing of such recovery.

February 2021 Winter Storms

See the “February 2021 Winter Storms” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the February 2021 winter storms. Entergy New Orleans’s preliminary estimate for the cost of mobilizing crews and restoring power is approximately $1 million. Natural gas purchases for Entergy New Orleans for February 1st through 25th, 2021 are approximately $15 million compared to natural gas purchases for February 2020 of $7 million.

Results of Operations

2020 Compared to 2019

Net Income

Net income decreased $3.3 million primarily due to lower volume/weather, lower retail electric price, and higher interest expense, partially offset by a lower effective income tax rate.

Entergy New Orleans, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Operating Revenues

Following is an analysis of the change in operating revenues comparing 2020 to 2019.


			Amount
			(In Millions)

2019 operating revenues			$686.2
Fuel, rider, and other revenues that do not significantly affect net income			(32.5)
Volume/weather			(12.5)
Retail electric price			(7.4)
2020 operating revenues			$633.8

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

The volume/weather variance is primarily due to a decrease of 374 GWh, or 6.4%, in billed electricity usage, including the effect of decreased commercial and governmental usage as a result of the COVID-19 pandemic and the effect of less favorable weather on residential and commercial sales, partially offset by an increase in residential usage as a result of the COVID-19 pandemic. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic.

The retail electric price variance is primarily due to the effects of a rate reduction implemented with April 2020 bills that was effective August 2019 in accordance with the City Council resolution and related agreement in principle reached in the 2018 base rate case. See Note 2 to the financial statements for further discussion of the rate case.

Other Income Statement Variances

Other operation and maintenance expenses increased primarily due to:

an increase of $4.9 million primarily due to the 2019 deferral of costs related to the 2018 rate case and a system conversion for Algiers customers as a result of the 2018 combined rate case resolution approved by the City Council. See Note 2 to the financial statements for further discussion of the rate case resolution; and
an increase of $3.8 million in energy efficiency costs.

The increase was partially offset by:

a decrease of $2.4 million in gas operations costs primarily due to the deferral in 2020 of certain gas infrastructure replacement program costs as a result of the 2018 combined rate case resolution. See Note 2 to the financial statements for further discussion of the rate case resolution; and
a decrease of $2.2 million primarily due to contract costs in 2019 related to initiatives to explore new customer products and services.

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

Entergy New Orleans, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

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

Interest expense increased primarily due to the issuance of:

a $70 million term loan at 3.0% in December 2019;
$78 million of 3.00% Series mortgage bonds in March 2020; and
$62 million of 3.75% Series mortgage bonds in March 2020.

The effective income tax rates were (9.3%) for 2020 and 0.4% for 2019. The difference in the effective income tax rate versus the federal statutory rate of 21% for 2020 was primarily due to the amortization of excess accumulated deferred income taxes and the completion of the 2014-2015 IRS audit effectively settling the tax positions for those years. The difference in the effective income tax rate versus the federal statutory rate of 21% for 2019 was primarily due to the amortization of excess accumulated deferred income taxes. See Notes 2 and 3 to the financial statements for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 21% to the effective income tax rates.

2019 Compared to 2018

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Item 7 of Entergy New Orleans’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020, for discussion of results of operations for 2019 compared to 2018.

Liquidity and Capital Resources

Cash Flow

Cash flows for the years ended December 31, 2020, 2019, and 2018 were as follows:


	2020	2019	2018
	(In Thousands)
Cash and cash equivalents at beginning of period	$6,017	$19,677	$32,741

Net cash provided by (used in):
Operating activities	64,024	115,604	171,778
Investing activities	(220,845)	(204,310)	(207,616)
Financing activities	150,830	75,046	22,774
Net decrease in cash and cash equivalents	(5,991)	(13,660)	(13,064)

Cash and cash equivalents at end of period	$26	$6,017	$19,677

2020 Compared to 2019

Operating Activities

Net cash flow provided by operating activities decreased $51.6 million in 2020 primarily due to:

lower collections of receivables from customers, in part due to the COVID-19 pandemic;
the timing of recovery of fuel and purchased power costs; and

Entergy New Orleans, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

income tax payments of $3.4 million made in 2020 compared to income tax refunds of $5.3 million received in 2019, each in accordance with an intercompany income tax allocation agreement. The income tax refunds resulted from the utilization of Entergy New Orleans’s net operating loss.

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

Investing Activities

Net cash flow used in investing activities increased $16.5 million in 2020 primarily due to:

an increase of $12.4 million in distribution construction expenditures primarily due to investment in the reliability and infrastructure of Entergy New Orleans’s distribution system, including increased spending on advanced metering infrastructure;
money pool activity;
an increase of $10.8 million in storm spending in 2020, primarily due to Hurricane Zeta restoration efforts. See “Hurricane Zeta” above for discussion of hurricane restoration efforts; and
an increase of $5.1 million in facilities construction expenditures primarily due to a higher scope of work performed in 2020.

The increase was partially offset by:

a decrease of $16.2 million in non-nuclear generation construction expenditures primarily due to lower spending in 2020 on the New Orleans Power Station project, partially offset by higher spending in 2020 on the New Orleans Solar Station project; and
a decrease of $7.5 million in transmission construction expenditures primarily due to lower spending in 2020 on the New Orleans Power Station project.

Decreases in Entergy New Orleans’s receivable from the money pool are a source of cash flow, and Entergy New Orleans’s receivable from the money pool decreased $5.2 million in 2020 compared to decreasing $16.8 million in 2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Net cash flow provided by financing activities increased $75.8 million primarily due to a capital contribution received from Entergy Corporation of $60 million in November 2020 in order to maintain Entergy New Orleans’s capital structure and money pool activity.

Increases in Entergy New Orleans’s payable to the money pool are a source of cash flow, and Entergy New Orleans’s payable to the money pool increased $10.2 million in 2020.

2019 Compared to 2018

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in Item 7 of Entergy New Orleans’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020, for discussion of operating, investing, and financing cash flow activities for 2019 compared to 2018.

Entergy New Orleans, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Capital Structure

Entergy New Orleans’s debt to capital ratio is shown in the following table. The decrease in the debt to capital ratio is primarily due to an increase in equity resulting from a $60 million capital contribution received from Entergy Corporation in 2020 and net income, partially offset by the net issuance of long-term debt in 2020.


	December 31, 2020		December 31, 2019
Debt to capital	51.5	%	53.1	%
Effect of excluding securitization bonds	(1.6	%)	(2.4	%)
Debt to capital, excluding securitization bonds (a)	49.9	%	50.7	%
Effect of subtracting cash	—	%	(0.3	%)
Net debt to net capital, excluding securitization bonds (a)	49.9	%	50.4	%

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

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

Entergy New Orleans seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a distribution, or both, in appropriate amounts to maintain the capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy New Orleans may issue incremental debt or reduce distributions, or both, to maintain its capital structure. In addition, in certain infrequent circumstances, such as financing of large transactions that would materially alter the capital structure if financed entirely with debt and reducing distributions, Entergy New Orleans may receive equity contributions to maintain its capital structure.

Uses of Capital

Entergy New Orleans requires capital resources for:

construction and other capital investments;
working capital purposes, including the financing of fuel and purchased power costs;
debt maturities or retirements; and
distribution and interest payments.

Entergy New Orleans, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Following are the amounts of Entergy New Orleans’s planned construction and other capital investments.


	2021	2022	2023
	(In Millions)
Planned construction and capital investment:
Generation	$10	$15	$5
Transmission	20	25	20
Distribution	90	125	120
Utility Support	20	15	10
Total	$140	$180	$155

In addition to the planned spending in the table above, Entergy New Orleans also expects to pay for $25 million of capital investments in 2021 related to Hurricane Zeta restoration work that have been accrued as of December 31, 2020.

Following are the amounts of Entergy New Orleans’s existing debt and lease obligations (includes estimated interest payments) and other purchase obligations.


	2021	2022-2023	2024-2025	After 2025	Total
	(In Millions)
Long-term debt (a)	$37	$240	$119	$686	$1,082
Operating leases (b)	$2	$2	$1	$1	$6
Finance leases (b)	$1	$1	$1	$1	$4
Purchase obligations (c)	$217	$438	$419	$3,287	$4,361

(a)Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements.

(b)Lease obligations are discussed in Note 10 to the financial statements.

(c)Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy New Orleans, almost all of the total consists of unconditional fuel and purchased power obligations, including its obligations under the Unit Power Sales Agreement, which is discussed in Note 8 to the financial statements.

In addition to the contractual obligations given above, Entergy New Orleans currently expects to contribute approximately $5.4 million to its qualified pension plan and approximately $175 thousand to other postretirement health care and life insurance plans in 2021, although the 2021 required pension contributions will be known with more certainty when the January 1, 2021 valuations are completed, which is expected by April 1, 2021. See “Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.

Also in addition to the contractual obligations, Entergy New Orleans has $187.6 million of unrecognized tax benefits and interest net of unused tax attributes and payments for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.

In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy New Orleans includes transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation and renewables projects; system improvements; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring,

Entergy New Orleans, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

changes in project plans, and the ability to access capital. Management provides more information on long-term debt and preferred stock maturities in Notes 5 and 6 to the financial statements.

As a wholly-owned subsidiary of Entergy Utility Holding Company, LLC, Entergy New Orleans pays distributions from its earnings at a percentage determined monthly.

Gas Infrastructure Rebuild Plan

In September 2016, Entergy New Orleans submitted to the City Council a request for authorization for Entergy New Orleans to proceed with annual incremental capital funding of $12.5 million for its gas infrastructure rebuild plan, which would replace all of Entergy New Orleans’s low pressure cast iron, steel, and vintage plastic pipe over a ten-year period commencing in 2017. Entergy New Orleans also proposed that recovery of the investment to fund its gas infrastructure replacement plan be determined in connection with its next base rate case. The City Council authorized Entergy New Orleans to proceed with its replacement plans and established a schedule for proceedings in advance of the rate case intended to provide an opportunity for evaluation of the gas infrastructure plan that would best serve the public interest and the effect on customers of the approval of any such plan. In the course of that proceeding, the City Council’s advisors submitted pre-filed testimony recommending that Entergy New Orleans be allowed to continue with its condition-based approach to gas pipeline replacement to replace approximately 238 miles of low pressure pipe at a rate of approximately 25 miles per year. The City Council’s advisors also recommended that Entergy New Orleans be required to adhere to certain reporting requirements and recognized the need to address the sustained level of investment in gas infrastructure on customer bills. In September 2017, Entergy New Orleans filed rebuttal testimony suggesting that its recovery of future investment and customer effects would be addressed in the rate case that Entergy New Orleans was required to file in July 2018. The procedural schedule was suspended in order to allow for resolution in the rate case proceeding. As a result of the rate case, the City Council approved the planned gas rebuild expenditures through 2019, but rejected Entergy New Orleans’s proposed gas infrastructure rider. In April 2020, Entergy New Orleans submitted its gas infrastructure rebuild plan to the City Council, which maintained the previously proposed timeline and cost estimates, but included measures to spread out the cost impact to customers of the program.

Renewables

In July 2018, Entergy New Orleans filed an application with the City Council requesting approval of three utility-scale solar projects totaling 90 MW. If approved, the resource additions will allow Entergy New Orleans to make significant progress towards meeting its voluntary commitment to the City Council to add up to 100 MW of renewable energy resources. The three projects include constructing a self-build solar plant in Orleans Parish with an output of 20 MW, acquiring a 50 MW solar facility in Washington Parish through a build-own-transfer acquisition, and procuring 20 MW of solar power from a project to be built in St. James Parish through a power purchase agreement. In December 2018 the City Council advisors requested that Entergy New Orleans pursue alternative deal structures for the Washington Parish project and attempt to reduce costs for the 20 MW New Orleans Solar Station. As a result of settlement discussions, in March 2019, Entergy New Orleans revised its application to convert the build-own transfer acquisition of the 50 MW facility in Washington Parish to a power purchase agreement. In June 2019 the parties to the proceeding executed a stipulated settlement term sheet, which recommends that the City Council approve Entergy New Orleans’s revised application as to all three projects. In July 2019 the City Council approved the stipulated settlement. Commercial operation of the 20 MW New Orleans Solar Station commenced in December 2020. Entergy New Orleans expects to begin receiving power under the 50 MW Iris Solar and the 20 MW St. James Solar power purchase agreements by third quarter 2021.

Sources of Capital

Entergy New Orleans’s sources to meet its capital requirements include:

internally generated funds;

Entergy New Orleans, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

cash on hand;
storm reserve escrow accounts;
debt and preferred membership interest issuances, including debt issuances to refund or retire currently outstanding or maturing indebtedness;
capital contributions; and
bank financing under new or existing facilities.

Entergy New Orleans may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and interest rates are favorable.

All debt and common and preferred membership interest issuances by Entergy New Orleans require prior regulatory approval. Debt issuances are also subject to issuance tests set forth in its bond indentures and other agreements. Entergy New Orleans has sufficient capacity under these tests to meet its foreseeable capital needs.

Entergy New Orleans’s receivables from or (payables to) the money pool were as follows as of December 31 for each of the following years.


2020	2019	2018	2017
(In Thousands)
($10,190)	$5,191	$22,016	$12,723

See Note 4 to the financial statements for a description of the money pool.

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

Entergy New Orleans obtained authorization from the FERC through July 2022 for short-term borrowings not to exceed an aggregate amount of $150 million at any time outstanding and long-term borrowings and securities issuances. See Note 4 to the financial statements for further discussion of Entergy New Orleans’s short-term borrowing limits. The long-term securities issuances of Entergy New Orleans are limited to amounts authorized not only by the FERC, but also by the City Council, and the current City Council authorization extends through July 2022.

State and Local Rate Regulation

The rates that Entergy New Orleans charges for electricity and natural gas significantly influence its financial position, results of operations, and liquidity. Entergy New Orleans is regulated and the rates charged to its customers are determined in regulatory proceedings. A governmental agency, the City Council, is primarily responsible for approval of the rates charged to customers.

Retail Rates

Energy Efficiency

In December 2019, Entergy New Orleans filed an application with the City Council seeking approval of an implementation plan for the Energy Smart program from April 2020 through December 2022. Entergy New Orleans proposed to recover the costs of the program through mechanisms previously approved by the City Council

Entergy New Orleans, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

or through the energy efficiency cost recovery rider, which was approved in the 2018 combined rate case resolution. In January 2020 the City Council’s advisors recommended that, beginning with Program Year 10, the City Council allow Entergy New Orleans to earn a utility performance incentive of 7% of Energy Smart costs for each year in which Entergy New Orleans achieves 100% of the City Council’s savings targets for Energy Smart. In February 2020 the City Council approved Entergy New Orleans’s application.

2018 Base Rate Case

In September 2018, Entergy New Orleans filed an electric and gas base rate case with the City Council. The filing requested a 10.5% return on equity for electric operations with opportunity to earn a 10.75% return on equity through a performance adder provision of the electric formula rate plan in subsequent years under a formula rate plan and requested a 10.75% return on equity for gas operations. The proposed electric rates in the revised filing reflect a net reduction of $20.3 million. The reduction in electric rates includes a base rate increase of $135.2 million, of which $131.5 million is associated with moving costs currently collected through fuel and other riders into base rates, plus a request for an advanced metering surcharge to recover $7.1 million associated with advanced metering infrastructure, offset by a net decrease of $31.1 million related to fuel and other riders. The filing also included a proposed gas rate decrease of $142 thousand. Entergy New Orleans’s rates reflected the inclusion of federal income tax reductions due to the Tax Act and the provisions of a previously-approved agreement in principle determining how the benefits of the Tax Act would flow. Entergy New Orleans included cost of service studies for electric and gas operations for the twelve months ended December 31, 2017 and the projected twelve months ending December 31, 2018. In addition, Entergy New Orleans included capital additions expected to be placed into service for the period through December 31, 2019. Entergy New Orleans based its request for a change in rates on the projected twelve months ending December 31, 2018.

The filing’s major provisions included: (1) a new electric rate structure, which realigns the revenue requirement associated with capacity and long-term service agreement expense from certain existing riders to base revenue, provides for the recovery of the cost of advanced metering infrastructure, and partially blends rates for Entergy New Orleans’s customers residing in Algiers with customers residing in the remainder of Orleans Parish through a three-year phase-in; (2) contemporaneous cost recovery riders for investments in energy efficiency/demand response, incremental changes in capacity/long-term service agreement costs, grid modernization investment, and gas infrastructure replacement investment; and (3) formula rate plans for both electric and gas operations. In February 2019 the City Council’s advisors and several intervenors filed testimony in response to Entergy New Orleans’s application. The City Council’s advisors recommended, among other things, overall rate reductions of approximately $33 million in electric rates and $3.8 million in gas rates. Certain intervenors recommended overall rate reductions of up to approximately $49 million in electric rates and $5 million in gas rates. An evidentiary hearing was held in June 2019, and the record and post-hearing briefs were submitted in July 2019.

In October 2019 the City Council’s Utility Committee approved a resolution for a change in electric and gas rates for consideration by the full City Council that included a 9.35% return on common equity, an equity ratio of the lesser of 50% or Entergy New Orleans’s actual equity ratio, and a total reduction in revenues that Entergy New Orleans initially estimated to be approximately $39 million ($36 million electric; $3 million gas). At its November 7, 2019 meeting, the full City Council approved the resolution that had previously been approved by the City Council’s Utility Committee. Based on the approved resolution, in the fourth quarter 2019 Entergy New Orleans recorded an accrual of $10 million that reflects the estimate of the revenue billed in 2019 to be refunded to customers in 2020 based on an August 2019 effective date for the rate decrease. Entergy New Orleans also recorded a total of $12 million in regulatory assets for rate case costs and information technology costs associated with integrating Algiers customers with Entergy New Orleans’s legacy system and records. Entergy New Orleans will also be allowed to recover $10 million of retired general plant costs over a 20-year period.

The resolution directed Entergy New Orleans to submit a compliance filing within 30 days of the date of the resolution to facilitate the eventual implementation of rates, including all necessary calculations and conforming rate schedules and riders. The electric formula rate plan rider includes, among other things, 1) a provision for

Entergy New Orleans, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

forward-looking adjustments to include known and measurable changes realized up to 12 months after the evaluation period; 2) a decoupling mechanism; and 3) recognition that Entergy New Orleans is authorized to make an in-service adjustment to the formula rate plan to include the non-fuel cost of the New Orleans Power Station in rates, unless the two pending appeals in the New Orleans Power Station proceeding have not concluded. Under this circumstance, Entergy New Orleans shall be permitted to defer the New Orleans Power Station non-fuel costs, including the cost of capital, until Entergy New Orleans commences non-fuel cost recovery. After taking into account the requirements for submission of the compliance filing, the total annual revenue requirement reduction required by the resolution was refined to approximately $45 million ($42 million electric, including $29 million in rider reductions; $3 million gas). In January 2020 the City Council’s advisors found that the rates calculated by Entergy New Orleans and reflected in the December 2019 compliance filing should be implemented, except with respect to the City Council-approved energy efficiency cost recovery rider, which rider calculation should take into account events to be determined by the City Council in the future. Also in response to the resolution, Entergy New Orleans filed timely a petition for appeal and judicial review and for stay of or injunctive relief alleging that the resolution is unlawful in failing to produce just and reasonable rates. A hearing on the requested injunction was scheduled in Civil District Court for February 2020, but by joint motion of the City Council and Entergy New Orleans, the Civil District Court issued an order for a limited remand to the City Council to consider a potential agreement in principle/stipulation at its February 20, 2020 meeting. On February 17, 2020, Entergy New Orleans filed with the City Council an agreement in principle between Entergy New Orleans and the City Council’s advisors. On February 20, 2020, the City Council voted to approve the proposed agreement in principle and issued a resolution modifying the required treatment of certain accumulated deferred income taxes. As a result of the agreement in principle, the total annual revenue requirement reduction will be approximately $45 million ($42 million electric, including $29 million in rider reductions; and $3 million gas). Entergy New Orleans fully implemented the new rates in April 2020. In January 2021, pursuant to the agreement in principle approved by the City Council in October 2020, Entergy New Orleans filed with Civil District Court a motion seeking to dismiss its petition for judicial review of the City Council’s resolution in the 2018 combined rate case.

Commercial operation of the New Orleans Power Station commenced in May 2020. In accordance with the City Council resolution issued in the 2018 base rate case proceeding, Entergy New Orleans had been deferring the New Orleans Power Station non-fuel costs pending the conclusion of the appellate proceedings. In October 2020 the Louisiana Supreme Court denied all writ applications relating to the New Orleans Power Station. With those denials, Entergy New Orleans began recovering New Orleans Power Station costs in rates in November 2020. As of December 31, 2020 the regulatory asset for the deferral of New Orleans Power Station non-fuel costs was $5 million. Entergy New Orleans is recovering the costs over a five-year period that began in November 2020. In December 2020 the Alliance for Affordable Energy and Sierra Club filed a joint motion with the City Council to institute a prudence review to investigate the costs of the New Orleans Power Station. On January 28, 2021, the City Council passed a resolution giving parties 30 days to respond to the motion. Entergy New Orleans plans to respond to the motion.

2020 Formula Rate Plan Filing

Entergy New Orleans’s first annual filing under the three-year formula rate plan approved by the City Council in November 2019 was originally due to be filed in April 2020. The authorized return on equity under the approved three-year formula rate plan is 9.35% for both electric and gas operations. The City Council approved several extensions of the deadline to allow additional time to assess the effects of the COVID-19 pandemic on the New Orleans community, Entergy New Orleans customers, and Entergy New Orleans itself. In October 2020 the City Council approved an agreement in principle filed by Entergy New Orleans that results in Entergy New Orleans foregoing its 2020 formula rate plan filing and shifting the three-year formula rate plan to filings in 2021, 2022, and 2023. Key provisions of the agreement in principle include: changing the lower of actual equity ratio or 50% equity ratio approved in the rate case to a hypothetical capital structure of 51% equity and 49% debt for the duration of the three-year formula rate plan; changing the 2% depreciation rate for the New Orleans Power Station approved in the rate case to 3%; retention of over-recovery of $2.2 million in rider revenues; recovery of $1.4 million of certain rate

Entergy New Orleans, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

case expenses outside of the earnings band; recovery of the New Orleans Solar Station costs upon commercial operation; and Entergy New Orleans’s dismissal of its 2018 rate case appeal.

COVID-19 Orders

In March 2020, Entergy New Orleans voluntarily suspended customer disconnections for non-payment of utility bills through May 2020. Subsequently, the City Council ordered that the moratorium be extended to August 1, 2020. In May 2020 the City Council issued an accounting order authorizing Entergy New Orleans to establish a regulatory asset for incremental COVID-19-related expenses. In January 2021, Entergy New Orleans resumed disconnecting service to commercial and small business customers with past-due balances that have not made payment arrangements. In February 2021 the City Council adopted a resolution suspending residential customer disconnections for non-payment of utility bills and suspending the assessment and accumulation of late fees on residential customers with past-due balances through May 15, 2021. As of December 31, 2020, Entergy New Orleans recorded a regulatory asset of $14.3 million for costs associated with the COVID-19 pandemic.

In June 2020 the City Council established the City Council Cares Program and directed Entergy New Orleans to use the approximately $7 million refund received from the Entergy Arkansas opportunity sales FERC proceeding, currently being held in escrow, and approximately $15 million of non-securitized storm reserves to fund this program, which is intended to provide temporary bill relief to customers who become unemployed during the COVID-19 pandemic. The program became effective July 1, 2020, and offers qualifying residential customers bill credits of $100 per month for up to four months, for a maximum of $400 in residential customer bill credits. As of December 31, 2020, credits of $3.4 million have been applied to customer bills under the City Council Cares Program.

Fuel and Purchased Power Cost Recovery

Entergy New Orleans’s electric rate schedules include a fuel adjustment tariff designed to reflect no more than targeted fuel and purchased power costs, adjusted by a surcharge or credit for deferred fuel expense arising from the monthly reconciliation of actual fuel and purchased power costs incurred with fuel cost revenues billed to customers, including carrying charges.

Entergy New Orleans’s gas rate schedules include a purchased gas adjustment to reflect estimated gas costs for the billing month, adjusted by a surcharge or credit similar to that included in the electric fuel adjustment clause, including carrying charges.

Show Cause Order

In July 2016 the City Council approved the issuance of a show cause order, which directed Entergy New Orleans to make a filing on or before September 29, 2016 to demonstrate the reasonableness of its actions or positions with regard to certain issues in four existing dockets that relate to Entergy New Orleans’s: (i) storm hardening proposal; (ii) 2015 integrated resource plan; (iii) gas infrastructure rebuild proposal; and (iv) proposed sizing of the New Orleans Power Station and its community outreach prior to the filing. In September 2016, Entergy New Orleans filed its response to the City Council’s show cause order. The City Council has not established any further procedural schedule with regard to this proceeding.

Reliability Investigation

In August 2017 the City Council established a docket to investigate the reliability of the Entergy New Orleans distribution system and to consider implementing certain reliability standards and possible financial penalties for not meeting any such standards. In April 2018 the City Council adopted a resolution directing Entergy New Orleans to demonstrate that it has been prudent in the management and maintenance of the reliability of its distribution system. The resolution also called for Entergy New Orleans to file a revised reliability plan addressing

Entergy New Orleans, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

the current state of its distribution system and proposing remedial measures for increasing reliability. In June 2018, Entergy New Orleans filed its response to the City Council’s resolution regarding the prudence of its management and maintenance of the reliability of its distribution system. In July 2018, Entergy New Orleans filed its revised reliability plan discussing the various reliability programs that it uses to improve distribution system reliability and discussing generally the positive effect that advanced meter deployment and grid modernization can have on future reliability. Entergy New Orleans has retained a national consulting firm with expertise in distribution system reliability to conduct a review of Entergy New Orleans’s distribution system reliability-related practices and procedures and to provide recommendations for improving distribution system reliability. The report was filed with the City Council in October 2018. The City Council also approved a resolution that opens a prudence investigation into whether Entergy New Orleans was imprudent for not acting sooner to address outages in New Orleans and whether fines should be imposed. In January 2019, Entergy New Orleans filed testimony in response to the prudence investigation and asserting that it had been prudent in managing system reliability. In April 2019 the City Council advisors filed comments and testimony asserting that Entergy New Orleans did not act prudently in maintaining and improving its distribution system reliability in recent years and recommending that a financial penalty in the range of $1.5 million to $2 million should be assessed. Entergy New Orleans disagrees with the recommendation and submitted rebuttal testimony and rebuttal comments in June 2019. In November 2019 the City Council passed a resolution that penalized Entergy New Orleans $1 million for alleged imprudence in the maintenance of its distribution system. In December 2019, Entergy New Orleans filed suit in Louisiana state court seeking judicial review of the City Council’s resolution. Although the City Council evidentiary record has been lodged with the Civil District count, the court has not yet established a briefing schedule.

Renewable Portfolio Standard Rulemaking

In March 2019 the City Council initiated a rulemaking proceeding to consider whether to establish a renewable portfolio standard. The rulemaking will consider, among other issues, whether to adopt a renewable portfolio standard, whether such standard should be voluntary or mandatory, what kinds of technologies should qualify for inclusion in the rules, what level, if any, of renewable generation should be required, and whether penalties are an appropriate component of the proposed rules. Parties to the proceeding submitted initial comments in June 2019 and reply comments in July 2019. Entergy New Orleans recommends that the City Council adopt a voluntary clean energy standard of 70% of generation being clean energy by 2030, as so defined, which, in addition to renewable generation, would include nuclear, beneficial electrification, and demand-side management as compliant technologies. Several other industry leaders, academic researchers, and environmental advocates filed comments also supporting a clean energy standard. Other parties, including many representatives of the solar and wind industry, are recommending mandatory, renewables-only requirements of up to 100% renewable resources by 2040. In September 2019 the City Council advisors issued a report and recommendations, which also put forth three alternative rules for comment from the parties. Comments were submitted in October 2019 and replies were filed in November 2019. In March 2020 the City Council’s Utility Committee recommended a resolution for approval by the City Council that directed the City Council advisors to work toward development of a rule for enacting a Renewable and Clean Portfolio Standard. The four components of the Renewable and Clean Portfolio Standard that the City Council expressed a desire to implement are: (1) a mandatory requirement that Entergy New Orleans achieve 100% net zero carbon emissions by 2040; (2) reliance on renewable energy credits purchased without the associated energy for compliance with the standard being phased out over the ten-year period from 2040 to 2050; (3) no carbon-emitting resources in the portfolio of resources Entergy New Orleans uses to serve New Orleans by 2050; and (4) a mechanism to limit costs in any one plan year to no more than one percent of plan year total utility retail sales revenues. The City Council adopted the Utility Committee resolution in April 2020. The first technical meeting of the parties occurred in June 2020; a second technical meeting occurred in July 2020. In August 2020 the City Council advisors issued a final draft of the rules for review and comment from the parties before final rules are proposed for consideration by the City Council. Entergy New Orleans filed comments in September and October 2020. A City Council decision is expected in the first quarter 2021.

Entergy New Orleans, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Federal Regulation

Nuclear Matters

See the “Nuclear Matters” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of nuclear matters.

Environmental Risks

Entergy New Orleans’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous solid wastes, and other environmental matters. Management believes that Entergy New Orleans is in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.

Critical Accounting Estimates

The preparation of Entergy New Orleans’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and there is the potential for future changes in the assumptions and measurements that could produce estimates that would have a material impact on the presentation of Entergy New Orleans’s financial position or results of operations.

Utility Regulatory Accounting

Impairment of Long-lived Assets

Taxation and Uncertain Tax Positions

Qualified Pension and Other Postretirement Benefits

Entergy New Orleans’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy

Entergy New Orleans, LLC and Subsidiaries

Management’s Financial Discussion and Analysis

Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.

Cost Sensitivity

The following chart reflects the sensitivity of qualified pension cost and qualified projected benefit obligation to changes in certain actuarial assumptions (dollars in thousands).


Actuarial Assumption	Change in Assumption	Impact on 2021 Qualified Pension Cost	Impact on 2020 Projected Qualified Benefit Obligation
		Increase/(Decrease)
Discount rate	(0.25%)	$303	$5,858
Rate of return on plan assets	(0.25%)	$388	$—
Rate of increase in compensation	0.25%	$225	$1,060

The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in thousands).


Actuarial Assumption	Change in Assumption	Impact on 2021 Postretirement Benefit Cost	Impact on 2020 Accumulated Postretirement Benefit Obligation
		Increase/(Decrease)
Discount rate	(0.25%)	$76	$893
Health care cost trend	0.25%	$82	$571

Each fluctuation above assumes that the other components of the calculation are held constant.

Costs and Employer Contributions

Total qualified pension cost for Entergy New Orleans in 2020 was $6 million. Entergy New Orleans anticipates 2021 qualified pension cost to be $5.9 million. Entergy New Orleans contributed $4.6 million to its qualified pension plans in 2020 and estimates 2021 pension contributions will be approximately $5.4 million, although the 2021 required pension contributions will be known with more certainty when the January 1, 2021 valuations are completed, which is expected by April 1, 2021.

Total postretirement health care and life insurance benefit income for Entergy New Orleans in 2020 was $4.9 million. Entergy New Orleans expects 2021 postretirement health care and life insurance benefit income of approximately $6.4 million. Entergy New Orleans contributed $641 thousand to its other postretirement plans in 2020 and estimates 2021 contributions will be approximately $175 thousand.

Other Contingencies

New Accounting Pronouncements

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the member and Board of Directors of

Entergy New Orleans, LLC and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Entergy New Orleans, LLC and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, cash flows, and changes in member’s equity (pages 402 through 406 and applicable items in pages 51 through 238), for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

Critical Audit Matter

Rate and Regulatory Matters— Entergy New Orleans, LLC and Subsidiaries — Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company is subject to rate regulation by the Council of the City of New Orleans, Louisiana (the “City Council”), which has jurisdiction with respect to the rates of electric companies in the City of New Orleans, Louisiana, and to wholesale rate regulation by the Federal Energy Regulatory Commission (“FERC”). Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based

rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant, and equipment; regulatory assets and liabilities; income taxes; operating revenues; operation and maintenance expense; and depreciation and amortization expense.

The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Because the City Council and the FERC set the rates the Company is allowed to charge customers based on allowable costs, including a reasonable return on equity, the Company applies accounting standards that require the financial statements to reflect the effects of rate regulation, including the recording of regulatory assets and liabilities. The Company assesses whether the regulatory assets and regulatory liabilities continue to meet the criteria for probable future recovery or settlement at each balance sheet date and when regulatory events occur. This assessment includes consideration of recent rate orders, historical regulatory treatment for similar costs, and factors such as changes in applicable regulatory and political environments. While the Company has indicated it expects to recover costs from customers through regulated rates, there is a risk that the City Council and the FERC will not approve: (1) full recovery of the costs of providing utility service, or (2) full recovery of amounts invested in the utility business and a reasonable return on that investment.

We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of recovery in future rates of incurred costs and refunds to customers. Auditing management’s judgments regarding the outcome of future decisions by the City Council and the FERC, involved especially subjective judgment and specialized knowledge of accounting for rate regulation and the rate setting process.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the uncertainty of future decisions by the City Council and the FERC included the following, among others:

We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the initial recognition of amounts as property, plant, and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
We read relevant regulatory orders issued by the City Council and the FERC for the Company and other public utilities, regulatory statutes, interpretations, procedural memorandums, filings made by intervenors, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the City Council’s and the FERC’s treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness.
For regulatory matters in process, we inspected the Company’s filings with the City Council and the FERC, including the base rate case filing, and considered the filings with the City Council and the FERC by intervenors that may impact the Company’s future rates, for any evidence that might contradict management’s assertions*.*
We obtained an analysis from management and support from internal and external legal counsel, as appropriate, regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery or a future reduction in rates.

/s/ DELOITTE & TOUCHE LLP

New Orleans, Louisiana

February 26, 2021

We have served as the Company’s auditor since 2001.


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS

	For the Years Ended December 31,
	2020	2019	2018
	(In Thousands)

OPERATING REVENUES
Electric	$560,632	$594,417	$624,733
Natural gas	73,209	91,806	92,657
TOTAL	633,841	686,223	717,390

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	76,781	105,217	114,787
Purchased power	243,572	258,306	270,634
Other operation and maintenance	125,756	121,057	124,293
Taxes other than income taxes	57,454	55,270	56,141
Depreciation and amortization	64,012	56,072	55,930
Other regulatory charges - net	1,854	21,616	21,413
TOTAL	569,429	617,538	643,198

OPERATING INCOME	64,412	68,685	74,192

OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction	6,339	9,941	5,941
Interest and investment income	120	428	604
Miscellaneous - net	316	(6,038)	(10,444)
TOTAL	6,775	4,331	(3,899)

INTEREST EXPENSE
Interest expense	29,105	24,463	21,772
Allowance for borrowed funds used during construction	(3,049)	(4,262)	(2,195)
TOTAL	26,056	20,201	19,577

INCOME BEFORE INCOME TAXES	45,131	52,815	50,716

Income taxes	(4,207)	186	(2,436)

NET INCOME	$49,338	$52,629	$53,152

See Notes to Financial Statements.


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2020	2019	2018
	(In Thousands)
OPERATING ACTIVITIES
Net income	$49,338	$52,629	$53,152
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation and amortization	64,012	56,072	55,930
Deferred income taxes, investment tax credits, and non-current taxes accrued	3,938	21,350	24,548
Changes in assets and liabilities:
Receivables	(12,003)	(9,372)	15,724
Fuel inventory	(58)	(387)	357
Accounts payable	5,582	(5,571)	(385)
Taxes accrued	398	234	30,547
Interest accrued	1,179	550	879
Deferred fuel costs	(7,048)	3,630	(6,486)
Other working capital accounts	(13,156)	5,021	4,146
Provisions for estimated losses	1,356	1,948	1,511
Other regulatory assets	(7,427)	(29,567)	21,637
Other regulatory liabilities	(4,728)	(22,105)	(28,459)
Pension and other postretirement liabilities	(14,063)	(14,624)	(15,134)
Other assets and liabilities	(3,296)	55,796	13,811
Net cash flow provided by operating activities	64,024	115,604	171,778
INVESTING ACTIVITIES
Construction expenditures	(228,983)	(229,560)	(202,186)
Allowance for equity funds used during construction	6,339	9,941	5,941
Payment for purchase of assets	(1,584)	—	—


Changes in money pool receivable - net	5,191	16,825	(9,293)
Payments to storm reserve escrow account	(433)	(1,752)	(1,311)
Receipts from storm reserve escrow account	—	—	3
Changes in securitization account	(1,375)	236	(770)
Net cash flow used in investing activities	(220,845)	(204,310)	(207,616)
FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	138,925	113,876	59,234
Retirement of long-term debt	(56,593)	(35,376)	(11,042)
Repayment of long-term payable due to associated company	(1,838)	(1,979)	(2,077)

Capital contributions from parent	60,000	—	—

Changes in money pool payable - net	10,190	—	—

Common equity distributions paid	—	—	(23,750)

Other	146	(1,475)	409
Net cash flow provided by financing activities	150,830	75,046	22,774
Net decrease in cash and cash equivalents	(5,991)	(13,660)	(13,064)
Cash and cash equivalents at beginning of period	6,017	19,677	32,741
Cash and cash equivalents at end of period	$26	$6,017	$19,677
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest - net of amount capitalized	$26,673	$22,873	$19,840
Income taxes	$3,392	($5,310)	($39,781)
See Notes to Financial Statements.


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS

	December 31,
	2020	2019
	(In Thousands)

CURRENT ASSETS
Cash and cash equivalents
Cash	$26	$26
Temporary cash investments	—	5,991
Total cash and cash equivalents	26	6,017
Securitization recovery trust account	3,364	1,989
Accounts receivable:
Customer	70,694	48,265
Allowance for doubtful accounts	(17,430)	(3,226)
Associated companies	2,381	6,280
Other	4,248	7,378
Accrued unbilled revenues	31,069	25,453
Total accounts receivable	90,962	84,150

Deferred fuel costs	2,130	—
Fuel inventory - at average cost	1,978	1,920
Materials and supplies - at average cost	16,550	13,522

Prepayments and other	3,715	4,846
TOTAL	118,725	112,444

OTHER PROPERTY AND INVESTMENTS
Non-utility property at cost (less accumulated depreciation)	1,016	1,016
Storm reserve escrow account	83,038	82,605

TOTAL	84,054	83,621

UTILITY PLANT
Electric	1,821,638	1,467,215
Natural gas	348,024	311,432
Construction work in progress	12,460	201,829
TOTAL UTILITY PLANT	2,182,122	1,980,476
Less - accumulated depreciation and amortization	740,796	715,406
UTILITY PLANT - NET	1,441,326	1,265,070

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Deferred fuel costs	4,080	4,080
Other regulatory assets (includes securitization property of $35,559 as of December 31, 2020 and $49,542 as of December 31, 2019)	266,790	259,363
Other	23,931	10,720
TOTAL	294,801	274,163

TOTAL ASSETS	$1,938,906	$1,735,298

See Notes to Financial Statements.


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
	December 31,
	2020	2019
	(In Thousands)

CURRENT LIABILITIES
Currently maturing long-term debt	$—	$25,000
Payable due to associated company	1,618	1,838
Accounts payable:
Associated companies	54,234	43,222
Other	60,766	43,963
Customer deposits	27,912	28,493
Taxes accrued	4,700	4,302
Interest accrued	8,095	6,916
Deferred fuel costs	—	4,918
Current portion of unprotected excess accumulated deferred income taxes	3,296	9,470

Other	5,462	15,827
TOTAL CURRENT LIABILITIES	166,083	183,949

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	338,714	354,536
Accumulated deferred investment tax credits	16,095	2,131
Regulatory liability for income taxes - net	55,675	49,090
Asset retirement cost liabilities	3,768	3,522
Accumulated provisions	89,898	88,542

Long-term debt (includes securitization bonds of $41,291 as of December 31, 2020 and $52,641 as of December 31, 2019)	629,704	521,539
Long-term payable due to associated company	10,911	12,529
Other	21,141	21,881
TOTAL NON-CURRENT LIABILITIES	1,165,906	1,053,770

Commitments and Contingencies

EQUITY
Member's equity	606,917	497,579
TOTAL	606,917	497,579

TOTAL LIABILITIES AND EQUITY	$1,938,906	$1,735,298

See Notes to Financial Statements.


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY
For the Years Ended December 31, 2020, 2019, and 2018

						Member’s Equity
						(In Thousands)

Balance at December 31, 2017						$415,548
Net income						53,152

Common equity distributions						(23,750)


Balance at December 31, 2018						$444,950
Net income						52,629




Balance at December 31, 2019						$497,579
Net income						49,338
Capital contributions from parent						60,000



Balance at December 31, 2020						$606,917

See Notes to Financial Statements.


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON

	2020	2019	2018	2017	2016
	(In Thousands)

Operating revenues	$633,841	$686,223	$717,390	$716,070	$665,463
Net income	$49,338	$52,629	$53,152	$44,553	$48,849
Total assets	$1,938,906	$1,735,298	$1,576,588	$1,497,836	$1,494,569
Long-term obligations (a)	$640,615	$534,068	$481,725	$434,793	$466,670

(a) Includes long-term debt (including the long-term payable to associated company and excluding currently maturing debt) and preferred stock without sinking fund.

	2020	2019	2018	2017	2016
	(Dollars In Millions)

Electric Operating Revenues:
Residential	$244	$245	$262	$250	$231
Commercial	179	202	217	228	206
Industrial	24	32	33	36	33
Governmental	60	71	72	77	69
Total billed retail	507	550	584	591	539
Sales for resale:
Associated companies	—	—	—	—	30
Non-associated companies	33	38	30	29	3
Other	21	6	11	12	15
Total	$561	$594	$625	$632	$587

Billed Electric Energy Sales (GWh):
Residential	2,294	2,353	2,401	2,155	2,231
Commercial	1,975	2,215	2,270	2,248	2,268
Industrial	423	438	448	429	441
Governmental	755	815	795	790	794
Total retail	5,447	5,821	5,914	5,622	5,734
Sales for resale:
Associated companies	—	—	—	—	1,071
Non-associated companies	1,969	1,961	1,484	1,703	141
Total	7,416	7,782	7,398	7,325	6,946

ENTERGY TEXAS, INC. AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

The COVID-19 Pandemic

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

Hurricane Laura and Hurricane Delta

In August 2020 and October 2020, Hurricane Laura and Hurricane Delta caused extensive damage to Entergy Texas’s service area. The storm resulted in widespread power outages, significant damage primarily to distribution and transmission infrastructure, and the loss of sales during the power outages. Total restoration costs for the repair and/or replacement of Entergy Texas’s electric facilities damaged by Hurricane Laura and Hurricane Delta are currently estimated to be approximately $300 million, including $245 million in capital costs and approximately $55 million in non-capital costs. Entergy Texas is considering all available avenues to recover storm-related costs from Hurricanes Laura and Hurricane Delta, including securitization. Storm cost recovery or financing will be subject to review by applicable regulatory authorities.

Entergy Texas recorded accounts payable and corresponding construction work in progress and regulatory assets for the estimated costs incurred that were necessary to return customers to service. Entergy Texas recorded the regulatory assets in accordance with its accounting policies and based on the historic treatment of such costs in its service area because management believes that recovery through some form of regulatory mechanism is probable. There are well established mechanisms and precedent for addressing these catastrophic events and providing for recovery of prudently incurred storm costs in accordance with applicable regulatory and legal principles. Because Entergy Texas has not gone through the regulatory process regarding these storm costs, there is an element of risk, and Entergy Texas is unable to predict with certainty the degree of success it may have in its recovery initiatives, the amount of restoration costs that it may ultimately recover, or the timing of such recovery.

February 2021 Winter Storms

See the “February 2021 Winter Storms” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of the February 2021 winter storms. Entergy Texas’s preliminary estimate for the cost of mobilizing crews and restoring power is approximately $12 million. Natural gas purchases for Entergy Texas for February 1st through 25th, 2021 are approximately $155 million compared to natural gas purchases for February 2020 of $10 million.

Results of Operations

2020 Compared to 2019

Net Income

Net income increased $55.7 million primarily due to higher retail electric price, higher other income, lower other operation and maintenance expenses, a lower effective income tax rate, after excluding the effect of the return of unprotected excess accumulated deferred income taxes to customers which is offset in income taxes, and higher volume/weather. The increase was partially offset by higher depreciation and amortization expenses.

Entergy Texas, Inc. and Subsidiaries

Management’s Financial Discussion and Analysis

Operating Revenues

Following is an analysis of the change in operating revenue comparing 2020 to 2019.


			Amount
			(In Millions)

2019 operating revenues			$1,489.0
Fuel, rider, and other revenues that do not significantly affect net income			4.4
Return of unprotected excess accumulated deferred income taxes to customers			58.6
Retail electric price			28.1
Volume/weather			7.0
2020 operating revenues			$1,587.1

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

The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through a rider effective October 2018. In 2020, $28.8 million was returned to customers as compared to $87.4 million in 2019. There is no effect on net income as the reduction in operating revenues is offset by a reduction in income tax expense. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

The retail electric price variance is primarily due to an increase in the transmission cost recovery factor rider effective January 2020 and an increase in the distribution cost recovery factor rider effective October 2020. See Note 2 to the financial statements for further discussion of the transmission and distribution cost recovery factor rider filings.

The volume/weather variance is primarily due to an increase in usage during the unbilled sales period and an increase in billed residential usage as a result of the COVID-19 pandemic, partially offset by the effect of less favorable weather on residential sales and decreased commercial and industrial usage as a result of the COVID-19 pandemic. The decrease in industrial usage is partially offset by an increase in demand from expansion projects, primarily in the chemicals and transportation industries. See “The COVID-19 Pandemic” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the COVID-19 pandemic.

Other Income Statement Variances

Other operation and maintenance expenses decreased primarily due to:

a decrease of $7.7 million in non-nuclear generation expenses primarily due to a lower scope of work performed during plant outages in 2020 as compared to the same period in 2019, including a delay in plant outages as a result of the COVID-19 pandemic; and
a decrease of $3.7 million primarily due to contract costs in 2019 related to initiatives to explore new customer products and services.

The decrease was partially offset by $2.3 million of transaction costs incurred in connection with the purchase of the Hardin County Peaking Facility and the partial sale of Montgomery County Power Station.

Entergy Texas, Inc. and Subsidiaries

Management’s Financial Discussion and Analysis

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

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

The effective income tax rates were 1.4% for 2020 and (51.1%) for 2019. The difference in the effective income tax rates versus the federal statutory rate of 21% for 2020 and 2019 was primarily due to the amortization of excess accumulated deferred income taxes. See Notes 2 and 3 to the financial statements for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 21% to the effective income tax rates.

2019 Compared to 2018

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Item 7 of Entergy Texas’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020, for discussion of results of operations for 2019 compared to 2018.

Liquidity and Capital Resources

Cash Flow

Cash flows for the years ended December 31, 2020, 2019, and 2018 were as follows:


	2020	2019	2018
	(In Thousands)
Cash and cash equivalents at beginning of period	$12,929	$56	$115,513

Net cash provided by (used in):
Operating activities	375,325	286,739	331,753
Investing activities	(848,648)	(878,280)	(395,973)
Financing activities	708,990	604,414	(51,237)
Net increase (decrease) in cash and cash equivalents	235,667	12,873	(115,457)

Cash and cash equivalents at end of period	$248,596	$12,929	$56

2020 Compared to 2019

Operating Activities

Net cash flow provided by operating activities increased $88.6 million in 2020 compared to 2019 primarily due to the timing of recovery of fuel and purchased power costs and a decrease in the return of unprotected excess accumulated deferred income taxes to customers. The increase was partially offset by lower collections of receivables from customers, in part due to the COVID-19 pandemic, and increased storm spending. See Note 2 to the financial statements for further discussion of the regulatory activity regarding the Tax Cuts and Jobs Act. See “Hurricane Laura and Hurricane Delta” above for discussion of hurricane restoration efforts.

Entergy Texas, Inc. and Subsidiaries

Management’s Financial Discussion and Analysis

Investing Activities

Net cash flow used in investing activities decreased $29.6 million in 2020 primarily due to:

a decrease of $158.8 million in non-nuclear generation construction expenditures primarily due to the Montgomery County Power Station in 2020 as compared to 2019;
a decrease of $9.9 million in information technology capital expenditures primarily due to decreased spending on various technology projects; and
money pool activity.

The decrease was partially offset by:

an increase of $93.8 million in storm spending in 2020, primarily due to Hurricane Laura and Hurricane Delta restoration efforts. See “Hurricane Laura and Hurricane Delta” above for discussion of hurricane restoration efforts;
an increase of $43.9 million in distribution construction expenditures, primarily due to investment in the reliability and infrastructure of Entergy Texas’s distribution system, including increased spending on advanced metering infrastructure; and
an increase of $29.8 million in transmission construction expenditures primarily due to a higher scope of work performed in 2020 as compared to 2019.

Decreases in Entergy Texas’s receivable from the money pool are a source of cash flow, and Entergy Texas’s receivable from the money pool decreased by $6.6 million in 2020 compared to increasing $11.2 million in 2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Net cash flow provided by financing activities increased $104.6 million from 2020 compared to 2019 primarily due to:

the issuance of $600 million of 1.75% Series mortgage bonds in October 2020;
the repayment, at maturity, of $500 million of 7.125% Series mortgage bonds in February 2019;
the issuance of $175 million of 3.55% Series mortgage bonds in March 2020; and
money pool activity.

The increase was partially offset by:

the issuances of $300 million of 4.0% Series mortgage bonds and $400 million of 4.5% Series mortgage bonds, each in January 2019;
the issuance of $300 million of 3.55% Series mortgage bonds in September 2019;
the repayment of $135 million of 5.625% Series mortgage bonds in November 2020;
the issuance of $35 million aggregate liquidation value 5.375% Series A preferred stock in September 2019; and
the payment of $30 million of common stock dividends in 2020. No common stock dividends were paid in 2019 as a result of upcoming capital expenditures, including Montgomery County Power Station.

Decreases in Entergy Texas’s payable to the money pool are a use of cash flow, and Entergy Texas’s payable to the money pool decreased $22.4 million in 2019.

Entergy Texas, Inc. and Subsidiaries

Management’s Financial Discussion and Analysis

2019 Compared to 2018

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in Item 7 of Entergy Texas’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020, for discussion of operating, investing, and financing cash flow activities for 2019 compared to 2018.

Capital Structure

Entergy Texas’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio for Entergy Texas is primarily due to the net issuance of $640 million of mortgage bonds in 2020, partially offset by the $175 million capital contribution received from Entergy Corporation in 2020 and net income in 2020.


	December 31, 2020		December 31, 2019
Debt to capital	53.7	%	51.7	%
Effect of excluding the securitization bonds	(1.3	%)	(2.8	%)
Debt to capital, excluding securitization bonds (a)	52.4	%	48.9	%
Effect of subtracting cash	(2.7	%)	(0.2	%)
Net debt to net capital, excluding securitization bonds (a)	49.7	%	48.7	%


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

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

Entergy Texas seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a dividend, or both, in appropriate amounts to maintain the capital structure. To the extent that operating cash flows are insufficient to support planned investments, Entergy Texas may issue incremental debt or reduce dividends, or both, to maintain its capital structure. In addition, Entergy Texas may receive equity contributions to maintain its capital structure for certain circumstances such as financing of large transactions that would materially alter the capital structure if financed entirely with debt and reduced dividends.

Uses of Capital

Entergy Texas requires capital resources for:

construction and other capital investments;
debt maturities or retirements;
working capital purposes, including the financing of fuel and purchased power costs; and
dividend and interest payments.

Entergy Texas, Inc. and Subsidiaries

Management’s Financial Discussion and Analysis

Following are the amounts of Entergy Texas’s planned construction and other capital investments.


	2021	2022	2023
	(In Millions)
Planned construction and capital investment:
Generation	$95	$40	$490
Transmission	115	125	180
Distribution	245	285	295
Utility Support	55	75	50
Total	$510	$525	$1,015

In addition to the planned spending in the table above, Entergy Texas also expects to pay for $180 million of capital investments in 2021 related to Hurricane Laura and Hurricane Delta restoration work that have been accrued as of December 31, 2020.

Following are the amounts of Entergy Texas’s existing debt and lease obligations (includes estimated interest payments) and other purchase obligations.


	2021	2022-2023	2024-2025	After 2025	Total
	(In Millions)
Long-term debt (a)	$353	$207	$151	$2,163	$2,874
Operating leases (b)	$5	$7	$3	$1	$16
Finance leases (b)	$1	$2	$2	$1	$6
Purchase obligations (c)	$255	$384	$361	$294	$1,294

(a)Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements.

(b)Lease obligations are discussed in Note 10 to the financial statements.

(c)Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Texas, it primarily includes unconditional fuel and purchased power obligations.

In addition to the contractual obligations given above, Entergy Texas expects to contribute approximately $7 million to its qualified pension plans and approximately $66 thousand to other postretirement health care and life insurance plans in 2021, although the 2021 required pension contributions will be known with more certainty when the January 1, 2021 valuations are completed, which is expected by April 1, 2021. See “Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.

Also in addition to the contractual obligations, Entergy Texas has $14.2 million of unrecognized tax benefits and interest net of unused tax attributes and payments for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.

In addition to routine capital spending to maintain operations, the planned capital investment estimate for Entergy Texas includes specific investments such as the Liberty County Power Station and the Hardin County Peaking Facility; transmission projects to enhance reliability, reduce congestion, and enable economic growth; distribution spending to enhance reliability and improve service to customers, including advanced meters and related investments; resource planning, including potential generation and renewables projects; system improvements; software and security; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements,

Entergy Texas, Inc. and Subsidiaries

Management’s Financial Discussion and Analysis

environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital. Management provides more information on long-term debt in Note 5 to the financial statements.

As a subsidiary, Entergy Texas dividends its earnings to Entergy Corporation at a percentage determined monthly.

Liberty County Solar Facility

In September 2020, Entergy Texas filed an application seeking PUCT approval to amend Entergy Texas’s certificate of convenience and necessity to acquire the 100 MW Liberty County Solar Facility and a determination that Entergy Texas’s acquisition of the facility through a tax equity partnership is in the public interest. In its preliminary order, the PUCT determined that, in considering Entergy Texas’s application, it would not specifically address whether Entergy Texas’s use of a tax equity partnership is in the public interest. A procedural schedule was established with a hearing on the merits scheduled in April 2021. Closing is expected to occur in 2023.

Hardin County Peaking Facility

In April 2020, Entergy Texas and East Texas Electric Cooperative, Inc. filed a joint report and application seeking PUCT approvals related to two transactions: (1) Entergy Texas’s acquisition of the Hardin County Peaking Facility from East Texas Electric Cooperative, Inc.; and (2) Entergy Texas’s sale of a 7.55% partial interest in the Montgomery County Power Station to East Texas Electric Cooperative, Inc. The two transactions, currently scheduled to close in April 2021 (pending PUCT approval), are interdependent. In October 2020, Entergy Texas filed an unopposed settlement agreement supporting approval of the transactions. Key provisions of the settlement include: Entergy Texas will propose to depreciate its investment in Hardin County Peaking Facility through the end of 2041; Entergy Texas’s recovery of its investment in Hardin County Peaking Facility will be capped at approximately $36 million; and Entergy Texas will not seek recovery of an acquisition adjustment, if any, or transaction costs for either transaction. The settlement is currently pending before the PUCT.

Sources of Capital

Entergy Texas’s sources to meet its capital requirements include:

internally generated funds;
cash on hand;
debt or preferred stock issuances, including debt issuances to refund or retire currently outstanding or maturing indebtedness;
capital contributions; and
bank financing under new or existing facilities.

Entergy Texas may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and interest and dividend rates are favorable.

All debt and common and preferred stock issuances by Entergy Texas require prior regulatory approval. Debt issuances are also subject to issuance tests set forth in its bond indenture and other agreements. Entergy Texas has sufficient capacity under these tests to meet its foreseeable capital needs.

Entergy Texas’s receivables from or (payables to) the money pool were as follows as of December 31 for each of the following years.


2020	2019	2018	2017
(In Thousands)
$4,601	$11,181	($22,389)	$44,903

Entergy Texas, Inc. and Subsidiaries

Management’s Financial Discussion and Analysis

See Note 4 to the financial statements for a description of the money pool.

Entergy Texas has a credit facility in the amount of $150 million scheduled to expire in September 2024. The credit facility includes fronting commitments for the issuance of letters of credit against $30 million of the borrowing capacity of the facility. As of December 31, 2020, there were no cash borrowings and $1.3 million of letters of credit outstanding under the credit facility. In addition, Entergy Texas is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of December 31, 2020, $6.2 million in letters of credit were outstanding under Entergy Texas’s letter of credit facility. See Note 4 to the financial statements for additional discussion of the credit facilities.

Entergy Texas obtained authorizations from the FERC through July 2022 for short-term borrowings, not to exceed an aggregate amount of $200 million at any time outstanding, and long-term borrowings and security issuances. See Note 4 to the financial statements for further discussion of Entergy Texas’s short-term borrowing limits.

State and Local Rate Regulation and Fuel-Cost Recovery

The rates that Entergy Texas charges for its services significantly influence its financial position, results of operations, and liquidity. Entergy Texas is regulated and the rates charged to its customers are determined in regulatory proceedings. The PUCT, a governmental agency, is primarily responsible for approval of the rates charged to customers.

Filings with the PUCT

2018 Rate Case

In May 2018, Entergy Texas filed a base rate case with the PUCT seeking an increase in base rates and rider rates of approximately $166 million, of which $48 million is associated with moving costs currently being collected through riders into base rates such that the total incremental revenue requirement increase is approximately $118 million. The base rate case was based on a 12-month test year ending December 31, 2017. In addition, Entergy Texas included capital additions placed into service for the period of April 1, 2013 through December 31, 2017, as well as a post-test year adjustment to include capital additions placed in service by June 30, 2018.

In October 2018 the parties filed an unopposed settlement resolving all issues in the proceeding and a motion for interim rates effective for usage on and after October 17, 2018. The unopposed settlement reflects the following terms: a base rate increase of $53.2 million (net of costs realigned from riders and including updated depreciation rates), a $25 million refund to reflect the lower federal income tax rate applicable to Entergy Texas from January 25, 2018 through the date new rates are implemented, $6 million of capitalized skylining tree hazard costs will not be recovered from customers, $242.5 million of protected excess accumulated deferred income taxes, which includes a tax gross-up, will be returned to customers through base rates under the average rate assumption method over the lives of the associated assets, and $185.2 million of unprotected excess accumulated deferred income taxes, which includes a tax gross-up, will be returned to customers through a rider. The unprotected excess accumulated deferred income taxes rider will include carrying charges and will be in effect over a period of 12 months for large customers and over a period of four years for other customers. The settlement also provides for the deferral of $24.5 million of costs associated with the remaining book value of the Neches and Sabine 2 plants, previously taken out of service, to be recovered over a ten-year period and the deferral of $20.5 million of costs associated with Hurricane Harvey to be recovered over a 12-year period, each beginning in October 2018. The settlement provides final resolution of all issues in the matter, including those related to the Tax Act. In October 2018 the ALJ granted the unopposed motion for interim rates to be effective for service rendered on or after October 17, 2018. In December 2018 the PUCT issued an order approving the unopposed settlement.

Entergy Texas, Inc. and Subsidiaries

Management’s Financial Discussion and Analysis

Distribution Cost Recovery Factor (DCRF) Rider

In March 2019, Entergy Texas filed with the PUCT a request to set a new DCRF rider. The proposed new DCRF rider is designed to collect approximately $3.2 million annually from Entergy Texas’s retail customers based on its capital invested in distribution between January 1, 2018 and December 31, 2018. In September 2019 the PUCT issued an order approving rates, which had been effective on an interim basis since June 2019, at the level proposed in Entergy Texas’s application.

In March 2020, Entergy Texas filed with the PUCT a request to amend its DCRF rider. The proposed rider is designed to collect from Entergy Texas’s retail customers approximately $23.6 million annually, or $20.4 million in incremental annual DCRF revenue beyond Entergy Texas’s then-effective DCRF rider, based on its capital invested in distribution between January 1, 2019 and December 31, 2019. In May and June 2020 intervenors filed testimony recommending reductions in Entergy Texas’s annual revenue requirement of approximately $0.3 million and $4.1 million. The parties briefed the contested issues in this matter and a proposal for decision was issued in September 2020 recommending a $4.1 million revenue reduction related to non-Advanced Metering System meters included in the DCRF calculation. The parties filed exceptions to the proposal for decision and replies to those exceptions in September 2020. In October 2020 the PUCT issued a final order approving a $16.3 million incremental annual DCRF revenue increase.

In October 2020, Entergy Texas filed with the PUCT a request to amend its DCRF rider. The proposed rider is designed to collect from Entergy Texas’s retail customers approximately $26.3 million annually, or $6.8 million in incremental annual revenues beyond Entergy Texas’s currently effective DCRF rider based on its capital invested in distribution between January 1, 2020 and August 31, 2020. In February 2021 the administrative law judge with the State Office of Administrative Hearings approved Entergy Texas's agreed motion for interim rates, which will go into effect in March 2021. The administrative law judge also adopted a procedural schedule setting a hearing on the merits, if necessary, in April 2021.

Transmission Cost Recovery Factor (TCRF) Rider

In December 2018, Entergy Texas filed with the PUCT a request to set a new TCRF rider. The proposed new TCRF rider is designed to collect approximately $2.7 million annually from Entergy Texas’s retail customers based on its capital invested in transmission between January 1, 2018 and September 30, 2018. In April 2019 parties filed testimony proposing a load growth adjustment, which would fully offset Entergy Texas’s proposed TCRF revenue requirement. In July 2019 the PUCT granted Entergy Texas’s application as filed to begin recovery of the requested $2.7 million annual revenue requirement, rejecting opposing parties’ proposed adjustment; however, the PUCT found that the question of prudence of the actual investment costs should be determined in Entergy Texas’s next rate case similar to the procedure used for the costs recovered through the DCRF rider. In October 2019 the PUCT issued an order on a motion for rehearing, clarifying and affirming its prior order granting Entergy Texas’s application as filed. Also, in October 2019 a second motion for rehearing was filed, and Entergy Texas filed a response in opposition to the motion. The second motion for rehearing was overruled by operation of law. In December 2019, Texas Industrial Energy Consumers filed an appeal to the PUCT order in district court alleging that the PUCT erred in declining to apply a load growth adjustment.

In August 2019, Entergy Texas filed with the PUCT a request to amend its TCRF rider. The amended TCRF rider is designed to collect approximately $19.4 million annually from Entergy Texas’s retail customers based on its capital invested in transmission between January 1, 2018 and June 30, 2019, which is $16.7 million in incremental annual revenue above the $2.7 million approved in the prior pending TCRF proceeding. In January 2020 the PUCT issued an order approving an unopposed settlement providing for recovery of the requested revenue requirement. Entergy Texas implemented the amended rider beginning with bills covering usage on and after January 23, 2020.

Entergy Texas, Inc. and Subsidiaries

Management’s Financial Discussion and Analysis

In October 2020, Entergy Texas filed with the PUCT a request to amend its TCRF rider. The proposed rider is designed to collect from Entergy Texas’s retail customers approximately $51 million annually, or $31.6 million in incremental annual revenues beyond Entergy Texas’s currently effective TCRF rider based on its capital invested in transmission between July 1, 2019 and August 31, 2020. A procedural schedule was established with a hearing scheduled in March 2021. In February 2021, Entergy Texas filed an agreed motion to abate the procedural schedule, noting that the parties had reached a settlement in principle, and the administrative law judge granted the motion to abate.

Generation Cost Recovery Rider

In October 2020, Entergy Texas filed an application to establish a generation cost recovery rider with an initial annual revenue requirement of approximately $91 million to begin recovering a return of and on its capital investment in the Montgomery County Power Station through August 31, 2020. In December 2020, Entergy Texas filed an unopposed settlement supporting a generation cost recovery rider with an annual revenue requirement of approximately $86 million. The settlement revenue requirement is based on a depreciation rate intended to fully depreciate Montgomery County Power Station over 38 years and the removal of certain costs from Entergy Texas’s request. Under the settlement, Entergy Texas retains the right to propose a different depreciation rate and seek recovery of a majority of the costs removed from its request in its next base rate proceeding. On January 14, 2021, the PUCT approved the generation cost recovery rider settlement rates on an interim basis and abated the proceeding. Within 60 days of Montgomery County Power Station being placed in service on January 1, 2021, Entergy Texas will file to update its generation cost recovery rider to include investment in Montgomery County Power Station after August 31, 2020. The current estimated cost of Montgomery County Power Station, including transmission interconnection and network upgrades, is approximately $921 million. Of this investment, approximately $756 million is eligible to begin being recovered through the generation cost recovery rider. Entergy Texas will address recovery of the remainder of its Montgomery County Power Station investment through other rate mechanisms.

In December 2020, Entergy Texas filed an application to amend its generation cost recovery rider to reflect its acquisition of the Hardin County Peaking Facility, which is expected to close in April 2021. The initial generation cost recovery rider rates proposed in the application represent no change from the generation cost recovery rider rates to be established in Entergy Texas’s previous generation cost recovery rider proceeding. Once Entergy Texas has acquired the Hardin County Peaking Facility, its investment in the facility will be reflected in the updated filing to Entergy Texas’s application, which will be made within 60 days of the acquisition’s closing.

COVID-19 Orders

In March 2020 the PUCT authorized electric utilities to record as a regulatory asset expenses resulting from the effects of COVID-19. In future proceedings the PUCT will consider whether each utility's request for recovery of these regulatory assets is reasonable and necessary, the appropriate period of recovery, and any amount of carrying costs thereon. In March 2020 the PUCT ordered a moratorium on disconnections for nonpayment for all customer classes, but, in April 2020, revised the disconnect moratorium to apply only to residential customers. The PUCT allowed the moratorium to expire on June 13, 2020, but on July 17, 2020, the PUCT re-established the disconnect moratorium for residential customers until August 31, 2020. In January 2021, Entergy Texas resumed disconnections for customers with past-due balances that have not made payment arrangements. As of December 31, 2020, Entergy Texas recorded a regulatory asset of $12.9 million for costs associated with the COVID-19 pandemic.

Fuel and Purchased Power Cost Recovery

Entergy Texas’s rate schedules include a fixed fuel factor to recover fuel and purchased power costs, including interest, not recovered in base rates. Semi-annual revisions of the fixed fuel factor are made in March

Entergy Texas, Inc. and Subsidiaries

Management’s Financial Discussion and Analysis

and September based on the market price of natural gas and changes in fuel mix. The amounts collected under Entergy Texas’s fixed fuel factor and any interim surcharge or refund are subject to fuel reconciliation proceedings before the PUCT. A fuel reconciliation is required to be filed at least once every three years and outside of a base rate case filing.

In December 2017, Entergy Texas filed an application for a fuel refund of approximately $30.5 million for the months of May 2017 through October 2017. Also in December 2017, the PUCT’s ALJ approved the refund on an interim basis. For most customers, the refunds flowed through bills January 2018 through March 2018. The fuel refund was approved by the PUCT in March 2018.

In September 2019, Entergy Texas filed an application to reconcile its fuel and purchased power costs for the period from April 2016 through March 2019. During the reconciliation period, Entergy Texas incurred approximately $1.6 billion in Texas jurisdictional eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. Entergy Texas estimated an under-recovery balance of approximately $25.8 million, including interest, which Entergy Texas requested authority to carry over as the beginning balance for the subsequent reconciliation period beginning April 2019. In March 2020 an intervenor filed testimony proposing that the PUCT disallow: (1) $2 million in replacement power costs associated with generation outages during the reconciliation period; and (2) $24.4 million associated with the operation of the Spindletop natural gas storage facility during the reconciliation period. In April 2020, Entergy Texas filed rebuttal testimony refuting all points raised by the intervenor. In June 2020 the parties filed a stipulation and settlement agreement, which included a $1.2 million disallowance not associated with any particular issue raised by any party. The PUCT approved the settlement in August 2020.

In July 2020, Entergy Texas filed an application with the PUCT to implement an interim fuel refund of $25.5 million, including interest. Entergy Texas proposed that the interim fuel refund be implemented beginning with the first August 2020 billing cycle over a three-month period for smaller customers and in a lump sum amount in the billing month of August 2020 for transmission-level customers. The interim fuel refund was approved in July 2020, and Entergy Texas began refunds in August 2020.

In February 2021, Entergy Texas filed an application to implement a fuel refund for a cumulative over-recovery of approximately $75 million that is primarily attributable to settlements received by Entergy Texas from MISO related to Hurricane Laura. Entergy Texas planned to issue the refund over the period of March through August 2021. On February 22, 2021, Entergy Texas filed a motion to abate its fuel refund proceeding to assess how the February 2021 winter storm impacted Entergy Texas’s fuel over-recovery position.

Federal Regulation

Nuclear Matters

See the “Nuclear Matters” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for a discussion of nuclear matters.

Industrial and Commercial Customers

Entergy Texas’s large industrial and commercial customers continually explore ways to reduce their energy costs. In particular, cogeneration is an option available to a portion of Entergy Texas’s industrial customer base. Entergy Texas responds by working with industrial and commercial customers and negotiating electric service contracts to provide, under existing rate schedules, competitive rates that match specific customer needs and load

Entergy Texas, Inc. and Subsidiaries

Management’s Financial Discussion and Analysis

profiles. Entergy Texas actively participates in economic development, customer retention, and reclamation activities to increase industrial and commercial demand, from both new and existing customers.

Environmental Risks

Entergy Texas’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that Entergy Texas is in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.

Critical Accounting Estimates

The preparation of Entergy Texas’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements that could produce estimates that would have a material effect on the presentation of Entergy Texas’s financial position or results of operations.

Utility Regulatory Accounting

Impairment of Long-lived Assets

Taxation and Uncertain Tax Positions

Qualified Pension and Other Postretirement Benefits

Entergy Texas’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries’ Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.

Cost Sensitivity

The following chart reflects the sensitivity of qualified pension and qualified projected benefit obligation cost to changes in certain actuarial assumptions (dollars in thousands).

Entergy Texas, Inc. and Subsidiaries

Management’s Financial Discussion and Analysis


Actuarial Assumption	Change in Assumption	Impact on 2021 Qualified Pension Cost	Impact on 2020 Qualified Projected Benefit Obligation
		Increase/(Decrease)
Discount rate	(0.25%)	$472	$9,960
Rate of return on plan assets	(0.25%)	$772	$—
Rate of increase in compensation	0.25%	$388	$1,916

The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation changes in certain actuarial assumptions (dollars in thousands).


Actuarial Assumption	Change in Assumption	Impact on 2021 Postretirement Benefit Cost	Impact on 2020 Accumulated Postretirement Benefit Obligation
		Increase/(Decrease)
Discount rate	(0.25%)	$49	$2,206
Health care cost trend	0.25%	$76	$1,593

Each fluctuation above assumes that the other components of the calculation are held constant.

Costs and Employer Contributions

Total qualified pension cost for Entergy Texas in 2020 was $12.4 million, including $4.3 million in settlement costs. Entergy Texas anticipates 2021 qualified pension cost to be $8.9 million. Entergy Texas contributed $5 million to its qualified pension plans in 2020 and estimates 2021 pension contributions will be approximately $7 million, although the 2021 required pension contributions will be known with more certainty when the January 1, 2021 valuations are completed, which is expected by April 1, 2021.

Total postretirement health care and life insurance benefit income for Entergy Texas in 2020 was $8.9 million. Entergy Texas expects 2020 postretirement health care and life insurance benefit income to approximate $10.9 million. In 2020, Entergy Texas’ postretirement contributions (that is, contributions to the external trusts plus claims payments) were $690 thousand. Entergy Texas estimates 2021 contributions will be approximately $66 thousand.

Other Contingencies

New Accounting Pronouncements

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and Board of Directors of

Entergy Texas, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Entergy Texas, Inc. and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, cash flows, and changes in common equity (pages 423 through 428 and applicable items in pages 51 through 238), for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

Critical Audit Matter

Rate and Regulatory Matters —Entergy Texas, Inc. and Subsidiaries — Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company is subject to rate regulation by the Public Utility Commission of Texas (the “PUCT”), which has jurisdiction with respect to the rates of electric companies in Texas, and to wholesale rate regulation by the Federal Energy Regulatory Commission (“FERC”). Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics of rate

regulation impacts multiple financial statement line items and disclosures, such as property, plant, and equipment; regulatory assets and liabilities; income taxes; operating revenues; operation and maintenance expense; and depreciation and amortization expense.

The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Because the PUCT and the FERC set the rates the Company is allowed to charge customers based on allowable costs, including a reasonable return on equity, the Company applies accounting standards that require the financial statements to reflect the effects of rate regulation, including the recording of regulatory assets and liabilities. The Company assesses whether the regulatory assets and regulatory liabilities continue to meet the criteria for probable future recovery or settlement at each balance sheet date and when regulatory events occur. This assessment includes consideration of recent rate orders, historical regulatory treatment for similar costs, and factors such as changes in applicable regulatory and political environments. While the Company has indicated it expects to recover costs from customers through regulated rates, there is a risk that the PUCT and the FERC will not approve: (1) full recovery of the costs of providing utility service, or (2) full recovery of amounts invested in the utility business and a reasonable return on that investment.

We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of recovery in future rates of incurred costs and refunds to customers. Auditing management’s judgments regarding the outcome of future decisions by the PUCT and the FERC, involved especially subjective judgment and specialized knowledge of accounting for rate regulation and the rate setting process.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the uncertainty of future decisions by the PUCT and the FERC included the following, among others:

We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the initial recognition of amounts as property, plant, and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
We read relevant regulatory orders issued by the PUCT and the FERC for the Company and other public utilities, regulatory statutes, interpretations, procedural memorandums, filings made by intervenors, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the PUCT’s and the FERC’s treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness.
For regulatory matters in process, we inspected the Company’s filings with the PUCT and the FERC, including the base rate case filing, and considered the filings with the PUCT and the FERC by intervenors that may impact the Company’s future rates, for any evidence that might contradict management’s assertions*.*
We obtained an analysis from management and support from internal and external legal counsel, as appropriate, regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery or a future reduction in rates.

/s/ DELOITTE & TOUCHE LLP

New Orleans, Louisiana

February 26, 2021

We have served as the Company’s auditor since 2001.


ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS

	For the Years Ended December 31,
	2020	2019	2018
	(In Thousands)

OPERATING REVENUES
Electric	$1,587,125	$1,488,955	$1,605,902

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	238,428	162,544	204,830
Purchased power	510,633	602,563	614,012
Other operation and maintenance	250,170	258,924	238,400

Taxes other than income taxes	72,909	76,366	82,033
Depreciation and amortization	177,738	153,286	128,534
Other regulatory charges - net	90,398	88,770	131,667
TOTAL	1,340,276	1,342,453	1,399,476

OPERATING INCOME	246,849	146,502	206,426

OTHER INCOME
Allowance for equity funds used during construction	44,073	28,445	9,723
Interest and investment income	1,201	3,072	2,188
Miscellaneous - net	(28)	546	(655)
TOTAL	45,246	32,063	11,256

INTEREST EXPENSE
Interest expense	92,920	86,333	87,203
Allowance for borrowed funds used during construction	(18,940)	(13,269)	(5,513)
TOTAL	73,980	73,064	81,690

INCOME BEFORE INCOME TAXES	218,115	105,501	135,992

Income taxes	3,042	(53,896)	(26,243)

NET INCOME	215,073	159,397	162,235

Preferred dividend requirements	1,882	580	—

EARNINGS APPLICABLE TO COMMON STOCK	$213,191	$158,817	$162,235

See Notes to Financial Statements.

(Page left blank intentionally)


ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2020	2019	2018
	(In Thousands)
OPERATING ACTIVITIES
Net income	$215,073	$159,397	$162,235
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation and amortization	177,738	153,286	128,534
Deferred income taxes, investment tax credits, and non-current taxes accrued	36,033	20,143	(39,545)
Changes in assets and liabilities:
Receivables	(30,082)	58,445	(17,099)
Fuel inventory	(5,938)	(4,926)	64
Accounts payable	(23,692)	(33,646)	43,319
Prepaid taxes and taxes accrued	2,730	(3,805)	7,854
Interest accrued	1,864	(5,363)	(1,201)
Deferred fuel costs	72,355	(6,696)	(47,604)
Other working capital accounts	(11,837)	(13,822)	1,328
Provisions for estimated losses	274	(5,748)	3,741
Other regulatory assets	(12,065)	85,400	63,350
Other regulatory liabilities	(57,477)	(105,517)	(19,336)

Pension and other postretirement liabilities	(28,825)	(7,152)	(13,135)
Other assets and liabilities	39,174	(3,257)	59,248
Net cash flow provided by operating activities	375,325	286,739	331,753
INVESTING ACTIVITIES
Construction expenditures	(895,857)	(898,090)	(451,988)
Allowance for equity funds used during construction	44,073	28,526	9,861
Proceeds from sale of assets	—	—	3,753

Payment for purchase of assets	(4,931)	—	—
Changes in money pool receivable - net	6,580	(11,181)	44,903

Changes in securitization account	1,487	2,465	(2,502)

Net cash flow used in investing activities	(848,648)	(878,280)	(395,973)
FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	937,725	986,019	—
Retirement of long-term debt	(367,565)	(578,593)	(74,950)
Capital contributions from parent	175,000	185,000	—
Proceeds from the issuance of preferred stock	—	33,188	—
Change in money pool payable - net	—	(22,389)	22,389
Dividends paid:
Common stock	(30,000)	—	—
Preferred stock	(2,064)	—	—
Other	(4,106)	1,189	1,324
Net cash flow provided by (used in) financing activities	708,990	604,414	(51,237)
Net increase (decrease) in cash and cash equivalents	235,667	12,873	(115,457)
Cash and cash equivalents at beginning of period	12,929	56	115,513
Cash and cash equivalents at end of period	$248,596	$12,929	$56
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized	$89,077	$89,402	$85,719
Income taxes	$2,792	$17,010	$20,787
See Notes to Financial Statements.


ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS

	December 31,
	2020	2019
	(In Thousands)

CURRENT ASSETS
Cash and cash equivalents:
Cash	$26	$25
Temporary cash investments	248,570	12,904
Total cash and cash equivalents	248,596	12,929
Securitization recovery trust account	36,233	37,720
Accounts receivable:
Customer	103,221	59,365
Allowance for doubtful accounts	(16,810)	(471)
Associated companies	18,892	24,001
Other	11,780	17,050
Accrued unbilled revenues	56,411	50,048
Total accounts receivable	173,494	149,993


Fuel inventory - at average cost	53,531	47,593
Materials and supplies - at average cost	56,227	46,056

Prepayments and other	20,165	21,012
TOTAL	588,246	315,303

OTHER PROPERTY AND INVESTMENTS
Investments in affiliates - at equity	349	396
Non-utility property - at cost (less accumulated depreciation)	376	376
Other	19,889	20,077
TOTAL	20,614	20,849

UTILITY PLANT
Electric	6,007,687	5,199,027
Construction work in progress	879,908	760,354
TOTAL UTILITY PLANT	6,887,595	5,959,381
Less - accumulated depreciation and amortization	1,864,494	1,770,852
UTILITY PLANT - NET	5,023,101	4,188,529

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets (includes securitization property of $78,590 as of December 31, 2020 and $160,375 as of December 31, 2019)	524,713	512,648

Other	70,397	33,393
TOTAL	595,110	546,041

TOTAL ASSETS	$6,227,071	$5,070,722

See Notes to Financial Statements.


ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY

	December 31,
	2020	2019
	(In Thousands)
CURRENT LIABILITIES
Currently maturing long-term debt	$200,000	$—
Accounts payable:
Associated companies	55,944	58,055
Other	350,947	188,460
Customer deposits	36,282	40,232
Taxes accrued	52,438	49,708
Interest accrued	20,856	18,992
Current portion of unprotected excess accumulated deferred income taxes	29,249	26,552
Deferred fuel costs	85,356	13,001


Other	12,370	10,521
TOTAL	843,442	405,521

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	639,422	585,413
Accumulated deferred investment tax credits	9,942	10,559
Regulatory liability for income taxes - net	175,594	225,980
Other regulatory liabilities	32,297	42,085
Asset retirement cost liabilities	8,063	7,631
Accumulated provisions	8,382	8,108

Long-term debt (includes securitization bonds of $123,066 as of December 31, 2020 and $205,349 as of December 31, 2019)	2,293,708	1,922,956
Other	58,643	63,062
TOTAL	3,226,051	2,865,794

Commitments and Contingencies

EQUITY
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 46,525,000 shares in 2020 and 2019	49,452	49,452
Paid-in capital	955,162	780,182
Retained earnings	1,117,964	934,773
Total common shareholder's equity	2,122,578	1,764,407
Preferred stock without sinking fund	35,000	35,000
TOTAL	2,157,578	1,799,407

TOTAL LIABILITIES AND EQUITY	$6,227,071	$5,070,722

See Notes to Financial Statements.


ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Years Ended December 31, 2020, 2019, and 2018

		Common Equity
	Preferred Stock	Common Stock	Paid-in Capital	Retained Earnings	Total
		(In Thousands)

Balance at December 31, 2017	$—	$49,452	$596,994	$613,721	$1,260,167
Net income	—	—	—	162,235	162,235
Balance at December 31, 2018	$—	$49,452	$596,994	$775,956	$1,422,402
Net income	—	—	—	159,397	159,397
Capital contributions from parent		—	185,000	—	185,000
Preferred stock issuance	35,000	—	(1,812)	—	33,188
Preferred stock dividends	—	—	—	(580)	(580)
Balance at December 31, 2019	$35,000	$49,452	$780,182	$934,773	$1,799,407
Net income	—	—	—	215,073	215,073
Capital contributions from parent	—	—	175,000	—	175,000
Common stock dividends	—	—	—	(30,000)	(30,000)
Preferred stock dividends	—	—	—	(1,882)	(1,882)
Other	—	—	(20)	—	(20)
Balance at December 31, 2020	$35,000	$49,452	$955,162	$1,117,964	$2,157,578

See Notes to Financial Statements.


ENTERGY TEXAS, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON

	2020	2019	2018	2017	2016
	(In Thousands)

Operating revenues	$1,587,125	$1,488,955	$1,605,902	$1,544,893	$1,615,619
Net income	$215,073	$159,397	$162,235	$76,173	$107,538
Total assets	$6,227,071	$5,070,722	$4,400,020	$4,279,738	$4,033,081
Long-term obligations (a)	$2,293,708	$1,922,956	$1,013,735	$1,587,150	$1,508,407

(a) Includes long-term debt (excluding currently maturing debt).

	2020	2019	2018	2017	2016
	(Dollars In Millions)

Electric Operating Revenues:
Residential	$672	$658	$674	$636	$613
Commercial	365	343	381	378	356
Industrial	386	373	394	384	365
Governmental	23	22	25	25	24
Total billed retail	1,446	1,396	1,474	1,423	1,358
Sales for resale:
Associated companies	40	52	59	58	178
Non-associated companies	60	7	39	22	40
Other	41	34	34	42	40
Total	$1,587	$1,489	$1,606	$1,545	$1,616

Billed Electric Energy Sales (GWh):
Residential	6,146	6,039	6,135	5,716	5,836
Commercial	4,386	4,667	4,747	4,548	4,570
Industrial	7,885	8,043	8,052	7,521	7,493
Governmental	260	259	286	273	283
Total retail	18,677	19,008	19,220	18,058	18,182
Sales for resale:
Associated companies	1,203	1,472	1,516	1,534	4,625
Non-associated companies	810	343	962	729	1,086
Total	20,690	20,823	21,698	20,321	23,893

SYSTEM ENERGY RESOURCES, INC.

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

System Energy’s principal asset consists of an ownership interest and a leasehold interest in Grand Gulf. The capacity and energy from its 90% interest is sold under the Unit Power Sales Agreement to its only four customers, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. System Energy’s operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% interest in Grand Gulf pursuant to the Unit Power Sales Agreement. Payments under the Unit Power Sales Agreement are System Energy’s only source of operating revenues. As discussed in “Complaints Against System Energy” below, System Energy is currently involved in proceedings at the FERC commenced by the retail regulators of its customers regarding its return on equity, its capital structure, its renewal of the sale-leaseback of 11.5% of Grand Gulf, the treatment of uncertain tax positions in rate base, and the rates it charges under the Unit Power Sales Agreement.

Results of Operations

2020 Compared to 2019

Net Income

Net income remained relatively unchanged. An increase in operating revenues resulting from changes in rate base was substantially offset by higher provisions against revenue, as compared to prior year. A provision for rate refund was recorded in 2020 to reflect a one-time credit of $25.2 million provided for in the Federal Power Act section 205 filing made by System Energy in December 2020. Provisions against revenue were recorded in 2019 in connection with the return on equity complaint against System Energy. See “Complaints Against System Energy” below for further discussion of these items and other proceedings involving System Energy at the FERC. The one-time credit is discussed in the Grand Gulf Sale-leaseback Renewal Complaint and Uncertain Tax Position Rate Base Issue part of that section. The return on equity complaint is discussed in the Return on Equity and Capital Structure Complaints part of that section.

Income Taxes

The effective income tax rates were 17.2% for 2020 and 13.4% for 2019. See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 21% to the effective income tax rates.

2019 Compared to 2018

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Item 7 of System Energy’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020, for discussion of results of operations for 2019 compared to 2018.

System Energy Resources, Inc.

Management’s Financial Discussion and Analysis

Liquidity and Capital Resources

Cash Flow

Cash flows for the years ended December 31, 2020, 2019, and 2018 were as follows:


	2020	2019	2018
	(In Thousands)
Cash and cash equivalents at beginning of period	$68,534	$95,685	$287,187

Net cash provided by (used in):
Operating activities	(145,462)	300,141	101,328
Investing activities	(206,443)	(119,553)	(286,161)
Financing activities	525,840	(207,739)	(6,669)
Net increase (decrease) in cash and cash equivalents	173,935	(27,151)	(191,502)

Cash and cash equivalents at end of period	$242,469	$68,534	$95,685

2020 Compared to 2019

Operating Activities

System Energy’s operating activities used $145.5 million of cash in 2020 compared to providing $300.1 million of cash in 2019 primarily due to:

an increase of $382 million in income taxes paid in 2020. System Energy made income tax payments of $384.3 million in 2020 in accordance with an intercompany income tax allocation agreement. The 2020 income tax payments are primarily related to the resolution of the 2014-2015 IRS audit regarding the treatment of nuclear decommissioning costs included in cost of goods sold, which is discussed in Note 3 to the financial statements in Tax Accounting Methods;
an increase in spending of $34.9 million on nuclear refueling outages in 2020 as compared to prior year; and
timing of payments to vendors.

The increase in cash used was offset by proceeds of $35 million received in December 2020 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. See Note 8 to the financial statements for a discussion of the spent nuclear fuel litigation.

Investing Activities

Net cash flow used in investing activities increased by $86.9 million in 2020 primarily due to:

an increase of $77.2 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle; and
an increase of $28 million in nuclear construction expenditures as a result of spending in 2020 on Grand Gulf outage projects.

The increase was partially offset by money pool activity and proceeds of $5.5 million received in December 2020 from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation.

System Energy Resources, Inc.

Management’s Financial Discussion and Analysis

Decreases in System Energy’s receivable from the money pool are a source of cash flow and System Energy’s receivable from the money pool decreased by $55.3 million in 2020 compared to decreasing by $47.8 million in 2019. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

System Energy’s financing activities provided $525.8 million of cash in 2020 compared to using $207.7 million of cash in 2019 primarily due to the following activity:

a $350 million capital contribution from Entergy Corporation in order to maintain System Energy’s capital structure in conjunction with the tax payments discussed in “Operating Activities”;
the issuance in December 2020 of $200 million of 2.14% Series mortgage bonds;
the issuance in October 2020 of $90 million of 2.05% Series K notes by the System Energy nuclear fuel company variable interest entity;
a decrease in net repayments of $50.7 million of long-term borrowings in 2020 on the nuclear fuel company variable interest entity’s credit facility; and
a decrease of $43.6 million in common stock dividends and distributions in 2020 in order to maintain System Energy’s capital structure.

See Note 5 to the financial statements for additional details of long-term debt.

2019 Compared to 2018

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow” in Item 7 of System Energy’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020, for discussion of operating, investing, and financing cash flow activities for 2019 compared to 2018.

Capital Structure

System Energy’s debt to capital ratio is shown in the following table. The decrease in the debt to capital ratio is primarily due to the capital contribution from Entergy Corporation, partially offset by the issuance of long-term debt in 2020.


	December 31, 2020		December 31, 2019
Debt to capital	42.7	%	43.5	%
Effect of subtracting cash	(8.5	%)	(3.3	%)
Net debt to net capital	34.2	%	40.2	%

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

System Energy Resources, Inc.

Management’s Financial Discussion and Analysis

System Energy seeks to optimize its capital structure in accordance with its regulatory requirements and to control its cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a dividend or a capital distribution, or a combination of the three, in appropriate amounts to maintain the capital structure. To the extent that operating cash flows are insufficient to support planned investments and other uses of cash, System Energy may issue incremental debt or reduce dividends, or both, to maintain its capital structure. In addition, System Energy may receive equity contributions to maintain its capital structure for certain circumstances that would materially alter the capital structure if financed entirely with debt and reduced dividends.

Uses of Capital

System Energy requires capital resources for:

construction and other capital investments;
debt maturities or retirements;
working capital purposes, including the financing of fuel costs and tax payments; and
dividend, distribution, and interest payments.

Following are the amounts of System Energy’s planned construction and other capital investments.


	2021	2022	2023
	(In Millions)
Planned construction and capital investment:
Generation	$90	$145	$140
Utility Support	15	10	15
Total	$105	$155	$155

Following are the amounts of System Energy’s existing debt and lease obligations (includes estimated interest payments) and other purchase obligations.


	2021	2022-2023	2024-2025	After 2025	Total
	(In Millions)
Long-term debt (a)	$138	$444	$246	$299	$1,127
Purchase obligations (b)	$6	$53	$47	$40	$146

(a)Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements.

(b)Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For System Energy, it includes nuclear fuel purchase obligations.

In addition to the contractual obligations given above, System Energy expects to contribute approximately $18.7 million to its qualified pension plans and approximately $22 thousand to other postretirement health care and life insurance plans in 2021, although the 2021 required pension contributions will be known with more certainty when the January 1, 2021 valuations are completed, which is expected by April 1, 2021. See “Critical Accounting Estimates – Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding.

Also in addition to the contractual obligations, System Energy has $14.2 million of unrecognized tax benefits and interest net of unused tax attributes and payments for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits.

System Energy Resources, Inc.

Management’s Financial Discussion and Analysis

In addition to routine spending to maintain operations, the planned capital investment estimate includes specific Grand Gulf investments and initiatives.

As a wholly-owned subsidiary, System Energy dividends its earnings to Entergy Corporation at a percentage determined monthly.

Sources of Capital

System Energy’s sources to meet its capital requirements include:

internally generated funds;
cash on hand;
debt issuances, including debt issuances to refund or retire currently outstanding or maturing indebtedness;
equity contributions; and
bank financing under new or existing facilities.

System Energy may refinance, redeem, or otherwise retire debt prior to maturity, to the extent market conditions and interest rates are favorable.

All debt issuances by System Energy require prior regulatory approval. Debt issuances are also subject to issuance tests set forth in its bond indenture and other agreements. System Energy has sufficient capacity under these tests to meet its foreseeable capital needs.

System Energy’s receivables from the money pool were as follows as of December 31 for each of the following years.


2020	2019	2018	2017
(In Thousands)
$4,004	$59,298	$107,122	$111,667

See Note 4 to the financial statements for a description of the money pool.

The System Energy nuclear fuel company variable interest entity has a credit facility in the amount of $120 million scheduled to expire in September 2022. As of December 31, 2020, no loans were outstanding under the System Energy nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements for additional discussion of the variable interest entity credit facility.

System Energy obtained authorizations from the FERC through July 14, 2022 for the following:

short-term borrowings not to exceed an aggregate amount of $200 million at any time outstanding;
long-term borrowings and security issuances; and
borrowings by its nuclear fuel company variable interest entity.

See Note 4 to the financial statements for further discussion of System Energy’s short-term borrowing limits.

Federal Regulation

System Energy Resources, Inc.

Management’s Financial Discussion and Analysis

Complaints Against System Energy

Return on Equity and Capital Structure Complaints

In January 2017 the APSC and MPSC filed a complaint with the FERC against System Energy. The complaint seeks a reduction in the return on equity component of the Unit Power Sales Agreement pursuant to which System Energy sells its Grand Gulf capacity and energy to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. Entergy Arkansas also sells some of its Grand Gulf capacity and energy to Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans under separate agreements. The current return on equity under the Unit Power Sales Agreement is 10.94%, which was established in a rate proceeding that became final in July 2001.

The APSC and MPSC complaint alleges that the return on equity is unjust and unreasonable because capital market and other considerations indicate that it is excessive. The complaint requests proceedings to investigate the return on equity and establish a lower return on equity, and also requests that the FERC establish January 23, 2017 as a refund effective date. The complaint includes return on equity analysis that purports to establish that the range of reasonable return on equity for System Energy is between 8.37% and 8.67%. System Energy answered the complaint in February 2017 and disputes that a return on equity of 8.37% to 8.67% is just and reasonable. The LPSC and the City Council intervened in the proceeding expressing support for the complaint. In September 2017 the FERC established a refund effective date of January 23, 2017 and directed the parties to engage in settlement proceedings before an ALJ. The parties have been unable to settle the return on equity issue and a FERC hearing judge was assigned in July 2018. The 15-month refund period in connection with the APSC/MPSC complaint expired on April 23, 2018.

In April 2018 the LPSC filed a complaint with the FERC against System Energy seeking an additional 15-month refund period. The LPSC complaint requests similar relief from the FERC with respect to System Energy’s return on equity and also requests the FERC to investigate System Energy’s capital structure. The APSC, MPSC, and City Council intervened in the proceeding, filed an answer expressing support for the complaint, and asked the FERC to consolidate this proceeding with the proceeding initiated by the complaint of the APSC and MPSC in January 2017. System Energy answered the LPSC complaint in May 2018 and also filed a motion to dismiss the complaint. In August 2018 the FERC issued an order dismissing the LPSC’s request to investigate System Energy’s capital structure and setting for hearing the return on equity complaint, with a refund effective date of April 27, 2018. The 15-month refund period in connection with the LPSC return on equity complaint expired on July 26, 2019.

The portion of the LPSC’s complaint dealing with return on equity was subsequently consolidated with the APSC and MPSC complaint for hearing. The parties addressed an order (issued in a separate proceeding involving New England transmission owners) that proposed modifying the FERC’s standard methodology for determining return on equity. In September 2018, System Energy filed a request for rehearing and the LPSC filed a request for rehearing or reconsideration of the FERC’s August 2018 order. The LPSC’s request referenced an amended complaint that it filed on the same day raising the same capital structure claim the FERC had earlier dismissed. The FERC initiated a new proceeding for the amended capital structure complaint, and System Energy submitted a response in October 2018. In January 2019 the FERC set the amended complaint for settlement and hearing proceedings. Settlement proceedings in the capital structure proceeding commenced in February 2019. As noted below, in June 2019 settlement discussions were terminated and the amended capital structure complaint was consolidated with the ongoing return on equity proceeding. The 15-month refund period in connection with the capital structure complaint was from September 24, 2018 to December 23, 2019.

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

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Management’s Financial Discussion and Analysis

prospective basis, the LPSC argues for an authorized return on equity for System Energy of 7.97% and the APSC and MPSC argue for an authorized return on equity for System Energy of 8.41%. In March 2019, System Energy submitted answering testimony. For the first refund period, System Energy’s testimony argues for a return on equity of 10.10% (median) or 10.70% (midpoint). For the second refund period, System Energy’s testimony shows that the calculated returns on equity for the first period fall within the range of presumptively just and reasonable returns on equity, and thus the second complaint should be dismissed (and the first period return on equity used going forward). If the FERC nonetheless were to set a new return on equity for the second period (and going forward), System Energy argues the return on equity should be either 10.32% (median) or 10.69% (midpoint).

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

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

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

In August 2019 the LPSC and the APSC and MPSC filed rebuttal testimony in the return on equity proceeding and direct and answering testimony relating to System Energy’s capital structure. The LPSC re-argues for an authorized return on equity for System Energy of 7.81% for the first refund period and 7.97% for the second refund period. The APSC and MPSC argue for an authorized return on equity for System Energy of 8.26% for the first refund period and 8.32% for the second refund period. With respect to capital structure, the LPSC proposes that the FERC establish a hypothetical capital structure for System Energy for ratemaking purposes. Specifically, the LPSC proposes that System Energy’s common equity ratio be set to Entergy Corporation’s equity ratio of 37% equity and 63% debt. In the alternative, the LPSC argues that the equity ratio should be no higher than 49%, the composite equity ratio of System Energy and the other Entergy operating companies who purchase under the Unit Power Sales Agreement. The APSC and MPSC recommend that 35.98% be set as the common equity ratio for System Energy. As an alternative, the APSC and MPSC propose that System Energy’s common equity be set at 46.75% based on the median equity ratio of the proxy group for setting the return on equity.

In September 2019 the FERC trial staff filed its rebuttal testimony in the return on equity proceeding. For the first refund period, the FERC trial staff calculates an authorized return on equity for System Energy of 9.40% based on the application of the FERC’s proposed methodology and an updated proxy group. For the second refund period, based on the study period ending May 31, 2019, the FERC trial staff rebuttal testimony argues for a return on equity of 9.63%. In September 2019 the FERC trial staff also filed direct and answering testimony relating to System Energy’s capital structure. The FERC trial staff argues that the average capital structure of the proxy group used to develop System Energy’s return on equity should be used to establish the capital structure. Using this

System Energy Resources, Inc.

Management’s Financial Discussion and Analysis

approach, the FERC trial staff calculates the average capital structure for its proposed proxy group of 46.74% common equity, and 53.26% debt.

In October 2019, System Energy filed answering testimony disputing the FERC trial staff’s, the LPSC’s, and the APSC’s and MPSC’s arguments for the use of a hypothetical capital structure and arguing that the use of System Energy’s actual capital structure is just and reasonable.

In November 2019, in a proceeding that did not involve System Energy, the FERC issued an order addressing the methodology for determining the return on equity applicable to transmission owners in MISO. Thereafter, the procedural schedule in the System Energy proceeding was amended to allow the participants to file supplemental testimony addressing the order in the MISO transmission owner proceeding (Opinion No. 569).

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

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

In May 2020 the FERC issued an order on rehearing of Opinion No. 569 (Opinion No. 569-A). In June 2020 the procedural schedule in the System Energy proceeding was further revised in order to allow parties to address the Opinion No. 569-A methodology. Pursuant to the revised schedule, in June 2020, the LPSC, MPSC and APSC, and the FERC trial staff filed supplemental testimony addressing Opinion No. 569-A and how it would affect the return on equity evaluation for the two complaint periods concerning System Energy. For the first refund period, based on their respective interpretations and applications of the Opinion No. 569-A methodology, the LPSC argues for an authorized return on equity for System Energy of 7.97%; the MPSC and APSC argue for an authorized return on equity of 9.24%; and the FERC trial staff argues for an authorized return on equity of 9.49%. For the second refund period and on a prospective basis, based on their respective interpretations and applications of the Opinion No. 569-A methodology, the LPSC argues for an authorized return on equity for System Energy of 7.78%; the MPSC and APSC argue that an authorized return on equity of 9.15% may be appropriate if the second complaint is not dismissed; and the FERC trial staff argues for an authorized return on equity of 9.09% if the second complaint is not dismissed.

Pursuant to the revised procedural schedule, in July 2020, System Energy filed supplemental testimony addressing Opinion No. 569-A. System Energy argues that strict application of the Opinion No. 569-A methodology produces results inconsistent with investor requirements and does not provide a sound basis on which

System Energy Resources, Inc.

Management’s Financial Discussion and Analysis

to evaluate System Energy’s authorized return on equity. As its primary recommendation, System Energy argues for the use of a methodology that incorporates four separate financial models, including the constant growth form of the discounted cash flow model and the empirical capital asset pricing model. Based on application of its recommended methodology, System Energy argues for an authorized return on equity of 10.12% for the first refund period, which also falls within the presumptively just and reasonable range calculated for the second refund period and prospectively. Under the Opinion No. 569-A methodology, System Energy calculates an authorized return on equity of 9.44% for the first refund period, which also falls within the presumptively just and reasonable range calculated for the second refund period and prospectively.

The parties and FERC trial staff filed final rounds of testimony in August 2020. The hearing before a FERC ALJ occurred in late-September through early-October 2020, post-hearing briefing took place in November and December 2020, and the initial decision is due in March 2021. System Energy recorded a provision against revenue for the potential outcome of this proceeding.

Grand Gulf Sale-leaseback Renewal Complaint and Uncertain Tax Position Rate Base Issue

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 complaint alleges that System Energy violated the filed rate and the FERC’s ratemaking and accounting requirements when it included in Unit Power Sales Agreement billings the cost of capital additions associated with the sale-leaseback interest, and that System Energy is double-recovering costs by including both the lease payments and the capital additions in Unit Power Sales Agreement billings. The complaint also claims that System Energy was imprudent in entering into the sale-leaseback renewal because the Utility operating companies that purchase Grand Gulf’s output from System Energy could have obtained cheaper capacity and energy in the MISO markets. The complaint further alleges that System Energy violated various other reporting and accounting requirements and should have sought prior FERC approval of the lease renewal. The complaint seeks various forms of relief from the FERC. The complaint seeks refunds for capital addition costs for all years in which they were recorded in allegedly non-formula accounts or, alternatively, the disallowance of the return on equity for the capital additions in those years plus interest. The complaint also asks that the FERC disallow and refund the lease costs of the sale-leaseback renewal on grounds of imprudence, investigate System Energy’s treatment of a DOE litigation payment, and impose certain forward-looking procedural protections, including audit rights for retail regulators of the Unit Power Sales Agreement formula rates. The APSC, MPSC, and City Council intervened in the proceeding.

In June 2018, System Energy and Entergy Services filed a motion to dismiss and an answer to the LPSC complaint denying that System Energy’s treatment of the sale-leaseback renewal and capital additions violated the terms of the filed rate or any other FERC ratemaking, accounting, or legal requirements or otherwise constituted double recovery. The response also argued that the complaint is inconsistent with a FERC-approved settlement to which the LPSC is a party and that explicitly authorizes System Energy to recover its lease payments. Finally, the response argued that both the capital additions and the sale-leaseback renewal were prudent investments and the LPSC complaint fails to justify any disallowance or refunds. The response also offered to submit formula rate protocols for the Unit Power Sales Agreement similar to the procedures used for reviewing transmission rates under the MISO tariff. In September 2018 the FERC issued an order setting the complaint for hearing and settlement proceedings. The FERC established a refund effective date of May 18, 2018.

In February 2019 the presiding ALJ ruled that the hearing ordered by the FERC includes the issue of whether specific subcategories of accumulated deferred income tax should be included in, or excluded from, System Energy’s formula rate. In March 2019 the LPSC, MPSC, APSC and City Council filed direct testimony. The LPSC testimony sought refunds that include the renewal lease payments (approximately $17.2 million per year since July 2015), rate base reductions for accumulated deferred income tax associated with uncertain tax positions, and the cost of capital additions associated with the sale-leaseback interest, as well as interest on those amounts.

System Energy Resources, Inc.

Management’s Financial Discussion and Analysis

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

In August 2019 the FERC trial staff filed direct and answering testimony seeking refunds for rate base reductions for liabilities associated with uncertain tax positions. The FERC trial staff also argued that System Energy recovered $32 million more than it should have in depreciation expense for capital additions. In September 2019, System Energy filed cross-answering testimony disputing the FERC trial staff’s arguments for refunds, stating that the FERC trial staff’s position regarding depreciation rates for capital additions is not unreasonable, but explaining that any change in depreciation expense is only one element of a Unit Power Sales Agreement re-billing calculation. Adjustments to depreciation expense in any re-billing under the Unit Power Sales Agreement formula rate will also involve changes to accumulated depreciation, accumulated deferred income taxes, and other formula elements as needed. In October 2019 the LPSC filed rebuttal testimony increasing the amount of refunds sought for liabilities associated with uncertain tax positions. The LPSC seeks approximately $512 million plus interest, which is approximately $191 million through December 31, 2020. The FERC trial staff also filed rebuttal testimony in which it seeks refunds of a similar amount as the LPSC for the liabilities associated with uncertain tax positions. The LPSC testimony also argued that adjustments to depreciation rates should affect rate base on a prospective basis only.

A hearing was held before a FERC ALJ in November 2019. In April 2020 the ALJ issued an initial decision. Among other things, the ALJ determined that refunds were due on three main issues. First, with regard to the lease renewal payments, the ALJ determined that System Energy is recovering an unjust acquisition premium through the lease renewal payments, and that System Energy’s recovery from customers through rates should be limited to the cost of service based on the remaining net book value of the leased assets, which is approximately $70 million. The ALJ found that the remedy for this issue should be the refund of lease payments (approximately $17.2 million per year since July 2015) with interest determined at the FERC quarterly interest rate, which would be offset by the addition of the net book value of the leased assets in the cost of service. The ALJ did not calculate a value for the refund expected as a result of this remedy. In addition, System Energy would no longer recover the lease payments in rates prospectively. Second, with regard to the liabilities associated with uncertain tax positions, the ALJ determined that the liabilities are accumulated deferred income taxes and System Energy’s rate base should have been reduced for those liabilities. If the ALJ’s initial decision is upheld, the estimated refund for this issue through December 31, 2020, is approximately $422 million, plus interest, which is approximately $110 million through December 31, 2020. The ALJ also found that System Energy should include liabilities associated with uncertain tax positions as a rate base reduction going forward. Third, with regard to the depreciation expense adjustments, the ALJ found that System Energy should correct for the error in re-billings retroactively and prospectively, but that System Energy should not be permitted to recover interest on any retroactive return on enhanced rate base resulting from such corrections. If the initial decision is affirmed on this issue, System Energy estimates refunds of approximately $19 million, which includes interest through December 31, 2020.

The ALJ initial decision is an interim step in the FERC litigation process, and an ALJ’s determinations made in an initial decision are not controlling on the FERC. The ALJ in the initial decision acknowledges that these are issues of first impression before the FERC. In June 2020, System Energy, the LPSC, and the FERC trial staff filed briefs on exceptions, challenging several of the initial decision’s findings. System Energy’s brief on exceptions challenged the initial decision’s limitations on recovery of the lease renewal payments, its proposed rate base refund for the liabilities associated with uncertain tax positions, and its proposal to asymmetrically treat interest on bill corrections for depreciation expense adjustments. The LPSC’s and the FERC trial staff’s briefs on

System Energy Resources, Inc.

Management’s Financial Discussion and Analysis

exceptions each challenged the initial decision’s allowance for recovery of the cost of service associated with the lease renewal based on the remaining net book value of the leased assets, its calculation of the remaining net book value of the leased assets, and the amount of the initial decision’s proposed rate base refund for the liabilities associated with uncertain tax positions. The LPSC’s brief on exceptions also challenged the initial decision’s proposal that depreciation expense adjustments include retroactive adjustments to rate base and its finding that section 203 of the Federal Power Act did not apply to the lease renewal. The FERC trial staff’s brief on exceptions also challenged the initial decision’s finding that the FERC need not institute a formal investigation into System Energy’s tariff. In October 2020, System Energy, the LPSC, the MPSC, the APSC, and the City Council filed briefs opposing exceptions. System Energy opposed the exceptions filed by the LPSC and the FERC trial staff. The LPSC, MPSC, APSC, City Council, and the FERC trial staff opposed the exceptions filed by System Energy. Also in October 2020 the MPSC, APSC, and the City Council filed briefs adopting the exceptions of the LPSC and the FERC trial staff. The case is pending before the FERC, which will review the case and issue an order on the proceeding, and the FERC may accept, reject, or modify the ALJ’s initial decision in whole or in part. Refunds, if any, that might be required will only become due after the FERC issues its order reviewing the initial decision.

In addition, in September 2020, the IRS issued a Notice of Proposed Adjustment (NOPA) and Entergy executed it. The NOPA memorializes the IRS’s decision to adjust the 2015 consolidated federal income tax return of Entergy Corporation and certain of its subsidiaries, including System Energy, with regard to the uncertain decommissioning tax position. Pursuant to the audit resolution documented in the NOPA, the IRS allowed System Energy’s inclusion of $102 million of future nuclear decommissioning costs in System Energy’s cost of goods sold for the 2015 tax year, roughly 10% of the requested deduction, but disallowed the balance of the position. In September 2020, System Energy filed a motion to lodge the NOPA into the record in the FERC proceeding. In October 2020 the LPSC, the APSC, the MPSC, the City Council, and the FERC trial staff filed oppositions to System Energy’s motion. As a result of the NOPA issued by the IRS in September 2020, System Energy filed, in October 2020, a new Federal Power Act section 205 filing at FERC to establish an ongoing rate base credit for the accumulated deferred income taxes resulting from the decommissioning uncertain tax position. On a prospective basis beginning with the October 2020 bill, System Energy proposes to include the accumulated deferred income taxes arising from the successful portion of the decommissioning uncertain tax position as a credit to rate base under the Unit Power Sales Agreement. In November 2020 the LPSC, APSC, MPSC, and City Council filed a protest to the filing, and System Energy responded.

In November 2020 the IRS issued a Revenue Agent’s Report (RAR) for the 2014/2015 tax year and in December 2020 Entergy executed it. The RAR contained the same adjustment to the uncertain nuclear decommissioning tax position as that which the IRS had announced in the NOPA. In December 2020, System Energy filed a motion to lodge the RAR into the record in the FERC proceeding addressing the uncertain tax position rate base issue. In January 2021 the LPSC, APSC, MPSC, and City Council filed a protest to the motion.

As a result of the RAR, in December 2020, System Energy filed amendments to its new Federal Power Act section 205 filings to establish an ongoing rate base credit for the accumulated deferred income taxes resulting from the decommissioning uncertain tax position and to credit excess accumulated deferred income taxes arising from the successful portion of the decommissioning uncertain tax position. The amendments both propose the inclusion of the RAR as support for the filings. In December 2020 the LPSC, APSC, and City Council filed a protest in response to the amendments, reiterating their prior objections to the filings. In February 2021 the FERC issued an order accepting System Energy’s Federal Power Act section 205 filings subject to refund, setting them for hearing, and holding the hearing in abeyance.

In December 2020, System Energy filed a new Federal Power Act section 205 filing to provide a one-time, historical credit of $25.2 million for the accumulated deferred income taxes that would have been created by the decommissioning uncertain tax position if the IRS’s decision had been known in 2016. In January 2021 the LPSC, APSC, MPSC, and City Council filed a protest to the filing.

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Management’s Financial Discussion and Analysis

LPSC Authorization of Additional Complaints

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 LPSC directive notes that the initial decision issued by the presiding ALJ in the Grand Gulf sale-leaseback complaint proceeding did not address, for procedural reasons, certain rate issues raised by the LPSC and declined to order further investigation of rates charged by System Energy. The LPSC directive authorizes its staff to file complaints at the FERC “necessary to address these rate issues, to request a full investigation into the rates charged by System Energy for Grand Gulf power, and to seek rate refund, rate reduction, and such other remedies as may be necessary and appropriate to protect Louisiana ratepayers.” The LPSC directive further stated that the LPSC has seen “information suggesting that the Grand Gulf plant has been significantly underperforming compared to other nuclear plants in the United States, has had several extended and unexplained outages, and has been plagued with serious safety concerns.” The LPSC expressed concern that the costs paid by Entergy Louisiana's retail customers may have been detrimentally impacted, and authorized “the filing of a FERC complaint to address these performance issues and to seek appropriate refund, rate reduction, and other remedies as may be appropriate.”

The first of the additional complaints was filed at the FERC by the LPSC, the APSC, the MPSC, and the City Council in September 2020. The new 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. Several of the filed rate allegations overlap with the previous complaints. The filed rate allegations not previously raised are that System Energy: failed to provide a rate base credit to customers for the “time value” of sale-leaseback lease payments collected from customers in advance of the time those payments were due to the owner-lessors; improperly included certain lease refinancing costs in rate base as prepayments; improperly included nuclear decommissioning outage costs in rate base; failed to include categories of accumulated deferred income taxes as a reduction to rate base; charged customers based on a higher equity ratio than would be appropriate due to excessive retained earnings; and did not correctly reflect money pool investments and imprudently invested cash into the money pool. The elements of the Unit Power Sales Agreement that the complaint alleges are unjust and unreasonable include: incentive and executive compensation, lack of an equity re-opener, lobbying, and private airplane travel. The new complaint also requests a rate investigation into the Unit Power Sales Agreement and System Energy’s billing practices pursuant to section 206 of the Federal Power Act, including any issue relevant to the Unit Power Sales Agreement and its inputs. System Energy filed its answer opposing the new complaint in November 2020. In its answer, System Energy argued that all of the claims raised in the complaint should be dismissed and agreed that bill adjustment with respect to two discrete issues were justified. System Energy argued that dismissal is warranted because all claims fall into one or more of the following categories: the claims have been raised and are being litigated in another proceeding; the claims do not present a prima facie case and do not satisfy the threshold burden to establish a complaint proceeding; the claims are premised on a theory or request relief that is incompatible with federal law or FERC policy; the claims request relief that is inconsistent with the filed rate; the claims are barred or waived by the legal doctrine of laches; and/or the claims have been fully addressed and do not warrant further litigation. In December 2020, System Energy filed a bill adjustment report indicating that $3.4 million had been credited to customers in connection with the two discrete issues concerning the inclusion of certain accumulated deferred income taxes balances in rates. In January 2021 the complainants filed a response to System Energy’s November 2020 answer, and in February 2020, System Energy filed a response to the complainant’s response.

The operational prudence-related complaint has not been filed as of this date, and the LPSC directive did not set a date for the filing.

Unit Power Sales Agreement

In August 2017, System Energy submitted to the FERC proposed amendments to the Unit Power Sales

System Energy Resources, Inc.

Management’s Financial Discussion and Analysis

Agreement pursuant to which System Energy sells its Grand Gulf capacity and energy to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. The filing proposes limited amendments to the Unit Power Sales Agreement to adopt (1) updated rates for use in calculating Grand Gulf plant depreciation and amortization expenses and (2) updated nuclear decommissioning cost annual revenue requirements, both of which are recovered through the Unit Power Sales Agreement rate formula. The amendments result in lower charges to the Utility operating companies that buy capacity and energy from System Energy under the Unit Power Sales Agreement. The changes were based on updated depreciation and nuclear decommissioning studies that take into account the renewal of Grand Gulf’s operating license for a term through November 1, 2044.

In September 2017 the FERC accepted System Energy’s proposed Unit Power Sales Agreement amendments, subject to further proceedings to consider the justness and reasonableness of the amendments. Because the amendments propose a rate decrease, the FERC also initiated an investigation under section 206 of the Federal Power Act to determine if the rate decrease should be lower than proposed. The FERC accepted the proposed amendments effective October 1, 2017, subject to refund pending the outcome of the further settlement and/or hearing proceedings, and established a refund effective date of October 11, 2017 with respect to the rate decrease. In June 2018, System Energy filed with the FERC an uncontested settlement relating to the updated depreciation rates and nuclear decommissioning cost annual revenue requirements. In August 2018 the FERC issued an order accepting the settlement. In the third quarter 2018, System Energy recorded a reduction in depreciation expense of approximately $26 million, representing the cumulative difference in depreciation expense resulting from the depreciation rates used from October 11, 2017 through September 30, 2018 and the depreciation rates included in the settlement filing accepted by the FERC.

Nuclear Matters

System Energy owns and, through an affiliate, operates Grand Gulf. System Energy is, therefore, subject to the risks related to owning and operating a nuclear plant. These include risks related to: the use, storage, and handling and disposal of high-level and low-level radioactive materials; the substantial financial requirements, both for capital investments and operational needs, to position Grand Gulf to meet its operational goals; the performance and capacity factors of Grand Gulf, including the financial requirements to address emerging issues like stress corrosion cracking of certain materials within the plant systems; regulatory requirements and potential future regulatory changes, including changes affecting the regulations governing nuclear plant ownership, operations, license renewal and amendments, and decommissioning; the availability of interim or permanent sites for the disposal of spent nuclear fuel and nuclear waste, including the fees charged for such disposal; the sufficiency of nuclear decommissioning trust fund assets and earnings to complete decommissioning of the site when required; and limitations on the amounts and types of insurance commercially available for losses in connection with nuclear plant operations and catastrophic events such as a nuclear accident. In the event of an unanticipated early shutdown of Grand Gulf, System Energy may be required to provide additional funds or credit support to satisfy regulatory requirements for decommissioning. Grand Gulf’s operating license expires in 2044.

In November 2020 the NRC placed Grand Gulf in the “regulatory response column”, or Column 2, of the NRC’s Reactor Oversight Process Action Matrix based on the incidence of three unplanned plant scrams during the second and third quarters of 2020. Two of the scram events related to new turbine control system components that failed, and a third related to a feedwater valve positioner that failed, all of which had been replaced in a refueling outage that ended in May 2020. The NRC plans to conduct a supplemental inspection of Grand Gulf in accordance with its inspection procedures for nuclear plants in Column 2. As a consequence of two additional Grand Gulf scrams during the fourth quarter 2020, System Energy expects Grand Gulf to be placed into the “degraded cornerstone column”, or Column 3, of the NRC’s Reactor Oversight Process Action Matrix based on plant performance indicators for the four quarters ended December 31, 2020. This will involve an additional supplemental NRC inspection of Grand Gulf in accordance with its inspection procedures for nuclear plants in Column 3.

System Energy Resources, Inc.

Management’s Financial Discussion and Analysis

Environmental Risks

System Energy’s facilities and operations are subject to regulation by various governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. Management believes that System Energy is in substantial compliance with environmental regulations currently applicable to its facilities and operations, with reference to possible exceptions noted in “Regulation of Entergy’s Business - Environmental Regulation” in Part I, Item 1. Because environmental regulations are subject to change, future compliance costs cannot be precisely estimated.

Critical Accounting Estimates

The preparation of System Energy’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and there is the potential for future changes in the assumptions and measurements that could produce estimates that would have a material impact on the presentation of System Energy’s financial position or results of operations.

Nuclear Decommissioning Costs

Utility Regulatory Accounting

Impairment of Long-lived Assets

Taxation and Uncertain Tax Positions

Qualified Pension and Other Postretirement Benefits

System Energy’s qualified pension and other postretirement reported costs, as described in Note 11 to the financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. See the “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for further discussion. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate.

System Energy Resources, Inc.

Management’s Financial Discussion and Analysis

Cost Sensitivity

The following chart reflects the sensitivity of qualified pension cost and qualified projected benefit obligation to changes in certain actuarial assumptions (dollars in thousands).


Actuarial Assumption	Change in Assumption	Impact on 2021 Qualified Pension Cost	Impact on 2020 Projected Qualified Benefit Obligation
		Increase/(Decrease)
Discount rate	(0.25%)	$727	$12,152
Rate of return on plan assets	(0.25%)	$709	$—
Rate of increase in compensation	0.25%	$464	$2,133

The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in thousands).


Actuarial Assumption	Change in Assumption	Impact on 2021 Postretirement Benefit Cost	Impact on 2020 Accumulated Postretirement Benefit Obligation
		Increase/(Decrease)
Discount rate	(0.25%)	$58	$1,635
Health care cost trend	0.25%	$69	$1,202

Each fluctuation above assumes that the other components of the calculation are held constant.

Costs and Employer Contributions

Total qualified pension cost for System Energy in 2020 was $17.3 million, including $105 thousand in settlement costs. System Energy anticipates 2021 qualified pension cost to be $20 million. System Energy contributed $16.1 million to its qualified pension plans in 2020 and estimates 2021 pension contributions will approximate $18.7 million, although the 2021 required pension contributions will be known with more certainty when the January 1, 2021 valuations are completed, which is expected by April 1, 2021.

Total postretirement health care and life insurance benefit income for System Energy in 2020 was $1.5 million. System Energy expects 2021 postretirement health care and life insurance benefit income to approximate $1.3 million. System Energy contributed $1.3 million to its other postretirement plans in 2020 and expects 2021 contributions to approximate $22 thousand.

Other Contingencies

New Accounting Pronouncements

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholder and Board of Directors of

System Energy Resources, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of System Energy Resources, Inc. (the “Company”) as of December 31, 2020 and 2019, the related statements of income, cash flows, and changes in common equity (pages 447 through 452 and applicable items in pages 51 through 238), for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that is material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Rate and Regulatory Matters —System Energy Resources, Inc. — Refer to Notes 2 to the financial statements

Critical Audit Matter Description

The Company is subject to wholesale rate regulation by the Federal Energy Regulatory Commission (“FERC”). Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant, and equipment; regulatory assets and liabilities; operating revenues; operation and maintenance expense; income taxes; and depreciation and amortization expense.

The Company’s rates are subject to regulatory rate-setting processes and annual earnings oversight. Because the FERC sets the rates the Company is allowed to charge customers based on allowable costs, including a reasonable return on equity, the Company applies accounting standards that require the financial statements to reflect the effects of rate regulation, including the recording of regulatory assets and liabilities. The Company assesses whether the regulatory assets and regulatory liabilities continue to meet the criteria for probable future recovery or settlement at each balance sheet date and when regulatory events occur. This assessment includes consideration of recent rate orders, historical regulatory treatment for similar costs, and factors such as changes in applicable regulatory and political environments. While the Company has indicated it expects to recover costs from customers through regulated rates, there is a risk that the FERC will not approve: (1) full recovery of the costs of providing utility service, or (2) full recovery of amounts invested in the utility business and a reasonable return on that investment.

We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the (1) likelihood of recovery in future rates of incurred costs, (2) likelihood of refunds to customers, and (3) ongoing complaints filed with the FERC against the Company. Auditing management’s judgments regarding the outcome of future decisions by the FERC, involved especially subjective judgment and specialized knowledge of accounting for rate regulation and the rate setting process.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the uncertainty of future decisions by the FERC included the following, among others:

We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the initial recognition of amounts as property, plant, and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
We read relevant regulatory orders issued by the FERC for the Company and other public utilities, regulatory statutes, interpretations, procedural memorandums, filings made by intervenors, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the FERC’s treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness.
For regulatory matters in process, we inspected the Company’s filings and ongoing complaints filed with the FERC, including the Return on Equity, Capital Structure, and Grand Gulf Sale-Leaseback Renewal complaints, and considered the filings with the FERC by intervenors that may impact the Company’s future rates, for any evidence that might contradict management’s assertions*.*
We obtained an analysis from management and support from internal and external legal counsel, as appropriate, regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order, including the complaints filed with the FERC against the Company, to assess management’s assertion that amounts are probable of recovery or a future reduction in rates.

/s/ DELOITTE & TOUCHE LLP

New Orleans, Louisiana

February 26, 2021

We have served as the Company’s auditor since 2001.


SYSTEM ENERGY RESOURCES, INC.
INCOME STATEMENTS

	For the Years Ended December 31,
	2020	2019	2018
	(In Thousands)

OPERATING REVENUES
Electric	$495,458	$573,410	$456,707

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	23,026	82,438	64,778
Nuclear refueling outage expenses	27,737	33,376	20,715
Other operation and maintenance	178,249	206,444	196,505
Decommissioning	37,181	35,729	34,336
Taxes other than income taxes	28,657	29,018	28,090
Depreciation and amortization	110,395	106,630	97,527
Other regulatory credits - net	(26,531)	(35,210)	(28,924)
TOTAL	378,714	458,425	413,027

OPERATING INCOME	116,744	114,985	43,680

OTHER INCOME
Allowance for equity funds used during construction	9,122	8,709	8,750
Interest and investment income	36,478	29,488	35,985
Miscellaneous - net	(10,012)	(5,516)	(5,775)
TOTAL	35,588	32,681	38,960

INTEREST EXPENSE
Interest expense	34,467	35,328	38,424
Allowance for borrowed funds used during construction	(1,809)	(2,131)	(2,218)
TOTAL	32,658	33,197	36,206

INCOME BEFORE INCOME TAXES	119,674	114,469	46,434

Income taxes	20,543	15,349	(47,675)

NET INCOME	$99,131	$99,120	$94,109

See Notes to Financial Statements.

(Page left blank intentionally)


SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2020	2019	2018
	(In Thousands)
OPERATING ACTIVITIES
Net income	$99,131	$99,120	$94,109
Adjustments to reconcile net income to net cash flow provided by (used in) operating activities:
Depreciation, amortization, and decommissioning, including nuclear fuel amortization	184,429	212,170	186,719
Deferred income taxes, investment tax credits, and non-current taxes accrued	(455,732)	95	24,040
Changes in assets and liabilities:
Receivables	13,932	(23,382)	18,169
Accounts payable	(11,587)	18,204	(7,067)
Prepaid taxes and taxes accrued	69,145	19,247	(51,999)
Interest accrued	729	(1,302)	(94)
Other working capital accounts	(34,158)	15,879	(45,415)
Other regulatory assets	(48,880)	(43,712)	(2,044)
Other regulatory liabilities	140,965	130,949	(156,802)

Pension and other postretirement liabilities	15,596	11,177	(23,235)
Other assets and liabilities	(119,032)	(138,304)	64,947
Net cash flow provided by (used in) operating activities	(145,462)	300,141	101,328
INVESTING ACTIVITIES
Construction expenditures	(193,857)	(166,695)	(194,696)
Allowance for equity funds used during construction	9,122	8,709	8,750
Nuclear fuel purchases	(94,991)	(18,170)	(125,272)
Proceeds from the sale of nuclear fuel	25,836	26,223	30,634
Proceeds from nuclear decommissioning trust fund sales	418,943	500,384	573,561
Investment in nuclear decommissioning trust funds	(432,249)	(517,828)	(583,683)
Changes in money pool receivable - net	55,294	47,824	4,545
Litigation proceeds for reimbursement of spent nuclear fuel storage costs	5,459	—	—
Net cash flow used in investing activities	(206,443)	(119,553)	(286,161)
FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	1,147,903	1,103,917	741,785
Retirement of long-term debt	(891,410)	(1,187,406)	(662,904)
Capital contribution from parent	350,000	—	—
Changes in short-term credit borrowings - net	—	—	(17,830)

Common stock dividends and distributions	(80,653)	(124,250)	(67,720)

Net cash flow provided by (used in) financing activities	525,840	(207,739)	(6,669)
Net increase (decrease) in cash and cash equivalents	173,935	(27,151)	(191,502)
Cash and cash equivalents at beginning of period	68,534	95,685	287,187
Cash and cash equivalents at end of period	$242,469	$68,534	$95,685
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized	$35,061	$21,052	$17,183
Income taxes	$384,329	$2,284	$53,956
See Notes to Financial Statements.


SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEETS
ASSETS

	December 31,
	2020	2019
	(In Thousands)

CURRENT ASSETS
Cash and cash equivalents:
Cash	$26,086	$93
Temporary cash investments	216,383	68,441
Total cash and cash equivalents	242,469	68,534
Accounts receivable:
Associated companies	57,743	121,972
Other	2,550	7,547
Total accounts receivable	60,293	129,519

Materials and supplies - at average cost	123,006	108,766
Deferred nuclear refueling outage costs	34,459	14,493

Prepayments and other	6,864	6,045
TOTAL	467,091	327,357

OTHER PROPERTY AND INVESTMENTS
Decommissioning trust funds	1,215,868	1,054,098
TOTAL	1,215,868	1,054,098

UTILITY PLANT
Electric	5,309,458	5,070,859

Construction work in progress	59,831	164,996
Nuclear fuel	175,005	149,574
TOTAL UTILITY PLANT	5,544,294	5,385,429
Less - accumulated depreciation and amortization	3,355,367	3,285,487
UTILITY PLANT - NET	2,188,927	2,099,942

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets	538,963	490,083
Accumulated deferred income tax	—	8,023
Other	3,119	3,192
TOTAL	542,082	501,298

TOTAL ASSETS	$4,413,968	$3,982,695

See Notes to Financial Statements.


SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEETS
LIABILITIES AND EQUITY

	December 31,
	2020	2019
	(In Thousands)

CURRENT LIABILITIES
Currently maturing long-term debt	$100,015	$10

Accounts payable:
Associated companies	15,309	14,619
Other	41,313	64,144
Taxes accrued	82,977	13,832

Interest accrued	12,722	11,993

Other	4,248	3,381
TOTAL	256,584	107,979

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	359,835	821,963
Accumulated deferred investment tax credits	38,902	40,181
Regulatory liability for income taxes - net	151,829	142,845
Other regulatory liabilities	665,396	533,415
Decommissioning	968,910	931,729
Pension and other postretirement liabilities	125,412	109,816
Long-term debt	705,259	548,097
Other	61,295	34,602
TOTAL	3,076,838	3,162,648

Commitments and Contingencies

COMMON EQUITY
Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares in 2020 and 2019	951,850	601,850

Retained earnings	128,696	110,218
TOTAL	1,080,546	712,068

TOTAL LIABILITIES AND EQUITY	$4,413,968	$3,982,695

See Notes to Financial Statements.


SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CHANGES IN COMMON EQUITY
For the Years Ended December 31, 2020, 2019, and 2018

	Common Equity
	Common Stock	Retained Earnings	Total
	(In Thousands)

Balance at December 31, 2017	$658,350	$52,459	$710,809
Net income	—	94,109	94,109
Common stock dividends and distributions	(56,500)	(11,220)	(67,720)
Balance at December 31, 2018	$601,850	$135,348	$737,198
Net income	—	99,120	99,120
Common stock dividends and distributions	—	(124,250)	(124,250)
Balance at December 31, 2019	$601,850	$110,218	$712,068
Net income	—	99,131	99,131
Capital contribution from parent	350,000	—	350,000
Common stock dividends and distributions	—	(80,653)	(80,653)
Balance at December 31, 2020	$951,850	$128,696	$1,080,546

See Notes to Financial Statements.


SYSTEM ENERGY RESOURCES, INC.
SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON

	2020	2019	2018	2017	2016
	(Dollars In Thousands)

Operating revenues	$495,458	$573,410	$456,707	$633,458	$548,291
Net income	$99,131	$99,120	$94,109	$78,596	$96,744
Total assets	$4,413,968	$3,982,695	$3,848,814	$3,938,887	$3,927,712
Long-term obligations (a)	$705,259	$548,097	$630,744	$466,484	$501,129
Electric energy sales (GWh)	5,849	9,940	6,264	6,675	5,384

(a) Includes long-term debt (excluding currently maturing debt).

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