Item 4. Controls and Procedures

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of September 30, 2022, evaluations were performed under the supervision and with the participation of Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy (individually “Registrant” and collectively the “Registrants”) management, including their respective Principal Executive Officers (PEO) and Principal Financial Officers (PFO). The evaluations assessed the effectiveness of the Registrants’ disclosure controls and procedures. Based on the evaluations, each PEO and PFO has concluded that, as to the Registrant or Registrants for which they serve as PEO or PFO, the Registrant’s or Registrants’ disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms; and that the Registrant’s or Registrants’ disclosure controls and procedures are also effective in reasonably assuring that such information is accumulated and communicated to the Registrant’s or Registrants’ management, including their respective PEOs and PFOs, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

Under the supervision and with the participation of each Registrants’ management, including its respective PEO and PFO, each Registrant evaluated changes in internal control over financial reporting that occurred during the quarter ended September 30, 2022 and found no change that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

ENTERGY ARKANSAS, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Third Quarter 2022 Compared to Third Quarter 2021

Net income decreased $5.5 million primarily due to higher other operation and maintenance expenses and higher depreciation and amortization expenses, partially offset by higher retail electric price and higher volume/weather.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Net income decreased $26.5 million primarily due to higher other operation and maintenance expenses, the reversal in 2021 of the remaining $38.8 million regulatory liability for the formula rate plan 2019 historical year netting adjustment, and higher depreciation and amortization expenses, partially offset by higher retail electric price and higher volume/weather.

Operating Revenues

Third Quarter 2022 Compared to Third Quarter 2021

Following is an analysis of the change in operating revenues comparing the third quarter 2022 to the third quarter 2021:


			Amount
			(In Millions)
2021 operating revenues			$722.7
Fuel, rider, and other revenues that do not significantly affect net income			110.2
Retail electric price			19.2

Volume/weather			12.4
2022 operating revenues			$864.5

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 retail electric price variance is primarily due to an increase in formula rate plan rates effective January 2022. See Note 2 to the financial statements in the Form 10-K for further discussion of the 2021 formula rate plan filing.

The volume/weather variance is primarily due to the effect of more favorable weather on residential and commercial sales, partially offset by a decrease in weather-adjusted residential usage.

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Total electric energy sales for Entergy Arkansas for the three months ended September 30, 2022 and 2021 are as follows:


	2022	2021	% Change
	(GWh)
Residential	2,395	2,298	4
Commercial	1,709	1,649	4
Industrial	2,361	2,391	(1)
Governmental	65	66	(2)
Total retail	6,530	6,404	2
Sales for resale:
Associated companies	482	642	(25)
Non-associated companies	1,938	1,569	24
Total	8,950	8,615	4

See Note 13 to the financial statements herein for additional discussion of Entergy Arkansas’s operating revenues.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Following is an analysis of the change in operating revenues comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021:


			Amount
			(In Millions)
2021 operating revenues			$1,856.3
Fuel, rider, and other revenues that do not significantly affect net income			172.1
Retail electric price			56.5
Volume/weather			27.5
Return of unprotected excess accumulated deferred income taxes to customers			8.0
2022 operating revenues			$2,120.4

The retail electric price variance is primarily due to increases in formula rate plan rates effective May 2021 and January 2022. See Note 2 to the financial statements in the Form 10-K for further discussion of the 2020 formula rate plan filing and the 2021 formula rate plan filing.

The volume/weather variance is primarily due to the effect of more favorable weather on residential and commercial sales and an increase in demand charges as a result of a new contract with an industrial customer in the primary metals industry, partially offset by a decrease in weather-adjusted residential usage.

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. For the nine months ended September 30, 2021, $8 million was returned to customers. There is no effect on net

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

income as the reduction in operating revenues was offset by a reduction in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

Total electric energy sales for Entergy Arkansas for the nine months ended September 30, 2022 and 2021 are as follows:


	2022	2021	% Change
	(GWh)
Residential	6,307	6,241	1
Commercial	4,398	4,284	3
Industrial	6,468	6,463	—
Governmental	175	176	(1)
Total retail	17,348	17,164	1
Sales for resale:
Associated companies	1,418	1,763	(20)
Non-associated companies	5,339	5,300	1
Total	24,105	24,227	(1)

See Note 13 to the financial statements herein for additional discussion of Entergy Arkansas’s operating revenues.

Other Income Statement Variances

Third Quarter 2022 Compared to Third Quarter 2021

Other operation and maintenance expenses increased primarily due to:

an increase of $12.3 million in power delivery expenses primarily due to higher vegetation maintenance costs and higher reliability costs;
an increase of $6.2 million in nuclear generation expenses primarily due to higher nuclear labor costs and a higher scope of work performed in 2022 as compared to 2021;
an increase of $5.7 million in compensation and benefits costs primarily due to the timing of incentive-based compensation accruals as compared to prior year; and
an increase of $2.8 million in energy efficiency expenses primarily due to the timing of recovery from customers, partially offset by lower energy efficiency costs.

Depreciation and amortization expenses increased primarily due to additions to plant in service, including the Searcy Solar facility, which was placed in service in December 2021.

Other regulatory charges (credits) - net includes a regulatory charge or credit for the difference between asset retirement obligation-related expenses and nuclear decommissioning trust earnings plus asset retirement obligation-related costs collected in revenue.

Other income decreased primarily due to changes in decommissioning trust fund activity, including portfolio rebalancing of the ANO 1 and ANO 2 decommissioning trust funds in 2021.

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

the losses allocated to the tax equity partner under the HLBV method of accounting and the earnings/loss that would have been allocated to the tax equity partner under its respective ownership percentage in the partnership. See Note 1 to the financial statements in the Form 10-K for discussion of the HLBV method of accounting.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Other operation and maintenance expenses increased primarily due to:

an increase of $12.7 million in nuclear generation expenses primarily due to a higher scope of work performed in 2022 as compared to 2021 and higher nuclear labor costs;
an increase of $11.7 million in power delivery expenses primarily due to higher reliability costs, higher vegetation maintenance costs, and higher safety and training costs, partially offset by a decrease in meter reading expenses as a result of the deployment of advanced metering systems;
an increase of $7.1 million in non-nuclear generation expenses primarily due to a higher scope of work, including during plant outages, performed in 2022 as compared to 2021;
an increase of $5.9 million in energy efficiency expenses due to the timing of recovery from customers, partially offset by lower energy efficiency costs;
an increase of $5 million in compensation and benefits costs primarily due to the timing of incentive-based compensation accruals as compared to prior year; and
an increase of $4 million in customer service center support costs primarily due to higher contract costs.

Taxes other than income taxes increased primarily due to increases in franchise taxes, increases in employment taxes, and increases in ad valorem taxes resulting from higher assessments.

Depreciation and amortization expenses increased primarily due to additions to plant in service, including the Searcy Solar facility, which was placed in service in December 2021.

Other regulatory charges (credits) - net includes the reversal in 2021 of the remaining $38.8 million regulatory liability for the 2019 historical year netting adjustment as part of its 2020 formula rate plan proceeding. See Note 2 to the financial statements in the Form 10-K for discussion of the 2020 formula rate plan filing. In addition, Entergy Arkansas records a regulatory charge or credit for the difference between asset retirement obligation-related expenses and nuclear decommissioning trust earnings plus asset retirement obligation-related costs collected in revenue.

Other income decreased primarily due to changes in decommissioning trust fund activity, including portfolio rebalancing of the ANO 1 and ANO 2 decommissioning trust funds in 2021.

Interest expense increased primarily due to the issuance of $200 million of 4.20% Series mortgage bonds in March 2022 and the issuance of $400 million of 3.35% Series mortgage bonds in March 2021, partially offset by the repayment of $350 million of 3.75% Series mortgage bonds in February 2021.

Net loss attributable to noncontrolling interest reflects the earnings or losses attributable to the noncontrolling interest partner of the tax equity partnership for the Searcy Solar facility under HLBV accounting. Entergy Arkansas recorded a regulatory charge of $3 million for the nine months ended September 30, 2022 to defer the difference between the losses allocated to the tax equity partner under the HLBV method of accounting and the earnings/loss that would have been allocated to the tax equity partner under its respective ownership percentage in the partnership. See Note 1 to the financial statements in the Form 10-K for discussion of the HLBV method of accounting.

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Income Taxes

The effective income tax rates were 24.4% for the third quarter 2022 and 23.4% for the nine months ended September 30, 2022. The differences in the effective income tax rates for the third quarter 2022 and the nine months ended September 30, 2022 versus the federal statutory rate of 21% were primarily due to state income taxes, partially offset by certain book and tax differences related to utility plant items.

The effective income tax rate was 24.5% for the third quarter 2021. The difference in the effective income tax rate for the third quarter 2021 versus the federal statutory rate of 21% was primarily due to state income taxes, partially offset by certain book and tax differences related to utility plant items.

The effective income tax rate was 21.7% for the nine months ended September 30, 2021. The difference in the effective income tax rate for the nine months ended September 30, 2021 versus the federal statutory rate of 21% was primarily due to state income taxes, partially offset by certain book and tax differences related to utility plant items and the amortization of excess accumulated deferred income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects of and regulatory activity regarding the Tax Cuts and Jobs Act.

Income Tax Legislation

See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Inflation Reduction Act of 2022.

Liquidity and Capital Resources

Cash Flow

Cash flows for the nine months ended September 30, 2022 and 2021 were as follows:


	2022	2021
	(In Thousands)
Cash and cash equivalents at beginning of period	$12,915	$192,128

Net cash provided by (used in):
Operating activities	675,357	453,077
Investing activities	(579,122)	(546,953)
Financing activities	(30,019)	(915)
Net increase (decrease) in cash and cash equivalents	66,216	(94,791)

Cash and cash equivalents at end of period	$79,131	$97,337

Operating Activities

Net cash flow provided by operating activities increased $222.3 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to:

higher collections from customers;
the timing of recovery of fuel and purchased power costs. See Note 2 to the financial statements herein for a discussion of fuel and purchased power cost recovery;
a decrease in spending of $25.7 million on nuclear refueling outages in 2022; and

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

a decrease of $20.4 million in pension contributions in 2022. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” herein and in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.

The increase was partially offset by payments to vendors, including timing and increase in cost of operations.

Investing Activities

Net cash flow used in investing activities increased $32.2 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to:

an increase of $55.9 million in distribution construction expenditures primarily due to higher capital expenditures for storm restoration in 2022 and increased investment in the reliability and infrastructure of Entergy Arkansas’s distribution system, partially offset by lower spending in 2022 on advanced metering infrastructure; and
an increase of $13.4 million in decommissioning trust fund investment activity.

The increase was partially offset by a decrease of $36.5 million as a result of fluctuations in nuclear fuel activity primarily due to variations from year to year in the timing and pricing of fuel reload requirements, materials and services deliveries, and the timing of cash payments during the nuclear fuel cycle.

Financing Activities

Net cash flow used in financing activities increased $29.1 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to:

the issuance of $400 million of 3.35% Series mortgage bonds in March 2021;
money pool activity;
an increase of $61 million in common equity distributions paid in 2022 as compared to 2021 in order to maintain Entergy Arkansas’s capital structure; and
lower prepaid deposits of $41.3 million related to contributions-in-aid-of-construction reimbursement agreements in 2022 as compared to 2021.

The increase was partially offset by:

the repayment, at maturity, of $350 million of 3.75% Series mortgage bonds in February 2021;
the issuance of $200 million of 4.20% Series mortgage bonds in March 2022; and
the repayment, at maturity, of $45 million of 2.375% Series governmental bonds in January 2021.

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 $139.9 million for the nine months ended September 30, 2022. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

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

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Capital Structure

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


	September 30, 2022		December 31, 2021
Debt to capital	52.6	%	52.6	%
Effect of subtracting cash	(0.5	%)	—	%
Net debt to net capital	52.1	%	52.6	%

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 ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Arkansas’s financial condition. Entergy Arkansas also 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 Arkansas’s financial condition because net debt indicates Entergy Arkansas’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.

Uses and Sources of Capital

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

Entergy Arkansas is developing its capital investment plan for 2023 through 2025 and currently anticipates making $3.8 billion in capital investments during that period. The preliminary estimate includes investments in generation projects to modernize, decarbonize, and diversify Entergy Arkansas’s portfolio, including Walnut Bend Solar, West Memphis Solar, and Driver Solar; investments in ANO 1 and 2; distribution and Utility support spending to improve reliability, resilience, and customer experience; transmission spending to drive reliability and resilience while also supporting renewables expansion; 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.

While Entergy Arkansas is still assessing the effect on its planned solar projects, the investigation by the U.S. Department of Commerce into potential circumvention of duties and tariffs may result in increased duties or tariffs on imported solar panels and has exacerbated previously existing supply chain disruptions, which have negatively affected the timing and cost of completion of these projects.

Entergy Arkansas’s receivables from or (payables to) the money pool were as follows:


September 30, 2022	December 31, 2021	September 30, 2021	December 31, 2020
(In Thousands)
$1,808	($139,904)	$7,301	$3,110

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

Entergy Arkansas has a credit facility in the amount of $150 million scheduled to expire in June 2027. Entergy Arkansas also has a $25 million credit facility scheduled to expire in April 2023. The $150 million credit facility includes fronting commitments for the issuance of letters of credit against $5 million of the borrowing

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

capacity of the facility. As of September 30, 2022, 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 September 30, 2022, $5.6 million in letters of credit were outstanding under Entergy Arkansas’s uncommitted letter of credit facility. See Note 4 to the financial statements herein 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 June 2025. As of September 30, 2022, there were no loans outstanding under the credit facility for the Entergy Arkansas nuclear fuel company variable interest entity. See Note 4 to the financial statements herein for further discussion of the nuclear fuel company variable interest entity credit facility.

Walnut Bend Solar

As discussed in the Form 10-K, the APSC directed Entergy Arkansas to file a report within 180 days detailing its efforts to obtain a tax equity partnership. In January 2022, Entergy Arkansas filed its tax equity partnership status report and will file subsequent reports until a tax equity partnership is obtained or a tax equity partnership is no longer sought. Closing was expected to occur in 2022. The counter-party notified Entergy Arkansas that it was terminating the project, though it was willing to consider an alternative for the site. Entergy Arkansas disputed the right of termination. Negotiations are ongoing, including with respect to updates arising as a result of the Inflation Reduction Act of 2022, and the updates would require additional APSC approval. At this time the project is expected to achieve commercial operation in 2024.

West Memphis Solar

As discussed in the Form 10-K, in October 2021 the APSC directed Entergy Arkansas to file a report within 180 days detailing its efforts to obtain a tax equity partnership. In April 2022, Entergy Arkansas filed its tax equity partnership status report and will file subsequent reports until a tax equity partnership is obtained or a tax equity partnership is no longer sought. Closing had been expected to occur in 2023. The counter-party notified Entergy Arkansas that it was seeking changes to certain terms of the build-own-transfer agreement, including both cost and schedule. Negotiations are ongoing, including with respect to updates arising as a result of the Inflation Reduction Act of 2022, and the updates would require additional APSC approval. At this time the project is expected to achieve commercial operation in 2024.

Driver Solar

In April 2022, Entergy Arkansas filed a petition with the APSC seeking a finding that the purchase of the 250 MW Driver Solar facility is in the public interest and requested cost recovery through the formula rate plan rider. The APSC established a procedural schedule with a hearing scheduled in June 2022, but the parties later agreed to waive the hearing and submit the matter to the APSC for a decision consistent with the filed record. In August 2022 the APSC granted Entergy Arkansas’s petition and approved the acquisition of Driver Solar and cost recovery through the formula rate plan rider. In addition, the APSC directed Entergy Arkansas to inform the APSC as to the status of a tax equity partnership once construction is commenced. The parties are evaluating the effects of certain matters related to the Inflation Reduction Act of 2022, including with respect to the viability of a tax equity partnership. The facility is expected to be in service by the end of 2024.

State and Local Rate Regulation and Fuel-Cost Recovery

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

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Retail Rates

2022 Formula Rate Plan Filing

In July 2022, Entergy Arkansas filed with the APSC its 2022 formula rate plan filing to set its formula rate for the 2023 calendar year. The filing contained an evaluation of Entergy Arkansas’s earnings for the projected year 2023 and a netting adjustment for the historical year 2021. The filing showed that Entergy Arkansas’s earned rate of return on common equity for the 2023 projected year is 7.40% resulting in a revenue deficiency of $104.8 million. The earned rate of return on common equity for the 2021 historical year was 8.38% resulting in a $15.2 million netting adjustment. The total proposed revenue change for the 2023 projected year and 2021 historical year netting adjustment is $119.9 million. By operation of the formula rate plan, Entergy Arkansas’s recovery of the revenue requirement is subject to a four percent annual revenue constraint. Because Entergy Arkansas’s revenue requirement in this filing exceeded the constraint, the resulting increase is limited to $79.3 million. In October 2022 other parties filed their testimony recommending various adjustments to Entergy Arkansas’s overall proposed revenue deficiency, and Entergy Arkansas filed a response including an update to actual revenues through August 2022, which raised the constraint to $79.8 million. In November 2022, Entergy Arkansas filed with the APSC a settlement agreement reached with other parties resolving all issues in the proceeding. As a result of the settlement agreement, the total proposed revenue change is $102.8 million, including a $87.7 million increase for the 2023 projected year and a $15.2 million netting adjustment. Because Entergy Arkansas’s revenue requirement exceeded the constraint, the resulting increase is limited to $79.8 million. The APSC will rule on the settlement at a later date. A hearing is currently scheduled for November 2022.

Energy Cost Recovery Rider

In March 2022, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase from $0.00959 per kWh to $0.01785 per kWh. The primary reason for the rate increase is a large under-recovered balance as a result of higher natural gas prices in 2021, particularly in the fourth quarter 2021. At the request of the APSC general staff, Entergy Arkansas deferred its request for recovery of $32 million from the under-recovery related to the 2021 February winter storms until the 2023 energy cost rate redetermination, unless a request for an interim adjustment to the energy cost recovery rider is necessary. This resulted in a redetermined rate of $0.016390 per kWh, which became effective with the first billing cycle in April 2022 through the normal operation of the tariff.

Opportunity Sales Proceeding

As discussed in the Form 10-K, in September 2020, Entergy Arkansas filed a complaint in the U.S. District Court for the Eastern District of Arkansas challenging the APSC’s order denying Entergy Arkansas’s request to recover the costs of the opportunity sales payments made to the other Utility operating companies. In October 2020 the APSC filed a motion to dismiss Entergy Arkansas’s complaint. In March 2022 the court denied the APSC’s motion to dismiss and, in April 2022, issued a scheduling order including a trial date in February 2023. In June 2022, Entergy Arkansas filed a motion asserting that it is entitled to summary judgment because Entergy Arkansas’s position that the APSC’s order is pre-empted by the filed rate doctrine and violates the Dormant Commerce Clause is premised on facts that are not subject to genuine dispute. In July 2022, Arkansas Electric Energy Consumers, Inc., an industrial customer association, filed a motion to intervene and to hold Entergy Arkansas’s motion for summary judgment in abeyance pending a ruling on the motion to intervene. Entergy Arkansas filed a consolidated opposition to both motions. In August 2022 the APSC filed a motion for summary judgement arguing that there is no genuine issue as to any material fact and the APSC is entitled to judgement as a matter of law. In September 2022, Entergy Arkansas filed an opposition to the motion. In October 2022 the APSC filed a motion asking the court to hold further proceedings in abeyance pending a decision on the motions for summary judgment filed by Entergy Arkansas and the APSC. Also in October 2022, Entergy Arkansas filed an opposition to the motion, and the APSC filed a reply in support of its motion for summary judgment.

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Net Metering Legislation

As discussed in the Form 10-K, 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 allows 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 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, including Entergy Arkansas, cooperatives, the Arkansas Attorney General, and industrial customers 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 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. In January 2021, Entergy Arkansas, pursuant to an APSC order, filed an updated net metering tariff, which was approved in February 2021. In May 2021, Entergy Arkansas filed a motion to dismiss its pending judicial appeal of the APSC’s September 2020 order on rehearing in the proceeding addressing its net metering rules. In June 2021 the Arkansas Court of Appeals granted the motion and dismissed Entergy Arkansas’s appeal, although other appeals of the September 2020 APSC order remained before the court. In May 2022 the court issued an order affirming the APSC’s decision in part and reversing in part. In June 2022 the APSC sought rehearing from the court with respect to the court’s ruling on a grid charge, which the court of appeals denied in July 2022. One of the cooperative appellants filed a further appeal to the Arkansas Supreme Court in July 2022, which the court decided not to hear.

In September 2022 the APSC opened a rulemaking concerning proposed amendments to the net metering rules to address the expiration on December 31, 2022 of the automatic grandfathering of the existing net metering rate structure. Entergy Arkansas and other utility parties filed initial briefs and comments setting forth that the statute imposing the expiration of the automatic grandfathering is not ambiguous and that the APSC does not have the authority to extend the grandfathering period, and the hearing was held in October 2022. Also in September 2022 the APSC opened another proceeding to investigate the issue of potential cost shifting arising as a result of net metering. Investor owned utilities and some cooperatives were required to make and did make filings in October 2022 with supporting documentation as to the amount and extent of cost shifting and the manner in which they would design tariffs to recover those costs on behalf of non-net metering customers. Responses to the utility and cooperative filings are due in January 2023.

Green Promise Renewable Tariff

As discussed in the Form 10-K, in July 2021, Entergy Arkansas filed a proposed green tariff designed to help participating customers meet their renewable and sustainability goals and to enhance economic development efforts in Arkansas. The total proposed amount of solar capacity requested to be available under this tariff was up to 200 MW. In May 2022 the APSC found Entergy Arkansas’s proposal for the tariff to be just and reasonable for an initial offering of 100 MW of solar capacity, and in June 2022 the APSC approved Entergy Arkansas’s compliance tariff filing.

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

COVID-19 Orders

See the Form 10-K for discussion of APSC orders issued in light of the COVID-19 pandemic. As of September 30, 2022, Entergy Arkansas had a regulatory asset of $39 million for costs associated with the COVID-19 pandemic.

Federal Regulation

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

Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Arkansas’s accounting for nuclear decommissioning costs, utility regulatory accounting, impairment of long-lived assets, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies. See “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for updates to the discussion of qualified pension and other postretirement benefits.

New Accounting Pronouncements

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


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)

	Three Months Ended		Nine Months Ended
	2022	2021	2022	2021
	(In Thousands)		(In Thousands)
OPERATING REVENUES
Electric	$864,502	$722,683	$2,120,397	$1,856,343

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	210,099	94,580	499,119	295,317
Purchased power	74,941	74,579	182,621	206,248
Nuclear refueling outage expenses	14,259	13,207	42,539	39,389
Other operation and maintenance	204,199	175,236	548,775	503,242
Decommissioning	20,731	19,567	61,288	57,847
Taxes other than income taxes	39,545	36,892	104,819	96,741
Depreciation and amortization	96,746	90,887	288,904	269,442
Other regulatory charges (credits) - net	(27,054)	31,988	(69,114)	(27,649)
TOTAL	633,466	536,936	1,658,951	1,440,577

OPERATING INCOME	231,036	185,747	461,446	415,766

OTHER INCOME
Allowance for equity funds used during construction	4,811	4,113	11,786	10,714
Interest and investment income	4,284	53,661	13,444	78,809
Miscellaneous - net	(6,356)	(4,805)	(16,640)	(15,968)
TOTAL	2,739	52,969	8,590	73,555

INTEREST EXPENSE
Interest expense	38,123	35,452	111,622	104,862
Allowance for borrowed funds used during construction	(1,912)	(1,793)	(4,684)	(4,655)
TOTAL	36,211	33,659	106,938	100,207

INCOME BEFORE INCOME TAXES	197,564	205,057	363,098	389,114

Income taxes	48,217	50,166	85,074	84,593

NET INCOME	149,347	154,891	278,024	304,521

Net loss attributable to noncontrolling interest	(724)	—	(2,640)	—

EARNINGS APPLICABLE TO MEMBER'S EQUITY	$150,071	$154,891	$280,664	$304,521

See Notes to Financial Statements.


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)
	2022	2021
	(In Thousands)
OPERATING ACTIVITIES
Net income	$278,024	$304,521
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation, amortization, and decommissioning, including nuclear fuel amortization	403,929	380,481
Deferred income taxes, investment tax credits, and non-current taxes accrued	85,012	105,147
Changes in assets and liabilities:
Receivables	(129,679)	(107,075)
Fuel inventory	7,430	26,521
Accounts payable	77,849	15,485
Taxes accrued	(4,838)	(19,899)
Interest accrued	32,360	25,616
Deferred fuel costs	(27,724)	(113,004)
Other working capital accounts	13,963	(26,618)
Provisions for estimated losses	(1,840)	(1,266)
Other regulatory assets	(54,449)	74,022
Other regulatory liabilities	(305,972)	(46,061)

Pension and other postretirement liabilities	(58,966)	(81,913)
Other assets and liabilities	360,258	(82,880)
Net cash flow provided by operating activities	675,357	453,077

INVESTING ACTIVITIES
Construction expenditures	(552,919)	(495,203)
Allowance for equity funds used during construction	11,786	10,714
Payment for purchase of assets	(1,044)	—
Nuclear fuel purchases	(56,984)	(72,528)
Proceeds from sale of nuclear fuel	37,198	16,239
Proceeds from nuclear decommissioning trust fund sales	174,893	434,674
Investment in nuclear decommissioning trust funds	(190,244)	(436,658)
Changes in money pool receivable - net	(1,808)	(4,191)





Net cash flow used in investing activities	(579,122)	(546,953)

FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	225,625	708,126

Retirement of long-term debt	(21,316)	(717,214)

Distributions to noncontrolling interest	(480)	—

Change in money pool payable - net	(139,904)	—

Common equity distributions paid	(86,000)	(25,000)

Other	(7,944)	33,173
Net cash flow used in financing activities	(30,019)	(915)

Net increase (decrease) in cash and cash equivalents	66,216	(94,791)
Cash and cash equivalents at beginning of period	12,915	192,128
Cash and cash equivalents at end of period	$79,131	$97,337

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized	$77,625	$77,434


See Notes to Financial Statements.


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2022 and December 31, 2021
(Unaudited)
	2022	2021
	(In Thousands)
CURRENT ASSETS
Cash and cash equivalents:
Cash	$2,237	$8,155
Temporary cash investments	76,894	4,760
Total cash and cash equivalents	79,131	12,915

Accounts receivable:
Customer	182,061	154,412
Allowance for doubtful accounts	(6,328)	(13,072)
Associated companies	49,565	29,587
Other	100,389	51,064
Accrued unbilled revenues	129,454	101,663
Total accounts receivable	455,141	323,654

Deferred fuel costs	136,454	108,862
Fuel inventory - at average cost	43,462	50,892
Materials and supplies - at average cost	275,879	247,980
Deferred nuclear refueling outage costs	30,985	65,318


Prepayments and other	28,604	14,863
TOTAL	1,049,656	824,484

OTHER PROPERTY AND INVESTMENTS
Decommissioning trust funds	1,141,672	1,438,416

Other	789	947
TOTAL	1,142,461	1,439,363

UTILITY PLANT
Electric	13,834,015	13,578,297

Construction work in progress	458,037	241,127
Nuclear fuel	147,202	182,055
TOTAL UTILITY PLANT	14,439,254	14,001,479
Less - accumulated depreciation and amortization	5,682,785	5,472,296
UTILITY PLANT - NET	8,756,469	8,529,183

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets	1,744,127	1,689,678
Deferred fuel costs	68,883	68,751
Other	15,581	13,660
TOTAL	1,828,591	1,772,089

TOTAL ASSETS	$12,777,177	$12,565,119

See Notes to Financial Statements.


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2022 and December 31, 2021
(Unaudited)
	2022	2021
	(In Thousands)
CURRENT LIABILITIES
Currently maturing long-term debt	$250,000	$—

Accounts payable:
Associated companies	101,051	217,310
Other	299,400	190,476
Customer deposits	100,085	92,511
Taxes accrued	84,752	89,590

Interest accrued	49,468	17,108


Other	53,134	38,901
TOTAL	937,890	645,896

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	1,506,970	1,416,201
Accumulated deferred investment tax credits	28,398	29,299
Regulatory liability for income taxes - net	436,733	431,655
Other regulatory liabilities	432,264	743,314
Decommissioning	1,451,698	1,390,410
Accumulated provisions	75,244	77,084
Pension and other postretirement liabilities	126,722	185,789
Long-term debt	3,914,866	3,958,862
Other	98,993	110,754
TOTAL	8,071,888	8,343,368

Commitments and Contingencies



EQUITY
Member's equity	3,737,409	3,542,745
Noncontrolling interest	29,990	33,110
TOTAL	3,767,399	3,575,855

TOTAL LIABILITIES AND EQUITY	$12,777,177	$12,565,119

See Notes to Financial Statements.


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)


	Noncontrolling Interest	Member's Equity	Total
	(In Thousands)

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

Net income	—	93,037	93,037




Balance at March 31, 2021	—	3,369,206	3,369,206

Net income	—	56,593	56,593




Balance at June 30, 2021	—	3,425,799	3,425,799

Net income	—	154,891	154,891
Common equity distributions	—	(25,000)	(25,000)



Balance at September 30, 2021	$—	$3,555,690	$3,555,690


Balance at December 31, 2021	$33,110	$3,542,745	$3,575,855

Net income (loss)	(1,387)	66,954	65,567






Balance at March 31, 2022	31,723	3,609,699	3,641,422

Net income (loss)	(529)	63,639	63,110



Common equity distributions	—	(36,000)	(36,000)

Distributions to noncontrolling interest	(190)	—	(190)
Balance at June 30, 2022	31,004	3,637,338	3,668,342

Net income (loss)	(724)	150,071	149,347



Common equity distributions	—	(50,000)	(50,000)

Distributions to noncontrolling interest	(290)	—	(290)
Balance at September 30, 2022	$29,990	$3,737,409	$3,767,399

See Notes to Financial Statements.

ENTERGY LOUISIANA, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Third Quarter 2022 Compared to Third Quarter 2021

Net income increased $49.9 million primarily due to higher volume/weather, higher retail electric price, and higher other income, partially offset by higher other operation and maintenance expenses, higher depreciation and amortization expenses, and higher interest expense.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Net income increased $206.9 million primarily due to the net effects of Entergy Louisiana’s storm cost securitization, including a $290 million reduction in income tax expense, partially offset by a $224.4 million ($165.4 million net-of-tax) regulatory charge to reflect its obligation to share the benefits of the securitization with customers. Also contributing to the net income increase was higher volume/weather and higher retail electric price, partially offset by higher other operation and maintenance expenses, higher depreciation and amortization expenses, higher interest expense, and higher taxes other than income taxes. See Note 2 to the financial statements herein for further discussion of the securitization.

Operating Revenues

Third Quarter 2022 Compared to Third Quarter 2021

Following is an analysis of the change in operating revenues comparing the third quarter 2022 to the third quarter 2021:


			Amount
			(In Millions)
2021 operating revenues			$1,420.7
Fuel, rider, and other revenues that do not significantly affect net income			509.3
Volume/weather			51.6

Retail electric price			39.2

2022 operating revenues			$2,020.8

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 an increase of 1,587 GWh, or 11%, in electricity usage across all customer classes, including the effects of Hurricane Ida in third quarter 2021. The increase in industrial usage was primarily due to an increase in demand from expansion projects, primarily in the chemicals, petroleum refining, and transportation industries, an increase in demand from small industrial customers, and an increase in demand from cogeneration customers. The increase was partially offset by a decrease in demand from existing customers, primarily in the chemicals industry as a result of supply issues and in the petroleum refining industry as a

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

result of a permanent plant shutdown due to Hurricane Ida. The increase in weather-adjusted commercial usage was primarily due to the effect of the COVID-19 pandemic on businesses in third quarter 2021. The increased usage from these industrial and commercial customers has a relatively smaller effect on operating revenues because a larger portion of the revenues from those customers comes from fixed charges.

The retail electric price variance is primarily due to increases in formula rate plan revenues, including increases in the distribution and transmission recovery mechanisms, effective September 2021 and September 2022. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the formula rate plan proceedings.

Total electric energy sales for Entergy Louisiana for the three months ended September 30, 2022 and 2021 are as follows:


	2022	2021	% Change
	(GWh)
Residential	4,284	3,904	10
Commercial	3,186	2,802	14
Industrial	8,265	7,470	11
Governmental	220	192	15
Total retail	15,955	14,368	11
Sales for resale:
Associated companies	1,449	1,397	4
Non-associated companies	1,310	803	63
Total	18,714	16,568	13

See Note 13 to the financial statements herein for additional discussion of Entergy Louisiana’s operating revenues.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Following is an analysis of the change in operating revenues comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021:


			Amount
			(In Millions)
2021 operating revenues			$3,795.9
Fuel, rider, and other revenues that do not significantly affect net income			798.2
Volume/weather			96.1
Retail electric price			74.9
Storm restoration carrying costs			37.5

2022 operating revenues			$4,802.6

The volume/weather variance is primarily due to an increase of 3,057 GWh, or 7.4%, in electricity usage across all customer classes, including the effect of more favorable weather on residential sales. The increase in

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

weather-adjusted commercial usage was primarily due to the effect of the COVID-19 pandemic on businesses in 2021. The increase in industrial usage was primarily due to an increase in demand from expansion projects, primarily in the chemicals, petroleum refining, and transportation industries, an increase in demand from cogeneration customers, an increase in demand from small industrial customers, and an increase in demand from existing customers, primarily in the chemicals and pulp and paper industries as a result of prior year temporary plant shutdowns, partially offset by a decrease in demand in the petroleum refining industry as a result of a permanent plant shutdown due to Hurricane Ida. The increased usage from these industrial customers has a relatively smaller effect on operating revenues because a larger portion of the revenues from those customers comes from fixed charges.

Storm restoration carrying costs represent the equity component of storm restoration carrying costs, recorded in second quarter 2022, recognized as part of the securitization of the Hurricane Laura, Hurricane Delta, Hurricane Zeta, Winter Storm Uri, and Hurricane Ida restoration costs in May 2022. See Note 2 to the financial statements herein for a discussion of the securitization.

Total electric energy sales for Entergy Louisiana for the nine months ended September 30, 2022 and 2021 are as follows:


	2022	2021	% Change
	(GWh)
Residential	11,177	10,500	6
Commercial	8,486	7,838	8
Industrial	24,018	22,314	8
Governmental	619	591	5
Total retail	44,300	41,243	7
Sales for resale:
Associated companies	4,105	3,523	17
Non-associated companies	2,632	1,741	51
Total	51,037	46,507	10

See Note 13 to the financial statements herein for additional discussion of Entergy Louisiana’s operating revenues.

Other Income Statement Variances

Third Quarter 2022 Compared to Third Quarter 2021

Other operation and maintenance expenses increased primarily due to:

a gain of $14.8 million, recorded in the third quarter 2021, on the sale of a pipeline;
an increase of $12.8 million in nuclear generation expenses primarily due to a higher scope of work performed in 2022 as compared to prior year and higher nuclear labor costs;
an increase of $9.1 million in power delivery expenses primarily due to higher reliability costs and higher vegetation maintenance costs, partially offset by a decrease in meter reading expenses as a result of the deployment of advanced metering systems;

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

an increase of $8.5 million in compensation and benefits costs primarily due to the timing of incentive-based compensation accruals as compared to prior year;
an increase of $6.1 million in bad debt expense, including the deferral in 2021 of bad debt expense resulting from the COVID-19 pandemic. See Note 2 to the financial statements herein and in the Form 10-K for discussion of regulatory activity associated with the COVID-19 pandemic; and
several individually insignificant items.

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

Other income increased primarily due to an increase of $23.5 million in affiliated dividend income resulting from the storm trust’s investment of securitization proceeds in affiliated preferred membership interests, partially offset by the liquidation of Entergy Louisiana’s investment in affiliated preferred membership interests acquired in connection with previous securitizations of storm restoration costs. The increase was partially offset by changes in decommissioning trust fund activity. See Note 2 to the financial statements herein for discussion of the securitization.

Interest expense increased primarily due to the issuance of $500 million of 4.75% Series mortgage bonds in August 2022 and the issuance of $1 billion of 0.95% Series mortgage bonds in October 2021.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Other operation and maintenance expenses increased primarily due to:

an increase of $25.6 million in power delivery expenses primarily due to higher vegetation maintenance costs, higher reliability costs, and higher safety and training costs, partially offset by a decrease in meter reading expenses as a result of the deployment of advanced metering systems;
an increase of $17.5 million in nuclear generation expenses primarily due to a higher scope of work performed and higher nuclear labor costs in 2022, partially offset by spending in 2021 on sanitation and social distancing protocols as a result of the COVID-19 pandemic;
a gain of $14.8 million, recorded in the third quarter 2021, on the sale of a pipeline;
an increase of $9.0 million in bad debt expense, including the deferral in 2021 of bad debt expense resulting from the COVID-19 pandemic. See Note 2 to the financial statements herein and in the Form 10-K for discussion of regulatory activity associated with the COVID-19 pandemic;
an increase of $8.4 million in compensation and benefits costs primarily due to the timing of incentive-based compensation accruals as compared to prior year;
an increase of $6.6 million in customer service center support costs primarily due to higher contract costs;
an increase of $3.6 million in energy efficiency expenses due to the timing of recovery from customers, partially offset by lower energy efficiency costs;
an increase of $2.3 million in loss provisions; and
several individually insignificant items.

The increase was partially offset by a decrease of $2.7 million in non-nuclear generation expenses primarily due to a lower scope of work performed during plant outages in 2022 as compared to the same period in 2021.

Taxes other than income taxes increased primarily due to increases in ad valorem taxes resulting from higher assessments, increases in franchise taxes, and increases in employment taxes.

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

Other regulatory charges (credits) - net includes a regulatory charge of $224 million, recorded in second quarter 2022, to reflect Entergy Louisiana’s obligation to provide credits to its customers in recognition of obligations related to an LPSC ancillary order issued in the Hurricane Laura, Hurricane Delta, Hurricane Zeta,

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Winter Storm Uri, and Hurricane Ida securitization regulatory proceeding. See Note 2 to the financial statements herein for discussion of the securitization.

Other income increased primarily due to:

an increase of $34.8 million in affiliated dividend income resulting from the storm trust’s investment of securitization proceeds in affiliated preferred membership interests, partially offset by the liquidation of Entergy Louisiana’s investment in affiliated preferred membership interests acquired in connection with previous securitizations of storm restoration costs; and
an increase of $12.1 million due to the recognition of storm restoration carrying costs, primarily related to Hurricane Ida.

The increase was partially offset by:

a $31.6 million charge for the LURC’s 1% beneficial interest in the storm trust established as part of the Hurricane Laura, Hurricane Delta, Hurricane Zeta, Winter Storm Uri, and Hurricane Ida securitization; and
changes in decommissioning trust fund activity, including portfolio rebalancing of the Waterford 3 decommissioning trust fund in the first quarter of 2021 partially offset by portfolio rebalancing of the River Bend decommissioning trust fund in the second quarter of 2022.

See Note 2 to the financial statements herein for discussion of the securitization.

Interest expense increased primarily due to:

the issuance of $1 billion of 0.95% Series mortgage bonds in October 2021;
the $1.2 billion unsecured term loan proceeds received in January 2022. The term loan was repaid in June 2022;
the issuances of $500 million of 2.35% Series mortgage bonds and $500 million of 3.10% Series mortgage bonds, each in March 2021; and
the issuance of $500 million of 4.75% Series mortgage bonds in August 2022.

The increase was partially offset by the repayment of $200 million of 4.8% Series mortgage bonds in May 2021.

Income Taxes

The effective income tax rate was 20.7% for the third quarter 2022. The difference in the effective income tax rate for the third quarter 2022 versus the federal statutory rate of 21% was primarily due to book and tax differences related to the non-taxable income distributions earned on preferred membership interests, certain book and tax differences related to utility plant items, and the amortization of excess accumulated deferred income taxes, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects of and regulatory activity regarding the Tax Cuts and Jobs Act.

The effective income tax rate was (38.2%) for the nine months ended September 30, 2022. The difference in the effective income tax rate for the nine months ended September 30, 2022 versus the federal statutory rate of 21% was primarily due to the reduction in income tax expense as a result of the securitization of Hurricane Laura, Hurricane Delta, Hurricane Zeta, Winter Storm Uri, and Hurricane Ida storm costs pursuant to Louisiana Act 55, as supplemented by Act 293 of the Louisiana Legislature’s Regular Session of 2021, book and tax differences related to the non-taxable income distributions earned on preferred membership interests, the amortization of excess accumulated deferred income taxes, and certain book and tax differences related to utility plant items, partially offset by state income taxes. See Notes 2 and 10 to the financial statements herein for a discussion of the securitization under Act 293. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

statements in the Form 10-K for a discussion of the effects of and regulatory activity regarding the Tax Cuts and Jobs Act.

The effective income tax rates were 20.1% for the third quarter 2021 and 18.4% for the nine months ended September 30, 2021. The differences in the effective income tax rates for the third quarter 2021 and the nine months ended September 30, 2021 versus the federal statutory rate of 21% were primarily due to book and tax differences related to the non-taxable income distributions earned on preferred membership interests, the amortization of excess accumulated deferred income taxes, and certain book and tax differences related to utility plant items, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects of and regulatory activity regarding the Tax Cuts and Jobs Act.

Income Tax Legislation

See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Inflation Reduction Act of 2022.

Liquidity and Capital Resources

Cash Flow

Cash flows for the nine months ended September 30, 2022 and 2021 were as follows:


	2022	2021
	(In Thousands)
Cash and cash equivalents at beginning of period	$18,573	$728,020

Net cash provided by (used in):
Operating activities	621,457	1,047,987
Investing activities	(4,197,993)	(2,224,730)
Financing activities	3,753,660	715,416
Net increase (decrease) in cash and cash equivalents	177,124	(461,327)

Cash and cash equivalents at end of period	$195,697	$266,693

Operating Activities

Net cash flow provided by operating activities decreased $426.5 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to:

increased fuel costs. See Note 2 to the financial statements herein for a discussion of fuel and purchased power cost recovery;
an increase of $100.7 million in storm spending, primarily due to Hurricane Ida restoration efforts in 2022, partially offset by Hurricane Laura, Hurricane Delta, and Hurricane Zeta restoration efforts in 2021;
an increase of $18.6 million in interest paid in 2022 as compared to 2021;
an increase of $18.5 million in spending on nuclear refueling outages; and
payments to vendors, including timing and increase in cost of operations.

The decrease was partially offset by higher collections from customers and a decrease of $35.1 million in pension contributions in 2022. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Accounting Estimates” herein and in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.

Investing Activities

Net cash flow used in investing activities increased $1,973.3 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to:

an increase in investments in affiliates due to the $3,164 million purchase by the storm trust of preferred membership interests issued by an Entergy affiliate, partially offset by the $1,391 million redemption of preferred membership interests. See Note 2 to the financial statements herein for a discussion of the securitization;
an increase of $291.2 million in net payments to storm reserve escrow accounts;
an increase of $94.7 million in nuclear construction expenditures primarily due to increased spending on various nuclear projects in 2022 and higher capital expenditures for storm restoration in 2022;
an increase of $64.9 million in distribution construction expenditures primarily due to higher capital expenditures for storm restoration in 2022, higher capital expenditures as a result of increased development in Entergy Louisiana’s service area, and increased investment in the reliability and infrastructure of Entergy Louisiana’s distribution system, partially offset by lower spending in 2022 on advanced metering infrastructure;
an increase of $27.2 million in non-nuclear generation construction expenditures primarily due to a higher scope of work on projects performed in 2022 as compared to 2021, including during plant outages;
an increase of $21.5 million in information technology capital expenditures primarily due to increased spending on various technology projects in 2022; and
the sale of a pipeline for $15 million in 2021.

The increase was partially offset by:

a decrease of $239.7 million in transmission construction expenditures primarily due to lower capital expenditures for storm restoration in 2022. The decrease in storm restoration spending is primarily due to Hurricane Laura restoration efforts in 2021;
a decrease of $29.7 million in nuclear decommissioning trust fund activity as a result of a lump sum contribution in 2021 for amounts collected over a 17-month period. See Note 2 to the financial statements in the Form 10-K for a discussion of nuclear decommissioning expense recovery;
money pool activity; and
a decrease of $15.2 million as a result of fluctuations in nuclear fuel activity, primarily due to variations from year to year in the timing and pricing of fuel reload requirements, materials and services deliveries, and the timing of cash payments during the nuclear fuel cycle.

Decreases in Entergy Louisiana’s receivables from the money pool are a source of cash flow, and Entergy Louisiana’s receivable from the money pool decreased $9.8 million for the nine months ended September 30, 2022 compared to increasing by $6.6 million for the nine months ended September 30, 2021. 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 $3,038.2 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to:

proceeds from securitization of $3.2 billion received by the storm trust;

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

a capital contribution of $1 billion received indirectly from Entergy Corporation in May 2022 to finance the establishment of the storm escrow account for Hurricane Ida costs;
the issuance of $500 million of 4.75% Series mortgage bonds in August 2022;
the repayment, at maturity, of $200 million of 4.80% Series mortgage bonds in May 2021;
the repayment, at maturity, of Entergy Louisiana Waterford VIE’s $40 million of 3.92% Series H secured notes in February 2021; and
higher prepaid deposits of $27.9 million related to contributions-in-aid-of-construction reimbursement agreements in 2022 as compared to 2021.

The increase was partially offset by:

the issuance of $500 million of 2.35% Series mortgage bonds and $500 million of 3.10% Series mortgage bonds, each in March 2021;
the repayment, prior to maturity, in May 2022 of $435 million, a portion of the outstanding principal, of 0.62% Series mortgage bonds due November 2023;
an increase of $314.5 million in common equity distributions in 2022 primarily to return to Entergy Corporation the $125 million capital contribution received in December 2021 to assist in paying for costs associated with Hurricane Ida and to maintain Entergy Louisiana’s targeted capital structure;
net repayments of $125 million in 2022 on Entergy Louisiana’s revolving credit facility; and
a decrease in net long-term borrowings of $39.3 million on the nuclear fuel company variable interest entities’ credit facilities.

See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt. See Note 2 to the financial statements herein for a discussion of the securitization.

Capital Structure

Entergy Louisiana’s debt to capital ratio is shown in the following table. The decrease in the debt to capital ratio for Entergy Louisiana is primarily due to the $1.0 billion capital contribution received indirectly from Entergy Corporation in May 2022.


	September 30, 2022		December 31, 2021
Debt to capital	53.2	%	57.2	%


Effect of subtracting cash	(0.5	%)	0.0	%
Net debt to net capital	52.7	%	57.2	%

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 Louisiana 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 Louisiana’s financial condition. Entergy Louisiana also 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 Louisiana’s financial condition because net debt indicates Entergy Louisiana’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.

Uses and Sources of Capital

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

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Entergy Louisiana is developing its capital investment plan for 2023 through 2025 and currently anticipates making $5.6 billion in capital investments during that period. The preliminary estimate includes investments in generation projects to modernize, decarbonize, and diversify Entergy Louisiana’s portfolio, including St. Jacques Louisiana Solar; investments in River Bend and Waterford 3; distribution and Utility support spending to improve reliability, resilience, and customer experience; transmission spending to drive reliability and resilience while also supporting renewables expansion; 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.

While Entergy Louisiana is still assessing the effect on its planned solar projects, the investigation by the U.S. Department of Commerce into potential circumvention of duties and tariffs may result in increased duties or tariffs on imported solar panels and has exacerbated previously existing supply chain disruptions, which have negatively affected the timing and cost of completion of these projects.

Entergy Louisiana’s receivables from the money pool were as follows:


September 30, 2022	December 31, 2021	September 30, 2021	December 31, 2020
(In Thousands)
$4,782	$14,539	$20,061	$13,426

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

Entergy Louisiana has a credit facility in the amount of $350 million scheduled to expire in June 2027. 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 September 30, 2022, 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 September 30, 2022, $21 million in letters of credit were outstanding under Entergy Louisiana’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

The Entergy Louisiana nuclear fuel company variable interest entities have two separate credit facilities, each in the amount of $105 million and scheduled to expire in June 2025. As of September 30, 2022, $15.1 million in loans were outstanding under the credit facility for the Entergy Louisiana River Bend nuclear fuel company variable interest entity. As of September 30, 2022, $72.2 million in loans were outstanding under the credit facility for the Entergy Louisiana Waterford nuclear fuel company variable interest entity. See Note 4 to the financial statements herein for additional discussion of the nuclear fuel company variable interest entity credit facilities.

Entergy Louisiana had $291.2 million in its storm reserve escrow account at September 30, 2022.

2021 Solar Certification and the Geaux Green Option

As discussed in the Form 10-K, in November 2021, Entergy Louisiana filed an application with the LPSC seeking certification of and approval for the addition of four new solar photovoltaic resources with a combined nameplate capacity of 475 megawatts (the 2021 Solar Portfolio) and the implementation of a new green tariff, the Geaux Green Option (Rider GGO). These resources, all of which would be constructed in Louisiana, include (i) Vacherie Solar Energy Center, a 150 megawatt resource in St. James Parish; (ii) Sunlight Road Solar, a 50 megawatt resource in Washington Parish; (iii) St. Jacques Louisiana Solar, a 150 megawatt resource in St. James Parish; and (iv) Elizabeth Solar facility, a 125 megawatt resource in Allen Parish. St. Jacques Louisiana Solar would be acquired through a build-own-transfer agreement; the remaining resources involve power purchase

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

agreements. Sunlight Road Solar and Elizabeth Solar facility have estimated in service dates in 2024, and Vacherie Solar Energy Center and St. Jacques Louisiana Solar have estimated in service dates in 2025. In March 2022 direct testimony from Walmart, the Louisiana Energy Users Group (LEUG), and the LPSC staff was filed. Each party recommended that the LPSC approve the resources proposed in Entergy Louisiana’s application, and the LPSC staff witness indicated that the process through which Entergy Louisiana solicited or obtained the proposals for the resources complied with applicable LPSC orders. The LPSC staff and LEUG’s witnesses made recommendations to modify the proposed Rider GGO and Entergy Louisiana’s proposed rate relief. In April 2022 the LPSC staff and LEUG filed cross-answering testimony concerning the other party’s proposed modifications to Rider GGO and the proposed rate recovery. Entergy Louisiana filed rebuttal testimony in June 2022. In August 2022 the parties reached a settlement certifying the 2021 Solar Portfolio and approving implementation of Rider GGO. In September 2022 the LPSC approved the settlement.

Hurricane Laura, Hurricane Delta, Hurricane Zeta, Winter Storm Uri, and Hurricane Ida

As discussed in the Form 10-K, in August 2020 and October 2020, Hurricane Laura, Hurricane Delta, and Hurricane Zeta caused significant damage to portions of Entergy Louisiana’s service area. The storms resulted in widespread outages, significant damage to distribution and transmission infrastructure, and the loss of sales during the outages. Additionally, as a result of Hurricane Laura’s extensive damage to the grid infrastructure serving the impacted area, large portions of the underlying transmission system required nearly a complete rebuild. In February 2021 two winter storms (collectively, Winter Storm Uri) brought freezing rain and ice to Louisiana. Ice accumulation sagged or downed trees, limbs, and power lines, causing damage to Entergy Louisiana’s transmission and distribution systems. The additional weight of ice caused trees and limbs to fall into power lines and other electric equipment. When the ice melted, it affected vegetation and electrical equipment, causing additional outages.

In April 2021, Entergy Louisiana filed an application with the LPSC relating to Hurricane Laura, Hurricane Delta, Hurricane Zeta, and Winter Storm Uri restoration costs and in July 2021, Entergy Louisiana made a supplemental filing updating the total restoration costs. Total restoration costs for the repair and/or replacement of Entergy Louisiana’s electric facilities damaged by these storms were estimated to be approximately $2.06 billion, including approximately $1.68 billion in capital costs and approximately $380 million in non-capital costs. Including carrying costs through January 2022, Entergy Louisiana sought an LPSC determination that $2.11 billion was prudently incurred and, therefore, was eligible for recovery from customers. Additionally, Entergy Louisiana requested that the LPSC determine that re-establishment of a storm escrow account to the previously authorized amount of $290 million was appropriate. In July 2021, Entergy Louisiana supplemented the application with a request regarding the financing and recovery of the recoverable storm restoration costs. Specifically, Entergy Louisiana requested approval to securitize its restoration costs pursuant to Louisiana Act 55 financing, as supplemented by Act 293 of the Louisiana Legislature’s Regular Session of 2021.

In August 2021, Hurricane Ida caused extensive damage to Entergy Louisiana’s distribution and, to a lesser extent, transmission systems resulting in widespread power outages. In September 2021, Entergy Louisiana filed an application at the LPSC seeking approval of certain ratemaking adjustments in connection with the issuance of approximately $1 billion of shorter-term mortgage bonds to provide interim financing for restoration costs associated with Hurricane Ida, which bonds were issued in October 2021. Also in September 2021, Entergy Louisiana sought approval for the creation and funding of a $1 billion restricted escrow account for Hurricane Ida restoration costs, subject to a subsequent prudence review.

After filing of testimony by the LPSC staff and intervenors, which generally supported or did not oppose Entergy Louisiana’s requests in regard to Hurricane Laura, Hurricane Delta, Hurricane Zeta, Winter Storm Uri, and Hurricane Ida, the parties negotiated and executed an uncontested stipulated settlement which was filed with the LPSC in February 2022. The settlement agreement contained the following key terms: $2.1 billion of restoration costs from Hurricane Laura, Hurricane Delta, Hurricane Zeta, and Winter Storm Uri were prudently incurred and were eligible for recovery; carrying costs of $51 million were recoverable; a $290 million cash storm reserve should

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

be re-established; a $1 billion reserve should be established to partially pay for Hurricane Ida restoration costs; and Entergy Louisiana was authorized to finance $3.186 billion utilizing the securitization process authorized by Act 55, as supplemented by Act 293. The LPSC issued an order approving the settlement in March 2022. As a result of the financing order, Entergy Louisiana reclassified $1.942 billion from utility plant to other regulatory assets.

In May 2022 the securitization financing closed, resulting in the issuance of $3.194 billion principal amount of bonds by Louisiana Local Government Environmental Facilities and Community Development Authority (LCDA), a political subdivision of the State of Louisiana. The securitization was authorized pursuant to the Louisiana Utilities Restoration Corporation Act, Part VIII of Chapter 9 of Title 45 of the Louisiana Revised Statutes, as supplemented by Act 293 of the Louisiana legislature approved in 2021. The LCDA loaned the proceeds to the LURC. Pursuant to Act 293, the LURC contributed the net bond proceeds to a State legislatively authorized and LURC-sponsored trust, Restoration Law Trust I (the storm trust).

Pursuant to Act 293, the net proceeds of the bonds were used by the storm trust to purchase 31,635,718.7221 Class A preferred, non-voting membership interest units (the preferred interests) issued by Entergy Finance Company, LLC, a majority-owned indirect subsidiary of Entergy. Entergy Finance Company is required to make annual distributions (dividends) commencing on December 15, 2022 on the preferred interests issued to the storm trust. These annual dividends received by the storm trust will be distributed to Entergy Louisiana and the LURC, as beneficiaries of the storm trust. Specifically, 1% of the annual dividends received by the storm trust will be distributed to the LURC, for the benefit of customers, and 99% will be distributed to Entergy Louisiana, net of storm trust expenses. The preferred interests have a stated annual cumulative cash dividend rate of 7% and a liquidation price of $100 per unit. The terms of the preferred interests include certain financial covenants to which Entergy Finance Company is subject.

Entergy and Entergy Louisiana do not report the bonds issued by the LCDA on their balance sheets because the bonds are the obligation of the LCDA. The bonds are secured by system restoration property, which is the right granted by law to the LURC to collect a system restoration charge from customers. The system restoration charge is adjusted at least semi-annually to ensure that it is sufficient to service the bonds. Entergy Louisiana collects the system restoration charge on behalf of the LURC and remits the collections to the bond indenture trustee. Entergy Louisiana began collecting the system restoration charge effective with the first billing cycle of June 2022 and the system restoration charge is expected to remain in place up to 15 years. Entergy and Entergy Louisiana do not report the collections as revenue because Entergy Louisiana is merely acting as a billing and collection agent for the LCDA and the LURC. In the remote possibility that the system restoration charge, as well as any funds in the excess subaccount and funds in the debt service reserve account, are insufficient to service the bonds resulting in a payment default, the storm trust is required to liquidate Entergy Finance Company preferred interests in an amount equal to what would be required to cure the default. The estimated value of this indirect guarantee is immaterial.

From the proceeds from the issuance of the preferred membership interests, Entergy Finance Company distributed $1.4 billion to its parent, Entergy Holdings Company, LLC. Subsequently, Entergy Holdings Company liquidated, distributing the $1.4 billion it received from Entergy Finance Company to Entergy Louisiana as holder of 6,843,780.24 units of Class A, 4,126,940.15 units of Class B, and 2,935,152.69 units of Class C preferred membership interests. Entergy Louisiana had acquired these preferred membership interests with proceeds from previous securitizations of storm restoration costs. Entergy Finance Company loaned the remaining $1.7 billion from the preferred membership interests proceeds to Entergy which used the cash to redeem $650 million of 4.00% Series senior notes due July 2022 and indirectly contributed $1 billion to Entergy Louisiana as a capital contribution.

Entergy Louisiana used the $1 billion capital contribution to fund its Hurricane Ida escrow account and subsequently withdrew the $1 billion from the escrow account. With a portion of the $1 billion withdrawn from the escrow account and the $1.4 billion from the Entergy Holdings Company liquidation, Entergy Louisiana deposited $290 million in a restricted escrow account as a storm damage reserve for future storms, used $1.2 billion to repay

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

its unsecured term loan due June 2023, and used $435 million to redeem a portion of its 0.62% Series mortgage bonds due November 2023.

As discussed in Note 10 to the financial statements herein, the securitization resulted in recognition of a reduction of income tax expense of approximately $290 million by Entergy Louisiana. Entergy’s recognition of reduced income tax expense was partially offset by other tax charges resulting in a net reduction of income tax expense of $283 million. In recognition of obligations related to an LPSC ancillary order issued as part of the securitization regulatory proceeding, Entergy Louisiana recorded a $224 million ($165 million net-of-tax) regulatory charge and a corresponding regulatory liability to reflect its obligation to share the benefits of the securitization with customers.

As discussed in Note 12 to the financial statements herein, Entergy Louisiana consolidates the storm trust as a variable interest entity and the LURC’s 1% beneficial interest is shown as noncontrolling interest in the financial statements. In second quarter 2022, Entergy Louisiana recorded a charge of $31.6 million in other income to reflect the LURC’s beneficial interest in the trust.

In April 2022, Entergy Louisiana filed an application with the LPSC relating to Hurricane Ida restoration costs. Total restoration costs for the repair and/or replacement of Entergy Louisiana’s electric facilities damaged by Hurricane Ida currently are estimated to be approximately $2.54 billion, including approximately $1.96 billion in capital costs and approximately $586 million in non-capital costs. Including carrying costs of $57 million through December 2022, Entergy Louisiana is seeking an LPSC determination that $2.60 billion was prudently incurred and, therefore, is eligible for recovery from customers. As part of this filing, Entergy Louisiana also is seeking an LPSC determination that an additional $32 million in costs associated with the restoration of Entergy Louisiana’s electric facilities damaged by Hurricane Laura, Hurricane Delta, and Hurricane Zeta as well as Winter Storm Uri was prudently incurred. This amount is exclusive of the requested $3 million in carrying costs through December 2022. In total, Entergy Louisiana is requesting an LPSC determination that $2.64 billion was prudently incurred and, therefore, is eligible for recovery from customers. As discussed above, in March 2022 the LPSC approved financing of a $1 billion storm escrow account from which funds were withdrawn to finance costs associated with Hurricane Ida restoration. In June 2022, Entergy Louisiana supplemented the application with a request regarding the financing and recovery of the recoverable storm restoration costs. Specifically, Entergy Louisiana requested approval to securitize its restoration costs pursuant to Louisiana Act 55 financing, as supplemented by Act 293 of the Louisiana Legislature’s Regular Session of 2021. In October 2022 the LPSC staff recommended a finding that the requested storm restoration costs of $2.64 billion, including associated carrying costs of $59.1 million, were prudently incurred and are eligible for recovery from customers. The LPSC staff further recommended approval of Entergy Louisiana’s plans to securitize these costs, net of the $1 billion in funds withdrawn from the storm escrow account described above. A procedural schedule has been established with a hearing in December 2022.

State and Local Rate Regulation and Fuel-Cost Recovery

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

Retail Rates - Electric

2021 Formula Rate Plan Filing

In May 2022, Entergy Louisiana filed its formula rate plan evaluation report for its 2021 calendar year operations. The 2021 test year evaluation report produced an earned return on common equity of 8.33%, with a base formula rate plan revenue increase of $65.3 million. Other increases in formula rate plan revenue driven by reductions in Tax Cut and Jobs Act credits and additions to transmission and distribution plant in service reflected through the transmission recovery mechanism and distribution recovery mechanism are partly offset by an increase

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

in net MISO revenues, leading to a net increase in formula rate plan revenue of $152.9 million. The effects of the changes to total formula rate plan revenue are different for each legacy company, primarily due to differences in the legacy companies’ capacity cost changes, including the effect of true-ups. Legacy Entergy Louisiana formula rate plan revenues will increase by $86 million and legacy Entergy Gulf States Louisiana formula rate plan revenues will increase by $66.9 million. In August 2022 the LPSC staff filed a list of objections/reservations, including outstanding issues from the test years 2017-2020 formula rate plan filings, utilizing the extraordinary cost mechanism to address one-time changes such as state tax rate changes, and failing to include an adjustment for revenues not received as a result of Hurricane Ida. Subject to refund and LPSC review, the resulting changes to formula rate plan revenues became effective for bills rendered during the first billing cycle of September 2022.

Fuel and purchased power recovery

As discussed in the Form 10-K, in February 2021, Entergy Louisiana incurred extraordinary fuel costs associated with the February 2021 winter storms. To mitigate the effect of these costs on customer bills, in March 2021, Entergy Louisiana requested and the LPSC approved the deferral and recovery of $166 million in incremental fuel costs over five months beginning in April 2021. In April 2022 the LPSC staff issued a draft audit report regarding Entergy Louisiana’s fuel adjustment clause charges in February 2021 that did not recommend any financial disallowances, but included several prospective recommendations. Responsive testimony was filed by one intervenor and the parties agreed to suspend any procedural schedule and move toward settlement discussions to close the matter.

In May 2022 the LPSC staff issued an audit report regarding Entergy Louisiana’s purchased gas adjustment charges in February 2021 that did not propose any financial disallowances. The LPSC staff and Entergy Louisiana submitted a joint report on the audit report and draft order to the LPSC concluding that Entergy Louisiana’s gas distribution operations and fuel costs were not significantly adversely affected by the February 2021 winter storms and the resulting increase in natural gas prices. The LPSC issued an order approving the joint report in October 2022.

To mitigate high electric bills, primarily driven by high summer usage and elevated gas prices, Entergy Louisiana has deferred approximately $225 million of fuel expense incurred in April, May, June, July, August, and September 2022 (as reflected on June, July, August, September, October, and November 2022 bills). These deferrals were included in the over/under calculation of the fuel adjustment clause, which is intended to recover the full amount of the costs included on a rolling twelve-month basis.

COVID-19 Orders

As discussed in the Form 10-K, in April 2020 the LPSC issued an order authorizing utilities to record as a regulatory asset expenses incurred from the suspension of disconnections and collection of late fees imposed by LPSC orders associated with the COVID-19 pandemic. In addition, utilities may seek future recovery, subject to LPSC review and approval, of losses and expenses incurred due to compliance with the LPSC’s COVID-19 orders. Utilities seeking to recover the regulatory asset must formally petition the LPSC to do so, identifying the direct and indirect costs for which recovery is sought. Any such request is subject to LPSC review and approval. As of September 30, 2022, Entergy Louisiana had a regulatory asset of $47.8 million for costs associated with the COVID-19 pandemic.

Industrial and Commercial Customers

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Industrial and Commercial Customers” in the Form 10-K for a discussion of industrial and commercial customers.

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Federal Regulation

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

Nuclear Matters

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

As discussed in the Form 10-K, the NRC’s Reactor Oversight Process is a program to collect information about plant performance, assess the information for its safety significance, and provide for appropriate licensee and NRC response. The NRC evaluates plant performance by analyzing two distinct inputs: inspection findings resulting from the NRC’s inspection program and performance indicators reported by the licensee. The evaluations result in the placement of each plant in one of the NRC’s Reactor Oversight Process Action Matrix columns: “licensee response column,” or Column 1, “regulatory response column,” or Column 2, “degraded cornerstone column,” or Column 3, “multiple/repetitive degraded cornerstone column,” or Column 4, and “unacceptable performance,” or Column 5. Plants in Column 1 are subject to normal NRC inspection activities. Plants in Column 2, Column 3, or Column 4 are subject to progressively increasing levels of inspection by the NRC with, in general, progressively increasing levels of associated costs. Continued plant operation is not permitted for plants in Column 5. River Bend is currently in Column 1, and Waterford 3 is currently in Column 2.

In September 2022 the NRC placed Waterford 3 in Column 2 based on an error associated with a radiation monitor calibration. Entergy corrected the issue with the radiation monitor in February 2022; however, Waterford 3 is expected to remain in Column 2 until the NRC conducts a supplemental inspection of Waterford 3 in accordance with its inspection procedures for nuclear plants in Column 2.

Environmental Risks

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

Critical Accounting Estimates

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Louisiana’s accounting for nuclear decommissioning costs, utility regulatory accounting, impairment of long-lived assets, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies. See “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for updates to the discussion of qualified pension and other postretirement benefits.

New Accounting Pronouncements

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


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)

	Three Months Ended		Nine Months Ended



	2022	2021	2022	2021
	(In Thousands)		(In Thousands)
OPERATING REVENUES
Electric	$2,003,009	$1,407,737	$4,738,188	$3,741,979
Natural gas	17,789	12,971	64,367	53,971
TOTAL	2,020,798	1,420,708	4,802,555	3,795,950

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	833,885	421,464	1,449,464	922,060
Purchased power	251,582	176,473	848,328	573,030
Nuclear refueling outage expenses	18,966	11,932	40,942	37,407
Other operation and maintenance	298,710	239,132	846,457	752,214
Decommissioning	18,137	17,250	53,736	51,108
Taxes other than income taxes	60,346	63,428	180,527	167,880
Depreciation and amortization	176,403	165,469	517,205	489,343
Other regulatory charges (credits) - net	(9,959)	(1,920)	172,605	7,560
TOTAL	1,648,070	1,093,228	4,109,264	3,000,602

OPERATING INCOME	372,728	327,480	693,291	795,348

OTHER INCOME
Allowance for equity funds used during construction	8,280	7,247	17,865	20,183
Interest and investment income (loss)	(8,861)	7,327	(93,241)	75,502
Interest and investment income - affiliated	55,363	31,898	130,464	95,695
Miscellaneous - net	6,835	(8,924)	59,338	(79,595)
TOTAL	61,617	37,548	114,426	111,785

INTEREST EXPENSE
Interest expense	92,020	87,295	278,559	260,731
Allowance for borrowed funds used during construction	(3,518)	(3,278)	(7,762)	(9,105)
TOTAL	88,502	84,017	270,797	251,626

INCOME BEFORE INCOME TAXES	345,843	281,011	536,920	655,507

Income taxes	71,453	56,536	(204,989)	120,479

NET INCOME	274,390	224,475	741,909	535,028

Net income attributable to noncontrolling interest	554	—	812	—

EARNINGS APPLICABLE TO MEMBER'S EQUITY	$273,836	$224,475	$741,097	$535,028

See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)

	Three Months Ended		Nine Months Ended


	2022	2021	2022	2021
	(In Thousands)		(In Thousands)

Net Income	$274,390	$224,475	$741,909	$535,028

Other comprehensive income (loss)
Pension and other postretirement liabilities (net of tax expense (benefit) of $109, ($46), ($298), and $18)	295	(131)	(809)	50
Other comprehensive income (loss)	295	(131)	(809)	50

Comprehensive Income	274,685	224,344	741,100	535,078
Net income attributable to noncontrolling interest	554	—	812	—
Comprehensive Income Applicable to Member’s Equity	$274,131	$224,344	$740,288	$535,078

See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)

	2022	2021
	(In Thousands)
OPERATING ACTIVITIES
Net income	$741,909	$535,028
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation, amortization, and decommissioning, including nuclear fuel amortization	633,124	607,299
Deferred income taxes, investment tax credits, and non-current taxes accrued	(84,719)	159,723
Changes in working capital:
Receivables	(193,374)	(91,771)
Fuel inventory	1,920	5,763
Accounts payable	(117,199)	450,064
Taxes accrued	(9,415)	94,751
Interest accrued	3,244	4,464
Deferred fuel costs	(272,259)	(49,786)
Other working capital accounts	(161,058)	(41,769)
Changes in provisions for estimated losses	292,013	(764)
Changes in other regulatory assets	741,131	(938,646)
Changes in other regulatory liabilities	(92,554)	92,138
Effect of securitization on regulatory asset	(1,190,338)	—

Changes in pension and other postretirement liabilities	(29,538)	(68,132)
Other	358,570	289,625
Net cash flow provided by operating activities	621,457	1,047,987

INVESTING ACTIVITIES
Construction expenditures	(2,099,909)	(2,147,096)
Allowance for equity funds used during construction	17,865	20,183

Proceeds from sale of assets	—	15,000
Nuclear fuel purchases	(84,606)	(75,349)
Proceeds from the sale of nuclear fuel	37,634	13,201
Receipts from storm reserve escrow account	1,000,228	—

Payments to storm reserve escrow account	(1,291,431)	—
Purchase of preferred membership interests of affiliate	(3,163,572)	—
Redemption of preferred membership interests of affiliate	1,390,587	—
Changes to securitization account	—	(2,815)
Proceeds from nuclear decommissioning trust fund sales	520,412	505,840
Investment in nuclear decommissioning trust funds	(540,653)	(555,749)
Changes in money pool receivable - net	9,757	(6,635)

Litigation proceeds from settlement agreement	5,695	—
Litigation proceeds for reimbursement of spent nuclear fuel storage costs	—	8,690



Net cash flow used in investing activities	(4,197,993)	(2,224,730)

FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	2,673,246	2,404,102
Retirement of long-term debt	(2,734,524)	(1,628,383)
Proceeds from trust related to securitization	3,163,572	—
Capital contribution from parent	1,000,000	—





Common equity distributions paid	(374,500)	(60,000)

Other	25,866	(303)
Net cash flow provided by financing activities	3,753,660	715,416

Net increase (decrease) in cash and cash equivalents	177,124	(461,327)
Cash and cash equivalents at beginning of period	18,573	728,020
Cash and cash equivalents at end of period	$195,697	$266,693

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized	$266,522	$247,878


See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2022 and December 31, 2021
(Unaudited)
	2022	2021
	(In Thousands)
CURRENT ASSETS
Cash and cash equivalents:
Cash	$390	$195
Temporary cash investments	195,307	18,378
Total cash and cash equivalents	195,697	18,573

Accounts receivable:
Customer	435,725	355,265
Allowance for doubtful accounts	(9,945)	(29,231)
Associated companies	120,203	96,539
Other	50,104	36,674
Accrued unbilled revenues	221,545	174,768
Total accounts receivable	817,632	634,015

Deferred fuel costs	317,633	45,374
Fuel inventory	41,038	42,958
Materials and supplies - at average cost	531,444	485,325
Deferred nuclear refueling outage costs	69,738	39,582



Prepayments and other	148,498	44,187
TOTAL	2,121,680	1,310,014

OTHER PROPERTY AND INVESTMENTS
Investment in affiliate preferred membership interests	3,163,572	1,390,587
Decommissioning trust funds	1,682,479	2,114,523
Storm reserve escrow account	291,203	—
Non-utility property - at cost (less accumulated depreciation)	344,935	337,247

Other	14,098	13,744
TOTAL	5,496,287	3,856,101

UTILITY PLANT
Electric	27,323,620	28,055,038

Natural gas	297,638	285,006

Construction work in progress	785,673	847,924
Nuclear fuel	191,908	209,418
TOTAL UTILITY PLANT	28,598,839	29,397,386
Less - accumulated depreciation and amortization	10,204,546	9,860,252
UTILITY PLANT - NET	18,394,293	19,537,134

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets	2,035,535	2,776,666
Deferred fuel costs	168,122	168,122
Other	35,811	27,801
TOTAL	2,239,468	2,972,589

TOTAL ASSETS	$28,251,728	$27,675,838

See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2022 and December 31, 2021
(Unaudited)
	2022	2021
	(In Thousands)
CURRENT LIABILITIES
Currently maturing long-term debt	$525,000	$200,000

Accounts payable:
Associated companies	146,002	183,172
Other	680,238	1,481,902
Customer deposits	158,440	150,697
Taxes accrued	54,833	64,248

Interest accrued	96,296	93,052





Current portion of unprotected excess accumulated deferred income taxes	—	24,291
Other	81,448	68,995
TOTAL	1,742,257	2,266,357

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	2,363,961	2,433,854
Accumulated deferred investment tax credits	99,048	102,588
Regulatory liability for income taxes - net	302,760	313,693

Other regulatory liabilities	985,267	1,042,597
Decommissioning	1,718,635	1,653,198
Accumulated provisions	316,503	24,490
Pension and other postretirement liabilities	498,744	528,213
Long-term debt	10,335,595	10,714,346

Other	310,188	415,930
TOTAL	16,930,701	17,228,909

Commitments and Contingencies

EQUITY

Member's equity	9,538,853	8,172,294
Accumulated other comprehensive income	7,469	8,278
Noncontrolling interest	32,448	—
TOTAL	9,578,770	8,180,572

TOTAL LIABILITIES AND EQUITY	$28,251,728	$27,675,838

See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)

	Noncontrolling Interest	Member’s Equity	Accumulated Other Comprehensive Income	Total
	(In Thousands)

Balance at December 31, 2020	$—	$7,453,361	$4,327	$7,457,688

Net income	—	166,626	—	166,626
Other comprehensive loss	—	—	(407)	(407)






Other	—	(16)	—	(16)
Balance at March 31, 2021	—	7,619,971	3,920	7,623,891

Net income	—	143,927	—	143,927
Other comprehensive income	—	—	588	588






Other	—	(12)	—	(12)
Balance at June 30, 2021	—	7,763,886	4,508	7,768,394

Net income	—	224,475	—	224,475
Other comprehensive loss	—	—	(131)	(131)



Distributions declared on common equity	—	(60,000)	—	(60,000)


Other	—	(11)	—	(11)
Balance at September 30, 2021	$—	$7,928,350	$4,377	$7,932,727

Balance at December 31, 2021	$—	$8,172,294	$8,278	$8,180,572

Net income	—	150,860	—	150,860
Other comprehensive loss	—	—	(613)	(613)


Common equity distributions	—	(125,000)	—	(125,000)


Other	—	(13)	—	(13)
Balance at March 31, 2022	—	8,198,141	7,665	8,205,806

Net income	258	316,401	—	316,659
Other comprehensive loss	—	—	(491)	(491)


Capital contribution from parent	—	1,000,000	—	1,000,000



Beneficial interest in storm trust	31,636	—	—	31,636
Other	—	(13)	—	(13)
Balance at June 30, 2022	31,894	9,514,529	7,174	9,553,597

Net income	554	273,836	—	274,390
Other comprehensive income	—	—	295	295



Common equity distributions	—	(249,500)	—	(249,500)


Other	—	(12)	—	(12)
Balance at September 30, 2022	$32,448	$9,538,853	$7,469	$9,578,770

See Notes to Financial Statements.

ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Third Quarter 2022 Compared to Third Quarter 2021

Net income increased $12.3 million primarily due to regulatory credits recorded in the third quarter 2022 to reflect the effects of the joint stipulation reached in the 2022 formula rate plan proceeding and higher retail electric price, partially offset by higher other operation and maintenance expenses, higher depreciation and amortization expenses, and higher interest expense.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Net income increased $14.2 million primarily due to higher retail electric price, regulatory credits recorded in the third quarter 2022 to reflect the effects of the joint stipulation reached in the 2022 formula rate plan proceeding, and higher volume/weather, partially offset by regulatory credits recorded in the second quarter 2021 to reflect the effects of the joint stipulation reached in the 2021 formula rate plan filing proceeding, higher depreciation and amortization expenses, higher other operation and maintenance expenses, and higher interest expense.

Operating Revenues

Third Quarter 2022 Compared to Third Quarter 2021

Following is an analysis of the change in operating revenues comparing the third quarter 2022 to the third quarter 2021:


			Amount
			(In Millions)
2021 operating revenues			$420.3
Fuel, rider, and other revenues that do not significantly affect net income			57.9
Retail electric price			17.3
Volume/weather			0.3
Retail one-time bill credit			(36.7)
2022 operating revenues			$459.1

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 retail electric price variance is primarily due to increases in formula rate plan rates effective April 2022 and August 2022. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the formula rate plan filings.

The volume/weather variance is insignificant and primarily due to an increase in industrial usage. The increase in industrial usage was primarily due to an increase in demand from small industrial customers.

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

The retail one-time bill credit represents the disbursement of settlement proceeds in the form of a one-time bill credit provided to retail customers, effective during the September 2022 billing cycle, as a result of the System Energy partial settlement agreement with the MPSC. There is no effect on net income as the reduction in operating revenues was offset by regulatory credits recorded in third quarter 2022. See Note 2 to the financial statements herein for discussion of the partial settlement agreement and the MPSC directive related to the disbursement of settlement proceeds.

Total electric energy sales for Entergy Mississippi for the three months ended September 30, 2022 and 2021 are as follows:


	2022	2021	% Change
	(GWh)
Residential	1,766	1,725	2
Commercial	1,352	1,337	1
Industrial	654	631	4
Governmental	119	118	1
Total retail	3,891	3,811	2
Sales for resale:
Non-associated companies	936	1,134	(17)
Total	4,827	4,945	(2)

See Note 13 to the financial statements herein for additional discussion of Entergy Mississippi’s operating revenues.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Following is an analysis of the change in operating revenues comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021:


			Amount
			(In Millions)
2021 operating revenues			$1,106.0
Fuel, rider, and other revenues that do not significantly affect net income			89.5
Retail electric price			44.2
Volume/weather			10.6
Retail one-time bill credit			(36.7)
2022 operating revenues			$1,213.6

The retail electric price variance is primarily due to increases in formula rate plan rates effective April 2021, July 2021, April 2022, and August 2022. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the formula rate plan filings.

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

The volume/weather variance is primarily due to the effect of more favorable weather on residential sales, partially offset by a decrease in weather-adjusted residential usage.

Total electric energy sales for Entergy Mississippi for the nine months ended September 30, 2022 and 2021 are as follows:


	2022	2021	% Change
	(GWh)
Residential	4,480	4,355	3
Commercial	3,539	3,449	3
Industrial	1,808	1,742	4
Governmental	320	315	2
Total retail	10,147	9,861	3
Sales for resale:
Non-associated companies	2,148	4,230	(49)
Total	12,295	14,091	(13)

See Note 13 to the financial statements herein for additional discussion of Entergy Mississippi’s operating revenues.

Other Income Statement Variances

Third Quarter 2022 Compared to Third Quarter 2021

Other operation and maintenance expenses increased primarily due to:

an increase of $3.8 million in power delivery expenses primarily due to higher vegetation maintenance costs;
$2.2 million in amortization of the bad debt expense deferral resulting from the COVID-19 pandemic. See Note 2 to the financial statements herein and in the Form 10-K for discussion of regulatory activity associated with the COVID-19 pandemic;
an increase of $1.4 million in compensation and benefits costs primarily due to the timing of incentive-based compensation accruals as compared to prior year;
an increase of $1.4 million in energy efficiency expenses primarily due to higher energy efficiency costs; and
several individually insignificant items.

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

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

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Other regulatory charges (credits) - net includes:

a regulatory credit of $36.7 million, recorded in the third quarter 2022, to reflect a one-time bill credit to customers as a result of the partial settlement agreement and offer of settlement with System Energy. This regulatory credit offsets a reduction in gross revenue from the bill credits provided to customers in the September bill cycle. See Note 2 to the financial statements herein for discussion of the partial settlement agreement and the MPSC directive related to the disbursement of settlement proceeds; and
regulatory credits of $22.6 million, recorded in third quarter 2022, to reflect the effects of the joint stipulation reached in the 2022 formula rate plan filing proceeding. See Note 2 to the financial statements herein for discussion of the 2022 formula rate plan filing.

Interest expense increased primarily due to the issuance of $200 million of 2.55% Series mortgage bonds in November 2021, the $150 million unsecured term loan proceeds received in June 2022, and borrowings of $100 million in 2022 on Entergy Mississippi’s credit facility.

Net loss attributable to noncontrolling interest reflects the earnings or losses attributable to the noncontrolling interest partner of the tax equity partnership for the Sunflower Solar facility under HLBV accounting. Entergy Mississippi recorded a regulatory charge of $9 million in third quarter 2022 to defer the difference between the losses allocated to the tax equity partner under the HLBV method of accounting and the earnings/loss that would have been allocated to the tax equity partner under its respective ownership percentage in the partnership. See Note 1 to the financial statements in the Form 10-K for discussion of the HLBV method of accounting.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Other operation and maintenance expenses increased primarily due to:

$2.2 million in amortization of the bad debt expense deferral resulting from the COVID-19 pandemic. See Note 2 to the financial statements herein and in the Form 10-K for discussion of regulatory activity associated with the COVID-19 pandemic;
an increase of $2.1 million in customer service center support costs primarily due to higher contract costs;
an increase of $2 million in energy efficiency expenses primarily due to higher energy efficiency costs;
an increase of $1.8 million in compensation and benefits costs primarily due to the timing of incentive-based compensation accruals as compared to prior year; and
an increase of $1.4 million in power delivery expenses primarily due to higher vegetation maintenance costs.

The increase was partially offset by a decrease of $1.9 million in non-nuclear generation expenses primarily due to a lower scope of work performed during plant outages in 2022 as compared to prior year.

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

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

Other regulatory charges (credits) - net includes:

a regulatory credit of $36.7 million, recorded in the third quarter 2022, to reflect a one-time bill credit to customers as a result of the partial settlement agreement and offer of settlement with System Energy. This regulatory credit offsets a reduction in gross revenues from the bill credits provided to customers in the September bill cycle. See Note 2 to the financial statements herein for discussion of the partial settlement agreement and the MPSC directive related to the disbursement of settlement proceeds;

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

regulatory credits of $22.6 million, recorded in third quarter 2022, to reflect the effects of the joint stipulation reached in the 2022 formula rate plan filing proceeding. See Note 2 to the financial statements herein for discussion of the 2022 formula rate plan filing; and
regulatory credits of $19.9 million, recorded in the second quarter 2021, to reflect the effects of the joint stipulation reached in the 2021 formula rate plan filing proceeding. See Note 2 to the financial statements in the Form 10-K for discussion of the 2021 formula rate plan filing.

Other income increased primarily due to higher interest income from carrying costs related to the deferred fuel balance.

Interest expense increased primarily due to:

the issuance of $200 million of 2.55% Series mortgage bonds in November 2021;
the issuance of $200 million of 3.50% Series mortgage bonds in March 2021;
the $150 million unsecured term loan proceeds received in June 2022; and
the borrowings of $100 million in 2022 on Entergy Mississippi’s credit facility.

Net loss attributable to noncontrolling interest reflects the earnings or losses attributable to the noncontrolling interest partner of the tax equity partnership for the Sunflower Solar facility under HLBV accounting. Entergy Mississippi recorded a regulatory charge of $9 million for the nine months ended September 30, 2022 to defer the difference between the losses allocated to the tax equity partner under the HLBV method of accounting and the earnings/loss that would have been allocated to the tax equity partner under its respective ownership percentage in the partnership. See Note 1 to the financial statements in the Form 10-K for discussion of the HLBV method of accounting.

Income Taxes

The effective income tax rates were 23.8% for the third quarter 2022 and 22.6% for the nine months ended September 30, 2022. The differences in the effective income tax rates for the third quarter 2022 and the nine months ended September 30, 2022 versus the federal statutory rate of 21% were primarily due to state income taxes, partially offset by certain book and tax differences related to utility plant items.

The effective income tax rates were 22.9% for the third quarter 2021 and 22.4% for the nine months ended September 30, 2021. The differences in the effective income tax rates for the third quarter 2021 and the nine months ended September 30, 2021 versus the federal statutory rate of 21% were primarily due to state income taxes, partially offset by certain book and tax differences related to utility plant items and book and tax differences related to the allowance for equity funds used during construction.

Income Tax Legislation

See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Inflation Reduction Act of 2022.

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Liquidity and Capital Resources

Cash Flow

Cash flows for the nine months ended September 30, 2022 and 2021 were as follows:


	2022	2021
	(In Thousands)
Cash and cash equivalents at beginning of period	$47,627	$18

Net cash provided by (used in):
Operating activities	101,591	249,768
Investing activities	(428,776)	(468,198)
Financing activities	282,455	218,440
Net increase (decrease) in cash and cash equivalents	(44,730)	10

Cash and cash equivalents at end of period	$2,897	$28

Operating Activities

Net cash flow provided by operating activities decreased $148.2 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to:

increased fuel costs and timing of recovery of fuel and purchased power costs. See Note 2 to the financial statements herein for a discussion of fuel and purchased power cost recovery;
payments to vendors, including timing and increase in cost of operations;
a one-time bill credit in 2022 for the disbursement of settlement proceeds as directed by the MPSC. See Note 2 to the financial statements herein for discussion of the partial settlement agreement and the MPSC directive; and
income tax refunds of $8 million received in 2021 in accordance with an intercompany income tax allocation agreement.

The decrease was partially offset by higher collections from customers and a decrease of $16.5 million in storm spending in 2022, primarily due to Winter Storm Uri restoration efforts in 2021.

Investing Activities

Net cash flow used in investing activities decreased $39.4 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to:

a decrease of $90.1 million in distribution construction expenditures primarily due to a lower scope of work performed in 2022 as compared to 2021, lower capital expenditures for storm restoration in 2022, and lower spending in 2022 on advanced metering infrastructure;
money pool activity; and
a decrease of $35.4 million in transmission construction expenditures primarily due to a lower scope of work performed in 2022 as compared to 2021.

The decrease was partially offset by the initial payment of approximately $105.1 million in May 2022 for the purchase of the Sunflower Solar facility by a consolidated tax equity partnership and an increase of $9.2 million in information technology capital expenditures primarily due to increased spending on various technology projects in 2022. See Note 14 to the financial statements herein for discussion of the Sunflower Solar facility purchase.

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

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 $40.5 million for the nine months ended September 30, 2022. The money pool is an inter-company borrowing arrangement designed to reduce the Utility’s subsidiaries’ need for external short-term borrowings.

Financing Activities

Net cash flow provided by financing activities increased $64 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to:

proceeds received in June 2022 from a $150 million unsecured term loan due December 2023;
borrowings of $100 million in 2022 on Entergy Mississippi’s credit facility; and
a capital contribution of $9.6 million received in May 2022 from the noncontrolling tax equity investor in MS Sunflower Partnership, LLC and used by the partnership for the initial payment in the acquisition of the Sunflower Solar facility. See Note 14 to the financial statements herein for discussion of the Sunflower Solar facility purchase.

The increase was partially offset by the issuance of $200 million of 3.50% Series mortgage bonds in March 2021.

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

Capital Structure

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


	September 30, 2022		December 31, 2021
Debt to capital	54.9	%	54.3	%
Effect of subtracting cash	—	%	(0.5	%)
Net debt to net capital	54.9	%	53.8	%

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 also uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi’s financial condition because net debt indicates Entergy Mississippi’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.

Uses and Sources of Capital

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

Entergy Mississippi is developing its capital investment plan for 2023 through 2025 and currently anticipates making $1.6 billion in capital investments during that period. The preliminary estimate includes investments in generation projects to modernize, decarbonize, and diversify Entergy Mississippi’s portfolio; distribution and Utility support spending to improve reliability, resilience, and customer experience; transmission

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

spending to drive reliability and resilience while also supporting renewables expansion; 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.

Entergy Mississippi’s receivables from or (payables to) the money pool were as follows:


September 30, 2022	December 31, 2021	September 30, 2021	December 31, 2020
(In Thousands)
($19,319)	$40,456	($34,603)	($16,516)

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

Entergy Mississippi has three separate credit facilities in the aggregate amount of $95 million scheduled to expire in April 2023. As of September 30, 2022, there were no cash borrowings outstanding under these credit facilities. Also, Entergy Mississippi has a credit facility in the amount of $150 million scheduled to expire in July 2024. As of September 30, 2022, there was $100 million in cash borrowings outstanding under the credit facility. 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 September 30, 2022, $9.7 million in MISO letters of credit and $1 million in non-MISO letters of credit were outstanding under this facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

Entergy Mississippi had $33.3 million in its storm reserve escrow account at September 30, 2022.

Sunflower Solar

As discussed in the Form 10-K, in April 2020 the MPSC issued an order approving certification of the Sunflower Solar facility and its recovery through the interim capacity rate adjustment mechanism, subject to certain conditions. In May 2022 both Entergy Mississippi and the tax equity investor made capital contributions to the tax equity partnership that were then used to make an initial payment of $105 million for acquisition of the facility. In July 2022, pursuant to the MPSC’s April 2020 order, Entergy Mississippi submitted a compliance filing to the MPSC with updated calculations of the impact of the Sunflower Solar facility on rate base and revenue requirement for the Sunflower Solar facility and benefits of the tax equity partnership. In November 2022 the MPSC approved Entergy Mississippi’s July 2022 compliance filing and authorized the recovery of the costs of the Sunflower Solar facility through the interim capacity rate adjustment mechanism in the formula rate plan with rates effective in December 2022. Substantial completion of the Sunflower Solar facility was accepted by Entergy Mississippi in September 2022. A final payment is currently expected in fourth quarter 2022. Commercial operation at the Sunflower Solar facility commenced in September 2022. See Note 14 to the financial statements herein for discussion of Entergy Mississippi’s purchase of the Sunflower Solar facility.

State and Local Rate Regulation and Fuel-Cost Recovery

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

Fuel and purchased power cost recovery

See “Complaints Against System Energy - System Energy Settlement with the MPSC” in Note 2 to the financial statements herein for discussion of the partial settlement agreement filed with the FERC in June 2022. The settlement, which is contingent upon FERC approval, provides for a refund of $235 million from System

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Energy to Entergy Mississippi. In July 2022 the MPSC directed the disbursement of settlement proceeds, ordering Entergy Mississippi to provide a one-time $80 bill credit to each of its approximately 460,000 retail customers to be effective during the September 2022 billing cycle, and to apply the remaining proceeds to Entergy Mississippi’s under-recovered deferred fuel balance. System Energy requested an order from the FERC by November 2022.

Entergy Mississippi had a deferred fuel balance of approximately $291.7 million under the energy cost recovery rider as of July 31, 2022, along with an over-recovery balance of $51.1 million under the power management rider. Without further action, Entergy Mississippi anticipated a year-end deferred fuel balance of approximately $200 million after application of a portion of the System Energy settlement proceeds, as discussed above. In September 2022, Entergy Mississippi filed for interim adjustments under both the energy cost recovery rider and the power management rider. Entergy Mississippi proposed five monthly incremental adjustments to the net energy cost factor designed to collect the under-recovered fuel balance as of July 31, 2022 and to reflect the recovery of a higher natural gas price. Entergy Mississippi also proposed five monthly incremental adjustments to the power management adjustment factor designed to flow through to customers the over-recovered power management rider balance as of July 31, 2022. In October 2022 the MPSC approved modified interim adjustments to Entergy Mississippi’s energy cost recovery rider and power management rider. The MPSC approved dividing the energy cost recovery rider interim adjustment into two components that would allow Entergy Mississippi to 1) recover a natural gas fuel rate that is better aligned with current prices and 2) recover the estimated under-recovered deferred fuel balance as of September 30, 2022 over a period of 20 months. The MPSC approved six monthly incremental adjustments to the net energy cost factor designed to reflect the recovery of a higher natural gas price. The MPSC also approved six monthly incremental adjustments to the power management adjustment factor designed to flow through to customers the over-recovered power management rider balance. Entergy Mississippi will not file its annual redetermination of the energy cost recovery rider or the power management rider in November 2022. Entergy Mississippi’s November 2023 annual redetermination will not reflect any part of the estimated under-recovered deferred fuel balance as of September 30, 2022; it will only reflect any over/under recovery that accumulates after September 2022. The November 2024 annual redetermination will include the total deferred fuel balance, including any over- or under-recovery of the deferred fuel balance as of September 30, 2022.

Retail Rates

2022 Formula Rate Plan Filing

In March 2022, Entergy Mississippi submitted its formula rate plan 2022 test year filing and 2021 look-back filing showing Entergy Mississippi’s earned return for the historical 2021 calendar year to be below the formula rate plan bandwidth and projected earned return for the 2022 calendar year to be below the formula rate plan bandwidth. The 2022 test year filing shows a $69 million rate increase is necessary to reset Entergy Mississippi’s earned return on common equity to the specified point of adjustment of 6.70% return on rate base, within the formula rate plan bandwidth. The change in formula rate plan revenues, however, is capped at 4% of retail revenues, which equates to a revenue change of $48.6 million. The 2021 look-back filing compares actual 2021 results to the approved benchmark return on rate base and reflects the need for a $34.5 million interim increase in formula rate plan revenues. In fourth quarter 2021, Entergy Mississippi recorded a regulatory asset of $19 million to reflect the then-current estimate in connection with the look-back feature of the formula rate plan. In accordance with the provisions of the formula rate plan, Entergy Mississippi implemented a $24.3 million interim rate increase, reflecting a cap equal to 2% of 2021 retail revenues, effective in April 2022.

In June 2022, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a joint stipulation that confirmed the 2022 test year filing that resulted in a total rate increase of $48.6 million. Pursuant to the joint stipulation, Entergy Mississippi’s 2021 look-back filing reflected an earned return on rate base of 5.99% in calendar year 2021, which is below the look-back bandwidth, resulting in a $34.3 million increase in the formula rate plan revenues on an interim basis through June 2023. In July 2022 the MPSC approved the joint stipulation with rates effective in August 2022. In July 2022, Entergy Mississippi recorded regulatory credits of $22.6 million to reflect the effects of the joint stipulation. In August 2022 an intervenor filed a statutorily-authorized direct appeal to the

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Mississippi Supreme Court seeking review of the MPSC’s July 2022 order approving the joint stipulation confirming Entergy Mississippi’s 2022 formula rate plan filing. The rates that went into effect in August 2022 are not stayed or otherwise impacted while the appeal is pending.

In July 2022 the MPSC directed Entergy Mississippi to flow $14.1 million of the power management rider over-recovery balance to customers beginning in August 2022 through December 2022 to mitigate the bill impact of the increase in formula rate plan revenues.

Net Metering Rulemaking

Pursuant to a mandatory reopener provision in its net metering rule, the MPSC opened a docket to review the efficacy and fairness of its existing net metering rule. In July 2022 the MPSC issued an order adopting revisions to its net metering rule. Among other things, the amended rule requires utilities to calculate avoided cost using daytime energy production, grandfathers a 2.5 cents per kWh distributed generation benefits adder for 25 years, and expands eligibility for the 2 cents per kWh low-income benefits adder to households up to 250% of the federal poverty level and grandfathers that adder for 25 years. The amended rule expands meter aggregation to include systems up to 3 MW alternating current and to any additional meters within the same electric utility service territory. The amended rule also increases the 3% net metering participation cap to 4% and requires that utilities seek MPSC approval prior to refusing additional net generation requests. The MPSC also directs utilities to make rate filings implementing rebates for distributed generation facilities. Because of the size and number of customers eligible under this new rule, there is a risk of loss of load and the shifting of costs to customers. In August 2022, Entergy Mississippi filed a motion for rehearing on the proposed net metering rule, which the MPSC granted. A hearing on the proposed rule was held in September 2022. In October 2022 the MPSC adopted an amended rule, which will now be known as the Distributed Generation Rule. In the Distributed Generation Rule, all provisions permitting meter aggregation were struck. The Distributed Generation Rule maintains the 3% net metering participation cap. The Distributed Generation Rule grandfathers a 2.5 cents per kWh distributed generation benefits adder for 25 years, and expands eligibility for the 2 cents per kWh low-income benefits adder to households up to 225% of the federal poverty level and grandfathers that adder for 25 years. The Distributed Generation Rule also directs utilities to make rate filings implementing up-front incentives for distributed generating systems and demand response battery systems, and to establish a public K-12 solar for schools program.

COVID-19 Orders

As discussed in the Form 10-K, in April 2020 the MPSC issued an order authorizing utilities to defer incremental costs and expenses associated with COVID-19 compliance and to seek future recovery through rates of the prudently incurred incremental costs and expenses. Entergy Mississippi began recovery of the bad debt expense deferral resulting from the COVID-19 pandemic over a three-year period with implementation of the interim formula rate plan rates in April 2022. As of September 30, 2022, Entergy Mississippi had a remaining regulatory asset of $10.9 million for costs associated with the COVID-19 pandemic.

Federal Regulation

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

Nuclear Matters

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

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Environmental Risks

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

Critical Accounting Estimates

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Mississippi’s accounting for utility regulatory accounting, impairment of long-lived assets, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies. See “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for updates to the discussion of qualified pension and other postretirement benefits.

New Accounting Pronouncements

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


ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)

	Three Months Ended		Nine Months Ended
	2022	2021	2022	2021
	(In Thousands)		(In Thousands)
OPERATING REVENUES
Electric	$459,132	$420,319	$1,213,620	$1,105,978

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	86,145	54,505	197,093	180,315
Purchased power	84,653	85,247	235,211	217,730
Other operation and maintenance	82,698	72,523	223,407	214,253

Taxes other than income taxes	37,045	25,911	102,259	78,886
Depreciation and amortization	61,921	57,130	182,623	168,324
Other regulatory charges (credits) - net	(11,470)	25,810	16,290	12,309
TOTAL	340,992	321,126	956,883	871,817

OPERATING INCOME	118,140	99,193	256,737	234,161

OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction	1,606	2,006	4,179	5,703
Interest and investment income	136	1	234	50
Miscellaneous - net	181	(1,844)	17	(6,362)
TOTAL	1,923	163	4,430	(609)

INTEREST EXPENSE
Interest expense	22,473	19,024	63,910	55,559
Allowance for borrowed funds used during construction	(753)	(849)	(1,876)	(2,378)
TOTAL	21,720	18,175	62,034	53,181

INCOME BEFORE INCOME TAXES	98,343	81,181	199,133	180,371

Income taxes	23,454	18,586	44,935	40,388

NET INCOME	74,889	62,595	154,198	139,983

Net loss attributable to noncontrolling interest	(9,117)	—	(9,117)	—

EARNINGS APPLICABLE TO MEMBER'S EQUITY	$84,006	$62,595	$163,315	$139,983

See Notes to Financial Statements.


ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)
	2022	2021
	(In Thousands)
OPERATING ACTIVITIES
Net income	$154,198	$139,983
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation and amortization	182,623	168,324
Deferred income taxes, investment tax credits, and non-current taxes accrued	45,811	53,629
Changes in assets and liabilities:
Receivables	(50,712)	(36,754)
Fuel inventory	(2,856)	5,564
Accounts payable	34,776	48,413
Taxes accrued	(12,542)	(30,881)
Interest accrued	11,171	4,632
Deferred fuel costs	(214,459)	(95,310)
Other working capital accounts	(23,012)	(40,911)
Provisions for estimated losses	(461)	(8,087)
Other regulatory assets	(53,830)	(15,366)
Other regulatory liabilities	31,682	49,036
Pension and other postretirement liabilities	(18,489)	(17,454)
Other assets and liabilities	17,691	24,950
Net cash flow provided by operating activities	101,591	249,768

INVESTING ACTIVITIES
Construction expenditures	(368,151)	(473,956)
Allowance for equity funds used during construction	4,179	5,703

Changes in money pool receivable - net	40,456	—
Payment for purchase of assets	(105,149)	—

Other	(111)	55
Net cash flow used in investing activities	(428,776)	(468,198)

FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	249,298	200,539


Capital contribution from noncontrolling interest	9,595	—
Changes in money pool payable - net	19,319	18,087



Other	4,243	(186)
Net cash flow provided by financing activities	282,455	218,440

Net increase (decrease) in cash and cash equivalents	(44,730)	10
Cash and cash equivalents at beginning of period	47,627	18
Cash and cash equivalents at end of period	$2,897	$28

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest - net of amount capitalized	$50,719	$49,080
Income taxes	$—	($8,045)

See Notes to Financial Statements.


ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2022 and December 31, 2021
(Unaudited)
	2022	2021
	(In Thousands)
CURRENT ASSETS
Cash and cash equivalents:
Cash	$2,896	$29
Temporary cash investments	1	47,598
Total cash and cash equivalents	2,897	47,627
Accounts receivable:
Customer	91,178	84,048
Allowance for doubtful accounts	(2,069)	(7,209)
Associated companies	11,625	42,994
Other	31,311	14,609
Accrued unbilled revenues	68,687	56,034
Total accounts receivable	200,732	190,476
Deferred fuel costs	336,337	121,878

Fuel inventory - at average cost	13,167	10,311
Materials and supplies - at average cost	84,495	69,639

Prepayments and other	11,519	6,394
TOTAL	649,147	446,325

OTHER PROPERTY AND INVESTMENTS
Non-utility property - at cost (less accumulated depreciation)	4,516	4,527
Escrow accounts	41,147	48,886
TOTAL	45,663	53,413

UTILITY PLANT
Electric	6,922,046	6,613,109


Construction work in progress	175,629	95,452
TOTAL UTILITY PLANT	7,097,675	6,708,561
Less - accumulated depreciation and amortization	2,242,272	2,127,590
UTILITY PLANT - NET	4,855,403	4,580,971

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets	516,262	462,432
Other	19,881	14,248
TOTAL	536,143	476,680

TOTAL ASSETS	$6,086,356	$5,557,389

See Notes to Financial Statements.


ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2022 and December 31, 2021
(Unaudited)
	2022	2021
	(In Thousands)
CURRENT LIABILITIES
Currently maturing long-term debt	$250,000	$—

Accounts payable:
Associated companies	80,635	42,929
Other	126,364	113,000
Customer deposits	89,084	86,167
Taxes accrued	93,731	106,273

Interest accrued	28,454	17,283




Other	23,160	36,731
TOTAL	691,428	402,383

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	773,775	720,097
Accumulated deferred investment tax credits	11,599	10,913

Regulatory liability for income taxes - net	204,353	212,445

Other regulatory liabilities	89,087	49,313
Asset retirement cost liabilities	10,750	10,315
Accumulated provisions	37,567	38,028
Pension and other postretirement liabilities	40,402	59,065
Long-term debt	2,180,783	2,179,989
Other	43,250	35,273
TOTAL	3,391,566	3,315,438

Commitments and Contingencies



EQUITY
Member's equity	2,002,884	1,839,568
Noncontrolling interest	478	—
TOTAL	2,003,362	1,839,568

TOTAL LIABILITIES AND EQUITY	$6,086,356	$5,557,389

See Notes to Financial Statements.


ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)


	Noncontrolling Interest	Member's Equity	Total
		(In Thousands)

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

Net income	—	25,972	25,972

Balance at March 31, 2021	—	1,698,706	1,698,706

Net income	—	51,416	51,416

Balance at June 30, 2021	—	1,750,122	1,750,122

Net income	—	62,595	62,595

Balance at September 30, 2021	$—	$1,812,717	$1,812,717


Balance at December 31, 2021	$—	$1,839,568	$1,839,568

Net income	—	30,355	30,355

Balance at March 31, 2022	—	1,869,923	1,869,923

Net income	—	48,955	48,955

Capital contribution from noncontrolling interest	9,595	—	9,595
Balance at June 30, 2022	9,595	1,918,878	1,928,473

Net income (loss)	(9,117)	84,006	74,889

Balance at September 30, 2022	$478	$2,002,884	$2,003,362

See Notes to Financial Statements.

ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Third Quarter 2022 Compared to Third Quarter 2021

Net income increased $10.9 million primarily due to higher retail electric price and higher volume/weather, partially offset by higher other operation and maintenance expenses.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Net income increased $39.2 million primarily due to higher retail electric price and higher volume/weather, partially offset by higher interest expense, higher depreciation and amortization expense, and higher other operation and maintenance expenses.

Operating Revenues

Third Quarter 2022 Compared to Third Quarter 2021

Following is an analysis of the change in operating revenues comparing the third quarter 2022 to the third quarter 2021:


			Amount
			(In Millions)
2021 operating revenues			$211.2
Fuel, rider, and other revenues that do not significantly affect net income			61.4
Retail electric price			13.6
Volume/weather			5.5
2022 operating revenues			$291.7

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 retail electric price variance is primarily due to rate increases effective November 2021 and September 2022, each in accordance with the terms of the 2021 and 2022 formula rate plan filings. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the formula rate plan filings.

The volume/weather variance is primarily due to increases in weather-adjusted residential and commercial usage, partially offset by the effect of less favorable weather on residential and commercial sales. The increase in weather-adjusted residential usage was primarily due to the effect of Hurricane Ida in third quarter 2021. The increase in weather-adjusted commercial usage was primarily due to the effect of the COVID-19 pandemic on businesses in third quarter 2021.

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Total electric energy sales for Entergy New Orleans for the three months ended September 30, 2022 and 2021 are as follows:


	2022	2021	% Change
	(GWh)
Residential	702	655	7
Commercial	561	545	3
Industrial	109	114	(4)
Governmental	222	203	9
Total retail	1,594	1,517	5
Sales for resale:
Non-associated companies	499	653	(24)
Total	2,093	2,170	(4)

See Note 13 to the financial statements herein for additional discussion of Entergy New Orleans’s operating revenues.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Following is an analysis of the change in operating revenues comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021:


			Amount
			(In Millions)
2021 operating revenues			$559.3
Fuel, rider, and other revenues that do not significantly affect net income			129.8
Retail electric price			33.9
Volume/weather			21.2
2022 operating revenues			$744.2

The retail electric price variance is primarily due to a rate increase effective November 2021 in accordance with the terms of the 2021 formula rate plan filing. See Note 2 to the financial statements in the Form 10-K for further discussion of the formula rate plan filing.

The volume/weather variance is primarily due to an increase in weather-adjusted residential usage, an increase in commercial usage, and the effect of more favorable weather on residential sales. The increase in weather-adjusted residential usage was primarily due to the effect of Hurricane Ida in 2021. The increase in commercial usage was primarily due to the effect of the COVID-19 pandemic on businesses in 2021.

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Total electric energy sales for Entergy New Orleans for the nine months ended September 30, 2022 and 2021 are as follows:


	2022	2021	% Change
	(GWh)
Residential	1,909	1,755	9
Commercial	1,569	1,498	5
Industrial	318	319	—
Governmental	606	574	6
Total retail	4,402	4,146	6
Sales for resale:
Non-associated companies	1,820	1,271	43
Total	6,222	5,417	15

See Note 13 to the financial statements herein for additional discussion of Entergy New Orleans’s operating revenues.

Other Income Statement Variances

Third Quarter 2022 Compared to Third Quarter 2021

Other operation and maintenance expenses increased primarily due to:

an increase of $4.7 million in bad debt expense, including the deferral in 2021 of bad debt expense resulting from the COVID-19 pandemic. See Note 2 to the financial statements herein and in the Form 10-K for discussion of regulatory activity associated with the COVID-19 pandemic;
an increase of $3.4 million in power delivery expenses primarily due to higher reliability costs and higher vegetation maintenance costs; and
an increase of $1.9 million in loss provisions.

The increase was partially offset by a decrease of $5 million in non-nuclear generation expenses primarily due to a lower scope of work performed in 2022 as compared to the same period in 2021.

Taxes other than income taxes decreased primarily due to decreases in ad valorem taxes resulting from lower assessments and decreases in local franchise taxes.

Interest expense increased primarily due to the issuance of $90 million of 4.19% Series mortgage bonds and the issuance of $70 million of 4.51% Series mortgage bonds, each in November 2021.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Other operation and maintenance expenses increased primarily due to:

an increase of $4.9 million in bad debt expense, including the deferral in 2021 of bad debt expense and increased write-offs of bad debt in 2022, each resulting from the COVID-19 pandemic. See Note 2 to the financial statements herein and in the Form 10-K for discussion of regulatory activity associated with the COVID-19 pandemic;

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

an increase of $4.1 million in power delivery expenses primarily due to higher vegetation maintenance costs, higher safety and training costs, and higher reliability costs, partially offset by a decrease in meter reading expenses as a result of the deployment of advanced metering systems; and
an increase of $2.8 million in loss provisions.

The increase was partially offset by a decrease of $8 million in non-nuclear generation expenses primarily due to a lower scope of work performed in 2022, including during plant outages, as compared to the same period in 2021 and a decrease of $1.9 million in energy efficiency expenses due to the timing of recovery from customers.

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

Interest expense increased primarily due to the issuance of $90 million of 4.19% Series mortgage bonds and the issuance of $70 million of 4.51% Series mortgage bonds, each in November 2021.

Income Taxes

The effective income tax rate was 27.1% for third quarter 2022. The difference in the effective income tax rate for third quarter 2022 versus the federal statutory rate of 21% was primarily due to state income taxes, partially offset by certain book and tax differences related to utility plant items.

The effective income tax rate was 25.1% for the nine months ended September 30, 2022. The difference in the effective income tax rate for the nine months ended September 30, 2022 versus the federal statutory rate of 21% was primarily due to state income taxes, partially offset by certain book and tax differences related to utility plant items and the amortization of excess accumulated deferred income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects of and regulatory activity regarding the Tax Cuts and Jobs Act.

The effective income tax rates were 26% for third quarter 2021 and 27.1% for the nine months ended September 30, 2021. The differences in the effective income tax rates for third quarter 2021 and the nine months ended September 30, 2021 versus the federal statutory rate of 21% were primarily due to state income taxes and the provision for uncertain tax positions, partially offset by certain book and tax differences related to utility plant items.

Income Tax Legislation

See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Inflation Reduction Act of 2022.

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Liquidity and Capital Resources

Cash Flow

Cash flows for the nine months ended September 30, 2022 and 2021 were as follows:


	2022	2021
	(In Thousands)
Cash and cash equivalents at beginning of period	$42,862	$26

Net cash provided by (used in):
Operating activities	96,194	77,450
Investing activities	(130,584)	(59,423)
Financing activities	9,509	8,335
Net increase (decrease) in cash and cash equivalents	(24,881)	26,362

Cash and cash equivalents at end of period	$17,981	$26,388

Operating Activities

Net cash flow provided by operating activities increased $18.7 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to:

higher collections from customers; and
a decrease of $4.5 million in pension contributions in 2022 as compared to prior period. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” herein and in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.

The increase was partially offset by:

increased fuel costs, including the timing of recovery of fuel and purchased power costs. See Note 2 to the financial statements in the Form 10-K for a discussion of fuel and purchased power cost recovery;
payments to vendors, including timing and increase in cost of operations; and
an increase of $11.2 million in storm spending in 2022, primarily due to Hurricane Ida restoration efforts. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Hurricane Ida” in the Form 10-K and Note 2 to the financial statements herein for a discussion of storm restoration efforts.

Investing Activities

Net cash flow used in investing activities increased $71.2 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to:

$83 million in receipts from storm reserve escrow accounts in 2021; and
an increase of $32 million in distribution construction expenditures primarily due to higher capital expenditures for storm restoration in 2022 and increased investment in the reliability and infrastructure of Entergy New Orleans’s distribution system, partially offset by lower spending in 2022 on advanced metering infrastructure. The increase in storm restoration spending is primarily due to Hurricane Ida restoration efforts. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Hurricane Ida” in the Form 10-K and Note 2 to the financial statements herein for a discussion of storm restoration efforts.

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

The increase was partially offset by money pool activity and a decrease of $9.7 million in non-nuclear generation construction expenditures primarily due to a lower scope of work performed during plant outages in 2022.

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 $36 million for the nine months ended September 30, 2022 compared to increasing by $2 million for the nine months ended September 30, 2021. 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 $1.2 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to a $15 million advance received in 2022 in anticipation of Entergy New Orleans’s construction of a New Orleans Sewerage and Water Board substation and money pool activity. The increase was partially offset by long-term credit borrowings of $25 million in 2021.

Decreases in Entergy New Orleans’s payable to the money pool are a use of cash flow, and Entergy New Orleans’s payable to the money pool decreased $10.2 million for the nine months ended September 30, 2021.

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 an increase in equity resulting from retained earnings in 2022.


	September 30, 2022		December 31, 2021
Debt to capital	52.9	%	55.4	%
Effect of excluding securitization bonds	(0.7	%)	(1.0	%)
Debt to capital, excluding securitization bonds (a)	52.2	%	54.4	%
Effect of subtracting cash	(0.6	%)	(1.4	%)
Net debt to net capital, excluding securitization bonds (a)	51.6	%	53.0	%

(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 in the Form 10-K. Entergy New Orleans also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy New Orleans’s financial condition because net debt indicates Entergy New Orleans’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Uses and Sources of Capital

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

Entergy New Orleans is developing its capital investment plan for 2023 through 2025 and currently anticipates making $555 million in capital investments during that period. The preliminary estimate includes investments in generation projects to modernize, decarbonize, and diversify Entergy New Orleans’s portfolio; distribution and Utility support spending to deliver reliability, resilience, and customer experience; transmission spending to drive reliability and resilience while also supporting renewables expansion; 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.

Entergy New Orleans’s receivables from or (payables to) the money pool were as follows:


September 30, 2022	December 31, 2021	September 30, 2021	December 31, 2020
(In Thousands)
$433	$36,410	$1,995	($10,190)

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

Entergy New Orleans has a credit facility in the amount of $25 million scheduled to expire in June 2024. 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 September 30, 2022, there were no cash borrowings and no letters of credit outstanding under the credit 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 September 30, 2022, a $1 million letter of credit was outstanding under Entergy New Orleans’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

Hurricane Zeta

As discussed in the Form 10-K, in October 2020, Hurricane Zeta caused significant damage to Entergy New Orleans’s service area. The storm resulted in widespread power outages, significant damage to distribution and transmission infrastructure, and the loss of sales during the power outages. In March 2021, Entergy New Orleans withdrew $44 million from its funded storm reserves. In May 2021, Entergy New Orleans filed an application with the City Council requesting approval and certification that its system restoration costs associated with Hurricane Zeta of approximately $36 million, which included $7 million in estimated costs, were reasonable and necessary to enable Entergy New Orleans to restore electric service to its customers and Entergy New Orleans’s electric utility infrastructure. In May 2022 the City Council advisors issued a report recommending that the City Council find that Entergy New Orleans acted prudently in restoring service following Hurricane Zeta and approximately $33 million in storm restoration costs were prudently incurred and recoverable. Additionally, the advisors concluded that approximately $7 million of the $44 million withdrawn from its funded storm reserve was in excess of Entergy New Orleans’s costs and should be considered in Entergy New Orleans’s application for certification of costs related to Hurricane Ida. In September 2022 the City Council issued a resolution finding that Entergy New Orleans’s system restoration costs were reasonable and necessary, and that Entergy New Orleans acted prudently in restoring electricity following Hurricane Zeta. The City Council also found that approximately $33 million in storm costs were recoverable.

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Hurricane Ida

As discussed in the Form 10-K, in August 2021, Hurricane Ida caused significant damage to Entergy New Orleans’s service area, including Entergy’s electrical grid. The storm resulted in widespread power outages, including the loss of 100% of Entergy New Orleans’s load and damage to distribution and transmission infrastructure, including the loss of connectivity to the eastern interconnection. In September 2021, Entergy New Orleans withdrew $39 million from its funded storm reserves. In June 2022, Entergy New Orleans filed an application with the City Council requesting approval and certification that storm restoration costs associated with Hurricane Ida of approximately $170 million, which included $11 million in estimated costs, were reasonable, necessary, and prudently incurred to enable Entergy New Orleans to restore electric service to its customers and to repair Entergy New Orleans’s electric utility infrastructure. In addition, estimated carrying costs through December 2022 related to Hurricane Ida restoration costs were $9 million. Also, Entergy New Orleans is requesting approval that the $39 million withdrawal from its funded storm reserve in September 2021 and $7 million in excess storm reserve escrow withdrawals related to Hurricane Zeta and prior miscellaneous storms are properly applied to Hurricane Ida storm restoration costs, the application of which reduces the amount to be recovered from Entergy New Orleans customers by $46 million.

Additionally, as discussed in the Form 10-K, in February 2022, Entergy New Orleans filed with the City Council a securitization application requesting that the City Council review Entergy New Orleans’s storm reserve and increase the storm reserve funding level to $150 million, to be funded through securitization. In August 2022 the City Council’s advisors recommended that the City Council authorize a single securitization bond issuance to fund Entergy New Orleans’s storm recovery reserves to an amount sufficient to: (1) allow recovery of all of Entergy New Orleans’s unrecovered storm recovery costs following Hurricane Ida, subject to City Council review and certification; (2) provide initial funding of storm recovery reserves for future storms to a level of $75 million; and (3) fund the storm recovery bonds’ upfront financing costs. In September 2022, Entergy New Orleans and the City Council’s advisors entered into an agreement in principle, which was approved by the City Council along with a financing order in October 2022, authorizing Entergy New Orleans to proceed with a single securitization bond issuance of $206 million, with $125 million interim recovery, subject to City Council review and certification, to be allocated to unrecovered Hurricane Ida storm recovery costs; $75 million to provide for a storm recovery reserve for future storms; and the remainder to fund the recovery of storm recovery bonds’ upfront financing costs. In November 2022 the City Council adopted a procedural schedule regarding the certification of the Hurricane Ida storm restoration costs in which the hearing officer shall certify the record for City Council consideration no later than August 2023.

State and Local Rate Regulation

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

Retail Rates

2022 Formula Rate Plan Filing

In April 2022, Entergy New Orleans submitted to the City Council its formula rate plan 2021 test year filing. The 2021 test year evaluation report, subsequently updated in a July 2022 filing, produced an earned return on equity of 6.88% compared to the authorized return on equity of 9.35%. Entergy New Orleans sought approval of a $42.1 million rate increase based on the formula set by the City Council in the 2018 rate case. The formula results in an increase in authorized electric revenues of $34.1 million and an increase in authorized gas revenues of $3.3 million. Entergy New Orleans also sought to commence collecting $4.7 million in electric revenues that were previously approved by the City Council for collection through the formula rate plan. In July 2022 the City Council’s advisors issued a report seeking a reduction to Entergy New Orleans’s proposed increase of approximately $17.1 million in total for electric and gas revenues. Effective with the first billing cycle of

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

September 2022, Entergy New Orleans implemented rates reflecting an amount agreed upon by Entergy New Orleans and the City Council including adjustments filed in the City Council’s advisors’ report, per the approved process for formula rate plan implementation. The total formula rate plan increase implemented was $24.7 million, which includes an increase of $18.2 million in electric revenues, $4.7 million in previously approved electric revenues, and an increase of $1.8 million in gas revenues. Additionally, credits of $13.9 million funded by certain regulatory liabilities currently held by Entergy New Orleans for customers will be issued over an eight-month period beginning September 2022.

COVID-19 Orders

As discussed in the Form 10-K, in May 2020 the City Council issued an accounting order authorizing Entergy New Orleans to establish a regulatory asset for incremental COVID-19-related expenses. As of September 30, 2022, Entergy New Orleans had a regulatory asset of $13.9 million for costs associated with the COVID-19 pandemic. As part of the agreed-upon terms of its 2022 formula rate plan filing, Entergy New Orleans will recover this regulatory asset over a five-year period beginning September 2023.

Reliability Investigation

As discussed in the Form 10-K, 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 City Council also approved a resolution that opened 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 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 disagreed 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. In June 2022 the Orleans Civil District Court issued a written judgment that the penalty be set aside, reversed, and vacated. In August 2022 the Orleans Civil District Court granted a post-judgment motion to remand for the City Council to take actions consistent with its judgment.

Also in August 2022 the City Council approved a resolution establishing a 30-day comment period on proposed minimum reliability standards and an associated penalty mechanism. In September 2022, Entergy New Orleans filed comments to the proposed plan including a request for an additional round of comments.

System Resiliency and Storm Hardening

As discussed in the Form 10-K, in October 2021 the City Council passed a resolution and order establishing a docket and procedural schedule with respect to system resiliency and storm hardening. The docket will identify a plan for storm hardening and resiliency projects with other stakeholders. In July 2022, Entergy New Orleans filed with the City Council a response identifying a plan for storm hardening and resiliency projects, including microgrids, to be implemented over 10 years at an approximate cost of $1.5 billion. In September 2022 the City Council approved a procedural schedule with final comments due April 2023.

Federal Regulation

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

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Nuclear Matters

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

Environmental Risks

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

Critical Accounting Estimates

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy New Orleans’s accounting for utility regulatory accounting, impairment of long-lived assets, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies. See “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for updates to the discussion of qualified pension and other postretirement benefits.

New Accounting Pronouncements

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


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)

	Three Months Ended		Nine Months Ended
	2022	2021	2022	2021
	(In Thousands)		(In Thousands)
OPERATING REVENUES
Electric	$262,904	$192,946	$641,634	$491,855
Natural gas	28,759	18,283	102,550	67,449
TOTAL	291,663	211,229	744,184	559,304

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	81,847	34,940	180,059	88,462
Purchased power	88,103	75,360	227,661	201,207
Other operation and maintenance	38,806	34,483	116,173	113,638
Taxes other than income taxes	12,920	15,530	41,353	40,380
Depreciation and amortization	19,556	18,444	57,322	54,758
Other regulatory charges (credits) - net	5,452	4,126	14,991	9,831
TOTAL	246,684	182,883	637,559	508,276

OPERATING INCOME	44,979	28,346	106,625	51,028

OTHER INCOME
Allowance for equity funds used during construction	396	433	316	1,067
Interest and investment income	215	18	307	32
Miscellaneous - net	(184)	(205)	766	(711)
TOTAL	427	246	1,389	388

INTEREST EXPENSE
Interest expense	8,683	7,158	26,075	21,149
Allowance for borrowed funds used during construction	(215)	(192)	(255)	(475)
TOTAL	8,468	6,966	25,820	20,674

INCOME BEFORE INCOME TAXES	36,938	21,626	82,194	30,742

Income taxes	10,023	5,631	20,607	8,345

NET INCOME	$26,915	$15,995	$61,587	$22,397

See Notes to Financial Statements.

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ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)
	2022	2021
	(In Thousands)
OPERATING ACTIVITIES
Net income	$61,587	$22,397
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation and amortization	57,322	54,758
Deferred income taxes, investment tax credits, and non-current taxes accrued	22,429	11,261
Changes in assets and liabilities:
Receivables	(9,022)	(24,959)
Fuel inventory	(3,245)	79
Accounts payable	3,319	22,863
Taxes accrued	(4,241)	(1,699)
Interest accrued	(204)	(2,796)
Deferred fuel costs	(33,301)	4,280
Other working capital accounts	(5,973)	(7,025)
Provisions for estimated losses	8,409	(62,293)
Other regulatory assets	24,449	18,412
Other regulatory liabilities	(8,921)	11,757
Pension and other postretirement liabilities	(6,598)	(11,220)
Other assets and liabilities	(9,816)	41,635
Net cash flow provided by operating activities	96,194	77,450

INVESTING ACTIVITIES
Construction expenditures	(163,403)	(139,153)
Allowance for equity funds used during construction	316	1,067


Changes in money pool receivable - net	35,977	(1,995)
Receipts from storm reserve escrow account	—	83,045
Payments to storm reserve escrow account	—	(7)
Changes in securitization account	(3,474)	(2,380)

Net cash flow used in investing activities	(130,584)	(59,423)

FINANCING ACTIVITIES

Retirement of long-term debt	—	19,251



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


Other	9,509	(726)
Net cash flow provided by financing activities	9,509	8,335

Net increase (decrease) in cash and cash equivalents	(24,881)	26,362
Cash and cash equivalents at beginning of period	42,862	26
Cash and cash equivalents at end of period	$17,981	$26,388

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized	$25,231	$23,015
Income taxes	$—	$324

See Notes to Financial Statements.


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2022 and December 31, 2021
(Unaudited)
	2022	2021
	(In Thousands)
CURRENT ASSETS
Cash and cash equivalents:
Cash	$426	$26
Temporary cash investments	17,555	42,836
Total cash and cash equivalents	17,981	42,862
Securitization recovery trust account	5,473	1,999
Accounts receivable:
Customer	104,201	69,902
Allowance for doubtful accounts	(9,392)	(13,282)
Associated companies	2,948	74,146
Other	6,611	13,668
Accrued unbilled revenues	38,661	25,550
Total accounts receivable	143,029	169,984
Deferred fuel costs	25,694	—
Fuel inventory - at average cost	6,190	2,945
Materials and supplies - at average cost	21,637	19,216

Prepayments and other	12,280	5,428
TOTAL	232,284	242,434

OTHER PROPERTY AND INVESTMENTS
Non-utility property at cost (less accumulated depreciation)	1,050	1,016


TOTAL	1,050	1,016

UTILITY PLANT
Electric	1,992,727	1,976,202
Natural gas	385,007	373,983
Construction work in progress	45,338	22,199
TOTAL UTILITY PLANT	2,423,072	2,372,384
Less - accumulated depreciation and amortization	809,858	774,309
UTILITY PLANT - NET	1,613,214	1,598,075

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Deferred fuel costs	4,080	4,080
Other regulatory assets (includes securitization property of $16,350 as of September 30, 2022 and $25,761 as of December 31, 2021)	224,168	248,617
Other	63,947	56,101
TOTAL	292,195	308,798

TOTAL ASSETS	$2,138,743	$2,150,323

See Notes to Financial Statements.


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2022 and December 31, 2021
(Unaudited)
	2022	2021
	(In Thousands)
CURRENT LIABILITIES
Currently maturing long-term debt	$170,000	$—
Payable due to associated company	1,326	1,326
Accounts payable:
Associated companies	57,512	45,057
Other	53,049	146,921
Customer deposits	31,020	28,539
Taxes accrued	144	4,385
Interest accrued	7,787	7,991
Deferred fuel costs	—	7,607
Current portion of unprotected excess accumulated deferred income taxes	—	1,906
Other	7,226	6,204
TOTAL	328,064	249,936

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	390,806	365,384
Accumulated deferred investment tax credits	16,277	16,306
Regulatory liability for income taxes - net	39,660	40,589
Asset retirement cost liabilities	—	4,032
Accumulated provisions	14,738	6,329

Long-term debt (includes securitization bonds of $23,927 as of September 30, 2022 and $29,661 as of December 31, 2021)	602,123	777,254
Long-term payable due to associated company	9,585	9,585
Other	37,188	42,193
TOTAL	1,110,377	1,261,672

Commitments and Contingencies

EQUITY
Member's equity	700,302	638,715
TOTAL	700,302	638,715

TOTAL LIABILITIES AND EQUITY	$2,138,743	$2,150,323

See Notes to Financial Statements.


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)


			Member's Equity
			(In Thousands)

Balance at December 31, 2020			$606,917

Net income			1,771

Balance at March 31, 2021			608,688

Net income			4,631

Balance at June 30, 2021			613,319

Net income			15,995

Balance at September 30, 2021			$629,314


Balance at December 31, 2021			$638,715

Net income			15,126

Balance at March 31, 2022			653,841

Net income			19,546

Balance at June 30, 2022			673,387

Net income			26,915

Balance at September 30, 2022			$700,302

See Notes to Financial Statements.

ENTERGY TEXAS, INC. AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Third Quarter 2022 Compared to Third Quarter 2021

Net income increased $23.2 million primarily due to higher volume/weather and higher retail electric price, partially offset by higher other operation and maintenance expenses.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Net income increased $76.2 million primarily due to higher volume/weather, higher retail electric price, and the recognition of the equity component of carrying costs as part of the securitization of the Hurricane Laura, Hurricane Delta, and Winter Storm Uri system restoration costs in April 2022. The increase was partially offset by higher other operation and maintenance expenses and higher depreciation and amortization expenses.

Operating Revenues

Third Quarter 2022 Compared to Third Quarter 2021

Following is an analysis of the change in operating revenues comparing the third quarter 2022 to the third quarter 2021:


			Amount
			(In Millions)
2021 operating revenues			$541.6
Fuel, rider, and other revenues that do not significantly affect net income			85.7
Volume/weather			21.7
Retail electric price			10.6
2022 operating revenues			$659.6

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

The volume/weather variance is primarily due to the effect of more favorable weather on residential and commercial sales, an increase in weather-adjusted residential and commercial usage, and an increase in industrial usage. The increase in weather-adjusted residential usage was primarily due to an increase in customers. The increase in weather-adjusted commercial usage was primarily due to the effect of the COVID-19 pandemic on businesses in third quarter 2021. The increase in industrial usage was primarily due to an increase in demand from cogeneration and small industrial customers and an increase in demand from expansion projects, primarily in the chemicals, transportation, and petroleum refining industries.

The retail electric price variance is primarily due to an increase in the transmission cost recovery factor rider effective March 2022 and an increase in the distribution cost recovery factor rider effective January 2022. See

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

Note 2 to the financial statements herein and in the Form 10-K for further discussion of the transmission and distribution cost recovery factor rider filings.

Total electric energy sales for Entergy Texas for the three months ended September 30, 2022 and 2021 are as follows:


	2022	2021	% Change
	(GWh)
Residential	2,125	1,963	8
Commercial	1,416	1,316	8
Industrial	2,538	2,416	5
Governmental	77	69	12
Total retail	6,156	5,764	7
Sales for resale:
Associated companies	—	324	(100)
Non-associated companies	127	191	(34)
Total	6,283	6,279	—

See Note 13 to the financial statements herein for additional discussion of Entergy Texas’s operating revenues.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Following is an analysis of the change in operating revenues comparing the nine months ended September 30, 2022 to the nine months ended September 30, 2021:


			Amount
			(In Millions)
2021 operating revenues			$1,452.3
Fuel, rider, and other revenues that do not significantly affect net income			121.3
Volume/weather			62.2
Retail electric price			39.1
System restoration carrying costs			21.7
2022 operating revenues			$1,696.6

The volume/weather variance is primarily due to the effect of more favorable weather on residential sales, an increase in industrial usage, and an increase in weather-adjusted residential usage. The increase in industrial usage was primarily due to an increase in demand from cogeneration and small industrial customers, an increase in demand from expansion projects, primarily in the transportation and chemicals industries, and an increase in demand from existing customers, primarily in the transportation industry. The increase in weather-adjusted residential usage was primarily due to an increase in customers.

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

The retail electric price variance is primarily due to:

increases in the transmission cost recovery factor rider effective March 2021 and March 2022;
an increase in the distribution cost recovery factor rider effective January 2022; and
the implementation of the generation cost recovery rider, which includes the first-year revenue requirement for the Montgomery County Power Station, effective in late January 2021.

See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the transmission and distribution cost recovery factor rider and generation cost recovery rider filings.

System restoration carrying costs represent the equity component of system restoration carrying costs, recorded in second quarter 2022, recognized as part of the securitization of the Hurricane Laura, Hurricane Delta, and Winter Storm Uri system restoration costs in April 2022. See Note 2 to the financial statements herein for a discussion of the securitization.

Total electric energy sales for Entergy Texas for the nine months ended September 30, 2022 and 2021 are as follows:


	2022	2021	% Change
	(GWh)
Residential	5,345	4,844	10
Commercial	3,706	3,420	8
Industrial	7,291	6,561	11
Governmental	207	190	9
Total retail	16,549	15,015	10
Sales for resale:
Associated companies	279	983	(72)
Non-associated companies	432	824	(48)
Total	17,260	16,822	3

See Note 13 to the financial statements herein for additional discussion of Entergy Texas’s operating revenues.

Other Income Statement Variances

Third Quarter 2022 Compared to Third Quarter 2021

Other operation and maintenance expenses increased primarily due to:

an increase of $7.8 million in power delivery expenses primarily due to higher vegetation maintenance costs;
an increase of $2 million in compensation and benefits costs primarily due to the timing of incentive-based compensation accruals as compared to prior year; and
several individually insignificant items.

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

Interest expense increased primarily due to the issuance of $290.85 million of senior secured system restoration bonds in April 2022 and the issuance of $325 million of 5.00% Series mortgage bonds in August 2022,

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

partially offset by the repayment, prior to maturity, of $545.9 million of senior secured transition bonds as a result of payments made on the remaining principal balance in 2022.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Other operation and maintenance expenses increased primarily due to:

an increase of $11.7 million in power delivery expenses primarily due to higher vegetation maintenance costs and higher reliability costs;
an increase of $5.8 million in non-nuclear generation expenses primarily due to higher expenses associated with the Hardin County Peaking Facility, which was purchased in June 2021, and a higher scope of work performed in 2022 as compared to the same period in 2021;
an increase of $2.7 million in customer service center support costs primarily due to higher contract costs;
an increase of $2.4 million in compensation and benefits costs primarily due to the timing of incentive-based compensation accruals as compared to prior year; and
several individually insignificant items.

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 2022.

Interest expense increased primarily due to the issuance of $290.85 million of senior secured system restoration bonds in April 2022, partially offset by the repayment, prior to maturity, of $545.9 million of senior secured transition bonds as a result of payments made on the remaining principal balance in 2022.

Income Taxes

The effective income tax rates were 14.4% for the third quarter 2022 and 13.5% for the nine months ended September 30, 2022. The differences in the effective income tax rates for the third quarter 2022 and the nine months ended September 30, 2022 versus the federal statutory rate of 21% were primarily due to the amortization of excess accumulated deferred income taxes and certain book and tax differences related to utility plant items. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects of and regulatory activity regarding the Tax Cuts and Jobs Act.

The effective income tax rates were 13.7% for the third quarter 2021 and 11.3% for the nine months ended September 30, 2021. The differences in the effective income tax rates for the third quarter 2021 and the nine months ended September 30, 2021 versus the federal statutory rate of 21% were primarily due to the amortization of excess accumulated deferred income taxes and certain book and tax differences related to utility plant items. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects of and regulatory activity regarding the Tax Cuts and Jobs Act.

Income Tax Legislation

See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Inflation Reduction Act of 2022.

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

Liquidity and Capital Resources

Cash Flow

Cash flows for the nine months ended September 30, 2022 and 2021 were as follows:


	2022	2021
	(In Thousands)
Cash and cash equivalents at beginning of period	$28	$248,596

Net cash provided by (used in):
Operating activities	224,735	254,980
Investing activities	(487,729)	(479,166)
Financing activities	477,070	(24,385)
Net increase (decrease) in cash and cash equivalents	214,076	(248,571)

Cash and cash equivalents at end of period	$214,104	$25

Operating Activities

Net cash flow provided by operating activities decreased $30.2 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to the timing of recovery of fuel and purchased power costs. See Note 2 to the financial statements herein for a discussion of fuel and purchased power cost recovery. The decrease was partially offset by higher collections from customers, the timing of payments to vendors, and a decrease of $24.7 million in storm spending in 2022, primarily due to Hurricane Laura, Hurricane Delta, and Winter Storm Uri restoration efforts in 2021.

Investing Activities

Net cash flow used in investing activities increased $8.6 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to the sale of a 7.56% partial interest in the Montgomery County Power Station in June 2021 for approximately $67.9 million and cash collateral of $31.2 million posted in 2022 to support Entergy Texas’s obligations to MISO. The increase was partially offset by:

a decrease of $44.4 million in distribution construction expenditures primarily due to lower capital expenditures for storm restoration in 2022, partially offset by higher capital expenditures as a result of increased development in Entergy Texas’s service area. The decrease in storm restoration spending is primarily due to Hurricane Laura and Hurricane Delta restoration efforts in 2021;
the purchase of the Hardin County Peaking Facility in June 2021 for approximately $36.7 million; and
a decrease of $26.6 million in non-nuclear generation construction expenditures primarily due to higher spending in 2021 on the Montgomery County Power Station project.

Financing Activities

Entergy Texas’s financing activities provided $477.1 million of cash for the nine months ended September 30, 2022 compared to using $24.4 million for the nine months ended September 30, 2021 primarily due to the following activity:

the issuance of $325 million of 5.00% Series mortgage bonds in August 2022;
the issuance of $290.85 million of senior secured system restoration bonds in April 2022;
the repayment, prior to maturity, of $125 million of 2.55% Series mortgage bonds in May 2021;

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

the repayment, at maturity, of $75 million of 4.10% Series mortgage bonds in September 2021;
the issuance of $130 million of 1.50% Series mortgage bonds in August 2021;
money pool activity; and
a capital contribution of $85 million received from Entergy Corporation in April 2021 in order to maintain Entergy Texas’s capital structure and in anticipation of various upcoming capital expenditures.

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 $79.6 million for the nine months ended September 30, 2022 compared to increasing by $20.1 million for the nine months ended September 30, 2021. The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

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

Capital Structure

Entergy Texas’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio is primarily due to the issuance of long-term debt in 2022, partially offset by an increase in equity resulting from retained earnings.


	September 30, 2022		December 31, 2021
Debt to capital	51.5	%	48.7	%
Effect of excluding the securitization bonds	(2.6	%)	(0.5	%)
Debt to capital, excluding securitization bonds (a)	48.9	%	48.2	%
Effect of subtracting cash	(2.1	%)	—	%
Net debt to net capital, excluding securitization bonds (a)	46.8	%	48.2	%

(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 in the Form 10-K. Entergy Texas also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Texas’s financial condition because net debt indicates Entergy Texas’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.

Uses and Sources of Capital

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

Entergy Texas is developing its capital investment plan for 2023 through 2025 and currently anticipates making $3.4 billion in capital investments during that period. The preliminary estimate includes investments in generation projects to modernize, decarbonize, and diversify Entergy Texas’s portfolio, including Orange County Advanced Power Station; distribution and Utility support spending to improve reliability, resilience, and customer experience; transmission spending to drive reliability and resilience while also supporting renewables expansion;

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

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.

Entergy Texas’s receivables from or (payables to) the money pool were as follows:


September 30, 2022	December 31, 2021	September 30, 2021	December 31, 2020
(In Thousands)
$5,146	($79,594)	($20,075)	$4,601

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

Entergy Texas has a credit facility in the amount of $150 million scheduled to expire in June 2027. 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 September 30, 2022, there were no cash borrowings and $1.1 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 September 30, 2022, $9.7 million in letters of credit were outstanding under Entergy Texas’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

Orange County Advanced Power Station

As discussed in the Form 10-K, in September 2021, Entergy Texas filed an application seeking PUCT approval to amend Entergy Texas’s certificate of convenience and necessity to construct, own, and operate the Orange County Advanced Power Station, a new 1,215 MW combined-cycle combustion turbine facility to be located in Bridge City, Texas at an initially-estimated expected total cost of $1.2 billion inclusive of the estimated costs of the generation facilities, transmission upgrades, contingency, an allowance for funds used during construction, and necessary regulatory expenses, among others. The project includes combustion turbine technology with dual fuel capability, able to co-fire up to 30% hydrogen by volume upon commercial operation and upgradable to support 100% hydrogen operations in the future. In December 2021 the PUCT referred the proceeding to the State Office of Administrative Hearings. In March 2022 certain intervenors filed testimony opposing the hydrogen co-firing component of the proposed project and others filed testimony opposing the project outright. Also in March 2022 the PUCT staff filed testimony opposing the hydrogen co-firing component of the proposed project, but otherwise taking no specific position on the merits of the project. The PUCT staff also proposed that the PUCT establish a maximum amount that Entergy Texas may recover in rates attributable to the project. In April 2022, Entergy Texas filed rebuttal testimony addressing and rebutting these various arguments. Also in April 2022 the ALJs with the State Office of Administrative Hearings approved a continuance of the hearing on the merits from April 2022 to June 2022, providing Entergy Texas an opportunity to accelerate the determination and fixing of pricing for 60 days for the Orange County Advanced Power Station prior to the hearing. In May 2022, Entergy Texas obtained and provided to the parties an updated fixed pricing option of $1.58 billion, available until mid-July 2022. The hearing on the merits was held in June 2022, and post-hearing briefs were submitted in July 2022. In September 2022 the ALJs with the State Office of Administrative Hearings issued a proposal for decision recommending the PUCT approve Entergy Texas’s application for certification of Orange County Advanced Power Station subject to certain conditions, including a cap on cost recovery at $1.37 billion, the exclusion of investment associated with co-firing hydrogen, weatherization requirements, and customer receipt of any contractual benefits associated with the facility’s guaranteed heat rate. In October 2022 the parties in the proceeding filed exceptions and replies to exceptions to the proposal for decision. Also in October 2022, Entergy Texas filed with the PUCT information regarding a new fixed pricing option for an estimated project cost of approximately $1.55 billion associated with Entergy Texas’s issuance of limited notice to proceed by mid-November 2022. A final order by the PUCT is expected in the fourth quarter of 2022. Entergy Texas also is pursuing environmental permitting that is

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

required prior to the commencement of construction. Subject to receipt of required regulatory approvals, permits, and other conditions, the facility is expected to be in service by the end of 2026.

Hurricane Laura, Hurricane Delta, and Winter Storm Uri

As discussed in the Form 10-K, in August 2020 and October 2020, Hurricane Laura and Hurricane Delta caused extensive damage to Entergy Texas’s service area. In February 2021, Winter Storm Uri also caused damage to Entergy Texas’s service area. The storms resulted in widespread power outages, significant damage primarily to distribution and transmission infrastructure, and the loss of sales during the power outages. In July 2021, Entergy Texas filed with the PUCT an application for a financing order to approve the securitization of certain system restoration costs, which were approved by the PUCT as eligible for securitization in December 2021. In November 2021 the parties filed an unopposed settlement agreement supporting the issuance of a financing order consistent with Entergy Texas’s application and with minor adjustments to certain upfront and ongoing costs to be incurred to facilitate the issuance and serving of system restoration bonds. In January 2022 the PUCT issued a financing order consistent with the unopposed settlement. As a result of the financing order, in first quarter 2022, Entergy Texas reclassified $153 million from utility plant to other regulatory assets.

In April 2022, Entergy Texas Restoration Funding II, LLC, a company wholly-owned and consolidated by Entergy Texas, issued $290.85 million of senior secured system restoration bonds (securitization bonds). With the proceeds, Entergy Texas Restoration Funding II purchased from Entergy Texas the transition property, which is the right to recover from customers through a system restoration charge amounts sufficient to service the securitization bonds. Entergy Texas began cost recovery through the system restoration charge effective with the first billing cycle of May 2022 and the system restoration charge is expected to remain in place up to 15 years. See Note 4 to the financial statements herein for a discussion of the April 2022 issuance of the securitization bonds.

State and Local Rate Regulation and Fuel-Cost Recovery

Retail Rates

2022 Base Rate Case

In July 2022, Entergy Texas filed a base rate case with the PUCT seeking a net increase in base rates of approximately $131.4 million. The base rate case was based on a 12-month test year ending December 31, 2021. Key drivers of the requested increase are changes in depreciation rates as the result of a depreciation study and an increase in the return on equity. In addition, Entergy Texas included capital additions placed into service for the period of January 1, 2018 through December 31, 2021, including those additions currently reflected in the distribution and transmission cost recovery factor riders and the generation cost recovery rider, all of which would be reset to zero as a result of this proceeding. In July 2022, the PUCT referred the proceeding to the State Office of Administrative Hearings. In October 2022 intervenors filed direct testimony challenging and supporting various aspects of Entergy Texas’s rate case application. The key issues addressed included the appropriate return on equity, generation plant deactivations, depreciation rates, and proposed tariffs related to electric vehicles. In November 2022 the PUCT staff filed direct testimony addressing a similar set of issues and recommending a reduction of $50.7 million to Entergy Texas’s overall cost of service associated with the requested net increase in base rates of approximately $131.4 million. Entergy Texas will file rebuttal testimony in November 2022. A hearing on the merits is scheduled for December 2022. If a settlement is not reached, a final decision by the PUCT is expected in second quarter 2023.

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

Distribution Cost Recovery Factor (DCRF) Rider

As discussed in the Form 10-K, in August 2021, Entergy Texas filed with the PUCT a request to amend its DCRF rider. The amended rider was designed to collect from Entergy Texas’s retail customers approximately $40.2 million annually, or $13.9 million in incremental annual revenues beyond Entergy Texas’s then-effective DCRF rider based on its capital invested in distribution between September 1, 2020 and June 30, 2021. In September 2021 the PUCT referred the proceeding to the State Office of Administrative Hearings. A procedural schedule was established with a hearing scheduled in December 2021. In December 2021 the parties filed an unopposed settlement recommending that Entergy Texas be allowed to collect its full requested DCRF revenue requirement and resolving all issues in the proceeding, including a motion for interim rates to take effect for usage on and after January 24, 2022. Also, in December 2021, the ALJ with the State Office of Administrative Hearings issued an order granting the motion for interim rates, which went into effect in January 2022, admitting evidence, and remanding the proceeding to the PUCT to consider the settlement. In March 2022 the PUCT issued an order approving the settlement.

Transmission Cost Recovery Factor (TCRF) Rider

As discussed in the Form 10-K, in October 2021, Entergy Texas filed with the PUCT a request to amend its TCRF rider. The amended rider was designed to collect from Entergy Texas’s retail customers approximately $66.1 million annually, or $15.1 million in incremental annual revenues beyond Energy Texas’s then-effective TCRF rider based on its capital invested in transmission between September 1, 2020 and July 31, 2021 and changes in approved transmission charges. In January 2022 the PUCT referred the proceeding to the State Office of Administrative Hearings. In February 2022 the parties filed an unopposed settlement recommending that Entergy Texas be allowed to collect its full requested TCRF revenue requirement with interim rates effective March 2022. In February 2022 the ALJ granted the motion for interim rates, admitted evidence, and remanded the case to the PUCT for consideration of a final order at a future open meeting. In June 2022 the PUCT issued an order approving the settlement.

Generation Cost Recovery Rider

As discussed in the Form 10-K, in October 2020, Entergy Texas filed an application to establish a generation cost recovery rider to begin recovering a return of and on its generation capital investment in the Montgomery County Power Station through August 31, 2020, which was approved by the PUCT on an interim basis in January 2021. In March 2021, Entergy Texas filed to update its generation cost recovery rider to include its generation capital investment in Montgomery County Power Station after August 31, 2020 and an unopposed settlement agreement filed on behalf of the parties by Entergy Texas in October 2021 was approved by the PUCT in January 2022. In February 2022, Entergy Texas filed a relate-back rider to collect over five months an additional approximately $5 million, which is the difference between the interim revenue requirement approved in January 2021 and the revenue requirement approved in January 2022 that reflects Entergy Texas’s full generation capital investment and ownership in Montgomery County Power Station on January 1, 2021, plus carrying costs from January 2021 through January 2022 when the updated revenue requirement took effect. In April 2022, Entergy Texas and the PUCT staff filed a joint proposed order that supports approval of Entergy Texas’s as-filed request. The PUCT approved the relate-back rider consistent with Entergy Texas’s as-filed request, and rates became effective over a five month period, in August 2022.

In December 2020, Entergy Texas also filed an application to amend its generation cost recovery rider to reflect its acquisition of the Hardin County Peaking Facility, which closed in June 2021. Because Hardin was to be acquired in the future, the initial generation cost recovery rider rates proposed in the application represented no change from the generation cost recovery rider rates established in Entergy Texas’s previous generation cost recovery rider proceeding. In July 2021 the PUCT issued an order approving the application. In August 2021, Entergy Texas filed an update application to recover its actual investment in the acquisition of the Hardin County Peaking Facility. In September 2021 the PUCT referred the proceeding to the State Office of Administrative

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

Hearings. A procedural schedule was established with a hearing scheduled in April 2022. In January 2022, Entergy Texas filed an update to its application to align the requested revenue requirement with the terms of the generation cost recovery rider settlement approved by the PUCT in January 2022. In March 2022, Entergy Texas filed on behalf of the parties an unopposed motion, which motion was granted by the ALJ with the State Office of Administrative Hearings, to abate the procedural schedule indicating that the parties had reached an agreement in principle. In April 2022, Entergy Texas filed on behalf of the parties a unanimous settlement agreement that would adjust its generation cost recovery rider to recover an annual revenue requirement of approximately $92.8 million, which is $4.5 million in incremental annual revenue above the $88.3 million approved in January 2022, related to Entergy Texas’s actual investment in the acquisition of the Hardin County Peaking Facility. Concurrently with filing of the unanimous settlement agreement, Entergy Texas submitted an agreed motion to admit evidence and remand the case to the PUCT for review and consideration of the settlement agreement, which motion was granted by the ALJ with the State Office of Administrative Hearings. The PUCT approved the settlement agreement and rates became effective in August 2022. In September 2022, Entergy Texas filed a relate-back rider designed to collect over three months an additional approximately $5.7 million, which is the revenue requirement, plus carrying costs, associated with Entergy Texas’s acquisition of Hardin County Peaking Facility from June 2021 through August 2022 when the updated revenue requirement took effect.

COVID-19 Orders

As discussed in the Form 10-K, in March 2020 the PUCT authorized electric utilities to record as a regulatory asset expenses resulting from the effects of the COVID-19 pandemic. In future proceedings, the PUCT will consider whether each utility's request for recovery of these regulatory assets is reasonable and necessary, the appropriate period of recovery, and any amount of carrying costs thereon. As of September 30, 2022, Entergy Texas had a regulatory asset of $10.4 million for costs associated with the COVID-19 pandemic. As part of its 2022 base rate case filing, Entergy Texas requested recovery of its regulatory asset over a three-year period beginning December 2022.

Green Pricing Option Tariffs

In January 2022, Entergy Texas filed an application requesting approval to implement two voluntary renewable option tariffs, Rider Small Volume Renewable Option (Rider SVRO) and Rider Large Volume Renewable Option (Rider LVRO). Both tariffs are voluntary offerings that give customers the ability to match some or all of their monthly electricity usage with renewable energy credits that are purchased by Entergy Texas and retired on the customer’s behalf. Voluntary participation in either Rider SVRO or Rider LVRO and the charges assessed under the respective tariff would be in addition to the charges paid by customers under their otherwise applicable rate schedules and riders. In April 2022, Entergy Texas filed on behalf of the parties an unopposed settlement agreement supporting approval of Entergy Texas’s proposed green pricing option tariffs. As part of the settlement agreement, Entergy Texas agreed to revise the cost allocation between the rate tiers of Rider SVRO and committed to collaborating with and considering the input of customers to develop an asset-backed green tariff program. The PUCT approved the settlement agreement in August 2022.

Fuel and purchased power recovery

In May 2022, Entergy Texas filed an application with the PUCT to implement an interim fuel surcharge to collect the cumulative under-recovery of approximately $51.7 million, including interest, of fuel and purchased power costs incurred from May 1, 2020 through December 31, 2021. The under-recovery balance is primarily attributable to the impacts of Winter Storm Uri, including historically high natural gas prices, partially offset by settlements received by Entergy Texas from MISO related to Hurricane Laura. Entergy Texas proposed that the interim fuel surcharge be assessed over a period of six months beginning with the first billing cycle after the PUCT issues a final order, but no later than the first billing cycle of September 2022. Also in May 2022, the PUCT referred the proceeding to the State Office of Administrative Hearings. In July 2022, Entergy Texas filed on behalf of the parties an unopposed settlement resolving all issues in the proceeding. In addition, Entergy Texas filed on

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

behalf of the parties a motion to admit evidence, to approve interim rates as requested in the initial application, and to remand the proceeding to the PUCT to consider the unopposed settlement. In August 2022 the ALJ with the State Office of Administrative Hearings issued an order granting Entergy Texas’s motion, approving interim rates effective with the first billing cycle of September 2022, and remanding the case to the PUCT for final approval.

In September 2022, Entergy Texas filed an application with the PUCT to reconcile its fuel and purchased power costs for the period from April 2019 through March 2022. During the reconciliation period, Entergy Texas incurred approximately $1.7 billion in eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. As of the end of the reconciliation period, Entergy Texas’s cumulative under-recovery balance was approximately $103.1 million, including interest, which Entergy Texas requested authority to carry over as the beginning balance for the subsequent reconciliation period beginning April 2022, pending future surcharges or refunds as approved by the PUCT. A PUCT decision is expected in September 2023.

Federal Regulation

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

Nuclear Matters

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

Industrial and Commercial Customers

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Industrial and Commercial Customers” in the Form 10-K for a discussion of industrial and commercial customers.

Environmental Risks

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

Critical Accounting Estimates

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Texas’s accounting for utility regulatory accounting, impairment of long-lived assets, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies. See “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for updates to the discussion of qualified pension and other postretirement benefits.

New Accounting Pronouncements

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


ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)

	Three Months Ended		Nine Months Ended
	2022	2021	2022	2021
	(In Thousands)		(In Thousands)
OPERATING REVENUES
Electric	$659,556	$541,632	$1,696,629	$1,452,286

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	113,154	92,843	247,929	269,270

Purchased power	208,703	155,723	564,809	425,784
Other operation and maintenance	83,014	68,973	230,580	202,743

Taxes other than income taxes	29,886	30,479	73,817	73,025
Depreciation and amortization	58,472	54,711	171,781	159,234
Other regulatory charges (credits) - net	8,072	10,029	43,917	51,122
TOTAL	501,301	412,758	1,332,833	1,181,178

OPERATING INCOME	158,255	128,874	363,796	271,108

OTHER INCOME
Allowance for equity funds used during construction	3,616	1,836	9,375	6,951
Interest and investment income	1,062	204	1,597	632
Miscellaneous - net	(1,655)	(507)	(1,757)	(1,457)
TOTAL	3,023	1,533	9,215	6,126

INTEREST EXPENSE
Interest expense	24,613	21,220	68,626	66,157
Allowance for borrowed funds used during construction	(1,218)	(738)	(3,150)	(2,797)
TOTAL	23,395	20,482	65,476	63,360

INCOME BEFORE INCOME TAXES	137,883	109,925	307,535	213,874

Income taxes	19,881	15,084	41,645	24,185

NET INCOME	118,002	94,841	265,890	189,689

Preferred dividend requirements	518	470	1,554	1,411

EARNINGS APPLICABLE TO COMMON STOCK	$117,484	$94,371	$264,336	$188,278

See Notes to Financial Statements.


ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)
	2022	2021
	(In Thousands)
OPERATING ACTIVITIES
Net income	$265,890	$189,689
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation and amortization	171,781	159,234
Deferred income taxes, investment tax credits, and non-current taxes accrued	57,532	31,518
Changes in assets and liabilities:
Receivables	(63,743)	(50,538)
Fuel inventory	16,868	7,232
Accounts payable	77,740	20,506
Taxes accrued	2,520	6,003
Interest accrued	(4,832)	(12,808)
Deferred fuel costs	(273,644)	(103,013)
Other working capital accounts	(11,927)	(19,522)
Provisions for estimated losses	(414)	67
Other regulatory assets	(130,042)	72,760
Other regulatory liabilities	(23,014)	(21,469)
System restoration costs approved for securitization recognized as regulatory asset	153,383	—
Pension and other postretirement liabilities	(12,458)	(16,489)
Other assets and liabilities	(905)	(8,190)
Net cash flow provided by operating activities	224,735	254,980

INVESTING ACTIVITIES
Construction expenditures	(469,630)	(541,161)
Allowance for equity funds used during construction	9,375	6,951
Proceeds from sale of assets	—	67,920
Payment for purchase of assets	—	(36,534)
Litigation proceeds from settlement agreement	4,134	—
Changes in money pool receivable - net	(5,146)	4,601
Changes in securitization account	4,698	19,057
Increase in other investments	(31,160)	—

Net cash flow used in investing activities	(487,729)	(479,166)

FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	606,444	127,931
Retirement of long-term debt	(54,257)	(269,435)
Capital contribution from parent	—	85,000

Changes in money pool payable - net	(79,594)	20,075


Preferred stock dividends paid	(1,542)	(1,411)
Other	6,019	13,455
Net cash flow provided by (used in) financing activities	477,070	(24,385)

Net increase (decrease) in cash and cash equivalents	214,076	(248,571)
Cash and cash equivalents at beginning of period	28	248,596
Cash and cash equivalents at end of period	$214,104	$25

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized	$71,311	$77,110
Income taxes	$1,085	$11,710

See Notes to Financial Statements.


ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2022 and December 31, 2021
(Unaudited)
	2022	2021
	(In Thousands)
CURRENT ASSETS
Cash and cash equivalents:
Cash	$5,290	$28
Temporary cash investments	208,814	—
Total cash and cash equivalents	214,104	28
Securitization recovery trust account	21,931	26,629
Accounts receivable:
Customer	141,972	83,797
Allowance for doubtful accounts	(2,989)	(5,814)
Associated companies	17,759	31,720
Other	17,608	13,404
Accrued unbilled revenues	79,887	62,241
Total accounts receivable	254,237	185,348
Deferred fuel costs	321,924	48,280
Fuel inventory - at average cost	25,844	42,712
Materials and supplies - at average cost	82,470	72,884


Prepayments and other	57,253	17,515
TOTAL	977,763	393,396

OTHER PROPERTY AND INVESTMENTS
Investments in affiliates - at equity	262	300
Non-utility property - at cost (less accumulated depreciation)	376	376
Other	18,097	18,128
TOTAL	18,735	18,804

UTILITY PLANT
Electric	7,259,010	7,181,567
Construction work in progress	285,907	183,965
TOTAL UTILITY PLANT	7,544,917	7,365,532
Less - accumulated depreciation and amortization	2,121,834	2,049,750
UTILITY PLANT - NET	5,423,083	5,315,782

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets (includes securitization property of $274,933 as of September 30, 2022 and $23,818 as of December 31, 2021)	551,375	421,333

Other	126,722	112,096
TOTAL	678,097	533,429

TOTAL ASSETS	$7,097,678	$6,261,411

See Notes to Financial Statements.


ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2022 and December 31, 2021
(Unaudited)
	2022	2021
	(In Thousands)
CURRENT LIABILITIES

Accounts payable:
Associated companies	$73,558	$142,929
Other	197,204	164,981
Customer deposits	38,503	37,271
Taxes accrued	51,538	49,018
Interest accrued	14,170	19,002
Current portion of unprotected excess accumulated deferred income taxes	2,660	27,188



Other	19,107	16,120
TOTAL	396,740	456,509

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	761,897	692,496
Accumulated deferred investment tax credits	8,864	9,325
Regulatory liability for income taxes - net	133,021	144,145
Other regulatory liabilities	49,698	37,060
Asset retirement cost liabilities	10,971	8,520
Accumulated provisions	7,828	8,242

Long-term debt (includes securitization bonds of $287,229 as of September 30, 2022 and $53,979 as of December 31, 2021)	2,907,947	2,354,148
Other	73,170	67,760
TOTAL	3,953,396	3,321,696

Commitments and Contingencies

EQUITY
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 46,525,000 shares in 2022 and 2021	49,452	49,452
Paid-in capital	1,050,125	1,050,125
Retained earnings	1,609,215	1,344,879
Total common shareholder's equity	2,708,792	2,444,456
Preferred stock without sinking fund	38,750	38,750
TOTAL	2,747,542	2,483,206

TOTAL LIABILITIES AND EQUITY	$7,097,678	$6,261,411

See Notes to Financial Statements.


ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)

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

Balance at December 31, 2020	$35,000	$49,452	$955,162	$1,117,964	$2,157,578

Net income	—	—	—	50,058	50,058

Preferred stock dividends	—	—	—	(470)	(470)
Balance at March 31, 2021	35,000	49,452	955,162	1,167,552	2,207,166

Net income	—	—	—	44,790	44,790
Capital contribution from parent	—	—	85,000	—	85,000
Preferred stock dividends	—	—	—	(471)	(471)

Balance at June 30, 2021	35,000	49,452	1,040,162	1,211,871	2,336,485

Net income	—	—	—	94,841	94,841


Preferred stock dividends	—	—	—	(470)	(470)

Balance at September 30, 2021	$35,000	$49,452	$1,040,162	$1,306,242	$2,430,856


Balance at December 31, 2021	$38,750	$49,452	$1,050,125	$1,344,879	$2,483,206

Net income	—	—	—	50,403	50,403


Preferred stock dividends	—	—	—	(518)	(518)
Balance at March 31, 2022	38,750	49,452	1,050,125	1,394,764	2,533,091

Net income	—	—	—	97,485	97,485

Preferred stock dividends	—	—	—	(518)	(518)

Balance at June 30, 2022	38,750	49,452	1,050,125	1,491,731	2,630,058

Net income	—	—	—	118,002	118,002
Preferred stock dividends	—	—	—	(518)	(518)

Balance at September 30, 2022	$38,750	$49,452	$1,050,125	$1,609,215	$2,747,542

See Notes to Financial Statements.

SYSTEM ENERGY RESOURCES, INC.

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

System Energy’s principal asset currently consists of an ownership interest and a leasehold interest in Grand Gulf. The capacity and energy from its 90% interest is sold under the Unit Power Sales Agreement to its only four customers, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. System Energy’s operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% interest in Grand Gulf pursuant to the Unit Power Sales Agreement. Payments under the Unit Power Sales Agreement are System Energy’s only source of operating revenues. 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, the prudence of its operation of Grand Gulf, and the rates it charges under the Unit Power Sales Agreement.

Results of Operations

Net Income

Third Quarter 2022 Compared to Third Quarter 2021

Net income remained relatively unchanged, decreasing $0.1 million, for the third quarter 2022 compared to the third quarter 2021.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

System Energy experienced a net loss of $321.4 million in the nine months ended September 30, 2022 compared to net income of $81.7 million for the nine months ended September 30, 2021 primarily due to a regulatory charge of $551 million ($413 million net-of-tax) recorded in the second quarter 2022 to reflect the effects of the partial settlement agreement and offer of settlement related to pending proceedings before the FERC. Partially offsetting the decrease in earnings was an increase in revenues resulting from changes in rate base. See Note 2 to the financial statements herein for discussion of the partial settlement agreement and offer of settlement.

Income Taxes

The effective income tax rates were 11% for the third quarter 2022 and 26.4% for the nine months ended September 30, 2022. The differences in the effective income tax rates for the third quarter 2022 and the nine months ended September 30, 2022 versus the federal statutory rate of 21% were primarily due to state income taxes, which included an adjustment to the amortization of state investment tax credits recorded in the third quarter 2022.

The effective income tax rate was 23.5% for the third quarter 2021. The difference in the effective income tax rate for the third quarter 2021 versus the federal statutory rate of 21% was primarily due to state income taxes.

The effective income tax rate was 7.7% for the nine months ended September 30, 2021. The difference in the effective income tax rate for the nine months ended September 30, 2021 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects of and regulatory activity regarding the Tax Cuts and Jobs Act.

System Energy Resources, Inc.

Management's Financial Discussion and Analysis

Income Tax Legislation

See the “Income Tax Legislation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for discussion of the Inflation Reduction Act of 2022.

Liquidity and Capital Resources

Cash Flow

Cash flows for the nine months ended September 30, 2022 and 2021 were as follows:


	2022	2021
	(In Thousands)
Cash and cash equivalents at beginning of period	$89,201	$242,469

Net cash provided by (used in):
Operating activities	177,739	130,676
Investing activities	(118,663)	(75,603)
Financing activities	46,958	(134,400)
Net increase (decrease) in cash and cash equivalents	106,034	(79,327)

Cash and cash equivalents at end of period	$195,235	$163,142

Operating Activities

Net cash flow provided by operating activities increased $47.1 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to income tax payments of $39.1 million in 2021, timing of collections of receivables, and timing of payments to vendors, partially offset by an increase in spending of $36.1 million on nuclear refueling outages in 2022 as compared to the same period in 2021. System Energy had income tax payments in 2021 as a result of the amended Mississippi tax returns filed based on federal adjustments related to the resolution of the 2014-2015 IRS audit, as well as a portion of the payments made in accordance with an intercompany income tax allocation agreement. See Note 3 to the financial statements in the Form 10-K for discussion of the 2014-2015 IRS audit.

Investing Activities

Net cash flow used in investing activities increased $43.1 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to:

an increase of $66.4 million in nuclear construction expenditures primarily due to increased spending on various nuclear projects in 2022; and
an increase of $52.6 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle.

The increase was offset by money pool activity.

Decreases in System Energy’s receivable from the money pool are a source of cash flow and System Energy’s receivable from the money pool decreased $70.9 million for the nine months ended September 30, 2022 compared to increasing by $8.3 million for the nine months ended September 30, 2021. The money pool is an inter-

System Energy Resources, Inc.

Management's Financial Discussion and Analysis

company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

System Energy’s financing activities provided $47 million of cash for the nine months ended September 30, 2022 compared to using $134.4 million of cash for the nine months ended September 30, 2021 primarily due to:

the repayment in February 2021 of $100 million of 3.42% Series J notes by the System Energy nuclear fuel company variable interest entity; and
a decrease of $74 million in common stock dividends and distributions. No common stock dividends or distributions were made in 2022 in order to maintain System Energy’s capital structure and in anticipation of the settlement with the MPSC.

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

Capital Structure

System Energy’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 loss in 2022.


	September 30, 2022		December 31, 2021
Debt to capital	50.6	%	40.4	%
Effect of subtracting cash	(7.1	%)	(3.0	%)
Net debt to net capital	43.5	%	37.4	%

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

Uses and Sources of Capital

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

System Energy is developing its capital investment plan for 2023 through 2025 and currently anticipates making $510 million in capital investments during that period. The preliminary estimate includes amounts associated with Grand Gulf investments and initiatives.

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Management's Financial Discussion and Analysis

System Energy’s receivables from the money pool were as follows:


September 30, 2022	December 31, 2021	September 30, 2021	December 31, 2020
(In Thousands)
$4,802	$75,745	$12,338	$4,004

See Note 4 to the financial statements in the Form 10-K 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 June 2025. As of September 30, 2022, $83.9 million in loans were outstanding under the System Energy nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements herein for additional discussion of the variable interest entity credit facility.

Federal Regulation

See the “Rate, Cost-recovery, and Other Regulation - Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K and Note 2 to the financial statements herein and in the Form 10-K for a discussion of federal regulation.

Complaints Against System Energy

See Note 2 to the financial statements in the Form 10-K for information regarding pending complaints against System Energy. The following are updates to that discussion. See “System Energy Settlement with the MPSC” below for discussion of a partial settlement agreement and offer of settlement related to the pending proceedings before the FERC.

Return on Equity and Capital Structure Complaints

As discussed in the Form 10-K, in March 2021 the FERC ALJ issued an initial decision in the proceeding against System Energy regarding the return on equity component of the Unit Power Sales Agreement. With regard to System Energy’s authorized return on equity, the ALJ determined that the existing return on equity of 10.94% is no longer just and reasonable, and that the replacement authorized return on equity, based on application of the Opinion No. 569-A methodology, should be 9.32%. The ALJ further determined that System Energy should pay refunds for a fifteen-month refund period (January 2017-April 2018) based on the difference between the current return on equity and the replacement authorized return on equity. The ALJ determined that the April 2018 complaint concerning the authorized return on equity should be dismissed, and that no refunds for a second fifteen-month refund period should be due. With regard to System Energy’s capital structure, the ALJ determined that System Energy’s actual equity ratio is excessive and that the just and reasonable equity ratio is 48.15% equity, based on the average equity ratio of the proxy group used to evaluate the return on equity for the second complaint. The ALJ further determined that System Energy should pay refunds for a fifteen-month refund period (September 2018-December 2019) based on the difference between the actual equity ratio and the 48.15% equity ratio. If the ALJ’s initial decision is upheld, the estimated refund for this proceeding is approximately $62 million, which includes interest through September 30, 2022, and the estimated resulting annual rate reduction would be approximately $34 million. The estimated refund will continue to accrue interest until a final FERC decision is issued.

The ALJ initial decision is an interim step in the FERC litigation process, and an ALJ’s determinations made in an initial decision are not controlling on the FERC. In April 2021, System Energy filed its brief on exceptions, in which it challenged the initial decision’s findings on both the return on equity and capital structure issues. Also in April 2021 the LPSC, APSC, MPSC, City Council, and the FERC trial staff filed briefs on exceptions. Reply briefs opposing exceptions were filed in May 2021 by System Energy, the FERC trial staff, the

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Management's Financial Discussion and Analysis

LPSC, APSC, MPSC, and the City Council. Refunds, if any, that might be required will only become due after the FERC issues its order reviewing the initial decision.

In August 2022 the D.C. Circuit Court of Appeals issued an order addressing appeals of FERC’s Opinion No. 569 and 569-A, which established the methodology applied in the ALJ’s initial decision in the proceeding against System Energy discussed above. The appellate order addressed the methodology for determining the return on equity applicable to transmission owners in MISO. The D.C. Circuit found FERC’s use of the Risk Premium model as part of the methodology to be arbitrary and capricious, and remanded the case back to FERC. The remanded case is pending FERC action.

Grand Gulf Sale-leaseback Renewal Complaint and Uncertain Tax Position Rate Base Issue

As discussed in the Form 10-K, in May 2018 the LPSC filed a complaint against System Energy and Entergy Services related to System Energy’s renewal of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1. A hearing was held before a FERC ALJ in November 2019. In April 2020 the ALJ issued the initial decision. Among other things, the ALJ determined that refunds were due on three main issues. First, with regard to the lease renewal payments, the ALJ determined that System Energy is recovering an unjust acquisition premium through the lease renewal payments, and that System Energy’s recovery from customers through rates should be limited to the cost of service based on the remaining net book value of the leased assets, which is approximately $70 million. The ALJ found that the remedy for this issue should be the refund of lease payments (approximately $17.2 million per year since July 2015) with interest determined at the FERC quarterly interest rate, which would be offset by the addition of the net book value of the leased assets in the cost of service. The ALJ did not calculate a value for the refund expected as a result of this remedy. In addition, System Energy would no longer recover the lease payments in rates prospectively. Second, with regard to the liabilities associated with uncertain tax positions, the ALJ determined that the liabilities are accumulated deferred income taxes and that System Energy’s rate base should have been reduced for those liabilities. If the ALJ’s initial decision is upheld, the estimated refund for this issue through September 30, 2022 is approximately $422 million, plus interest, which is approximately $144 million through September 30, 2022. The ALJ also found that System Energy should include liabilities associated with uncertain tax positions as a rate base reduction going forward. Third, with regard to the depreciation expense adjustments, the ALJ found that System Energy should correct for the error in re-billings retroactively and prospectively, but that System Energy should not be permitted to recover interest on any retroactive return on enhanced rate base resulting from such corrections. If the initial decision is affirmed on this issue, System Energy estimates refunds of approximately $20 million, which includes interest through September 30, 2022.

The ALJ initial decision is an interim step in the FERC litigation process, and an ALJ’s determinations made in an initial decision are not controlling on the FERC. The ALJ in the initial decision acknowledges that these are issues of first impression before the FERC. The case is pending before the FERC, which will review the case and issue an order on the proceeding, and the FERC may accept, reject, or modify the ALJ’s initial decision in whole or in part. Refunds, if any, that might be required will only become due after the FERC issues its order reviewing the initial decision.

LPSC Additional Complaints

As discussed in the Form 10-K, in May 2020 the LPSC authorized its staff to file additional complaints at the FERC related to the rates charged by System Energy for Grand Gulf energy and capacity supplied to Entergy Louisiana under the Unit Power Sales Agreement.

Unit Power Sales Agreement Complaint

The first of the additional complaints was filed by the LPSC, the APSC, the MPSC, and the City Council in September 2020. The first complaint raises two sets of rate allegations: violations of the filed rate and a

System Energy Resources, Inc.

Management's Financial Discussion and Analysis

corresponding request for refunds for prior periods; and elements of the Unit Power Sales Agreement are unjust and unreasonable and a corresponding request for refunds for the 15-month refund period and changes to the Unit Power Sales Agreement prospectively. In May 2021 the FERC issued an order addressing the complaint, establishing a refund effective date of September 21, 2020, establishing hearing procedures, and holding those procedures in abeyance pending the FERC’s review of the initial decision in the Grand Gulf sale-leaseback renewal complaint discussed above. System Energy agreed that the hearing should be held in abeyance but sought rehearing of the FERC’s decision as related to matters set for hearing that were beyond the scope of the FERC’s jurisdiction or authority. The complainants sought rehearing of the FERC’s decision to hold the hearing in abeyance and filed a motion to proceed, which motion System Energy subsequently opposed. In June 2021, System Energy’s request for rehearing was denied by operation of law, and System Energy filed an appeal of the FERC’s orders in the Court of Appeals for the Fifth Circuit. The appeal was initially stayed for a period of 90 days, but the stay expired. In November 2021 the Fifth Circuit dismissed the appeal as premature.

In November 2021 the LPSC, the APSC, and the City Council filed direct testimony and requested the FERC to order refunds for prior periods and prospective amendments to the Unit Power Sales Agreement. The LPSC’s refund claims include, among other things, allegations that: (1) System Energy should not have included certain sale-leaseback transaction costs in prepayments; (2) System Energy should have credited rate base to reflect the time value of money associated with the advance collection of lease payments; (3) System Energy incorrectly included refueling outage costs that were recorded in account 174 in rate base; and (4) System Energy should have excluded several accumulated deferred income tax balances in account 190 from rate base. The LPSC is also seeking a retroactive adjustment to retained earnings and capital structure in conjunction with the implementation of its proposed refunds. In addition, the LPSC seeks amendments to the Unit Power Sales Agreement going forward to address below-the-line costs, incentive compensation, the working capital allowance, litigation expenses, and the 2019 termination of the capital funds agreement. The APSC argues that: (1) System Energy should have included borrowings from the Entergy System money pool in its determination of short-term debt in its cost of capital; and (2) System Energy should credit customers with System Energy’s allocation of earnings on money pool investments. The City Council alleges that System Energy has maintained excess cash on hand in the money pool and that retention of excess cash was imprudent. Based on this allegation, the City Council’s witness recommends a refund of approximately $98.8 million for the period 2004-September 2021 or other alternative relief. The City Council further recommends that the FERC impose a hypothetical equity ratio such as 48.15% equity to capital on a prospective basis.

In January 2022, System Energy filed answering testimony arguing that the FERC should not order refunds for prior periods or any prospective amendments to the Unit Power Sales Agreement. In response to the LPSC’s refund claims, System Energy argues, among other things, that: (1) the inclusion of sale-leaseback transaction costs in prepayments was correct; (2) the filed rate doctrine bars the request for a retroactive credit to rate base for the time value of money associated with the advance collection of lease payments; (3) an accounting misclassification for deferred refueling outage costs has been corrected, caused no harm to customers, and requires no refunds; and (4) its accounting and ratemaking treatment of specified accumulated deferred income tax balances in account 190 has been correct. System Energy further responds that no retroactive adjustment to retained earnings or capital structure should be ordered because there is no general policy requiring such a remedy and there was no showing that the retained earnings element of the capital structure was incorrectly implemented. Further, System Energy presented evidence that all of the costs that are being challenged were long known to the retail regulators and were approved by them for inclusion in retail rates, and the attempt to retroactively challenge these costs, some of which have been included in rates for decades, is unjust and unreasonable. In response to the LPSC’s proposed going-forward adjustments, System Energy presents evidence to show that none of the proposed adjustments are needed. On the issue of below-the-line expenses, during discovery procedures, System Energy identified a historical allocation error in certain months and agreed to provide a bill credit to customers to correct the error. In response to the APSC’s claims, System Energy argues that the Unit Power Sales Agreement does not include System Energy’s borrowings from the Entergy System money pool or earnings on deposits to the Entergy System money pool in the determination of the cost of capital; and accordingly, no refunds are appropriate on those issues. In response to the City Council’s claims, System Energy argues that it has reasonably managed its cash and that the City Council’s

System Energy Resources, Inc.

Management's Financial Discussion and Analysis

theory of cash management is defective because it fails to adequately consider the relevant cash needs of System Energy and it makes faulty presumptions about the operation of the Entergy System money pool. System Energy further points out that the issue of its capital structure is already subject to pending FERC litigation.

In March 2022 the FERC trial staff filed direct and answering testimony in response to the LPSC, the APSC, and the City Council’s direct testimony. In its testimony, the FERC trial staff recommends refunds for two primary reasons: (1) it concluded that System Energy should have excluded specified accumulated deferred income tax balances in account 190 associated with rate refunds; and (2) it concluded that System Energy should have excluded specified accumulated deferred income tax balances in account 190 associated with a deemed contract satisfaction and reissuance that occurred in 2005. The FERC trial staff recommends refunds of $84.1 million, exclusive of any tax gross-up or FERC interest. In addition, the FERC trial staff recommends the following prospective modifications to the Unit Power Sales Agreement: (1) inclusion of a rate base credit to recognize the time value of money associated with the advance collection of lease payments; (2) exclusion of executive incentive compensation costs for members of the Office of the Chief Executive and long-term performance unit costs where awards are based solely or primarily on financial metrics; and (3) exclusion of unvested, accrued amounts for stock options, performance units, and restricted stock awards. With respect to issues that ultimately concern the reasonableness of System Energy’s rate of return, the FERC trial staff states that it is unnecessary to consider such issues in this proceeding, in light of the pending case concerning System Energy’s return on equity and capital structure. On all other material issues raised by the LPSC, the APSC, and the City Council, the FERC trial staff recommends either no refunds or no modification to the Unit Power Sales Agreement.

In April 2022, System Energy filed cross-answering testimony in response to the FERC trial staff’s recommendations of refunds for the accumulated deferred income taxes issues and proposed modifications to the Unit Power Sales Agreement for the executive incentive compensation issues. In June 2022 the FERC trial staff submitted revised answering testimony, in which it recommended additional refunds associated with the accumulated deferred income tax balances in account 190 associated with a deemed contract satisfaction and reissuance that occurred in 2005. Based on the testimony revisions, the FERC trial staff’s recommended refunds total $106.6 million, exclusive of any tax gross-up or FERC awarded interest. Also in June 2022, System Energy filed revised and supplemental cross-answering testimony to respond to the changes in the FERC trial staff’s testimony and oppose its revised recommendation.

In May 2022 the LPSC, the APSC, and the City Council filed rebuttal testimony. The LPSC’s testimony asserts new claims, including that: (1) certain of the sale-leaseback transaction costs may have been imprudently incurred; (2) accumulated deferred income taxes associated with sale-leaseback transaction costs should have been included in rate base; (3) accumulated deferred income taxes associated with federal investment tax credits should have been excluded from rate base; (4) monthly net operating loss accumulated deferred income taxes should have been excluded from rate base; and (5) several categories of proposed rate changes, including executive incentive compensation, air travel, industry dues, and legal costs, also warrant historical refunds. The LPSC’s rebuttal testimony argues that refunds for the alleged tariff violations and other claims must be calculated by rerunning the Unit Power Sales Agreement formula rate; however, it includes estimates of refunds associated with some, but not all, of its claims, totaling $286 million without interest. The City Council’s rebuttal testimony also proposes a new, alternate theory and claim for relief regarding System Energy’s participation in the Entergy System money pool, under which it calculates estimated refunds of approximately $51.7 million. The APSC’s rebuttal testimony agrees with the LPSC’s direct testimony that retained earnings should be adjusted in a comprehensive refund calculation. The testimony quantifies the estimated impacts of three issues: (1) a $1.5 million reduction in the revenue requirement under the Unit Power Sales Agreement if System Energy’s borrowings from the money pool are included in short-term debt; (2) a $1.9 million reduction in the revenue requirement if System Energy’s allocated share of money pool earnings are credited through the Unit Power Sales Agreement; and (3) a $1.9 million reduction in the revenue requirement for every $50 million of refunds ordered in a given year, without interest.

In June 2022 a new procedural schedule was adopted, providing for additional rounds of testimony, for the hearing to begin in September 2022, and for the initial decision to be issued in March 2023. In July 2022, System

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Management's Financial Discussion and Analysis

Energy filed responsive rebuttal testimony responding to the new claims in the LPSC’s and the City Council’s rebuttal testimony. Also in July 2022 the LPSC filed supplemental rebuttal testimony responding to System Energy’s revised cross-answering testimony, and System Energy filed responsive rebuttal testimony responding to that testimony. In August 2022 the LPSC filed responsive rebuttal testimony to System Energy’s responsive rebuttal testimony. The hearing commenced in September 2022.

LPSC Petition for Writ of Mandamus

In August 2022 the LPSC filed a petition for a writ of mandamus asking the Fifth Circuit Court of Appeals to order the FERC to act within ninety days on certain pending proceedings, including the Grand Gulf prudence complaint, the return on equity and capital structure complaints, and the Grand Gulf sale-leaseback renewal complaint. In September 2022 the FERC and System Energy filed oppositions to the LPSC’s petition, and the APSC and the City Council filed interventions in support of the petition. See Note 2 to the financial statements in the Form 10-K for further discussion of the complaints.

System Energy Formula Rate Annual Protocols Formal Challenge Concerning 2020 Calendar Year Bills

System Energy’s Unit Power Sales Agreement includes formula rate protocols that provide for the disclosure of cost inputs, an opportunity for informal discovery procedures, and a challenge process. In February 2022, pursuant to the protocols procedures, the LPSC, the APSC, the MPSC, the City Council, and the Mississippi Public Utilities Staff filed with the FERC a formal challenge to System Energy’s implementation of the formula rate during calendar year 2020. The formal challenge alleges: (1) that it was imprudent for System Energy to accept the IRS’s partial acceptance of a previously uncertain tax position; (2) that System Energy should have delayed recording the result of the IRS’s partial acceptance of the previously uncertain tax position until after internal tax allocation payments were made; (3) that the equity ratio charged in rates was excessive; (4) that sale-leaseback rental payments should have been excluded from rates; and (5) that all issues in the ongoing Unit Power Sales Agreement complaint proceeding should also be reflected in calendar year 2020 bills. While System Energy disagrees that any refunds are owed for the 2020 calendar year bills, the formal challenge estimates that the financial impact of the first through fourth allegations is approximately $53 million in refunds, excluding interest which will be calculated after a FERC order is issued; it does not provide an estimate of the financial impact of the fifth allegation.

In March 2022, System Energy filed an answer to the formal challenge in which it requested that the FERC deny the formal challenge as a matter of law, or else hold the proceeding in abeyance pending the resolution of related dockets.

System Energy Settlement with the MPSC

In June 2022, System Energy, Entergy Mississippi, and additional named Entergy parties involved in thirteen docketed proceedings before the FERC filed with the FERC a partial settlement agreement and offer of settlement. The settlement memorializes the Entergy parties’ agreement with the MPSC to globally resolve all actual and potential claims between the Entergy parties and the MPSC associated with those FERC proceedings and with System Energy’s past implementation of the Unit Power Sales Agreement. The Unit Power Sales Agreement is a FERC-jurisdictional formula rate tariff for sales of energy and capacity from System Energy’s owned and leased share of Grand Gulf to Entergy Mississippi, Entergy Arkansas, Entergy Louisiana, and Entergy New Orleans. Entergy Mississippi purchases the greatest single amount, nearly 40% of System Energy’s share of Grand Gulf, after its additional purchases from affiliates are considered. The settlement therefore limits System Energy’s overall refund exposure associated with the identified proceedings because they will be resolved completely as between the Entergy parties and the MPSC.

The FERC proceedings that are resolved as between the Entergy parties and the MPSC include the return on equity and capital structure complaints, the Grand Gulf sale-leaseback renewal complaint and uncertain tax position

System Energy Resources, Inc.

Management's Financial Discussion and Analysis

rate base issue, the Unit Power Sales Agreement complaint, and the Grand Gulf prudence complaint, all of which are discussed in Note 2 to the financial statements in the Form 10-K, and updated above. They also include the proceedings concerning System Energy’s return of excess accumulated deferred income taxes after the Tax Cuts and Jobs Act and the proceedings established to address System Energy’s October 2020 and December 2020 Federal Power Act section 205 filings to provide credits to customers related to the IRS’s decision as to the uncertain decommissioning tax position, also as all discussed in Note 2 to the financial statements in the Form 10-K. The settlement also resolves the MPSC’s involvement in the formal challenge filed by the retail regulators of System Energy’s customers in connection with the implementation of the Unit Power Sales Agreement annual formula rate protocols for the 2020 test year, which is discussed above.

The settlement provides for a black-box refund of $235 million from System Energy to Entergy Mississippi, which will be paid within 120 days of the settlement’s effective date (either the date of the FERC approval of the settlement without material modification, or the date that all settling parties agree to accept modifications or otherwise modify the settlement in response to a proposed material modification by the FERC). In addition, beginning with the July 2022 service month, the settlement provides for Entergy Mississippi’s bills from System Energy to be adjusted to reflect: an authorized rate of return on equity of 9.65%, a capital structure not to exceed 52% equity, a rate base reduction for the advance collection of sale-leaseback rental costs, and the exclusion of certain long-term incentive plan performance unit costs from rates.

The settlement is expressly contingent upon the approval of the FERC and the MPSC. It was approved by the MPSC in June 2022. The remaining retail regulators of Entergy’s utility operating company purchasers under the Unit Power Sales Agreement (the APSC, the LPSC, and the City Council) may elect to join the settlement. If all of them elect to do so under the terms of the settlement, then the total black-box refund payment by System Energy would be $588.25 million, and the prospective rate adjustments would apply to all purchasers under the Unit Power Sales Agreement.

If the FERC approves the settlement in accordance with its terms, then it will become binding upon the Entergy parties and the MPSC even if no additional retail regulators elect to join the settlement. The settlement will have no effect on the rights of non-settling parties to the identified FERC proceedings.

System Energy previously recorded a provision and associated liability of $37 million for elements of the applicable litigation. In June 2022, System Energy recorded a regulatory charge of $551 million ($413 million net-of-tax), increasing the regulatory liability to $588 million, which consists of $235 million for the settlement with the MPSC and $353 million for potential future refunds to Entergy Arkansas, Entergy Louisiana, and Entergy New Orleans. In August 2022 comments on the settlement were filed by the APSC, the LPSC, the City Council, and the FERC trial staff. The APSC, the LPSC, and the City Council do not intend to join the settlement, but they do not oppose its approval as between the MPSC and the Entergy parties. The FERC trial staff concludes that the settlement is fair, reasonable, and in the public interest. Reply comments were filed in August 2022. System Energy requested an order from the FERC by November 2022.

Nuclear Matters

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

Environmental Risks

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

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Management's Financial Discussion and Analysis

Critical Accounting Estimates

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in System Energy’s accounting for nuclear decommissioning costs, utility regulatory accounting, impairment of long-lived assets, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies. See “Qualified Pension and Other Postretirement Benefits” in the “Critical Accounting Estimates” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for updates to the discussion of qualified pension and other postretirement benefits. The following is an update to that discussion.

In the third quarter 2022, System Energy recorded a revision to its estimated decommissioning cost liability for Grand Gulf as a result of a revised decommissioning cost study. The revised estimate resulted in a $5.4 million reduction in its decommissioning cost liability, along with a corresponding reduction in the related asset retirement obligation cost asset that will be depreciated over the remaining life of the unit.

New Accounting Pronouncements

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


SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2022 and 2021
(Unaudited)

	Three Months Ended		Nine Months Ended
	2022	2021	2022	2021
	(In Thousands)		(In Thousands)
OPERATING REVENUES
Electric	$179,800	$154,319	$485,048	$433,378

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	12,125	15,279	31,658	46,211
Nuclear refueling outage expenses	6,483	6,867	17,730	20,377
Other operation and maintenance	69,719	54,709	168,308	154,716
Decommissioning	10,117	9,721	30,050	28,875
Taxes other than income taxes	7,430	7,268	22,431	21,061
Depreciation and amortization	38,742	25,991	106,442	79,953
Other regulatory charges (credits) - net	(8,324)	(1,707)	510,667	(7,707)
TOTAL	136,292	118,128	887,286	343,486

OPERATING INCOME (LOSS)	43,508	36,191	(402,238)	89,892

OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction	1,536	1,546	6,164	4,012
Interest and investment income (loss)	3,669	11,839	(58)	36,871
Miscellaneous - net	(9,028)	(4,372)	(13,408)	(14,282)
TOTAL	(3,823)	9,013	(7,302)	26,601

INTEREST EXPENSE
Interest expense	9,189	9,513	27,782	28,627
Allowance for borrowed funds used during construction	(246)	(261)	(982)	(678)
TOTAL	8,943	9,252	26,800	27,949

INCOME (LOSS) BEFORE INCOME TAXES	30,742	35,952	(436,340)	88,544

Income taxes	3,385	8,453	(114,981)	6,851

NET INCOME (LOSS)	$27,357	$27,499	($321,359)	$81,693

See Notes to Financial Statements.

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SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)
	2022	2021
	(In Thousands)
OPERATING ACTIVITIES
Net income (loss)	($321,359)	$81,693
Adjustments to reconcile net income (loss) to net cash flow provided by operating activities:
Depreciation, amortization, and decommissioning, including nuclear fuel amortization	163,043	151,345
Deferred income taxes, investment tax credits, and non-current taxes accrued	(129,093)	17,233
Changes in assets and liabilities:
Receivables	(29,703)	(5,216)
Accounts payable	(7,193)	(4,292)
Taxes accrued	9,106	(35,063)
Interest accrued	(972)	(1,557)
Other working capital accounts	(34,961)	5,133
Other regulatory assets	(23,107)	71,486
Other regulatory liabilities	282,463	31,909
Pension and other postretirement liabilities	(14,704)	(20,721)
Other assets and liabilities	284,219	(161,274)
Net cash flow provided by operating activities	177,739	130,676

INVESTING ACTIVITIES
Construction expenditures	(132,100)	(64,196)
Allowance for equity funds used during construction	6,164	4,012
Nuclear fuel purchases	(77,707)	(27,958)
Proceeds from the sale of nuclear fuel	18,845	21,657

Proceeds from nuclear decommissioning trust fund sales	273,108	769,979
Investment in nuclear decommissioning trust funds	(277,916)	(770,763)
Changes in money pool receivable - net	70,943	(8,334)

Net cash flow used in investing activities	(118,663)	(75,603)

FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	955,587	565,610
Retirement of long-term debt	(908,629)	(626,010)



Common stock dividends and distributions paid	—	(74,000)

Net cash flow provided by (used in) financing activities	46,958	(134,400)

Net increase (decrease) in cash and cash equivalents	106,034	(79,327)
Cash and cash equivalents at beginning of period	89,201	242,469
Cash and cash equivalents at end of period	$195,235	$163,142

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized	$30,231	$30,335
Income taxes	$—	$39,085

See Notes to Financial Statements.


SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEETS
ASSETS
September 30, 2022 and December 31, 2021
(Unaudited)
	2022	2021
	(In Thousands)
CURRENT ASSETS
Cash and cash equivalents:
Cash	$350	$87
Temporary cash investments	194,885	89,114
Total cash and cash equivalents	195,235	89,201
Accounts receivable:
Associated companies	78,528	118,977
Other	6,212	7,003
Total accounts receivable	84,740	125,980

Materials and supplies - at average cost	129,376	127,093
Deferred nuclear refueling outage costs	40,289	10,123

Prepayments and other	4,381	1,870
TOTAL	454,021	354,267

OTHER PROPERTY AND INVESTMENTS
Decommissioning trust funds	1,086,261	1,385,254
TOTAL	1,086,261	1,385,254

UTILITY PLANT
Electric	5,413,884	5,362,494

Construction work in progress	94,303	97,968
Nuclear fuel	187,663	171,438
TOTAL UTILITY PLANT	5,695,850	5,631,900
Less - accumulated depreciation and amortization	3,419,437	3,396,136
UTILITY PLANT - NET	2,276,413	2,235,764

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets	418,653	395,546

Other	1,773	1,793
TOTAL	420,426	397,339

TOTAL ASSETS	$4,237,121	$4,372,624

See Notes to Financial Statements.


SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2022 and December 31, 2021
(Unaudited)
	2022	2021
	(In Thousands)
CURRENT LIABILITIES
Currently maturing long-term debt	$250,037	$50,329

Accounts payable:
Associated companies	25,922	23,682
Other	59,673	62,573
Taxes accrued	42,024	32,918

Interest accrued	10,742	11,714

Other	4,100	4,101
TOTAL	392,498	185,317

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	255,791	382,931
Accumulated deferred investment tax credits	43,614	43,003
Regulatory liability for income taxes - net	108,662	113,165
Other regulatory liabilities	1,031,910	744,944
Decommissioning	1,032,276	1,007,603
Pension and other postretirement liabilities	61,400	76,104
Long-term debt	538,924	690,967
Other	2,045	37,230
TOTAL	3,074,622	3,095,947

Commitments and Contingencies

COMMON EQUITY
Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares in 2022 and 2021	951,850	951,850
Retained earnings (accumulated deficit)	(181,849)	139,510
TOTAL	770,001	1,091,360

TOTAL LIABILITIES AND EQUITY	$4,237,121	$4,372,624

See Notes to Financial Statements.


SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CHANGES IN COMMON EQUITY
For the Nine Months Ended September 30, 2022 and 2021
(Unaudited)

	Common Equity
	Common Stock	Retained Earnings (Accumulated Deficit)	Total
	(In Thousands)

Balance at December 31, 2020	$951,850	$128,696	$1,080,546

Net income	—	23,864	23,864
Common stock dividends and distributions	—	(21,000)	(21,000)
Balance at March 31, 2021	951,850	131,560	1,083,410

Net income	—	30,330	30,330
Common stock dividends and distributions	—	(5,000)	(5,000)
Balance at June 30, 2021	951,850	156,890	1,108,740

Net income	—	27,499	27,499
Common stock dividends and distributions	—	(48,000)	(48,000)
Balance at September 30, 2021	$951,850	$136,389	$1,088,239


Balance at December 31, 2021	$951,850	$139,510	$1,091,360

Net income	—	31,432	31,432

Balance at March 31, 2022	951,850	170,942	1,122,792

Net loss	—	(380,148)	(380,148)

Balance at June 30, 2022	951,850	(209,206)	742,644

Net income	—	27,357	27,357

Balance at September 30, 2022	$951,850	($181,849)	$770,001

See Notes to Financial Statements.

ENTERGY CORPORATION AND SUBSIDIARIES

PART II. OTHER INFORMATION

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