filings.toolsItem 4. Controls and Procedures
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Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of March 31, 2023, 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 (each individually a “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 Registrant’s management, including its respective PEO and PFO, each Registrant evaluated changes in internal control over financial reporting that occurred during the quarter ended March 31, 2023 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
Net income decreased $6.2 million primarily due to lower volume/weather and higher interest expense, partially offset by higher retail electric price and higher other income.
Operating Revenues
Following is an analysis of the change in operating revenues comparing the first quarter 2023 to the first quarter 2022:
| Amount | |||||
| (In Millions) | |||||
| 2022 operating revenues | $559.0 | ||||
| Fuel, rider, and other revenues that do not significantly affect net income | 26.0 | ||||
| Retail electric price | 19.4 | ||||
| Volume/weather | (21.7) | ||||
| 2023 operating revenues | $582.7 |
Entergy Arkansas’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The retail electric price variance is primarily due to an increase in formula rate plan rates effective January 2023. See Note 2 to the financial statements in the Form 10-K for further discussion of the 2022 formula rate plan filing.
The volume/weather variance is primarily due to the effect of less favorable weather on residential sales.
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Total electric energy sales for Entergy Arkansas for the three months ended March 31, 2023 and 2022 are as follows:
| 2023 | 2022 | % Change | |||||||||||||||
| (GWh) | |||||||||||||||||
| Residential | 1,802 | 2,092 | (14) | ||||||||||||||
| Commercial | 1,239 | 1,307 | (5) | ||||||||||||||
| Industrial | 2,050 | 1,972 | 4 | ||||||||||||||
| Governmental | 46 | 55 | (16) | ||||||||||||||
| Total retail | 5,137 | 5,426 | (5) | ||||||||||||||
| Sales for resale: | |||||||||||||||||
| Associated companies | 564 | 486 | 16 | ||||||||||||||
| Non-associated companies | 1,568 | 1,391 | 13 | ||||||||||||||
| Total | 7,269 | 7,303 | — |
See Note 13 to the financial statements herein for additional discussion of Entergy Arkansas’s operating revenues.
Other Income Statement Variances
Other operation and maintenance expenses decreased slightly primarily due to:
-
the effects of recording a final judgment in 2023 to resolve claims in the ANO damages case against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $10.3 million of spent nuclear fuel storage costs previously recorded as other operation and maintenance expenses. See Note 1 to the financial statements herein for discussion of the spent nuclear fuel litigation; and
-
a decrease of $4.7 million in compensation and benefits costs primarily due to a revision to estimated incentive compensation expense in the first quarter 2023 and a decrease in net periodic pension and other postretirement benefits costs as a result of an increase in the discount rates used to value the benefit liabilities. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K, Note 6 to the financial statements herein, and Note 11 to the financial statements in the Form 10-K for further discussion of pension and other postretirement benefits costs.
The decrease was substantially offset by an increase of $8.2 million in insurance expenses primarily due to lower nuclear insurance refunds received in 2023 and an increase of $6.7 million in power delivery expenses primarily due to higher reliability costs, higher vegetation maintenance costs, and higher metering costs.
Other income increased primarily due to an increase in interest earned on money pool investments, an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2023, and higher interest income from carrying costs related to the deferred fuel balance.
Interest expense increased primarily due to the issuance of $425 million of 5.15% Series mortgage bonds in January 2023.
Income Taxes
The effective income tax rate was 14.9% for the first quarter 2023. The difference in the effective income tax rate for the first quarter 2023 versus the federal statutory rate of 21% was primarily due to the amortization of
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
state accumulated deferred income taxes as a result of tax rate changes, and certain book and tax differences related to utility plant items, partially offset by the accrual for state income taxes.
The effective income tax rate was 22.6% for the first quarter 2022. The difference in the effective income tax rate for the first 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.
Income Tax Legislation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Income Tax Legislation” in the Form 10-K for a discussion of the Inflation Reduction Act of 2022.
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 2023 and 2022 were as follows:
| 2023 | 2022 | ||||||||||
| (In Thousands) | |||||||||||
| Cash and cash equivalents at beginning of period | $5,278 | $12,915 | |||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | 274,037 | 247,426 | |||||||||
| Investing activities | (306,032) | (214,477) | |||||||||
| Financing activities | 186,302 | 64,167 | |||||||||
| Net increase in cash and cash equivalents | 154,307 | 97,116 | |||||||||
| Cash and cash equivalents at end of period | $159,585 | $110,031 |
Operating Activities
Net cash flow provided by operating activities increased $26.6 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 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 and in the Form 10-K for a discussion of fuel and purchased power cost recovery;
-
the refund of $41.7 million, which was applied to the under-recovered deferred fuel balance, received from System Energy in January 2023 related to the sale-leaseback renewal costs and depreciation litigation as calculated in System Energy’s January 2023 compliance report filed with the FERC. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of these refunds and the related proceedings; and
-
a decrease of $8.7 million in pension contributions in 2023.
The increase was partially offset by the timing of payments to vendors and an increase in spending of $4 million on nuclear refueling outages in 2023. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Investing Activities
Net cash flow used in investing activities increased $91.6 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to:
-
an increase of $56.9 million in distribution construction expenditures primarily due to higher capital expenditures for storm restoration in 2023 and increased investment in the reliability and infrastructure of Entergy Arkansas’s distribution system;
-
an increase of $29 million in transmission construction expenditures primarily due to a higher scope of work on projects performed in 2023 as compared to 2022; and
-
an increase of $48.3 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.
The increase was partially offset by money pool activity.
Increases in Entergy Arkansas’s receivable from the money pool are a use of cash flow, and Entergy Arkansas’s receivable from the money pool increased $11 million for the three months ended March 31, 2023 compared to increasing by $60 million for the three months ended March 31, 2022. The money pool is an intercompany borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
Net cash flow provided by financing activities increased $122.1 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to the issuance of $425 million of 5.15% Series mortgage bonds in January 2023 and net borrowings of $31.5 million in 2023 compared to net repayments of $4.8 million in 2022 on the nuclear fuel company variable interest entity’s credit facility. The increase was partially offset by:
-
the issuance of $200 million of 4.20% Series mortgage bonds in March 2022;
-
$80 million in common equity distributions paid in 2023 in order to maintain Entergy Arkansas’s capital structure; and
-
money pool activity.
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 $180.8 million for the three months ended March 31, 2023 compared to decreasing by $139.9 million for the three months ended March 31, 2022.
See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.
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. The increase in the debt to capital ratio for Entergy Arkansas is primarily due to the issuance of long-term debt in 2023.
| March 31, 2023 | December 31, 2022 | ||||||||||
| Debt to capital | 55.1 | % | 52.5 | % | |||||||
| Effect of subtracting cash | (0.9 | %) | — | % | |||||||
| Net debt to net capital (non-GAAP) | 54.2 | % | 52.5 | % |
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. The net debt to net capital ratio is a non-GAAP measure. 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’s receivables from or (payables to) the money pool were as follows:
| March 31, 2023 | December 31, 2022 | March 31, 2022 | December 31, 2021 | |||||||||||||||||
| (In Thousands) | ||||||||||||||||||||
| $11,035 | ($180,795) | $59,981 | ($139,904) |
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 2024. The $150 million credit facility includes fronting commitments for the issuance of letters of credit against $5 million of the borrowing capacity of the facility. As of March 31, 2023, 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 March 31, 2023, $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 March 31, 2023, $31.5 million in loans were outstanding under the credit facility for the Entergy Arkansas nuclear fuel company variable interest entity. See Note 4 to the financial statements herein for further discussion of the nuclear fuel company variable interest entity credit facility.
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Walnut Bend Solar
As discussed in the Form 10-K, in July 2021, the APSC directed Entergy Arkansas to file a report within 180 days detailing its efforts to obtain a tax equity partnership for the purpose of acquiring the Walnut Bend Solar facility. 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. 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 were conducted, including with respect to cost and schedule and to updates arising as a result of the Inflation Reduction Act of 2022. In April 2023, Entergy Arkansas filed an application for an amended certificate of environmental compatibility and public need with the APSC seeking approval by June 2023 for the updates to the cost and schedule that were previously approved by the APSC. The project, if approved, is currently 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 for the purpose of acquiring the West Memphis Solar facility. 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. In March 2022 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. In January 2023, Entergy Arkansas filed a supplemental application with the APSC seeking approval for a change in the transmission route and updates to the cost and schedule that were previously approved by the APSC. In March 2023 the APSC approved Entergy Arkansas’s supplemental application. The project is currently expected to achieve commercial operation in 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.
Energy Cost Recovery Rider
In March 2023, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which reflected an increase from $0.01639 per kWh to $0.01883 per kWh. The primary reason for the rate increase is a large under-recovered balance as a result of higher natural gas prices in 2022 and a $32 million deferral related to the 2021 February winter storms consistent with APSC general staff’s request in 2022. The under-recovered balance included in the filing was partially offset by the proceeds of the $41.7 million refund that System Energy made to Entergy Arkansas in January 2023 related to the sale-leaseback renewal costs and depreciation litigation as calculated in System Energy’s January 2023 compliance report filed with the FERC. The redetermined rate of $0.01883 per kWh became effective with the first billing cycle in April 2023 through the normal operation of the tariff. See Note 2 to the financial statements in the Form 10-K for information on the 2021 February winter storm investigation proceeding.
Opportunity Sales Proceeding
See Note 2 to the financial statements in the Form 10-K for discussion of the Entergy Arkansas opportunity sales proceeding. As discussed in the Form 10-K, in January 2023, Arkansas Electric Energy Consumers, Inc., an industrial customer association, filed a notice of appeal of the U.S. District Court for the Eastern District of Arkansas’s order denying its motion to intervene to the United States Court of Appeals for the Eighth Circuit and a motion with the district court to stay the proceedings pending the appeal, which was denied. In February 2023,
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Arkansas Electric Energy Consumers, Inc. filed a motion with the United States Court of Appeals for the Eighth District to stay the proceedings pending the appeal, which also was denied. The trial was held in February 2023. Following the trial, Entergy Arkansas filed a motion with the United States Court of Appeals for the Eighth District to expedite the appeal filed by Arkansas Electric Energy Consumers, Inc. The court granted Entergy Arkansas’s request and oral arguments are scheduled for June 2023.
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. In December 2022 the APSC issued an order attempting to modify the net metering rules and purporting to allow for the potential for grandfathering after December 31, 2022. More than thirty applicants filed individual net metering applications in December 2022 seeking to be considered under the APSC’s order, although the APSC issued an order in January 2023 holding those applications in abeyance. Several parties, including Entergy Arkansas, sought rehearing, and the Arkansas’s Governor’s executive order limiting new rulemakings calls into question how the APSC’s order to adopt new rules may be effectuated.
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.
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Responses to the utility and cooperative filings were filed in January 2023, and utilities filed their further responses in February 2023.
An Arkansas law was enacted effective March 2023 that revises the billing arrangements for net metering facilities in order to reduce the cost shift to non-net metering customers. The new law also imposes a new limit of 5 MW for future net metering facilities, allows utilities to recover net metering credits in the same manner as fuel, and grandfathers certain net metering facilities that are online or in process to be online by September 2024. Entergy Arkansas joined other utilities in a motion in April 2023 to close the current APSC docket related to potential cost shifting in light of the new law. The APSC must approve revisions to the utilities’ tariffs to conform to the new law no later than December 2023.
COVID-19 Orders
See Note 2 to the financial statements in the Form 10-K for discussion of APSC orders issued in light of the COVID-19 pandemic. As of March 31, 2023, Entergy Arkansas had a regulatory asset of $39 million for costs associated with the COVID-19 pandemic.
Remaining Useful Lives Review
In response to 2021 legislation, the APSC opened a proceeding in December 2022 to establish a procedure to evaluate life extensions of all utility generation units and opened a separate docket to evaluate life extensions for White Bluff, Independence, and the Lake Catherine plant. In January 2023, Entergy Arkansas and one other party filed for rehearing of the order in the general proceeding, and Entergy Arkansas moved to dismiss the separate docket. In February 2023 the APSC granted rehearing in the general proceeding. A new law passed in April 2023 changed the requirements for the APSC to perform these evaluations, thus eliminating the need for the current APSC proceedings, and the APSC cancelled the procedural schedule. See “Regulation of Entergy’s Business - Environmental Regulation - National Ambient Air Quality Standards - Regional Haze” in Part I, Item 1 in the Form 10-K for further discussion related to these plants.
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.
Entergy Arkansas, LLC and Subsidiaries
Management's Financial Discussion and Analysis
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 Months Ended March 31, 2023 and 2022 | ||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||
| OPERATING REVENUES | ||||||||||||||||||||||||||
| Electric | $582,749 | $558,956 | ||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||
| Operation and Maintenance: | ||||||||||||||||||||||||||
| Fuel, fuel-related expenses, and gas purchased for resale | 113,509 | 86,225 | ||||||||||||||||||||||||
| Purchased power | 64,751 | 57,471 | ||||||||||||||||||||||||
| Nuclear refueling outage expenses | 15,341 | 14,070 | ||||||||||||||||||||||||
| Other operation and maintenance | 156,819 | 157,257 | ||||||||||||||||||||||||
| Decommissioning | 21,350 | 20,129 | ||||||||||||||||||||||||
| Taxes other than income taxes | 32,351 | 33,202 | ||||||||||||||||||||||||
| Depreciation and amortization | 96,441 | 95,610 | ||||||||||||||||||||||||
| Other regulatory charges (credits) - net | (20,844) | (20,542) | ||||||||||||||||||||||||
| TOTAL | 479,718 | 443,422 | ||||||||||||||||||||||||
| OPERATING INCOME | 103,031 | 115,534 | ||||||||||||||||||||||||
| OTHER INCOME | ||||||||||||||||||||||||||
| Allowance for equity funds used during construction | 4,843 | 3,055 | ||||||||||||||||||||||||
| Interest and investment income | 7,479 | 6,320 | ||||||||||||||||||||||||
| Miscellaneous - net | (2,100) | (5,392) | ||||||||||||||||||||||||
| TOTAL | 10,222 | 3,983 | ||||||||||||||||||||||||
| INTEREST EXPENSE | ||||||||||||||||||||||||||
| Interest expense | 45,367 | 36,047 | ||||||||||||||||||||||||
| Allowance for borrowed funds used during construction | (1,945) | (1,214) | ||||||||||||||||||||||||
| TOTAL | 43,422 | 34,833 | ||||||||||||||||||||||||
| INCOME BEFORE INCOME TAXES | 69,831 | 84,684 | ||||||||||||||||||||||||
| Income taxes | 10,434 | 19,117 | ||||||||||||||||||||||||
| NET INCOME | 59,397 | 65,567 | ||||||||||||||||||||||||
| Net loss attributable to noncontrolling interest | (1,629) | (1,387) | ||||||||||||||||||||||||
| EARNINGS APPLICABLE TO MEMBER'S EQUITY | $61,026 | $66,954 | ||||||||||||||||||||||||
| See Notes to Financial Statements. |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||
| For the Three Months Ended March 31, 2023 and 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||
| Net income | $59,397 | $65,567 | ||||||||||||
| Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||||||||||||
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | 134,779 | 133,634 | ||||||||||||
| Deferred income taxes, investment tax credits, and non-current taxes accrued | 15,495 | 11,776 | ||||||||||||
| Changes in assets and liabilities: | ||||||||||||||
| Receivables | 57,003 | 23,583 | ||||||||||||
| Fuel inventory | (15,255) | 7,199 | ||||||||||||
| Accounts payable | (58,227) | (33,409) | ||||||||||||
| Taxes accrued | 10,647 | 27,209 | ||||||||||||
| Interest accrued | 35,905 | 32,233 | ||||||||||||
| Deferred fuel costs | 87,581 | (16,954) | ||||||||||||
| Other working capital accounts | (3,948) | 3,794 | ||||||||||||
| Provisions for estimated losses | (6,600) | (309) | ||||||||||||
| Other regulatory assets | (27,001) | (7,198) | ||||||||||||
| Other regulatory liabilities | 45,201 | (91,068) | ||||||||||||
| Pension and other postretirement liabilities | (7,998) | (19,852) | ||||||||||||
| Other assets and liabilities | (52,942) | 111,221 | ||||||||||||
| Net cash flow provided by operating activities | 274,037 | 247,426 | ||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||
| Construction expenditures | (255,248) | (162,108) | ||||||||||||
| Allowance for equity funds used during construction | 4,843 | 3,055 | ||||||||||||
| Nuclear fuel purchases | (55,974) | (27,258) | ||||||||||||
| Proceeds from sale of nuclear fuel | 17,549 | 37,157 | ||||||||||||
| Proceeds from nuclear decommissioning trust fund sales | 32,798 | 64,608 | ||||||||||||
| Investment in nuclear decommissioning trust funds | (38,948) | (69,950) | ||||||||||||
| Changes in money pool receivable - net | (11,035) | (59,981) | ||||||||||||
| Other | (17) | — | ||||||||||||
| Net cash flow used in investing activities | (306,032) | (214,477) | ||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||
| Proceeds from the issuance of long-term debt | 514,206 | 212,060 | ||||||||||||
| Retirement of long-term debt | (62,505) | (7,506) | ||||||||||||
| Change in money pool payable - net | (180,795) | (139,904) | ||||||||||||
| Common equity distributions paid | (80,000) | — | ||||||||||||
| Other | (4,604) | (483) | ||||||||||||
| Net cash flow provided in financing activities | 186,302 | 64,167 | ||||||||||||
| Net increase in cash and cash equivalents | 154,307 | 97,116 | ||||||||||||
| Cash and cash equivalents at beginning of period | 5,278 | 12,915 | ||||||||||||
| Cash and cash equivalents at end of period | $159,585 | $110,031 | ||||||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||
| Cash paid during the period for: | ||||||||||||||
| Interest - net of amount capitalized | $8,823 | $3,227 | ||||||||||||
| See Notes to Financial Statements. |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| ASSETS | ||||||||||||||
| March 31, 2023 and December 31, 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| CURRENT ASSETS | ||||||||||||||
| Cash and cash equivalents: | ||||||||||||||
| Cash | $2,871 | $1,911 | ||||||||||||
| Temporary cash investments | 156,714 | 3,367 | ||||||||||||
| Total cash and cash equivalents | 159,585 | 5,278 | ||||||||||||
| Accounts receivable: | ||||||||||||||
| Customer | 129,852 | 140,513 | ||||||||||||
| Allowance for doubtful accounts | (5,255) | (6,528) | ||||||||||||
| Associated companies | 51,962 | 45,336 | ||||||||||||
| Other | 94,252 | 101,096 | ||||||||||||
| Accrued unbilled revenues | 98,387 | 116,816 | ||||||||||||
| Total accounts receivable | 369,198 | 397,233 | ||||||||||||
| Deferred fuel costs | 52,158 | 139,739 | ||||||||||||
| Fuel inventory - at average cost | 66,399 | 51,144 | ||||||||||||
| Materials and supplies - at average cost | 304,342 | 288,260 | ||||||||||||
| Deferred nuclear refueling outage costs | 47,143 | 56,443 | ||||||||||||
| Prepayments and other | 26,120 | 26,576 | ||||||||||||
| TOTAL | 1,024,945 | 964,673 | ||||||||||||
| OTHER PROPERTY AND INVESTMENTS | ||||||||||||||
| Decommissioning trust funds | 1,265,519 | 1,199,860 | ||||||||||||
| Other | 2,430 | 2,414 | ||||||||||||
| TOTAL | 1,267,949 | 1,202,274 | ||||||||||||
| UTILITY PLANT | ||||||||||||||
| Electric | 14,226,705 | 14,077,844 | ||||||||||||
| Construction work in progress | 448,820 | 417,244 | ||||||||||||
| Nuclear fuel | 185,531 | 176,174 | ||||||||||||
| TOTAL UTILITY PLANT | 14,861,056 | 14,671,262 | ||||||||||||
| Less - accumulated depreciation and amortization | 5,804,506 | 5,729,304 | ||||||||||||
| UTILITY PLANT - NET | 9,056,550 | 8,941,958 | ||||||||||||
| DEFERRED DEBITS AND OTHER ASSETS | ||||||||||||||
| Regulatory assets: | ||||||||||||||
| Other regulatory assets | 1,837,282 | 1,810,281 | ||||||||||||
| Deferred fuel costs | 68,883 | 68,883 | ||||||||||||
| Other | 24,821 | 18,507 | ||||||||||||
| TOTAL | 1,930,986 | 1,897,671 | ||||||||||||
| TOTAL ASSETS | $13,280,430 | $13,006,576 | ||||||||||||
| See Notes to Financial Statements. |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| March 31, 2023 and December 31, 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||
| Currently maturing long-term debt | $290,000 | $290,000 | ||||||||||||
| Accounts payable: | ||||||||||||||
| Associated companies | 65,002 | 276,362 | ||||||||||||
| Other | 241,282 | 310,339 | ||||||||||||
| Customer deposits | 103,891 | 102,799 | ||||||||||||
| Taxes accrued | 111,173 | 100,526 | ||||||||||||
| Interest accrued | 54,721 | 18,816 | ||||||||||||
| Other | 44,772 | 43,394 | ||||||||||||
| TOTAL | 910,841 | 1,142,236 | ||||||||||||
| NON-CURRENT LIABILITIES | ||||||||||||||
| Accumulated deferred income taxes and taxes accrued | 1,522,328 | 1,498,234 | ||||||||||||
| Accumulated deferred investment tax credits | 28,171 | 28,472 | ||||||||||||
| Regulatory liability for income taxes - net | 422,376 | 435,157 | ||||||||||||
| Other regulatory liabilities | 533,740 | 475,758 | ||||||||||||
| Decommissioning | 1,494,086 | 1,472,736 | ||||||||||||
| Accumulated provisions | 73,398 | 79,998 | ||||||||||||
| Pension and other postretirement liabilities | 109,991 | 118,020 | ||||||||||||
| Long-term debt | 4,330,604 | 3,876,500 | ||||||||||||
| Other | 93,787 | 97,650 | ||||||||||||
| TOTAL | 8,608,481 | 8,082,525 | ||||||||||||
| Commitments and Contingencies | ||||||||||||||
| EQUITY | ||||||||||||||
| Member's equity | 3,735,016 | 3,753,990 | ||||||||||||
| Noncontrolling interest | 26,092 | 27,825 | ||||||||||||
| TOTAL | 3,761,108 | 3,781,815 | ||||||||||||
| TOTAL LIABILITIES AND EQUITY | $13,280,430 | $13,006,576 | ||||||||||||
| See Notes to Financial Statements. |
| ENTERGY ARKANSAS, LLC AND SUBSIDIARIES | |||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |||||||||||||||||
| For the Three Months Ended March 31, 2023 and 2022 | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Noncontrolling Interest | Member's Equity | Total | |||||||||||||||
| (In Thousands) | |||||||||||||||||
| 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 | ||||||||||||||
| Balance at December 31, 2022 | $27,825 | $3,753,990 | $3,781,815 | ||||||||||||||
| Net income (loss) | (1,629) | 61,026 | 59,397 | ||||||||||||||
| Common equity distributions | — | (80,000) | (80,000) | ||||||||||||||
| Distributions to noncontrolling interest | (104) | — | (104) | ||||||||||||||
| Balance at March 31, 2023 | $26,092 | $3,735,016 | $3,761,108 | ||||||||||||||
| See Notes to Financial Statements. |
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Net income increased $93.2 million primarily due to the net effects of Entergy Louisiana’s storm cost securitization in March 2023, including a $133.4 million reduction in income tax expense, partially offset by a $103.4 million ($76.4 million net-of-tax) regulatory charge to reflect Entergy Louisiana’s obligation to share the benefits of the securitization with customers. See Note 2 to the financial statements herein for discussion of the March 2023 storm securitization.
Operating Revenues
Following is an analysis of the change in operating revenues comparing the first quarter 2023 to the first quarter 2022:
| Amount | |||||
| (In Millions) | |||||
| 2022 operating revenues | $1,266.0 | ||||
| Fuel, rider, and other revenues that do not significantly affect net income | 29.3 | ||||
| Retail electric price | 40.9 | ||||
| Storm restoration carrying costs | 30.6 | ||||
| Volume/weather | (21.6) | ||||
| 2023 operating revenues | $1,345.2 |
Entergy Louisiana’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The retail electric price variance is primarily due to an increase in formula rate plan revenues, including increases in the distribution and transmission recovery mechanisms, effective September 2022. See Note 2 to the financial statements in the Form 10-K for further discussion of the formula rate plan proceeding.
Storm restoration carrying costs represents the equity component of storm restoration carrying costs, recorded in first quarter 2023, recognized as part of the securitization of Hurricane Ida restoration costs in March 2023. See Note 2 to the financial statements herein for discussion of the March 2023 storm securitization.
The volume/weather variance is primarily due to the effect of less favorable weather on residential sales.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Total electric energy sales for Entergy Louisiana for the three months ended March 31, 2023 and 2022 are as follows:
| 2023 | 2022 | % Change | |||||||||||||||
| (GWh) | |||||||||||||||||
| Residential | 2,685 | 3,069 | (13) | ||||||||||||||
| Commercial | 2,447 | 2,421 | 1 | ||||||||||||||
| Industrial | 7,832 | 7,606 | 3 | ||||||||||||||
| Governmental | 194 | 191 | 2 | ||||||||||||||
| Total retail | 13,158 | 13,287 | (1) | ||||||||||||||
| Sales for resale: | |||||||||||||||||
| Associated companies | 1,677 | 1,341 | 25 | ||||||||||||||
| Non-associated companies | 224 | 853 | (74) | ||||||||||||||
| Total | 15,059 | 15,481 | (3) |
See Note 13 to the financial statements herein for additional discussion of Entergy Louisiana’s operating revenues.
Other Income Statement Variances
Other operation and maintenance expenses decreased primarily due to:
-
a decrease of $6.3 million in compensation and benefits costs primarily due to a revision to estimated incentive-based compensation accruals expense in the first quarter 2023 and a decrease in net periodic pension and other postretirement benefits costs as a result of an increase in the discount rates used to value the benefit liabilities. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K, Note 6 to the financial statements herein, and Note 11 to the financial statements in the Form 10-K for further discussion of pension and other postretirement benefits costs; and
-
a decrease of $5.6 million in transmission expenses primarily due to a decrease in the amount of transmission costs allocated by MISO. See Note 2 to the financial statements in the Form 10-K for further information on the recovery of these costs.
The decrease was partially offset by an increase of $5 million in insurance expenses primarily due to lower nuclear insurance refunds.
Depreciation and amortization expenses increased primarily due to additions to plant in service.
Other regulatory charges (credits) - net includes a regulatory charge of $103.4 million, recorded in first quarter 2023, to reflect Entergy Louisiana’s obligation to provide credits to its customers as described in an LPSC ancillary order issued in the Hurricane Ida securitization regulatory proceeding. See Note 2 to the financial statements herein for discussion of the March 2023 storm securitization. In addition, Entergy Louisiana 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.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Other income increased primarily due to an increase of $23.5 million in affiliated dividend income resulting from the May 2022 storm trust I investment of securitization proceeds in affiliated preferred membership interests, partially offset by the liquidation of Entergy Louisiana’s investment in affiliated preferred membership interests in connection with previous securitizations of storm restoration costs. The increase was partially offset by a $14.6 million charge for the LURC’s 1% beneficial interest in the storm trust II established as part of the March 2023 storm securitization. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the securitizations.
Interest expense increased primarily due to the issuance by Entergy Louisiana of $500 million of 4.75% Series mortgage bonds in August 2022.
Income Taxes
The effective income tax rate was (83.2%) for the first quarter 2023. The difference in the effective income tax rate for the first quarter 2023 versus the federal statutory rate of 21% was primarily due to the reduction in income tax expense as a result of the March 2023 securitization of 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, and certain book and tax differences related to utility plant items, partially offset by the accrual for state income taxes and the amortization of state accumulated deferred income taxes as a result of tax rate changes. See Notes 2 and 10 to the financial statements herein for a discussion of the March 2023 storm securitization under Act 293.
The effective income tax rate was 16.9% for the first quarter 2022. The difference in the effective income tax rate for the first 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.
Income Tax Legislation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Income Tax Legislation” in the Form 10-K for a discussion of the Inflation Reduction Act of 2022.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 2023 and 2022 were as follows:
| 2023 | 2022 | ||||||||||
| (In Thousands) | |||||||||||
| Cash and cash equivalents at beginning of period | $56,613 | $18,573 | |||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | 539,761 | 183,126 | |||||||||
| Investing activities | (2,038,403) | (1,032,121) | |||||||||
| Financing activities | 2,521,881 | 987,069 | |||||||||
| Net increase in cash and cash equivalents | 1,023,239 | 138,074 | |||||||||
| Cash and cash equivalents at end of period | $1,079,852 | $156,647 |
Operating Activities
Net cash flow provided by operating activities increased $356.6 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to:
-
higher collections from customers;
-
a decrease of $151.8 million in storm spending, primarily due to Hurricane Ida restoration efforts in 2022;
-
the refund of $27.8 million received from System Energy in January 2023 related to the sale-leaseback renewal costs and depreciation litigation as calculated in System Energy’s January 2023 compliance report filed with the FERC. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of these refunds and related proceedings;
-
lower fuel costs. See Note 2 to the financial statements in the Form 10-K for a discussion of fuel and purchased power cost recovery; and
-
a decrease of $7.1 million in pension contributions in 2023. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.
The increase was partially offset by:
-
the timing of payments to vendors;
-
an increase of $20.9 million in spending on nuclear refueling outages; and
-
an increase of $16 million in interest paid in 2023 as compared to 2022.
Investing Activities
Net cash flow used in investing activities increased $1,006.3 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to:
-
the $1,457.7 million purchase by the storm trust II of preferred membership interests issued by an Entergy affiliate. See Note 2 to the financial statements herein for a discussion of Entergy Louisiana’s March 2023 securitization of storm costs and the storm trust II’s investment in preferred membership interests;
-
an increase of $72.5 million in nuclear construction expenditures primarily due to increased spending on various nuclear projects in 2023;
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
-
an increase of $22.8 million in non-nuclear generation construction expenditures primarily due to a higher scope of work on projects performed in 2023 as compared to 2022, including during plant outages; and
-
an increase of $26.1 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.
The increase was partially offset by:
-
a decrease of $439.6 million in distribution construction expenditures primarily due to higher capital expenditures for storm restoration in 2022, partially offset by higher construction expenditures as a result of increased investment in the reliability and infrastructure of Entergy Louisiana’s distribution system;
-
a decrease of $105 million in transmission construction expenditures primarily due to lower capital expenditures for storm restoration in 2022; and
-
the $46.6 million redemption of preferred membership interests held by the storm trust I, as part of periodic redemptions that are expected to occur, subject to certain conditions, for the preferred membership interests that were issued in connection with the May 2022 storm securitization. See Note 2 to the financial statements in the Form 10-K for a discussion of the Entergy Louisiana May 2022 storm securitization and the storm trust I’s investment in preferred membership interests.
Financing Activities
Net cash flow provided by financing activities increased $1,534.8 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to:
-
proceeds from securitization of approximately $1.5 billion received by the storm trust II for the closing of the storm securitization in March 2023;
-
a capital contribution of approximately $1.5 billion received indirectly from Entergy Corporation in March 2023 related to the March 2023 storm securitization; and
-
a decrease of $75 million in 2023 in net repayments on Entergy Louisiana’s revolving credit facility.
The increase was partially offset by:
-
$1.2 billion of proceeds received from an unsecured term loan in January 2022;
-
money pool activity; and
-
an increase of $35.3 million in common equity distributions in 2023 primarily to maintain Entergy Louisiana’s targeted capital structure.
Decreases in Entergy Louisiana’s payable to the money pool are a use of cash flow, and Entergy Louisiana’s payable to the money pool decreased $226.1 million in 2023. The money pool is an intercompany 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. See Note 2 to the financial statements herein for a discussion of the March 2023 storm securitization.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
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 $1.5 billion capital contribution received indirectly from Entergy Corporation in March 2023.
| March 31, 2023 | December 31, 2022 | ||||||||||
| Debt to capital | 49.2 | % | 53.0 | % | |||||||
| Effect of subtracting cash | (2.6 | %) | (0.1 | %) | |||||||
| Net debt to net capital (non-GAAP) | 46.6 | % | 52.9 | % |
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. The net debt to net capital ratio is a non-GAAP measure. 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’s receivables from or (payables to) the money pool were as follows:
| March 31, 2023 | December 31, 2022 | March 31, 2022 | December 31, 2021 | |||||||||||||||||
| (In Thousands) | ||||||||||||||||||||
| $77,354 | ($226,114) | $81,160 | $14,539 |
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 March 31, 2023, 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 March 31, 2023, $20 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 March 31, 2023, $58.5 million in loans were outstanding under the credit facility for the Entergy Louisiana River Bend nuclear fuel company variable interest entity. As of March 31, 2023, $52.1 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, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Hurricane Laura, Hurricane Delta, Hurricane Zeta, Winter Storm Uri, and Hurricane Ida
As discussed in the Form 10-K, in August 2020 and October 2020, Hurricane Laura, Hurricane Delta, and Hurricane Zeta caused significant damage to portions of Entergy Louisiana’s service area. The storms resulted in widespread outages, significant damage to distribution and transmission infrastructure, and the loss of sales during the outages. Additionally, as a result of Hurricane Laura’s extensive damage to the grid infrastructure serving the impacted area, large portions of the underlying transmission system required nearly a complete rebuild. In February 2021 two winter storms (collectively, Winter Storm Uri) brought freezing rain and ice to Louisiana. Ice accumulation sagged or downed trees, limbs, and power lines, causing damage to Entergy Louisiana’s transmission and distribution systems. The additional weight of ice caused trees and limbs to fall into power lines and other electric equipment. When the ice melted, it affected vegetation and electrical equipment, causing additional outages. In August 2021, Hurricane Ida caused extensive damage to Entergy Louisiana’s distribution and, to a lesser extent, transmission systems resulting in widespread power outages.
In April 2022, Entergy Louisiana filed an application with the LPSC relating to Hurricane Ida restoration costs. Total restoration costs for the repair and/or replacement of Entergy Louisiana’s electric facilities damaged by Hurricane Ida were estimated to be approximately $2.54 billion, including approximately $1.96 billion in capital costs and approximately $586 million in non-capital costs. Including carrying costs of $57 million through December 2022, Entergy Louisiana was seeking an LPSC determination that $2.60 billion was prudently incurred and, therefore, eligible for recovery from customers. As part of this filing, Entergy Louisiana also was seeking an LPSC determination that an additional $32 million in costs associated with the restoration of Entergy Louisiana’s electric facilities damaged by Hurricane Laura, Hurricane Delta, and Hurricane Zeta as well as Winter Storm Uri was prudently incurred. This amount was exclusive of the requested $3 million in carrying costs through December 2022. In total, Entergy Louisiana was requesting an LPSC determination that $2.64 billion was prudently incurred and, therefore, eligible for recovery from customers. As discussed in the Form 10-K, in March 2022 the LPSC approved financing of a $1 billion storm escrow account from which funds were withdrawn to finance costs associated with Hurricane Ida restoration. In June 2022, Entergy Louisiana supplemented the application with a request regarding the financing and recovery of the recoverable storm restoration costs. Specifically, Entergy Louisiana requested approval to securitize its restoration costs pursuant to Louisiana Act 55 financing, as supplemented by Act 293 of the Louisiana Legislature’s Regular Session of 2021. In October 2022 the LPSC staff recommended a finding that the requested storm restoration costs of $2.64 billion, including associated carrying costs of $59.1 million, were prudently incurred and are eligible for recovery from customers. The LPSC staff further recommended approval of Entergy Louisiana’s plans to securitize these costs, net of the $1 billion in funds withdrawn from the storm escrow account described above. The parties negotiated and executed an uncontested stipulated settlement which was filed with the LPSC in December 2022. The settlement agreement contains the following key terms: $2.57 billion of restoration costs from Hurricane Ida, Hurricane Laura, Hurricane Delta, Hurricane Zeta, and Winter Storm Uri were prudently incurred and were eligible for recovery; carrying costs of $59.2 million were recoverable; and Entergy Louisiana was authorized to finance $1.657 billion utilizing the securitization process authorized by Act 55, as supplemented by Act 293. In January 2023, the LPSC approved the stipulated settlement subject to certain modifications. These modifications include the recognition of accumulated deferred income tax benefits related to damaged assets and system restoration costs as a reduction of the amount authorized to be financed utilizing the securitization process authorized by Act 55, as supplemented by Act 293, from $1.657 billion to $1.491 billion. These modifications did not affect the LPSC’s conclusion that all system restoration costs sought by Entergy Louisiana were reasonable and prudent. In February 2023 the Louisiana Bond Commission voted to authorize the Louisiana Local Government Environmental Facilities and Community Development Authority (LCDA), a political subdivision of the State of Louisiana, to issue the bonds authorized in the LPSC’s financing order.
In March 2023 the Hurricane Ida securitization financing closed, resulting in the issuance of approximately $1.491 billion principal amount of bonds by the LCDA and a remaining regulatory asset of $180 million to be recovered through the exclusion of the accumulated deferred income taxes related to the damaged assets and system restoration costs from the determination of future rates. The securitization was authorized pursuant to the Louisiana
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Utilities Restoration Corporation Act, Part VIII of Chapter 9 of Title 45 of the Louisiana Revised Statutes, as supplemented by Act 293 of the Louisiana Legislature’s Regular Session of 2021. The LCDA loaned the proceeds to the LURC. Pursuant to Act 293, the LURC contributed the net bond proceeds to a State legislatively authorized and LURC-sponsored trust, Restoration Law Trust II (the storm trust II).
Pursuant to Act 293, the net proceeds of the bonds were used by the storm trust II to purchase 14,576,757.48 Class B preferred, non-voting membership interest units (the preferred membership interests) issued by Entergy Finance Company, LLC, a majority-owned indirect subsidiary of Entergy. Entergy Finance Company is required to make annual distributions (dividends) commencing on December 15, 2023 on the preferred membership interests issued to the storm trust II. These annual dividends received by the storm trust II will be distributed to Entergy Louisiana and the LURC, as beneficiaries of the storm trust II. Specifically, 1% of the annual dividends received by the storm trust II will be distributed to the LURC for the benefit of customers, and 99% will be distributed to Entergy Louisiana, net of storm trust expenses. The preferred membership interests have a stated annual cumulative cash dividend rate of 7.5% and a liquidation price of $100 per unit. The terms of the preferred membership interests include certain financial covenants to which Entergy Finance Company is subject. Semi-annual redemptions of the preferred membership interests, subject to certain conditions, are expected to occur over the next 15 years.
Entergy and Entergy Louisiana do not report the bonds issued by the LCDA on their balance sheets because the bonds are the obligation of the LCDA. The bonds are secured by system restoration property, which is the right granted by law to the LURC to collect a system restoration charge from customers. The system restoration charge is adjusted at least semi-annually to ensure that it is sufficient to service the bonds. Entergy Louisiana collects the system restoration charge on behalf of the LURC and remits the collections to the bond indenture trustee. Entergy Louisiana began collecting the system restoration charge effective with the first billing cycle of April 2023 and the system restoration charge is expected to remain in place up to 15 years. Entergy and Entergy Louisiana do not report the collections as revenue because Entergy Louisiana is merely acting as a billing and collection agent for the LCDA and the LURC. In the remote possibility that the system restoration charge, as well as any funds in the excess subaccount and funds in the debt service reserve account, are insufficient to service the bonds resulting in a payment default, the storm trust II is required to liquidate Entergy Finance Company preferred membership interests in an amount equal to what would be required to cure the default. The estimated value of this indirect guarantee is immaterial.
From the proceeds from the issuance of the preferred membership interests, Entergy Finance Company loaned approximately $1.5 billion to Entergy, which was indirectly contributed to Entergy Louisiana as a capital contribution.
As discussed in Note 10 to the financial statements herein, the securitization resulted in recognition of a net reduction of income tax expense of approximately $133 million, after taking into account a provision for uncertain tax positions, by Entergy Louisiana. Entergy’s recognition of reduced income tax expense was offset by other tax charges resulting in a net reduction of income tax expense of $129 million, after taking into account a provision for uncertain tax positions. In recognition of its obligations related to an LPSC ancillary order issued as part of the securitization regulatory proceeding, Entergy Louisiana recorded in first quarter 2023 a $103 million ($76 million net-of-tax) regulatory charge and a corresponding regulatory liability to reflect its obligation to share the benefits of the securitization with customers.
As discussed in Note 3 and Note 12 to the financial statements herein, Entergy Louisiana consolidates the storm trust II as a variable interest entity and the LURC’s 1% beneficial interest is shown as noncontrolling interest in the financial statements. In first quarter 2023, Entergy Louisiana recorded a charge of $15 million in other income to reflect the LURC’s beneficial interest in the storm trust II.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
System Resilience and Storm Hardening
As discussed in the Form 10-K, in December 2022, Entergy Louisiana filed an application with the LPSC seeking a public interest finding regarding Phase I of Entergy Louisiana’s Future Ready resilience plan and approval of a rider mechanism to recover the program’s costs. Phase I reflects the first five years of a ten-year resilience plan and includes investment of approximately $5 billion, including hardening investment, transmission dead-end structures, enhanced vegetation management, and telecommunications improvement. In April 2023 a procedural schedule was established with a hearing scheduled for January 2024.
The LPSC had previously opened a formal rulemaking proceeding in December 2021 to investigate efforts to improve resilience of electric utility infrastructure. In April 2023 the LPSC staff issued a draft rule in the rulemaking proceeding related to a requirement to file a grid resilience plan. The procedural schedule entered in the rulemaking proceeding contemplates adoption of a final rule in September 2023.
2022 Solar Portfolio and Expansion of the Geaux Green Option
In February 2023, Entergy Louisiana filed an application with the LPSC seeking certification of the Iberville/Coastal Prairie facility, which will provide 175 MW of capacity through a PPA with a third party, and the Sterlington facility, a 49 MW self-build project located near the deactivated Sterlington power plant. Entergy Louisiana is seeking to include these within the portfolio supporting the Geaux Green Option (Rider GGO) rate schedule to help fulfill customer interest in access to renewable energy. Entergy Louisiana has requested the costs of these facilities, as offset by Rider GGO revenues, be deemed eligible for recovery in accordance with the terms of the formula rate plan and fuel adjustment clause rate mechanisms that exist at the time the facilities are placed into service. The Louisiana Energy Users Group and the Alliance for Affordable Energy have intervened and discovery is underway. A procedural schedule has been established with a hearing scheduled for December 2023. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Liquidity and Capital Resources - Uses of Capital - 2021 Solar Certification and the Geaux Green Option” in the Form 10-K for further discussion of the Rider GGO**.**
Alternative RFP and Certification
In March 2023, Entergy Louisiana made the first phase of a bifurcated filing to seek approval from the LPSC for an alternative to the requests for proposals (RFP) process that would enable the acquisition of up to 3 GW of solar resources on a faster timeline than the current RFP and certification process allows. The initial phase of the filing established the need for the acquisition of additional resources and the need for an alternative to the RFP process. The second phase of the filing, which contains the details of the proposal for the alternative competitive procurement process and the information necessary to support certification, will be filed in May 2023. In addition to the acquisition of up to 3 GW of solar resources, the filing also seeks approval of a new renewable energy credits-based tariff. Several parties have intervened, and a status conference has been set for May 2023 at which time a procedural schedule is expected to be established.
Nelson Industrial Steam Company
Entergy Louisiana is a partner in the Nelson Industrial Steam Company (NISCO) partnership which owns two petroleum coke generating units. In April 2023 these generating units suspended operations in the MISO market, and Entergy Louisiana currently is working with the partners to wind up the NISCO partnership, which will ultimately result in ownership of the generating units transferring to Entergy Louisiana. Entergy Louisiana is evaluating the effect of this on its financial condition, results of operations, and cash flows but at this time does not expect the effects to be material.
Entergy Louisiana, LLC and Subsidiaries
Management's Financial Discussion and Analysis
State and Local Rate Regulation and Fuel-Cost Recovery
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – State and Local Rate Regulation and Fuel Cost Recovery” in the Form 10-K for a discussion of state and local rate regulation and fuel-cost recovery. The following is an update to that discussion.
COVID-19 Orders
As discussed in the Form 10-K, in April 2020 the LPSC issued an order authorizing utilities to record as a regulatory asset expenses incurred from the suspension of disconnections and collection of late fees imposed by LPSC orders associated with the COVID-19 pandemic. In April 2023, Entergy Louisiana filed an application proposing to utilize approximately $1.6 billion in certain low interest debt to generate earnings to apply toward the reduction of the COVID-19 regulatory asset. In that filing, Entergy Louisiana proposed to delay repayment of certain shorter-term first mortgage bonds that were issued to finance storm restoration costs until the costs could be securitized, and to invest the funds that otherwise would be used to repay those bonds in the money pool to take advantage of the spread between prevailing interest rates on investments in the money pool and the interest rates on the bonds. In the event the LPSC approves Entergy Louisiana’s requested relief, subsequent filings will be required to permit the LPSC to review the COVID-19 regulatory asset. As of March 31, 2023, Entergy Louisiana had a regulatory asset of $47.8 million for costs associated with the COVID-19 pandemic.
Industrial and Commercial Customers
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Industrial and Commercial Customers” in the Form 10-K for a discussion of industrial and commercial customers.
Federal Regulation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Federal Regulation” in the Form 10-K for a discussion of federal regulation.
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Nuclear Matters” in the Form 10-K for a discussion of nuclear matters.
Environmental Risks
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks” in the Form 10-K for a discussion of environmental risks.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Louisiana’s accounting for nuclear decommissioning costs, utility regulatory accounting, impairment of long-lived assets, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES | ||||||||||||||||||||||||||
| CONSOLIDATED INCOME STATEMENTS | ||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2023 and 2022 | ||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||
| OPERATING REVENUES | ||||||||||||||||||||||||||
| Electric | $1,319,752 | $1,237,237 | ||||||||||||||||||||||||
| Natural gas | 25,456 | 28,735 | ||||||||||||||||||||||||
| TOTAL | 1,345,208 | 1,265,972 | ||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||
| Operation and Maintenance: | ||||||||||||||||||||||||||
| Fuel, fuel-related expenses, and gas purchased for resale | 375,270 | 362,074 | ||||||||||||||||||||||||
| Purchased power | 194,934 | 176,197 | ||||||||||||||||||||||||
| Nuclear refueling outage expenses | 15,273 | 11,947 | ||||||||||||||||||||||||
| Other operation and maintenance | 246,371 | 254,001 | ||||||||||||||||||||||||
| Decommissioning | 18,586 | 17,688 | ||||||||||||||||||||||||
| Taxes other than income taxes | 63,955 | 61,615 | ||||||||||||||||||||||||
| Depreciation and amortization | 176,095 | 169,083 | ||||||||||||||||||||||||
| Other regulatory charges (credits) - net | 73,996 | (20,897) | ||||||||||||||||||||||||
| TOTAL | 1,164,480 | 1,031,708 | ||||||||||||||||||||||||
| OPERATING INCOME | 180,728 | 234,264 | ||||||||||||||||||||||||
| OTHER INCOME | ||||||||||||||||||||||||||
| Allowance for equity funds used during construction | 9,061 | 6,726 | ||||||||||||||||||||||||
| Interest and investment income (loss) | 28,843 | (15,998) | ||||||||||||||||||||||||
| Interest and investment income - affiliated | 55,426 | 31,898 | ||||||||||||||||||||||||
| Miscellaneous - net | (48,085) | 15,517 | ||||||||||||||||||||||||
| TOTAL | 45,245 | 38,143 | ||||||||||||||||||||||||
| INTEREST EXPENSE | ||||||||||||||||||||||||||
| Interest expense | 97,171 | 93,784 | ||||||||||||||||||||||||
| Allowance for borrowed funds used during construction | (4,393) | (3,026) | ||||||||||||||||||||||||
| TOTAL | 92,778 | 90,758 | ||||||||||||||||||||||||
| INCOME BEFORE INCOME TAXES | 133,195 | 181,649 | ||||||||||||||||||||||||
| Income taxes | (110,829) | 30,789 | ||||||||||||||||||||||||
| NET INCOME | 244,024 | 150,860 | ||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 554 | — | ||||||||||||||||||||||||
| EARNINGS APPLICABLE TO MEMBER'S EQUITY | $243,470 | $150,860 | ||||||||||||||||||||||||
| See Notes to Financial Statements. |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES | |||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||||||||||||||||
| For the Three Months Ended March 31, 2023 and 2022 | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||
| Net Income | $244,024 | $150,860 | |||||||||||||||||||||
| Other comprehensive loss | |||||||||||||||||||||||
| Pension and other postretirement liabilities (net of tax benefit of $290 and $226) | (786) | (613) | |||||||||||||||||||||
| Other comprehensive loss | (786) | (613) | |||||||||||||||||||||
| Comprehensive Income | 243,238 | 150,247 | |||||||||||||||||||||
| Net income attributable to noncontrolling interests | 554 | — | |||||||||||||||||||||
| Comprehensive Income Applicable to Member’s Equity | $242,684 | $150,247 | |||||||||||||||||||||
| See Notes to Financial Statements. |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||
| For the Three Months Ended March 31, 2023 and 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||
| Net income | $244,024 | $150,860 | ||||||||||||
| Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||||||||||||
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | 210,138 | 213,022 | ||||||||||||
| Deferred income taxes, investment tax credits, and non-current taxes accrued | (70,518) | 95,785 | ||||||||||||
| Changes in working capital: | ||||||||||||||
| Receivables | 119,726 | 71,237 | ||||||||||||
| Fuel inventory | (4,489) | (46) | ||||||||||||
| Accounts payable | (127,171) | (262,042) | ||||||||||||
| Taxes accrued | 11,627 | (42,950) | ||||||||||||
| Interest accrued | (12,730) | (857) | ||||||||||||
| Deferred fuel costs | 173,809 | 498 | ||||||||||||
| Other working capital accounts | (99,650) | (24,241) | ||||||||||||
| Changes in provisions for estimated losses | 2,050 | 2,694 | ||||||||||||
| Changes in other regulatory assets | 492,055 | (1,336,616) | ||||||||||||
| Changes in other regulatory liabilities | 155,296 | (67,164) | ||||||||||||
| Effect of securitization on regulatory asset | (491,150) | 1,338,559 | ||||||||||||
| Changes in pension and other postretirement liabilities | (3,556) | (11,608) | ||||||||||||
| Other | (59,700) | 55,995 | ||||||||||||
| Net cash flow provided by operating activities | 539,761 | 183,126 | ||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||
| Construction expenditures | (484,581) | (935,692) | ||||||||||||
| Allowance for equity funds used during construction | 9,061 | 6,726 | ||||||||||||
| Nuclear fuel purchases | (72,003) | (55,913) | ||||||||||||
| Proceeds from sale of nuclear fuel | 16,637 | 26,681 | ||||||||||||
| Payments to storm reserve escrow account | (3,037) | — | ||||||||||||
| Purchase of preferred membership interests of affiliate | (1,457,676) | — | ||||||||||||
| Redemption of preferred membership interests of affiliate | 46,643 | — | ||||||||||||
| Proceeds from nuclear decommissioning trust fund sales | 111,263 | 155,269 | ||||||||||||
| Investment in nuclear decommissioning trust funds | (127,338) | (168,283) | ||||||||||||
| Changes in money pool receivable - net | (77,354) | (66,621) | ||||||||||||
| Litigation proceeds from settlement agreement | — | 5,695 | ||||||||||||
| Other | (18) | 17 | ||||||||||||
| Net cash flow used in investing activities | (2,038,403) | (1,032,121) | ||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||
| Proceeds from the issuance of long-term debt | 526,764 | 1,506,637 | ||||||||||||
| Retirement of long-term debt | (540,008) | (401,411) | ||||||||||||
| Proceeds received by storm trust related to securitization | 1,457,676 | — | ||||||||||||
| Capital contribution from parent | 1,457,676 | — | ||||||||||||
| Change in money pool payable - net | (226,114) | — | ||||||||||||
| Common equity distributions paid | (160,250) | (125,000) | ||||||||||||
| Other | 6,137 | 6,843 | ||||||||||||
| Net cash flow provided by financing activities | 2,521,881 | 987,069 | ||||||||||||
| Net increase in cash and cash equivalents | 1,023,239 | 138,074 | ||||||||||||
| Cash and cash equivalents at beginning of period | 56,613 | 18,573 | ||||||||||||
| Cash and cash equivalents at end of period | $1,079,852 | $156,647 | ||||||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||
| Cash paid (received) during the period for: | ||||||||||||||
| Interest - net of amount capitalized | $107,408 | $91,441 | ||||||||||||
| Income taxes | ($6,037) | $— | ||||||||||||
| See Notes to Financial Statements. |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| ASSETS | ||||||||||||||
| March 31, 2023 and December 31, 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| CURRENT ASSETS | ||||||||||||||
| Cash and cash equivalents: | ||||||||||||||
| Cash | $503 | $50,318 | ||||||||||||
| Temporary cash investments | 1,079,349 | 6,295 | ||||||||||||
| Total cash and cash equivalents | 1,079,852 | 56,613 | ||||||||||||
| Accounts receivable: | ||||||||||||||
| Customer | 252,121 | 339,291 | ||||||||||||
| Allowance for doubtful accounts | (5,667) | (7,595) | ||||||||||||
| Associated companies | 166,204 | 88,896 | ||||||||||||
| Other | 34,003 | 53,241 | ||||||||||||
| Accrued unbilled revenues | 183,877 | 199,077 | ||||||||||||
| Total accounts receivable | 630,538 | 672,910 | ||||||||||||
| Deferred fuel costs | — | 159,183 | ||||||||||||
| Fuel inventory | 46,348 | 41,859 | ||||||||||||
| Materials and supplies - at average cost | 582,975 | 555,860 | ||||||||||||
| Deferred nuclear refueling outage costs | 82,201 | 53,833 | ||||||||||||
| Prepayments and other | 122,373 | 76,646 | ||||||||||||
| TOTAL | 2,544,287 | 1,616,904 | ||||||||||||
| OTHER PROPERTY AND INVESTMENTS | ||||||||||||||
| Investment in affiliate preferred membership interests | 4,574,605 | 3,163,572 | ||||||||||||
| Decommissioning trust funds | 1,879,612 | 1,779,090 | ||||||||||||
| Storm reserve escrow account | 296,443 | 293,406 | ||||||||||||
| Non-utility property - at cost (less accumulated depreciation) | 384,988 | 350,723 | ||||||||||||
| Other | 15,681 | 19,679 | ||||||||||||
| TOTAL | 7,151,329 | 5,606,470 | ||||||||||||
| UTILITY PLANT | ||||||||||||||
| Electric | 26,752,076 | 27,498,136 | ||||||||||||
| Natural gas | 304,956 | 301,719 | ||||||||||||
| Construction work in progress | 822,944 | 736,969 | ||||||||||||
| Nuclear fuel | 240,301 | 212,941 | ||||||||||||
| TOTAL UTILITY PLANT | 28,120,277 | 28,749,765 | ||||||||||||
| Less - accumulated depreciation and amortization | 10,144,497 | 10,087,942 | ||||||||||||
| UTILITY PLANT - NET | 17,975,780 | 18,661,823 | ||||||||||||
| DEFERRED DEBITS AND OTHER ASSETS | ||||||||||||||
| Regulatory assets: | ||||||||||||||
| Other regulatory assets | 1,564,124 | 2,056,179 | ||||||||||||
| Deferred fuel costs | 168,122 | 168,122 | ||||||||||||
| Other | 45,231 | 35,057 | ||||||||||||
| TOTAL | 1,777,477 | 2,259,358 | ||||||||||||
| TOTAL ASSETS | $29,448,873 | $28,144,555 | ||||||||||||
| See Notes to Financial Statements. |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| March 31, 2023 and December 31, 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||
| Currently maturing long-term debt | $1,010,000 | $1,010,000 | ||||||||||||
| Accounts payable: | ||||||||||||||
| Associated companies | 99,730 | 356,688 | ||||||||||||
| Other | 447,572 | 589,355 | ||||||||||||
| Customer deposits | 164,075 | 161,666 | ||||||||||||
| Taxes accrued | 47,631 | 36,004 | ||||||||||||
| Interest accrued | 88,606 | 101,336 | ||||||||||||
| Deferred fuel costs | 14,626 | — | ||||||||||||
| Other | 68,663 | 72,525 | ||||||||||||
| TOTAL | 1,940,903 | 2,327,574 | ||||||||||||
| NON-CURRENT LIABILITIES | ||||||||||||||
| Accumulated deferred income taxes and taxes accrued | 2,296,882 | 2,374,878 | ||||||||||||
| Accumulated deferred investment tax credits | 96,711 | 97,868 | ||||||||||||
| Regulatory liability for income taxes - net | 332,896 | 337,836 | ||||||||||||
| Other regulatory liabilities | 1,198,198 | 1,037,962 | ||||||||||||
| Decommissioning | 1,758,469 | 1,736,801 | ||||||||||||
| Accumulated provisions | 318,364 | 316,314 | ||||||||||||
| Pension and other postretirement liabilities | 386,209 | 389,631 | ||||||||||||
| Long-term debt | 9,680,832 | 9,688,922 | ||||||||||||
| Other | 391,218 | 343,321 | ||||||||||||
| TOTAL | 16,459,779 | 16,323,533 | ||||||||||||
| Commitments and Contingencies | ||||||||||||||
| EQUITY | ||||||||||||||
| Member's equity | 10,947,211 | 9,406,343 | ||||||||||||
| Accumulated other comprehensive income | 54,584 | 55,370 | ||||||||||||
| Noncontrolling interests | 46,396 | 31,735 | ||||||||||||
| TOTAL | 11,048,191 | 9,493,448 | ||||||||||||
| TOTAL LIABILITIES AND EQUITY | $29,448,873 | $28,144,555 | ||||||||||||
| See Notes to Financial Statements. |
| ENTERGY LOUISIANA, LLC AND SUBSIDIARIES | |||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |||||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2023 and 2022 | |||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||
| Noncontrolling Interests | Member’s Equity | Accumulated Other Comprehensive Income | Total | ||||||||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $— | $8,172,294 | $8,278 | $8,180,572 | |||||||||||||||||||||||||
| Net income | — | 150,860 | — | 150,860 | |||||||||||||||||||||||||
| Other comprehensive loss | — | — | (613) | (613) | |||||||||||||||||||||||||
| Distributions declared on common equity | — | (125,000) | — | (125,000) | |||||||||||||||||||||||||
| Other | — | (13) | — | (13) | |||||||||||||||||||||||||
| Balance at March 31, 2022 | — | 8,198,141 | 7,665 | 8,205,806 | |||||||||||||||||||||||||
| Balance at December 31, 2022 | $31,735 | $9,406,343 | $55,370 | $9,493,448 | |||||||||||||||||||||||||
| Net income | 554 | 243,470 | — | 244,024 | |||||||||||||||||||||||||
| Other comprehensive loss | — | — | (786) | (786) | |||||||||||||||||||||||||
| Contributions from parent | — | 1,457,676 | — | 1,457,676 | |||||||||||||||||||||||||
| Common equity distributions | — | (160,250) | — | (160,250) | |||||||||||||||||||||||||
| Beneficial interest in storm trust | 14,577 | — | — | 14,577 | |||||||||||||||||||||||||
| Distribution to LURC | (470) | — | — | (470) | |||||||||||||||||||||||||
| Other | — | (28) | — | (28) | |||||||||||||||||||||||||
| Balance at March 31, 2023 | $46,396 | $10,947,211 | $54,584 | $11,048,191 | |||||||||||||||||||||||||
| See Notes to Financial Statements. |
ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Net income decreased $9.4 million primarily due to lower volume/weather, higher other operation and maintenance expenses, higher depreciation and amortization expenses, and higher interest expense, partially offset by higher retail electric price.
Operating Revenues
Following is an analysis of the change in operating revenues comparing the first quarter 2023 to the first quarter 2022:
| Amount | |||||
| (In Millions) | |||||
| 2022 operating revenues | $349.0 | ||||
| Fuel, rider, and other revenues that do not significantly affect net income | 65.5 | ||||
| Retail electric price | 12.1 | ||||
| Volume/weather | (14.2) | ||||
| 2023 operating revenues | $412.4 |
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 in the Form 10-K for further discussion of the formula rate plan filings.
The volume/weather variance is primarily due to the effect of less favorable weather on residential sales.
Entergy Mississippi, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Total electric energy sales for Entergy Mississippi for the three months ended March 31, 2023 and 2022 are as follows:
| 2023 | 2022 | % Change | |||||||||||||||
| (GWh) | |||||||||||||||||
| Residential | 1,089 | 1,295 | (16) | ||||||||||||||
| Commercial | 1,015 | 1,021 | (1) | ||||||||||||||
| Industrial | 567 | 561 | 1 | ||||||||||||||
| Governmental | 92 | 96 | (4) | ||||||||||||||
| Total retail | 2,763 | 2,973 | (7) | ||||||||||||||
| Sales for resale: | |||||||||||||||||
| Non-associated companies | 1,564 | 535 | 192 | ||||||||||||||
| Total | 4,327 | 3,508 | 23 |
See Note 13 to the financial statements herein for additional discussion of Entergy Mississippi’s operating revenues.
Other Income Statement Variances
Other operation and maintenance expenses increased primarily due to:
-
an increase of $3.3 million in non-nuclear generation expenses primarily due to a higher scope of work performed during plant outages in 2023 as compared to prior year;
-
an increase of $1.6 million in power delivery expenses primarily due to higher reliability costs; and
-
several individually insignificant items.
The increase was partially offset by:
-
a decrease of $2 million in compensation and benefits costs primarily due to a revision to estimated incentive compensation expense in the first quarter 2023, lower healthcare claims activity in 2023, and a decrease in net periodic pension and other postretirement benefits costs as a result of an increase in the discount rates used to value the benefit liabilities. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K, Note 6 to the financial statements herein, and Note 11 to the financial statements in the Form 10-K for further discussion of pension and other postretirement benefits costs; and
-
a decrease of $1.7 million in transmission expenses primarily due to a decrease in the amount of transmission costs allocated by MISO. See Note 2 to the financial statements in the Form 10-K for further information on the recovery of these costs.
Taxes other than income taxes increased primarily due to increases in ad valorem taxes resulting from higher assessments.
Depreciation and amortization expenses increased primarily due to additions to plant in service.
Interest expense increased primarily due to borrowings of $100 million in 2023 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 $1.5 million in first quarter 2023 to defer the difference between the losses allocated to the tax equity partner under the HLBV method of accounting and the
Entergy Mississippi, LLC and Subsidiaries
Management's Financial Discussion and Analysis
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 24.4% for the first quarter 2023 and 20.2% for the first quarter of 2022. The differences in the effective income tax rates for the first quarter 2023 and the first quarter 2022 versus the federal statutory rate of 21% were primarily due to the accrual for state income taxes, partially offset by certain book and tax differences related to utility plant items.
Income Tax Legislation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Income Tax Legislation” in the Form 10-K for a discussion of the Inflation Reduction Act of 2022.
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 2023 and 2022 were as follows:
| 2023 | 2022 | ||||||||||
| (In Thousands) | |||||||||||
| Cash and cash equivalents at beginning of period | $16,979 | $47,627 | |||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | 36,861 | (4,340) | |||||||||
| Investing activities | (111,842) | (61,154) | |||||||||
| Financing activities | 94,154 | 17,895 | |||||||||
| Net increase (decrease) in cash and cash equivalents | 19,173 | (47,599) | |||||||||
| Cash and cash equivalents at end of period | $36,152 | $28 |
Operating Activities
Entergy Mississippi’s operating activities provided $36.9 million of cash for the three months ended March 31, 2023 compared to using $4.3 million of cash for the three months ended March 31, 2022. The increase was primarily due to higher collections from customers, partially offset by higher fuel costs in 2023 and timing of payments to vendors.
Entergy Mississippi, LLC and Subsidiaries
Management's Financial Discussion and Analysis
Investing Activities
Net cash flow used in investing activities increased $50.7 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to:
-
an increase of $19.3 million in distribution construction expenditures primarily due to higher capital expenditures for storm restoration in 2023 and a higher scope of work performed in 2023 as compared to 2022;
-
an increase of $16.6 million in transmission construction expenditures primarily due to a higher scope of work performed in 2023 as compared to 2022; and
-
money pool activity.
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 $25.4 million for the three months ended March 31, 2023 compared to decreasing by $40.5 million for the three months ended March 31, 2022. The money pool is an intercompany 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 $76.3 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to borrowings of $100 million in 2023 on Entergy Mississippi’s credit facility, partially offset by money pool activity.
Increases in Entergy Mississippi’s payable to the money pool are a source of cash flow and Entergy Mississippi’s payable to the money pool increased by $22.4 million for the three months ended March 31, 2022.
See Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K for more details on long-term debt.
Capital Structure
Entergy Mississippi’s debt to capital ratio is shown in the following table.
| March 31, 2023 | December 31, 2022 | ||||||||||
| Debt to capital | 54.4 | % | 53.4 | % | |||||||
| Effect of subtracting cash | (0.4 | %) | (0.2 | %) | |||||||
| Net debt to net capital (non-GAAP) | 54.0 | % | 53.2 | % |
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 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. The net debt to net capital ratio is a non-GAAP measure. Entergy Mississippi uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi’s financial condition because net debt indicates Entergy Mississippi’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Entergy Mississippi, LLC 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 Mississippi’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.
Entergy Mississippi’s receivables from or (payables to) the money pool were as follows:
| March 31, 2023 | December 31, 2022 | March 31, 2022 | December 31, 2021 | |||||||||||||||||
| (In Thousands) | ||||||||||||||||||||
| $1,498 | $26,879 | ($22,386) | $40,456 |
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 July 2023. As of March 31, 2023, 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 March 31, 2023, 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 March 31, 2023, $6.7 million in MISO letters of credit and $9.2 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.
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. Commercial operation at the Sunflower Solar facility commenced in September 2022. In April 2023 the final payment of $30.4 million for acquisition of the facility was made. See Note 14 to the financial statements in the Form 10-K for a discussion of Entergy Mississippi’s investment in 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 is an update to that discussion.
Retail Rates
2023 Formula Rate Plan Filing
In March 2023, Entergy Mississippi submitted its formula rate plan 2023 test year filing and 2022 look-back filing showing Entergy Mississippi’s earned return on rate base for the historical 2022 calendar year to be below the formula rate plan bandwidth and projected earned return for the 2023 calendar year to be below the formula rate plan bandwidth. The 2023 test year filing shows a $39.8 million rate increase is necessary to reset Entergy Mississippi’s earned return on rate base to the specified point of adjustment of 6.67%, within the formula rate plan bandwidth. The 2022 look-back filing compares actual 2022 results to the approved benchmark return on rate base and reflects the need for a $19.8 million temporary increase in formula rate plan revenues, including the refund of a $1.3 million over-recovery resulting from the demand-side management costs true-up in 2022. In fourth
Entergy Mississippi, LLC and Subsidiaries
Management's Financial Discussion and Analysis
quarter 2022, Entergy Mississippi recorded a regulatory asset of $18.2 million in connection with the look-back feature of the formula rate plan to reflect that the 2022 estimated earned return was below the formula rate plan bandwidth. In accordance with the provisions of the formula rate plan, Entergy Mississippi implemented a $27.9 million interim rate increase, reflecting a cap equal to 2% of 2022 retail revenues, effective in April 2023.
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 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.
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 Months Ended March 31, 2023 and 2022 | ||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||
| OPERATING REVENUES | ||||||||||||||||||||||||||
| Electric | $412,428 | $349,029 | ||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||
| Operation and Maintenance: | ||||||||||||||||||||||||||
| Fuel, fuel-related expenses, and gas purchased for resale | 161,285 | 67,277 | ||||||||||||||||||||||||
| Purchased power | 63,814 | 61,212 | ||||||||||||||||||||||||
| Other operation and maintenance | 69,818 | 65,811 | ||||||||||||||||||||||||
| Taxes other than income taxes | 35,734 | 32,730 | ||||||||||||||||||||||||
| Depreciation and amortization | 64,029 | 60,084 | ||||||||||||||||||||||||
| Other regulatory charges (credits) - net | (32,843) | 3,907 | ||||||||||||||||||||||||
| TOTAL | 361,837 | 291,021 | ||||||||||||||||||||||||
| OPERATING INCOME | 50,591 | 58,008 | ||||||||||||||||||||||||
| OTHER INCOME (DEDUCTIONS) | ||||||||||||||||||||||||||
| Allowance for equity funds used during construction | 1,884 | 1,078 | ||||||||||||||||||||||||
| Interest and investment income | 464 | 64 | ||||||||||||||||||||||||
| Miscellaneous - net | (2,083) | (1,153) | ||||||||||||||||||||||||
| TOTAL | 265 | (11) | ||||||||||||||||||||||||
| INTEREST EXPENSE | ||||||||||||||||||||||||||
| Interest expense | 23,944 | 20,434 | ||||||||||||||||||||||||
| Allowance for borrowed funds used during construction | (783) | (465) | ||||||||||||||||||||||||
| TOTAL | 23,161 | 19,969 | ||||||||||||||||||||||||
| INCOME BEFORE INCOME TAXES | 27,695 | 38,028 | ||||||||||||||||||||||||
| Income taxes | 6,755 | 7,673 | ||||||||||||||||||||||||
| NET INCOME | 20,940 | 30,355 | ||||||||||||||||||||||||
| Net loss attributable to noncontrolling interest | (2,141) | — | ||||||||||||||||||||||||
| EARNINGS APPLICABLE TO MEMBER'S EQUITY | $23,081 | $30,355 | ||||||||||||||||||||||||
| See Notes to Financial Statements. |
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| ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||
| For the Three Months Ended March 31, 2023 and 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||
| Net income | $20,940 | $30,355 | ||||||||||||
| Adjustments to reconcile net income to net cash flow provided by (used in) operating activities: | ||||||||||||||
| Depreciation and amortization | 64,029 | 60,084 | ||||||||||||
| Deferred income taxes, investment tax credits, and non-current taxes accrued | 8,142 | 3,979 | ||||||||||||
| Changes in assets and liabilities: | ||||||||||||||
| Receivables | 36,802 | (6,379) | ||||||||||||
| Fuel inventory | (3,014) | 23 | ||||||||||||
| Accounts payable | (33,508) | 989 | ||||||||||||
| Taxes accrued | (80,166) | (63,785) | ||||||||||||
| Interest accrued | 11,078 | 10,613 | ||||||||||||
| Deferred fuel costs | 67,005 | (24,076) | ||||||||||||
| Other working capital accounts | (9,515) | (46,494) | ||||||||||||
| Provisions for estimated losses | 1,900 | (179) | ||||||||||||
| Other regulatory assets | 1,020 | 16,301 | ||||||||||||
| Other regulatory liabilities | (44,487) | 21,689 | ||||||||||||
| Pension and other postretirement liabilities | (4,062) | (3,906) | ||||||||||||
| Other assets and liabilities | 697 | (3,554) | ||||||||||||
| Net cash flow provided by (used in) operating activities | 36,861 | (4,340) | ||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||
| Construction expenditures | (138,760) | (102,686) | ||||||||||||
| Allowance for equity funds used during construction | 1,884 | 1,078 | ||||||||||||
| Changes in money pool receivable - net | 25,381 | 40,456 | ||||||||||||
| Other | (347) | (2) | ||||||||||||
| Net cash flow used in investing activities | (111,842) | (61,154) | ||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||
| Proceeds from the issuance of long-term debt | 99,916 | — | ||||||||||||
| Changes in money pool payable - net | — | 22,386 | ||||||||||||
| Common equity distributions paid | (12,500) | — | ||||||||||||
| Other | 6,738 | (4,491) | ||||||||||||
| Net cash flow provided by financing activities | 94,154 | 17,895 | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | 19,173 | (47,599) | ||||||||||||
| Cash and cash equivalents at beginning of period | 16,979 | 47,627 | ||||||||||||
| Cash and cash equivalents at end of period | $36,152 | $28 | ||||||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||
| Cash paid during the period for: | ||||||||||||||
| Interest - net of amount capitalized | $12,211 | $9,160 | ||||||||||||
| See Notes to Financial Statements. |
| ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| ASSETS | ||||||||||||||
| March 31, 2023 and December 31, 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| CURRENT ASSETS | ||||||||||||||
| Cash and cash equivalents: | ||||||||||||||
| Cash | $888 | $26 | ||||||||||||
| Temporary cash investments | 35,264 | 16,953 | ||||||||||||
| Total cash and cash equivalents | 36,152 | 16,979 | ||||||||||||
| Accounts receivable: | ||||||||||||||
| Customer | 100,813 | 99,504 | ||||||||||||
| Allowance for doubtful accounts | (2,235) | (2,472) | ||||||||||||
| Associated companies | 4,226 | 37,673 | ||||||||||||
| Other | 17,245 | 34,564 | ||||||||||||
| Accrued unbilled revenues | 60,510 | 73,473 | ||||||||||||
| Total accounts receivable | 180,559 | 242,742 | ||||||||||||
| Deferred fuel costs | 76,206 | 143,211 | ||||||||||||
| Fuel inventory - at average cost | 18,562 | 15,548 | ||||||||||||
| Materials and supplies - at average cost | 91,576 | 84,346 | ||||||||||||
| Prepayments and other | 10,409 | 9,603 | ||||||||||||
| TOTAL | 413,464 | 512,429 | ||||||||||||
| OTHER PROPERTY AND INVESTMENTS | ||||||||||||||
| Non-utility property - at cost (less accumulated depreciation) | 4,508 | 4,512 | ||||||||||||
| Storm reserve escrow account | 33,896 | 33,549 | ||||||||||||
| Other | 911 | 910 | ||||||||||||
| TOTAL | 39,315 | 38,971 | ||||||||||||
| UTILITY PLANT | ||||||||||||||
| Electric | 7,143,328 | 7,079,849 | ||||||||||||
| Construction work in progress | 218,611 | 170,191 | ||||||||||||
| TOTAL UTILITY PLANT | 7,361,939 | 7,250,040 | ||||||||||||
| Less - accumulated depreciation and amortization | 2,309,803 | 2,264,786 | ||||||||||||
| UTILITY PLANT - NET | 5,052,136 | 4,985,254 | ||||||||||||
| DEFERRED DEBITS AND OTHER ASSETS | ||||||||||||||
| Regulatory assets: | ||||||||||||||
| Other regulatory assets | 518,440 | 519,460 | ||||||||||||
| Other | 26,109 | 22,650 | ||||||||||||
| TOTAL | 544,549 | 542,110 | ||||||||||||
| TOTAL ASSETS | $6,049,464 | $6,078,764 | ||||||||||||
| See Notes to Financial Statements. |
| ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| March 31, 2023 and December 31, 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||
| Currently maturing long-term debt | $400,000 | $400,000 | ||||||||||||
| Accounts payable: | ||||||||||||||
| Associated companies | 61,557 | 60,532 | ||||||||||||
| Other | 139,804 | 176,162 | ||||||||||||
| Customer deposits | 90,130 | 89,668 | ||||||||||||
| Taxes accrued | 44,739 | 124,905 | ||||||||||||
| Interest accrued | 29,287 | 18,208 | ||||||||||||
| Other | 36,741 | 38,908 | ||||||||||||
| TOTAL | 802,258 | 908,383 | ||||||||||||
| NON-CURRENT LIABILITIES | ||||||||||||||
| Accumulated deferred income taxes and taxes accrued | 788,820 | 780,030 | ||||||||||||
| Accumulated deferred investment tax credits | 14,492 | 14,591 | ||||||||||||
| Regulatory liability for income taxes - net | 199,383 | 202,058 | ||||||||||||
| Other regulatory liabilities | 38,052 | 79,865 | ||||||||||||
| Asset retirement cost liabilities | 7,903 | 7,797 | ||||||||||||
| Accumulated provisions | 39,409 | 37,509 | ||||||||||||
| Pension and other postretirement liabilities | 19,573 | 23,742 | ||||||||||||
| Long-term debt | 2,031,365 | 1,931,096 | ||||||||||||
| Other | 59,232 | 53,156 | ||||||||||||
| TOTAL | 3,198,229 | 3,129,844 | ||||||||||||
| Commitments and Contingencies | ||||||||||||||
| EQUITY | ||||||||||||||
| Member's equity | 2,047,771 | 2,037,190 | ||||||||||||
| Noncontrolling interest | 1,206 | 3,347 | ||||||||||||
| TOTAL | 2,048,977 | 2,040,537 | ||||||||||||
| TOTAL LIABILITIES AND EQUITY | $6,049,464 | $6,078,764 | ||||||||||||
| See Notes to Financial Statements. |
| ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES | |||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |||||||||||||||||
| For the Three Months Ended March 31, 2023 and 2022 | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Noncontrolling Interest | Member's Equity | Total | |||||||||||||||
| (In Thousands) | |||||||||||||||||
| 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 | ||||||||||||||
| Balance at December 31, 2022 | $3,347 | $2,037,190 | $2,040,537 | ||||||||||||||
| Net income (loss) | (2,141) | 23,081 | 20,940 | ||||||||||||||
| Common equity distributions | — | (12,500) | (12,500) | ||||||||||||||
| Balance at March 31, 2023 | $1,206 | $2,047,771 | $2,048,977 | ||||||||||||||
| See Notes to Financial Statements. |
ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Net income decreased $5 million primarily due to lower volume/weather, higher taxes other than income taxes, and a higher effective income tax rate, partially offset by higher retail electric price and higher other income.
Operating Revenues
Following is an analysis of the change in operating revenues comparing the first quarter 2023 to first quarter 2022:
| Amount | |||||
| (In Millions) | |||||
| 2022 operating revenues | $198.3 | ||||
| Fuel, rider, and other revenues that do not significantly affect net income | 11.3 | ||||
| Retail electric price | 4.0 | ||||
| Volume/weather | (4.8) | ||||
| 2023 operating revenues | $208.8 |
Entergy New Orleans’s results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.
The retail electric price variance is primarily due to a rate increase effective September 2022 in accordance with the terms of the 2022 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 the effect of less favorable weather on residential sales, partially offset by increased commercial usage.
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 March 31, 2023 and 2022 are as follows:
| 2023 | 2022 | % Change | |||||||||||||||
| (GWh) | |||||||||||||||||
| Residential | 453 | 538 | (16) | ||||||||||||||
| Commercial | 487 | 465 | 5 | ||||||||||||||
| Industrial | 99 | 94 | 5 | ||||||||||||||
| Governmental | 182 | 178 | 2 | ||||||||||||||
| Total retail | 1,221 | 1,275 | (4) | ||||||||||||||
| Sales for resale: | |||||||||||||||||
| Non-associated companies | 1,043 | 716 | 46 | ||||||||||||||
| Total | 2,264 | 1,991 | 14 |
See Note 13 to the financial statements herein for additional discussion of Entergy New Orleans’s operating revenues.
Other Income Statement Variances
Taxes other than income taxes increased primarily due to increases in local franchise taxes.
Other income increased primarily due to higher interest earned on money pool investments.
Income Taxes
The effective income tax rate was 32% for first quarter 2023. The difference in the effective income tax rate for first quarter 2023 versus the federal statutory rate of 21% was primarily due to the accrual for state income taxes and the amortization of state accumulated deferred income taxes as a result of tax rate changes, partially offset by certain book and tax differences related to utility plant items.
The effective income tax rate was 17.8% for first quarter 2022. The difference in the effective income tax rate for first quarter 2022 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes and certain book and tax differences related to utility plant items, 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 “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Income Tax Legislation” in the Form 10-K for a 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 three months ended March 31, 2023 and 2022 were as follows:
| 2023 | 2022 | ||||||||||
| (In Thousands) | |||||||||||
| Cash and cash equivalents at beginning of period | $4,464 | $42,862 | |||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | 71,578 | 41,811 | |||||||||
| Investing activities | 85,156 | (53,401) | |||||||||
| Financing activities | 14,688 | (107) | |||||||||
| Net increase (decrease) in cash and cash equivalents | 171,422 | (11,697) | |||||||||
| Cash and cash equivalents at end of period | $175,886 | $31,165 |
Operating Activities
Net cash flow provided by operating activities increased $29.8 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to:
-
the refund of $34 million received from System Energy in January 2023 related to the sale-leaseback renewal costs and depreciation litigation as calculated in System Energy’s January 2023 compliance report filed with the FERC. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of these refunds and the related proceedings;
-
the timing of recovery of fuel and purchased power costs; and
-
a decrease of $11.8 million in storm spending primarily due to Hurricane Ida storm restoration efforts in 2022. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Hurricane Ida” and Note 2 to the financial statements, each in the Form 10-K, for a discussion of storm restoration efforts.
The increase was partially offset by higher receipts from associated companies in 2022.
Investing Activities
Entergy New Orleans’s investing activities provided $85.2 million of cash for the three months ended March 31, 2023 compared to using $53.4 million of cash for the three months ended March 31, 2022 primarily due to the following activity:
-
money pool activity;
-
a decrease of $29.2 million in distribution construction expenditures primarily due to lower capital expenditures for Hurricane Ida storm restoration efforts, partially offset by higher spending on the reliability and infrastructure of Entergy New Orleans’s distribution system as compared to the same period in prior year. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Hurricane Ida” and Note 2 to the financial statements, each in the Form 10-K, for a discussion of storm restoration efforts; and
-
an increase of $6.2 million in transmission construction expenditures primarily due to a higher scope of work performed in 2023.
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 $134.7 million for the three months ended March 31,
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
2023 compared to decreasing by $18.3 million for the three months ended March 31, 2022. The money pool is an intercompany borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
Entergy New Orleans’s financing activities provided $14.7 million of cash for the three months ended March 31, 2023 compared to using $0.1 million of cash for the three months ended March 31, 2022 primarily due to a $15 million advance received in 2023 related to Entergy New Orleans’s construction of a New Orleans Sewerage and Water Board substation.
Capital Structure
Entergy New Orleans’s debt to capital ratio is shown in the following table.
| March 31, 2023 | December 31, 2022 | ||||||||||
| Debt to capital | 52.2 | % | 52.6 | % | |||||||
| Effect of excluding securitization bonds | (0.5 | %) | (0.6 | %) | |||||||
| Debt to capital, excluding securitization bonds (non-GAAP) (a) | 51.7 | % | 52.0 | % | |||||||
| Effect of subtracting cash | (6.6 | %) | (0.1 | %) | |||||||
| Net debt to net capital, excluding securitization bonds (non-GAAP) (a) | 45.1 | % | 51.9 | % |
(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. The debt to capital ratio excluding securitization bonds and net debt to net capital ratio excluding securitization bonds are non-GAAP measures. Entergy New Orleans uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy New Orleans’s financial condition because the securitization bonds are non-recourse to Entergy New Orleans, as more fully described in Note 5 to the financial statements in the Form 10-K. Entergy New Orleans also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy New Orleans’s financial condition because net debt indicates Entergy New Orleans’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand.
Uses and Sources of Capital
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources” in the Form 10-K for a discussion of Entergy New Orleans’s uses and sources of capital. Following are updates to the information provided in the Form 10-K.
Entergy New Orleans’s receivables from the money pool were as follows:
| March 31, 2023 | December 31, 2022 | March 31, 2022 | December 31, 2021 | |||||||||||||||||
| (In Thousands) | ||||||||||||||||||||
| $12,584 | $147,254 | $18,122 | $36,410 |
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
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 March 31, 2023, 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 March 31, 2023, 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.
System Resilience 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. 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 ten years at an approximate cost of $1.5 billion. In February 2023 the City Council approved a revised procedural schedule requiring Entergy New Orleans to make a filing containing a narrowed list of proposed hardening projects, with final comments on that filing due July 2023. In April 2023, Entergy New Orleans filed the required application and supporting testimony seeking City Council approval of the first phase (five years and approximately $559 million) of a ten-year infrastructure hardening plan totaling approximately $1 billion. Entergy New Orleans also sought, among other relief, City Council approval of a rider to recover from customers the costs of the infrastructure hardening plan.
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
2023 Formula Rate Plan Filing
In April 2023, Entergy New Orleans submitted to the City Council its formula rate plan 2022 test year filing. The 2022 test year evaluation report produced an electric earned return on equity for each of 7.34% and a gas earned return on equity of 3.52% compared to the authorized return on equity of 9.35%. Entergy New Orleans seeks approval of a $25.6 million rate increase based on the formula set by the City Council in the 2018 rate case. The formula results in an increase in authorized electric revenues of $17.4 million and an increase in authorized gas revenues of $8.2 million. Entergy New Orleans also seeks to commence collecting $3.4 million in electric revenues that were previously approved by the City Council for collection through the formula rate plan. The filing is subject to review by the City Council and other parties over a 75-day review period, followed by a 25-day period to resolve any disputes among the parties. Resulting rates will be effective with the first billing cycle of September 2023 pursuant to the formula rate plan tariff. For any disputed rate adjustments, however, the City Council would set a procedural schedule that would extend the process for City Council approval of disputed rate adjustments.
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. Entergy New Orleans responded to this resolution in June 2018 and filed a revised reliability plan with the City Council in July 2018. 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
Entergy New Orleans, LLC and Subsidiaries
Management's Financial Discussion and Analysis
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 issued written reasons for its judgment and also granted a post-judgment motion to remand for the City Council to take actions consistent with its judgment. In April 2023 the City Council approved a resolution that established a procedural schedule to allow for the submission of additional evidence regarding the penalty discussed above. Entergy New Orleans is considering its legal options in response to the resolution.
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. In February 2023 the City Council approved a resolution adopting the proposed reliability standards, including a minimum annual performance level for Entergy New Orleans’s distribution system, as well as associated penalty mechanisms. Under the resolution, while compliance filings will be required for calendar year 2023, the first year for which the City Council may assess a penalty for distribution system reliability performance is calendar year 2024.
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 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.
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 Months Ended March 31, 2023 and 2022 | ||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||
| OPERATING REVENUES | ||||||||||||||||||||||||||
| Electric | $169,695 | $154,646 | ||||||||||||||||||||||||
| Natural gas | 39,125 | 43,626 | ||||||||||||||||||||||||
| TOTAL | 208,820 | 198,272 | ||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||
| Operation and Maintenance: | ||||||||||||||||||||||||||
| Fuel, fuel-related expenses, and gas purchased for resale | 52,024 | 43,397 | ||||||||||||||||||||||||
| Purchased power | 66,620 | 56,470 | ||||||||||||||||||||||||
| Other operation and maintenance | 33,227 | 33,652 | ||||||||||||||||||||||||
| Taxes other than income taxes | 16,424 | 13,989 | ||||||||||||||||||||||||
| Depreciation and amortization | 19,575 | 19,815 | ||||||||||||||||||||||||
| Other regulatory charges (credits) - net | (1,101) | 4,185 | ||||||||||||||||||||||||
| TOTAL | 186,769 | 171,508 | ||||||||||||||||||||||||
| OPERATING INCOME | 22,051 | 26,764 | ||||||||||||||||||||||||
| OTHER INCOME | ||||||||||||||||||||||||||
| Allowance for equity funds used during construction | 450 | 369 | ||||||||||||||||||||||||
| Interest and investment income | 2,051 | 24 | ||||||||||||||||||||||||
| Miscellaneous - net | (227) | (271) | ||||||||||||||||||||||||
| TOTAL | 2,274 | 122 | ||||||||||||||||||||||||
| INTEREST EXPENSE | ||||||||||||||||||||||||||
| Interest expense | 9,619 | 8,694 | ||||||||||||||||||||||||
| Allowance for borrowed funds used during construction | (219) | (199) | ||||||||||||||||||||||||
| TOTAL | 9,400 | 8,495 | ||||||||||||||||||||||||
| INCOME BEFORE INCOME TAXES | 14,925 | 18,391 | ||||||||||||||||||||||||
| Income taxes | 4,783 | 3,265 | ||||||||||||||||||||||||
| NET INCOME | $10,142 | $15,126 | ||||||||||||||||||||||||
| See Notes to Financial Statements. |
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| ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||
| For the Three Months Ended March 31, 2023 and 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||
| Net income | $10,142 | $15,126 | ||||||||||||
| Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||||||||||||
| Depreciation and amortization | 19,575 | 19,815 | ||||||||||||
| Deferred income taxes, investment tax credits, and non-current taxes accrued | 5,147 | 9,558 | ||||||||||||
| Changes in assets and liabilities: | ||||||||||||||
| Receivables | 26,040 | 39,328 | ||||||||||||
| Fuel inventory | 2,920 | 446 | ||||||||||||
| Accounts payable | (14,313) | (14,168) | ||||||||||||
| Taxes accrued | 1,687 | (2,803) | ||||||||||||
| Interest accrued | (361) | (613) | ||||||||||||
| Deferred fuel costs | 6,965 | (9,959) | ||||||||||||
| Other working capital accounts | (12,303) | (10,876) | ||||||||||||
| Provisions for estimated losses | 1,645 | 6,224 | ||||||||||||
| Other regulatory assets | 2,267 | 25,499 | ||||||||||||
| Other regulatory liabilities | 31,170 | (16,667) | ||||||||||||
| Pension and other postretirement liabilities | (1,113) | (2,782) | ||||||||||||
| Other assets and liabilities | (7,890) | (16,317) | ||||||||||||
| Net cash flow provided by operating activities | 71,578 | 41,811 | ||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||
| Construction expenditures | (46,098) | (68,959) | ||||||||||||
| Allowance for equity funds used during construction | 450 | 369 | ||||||||||||
| Changes in money pool receivable - net | 134,670 | 18,288 | ||||||||||||
| Payments to storm reserve escrow account | (811) | — | ||||||||||||
| Changes in securitization account | (3,055) | (3,099) | ||||||||||||
| Net cash flow provided by (used in) investing activities | 85,156 | (53,401) | ||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||
| Contribution from customer for construction | 15,000 | — | ||||||||||||
| Other | (312) | (107) | ||||||||||||
| Net cash flow provided by (used in) financing activities | 14,688 | (107) | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | 171,422 | (11,697) | ||||||||||||
| Cash and cash equivalents at beginning of period | 4,464 | 42,862 | ||||||||||||
| Cash and cash equivalents at end of period | $175,886 | $31,165 | ||||||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||
| Cash paid during the period for: | ||||||||||||||
| Interest - net of amount capitalized | $9,630 | $8,957 | ||||||||||||
| See Notes to Financial Statements. |
| ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| ASSETS | ||||||||||||||
| March 31, 2023 and December 31, 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| CURRENT ASSETS | ||||||||||||||
| Cash and cash equivalents: | ||||||||||||||
| Cash | $367 | $27 | ||||||||||||
| Temporary cash investments | 175,519 | 4,437 | ||||||||||||
| Total cash and cash equivalents | 175,886 | 4,464 | ||||||||||||
| Securitization recovery trust account | 5,290 | 2,235 | ||||||||||||
| Accounts receivable: | ||||||||||||||
| Customer | 67,827 | 93,288 | ||||||||||||
| Allowance for doubtful accounts | (8,334) | (11,909) | ||||||||||||
| Associated companies | 14,502 | 149,927 | ||||||||||||
| Other | 7,258 | 6,110 | ||||||||||||
| Accrued unbilled revenues | 32,737 | 37,284 | ||||||||||||
| Total accounts receivable | 113,990 | 274,700 | ||||||||||||
| Deferred fuel costs | 3,188 | 10,153 | ||||||||||||
| Fuel inventory - at average cost | 2,952 | 5,872 | ||||||||||||
| Materials and supplies - at average cost | 23,868 | 22,498 | ||||||||||||
| Prepayments and other | 18,567 | 6,312 | ||||||||||||
| TOTAL | 343,741 | 326,234 | ||||||||||||
| OTHER PROPERTY AND INVESTMENTS | ||||||||||||||
| Non-utility property at cost (less accumulated depreciation) | 1,050 | 1,050 | ||||||||||||
| Storm reserve escrow account | 75,811 | 75,000 | ||||||||||||
| Other | 675 | 675 | ||||||||||||
| TOTAL | 77,536 | 76,725 | ||||||||||||
| UTILITY PLANT | ||||||||||||||
| Electric | 1,963,198 | 1,934,837 | ||||||||||||
| Natural gas | 392,815 | 390,252 | ||||||||||||
| Construction work in progress | 23,011 | 39,607 | ||||||||||||
| TOTAL UTILITY PLANT | 2,379,024 | 2,364,696 | ||||||||||||
| Less - accumulated depreciation and amortization | 817,324 | 808,224 | ||||||||||||
| UTILITY PLANT - NET | 1,561,700 | 1,556,472 | ||||||||||||
| DEFERRED DEBITS AND OTHER ASSETS | ||||||||||||||
| Regulatory assets: | ||||||||||||||
| Deferred fuel costs | 4,080 | 4,080 | ||||||||||||
| Other regulatory assets (includes securitization property of $10,700 as of March 31, 2023 and $13,363 as of December 31, 2022) | 199,845 | 202,112 | ||||||||||||
| Other | 50,425 | 46,778 | ||||||||||||
| TOTAL | 254,350 | 252,970 | ||||||||||||
| TOTAL ASSETS | $2,237,327 | $2,212,401 | ||||||||||||
| See Notes to Financial Statements. |
| ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| March 31, 2023 and December 31, 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||
| Currently maturing long-term debt | $170,000 | $170,000 | ||||||||||||
| Payable due to associated company | 1,306 | 1,306 | ||||||||||||
| Accounts payable: | ||||||||||||||
| Associated companies | 47,327 | 53,258 | ||||||||||||
| Other | 43,464 | 57,291 | ||||||||||||
| Customer deposits | 32,161 | 31,826 | ||||||||||||
| Taxes accrued | 11,995 | 10,308 | ||||||||||||
| Interest accrued | 7,719 | 8,080 | ||||||||||||
| Other | 7,547 | 6,560 | ||||||||||||
| TOTAL | 321,519 | 338,629 | ||||||||||||
| NON-CURRENT LIABILITIES | ||||||||||||||
| Accumulated deferred income taxes and taxes accrued | 386,218 | 385,259 | ||||||||||||
| Accumulated deferred investment tax credits | 16,475 | 16,481 | ||||||||||||
| Regulatory liability for income taxes - net | 42,398 | 39,738 | ||||||||||||
| Accumulated provisions | 88,693 | 87,048 | ||||||||||||
| Long-term debt (includes securitization bonds of $17,757 as of March 31, 2023 and $17,697 as of December 31, 2022) | 596,242 | 596,047 | ||||||||||||
| Long-term payable due to associated company | 8,279 | 8,279 | ||||||||||||
| Other | 64,545 | 38,104 | ||||||||||||
| TOTAL | 1,202,850 | 1,170,956 | ||||||||||||
| Commitments and Contingencies | ||||||||||||||
| EQUITY | ||||||||||||||
| Member's equity | 712,958 | 702,816 | ||||||||||||
| TOTAL | 712,958 | 702,816 | ||||||||||||
| TOTAL LIABILITIES AND EQUITY | $2,237,327 | $2,212,401 | ||||||||||||
| See Notes to Financial Statements. |
| ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES | |||||
| CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY | |||||
| For the Three Months Ended March 31, 2023 and 2022 | |||||
| (Unaudited) | |||||
| Member's Equity | |||||
| (In Thousands) | |||||
| Balance at December 31, 2021 | $638,715 | ||||
| Net income | 15,126 | ||||
| Balance at March 31, 2022 | $653,841 | ||||
| Balance at December 31, 2022 | $702,816 | ||||
| Net income | 10,142 | ||||
| Balance at March 31, 2023 | $712,958 | ||||
| See Notes to Financial Statements. |
ENTERGY TEXAS, INC. AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Net income decreased $8.7 million primarily due to lower volume/weather, higher taxes other than income taxes, and higher interest expense, partially offset by higher retail electric price and lower other operation and maintenance expenses.
Operating Revenues
Following is an analysis of the change in operating revenues comparing the first quarter 2023 to the first quarter 2022:
| Amount | |||||
| (In Millions) | |||||
| 2022 operating revenues | $472.5 | ||||
| Fuel, rider, and other revenues that do not significantly affect net income | 29.4 | ||||
| Retail electric price | 11.7 | ||||
| Return of unprotected excess accumulated deferred income taxes to customers | 6.5 | ||||
| Volume/weather | (12.6) | ||||
| 2023 operating revenues | $507.5 |
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 retail electric price variance is primarily due to an increase in the transmission cost recovery factor rider effective March 2022. See Note 2 to the financial statements in the Form 10-K for further discussion of the transmission cost recovery factor rider filing.
The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through a rider effective October 2018 in response to the enactment of the Tax Cuts and Jobs Act. In the first quarter 2022, $6.5 million was returned to customers through reductions in operating revenues. There was no return of unprotected excess accumulated deferred income taxes to customers for the first quarter 2023. There was no effect on net income as the reductions in operating revenues
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
were offset by reductions in income tax expense. See Note 2 to the financial statements in the Form 10-K for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act.
The volume/weather variance is primarily due to the effect of less favorable weather on residential sales.
Total electric energy sales for Entergy Texas for the three months ended March 31, 2023 and 2022 are as follows:
| 2023 | 2022 | % Change | |||||||||||||||
| (GWh) | |||||||||||||||||
| Residential | 1,247 | 1,460 | (15) | ||||||||||||||
| Commercial | 1,061 | 1,059 | — | ||||||||||||||
| Industrial | 2,193 | 2,264 | (3) | ||||||||||||||
| Governmental | 63 | 64 | (2) | ||||||||||||||
| Total retail | 4,564 | 4,847 | (6) | ||||||||||||||
| Sales for resale: | |||||||||||||||||
| Associated companies | — | 190 | (100) | ||||||||||||||
| Non-associated companies | 104 | 144 | (28) | ||||||||||||||
| Total | 4,668 | 5,181 | (10) |
See Note 13 to the financial statements herein for additional discussion of Entergy Texas’s operating revenues.
Other Income Statement Variances
Other operation and maintenance expenses decreased primarily due to:
-
a decrease of $4.6 million in non-nuclear generation expenses primarily due to lower long-term service agreement expenses and a lower scope of work performed in 2023 as compared to prior year;
-
a decrease of $2.2 million in transmission expenses primarily due to a decrease in the amount of transmission costs allocated by MISO;
-
a decrease of $2.1 million in compensation and benefits costs primarily due to a revision to estimated incentive compensation accruals in the first quarter 2023 and lower healthcare claims activity in 2023; and
-
a decrease of $1.4 million in power delivery expenses primarily due to lower vegetation maintenance costs.
Taxes other than income taxes increased primarily due to increases in ad valorem taxes primarily resulting from higher assessments.
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 2023 as compared to prior year and higher interest earned on money pool investments.
Interest expense increased primarily due to the issuance of $325 million of 5.00% Series mortgage bonds in August 2022 and the issuance of $290.85 million of senior secured system restoration bonds in April 2022.
Income Taxes
The effective income tax rate was 18.9% for the first quarter 2023. The difference in the effective income tax rate for the first quarter 2023 versus the federal statutory rate of 21% was primarily due to the allowance for
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
equity funds used during construction and certain book and tax differences related to utility plant items, partially offset by the accrual for state income taxes.
The effective income tax rate was 9.3% for the first quarter 2022. The difference in the effective income tax rate for the first quarter 2022 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes and certain book and tax differences related to utility plant items. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects of and regulatory activity regarding the Tax Cuts and Jobs Act.
Income Tax Legislation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Income Tax Legislation” in the Form 10-K for a discussion of the Inflation Reduction Act of 2022.
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 2023 and 2022 were as follows:
| 2023 | 2022 | ||||||||||
| (In Thousands) | |||||||||||
| Cash and cash equivalents at beginning of period | $3,497 | $28 | |||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | 198,102 | 82,338 | |||||||||
| Investing activities | (108,019) | (144,536) | |||||||||
| Financing activities | (1,416) | 62,196 | |||||||||
| Net increase (decrease) in cash and cash equivalents | 88,667 | (2) | |||||||||
| Cash and cash equivalents at end of period | $92,164 | $26 |
Operating Activities
Net cash flow provided by operating activities increased $115.8 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to the timing of recovery of fuel and purchased power costs and higher collections from customers, partially offset by the timing of payments to vendors. See Note 2 to the financial statements herein and in the Form 10-K for a discussion of fuel and purchased power cost recovery.
Investing Activities
Net cash flow used in investing activities decreased $36.5 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to money pool activity and cash collateral of $12 million posted in March 2022 to support Entergy Texas’s obligations to MISO. The decrease was partially offset by an increase of $21 million in non-nuclear generation construction expenditures primarily due to higher spending on the Orange County Advanced Power Station project and a higher scope of work performed in 2023 and
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
an increase of $20.5 million in transmission construction expenditures primarily due to higher scope of work performed in 2023.
Decreases in Entergy Texas’s receivable from the money pool are a source of cash flow, and Entergy Texas’s receivable from the money pool decreased $92.9 million for the three months ended March 31, 2023. The money pool is an intercompany borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
Financing Activities
Entergy Texas’s financing activities used $1.4 million of cash for the three months ended March 31, 2023 compared to providing $62.2 million for the three months ended March 31, 2022 primarily due to money pool activity.
Increases in Entergy Texas’s payable to the money pool are a source of cash flow, and Entergy Texas’s payable to the money pool increased $91.8 million for the three months ended March 31, 2022.
Capital Structure
Entergy Texas’s debt to capital ratio is shown in the following table.
| March 31, 2023 | December 31, 2022 | ||||||||||
| Debt to capital | 51.6 | % | 52.0 | % | |||||||
| Effect of excluding securitization bonds | (2.5 | %) | (2.5 | %) | |||||||
| Debt to capital, excluding securitization bonds (non-GAAP) (a) | 49.1 | % | 49.5 | % | |||||||
| Effect of subtracting cash | (0.8 | %) | — | % | |||||||
| Net debt to net capital, excluding securitization bonds (non-GAAP) (a) | 48.3 | % | 49.5 | % |
(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. The debt to capital ratio excluding securitization bonds and net debt to net capital ratio excluding securitization bonds are non-GAAP measures. 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, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
Entergy Texas’s receivables from or (payables to) the money pool were as follows:
| March 31, 2023 | December 31, 2022 | March 31, 2022 | December 31, 2021 | |||||||||||||||||
| (In Thousands) | ||||||||||||||||||||
| $6,536 | $99,468 | ($171,393) | ($79,594) |
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 March 31, 2023, 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 March 31, 2023, $8.8 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.
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
Generation Cost Recovery Rider
As discussed in the Form 10-K, in August 2022 the PUCT approved a unanimous settlement agreement adjusting Entergy Texas’s generation cost recovery rider to recover an annual revenue requirement of approximately $92.8 million related to Entergy Texas’s actual investment in the acquisition of the Hardin County Peaking Facility, and rates became effective. In September 2022, Entergy Texas filed a relate-back rider designed to collect over three months an additional approximately $5.7 million, which is the revenue requirement, plus carrying costs, associated with Entergy Texas’s acquisition of Hardin County Peaking Facility from June 2021 through August 2022 when the updated revenue requirement took effect. In April 2023 the PUCT approved Entergy Texas’s as-filed request.
COVID-19 Orders
As discussed in the Form 10-K, in March 2020 the PUCT authorized electric utilities to record as a regulatory asset expenses resulting from the effects of the COVID-19 pandemic. In future proceedings, the PUCT will consider whether each utility's request for recovery of these regulatory assets is reasonable and necessary, the appropriate period of recovery, and any amount of carrying costs thereon. As part of its 2022 base rate case filing, Entergy Texas requested recovery of its regulatory asset over a three-year period beginning December 2022. As of March 31, 2023, Entergy Texas had a regulatory asset of $10.4 million for costs associated with the COVID-19 pandemic.
Fuel and purchased power recovery
As discussed in the Form 10-K, in September 2022, Entergy Texas filed an application with the PUCT to reconcile its fuel and purchased power costs for the period from April 2019 through March 2022. During the reconciliation period, Entergy Texas incurred approximately $1.7 billion in eligible fuel and purchased power expenses, net of certain revenues credited to such expenses and other adjustments. As of the end of the
Entergy Texas, Inc. and Subsidiaries
Management's Financial Discussion and Analysis
reconciliation period, Entergy Texas’s cumulative under-recovery balance was approximately $103.1 million, including interest, which Entergy Texas requested authority to carry over as the beginning balance for the subsequent reconciliation period beginning April 2022, pending future surcharges or refunds as approved by the PUCT. In November 2022 the PUCT referred the proceeding to the State Office of Administrative Hearings. In March 2023 municipal intervenors filed testimony proposing a $5.2 million disallowance for fuel purchased during Winter Storm Uri. PUCT staff proposed no disallowance. Entergy Texas filed rebuttal testimony in April 2023 and the hearing on the merits is set for May 2023. 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.
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 Months Ended March 31, 2023 and 2022 | ||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||
| OPERATING REVENUES | ||||||||||||||||||||||||||
| Electric | $507,506 | $472,482 | ||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||
| Operation and Maintenance: | ||||||||||||||||||||||||||
| Fuel, fuel-related expenses, and gas purchased for resale | 167,530 | 73,920 | ||||||||||||||||||||||||
| Purchased power | 107,758 | 161,090 | ||||||||||||||||||||||||
| Other operation and maintenance | 64,430 | 74,977 | ||||||||||||||||||||||||
| Taxes other than income taxes | 27,996 | 20,449 | ||||||||||||||||||||||||
| Depreciation and amortization | 59,391 | 56,061 | ||||||||||||||||||||||||
| Other regulatory charges (credits) - net | 10,924 | 13,446 | ||||||||||||||||||||||||
| TOTAL | 438,029 | 399,943 | ||||||||||||||||||||||||
| OPERATING INCOME | 69,477 | 72,539 | ||||||||||||||||||||||||
| OTHER INCOME | ||||||||||||||||||||||||||
| Allowance for equity funds used during construction | 5,089 | 2,596 | ||||||||||||||||||||||||
| Interest and investment income | 1,417 | 188 | ||||||||||||||||||||||||
| Miscellaneous - net | 439 | 307 | ||||||||||||||||||||||||
| TOTAL | 6,945 | 3,091 | ||||||||||||||||||||||||
| INTEREST EXPENSE | ||||||||||||||||||||||||||
| Interest expense | 26,962 | 20,912 | ||||||||||||||||||||||||
| Allowance for borrowed funds used during construction | (1,896) | (865) | ||||||||||||||||||||||||
| TOTAL | 25,066 | 20,047 | ||||||||||||||||||||||||
| INCOME BEFORE INCOME TAXES | 51,356 | 55,583 | ||||||||||||||||||||||||
| Income taxes | 9,683 | 5,180 | ||||||||||||||||||||||||
| NET INCOME | 41,673 | 50,403 | ||||||||||||||||||||||||
| Preferred dividend requirements | 518 | 518 | ||||||||||||||||||||||||
| EARNINGS APPLICABLE TO COMMON STOCK | $41,155 | $49,885 | ||||||||||||||||||||||||
| See Notes to Financial Statements. |
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| ENTERGY TEXAS, INC. AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||
| For the Three Months Ended March 31, 2023 and 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||
| Net income | $41,673 | $50,403 | ||||||||||||
| Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||||||||||||
| Depreciation and amortization | 59,391 | 56,061 | ||||||||||||
| Deferred income taxes, investment tax credits, and non-current taxes accrued | (6,536) | (1,175) | ||||||||||||
| Changes in assets and liabilities: | ||||||||||||||
| Receivables | 63,210 | (1,674) | ||||||||||||
| Fuel inventory | (8,445) | 8,039 | ||||||||||||
| Accounts payable | (44,804) | 4,492 | ||||||||||||
| Taxes accrued | (21,586) | (15,188) | ||||||||||||
| Interest accrued | (12,656) | (11,195) | ||||||||||||
| Deferred fuel costs | 107,238 | (8,440) | ||||||||||||
| Other working capital accounts | 9,245 | 4,832 | ||||||||||||
| Provisions for estimated losses | 522 | 54 | ||||||||||||
| Other regulatory assets | 21,535 | (135,079) | ||||||||||||
| Other regulatory liabilities | (3,283) | (11,491) | ||||||||||||
| Effect of securitization on regulatory asset | — | 153,383 | ||||||||||||
| Pension and other postretirement liabilities | (1,960) | (4,146) | ||||||||||||
| Other assets and liabilities | (5,442) | (6,538) | ||||||||||||
| Net cash flow provided by operating activities | 198,102 | 82,338 | ||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||
| Construction expenditures | (205,191) | (155,948) | ||||||||||||
| Allowance for equity funds used during construction | 5,089 | 2,596 | ||||||||||||
| Litigation proceeds from settlement agreement | — | 4,134 | ||||||||||||
| Changes in money pool receivable - net | 92,932 | — | ||||||||||||
| Changes in securitization account | (849) | 16,631 | ||||||||||||
| Increase in other investments | — | (11,949) | ||||||||||||
| Net cash flow used in investing activities | (108,019) | (144,536) | ||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||
| Retirement of long-term debt | — | (29,064) | ||||||||||||
| Changes in money pool payable - net | — | 91,799 | ||||||||||||
| Dividends paid: | ||||||||||||||
| Preferred stock dividends paid | (518) | (505) | ||||||||||||
| Other | (898) | (34) | ||||||||||||
| Net cash flow provided by (used in) financing activities | (1,416) | 62,196 | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | 88,667 | (2) | ||||||||||||
| Cash and cash equivalents at beginning of period | 3,497 | 28 | ||||||||||||
| Cash and cash equivalents at end of period | $92,164 | $26 | ||||||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||
| Cash paid (received) during the period for: | ||||||||||||||
| Interest - net of amount capitalized | $38,923 | $31,513 | ||||||||||||
| Income taxes | $— | ($1,913) | ||||||||||||
| See Notes to Financial Statements. | ||||||||||||||
| ENTERGY TEXAS, INC. AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| ASSETS | ||||||||||||||
| March 31, 2023 and December 31, 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| CURRENT ASSETS | ||||||||||||||
| Cash and cash equivalents: | ||||||||||||||
| Cash | $1,004 | $500 | ||||||||||||
| Temporary cash investments | 91,160 | 2,997 | ||||||||||||
| Total cash and cash equivalents | 92,164 | 3,497 | ||||||||||||
| Securitization recovery trust account | 11,728 | 10,879 | ||||||||||||
| Accounts receivable: | ||||||||||||||
| Customer | 79,086 | 115,955 | ||||||||||||
| Allowance for doubtful accounts | (1,847) | (2,352) | ||||||||||||
| Associated companies | 13,824 | 115,549 | ||||||||||||
| Other | 11,512 | 21,587 | ||||||||||||
| Accrued unbilled revenues | 61,230 | 69,208 | ||||||||||||
| Total accounts receivable | 163,805 | 319,947 | ||||||||||||
| Deferred fuel costs | 150,877 | 258,115 | ||||||||||||
| Fuel inventory - at average cost | 35,195 | 26,750 | ||||||||||||
| Materials and supplies - at average cost | 88,560 | 93,031 | ||||||||||||
| Prepayments and other | 14,622 | 20,568 | ||||||||||||
| TOTAL | 556,951 | 732,787 | ||||||||||||
| OTHER PROPERTY AND INVESTMENTS | ||||||||||||||
| Investments in affiliates - at equity | 222 | 250 | ||||||||||||
| Non-utility property - at cost (less accumulated depreciation) | 376 | 376 | ||||||||||||
| Other | 19,129 | 18,975 | ||||||||||||
| TOTAL | 19,727 | 19,601 | ||||||||||||
| UTILITY PLANT | ||||||||||||||
| Electric | 7,497,285 | 7,409,461 | ||||||||||||
| Construction work in progress | 486,164 | 339,139 | ||||||||||||
| TOTAL UTILITY PLANT | 7,983,449 | 7,748,600 | ||||||||||||
| Less - accumulated depreciation and amortization | 2,180,743 | 2,135,400 | ||||||||||||
| UTILITY PLANT - NET | 5,802,706 | 5,613,200 | ||||||||||||
| DEFERRED DEBITS AND OTHER ASSETS | ||||||||||||||
| Regulatory assets: | ||||||||||||||
| Other regulatory assets (includes securitization property of $262,481 as of March 31, 2023 and $269,523 as of December 31, 2022) | 557,147 | 578,682 | ||||||||||||
| Other | 97,837 | 99,694 | ||||||||||||
| TOTAL | 654,984 | 678,376 | ||||||||||||
| TOTAL ASSETS | $7,034,368 | $7,043,964 | ||||||||||||
| See Notes to Financial Statements. |
| ENTERGY TEXAS, INC. AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| March 31, 2023 and December 31, 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||
| Accounts payable: | ||||||||||||||
| Associated companies | $59,669 | $70,321 | ||||||||||||
| Other | 203,742 | 201,982 | ||||||||||||
| Customer deposits | 38,953 | 38,764 | ||||||||||||
| Taxes accrued | 71,447 | 93,033 | ||||||||||||
| Interest accrued | 11,272 | 23,928 | ||||||||||||
| Other | 15,745 | 16,963 | ||||||||||||
| TOTAL | 400,828 | 444,991 | ||||||||||||
| NON-CURRENT LIABILITIES | ||||||||||||||
| Accumulated deferred income taxes and taxes accrued | 740,360 | 744,227 | ||||||||||||
| Accumulated deferred investment tax credits | 8,559 | 8,711 | ||||||||||||
| Regulatory liability for income taxes - net | 127,872 | 132,647 | ||||||||||||
| Other regulatory liabilities | 46,739 | 45,247 | ||||||||||||
| Asset retirement cost liabilities | 11,274 | 11,121 | ||||||||||||
| Accumulated provisions | 8,115 | 7,593 | ||||||||||||
| Long-term debt (includes securitization bonds of $275,154 as of March 31, 2023 and $275,064 as of December 31, 2022) | 2,896,522 | 2,895,913 | ||||||||||||
| Other | 73,483 | 74,053 | ||||||||||||
| TOTAL | 3,912,924 | 3,919,512 | ||||||||||||
| Commitments and Contingencies | ||||||||||||||
| EQUITY | ||||||||||||||
| Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 46,525,000 shares in 2023 and 2022 | 49,452 | 49,452 | ||||||||||||
| Paid-in capital | 1,050,125 | 1,050,125 | ||||||||||||
| Retained earnings | 1,582,289 | 1,541,134 | ||||||||||||
| Total common shareholder's equity | 2,681,866 | 2,640,711 | ||||||||||||
| Preferred stock without sinking fund | 38,750 | 38,750 | ||||||||||||
| TOTAL | 2,720,616 | 2,679,461 | ||||||||||||
| TOTAL LIABILITIES AND EQUITY | $7,034,368 | $7,043,964 | ||||||||||||
| See Notes to Financial Statements. |
| ENTERGY TEXAS, INC. AND SUBSIDIARIES | |||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |||||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2023 and 2022 | |||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||
| Common Equity | |||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in Capital | Retained Earnings | Total | |||||||||||||||||||||||||
| (In Thousands) | |||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||
| Balance at December 31, 2022 | $38,750 | $49,452 | $1,050,125 | $1,541,134 | $2,679,461 | ||||||||||||||||||||||||
| Net income | — | — | — | 41,673 | 41,673 | ||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | (518) | (518) | ||||||||||||||||||||||||
| Balance at March 31, 2023 | $38,750 | $49,452 | $1,050,125 | $1,582,289 | $2,720,616 | ||||||||||||||||||||||||
| 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 and in Note 2 to the financial statements in the Form 10-K, 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. The claims in these proceedings include claims for refunds and claims for rate adjustments; the aggregate amount of refunds claimed in these proceedings substantially exceeds the net book value of System Energy. In the event of an adverse decision in one or more of these proceedings requiring the payment of substantial additional refunds, System Energy would be required to seek financing to pay such refunds which may not be available on terms acceptable to System Energy, or may not be available at all, when required.
Results of Operations
Net Income
Net income decreased $3.9 million primarily due to the disallowance of the recovery of sale-leaseback renewal costs from Entergy Arkansas, Entergy Louisiana, and Entergy New Orleans per the December 2022 FERC order related to the Grand Gulf sale-leaseback renewal complaint and the lower authorized rate of return on equity and capital structure limitations on monthly bills issued to Entergy Mississippi per the June 2022 settlement agreement with the MPSC. The decrease was partially offset by an increase in operating revenues resulting from changes in rate base.
Income Taxes
The effective income tax rate was 23.5% for the first quarter 2023. The difference in the effective income tax rate for the first quarter 2023 versus the federal statutory rate of 21% was primarily due to the accrual for state income taxes and provisions, partially offset by book and tax differences related to the allowance for equity funds used during construction.
The effective income tax rate was 23.2% for the first quarter 2022. The difference in the effective income tax rate for the first quarter 2022 versus the federal statutory rate of 21% was primarily due to state income taxes, partially offset by book and tax differences related to the allowance for equity funds used during construction.
Income Tax Legislation
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Income Tax Legislation” in the Form 10-K for a discussion of the Inflation Reduction Act of 2022.
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
Liquidity and Capital Resources
Cash Flow
Cash flows for the three months ended March 31, 2023 and 2022 were as follows:
| 2023 | 2022 | ||||||||||
| (In Thousands) | |||||||||||
| Cash and cash equivalents at beginning of period | $2,940 | $89,201 | |||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | (32,839) | 40,011 | |||||||||
| Investing activities | 48,231 | (94,802) | |||||||||
| Financing activities | 241,671 | 63,845 | |||||||||
| Net increase in cash and cash equivalents | 257,063 | 9,054 | |||||||||
| Cash and cash equivalents at end of period | $260,003 | $98,255 |
Operating Activities
System Energy’s operating activities used $32.8 million of cash for the three months ended March 31, 2023 compared to providing $40 million of cash for the three months ended March 31, 2022 primarily due to the following activity:
-
the aggregate payment of $103.5 million made in January 2023 related to the sale-leaseback renewal costs and depreciation litigation as calculated in System Energy’s January 2023 compliance report filed with the FERC. See Note 2 to the financial statements herein and in the Form 10-K for further discussion on these refunds and the related proceedings;
-
a decrease in spending of $12.8 million on nuclear refueling outages in 2023 as compared to the same period in 2022; and
-
the timing of payments to vendors.
Investing Activities
System Energy’s investing activities provided $48.2 million of cash for the three months ended March 31, 2023 compared to using $94.8 million of cash for the three months ended March 31, 2022 primarily due to the following activity:
-
money pool activity;
-
a decrease of $53.3 million as a result of fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle; and
-
a decrease of $21.8 million in nuclear construction expenditures primarily due to higher spending in 2022 for Grand Gulf outage projects and upgrades.
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 $76.4 million for the three months ended March 31, 2023 compared to decreasing by $18.6 million for the three months ended March 31, 2022. The money pool is an intercompany borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
Financing Activities
Net cash flow provided by financing activities increased $177.8 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to the issuance of $325 million of 6.00% Series mortgage bonds in March 2023.
The increase was partially offset by:
-
net repayments of $16.7 million in 2023 compared to net long-term borrowings of $63.9 million in 2022 on the nuclear fuel company variable interest entities’ credit facilities; and
-
the repayment, prior to maturity, in March 2023 of the $50 million term loan due November 2023.
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 issuance of long-term debt in 2023.
| March 31, 2023 | December 31, 2022 | ||||||||||
| Debt to capital | 51.1 | % | 45.0 | % | |||||||
| Effect of subtracting cash | (7.3 | %) | (0.1 | %) | |||||||
| Net debt to net capital (non-GAAP) | 43.8 | % | 44.9 | % |
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. The net debt to net capital ratio is a non-GAAP measure. 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’s receivables from the money pool were as follows:
| March 31, 2023 | December 31, 2022 | March 31, 2022 | December 31, 2021 | |||||||||||||||||
| (In Thousands) | ||||||||||||||||||||
| $18,590 | $94,981 | $57,139 | $75,745 |
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 March 31, 2023, $55.9 million in loans were outstanding under the
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
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.
Return on Equity and Capital Structure Complaints
As discussed in the Form 10-K, in March 2021 the FERC ALJ issued an initial decision in the proceeding initiated by the LPSC, the MPSC, the APSC, and the City Council against System Energy regarding the return on equity component of the Unit Power Sales Agreement. With regard to System Energy’s authorized return on equity, the ALJ determined that the existing return on equity of 10.94% is no longer just and reasonable, and that the replacement authorized return on equity, based on application of the Opinion No. 569-A methodology, should be 9.32%. The ALJ further determined that System Energy should pay refunds for a fifteen-month refund period (January 2017-April 2018) based on the difference between the current return on equity and the replacement authorized return on equity. The ALJ determined that the April 2018 complaint concerning the authorized return on equity should be dismissed, and that no refunds for a second fifteen-month refund period should be due. With regard to System Energy’s capital structure, the ALJ determined that System Energy’s actual equity ratio is excessive and that the just and reasonable equity ratio is 48.15% equity, based on the average equity ratio of the proxy group used to evaluate the return on equity for the second complaint. The ALJ further determined that System Energy should pay refunds for a fifteen-month refund period (September 2018-December 2019) based on the difference between the actual equity ratio and the 48.15% equity ratio. If the ALJ’s initial decision is upheld, the estimated refund for this proceeding is approximately $38 million, which includes interest through March 31, 2023, and the estimated resulting annual rate reduction would be approximately $31 million. As a result of the 2022 settlement agreement with the MPSC, both the estimated refund and rate reduction exclude Entergy Mississippi's portion. See “System Energy Settlement with the MPSC” in the Form 10-K for discussion of the settlement. The estimated refund will continue to accrue interest until a final FERC decision is issued.
The ALJ initial decision is an interim step in the FERC litigation process, and an ALJ’s determinations made in an initial decision are not controlling on the FERC. In April 2021, System Energy filed its brief on exceptions, in which it challenged the initial decision’s findings on both the return on equity and capital structure issues. Also in April 2021 the LPSC, APSC, MPSC, City Council, and the FERC trial staff filed briefs on exceptions. Reply briefs opposing exceptions were filed in May 2021 by System Energy, the FERC trial staff, the LPSC, APSC, MPSC, and the City Council. Refunds, if any, that might be required will only become due after the FERC issues its order reviewing the initial decision.
Grand Gulf Sale-leaseback Renewal Complaint and Uncertain Tax Position Rate Base Issue
As discussed in the Form 10-K, in May 2018 the LPSC filed a complaint against System Energy and Entergy Services related to System Energy’s renewal of a sale-leaseback transaction originally entered into in December 1988 for an 11.5% undivided interest in Grand Gulf Unit 1. The APSC, the MPSC, and the City Council subsequently intervened in the proceeding. A hearing was held before a FERC ALJ in November 2019. In April 2020 the ALJ issued the initial decision, and in December 2022 the FERC issued an order on the ALJ’s initial decision, which affirmed it in part and modified it in part. The FERC’s order directed System Energy to calculate
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
refunds on three issues, and to provide a compliance report detailing the calculations. The FERC’s order also disallows the future recovery of sale-leaseback renewal costs, which is estimated at approximately $11.5 million annually for purchases from Entergy Arkansas, Entergy Louisiana, and Entergy New Orleans through July 2036. The three refund issues are rental expenses related to the renewal of the sale-leaseback arrangements; refunds, if any, for the revenue requirement impact of including accumulated deferred income taxes resulting from the decommissioning uncertain tax positions from 2004 through the present; and refunds for the net effect of correcting the depreciation inputs for capital additions attributable to the portion of plant subject to the sale-leaseback.
In January 2023, System Energy filed its compliance report with the FERC. With respect to the sale-leaseback renewal costs, System Energy calculated a refund of $89.8 million, which represented all of the sale-leaseback renewal rental costs that System Energy recovered in rates, with interest. With respect to the decommissioning uncertain tax position issue, System Energy calculated that no additional refunds are owed because it had already provided a one-time historical credit (for the period January 2016 through September 2020) of $25.2 million based on the accumulated deferred income taxes that resulted from the IRS’s partial acceptance of the decommissioning tax position, and because it has been providing an ongoing rate base credit for the accumulated deferred income taxes that resulted from the IRS’s partial acceptance of the decommissioning tax position since October 2020. With respect to the depreciation refund, System Energy calculated a refund of $13.7 million, which is the net total of a refund to customers for excess depreciation expense previously collected, plus interest, offset by the additional return on rate base that System Energy previously did not collect, without interest. See “System Energy Settlement with the MPSC” in the Form 10-K for discussion of the regulatory charge and corresponding regulatory liability recorded in June 2022 related to these proceedings. In January 2023, System Energy paid the refunds of $103.5 million, which included refunds of $41.7 million to Entergy Arkansas, $27.8 million to Entergy Louisiana, and $34 million to Entergy New Orleans. Based on the December 2022 FERC order and analysis of the remaining litigation, management determined that System Energy’s regulatory liability related to complaints against System Energy as of March 31, 2023 is adequate.
In January 2023, System Energy filed a request for rehearing of the FERC’s determinations in the December 2022 order on sale-leaseback refund issues and future lease cost disallowances, the FERC’s prospective policy on uncertain tax positions, and the proper accounting of System Energy’s accumulated deferred income taxes adjustment for the Tax Cuts and Jobs Act of 2017; and a motion for confirmation of its interpretation of the December 2022 order’s remedy concerning the decommissioning tax position. In January 2023 the retail regulators filed a motion for confirmation of their interpretation of the refund requirement in the December 2022 FERC order and a provisional request for rehearing. In February 2023 the FERC issued a notice that the rehearing requests have been deemed denied by operation of law. The deemed denial of the rehearing request initiates the sixty-day period in which aggrieved parties may petition for federal appellate court review of the underlying FERC orders; however the FERC may issue a substantive order on rehearing as long as it continues to have jurisdiction over the case. In March 2023, System Energy filed in the United States Court of Appeals for the Fifth Circuit a petition for review of the December 2022 order. In March 2023, System Energy also filed an unopposed motion to stay the proceeding in the Fifth Circuit pending the FERC’s disposition of the pending motions, and the court granted the motion to stay.
In February 2023, System Energy submitted a tariff compliance filing with the FERC to clarify that, consistent with the releases provided in the MPSC settlement, Entergy Mississippi will continue to be charged for its allocation of the sale-leaseback renewal costs under the Unit Power Sales Agreement. See “System Energy Settlement with the MPSC” in the Form 10-K for discussion of the settlement. In March 2023, the MPSC filed a protest to System Energy’s tariff compliance filing. The MPSC argues that the settlement did not specifically address post-settlement sale-leaseback renewal costs and that the sale-leaseback renewal costs may not be recovered under the Unit Power Sales Agreement. Entergy Mississippi’s allocated sale-leaseback renewal costs are estimated at $5.7 million annually for the remaining term of the sale-leaseback renewal.
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
LPSC Additional Complaints
As discussed in the Form 10-K, in May 2020 the LPSC authorized its staff to file additional complaints at the FERC related to the rates charged by System Energy for Grand Gulf energy and capacity supplied to Entergy Louisiana under the Unit Power Sales Agreement. The following are updates to that discussion.
Unit Power Sales Agreement Complaint
As discussed in the Form 10-K, the first of the additional complaints was filed by the LPSC, the APSC, the MPSC, and the City Council in September 2020. The first complaint raises two sets of rate allegations: violations of the filed rate and a corresponding request for refunds for prior periods; and elements of the Unit Power Sales Agreement are unjust and unreasonable and a corresponding request for refunds for the 15-month refund period and changes to the Unit Power Sales Agreement prospectively. In May 2021 the FERC issued an order addressing the complaint, establishing a refund effective date of September 21, 2020, establishing hearing procedures, and holding those procedures in abeyance pending the FERC’s review of the initial decision in the Grand Gulf sale-leaseback renewal complaint discussed above.
In November 2021 the LPSC, the APSC, and the City Council filed direct testimony and requested the FERC to order refunds for prior periods and prospective amendments to the Unit Power Sales Agreement. System Energy filed answering testimony in January 2022. In March 2022, the FERC trial staff filed direct and answering testimony recommending refunds and prospective modifications to the Unit Power Sales Agreement.
In April 2022, System Energy filed cross-answering testimony in response to the FERC trial staff’s recommendations. In June 2022, the FERC trial staff submitted revised answering testimony, in which it recommended additional refunds associated with the accumulated deferred income tax balances in account 190. Also in June 2022, System Energy filed revised and supplemental cross-answering testimony to respond to the FERC trial staff’s testimony and to oppose its revised recommendation.
In May 2022, the LPSC, the APSC, and the City Council filed rebuttal testimony and asserted new claims. In June 2022 a new procedural schedule was adopted, providing for additional rounds of testimony and for the hearing to begin in September 2022. The hearing concluded in December 2022. Also in December 2022, a motion to extend the briefing schedule and the deadline for the initial decision was granted. The initial decision is due in May 2023.
In November 2022, System Energy filed a partial settlement agreement with the APSC, the City Council, and the LPSC that resolves the following issues raised in the Unit Power Sales Agreement complaint: advance collection of lease payments, aircraft costs, executive incentive compensation, money pool borrowings, advertising expenses, deferred nuclear refueling outage costs, industry association dues, and termination of the capital funds agreement. The settlement provides that System Energy will provide a black-box refund of $18 million (inclusive of interest), plus additional refund amounts with interest to be calculated for certain issues to be distributed to Entergy Arkansas, Entergy Louisiana, and Entergy New Orleans as the Utility operating companies other than Entergy Mississippi purchasing under the Unit Power Sales Agreement. The settlement further provides that if the APSC, the City Council, or the LPSC agrees to the global settlement System Energy entered into with the MPSC (see “System Energy Settlement with the MPSC” in the Form 10-K for discussion of the settlement), and such global settlement includes a black-box refund amount, then the black-box refund for this settlement agreement shall not be incremental or in addition to the global black-box refund amount. The settlement agreement addresses other matters as well, including adjustments to rate base beginning in October 2022, exclusion of certain other costs, and inclusion of money pool borrowings, if any, in short-term debt within the cost of capital calculation used in the Unit Power Sales Agreement. In April 2023, the FERC approved the settlement agreement. The refund provided for in the settlement agreement will be included in the May 2023 service month bills under the Unit Power Sales Agreement.
System Energy Resources, Inc.
Management's Financial Discussion and Analysis
System Energy Formula Rate Annual Protocols Formal Challenge Concerning 2021 Calendar Year Bills
In March 2023, pursuant to the protocols procedures discussed in Note 2 to the financial statements in the Form 10-K, the LPSC, the APSC, and the City Council filed with the FERC a formal challenge to System Energy’s implementation of the formula rate during calendar year 2021. The formal challenge alleges: (1) that it was imprudent for System Energy to accept the IRS’s partial acceptance of a previously uncertain tax position; (2) that System Energy used incorrect inputs for retained earnings that are used to determine the capital structure; (3) that the equity ratio charged in rates was excessive; and (4) that all issues in the ongoing Unit Power Sales Agreement complaint proceeding should also be reflected in calendar year 2021 bills. The first, third, and fourth allegations are identical to issues that were raised in the formal challenge to the calendar year 2020 bills. The formal challenge to the calendar year 2021 bills states that the impact of the first allegation is “tens of millions of dollars,” but it does not provide an estimate of the financial impact of the remaining allegations.
In May 2023, System Energy filed an answer to the formal challenge in which it requested that the FERC deny the formal challenge as a matter of law, or else hold the proceeding in abeyance pending the resolution of related dockets.
Unit Power Sales Agreement
See Note 2 to the financial statements in the Form 10-K for information regarding proposed amendments to the Unit Power Sales Agreement.
Nuclear Matters
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Nuclear Matters” in the Form 10-K for a discussion of nuclear matters.
Environmental Risks
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Environmental Risks” in the Form 10-K for a discussion of environmental risks.
Critical Accounting Estimates
See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in System Energy’s accounting for nuclear decommissioning costs, utility regulatory accounting, impairment of long-lived assets, taxation and uncertain tax positions, qualified pension and other postretirement benefits, and other contingencies.
New Accounting Pronouncements
See “New Accounting Pronouncements” section of Note 1 to the financial statements in the Form 10-K for a discussion of new accounting pronouncements.
| SYSTEM ENERGY RESOURCES, INC. | ||||||||||||||||||||||||||
| INCOME STATEMENTS | ||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2023 and 2022 | ||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||
| OPERATING REVENUES | ||||||||||||||||||||||||||
| Electric | $171,572 | $141,376 | ||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||
| Operation and Maintenance: | ||||||||||||||||||||||||||
| Fuel, fuel-related expenses, and gas purchased for resale | 18,847 | 7,923 | ||||||||||||||||||||||||
| Nuclear refueling outage expenses | 6,619 | 5,927 | ||||||||||||||||||||||||
| Other operation and maintenance | 50,200 | 43,904 | ||||||||||||||||||||||||
| Decommissioning | 10,287 | 9,917 | ||||||||||||||||||||||||
| Taxes other than income taxes | 7,282 | 7,851 | ||||||||||||||||||||||||
| Depreciation and amortization | 37,137 | 29,923 | ||||||||||||||||||||||||
| Other regulatory charges (credits) - net | (6,459) | (8,524) | ||||||||||||||||||||||||
| TOTAL | 123,913 | 96,921 | ||||||||||||||||||||||||
| OPERATING INCOME | 47,659 | 44,455 | ||||||||||||||||||||||||
| OTHER INCOME (DEDUCTIONS) | ||||||||||||||||||||||||||
| Allowance for equity funds used during construction | 1,818 | 2,047 | ||||||||||||||||||||||||
| Interest and investment income | 5,764 | 5,232 | ||||||||||||||||||||||||
| Miscellaneous - net | (9,078) | (1,639) | ||||||||||||||||||||||||
| TOTAL | (1,496) | 5,640 | ||||||||||||||||||||||||
| INTEREST EXPENSE | ||||||||||||||||||||||||||
| Interest expense | 10,491 | 9,481 | ||||||||||||||||||||||||
| Allowance for borrowed funds used during construction | (355) | (327) | ||||||||||||||||||||||||
| TOTAL | 10,136 | 9,154 | ||||||||||||||||||||||||
| INCOME BEFORE INCOME TAXES | 36,027 | 40,941 | ||||||||||||||||||||||||
| Income taxes | 8,482 | 9,509 | ||||||||||||||||||||||||
| NET INCOME | $27,545 | $31,432 | ||||||||||||||||||||||||
| See Notes to Financial Statements. |
| SYSTEM ENERGY RESOURCES, INC. | ||||||||||||||
| STATEMENTS OF CASH FLOWS | ||||||||||||||
| For the Three Months Ended March 31, 2023 and 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||
| Net income | $27,545 | $31,432 | ||||||||||||
| Adjustments to reconcile net income to net cash flow provided by (used in) operating activities: | ||||||||||||||
| Depreciation, amortization, and decommissioning, including nuclear fuel amortization | 63,793 | 46,566 | ||||||||||||
| Deferred income taxes, investment tax credits, and non-current taxes accrued | 10,801 | (8,690) | ||||||||||||
| Changes in assets and liabilities: | ||||||||||||||
| Receivables | (8,198) | (3,845) | ||||||||||||
| Accounts payable | (21,866) | (15,017) | ||||||||||||
| Prepaid taxes and taxes accrued | (15,836) | 5,939 | ||||||||||||
| Interest accrued | (58) | (475) | ||||||||||||
| Other working capital accounts | 2,837 | (20,646) | ||||||||||||
| Other regulatory assets | (3,247) | (2,331) | ||||||||||||
| Other regulatory liabilities | (47,212) | (85,655) | ||||||||||||
| Pension and other postretirement liabilities | (1,652) | (4,542) | ||||||||||||
| Other assets and liabilities | (39,746) | 97,275 | ||||||||||||
| Net cash flow provided by (used in) operating activities | (32,839) | 40,011 | ||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||
| Construction expenditures | (26,472) | (46,509) | ||||||||||||
| Allowance for equity funds used during construction | 1,818 | 2,047 | ||||||||||||
| Nuclear fuel purchases | (21,994) | (75,251) | ||||||||||||
| Proceeds from sale of nuclear fuel | 24,976 | 11,257 | ||||||||||||
| Increase in other investments | (4) | — | ||||||||||||
| Proceeds from nuclear decommissioning trust fund sales | 60,067 | 62,717 | ||||||||||||
| Investment in nuclear decommissioning trust funds | (66,551) | (67,669) | ||||||||||||
| Changes in money pool receivable - net | 76,391 | 18,606 | ||||||||||||
| Net cash flow provided by (used in) investing activities | 48,231 | (94,802) | ||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||
| Proceeds from the issuance of long-term debt | 473,687 | 225,956 | ||||||||||||
| Retirement of long-term debt | (232,016) | (162,111) | ||||||||||||
| Net cash flow provided by financing activities | 241,671 | 63,845 | ||||||||||||
| Net increase in cash and cash equivalents | 257,063 | 9,054 | ||||||||||||
| Cash and cash equivalents at beginning of period | 2,940 | 89,201 | ||||||||||||
| Cash and cash equivalents at end of period | $260,003 | $98,255 | ||||||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||
| Cash paid during the period for: | ||||||||||||||
| Interest - net of amount capitalized | $11,304 | $9,749 | ||||||||||||
| See Notes to Financial Statements. |
| SYSTEM ENERGY RESOURCES, INC. | ||||||||||||||
| BALANCE SHEETS | ||||||||||||||
| ASSETS | ||||||||||||||
| March 31, 2023 and December 31, 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| CURRENT ASSETS | ||||||||||||||
| Cash and cash equivalents: | ||||||||||||||
| Cash | $723 | $78 | ||||||||||||
| Temporary cash investments | 259,280 | 2,862 | ||||||||||||
| Total cash and cash equivalents | 260,003 | 2,940 | ||||||||||||
| Accounts receivable: | ||||||||||||||
| Associated companies | 89,804 | 158,601 | ||||||||||||
| Other | 6,749 | 6,145 | ||||||||||||
| Total accounts receivable | 96,553 | 164,746 | ||||||||||||
| Materials and supplies - at average cost | 138,039 | 135,346 | ||||||||||||
| Deferred nuclear refueling outage costs | 26,344 | 33,377 | ||||||||||||
| Prepaid taxes | 8,239 | — | ||||||||||||
| Prepayments and other | 10,600 | 9,097 | ||||||||||||
| TOTAL | 539,778 | 345,506 | ||||||||||||
| OTHER PROPERTY AND INVESTMENTS | ||||||||||||||
| Decommissioning trust funds | 1,204,762 | 1,142,914 | ||||||||||||
| TOTAL | 1,204,762 | 1,142,914 | ||||||||||||
| UTILITY PLANT | ||||||||||||||
| Electric | 5,434,346 | 5,425,449 | ||||||||||||
| Construction work in progress | 122,510 | 102,987 | ||||||||||||
| Nuclear fuel | 162,124 | 193,004 | ||||||||||||
| TOTAL UTILITY PLANT | 5,718,980 | 5,721,440 | ||||||||||||
| Less - accumulated depreciation and amortization | 3,446,204 | 3,412,257 | ||||||||||||
| UTILITY PLANT - NET | 2,272,776 | 2,309,183 | ||||||||||||
| DEFERRED DEBITS AND OTHER ASSETS | ||||||||||||||
| Regulatory assets: | ||||||||||||||
| Other regulatory assets | 418,368 | 415,121 | ||||||||||||
| Other | 848 | 1,422 | ||||||||||||
| TOTAL | 419,216 | 416,543 | ||||||||||||
| TOTAL ASSETS | $4,436,532 | $4,214,146 | ||||||||||||
| See Notes to Financial Statements. |
| SYSTEM ENERGY RESOURCES, INC. | ||||||||||||||
| BALANCE SHEETS | ||||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| March 31, 2023 and December 31, 2022 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (In Thousands) | ||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||
| Currently maturing long-term debt | $250,046 | $300,037 | ||||||||||||
| Accounts payable: | ||||||||||||||
| Associated companies | 12,901 | 21,701 | ||||||||||||
| Other | 55,406 | 58,178 | ||||||||||||
| Taxes accrued | — | 7,597 | ||||||||||||
| Interest accrued | 11,533 | 11,591 | ||||||||||||
| Sale-leaseback/depreciation regulatory liability | — | 103,497 | ||||||||||||
| Other | 4,067 | 4,071 | ||||||||||||
| TOTAL | 333,953 | 506,672 | ||||||||||||
| NON-CURRENT LIABILITIES | ||||||||||||||
| Accumulated deferred income taxes and taxes accrued | 386,757 | 376,070 | ||||||||||||
| Accumulated deferred investment tax credits | 44,348 | 44,692 | ||||||||||||
| Regulatory liability for income taxes - net | 110,068 | 110,840 | ||||||||||||
| Other regulatory liabilities | 722,081 | 665,024 | ||||||||||||
| Decommissioning | 1,052,748 | 1,042,461 | ||||||||||||
| Pension and other postretirement liabilities | 39,098 | 40,750 | ||||||||||||
| Long-term debt | 770,165 | 477,868 | ||||||||||||
| Other | 2 | 2 | ||||||||||||
| TOTAL | 3,125,267 | 2,757,707 | ||||||||||||
| Commitments and Contingencies | ||||||||||||||
| COMMON EQUITY | ||||||||||||||
| Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares in 2023 and 2022 | 1,086,850 | 1,086,850 | ||||||||||||
| Accumulated deficit | (109,538) | (137,083) | ||||||||||||
| TOTAL | 977,312 | 949,767 | ||||||||||||
| TOTAL LIABILITIES AND EQUITY | $4,436,532 | $4,214,146 | ||||||||||||
| See Notes to Financial Statements. |
| SYSTEM ENERGY RESOURCES, INC. | |||||||||||||||||
| STATEMENTS OF CHANGES IN COMMON EQUITY | |||||||||||||||||
| For the Three Months Ended March 31, 2023 and 2022 | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Common Equity | |||||||||||||||||
| Common Stock | Retained Earnings (Accumulated Deficit) | Total | |||||||||||||||
| (In Thousands) | |||||||||||||||||
| 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 | ||||||||||||||
| Balance at December 31, 2022 | $1,086,850 | ($137,083) | $949,767 | ||||||||||||||
| Net income | — | 27,545 | 27,545 | ||||||||||||||
| Balance at March 31, 2023 | $1,086,850 | ($109,538) | $977,312 | ||||||||||||||
| See Notes to Financial Statements. |
ENTERGY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
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