Entergy 10-Q 2023-06-30

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2023

OR

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Securities registered pursuant to Section 12(b) of the Act:

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

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

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.

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

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

Entergy Corporation, Entergy Arkansas, LLC, Entergy Louisiana, LLC, Entergy Mississippi, LLC, Entergy New Orleans, LLC, E

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

Disclosure Controls and Procedures

As of June 30, 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 Control 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 June 30, 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

Second Quarter 2023 Compared to Second Quarter 2022

Net income increased $3.8 million primarily due to higher retail electric price and lower other operation and maintenance expenses, partially offset by lower volume/weather, higher interest expense, and higher depreciation and amortization expenses.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Net income decreased $2.3 million primarily due to lower volume/weather, higher interest expense, and higher depreciation and amortization expenses, partially offset by higher retail electric price, lower other operation and maintenance expenses, and higher other income.

Operating Revenues

Second Quarter 2023 Compared to Second Quarter 2022

Following is an analysis of the change in operating revenues comparing the second quarter 2023 to the second quarter 2022:

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

The volume/weather variance is primarily due to the effect of less favorable weather on residential sales.

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.

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Total electric energy sales for Entergy Arkansas for the three months ended June 30, 2023 and 2022 are as follows:

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

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Following is an analysis of the change in operating revenues comparing the six months ended June 30, 2023 to the six months ended June 30, 2022:

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

The volume/weather variance is primarily due to the effect of less favorable weather on residential sales.

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.

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Total electric energy sales for Entergy Arkansas for the six months ended June 30, 2023 and 2022 are as follows:

See Note 13 to the financial statements herein for additi

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See “PART I, Item 1, Litigation” in the Form 10-K for a discussion of legal, administrative, and other regulatory proceedings affecting Entergy. Also see Notes 1 and 2 to the financial statements herein and “Item 5, Other Information, Environmental Regulation” below for updates regarding environmental proceedings and regulation.

There have been no material changes to the risk factors discussed in "Part I, Item 1A. RISK FACTORS" in the Form 10-K.

Issuer Purchases of Equity Securities (a)

In accordance with Entergy’s stock-based compensation plans, Entergy periodically grants stock options to key employees, which may be exercised to obtain shares of Entergy’s common stock. According to the plans, these shares can be newly issued shares, treasury stock, or shares purchased on the open market. Entergy’s management has been authorized by the Board to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans. In addition to this authority, the Board has authorized share repurchase programs to enable opportunistic purchases in response to market conditions. In October 2010 the Board granted authority for a $500 million share repurchase program. The amount of share repurchases under these programs may vary as a result of material changes in business results or capital spending or new investment opportunities. In addition, in the first quarter 2023, Entergy withheld 71,722 shares of its common stock at $108.71 per share, 27,533 shares of its common stock at $107.69 per share, 12,265 shares of its common stock at $107.59 per share, 551 shares of its common stock at $103.72 per share, 232 shares of its common stock at $106.07 per share, and 100 shares of its common stock at $105.79 per share to pay income taxes due upon vesting of restricted stock granted and payout of performance units as part of its long-term incentive program.

(a)See Note 12 to the financial statements in the Form 10-K for additional discussion of the stock-based compensation plans.

(b)Maximum dollar amount of shares that may yet be repurchased relates only to the $500 million share repurchase program plan and does not include an estimate of the amount of shares that may be purchased to fund the exercise of grants under the stock-based compensation plans.

Rule 10b5-1 Trading Agreements

During the three months ended June 30, 2023, no director or officer of Entergy or any of the Registrant Subsidiaries adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as each term is defined in Item 408(a) of Regulation S-K.

Regulation of the Nuclear Power Industry

Following is an update to the “Regulation of the Nuclear Power Industry” section of Part I, Item 1 of the Form 10-K.

Nuclear Waste Policy Act of 1982

Nuclear Plant Decommissioning

In March 2023 filings with the NRC were made reporting on decommissioning funding for all of Entergy’s subsidiaries’ nuclear plants. Those reports showed that decommissioning funding for each of the nuclear plants met the NRC’s financial assurance requirements.

NRC Reactor Oversight Process

In September 2022 the NRC placed Waterford 3 in Column 2 based on an error associated with a radiation monitor calibration. Entergy corrected the issue with the radiation monitor in February 2022 and also corrected a subsequent radiation monitor calibration issue. In May 2023 the NRC completed a supplemental inspection of Waterford 3 in accordance with its inspection procedures for nuclear plants in Column 2 and Waterford 3 was returned to Column 1.

In July 2023 the NRC placed River Bend in Column 2, effective April 2023, based on failure to inspect wiring associated with the high pressure core spray system. River Bend will remain in Column 2 pending successful completion of a supplemental inspection.

Environmental Regulation

Following are updates to the “Environmental Regulation” section of Part I, Item 1 of the Form 10-K.

National Ambient Air Quality Standards

See the Form 10-K for discussion of the National Ambient Air Quality Standards (NAAQS) set by the EPA in accordance with the Clean Air Act. Following are updates to that discussion.

Hazardous Air Pollutants

As discussed in the Form 10-K, the EPA released the final Mercury and Air Toxics Standard (MATS) rule in December 2011, which had a compliance date, with a widely granted one-year extension, of April 2016. The required controls have been installed and are operational at all affected Entergy units. In April 2023 the EPA issued a regulatory proposal to revise portions of the MATS rule, including a proposed reduction to the emission limit for filterable particulate matter. If finalized, the proposed lower filterable particulate matter emission limitation could require additional capital investment and/or additional other operation and maintenance expenditures at Entergy’s coal-fired generating units. Entergy is closely monitoring this rulemaking, in part through its various trade associations.

Good Neighbor Plan/Cross-State Air Pollution Rule

In March 2023 the EPA released its final Federal Implementation Plan (FIP), known as the Good Neighbor Plan, to address interstate transport for the 2015 ozone NAAQS which will increase the stringency of the Cross-State Air Pollution Rule (CSAPR) program in all four of the states where the Utility operating companies operate. The FIP will significantly reduce ozone season nitrogen oxides (NOx) emission allowance budgets and allocations for electric generating units. Entergy is currently assessing its compliance options for the FIP. This may include the installation of post-combustion NOx emissions controls on certain coal or large legacy gas units that will operate beyond 2026 and are not currently equipped with such controls. Since the release of the proposed rule in April 2022, the price for Group 3 ozone season NOx emission allowances has fluctuated significantly, peaking at over $45,000 per allowance in late August 2022, and has recently ranged between $8,000 to $10,000 per allowance. Prior to issuance of the FIP, in February 2023 the EPA issued related State Implementation Plan (SIP) disapprovals for many states, including the four states in which the Utility operating companies operate, and these SIP disapprovals are the subject of many legal challenges, including a petition for review filed by Entergy Louisiana challenging the disapproval of Louisiana’s SIP. Stays of the SIP disapprovals have been granted in all four states in which the Utility operating companies operate, and the Good Neighbor Plan will not go into effect while the stays are in place. Decisions on the merits regarding the SIP disapprovals are not expected until 2024. The final FIP also is subject to numerous legal challenges.

Greenhouse Gas Emissions

In May 2023 the EPA proposed several rules regulating greenhouse gas emissions from new and existing (coal and gas-fired) power plants. If finalized, the proposed requirements for existing “large and frequently used” gas turbine generating units could require significant investments in carbon dioxide (CO2) emission reduction technologies at certain of Entergy’s existing gas turbine units with a capacity of greater than 300 MW per combustion turbine and which operate at an annual capacity factor of greater than 50 percent. Comments are due in August 2023. Entergy is closely monitoring this rulemaking, in part through its various trade associations.

Coal Combustion Residuals

As discussed in the Form 10-K, in April 2015 the EPA published the final coal combustion residuals (CCR) rule. In May 2023 the EPA released a proposed rule establishing management standards for legacy CCR surface impoundments (i.e., inactive surface impoundments at inactive power plants) and establishing a new class of units referred to as CCR management units (i.e., non-containerized CCR located at a regulated CCR facility). Entergy does not have any legacy impoundments; however, the proposed definition of CCR management units appears to regulate on-site areas where CCR was beneficially used. This is contrary to the current CCR rule which exempts beneficial uses that meet certain criteria. Comments on the proposed rule were due in July 2023 and Entergy is monitoring the rulemaking, in part through its trade associations.

Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Entergy Corporation agrees to furnish to the Commission upon request any instrument with respect to long-term debt that is not registered or listed herein as an Exhibit because the total amount of securities authorized under such agreement does not exceed ten percent of the total assets of Entergy Corporation and its subsidiaries on a consolidated basis.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.

Date: August 3, 2023