Item 4. Controls and Procedures

393K characters. Original on sec.gov · Markdown

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of September 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 September 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

Third Quarter 2023 Compared to Third Quarter 2022

Net income decreased $50.2 million primarily due to write-offs of $78.4 million ($58.8 million net-of-tax) recorded as a result of a commitment, made in October 2023, by Entergy Arkansas to the APSC to make a filing seeking to forgo recovery of identified costs resulting from the 2013 ANO stator incident. In addition, the decrease was also driven by higher interest expense, lower volume/weather, and higher depreciation and amortization expenses, partially offset by higher retail electric price and lower other operation and maintenance expenses. See Note 1 to the financial statements herein for further discussion of the ANO stator incident and the October 2023 commitment to the APSC.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Net income decreased $52.5 million primarily due to write-offs of $78.4 million ($58.8 million net-of-tax) recorded as a result of a commitment, made in October 2023, by Entergy Arkansas to the APSC to make a filing seeking to forgo recovery of identified costs resulting from the 2013 ANO stator incident. In addition, the decrease was also driven by 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. See Note 1 to the financial statements herein for further discussion of the ANO stator incident and the October 2023 commitment to the APSC.

Operating Revenues

Third Quarter 2023 Compared to Third Quarter 2022

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


			Amount
			(In Millions)
2022 operating revenues			$864.5
Fuel, rider, and other revenues that do not significantly affect net income			(52.7)
Volume/weather			(5.4)
Retail electric price			25.3

2023 operating revenues			$831.7

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

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

in industrial usage was primarily due to an increase in demand from expansion projects, primarily in the primary metals industry, and an increase in demand from small industrial customers. The increased usage from these industrial customers has a relatively smaller effect on operating revenues because a larger portion of the revenues from those customers comes from fixed charges.

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.

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


	2023	2022	% Change
	(GWh)
Residential	2,336	2,395	(2)
Commercial	1,680	1,709	(2)
Industrial	2,530	2,361	7
Governmental	60	65	(8)
Total retail	6,606	6,530	1
Sales for resale:
Associated companies	607	482	26
Non-associated companies	1,792	1,938	(8)
Total	9,005	8,950	1

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

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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


			Amount
			(In Millions)
2022 operating revenues			$2,120.4
Fuel, rider, and other revenues that do not significantly affect net income			(117.5)
Volume/weather			(35.4)
Retail electric price			63.3

2023 operating revenues			$2,030.8

The volume/weather variance is primarily due to a decrease in weather-adjusted residential usage and the effect of less favorable weather on residential sales, partially offset by an increase in industrial usage. The increase in industrial usage was primarily due to an increase in demand from expansion projects, primarily in the primary metals industry, and an increase in demand from small industrial customers. The increased usage from these

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

industrial customers has a relatively smaller effect on operating revenues because a larger portion of the revenues from those customers comes from fixed charges.

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


	2023	2022	% Change
	(GWh)
Residential	5,905	6,307	(6)
Commercial	4,293	4,398	(2)
Industrial	6,806	6,468	5
Governmental	156	175	(11)
Total retail	17,160	17,348	(1)
Sales for resale:
Associated companies	1,683	1,418	19
Non-associated companies	4,171	5,339	(22)
Total	23,014	24,105	(5)

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

Other Income Statement Variances

Third Quarter 2023 Compared to Third Quarter 2022

Other operation and maintenance expenses decreased primarily due to:

a decrease of $7.1 million in power delivery expenses primarily due to lower vegetation maintenance costs; and
a decrease of $2.8 million in compensation and benefits costs primarily due to lower healthcare claims activity in 2023 and a decrease in net periodic pension and other postretirement benefits service costs as a result of an increase in the discount rates used to value the benefits 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.

Asset write-offs includes the effects of a commitment, made in October 2023, by Entergy Arkansas to the APSC to make a filing seeking to forgo recovery of identified costs resulting from the 2013 ANO stator incident. In third quarter 2023, Entergy Arkansas recorded write-offs of its regulatory asset for deferred fuel of $68.9 million and the undepreciated balance of $9.5 million in capital costs related to the ANO stator incident. See Note 1 to the financial statements herein for further discussion of the ANO stator incident and the October 2023 commitment to the APSC.

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

Interest expense increased primarily due to the issuance of $425 million of 5.15% Series mortgage bonds in January 2023.

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Other operation and maintenance expenses decreased primarily due to:

a decrease of $13.1 million in compensation and benefits costs primarily due to a decrease in net periodic pension and other postretirement benefits service costs as a result of an increase in the discount rates used to value the benefits liabilities, lower health and welfare costs as a result of higher prescription drug rebates in second quarter 2023, and a revision to estimated incentive compensation expense in the first quarter 2023. 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 effects of recording a final judgment in first quarter 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;
a decrease of $8.2 million in transmission costs allocated by MISO; and
a decrease of $5.8 million in non-nuclear generation expenses primarily due to a lower scope of work, including during plant outages, performed in 2023 as compared to prior year.

The decrease was partially offset by:

an increase of $7.6 million in insurance expenses primarily due to lower nuclear insurance refunds received in 2023;
an increase of $2.9 million in power delivery expenses primarily due to higher reliability costs; and
several individually insignificant items.

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

Other income increased primarily due to:

an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2023;
higher interest earned on money pool investments; and
a decrease in charitable donations in 2023 as compared to the same period in 2022.

The increase was partially offset by an increase in net periodic pension non-service costs as a result of a non-qualified pension settlement charge recorded in third quarter 2023. 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.

Interest expense increased primarily due to the issuance of $425 million of 5.15% Series mortgage bonds in January 2023.

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Income Taxes

The effective income tax rate was 23.4% for the third quarter 2023. The difference in the effective income tax rate for the third quarter 2023 versus the federal statutory rate of 21% was primarily due to the accrual for state income taxes, partially offset by certain book and tax differences related to utility plant items.

The effective income tax rate was 21.2% for the nine months ended September 30, 2023. The difference in the effective income tax rate for the nine months ended September 30, 2023 versus the federal statutory rate of 21% was primarily due to the accrual for state income taxes, partially offset by certain book and tax differences related to utility plant items and amortization of state accumulated deferred income taxes as a result of tax rate changes.

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

Income Tax Legislation and Regulation

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. See the “Income Tax Legislation and Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis herein for updates to the discussion of income tax legislation and regulation.

Liquidity and Capital Resources

Cash Flow

Cash flows for the nine months ended September 30, 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	762,386	675,357
Investing activities	(822,851)	(579,122)
Financing activities	168,586	(30,019)
Net increase in cash and cash equivalents	108,121	66,216

Cash and cash equivalents at end of period	$113,399	$79,131

Operating Activities

Net cash flow provided by operating activities increased $87 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to:

lower fuel costs and 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;
higher collections from customers;

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

the refund of $41.7 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. The refund was subsequently applied to the under-recovered deferred fuel balance. 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
$23.2 million in proceeds received from the DOE in April 2023 resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. See Note 1 to the financial statements herein for discussion of the spent nuclear fuel litigation.

The increase was partially offset by:

the timing of payments to vendors;
an increase in spending of $24.3 million on nuclear refueling outages in 2023;
an increase of $24 million in interest paid in 2023 as compared to 2022;
an increase of $15.1 million in storm spending in 2023 as compared to 2022; and
an increase of $10.2 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.

Investing Activities

Net cash flow used in investing activities increased $243.7 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to:

an increase of $124.8 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 $78.7 million in transmission construction expenditures primarily due to increased investment in the reliability and infrastructure of Entergy Arkansas’s transmission system;
an increase of $41.1 million as a result of fluctuations in nuclear fuel activity 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; and
an increase of $19.8 million in nuclear construction expenditures primarily due to increased spending on various nuclear projects in 2023.

The increase was partially offset by $17.9 million in proceeds received from the DOE in April 2023 resulting from litigation regarding spent nuclear fuel storage costs that were previously recorded as plant. See Note 1 to the financial statements herein for discussion of the spent nuclear fuel litigation.

Financing Activities

Entergy Arkansas’s financing activities provided $168.6 million of cash for the nine months ended September 30, 2023 compared to using $30 million of cash for the nine months ended September 30, 2022 primarily due to the following activity:

the issuance of $425 million of 5.15% Series mortgage bonds in January 2023;
the issuance of $300 million of 5.30% Series mortgage bonds in August 2023;
money pool activity;
an increase of $56 million in common equity distributions paid in 2023 in order to maintain Entergy Arkansas’s capital structure;
the issuance of $200 million of 4.20% Series mortgage bonds in March 2022; and
the repayment, at maturity, of $250 million of 3.05% Series mortgage bonds in June 2023.

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

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 nine months ended September 30, 2023 compared to decreasing by $139.9 million for the nine months ended September 30, 2022. 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.

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 net issuance of long-term debt in 2023.


	September 30, 2023		December 31, 2022
Debt to capital	54.7	%	52.5	%
Effect of subtracting cash	(0.6	%)	—	%
Net debt to net capital (non-GAAP)	54.1	%	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. The following are updates to the information provided in the Form 10-K.

Entergy Arkansas is developing its capital investment plan for 2024 through 2026 and currently anticipates making $3.7 billion in capital investments during that period. The preliminary estimate includes investments in generation projects to modernize, decarbonize, and diversify Entergy Arkansas’s portfolio, including Walnut Bend Solar, West Memphis Solar, and Driver Solar; investments in ANO 1 and 2; distribution and Utility support spending to improve reliability, resilience, and customer experience; transmission spending to drive reliability and resilience while also supporting renewables expansion; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.

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


September 30, 2023	December 31, 2022	September 30, 2022	December 31, 2021
(In Thousands)
$11,104	($180,795)	$1,808	($139,904)

Entergy Arkansas, 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 Arkansas has a credit facility in the amount of $150 million scheduled to expire in June 2028. 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 September 30, 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 September 30, 2023, $7.8 million in letters of credit were outstanding under Entergy Arkansas’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for further discussion of the credit facilities.

The Entergy Arkansas nuclear fuel company variable interest entity has a credit facility in the amount of $80 million scheduled to expire in June 2025. As of September 30, 2023, $10.6 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.

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. In June 2023, Entergy Arkansas, the APSC general staff, and the Arkansas Attorney General filed a unanimous settlement supporting that the approval of the Walnut Bend Solar facility is in the public interest based on the terms in the settlement, which relate in part to certain treatment for the production tax credits associated with the facility. In July 2023, after requesting further testimony and purporting to modify several terms in the settlement and upon rehearing, the APSC approved the settlement largely on the terms submitted, including a 30-year amortization period for the production tax credits. The project 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.

Entergy Arkansas, 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 are updates to that discussion.

Retail Rates

2023 Formula Rate Plan Filing

In July 2023, Entergy Arkansas filed with the APSC its 2023 formula rate plan filing to set its formula rate for the 2024 calendar year. The filing contained an evaluation of Entergy Arkansas’s earnings for the projected year 2024 and a netting adjustment for the historical year 2022. The filing showed that Entergy Arkansas’s earned rate of return on common equity for the 2024 projected year is 8.11% resulting in a revenue deficiency of $80.5 million. The earned rate of return on common equity for the 2022 historical year was 7.29% resulting in a $49.8 million netting adjustment. The total proposed revenue change for the 2024 projected year and 2022 historical year netting adjustment is $130.3 million. By operation of the formula rate plan, Entergy Arkansas’s recovery of the revenue requirement is subject to a four percent annual revenue constraint. Because Entergy Arkansas’s revenue requirement in this filing exceeded the constraint, the resulting increase was limited to $88.6 million. The APSC general staff and intervenors filed their errors and objections in October 2023, proposing certain adjustments, including the APSC general staff’s update to annual filing year revenues which lowers the constraint to $87.7 million. Entergy Arkansas filed its rebuttal in October 2023. In October 2023, Entergy Arkansas filed with the APSC a settlement agreement reached with other parties resolving all issues in the proceeding, none of which affected Entergy Arkansas’s requested recovery up to the cap constraint of $87.7 million. The settlement agreement is pending the APSC’s approval.

Fuel and purchased power cost recovery

See Note 1 to the financial statements herein for discussion of the write-off in third quarter 2023 of Entergy Arkansas’s $68.9 million regulatory asset for deferred fuel related to the ANO stator incident as a result of a commitment, made in October 2023, by Entergy Arkansas to the APSC to make a filing to forgo its opportunity to seek recovery of the incremental fuel and purchased energy expense resulting from the ANO stator incident.

Energy Cost Recovery Rider

As discussed in the Form 10-K, in March 2021, Entergy Arkansas filed its annual redetermination of its energy cost rate pursuant to the energy cost recovery rider, which included an adjustment to account for a portion of the increased fuel costs resulting from the February 2021 winter storms. In February 2023 the APSC issued orders initiating proceedings with the utilities under its jurisdiction to address the prudence of costs incurred and appropriate cost allocation of the February 2021 winter storms. With respect to any prudence review of Entergy Arkansas fuel costs, as part of the APSC’s draft report issued in its February 2021 winter storms investigation docket, the APSC included findings that the load shedding plans of the investor-owned utilities and some cooperatives were appropriate and comprehensive, and, further, that Entergy Arkansas’s emergency plan was comprehensive and had a multilayered approach supported by a system-wide response plan, which is considered an industry standard. In September 2023 the APSC issued an order in Entergy Arkansas's company-specific proceeding and found that Entergy Arkansas’s practices during the winter storms were prudent.

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 February 2021 winter storms consistent with the 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

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

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.

Opportunity Sales Proceeding

See Note 2 to the financial statements in the Form 10-K for discussion of the Entergy Arkansas opportunity sales proceeding. As discussed in the Form 10-K, in January 2023, Arkansas Electric Energy Consumers, Inc., an industrial customer association, filed a notice of appeal of the U.S. District Court for the Eastern District of Arkansas’s order denying its motion to intervene to the United States Court of Appeals for the Eighth Circuit and a motion with the district court to stay the proceedings pending the appeal, which was denied. In February 2023, Arkansas Electric Energy Consumers, Inc. filed a motion with the United States Court of Appeals for the Eighth District to stay the proceedings pending the appeal, which also was denied. The trial was held in February 2023. Following the trial, Entergy Arkansas filed a motion with the United States Court of Appeals for the Eighth District to expedite the appeal filed by Arkansas Electric Energy Consumers, Inc. The United States Court of Appeals for the Eighth District granted Entergy Arkansas’s request, and oral arguments were held in June 2023. In August 2023 the United States Court of Appeals for the Eighth District denied Arkansas Electric Energy Consumers, Inc.’s motion to intervene. An order from the district court is pending.

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 August 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

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

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.

In September 2022 the APSC opened another proceeding to investigate the issue of potential cost shifting arising as a result of net metering. Investor owned utilities and some cooperatives were required to make and did make filings in October 2022 with supporting documentation as to the amount and extent of cost shifting and the manner in which they would design tariffs to recover those costs on behalf of non-net metering customers. Responses to the utility and cooperative filings 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, and the APSC also canceled the remaining procedural schedule in this docket in April 2023. Because of the new law, in May 2023, the APSC also closed the grandfathering rulemaking that it opened in August 2022. Under the new law, the APSC must approve revisions to the utilities’ tariffs to conform to the new law no later than December 2023. The APSC opened a new rulemaking in April 2023 to consider implementation of the new law and tariffs. In October 2023 the APSC issued new net metering rules to conform to the new law, and utilities, including Entergy Arkansas, filed revised net metering tariffs to comply with the new rules on October 16, 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. In its 2023 formula rate plan filing, Entergy Arkansas proposed to amortize the COVID-19 regulatory asset over a ten-year period. No party opposed Entergy Arkansas’s request. As of September 30, 2023, Entergy Arkansas had a regulatory asset of $39 million for costs associated with the COVID-19 pandemic.

Power Through Program

As discussed in the Form 10-K, in August 2021, Entergy Arkansas filed with the APSC an application seeking authority for a Power Through offering to deploy natural gas-fired distributed generation. In December 2021 the APSC general staff requested briefing, which Entergy Arkansas opposed. In January 2022, Entergy Arkansas filed to support the establishment of a procedural schedule with a hearing in April 2022. Also in January 2022, the APSC granted the general staff’s request for briefing but on an expedited schedule; briefing concluded in February 2022. A paper hearing was held in August and September 2022 with Entergy Arkansas responding to several written commissioner questions. In May 2023 the APSC approved the Power Through offering with some modifications, and in June 2023, Entergy Arkansas sought rehearing or clarification of several issues. In August 2023 the APSC denied Entergy Arkansas’s rehearing petition. Entergy Arkansas is developing tariff revisions to comply with the APSC’s order and working with the APSC general staff to propose a streamlined approval process to be filed in November 2023 for the individual Power Through generators. See “Property and Other Generation Resources - Other Generation Resources - Power Through Programs” in Part I, Item 1 in the Form 10-K for further discussion related to this program.

Entergy Arkansas, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Remaining Useful Lives Review

As discussed in the Form 10-K, in response to 2021 legislation, in December 2021 the APSC opened a proceeding to establish a procedure to evaluate life extensions of all utility generation units and in December 2022 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 in the separate docket. In June 2023 the APSC also closed the general proceeding because of the new law. 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.

New Accounting Pronouncements

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


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Nine Months Ended September 30, 2023 and 2022
(Unaudited)

	Three Months Ended		Nine Months Ended
	2023	2022	2023	2022
	(In Thousands)		(In Thousands)
OPERATING REVENUES
Electric	$831,659	$864,502	$2,030,755	$2,120,397

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	156,778	210,099	372,637	499,119
Purchased power	74,837	74,941	197,236	182,621
Nuclear refueling outage expenses	14,772	14,259	45,617	42,539
Other operation and maintenance	196,408	204,199	531,271	548,775
Asset write-offs	78,434	—	78,434	—
Decommissioning	21,989	20,731	65,006	61,288
Taxes other than income taxes	40,157	39,545	107,251	104,819
Depreciation and amortization	101,957	96,746	298,105	288,904
Other regulatory charges (credits) - net	(26,380)	(27,054)	(66,409)	(69,114)
TOTAL	658,952	633,466	1,629,148	1,658,951

OPERATING INCOME	172,707	231,036	401,607	461,446

OTHER INCOME
Allowance for equity funds used during construction	5,579	4,811	15,822	11,786
Interest and investment income	4,627	4,284	17,833	13,444
Miscellaneous - net	(8,030)	(6,356)	(16,370)	(16,640)
TOTAL	2,176	2,739	17,285	8,590

INTEREST EXPENSE
Interest expense	47,648	38,123	139,053	111,622
Allowance for borrowed funds used during construction	(2,241)	(1,912)	(6,355)	(4,684)
TOTAL	45,407	36,211	132,698	106,938

INCOME BEFORE INCOME TAXES	129,476	197,564	286,194	363,098

Income taxes	30,307	48,217	60,681	85,074

NET INCOME	99,169	149,347	225,513	278,024

Net loss attributable to noncontrolling interest	(791)	(724)	(3,426)	(2,640)

EARNINGS APPLICABLE TO MEMBER'S EQUITY	$99,960	$150,071	$228,939	$280,664

See Notes to Financial Statements.


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2023 and 2022
(Unaudited)
	2023	2022
	(In Thousands)
OPERATING ACTIVITIES
Net income	$225,513	$278,024
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation, amortization, and decommissioning, including nuclear fuel amortization	413,018	403,929
Deferred income taxes, investment tax credits, and non-current taxes accrued	59,931	85,012
Asset write-offs	78,434	—
Changes in assets and liabilities:
Receivables	(45,742)	(129,679)
Fuel inventory	8,001	7,430
Accounts payable	(71,533)	77,849
Taxes accrued	15,033	(4,838)
Interest accrued	35,534	32,360
Deferred fuel costs	165,982	(27,724)
Other working capital accounts	(12,517)	13,963
Provisions for estimated losses	(24,356)	(1,840)
Regulatory assets	(455)	(54,449)
Other regulatory liabilities	68,475	(305,972)

Pension and other postretirement liabilities	(55,944)	(58,966)
Other assets and liabilities	(96,988)	360,258
Net cash flow provided by operating activities	762,386	675,357

INVESTING ACTIVITIES
Construction expenditures	(768,243)	(552,919)
Allowance for equity funds used during construction	15,822	11,786
Payment for purchase of assets	—	(1,044)
Nuclear fuel purchases	(93,775)	(56,984)
Proceeds from sale of nuclear fuel	32,880	37,198
Proceeds from nuclear decommissioning trust fund sales	87,878	174,893
Investment in nuclear decommissioning trust funds	(104,348)	(190,244)
Changes in money pool receivable - net	(11,104)	(1,808)


Litigation proceeds for reimbursement of spent nuclear fuel storage costs	17,933	—

Decrease in other investments	106	—
Net cash flow used in investing activities	(822,851)	(579,122)

FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	991,606	225,625

Retirement of long-term debt	(515,615)	(21,316)



Changes in money pool payable - net	(180,795)	(139,904)

Common equity distributions paid	(142,000)	(86,000)

Other	15,390	(8,424)
Net cash flow provided by (used in) financing activities	168,586	(30,019)

Net increase in cash and cash equivalents	108,121	66,216
Cash and cash equivalents at beginning of period	5,278	12,915
Cash and cash equivalents at end of period	$113,399	$79,131

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized	$101,616	$77,625


See Notes to Financial Statements.


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2023 and December 31, 2022
(Unaudited)
	2023	2022
	(In Thousands)
CURRENT ASSETS
Cash and cash equivalents:
Cash	$3,137	$1,911
Temporary cash investments	110,262	3,367
Total cash and cash equivalents	113,399	5,278

Accounts receivable:
Customer	220,508	140,513
Allowance for doubtful accounts	(5,599)	(6,528)
Associated companies	48,283	45,336
Other	64,642	101,096
Accrued unbilled revenues	126,245	116,816
Total accounts receivable	454,079	397,233

Deferred fuel costs	—	139,739
Fuel inventory - at average cost	43,143	51,144
Materials and supplies - at average cost	331,099	288,260
Deferred nuclear refueling outage costs	49,373	56,443


Prepayments and other	43,694	26,576
TOTAL	1,034,787	964,673

OTHER PROPERTY AND INVESTMENTS
Decommissioning trust funds	1,285,583	1,199,860

Other	2,305	2,414
TOTAL	1,287,888	1,202,274

UTILITY PLANT
Electric	14,614,754	14,077,844

Construction work in progress	479,889	417,244
Nuclear fuel	162,397	176,174
TOTAL UTILITY PLANT	15,257,040	14,671,262
Less - accumulated depreciation and amortization	5,953,948	5,729,304
UTILITY PLANT - NET	9,303,092	8,941,958

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets	1,879,619	1,810,281
Deferred fuel costs	—	68,883
Other	16,194	18,507
TOTAL	1,895,813	1,897,671

TOTAL ASSETS	$13,521,580	$13,006,576

See Notes to Financial Statements.


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2023 and December 31, 2022
(Unaudited)
	2023	2022
	(In Thousands)
CURRENT LIABILITIES
Currently maturing long-term debt	$415,000	$290,000

Accounts payable:
Associated companies	69,666	276,362
Other	219,357	310,339
Customer deposits	109,719	102,799
Taxes accrued	115,559	100,526

Interest accrued	54,350	18,816
Deferred fuel costs	26,243	—

Other	69,429	43,394
TOTAL	1,079,323	1,142,236

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	1,561,460	1,498,234
Accumulated deferred investment tax credits	27,571	28,472
Regulatory liability for income taxes - net	433,687	435,157
Other regulatory liabilities	545,703	475,758
Decommissioning	1,537,742	1,472,736
Accumulated provisions	55,642	79,998
Pension and other postretirement liabilities	61,984	118,020
Long-term debt	4,235,501	3,876,500
Other	118,362	97,650
TOTAL	8,577,652	8,082,525

Commitments and Contingencies



EQUITY
Member's equity	3,840,930	3,753,990
Noncontrolling interest	23,675	27,825
TOTAL	3,864,605	3,781,815

TOTAL LIABILITIES AND EQUITY	$13,521,580	$13,006,576

See Notes to Financial Statements.


ENTERGY ARKANSAS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Nine Months Ended September 30, 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

Net income (loss)	(529)	63,639	63,110
Common equity distributions	—	(36,000)	(36,000)


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

Net income (loss)	(724)	150,071	149,347
Common equity distributions	—	(50,000)	(50,000)


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


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

Net income (loss)	(1,006)	67,954	66,948



Common equity distributions	—	(9,000)	(9,000)

Distributions to noncontrolling interest	(113)	—	(113)
Balance at June 30, 2023	24,973	3,793,970	3,818,943

Net income (loss)	(791)	99,960	99,169



Common equity distributions	—	(53,000)	(53,000)

Distributions to noncontrolling interest	(507)	—	(507)
Balance at September 30, 2023	$23,675	$3,840,930	$3,864,605

See Notes to Financial Statements.

ENTERGY LOUISIANA, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Third Quarter 2023 Compared to Third Quarter 2022

Net income increased $84.9 million primarily due to lower other operation and maintenance expenses, higher other income, higher volume/weather, and higher retail electric price. The increase was partially offset by higher depreciation and amortization expenses.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Net income increased $124.7 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, higher retail electric price, higher other income, lower other operation and maintenance expenses, and higher volume/weather. The net income increase was partially offset by the net effects of Entergy Louisiana’s storm cost securitization in May 2022, including a $290 million reduction in income tax expense, partially offset by a $224.4 million ($165.4 million net-of-tax) regulatory charge and higher depreciation and amortization expenses. See Note 2 to the financial statements herein and Note 2 and Note 3 in the Form 10-K for discussion of the storm cost securitizations.

Operating Revenues

Third Quarter 2023 Compared to Third Quarter 2022

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


			Amount
			(In Millions)
2022 operating revenues			$2,020.8
Fuel, rider, and other revenues that do not significantly affect net income			(693.2)
Return of unprotected excess accumulated deferred income taxes to customers			6.1
Retail electric price			18.4
Volume/weather			82.8
2023 operating revenues			$1,434.9

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

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

2018 in response to the enactment of the Tax Cuts and Jobs Act. In third quarter 2022, $6.1 million was returned to customers through reductions in operating revenues. There was no return of unprotected excess accumulated deferred income taxes to customers for third quarter 2023. There was no effect on net income as the reductions in operating revenues were offset by reductions in income tax expense. See Note 2 to the financial statements in the Form 10-K for discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

The retail electric price variance is primarily due to an increase in formula rate plan revenues, including increases in the distribution and transmission recovery mechanisms, effective September 2022 and September 2023. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the formula rate plan proceedings.

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

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


	2023	2022	% Change
	(GWh)
Residential	5,049	4,284	18
Commercial	3,395	3,186	7
Industrial	8,016	8,265	(3)
Governmental	216	220	(2)
Total retail	16,676	15,955	5
Sales for resale:
Associated companies	1,584	1,449	9
Non-associated companies	435	1,310	(67)
Total	18,695	18,714	—

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

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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


			Amount
			(In Millions)
2022 operating revenues			$4,802.6
Fuel, rider, and other revenues that do not significantly affect net income			(994.3)
Storm restoration carrying costs			(6.9)
Return of unprotected excess accumulated deferred income taxes to customers			24.6
Volume/weather			53.4
Retail electric price			106.3
2023 operating revenues			$3,985.7

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items.

Storm restoration carrying costs represent the equity component of storm restoration carrying costs, recorded in second quarter 2022, recognized as part of the securitization of Hurricane Laura, Hurricane Delta, Hurricane Zeta, Winter Storm Uri, and Hurricane Ida restoration costs in May 2022, partially offset by 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 and in the Form 10-K for discussion of the storm cost securitizations.

The return of unprotected excess accumulated deferred income taxes to customers resulted from the return of unprotected excess accumulated deferred income taxes through changes in the formula rate plan effective May 2018 in response to the enactment of the Tax Cuts and Jobs Act. In the nine months ended September 30, 2022, $24.6 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 nine months ended September 30, 2023. There was no effect on net income as the reductions in operating revenues were offset by reductions in income tax expense. See Note 2 to the financial statements in the Form 10-K for discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

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

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.

Total electric energy sales for Entergy Louisiana for the nine months ended September 30, 2023 and 2022 are as follows:


	2023	2022	% Change
	(GWh)
Residential	11,428	11,177	2
Commercial	8,643	8,486	2
Industrial	23,862	24,018	(1)
Governmental	617	619	—
Total retail	44,550	44,300	1
Sales for resale:
Associated companies	3,250	4,105	(21)
Non-associated companies	1,123	2,632	(57)
Total	48,923	51,037	(4)

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

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Other Income Statement Variances

Third Quarter 2023 Compared to Third Quarter 2022

Other operation and maintenance expenses decreased primarily due to:

a decrease of $5.7 million in 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;
a decrease of $4.7 million in compensation and benefits costs primarily due to lower healthcare claims activity in 2023 and a decrease in net periodic pension and other postretirement benefits service costs as a result of an increase in the discount rates used to value the benefits 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 $2.7 million in bad debt expense.

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

Other income increased primarily due to an increase of $25.6 million in affiliated dividend income from affiliated preferred membership interests, related to storm cost securitizations. The increase was partially offset by:

an increase in net periodic pension non-service costs as a result of a non-qualified pension settlement charge recorded in third quarter 2023. 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;
a decrease of $3.7 million due to the recognition of storm restoration carrying costs in third quarter 2022, primarily related to Hurricane Ida; and
changes in decommissioning trust fund activity.

See Note 2 to the financial statements herein and in the Form 10-K for discussion of the storm cost securitizations.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Other operation and maintenance expenses decreased primarily due to:

a decrease of $22.8 million in compensation and benefits costs primarily due to lower health and welfare costs as a result of higher prescription drug rebates in second quarter 2023, a decrease in net periodic pension and other postretirement benefits service costs as a result of an increase in the discount rates used to value the benefits liabilities, and a revision to estimated incentive compensation expense in the first quarter 2023. 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;
a decrease of $18.7 million in 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;
a decrease of $8.9 million in non-nuclear generation expenses primarily due to a lower scope of work, including during plant outages, performed in 2023 as compared to prior year;
a decrease of $8.9 million in nuclear generation expenses primarily due to lower nuclear labor costs and lower costs associated with materials and supplies in 2023 as compared to 2022; and
a decrease of $7.8 million in power delivery expenses primarily due to lower transmission and distribution management overhead costs, lower lighting costs, and lower transmission repairs and maintenance costs.

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

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 cost securitization; and
a regulatory charge of $224.4 million, recorded in second quarter 2022, to reflect Entergy Louisiana’s obligation to provide credits to its customers as described in an LPSC ancillary order issued in the Hurricane Laura, Hurricane Delta, Hurricane Zeta, Winter Storm Uri, and Hurricane Ida securitization regulatory proceeding. See Note 2 to the financial statements in the Form 10-K for discussion of the May 2022 storm cost 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.

Other income increased primarily due to:

an increase of $87.8 million in affiliated dividend income from affiliated preferred membership interests, related to storm cost securitizations;
a $31.6 million charge, recorded in second quarter 2022, for the LURC’s 1% beneficial interest in the storm trust I established as part of the Hurricane Laura, Hurricane Delta, Hurricane Zeta, Winter Storm Uri, and Hurricane Ida May 2022 storm cost securitization as compared to a $14.6 million charge, recorded in first quarter 2023, for the LURC’s 1% beneficial interest in the storm trust II established as part of the March 2023 Hurricane Ida storm cost securitization. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the storm cost securitizations; and
an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2023.

The increase was partially offset by:

a decrease of $16.9 million in the amount of storm restoration carrying costs recognized in 2023 as compared to 2022, primarily related to Hurricane Ida; and
an increase in net periodic pension non-service costs as a result of a non-qualified pension settlement charge recorded in third quarter 2023. 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.

Income Taxes

The effective income tax rate was 22.4% for the third quarter 2023. The difference in the effective income tax rate for the third quarter 2023 versus the federal statutory rate of 21% was primarily due to the accrual for state income taxes, partially offset by book and tax differences related to the non-taxable income distributions earned on preferred membership interests.

The effective income tax rate was 6.6% for the nine months ended September 30, 2023. The difference in the effective income tax rate for the nine months ended September 30, 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

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

and book and tax differences related to the non-taxable income distributions earned on preferred membership interests, partially offset by the accrual for state income taxes and the amortization of state accumulated deferred income taxes as a result of a tax rate change. See Notes 2 and 10 to the financial statements herein for a discussion of the March 2023 storm cost securitization under Act 293.

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

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

Income Tax Legislation and Regulation

Planned Sale of Gas Distribution Business

See the “Planned Sale of Gas Distribution Businesses” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis herein for discussion of the purchase and sale agreement for the sale of Entergy Louisiana’s gas distribution business.

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Liquidity and Capital Resources

Cash Flow

Cash flows for the nine months ended September 30, 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	1,368,788	621,457
Investing activities	(2,734,954)	(4,197,993)
Financing activities	2,102,833	3,753,660
Net increase in cash and cash equivalents	736,667	177,124

Cash and cash equivalents at end of period	$793,280	$195,697

Operating Activities

Net cash flow provided by operating activities increased $747.3 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to:

the timing of payments to vendors;
a decrease of $231.9 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 and 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; and
a decrease of $16.4 million in spending on nuclear refueling outages.

The increase was partially offset by lower collections from customers, an increase of $22.5 million in interest paid in 2023 as compared to 2022, and an increase of $20.2 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.

Investing Activities

Net cash flow used in investing activities decreased $1,463 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to:

an increase in investment in affiliates in 2022 due to the $3,163.6 million purchase by the storm trust I of preferred membership interests issued by an Entergy affiliate, partially offset by the $1,390.6 million redemption of preferred membership interests. See Note 2 to the financial statements in the Form 10-K for a discussion of the May 2022 storm cost securitization;
a decrease of $699.9 million in distribution construction expenditures primarily due to lower capital expenditures for storm restoration in 2023;
a decrease of $280.7 million in net payments to storm reserve escrow accounts;

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

a decrease of $233.9 million in transmission construction expenditures primarily due to lower capital expenditures for storm restoration in 2023 and decreased spending on various transmission projects in 2023; and
$124.4 million of redemptions in 2023 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 cost securitization. See Note 2 to the financial statements in the Form 10-K for a discussion of the May 2022 storm cost securitization and the storm trust I’s investment in preferred membership interests.

The decrease was partially offset by:

an increase in investment in affiliates in 2023 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 the March 2023 storm cost securitization and the storm trust II’s investment in preferred membership interests;
money pool activity;
an increase of $72.7 million as a result of fluctuations in nuclear fuel activity 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; and
an increase of $58.8 million in nuclear construction expenditures primarily due to increased spending on various nuclear projects in 2023.

Increases in Entergy Louisiana’s receivables from the money pool are a use of cash flow, and Entergy Louisiana’s receivable from the money pool increased $79.1 million for the nine months ended September 30, 2023 compared to decreasing by $9.8 million for the nine months ended September 30, 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 decreased $1,650.8 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to:

proceeds from securitization of $1.5 billion received by the storm trust II in 2023 compared to proceeds from securitization of $3.2 billion received by the storm trust I in 2022;
the issuance of $500 million of 4.75% Series mortgage bonds in August 2022;
the repayment, at maturity, of $325 million of 4.05% Series mortgage bonds in September 2023; and
money pool activity.

The decrease was partially offset by:

a capital contribution of approximately $1.5 billion in 2023 as compared to a capital contribution of approximately $1 billion in 2022, both received indirectly from Entergy Corporation and related to the March 2023 storm cost securitization and the May 2022 storm cost securitization, respectively;
the repayment, prior to maturity, in May 2022 of $435 million, a portion of the outstanding principal, of 0.62% Series mortgage bonds due November 2023;
the issuance of $70 million of 5.94% Series J notes by the Entergy Louisiana Waterford variable interest entity in September 2023;
a decrease of $75 million in 2023 in net repayments on Entergy Louisiana’s revolving credit facility; and
a decrease of $56.5 million in common equity distributions paid in 2023 in order to maintain Entergy Louisiana’s capital structure.

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

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 for the nine months ended September 30, 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. See Note 2 to the financial statements herein and in the Form 10-K for a discussion of the storm cost securitizations.

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.


	September 30, 2023		December 31, 2022
Debt to capital	47.5	%	53.0	%


Effect of subtracting cash	(2.0	%)	(0.1	%)
Net debt to net capital (non-GAAP)	45.5	%	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. The following are updates to the information provided in the Form 10-K.

Entergy Louisiana is developing its capital investment plan for 2024 through 2026 and currently anticipates making $7.5 billion in capital investments during that period. The preliminary estimate includes investments in generation projects to modernize, decarbonize, and diversify Entergy Louisiana’s portfolio; investments in River Bend and Waterford 3; distribution and Utility support spending to improve reliability, resilience, and customer experience; transmission spending to drive reliability and resilience while also supporting renewables expansion and customer growth; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

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


September 30, 2023	December 31, 2022	September 30, 2022	December 31, 2021
(In Thousands)
$79,136	($226,114)	$4,782	$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 2028. The credit facility includes fronting commitments for the issuance of letters of credit against $15 million of the borrowing capacity of the facility. As of September 30, 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 September 30, 2023, $11.2 million in letters of credit were outstanding under Entergy Louisiana’s uncommitted letter of credit facility. See Note 4 to the financial statements herein for additional discussion of the credit facilities.

The Entergy Louisiana nuclear fuel company variable interest entities have two separate credit facilities, each in the amount of $105 million and scheduled to expire in June 2025. As of September 30, 2023, $57.1 million in loans were outstanding under the credit facility for the Entergy Louisiana River Bend nuclear fuel company variable interest entity. As of September 30, 2023, $13.9 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.

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

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

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 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 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 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 for 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

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

payment default, the storm trust II is required to liquidate Entergy Finance Company preferred membership interests in an amount equal to what would be required to cure the default. The estimated value of this indirect guarantee is immaterial.

From the proceeds from the issuance of the preferred membership interests, Entergy Finance Company loaned approximately $1.5 billion to Entergy, which was indirectly contributed to Entergy Louisiana as a capital contribution.

As discussed in Note 10 to the financial statements herein, the securitization resulted in recognition of a net reduction of income tax expense of approximately $133 million, after taking into account a provision for uncertain tax positions, by Entergy Louisiana. Entergy’s recognition of reduced income tax expense was offset by other tax charges resulting in a net reduction of income tax expense of $129 million, after taking into account a provision for uncertain tax positions. In recognition of its obligations related to an LPSC ancillary order issued as part of the securitization regulatory proceeding, Entergy Louisiana recorded in first quarter 2023 a $103 million ($76 million net-of-tax) regulatory charge and a corresponding regulatory liability to reflect its obligation to share the benefits of the securitization with customers.

As discussed in Note 3 and Note 12 to the financial statements herein, Entergy Louisiana consolidates the storm trust II as a variable interest entity and the LURC’s 1% beneficial interest is shown as noncontrolling interest in the financial statements. In first quarter 2023, Entergy Louisiana recorded a charge of $14.6 million in other income to reflect the LURC’s beneficial interest in the storm trust II.

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 staff and certain intervenors filed direct testimony in August, September, and October 2023. The LPSC staff filed cross-answering testimony in October 2023. The testimony largely supports implementation of some level of accelerated investment in resilience but raises various issues related to the magnitude of the investment, the cost recovery mechanism applicable to the investment, and the ratemaking for the investment.

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 contemplated adoption of a final rule in October 2023, but this did not occur, and a new date has not been set.

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,

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

and settlement negotiations are ongoing. 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, was 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 procedural schedule was established in May 2023 with a hearing scheduled for March 2024. In October 2023 the LPSC staff and intervenors filed testimony, with the LPSC staff supporting the amount of solar resources to be acquired and the alternative RFP process. The LPSC staff also supported, subject to certain recommendations, the proposed framework for evaluation and certification of the solar resources by the LPSC and the proposed tariff.

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 to wind up the NISCO partnership, which will ultimately result in ownership of the generating units transferring to Entergy Louisiana. In May 2023, Entergy Louisiana filed an application with the FERC for transaction authorization pursuant to Section 203 of the Federal Power Act. In June 2023 the LPSC filed a notice to intervene in the proceeding. Entergy Louisiana is evaluating the effect of the transaction on its results of operations, cash flows, and financial condition, but at this time does not expect the effect to be material.

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

2022 Formula Rate Plan Filing

In May 2023, Entergy Louisiana filed its formula rate plan evaluation report for its 2022 calendar year operations. The 2022 test year evaluation report produced an earned return on common equity of 8.33%, requiring an approximately $70.7 million increase to base rider revenue. Due to a cap for the 2021 and 2022 test years, however, base rider formula rate plan revenues are only being increased by approximately $4.9 million, leaving an ongoing revenue deficiency of approximately $65.9 million and providing for prospective return on common equity opportunity of approximately 8.38%. Other changes in formula rate plan revenue driven by increases in capacity costs, primarily legacy capacity costs, additions eligible for recovery through the transmission recovery mechanism and distribution recovery mechanism, and higher sales during the test period are offset by reductions in net MISO costs as well as credits for FERC-ordered refunds. Also included in the 2022 test year distribution recovery mechanism revenue requirement is a $6 million credit relating to the distribution recovery mechanism performance accountability standards and requirements. In total, the net increase in formula rate plan revenues, including base formula rate plan revenues inside the formula rate plan bandwidth and subject to the cap, as well as other formula

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

rate plan revenues outside of the bandwidth, is $85.2 million. In August 2023 the LPSC staff filed a list of objections/reservations, including outstanding issues from the test years 2017-2021 formula rate plan filings, the calculation of certain refunds from System Energy, and certain calculations relating to the tax reform adjustment mechanism. Subject to refund and LPSC review, the resulting net increase in formula rate plan revenues of $85.2 million became effective for bills rendered during the first billing cycle of September 2023.

2023 Entergy Louisiana Rate Case and Formula Rate Plan Extension Request

In August 2023, Entergy Louisiana filed an application for approval of a regulatory blueprint necessary for it to strengthen the electric grid for the State of Louisiana, which contains a dual-path request to update rates through either: (1) extension of Entergy Louisiana’s current formula rate plan (with certain modifications) for three years (the Rate Mitigation Proposal), which is Entergy Louisiana’s recommended path; or (2) implementation of rates resulting from a cost-of-service study (the Rate Case path). The application complies with Entergy Louisiana’s previous formula rate plan extension order requiring that for Entergy Louisiana to obtain another extension of its formula rate plan that included a rate reset, Entergy Louisiana would need to submit a full cost-of-service/rate case. Entergy Louisiana’s filing supports the need to extend Entergy Louisiana’s formula rate plan with credit supportive mechanisms needed to facilitate investment in the distribution, transmission, and generation functions.

The Rate Case path proposes a 2024-2026 test year formula rate plan with an initial revenue requirement increase, net of $17 million of one-time credits, of $430 million and a return on common equity of 10.5%. Depreciation rates would be updated for all asset classes. The Rate Mitigation Proposal proposes a 2023-2025 test year formula rate plan with an expected initial revenue requirement increase, also net of $17 million of one-time credits, of $173 million and a return on common equity of 10.0%. Depreciation rates would be updated only for nuclear assets and would be phased in over three years.

Under both paths, Entergy Louisiana’s filing proposes removing the cap on amounts allowed to be recovered through the distribution recovery mechanism and continuing the distribution recovery mechanism performance accountability targets, which tie Entergy Louisiana’s ability to fully recover its distribution recovery mechanism investments to its reliability performance. Entergy Louisiana’s filing also includes new customer-centric programs specifically focused on affordability, such as reducing late fees and certain other fees assessed to customers, lowering additional facilities charge rates, providing eligible low-income seniors with monthly discounts on their electric bill, and adding new voluntary customer options to support new transportation electrification technologies. A status conference was held in October 2023 at which a procedural schedule was adopted that includes a hearing date of August 2024.

2017-2021 Formula Rate Plan Filings

In October 2023, Entergy Louisiana and the LPSC staff jointly filed an uncontested stipulated settlement agreement for consideration by the LPSC that would resolve the evaluation of Entergy Louisiana’s formula rate plan for test years 2017, 2018, and 2019 and resolve certain disputed issues for test years 2020 and 2021. If approved by the LPSC, the settlement would result in a one-time cost of service credit to customers of $5.8 million, would allow Entergy Louisiana to retain approximately $6.2 million of excess securitization collection as recovery of a regulatory asset associated with late fees related to the 2016 Baton Rouge flood, and would result in the reversal of a regulatory liability for excess accumulated deferred income taxes recognized in 2017 as a result of the Tax Cuts and Jobs Act. See Note 3 to the financial statements in the Form 10-K for further discussion of the Tax Cuts and Jobs Act. It is anticipated that the settlement will be considered by the LPSC in November 2023.

Fuel and purchased power recovery

As discussed in the Form 10-K, in March 2021 the LPSC staff provided notice of an audit of Entergy Louisiana’s purchased gas adjustment clause filings covering the period January 2018 through December 2020. The

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

audit includes a review of the reasonableness of charges flowed through Entergy Louisiana’s purchased gas adjustment clause for that period. In August 2023 the LPSC submitted its audit report and found that materially all costs recovered through the purchased gas adjustment filings were reasonable and eligible for recovery through the purchased gas adjustment clause.

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, as well as to conduct additional outside right-of-way vegetation management activities and to apply to the minor storm reserve account. 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. The LPSC approved Entergy Louisiana’s requested relief in June 2023 and a subsequent filing will be required to permit the LPSC to review the COVID-19 regulatory asset. As of September 30, 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. Following is an update to that discussion.

NRC Reactor Oversight Process

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

In September 2022 the NRC placed Waterford 3 in Column 2 based on an error associated with a radiation monitor calibration. Entergy corrected the issue with the radiation monitor in February 2022 and also corrected a

Entergy Louisiana, LLC and Subsidiaries

Management's Financial Discussion and Analysis

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. In August 2023 the NRC issued a finding and notice of violation related to a radiation monitor calibration issue at River Bend. River Bend will remain in Column 2 pending successful completion of supplemental inspections related to both issues.

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 and Nine Months Ended September 30, 2023 and 2022
(Unaudited)

	Three Months Ended		Nine Months Ended



	2023	2022	2023	2022
	(In Thousands)		(In Thousands)
OPERATING REVENUES
Electric	$1,421,598	$2,003,009	$3,933,259	$4,738,188
Natural gas	13,269	17,789	52,428	64,367
TOTAL	1,434,867	2,020,798	3,985,687	4,802,555

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	242,886	833,885	848,521	1,449,464
Purchased power	162,934	251,582	491,244	848,328
Nuclear refueling outage expenses	17,569	18,966	45,430	40,942
Other operation and maintenance	285,251	298,710	781,339	846,457
Decommissioning	19,138	18,137	56,544	53,736
Taxes other than income taxes	60,360	60,346	185,978	180,527
Depreciation and amortization	184,188	176,403	541,530	517,205
Other regulatory charges (credits) - net	(21,470)	(9,959)	27,759	172,605
TOTAL	950,856	1,648,070	2,978,345	4,109,264

OPERATING INCOME	484,011	372,728	1,007,342	693,291

OTHER INCOME
Allowance for equity funds used during construction	6,945	8,280	24,660	17,865
Interest and investment income (loss)	(11,482)	(8,861)	49,241	(93,241)
Interest and investment income - affiliated	80,971	55,363	218,274	130,464
Miscellaneous - net	(6,411)	6,835	(97,079)	59,338
TOTAL	70,023	61,617	195,096	114,426

INTEREST EXPENSE
Interest expense	93,857	92,020	285,959	278,559
Allowance for borrowed funds used during construction	(3,019)	(3,518)	(11,733)	(7,762)
TOTAL	90,838	88,502	274,226	270,797

INCOME BEFORE INCOME TAXES	463,196	345,843	928,212	536,920

Income taxes	103,889	71,453	61,621	(204,989)

NET INCOME	359,307	274,390	866,591	741,909

Net income attributable to noncontrolling interests	810	554	2,183	812

EARNINGS APPLICABLE TO MEMBER'S EQUITY	$358,497	$273,836	$864,408	$741,097

See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Nine Months Ended September 30, 2023 and 2022
(Unaudited)

	Three Months Ended		Nine Months Ended


	2023	2022	2023	2022
	(In Thousands)		(In Thousands)

Net Income	$359,307	$274,390	$866,591	$741,909

Other comprehensive income (loss)
Pension and other postretirement liabilities (net of tax expense (benefit) of ($674), $109, ($1,617), and ($298))	(1,829)	295	(4,388)	(809)
Other comprehensive income (loss)	(1,829)	295	(4,388)	(809)

Comprehensive Income	357,478	274,685	862,203	741,100
Net income attributable to noncontrolling interests	810	554	2,183	812
Comprehensive Income Applicable to Member’s Equity	$356,668	$274,131	$860,020	$740,288

See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2023 and 2022
(Unaudited)

	2023	2022
	(In Thousands)
OPERATING ACTIVITIES
Net income	$866,591	$741,909
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation, amortization, and decommissioning, including nuclear fuel amortization	650,800	633,124
Deferred income taxes, investment tax credits, and non-current taxes accrued	127,074	(84,719)
Changes in working capital:
Receivables	(54,518)	(193,374)
Fuel inventory	(19,194)	1,920
Accounts payable	(153,749)	(117,199)
Taxes accrued	57,979	(9,415)
Interest accrued	(9,687)	3,244
Deferred fuel costs	133,090	(272,259)
Other working capital accounts	(262,001)	(161,058)
Changes in provisions for estimated losses	7,249	292,013
Changes in other regulatory assets	390,864	741,131
Changes in other regulatory liabilities	200,267	(92,554)
Effect of securitization on regulatory asset	(491,150)	(1,190,338)


Changes in pension and other postretirement liabilities	(43,909)	(29,538)
Other	(30,918)	358,570
Net cash flow provided by operating activities	1,368,788	621,457
INVESTING ACTIVITIES
Construction expenditures	(1,194,315)	(2,099,909)
Allowance for equity funds used during construction	24,660	17,865


Nuclear fuel purchases	(136,357)	(84,606)
Proceeds from sale of nuclear fuel	16,733	37,634
Receipts from storm reserve escrow account	—	1,000,228

Payments to storm reserve escrow account	(10,463)	(1,291,431)
Purchase of preferred membership interests of affiliate	(1,457,676)	(3,163,572)
Redemption of preferred membership interests of affiliate	124,364	1,390,587

Proceeds from nuclear decommissioning trust fund sales	473,394	520,412
Investment in nuclear decommissioning trust funds	(516,047)	(540,653)
Changes in money pool receivable - net	(79,136)	9,757

Litigation proceeds from settlement agreement	—	5,695

Insurance proceeds received for property damages	19,493	—
Decrease in other investments	396	—
Net cash flow used in investing activities	(2,734,954)	(4,197,993)
FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	1,196,927	2,673,246
Retirement of long-term debt	(1,505,325)	(2,734,524)
Proceeds received by storm trust related to securitization	1,457,676	3,163,572
Capital contributions from parent	1,457,676	1,000,000



Change in money pool payable - net	(226,114)	—

Common equity distributions paid	(318,000)	(374,500)

Other	39,993	25,866
Net cash flow provided by financing activities	2,102,833	3,753,660

Net increase in cash and cash equivalents	736,667	177,124
Cash and cash equivalents at beginning of period	56,613	18,573
Cash and cash equivalents at end of period	$793,280	$195,697

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest - net of amount capitalized	$288,987	$266,522
Income taxes	($6,037)	$—

See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2023 and December 31, 2022
(Unaudited)
	2023	2022
	(In Thousands)
CURRENT ASSETS
Cash and cash equivalents:
Cash	$27,521	$50,318
Temporary cash investments	765,759	6,295
Total cash and cash equivalents	793,280	56,613

Accounts receivable:
Customer	361,830	339,291
Allowance for doubtful accounts	(7,569)	(7,595)
Associated companies	166,841	88,896
Other	51,549	53,241
Accrued unbilled revenues	233,913	199,077
Total accounts receivable	806,564	672,910

Deferred fuel costs	26,093	159,183
Fuel inventory	61,053	41,859
Materials and supplies - at average cost	641,041	555,860
Deferred nuclear refueling outage costs	62,394	53,833



Prepayments and other	291,656	76,646
TOTAL	2,682,081	1,616,904

OTHER PROPERTY AND INVESTMENTS
Investment in affiliate preferred membership interests	4,496,884	3,163,572
Decommissioning trust funds	1,912,924	1,779,090
Storm reserve escrow account	303,869	293,406
Non-utility property - at cost (less accumulated depreciation)	404,720	350,723

Other	14,349	19,679
TOTAL	7,132,746	5,606,470

UTILITY PLANT
Electric	27,482,440	27,498,136

Natural gas	311,565	301,719

Construction work in progress	587,658	736,969
Nuclear fuel	305,492	212,941
TOTAL UTILITY PLANT	28,687,155	28,749,765
Less - accumulated depreciation and amortization	10,382,412	10,087,942
UTILITY PLANT - NET	18,304,743	18,661,823

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets	1,665,315	2,056,179
Deferred fuel costs	168,122	168,122
Other	38,984	35,057
TOTAL	1,872,421	2,259,358

TOTAL ASSETS	$29,991,991	$28,144,555

See Notes to Financial Statements.


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2023 and December 31, 2022
(Unaudited)
	2023	2022
	(In Thousands)
CURRENT LIABILITIES
Currently maturing long-term debt	$685,000	$1,010,000

Accounts payable:
Associated companies	104,903	356,688
Other	411,363	589,355
Customer deposits	167,586	161,666
Taxes accrued	93,983	36,004

Interest accrued	91,649	101,336






Other	125,059	72,525
TOTAL	1,679,543	2,327,574

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	2,504,547	2,374,878
Accumulated deferred investment tax credits	94,399	97,868
Regulatory liability for income taxes - net	323,956	337,836

Other regulatory liabilities	1,252,109	1,037,962
Decommissioning	1,813,564	1,736,801
Accumulated provisions	323,563	316,314
Pension and other postretirement liabilities	346,126	389,631
Long-term debt	9,714,014	9,688,922

Other	431,572	343,321
TOTAL	16,803,850	16,323,533

Commitments and Contingencies

EQUITY

Member's equity	11,410,402	9,406,343
Accumulated other comprehensive income	50,982	55,370
Noncontrolling interests	47,214	31,735
TOTAL	11,508,598	9,493,448

TOTAL LIABILITIES AND EQUITY	$29,991,991	$28,144,555

See Notes to Financial Statements.


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



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


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

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


Contributions from parent	—	1,000,000	—	1,000,000


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

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

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




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

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

Net income	819	262,441	—	263,260
Other comprehensive loss	—	—	(1,773)	(1,773)







Other	—	15	—	15
Balance at June 30, 2023	47,215	11,209,667	52,811	11,309,693

Net income	810	358,497	—	359,307
Other comprehensive loss	—	—	(1,829)	(1,829)



Common equity distributions	—	(157,750)	—	(157,750)
Distribution to LURC	(811)	—	—	(811)

Other	—	(12)	—	(12)
Balance at September 30, 2023	$47,214	$11,410,402	$50,982	$11,508,598

See Notes to Financial Statements.

ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Earnings Applicable to Member’s Equity

Third Quarter 2023 Compared to Third Quarter 2022

Earnings remained relatively unchanged, increasing $0.4 million, primarily due to higher retail electric price and higher volume/weather offset by regulatory credits recorded in third quarter 2022 to reflect the effects of the joint stipulation reached in the 2022 formula rate plan proceeding and higher depreciation and amortization expenses.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Earnings increased $6 million primarily due to higher retail electric price and lower operation and maintenance expenses. The increase was partially offset by higher depreciation and amortization expenses, higher interest expense, lower volume/weather, and lower other income.

Operating Revenues

Third Quarter 2023 Compared to Third Quarter 2022

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


			Amount
			(In Millions)
2022 operating revenues			$459.1
Fuel, rider, and other revenues that do not significantly affect net income			14.3
Retail one-time bill credit			36.7
Retail electric price			14.8
Volume/weather			13.9
2023 operating revenues			$538.8

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 one-time bill credit represents the disbursement of settlement proceeds, in third quarter 2022, in the form of a one-time bill credit provided to retail customers during the September 2022 billing cycle as a result of the System Energy settlement agreement with the MPSC. There is no effect on net income as the reduction in operating revenues was offset by regulatory credits recorded in third quarter 2022. See Note 2 to the financial statements in the Form 10-K for discussion of the settlement agreement and the MPSC directive related to the disbursement of settlement proceeds.

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

The retail electric price variance is primarily due to increases in formula rate plan rates effective April 2023 and July 2023. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the formula rate plan filings.

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

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


	2023	2022	% Change
	(GWh)
Residential	1,925	1,766	9
Commercial	1,436	1,352	6
Industrial	647	654	(1)
Governmental	119	119	—
Total retail	4,127	3,891	6
Sales for resale:
Non-associated companies	961	936	3
Total	5,088	4,827	5

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

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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


			Amount
			(In Millions)
2022 operating revenues			$1,213.6
Fuel, rider, and other revenues that do not significantly affect net income			105.9
Retail electric price			48.7
Retail one-time bill credit			36.7
Volume/weather			(8.5)

2023 operating revenues			$1,396.4

The retail electric price variance is primarily due to increases in formula rate plan rates effective August 2022, April 2023, and July 2023. See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the formula rate plan filings.

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

operating revenues was offset by regulatory credits recorded in third quarter 2022. See Note 2 to the financial statements in the Form 10-K for discussion of the settlement agreement and the MPSC directive related to the disbursement of settlement proceeds.

The volume/weather variance is primarily due to a decrease in weather-adjusted residential usage and the effect of less favorable weather on residential sales.

Total electric energy sales for Entergy Mississippi for the nine months ended September 30, 2023 and 2022 are as follows:


	2023	2022	% Change
	(GWh)
Residential	4,336	4,480	(3)
Commercial	3,556	3,539	—
Industrial	1,779	1,808	(2)
Governmental	311	320	(3)
Total retail	9,982	10,147	(2)
Sales for resale:
Non-associated companies	3,734	2,148	74
Total	13,716	12,295	12

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

Other Income Statement Variances

Third Quarter 2023 Compared to Third Quarter 2022

Other operation and maintenance expenses decreased primarily due to a decrease of $4.0 million in non-nuclear generation expenses primarily due to a lower scope of work, including during plant outages, performed in 2023 as compared to 2022.

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

Depreciation and amortization expenses increased primarily due to additions to plant in service, including the Sunflower Solar facility, which was placed in service in September 2022.

Other regulatory charges (credits) - net includes:

a regulatory credit of $36.7 million, recorded in third quarter 2022, to reflect a one-time bill credit to customers as a result of the settlement agreement and offer of settlement with System Energy. This regulatory credit offsets a reduction in gross revenue from the bill credits provided to customers in the September 2022 billing cycle. See Note 2 to the financial statements in the Form 10-K for discussion of the settlement agreement and the MPSC directive related to the disbursement of settlement proceeds; and
regulatory credits of $22.6 million, recorded in third quarter 2022, to reflect the effects of the joint stipulation reached in the 2022 formula rate plan filing proceeding. See Note 2 to the financial statements in the Form 10-K for discussion of the 2022 formula rate plan filing.

Other income decreased primarily due to lower interest income from carrying costs related to the deferred fuel balance.

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Interest expense increased primarily due to the issuance of $300 million of 5.0% Series mortgage bonds in May 2023, partially offset by the repayment of $250 million of 3.10% Series mortgage bonds in June 2023.

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 $1.6 million in third quarter 2023 as compared to $9 million in third quarter 2022, to defer the difference between the losses allocated to the tax equity partner under the HLBV method of accounting and the earnings/losses that would have been allocated to the tax equity partner under its respective ownership percentage in the partnership. See Note 1 to the financial statements in the Form 10-K for discussion of the HLBV method of accounting.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Other operation and maintenance expenses decreased primarily due to:

a decrease of $5.1 million in compensation and benefits costs primarily due to lower health and welfare costs as a result of higher prescription drug rebates in second quarter 2023, a decrease in net periodic pension and other postretirement benefits service costs as a result of an increase in the discount rates used to value the benefits liabilities, and a revision to estimated incentive compensation expense in the first quarter of 2023. 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;
a decrease of $4.7 million in transmission costs allocated by MISO; and
a decrease of $2.5 million in non-nuclear generation expenses primarily due to a lower scope of work performed in 2023 as compared to 2022 and lower non-nuclear labor costs, partially offset by higher long term service agreement expenses.

The decrease was partially offset by an increase of $2.5 million in bad debt expense and several individually insignificant items.

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

Depreciation and amortization expenses increased primarily due to additions to plant in service, including the Sunflower Solar facility, which was placed in service in September 2022.

Other regulatory charges (credits) - net includes:

a regulatory credit of $36.7 million, recorded in third quarter 2022, to reflect a one-time bill credit to customers as a result of the settlement agreement and offer of settlement with System Energy. This regulatory credit offsets a reduction in gross revenue from the bill credits provided to customers in the September 2022 billing cycle. See Note 2 to the financial statements in the Form 10-K for further discussion of the settlement agreement and the MPSC directive related to the disbursement of settlement proceeds; and
regulatory credits of $22.6 million, recorded in third quarter 2022, to reflect the effects of the joint stipulation reached in the 2022 formula rate plan filing proceeding. See Note 2 to the financial statements in the Form 10-K for discussion of the 2022 formula rate plan filing.

Other income decreased primarily due to lower interest income from carrying costs related to the deferred fuel balance and an increase in net periodic pension non-service costs as a result of a non-qualified pension

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

settlement charge recorded in third quarter 2023. The decrease was partially offset by an increase in the allowance for equity funds used during construction due to higher construction work in progress in 2023. 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.

Interest expense increased primarily due to the issuance of $300 million of 5.0% Series mortgage bonds in May 2023 and the $150 million unsecured term loan drawn in June 2022. The increase was partially offset by the repayment of $250 million of 3.10% Series mortgage bonds in June 2023.

Income Taxes

The effective income tax rates were 24.2% for the third quarter 2023 and 24.5% for the nine months ended September 30, 2023. The differences in the effective income tax rates for the third quarter 2023 and the nine months ended September 30, 2023 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.

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

Income Tax Legislation and Regulation

Liquidity and Capital Resources

Cash Flow

Cash flows for the nine months ended September 30, 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	408,904	101,591
Investing activities	(433,505)	(428,776)
Financing activities	17,938	282,455
Net decrease in cash and cash equivalents	(6,663)	(44,730)

Cash and cash equivalents at end of period	$10,316	$2,897

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Operating Activities

Net cash flow provided by operating activities increased $307.3 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to:

higher collections from customers;
lower fuel costs and 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;
a one-time bill credit in 2022 for the disbursement of settlement proceeds as directed by the MPSC. See Note 2 to the financial statements in the Form 10-K for discussion of the settlement agreement and the MPSC directive related to the disbursement of settlement proceeds; and
the timing of payments to vendors.

The increase was partially offset by an increase of $10.6 million in interest paid.

Investing Activities

Net cash flow used in investing activities increased $4.7 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to:

an increase of $40.8 million in transmission construction expenditures primarily due to increased spending on various transmission projects in 2023;
an increase of $39.6 million in distribution construction expenditures primarily due to higher capital expenditures for storm restoration in 2023; and
money pool activity.

The increase was partially offset by:

the initial payment of approximately $105.1 million in May 2022 as compared to the substantial completion payment of approximately $30.4 million in April 2023 for the purchase of the Sunflower Solar facility by a consolidated tax equity partnership. See Note 14 to the financial statements in the Form 10-K for discussion of the Sunflower Solar facility purchase; and
a decrease of $11.1 million in information technology capital expenditures primarily due to decreased spending on various technology projects in 2023.

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 $26.9 million for the nine months ended September 30, 2023 compared to decreasing by $40.5 million for the nine months ended September 30, 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 decreased $264.5 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to:

the repayment, prior to maturity, of $250 million of 3.10% Series mortgage bonds in June 2023;
proceeds received in June 2022 from a $150 million unsecured term loan due December 2023;
borrowings of $100 million in 2022 on Entergy Mississippi’s credit facility;
the repayment, prior to maturity, in May 2023, of $50 million of an unsecured term loan due December 2023; and

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

$40 million in common equity distributions paid in 2023 in order to maintain Entergy Mississippi’s capital structure.

The decrease was partially offset by:

the issuance of $300 million of 5.0% Series mortgage bonds in May 2023; and
capital contributions of $25.7 million received in April 2023 as compared to $9.6 million received in May 2022, both from the noncontrolling tax equity investor in MS Sunflower Partnership, LLC and used by the partnership for payments in the acquisition of the Sunflower Solar facility. See Note 14 to the financial statements in the Form 10-K for discussion of the Sunflower Solar facility purchase.

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. The decrease in the debt to capital ratio for Entergy Mississippi is primarily due to net income in 2023.


	September 30, 2023		December 31, 2022
Debt to capital	51.8	%	53.4	%
Effect of subtracting cash	(0.1	%)	(0.2	%)
Net debt to net capital (non-GAAP)	51.7	%	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.

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. The following are updates to the information provided in the Form 10-K.

Entergy Mississippi is developing its capital investment plan for 2024 through 2026 and currently anticipates making $2.6 billion in capital investments during that period. The preliminary estimate includes investments in generation projects to modernize, decarbonize, and diversify Entergy Mississippi’s portfolio; distribution and Utility support spending to improve reliability, resilience, and customer experience; transmission spending to drive reliability and resilience while also supporting renewables expansion; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

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


September 30, 2023	December 31, 2022	September 30, 2022	December 31, 2021
(In Thousands)
($23,893)	$26,879	($19,319)	$40,456

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

Entergy Mississippi has a credit facility in the amount of $150 million scheduled to expire in July 2025. As of September 30, 2023, there were no cash borrowings outstanding under the credit facility. In addition, Entergy Mississippi is a party to an uncommitted letter of credit facility primarily as a means to post collateral to support its obligations to MISO. As of September 30, 2023, $6.7 million in MISO letters of credit and $1.0 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 both Entergy Mississippi and the tax equity investor made additional capital contributions to the tax equity partnership that were then used to make the substantial completion payment of $30.4 million for acquisition of the facility. The final payment of $4.7 million for acquisition of the facility was made in October 2023. See Note 14 to the financial statements in the Form 10-K for a discussion of Entergy Mississippi’s purchase of the Sunflower Solar facility.

State and Local Rate Regulation and Fuel-Cost Recovery

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

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 for 2022. In fourth quarter 2022, Entergy Mississippi recorded a regulatory asset of $18.2 million in connection with the look-back feature of the formula rate plan to reflect that the 2022 estimated earned return was below the formula rate plan bandwidth. In accordance with the provisions of the formula rate plan, Entergy Mississippi implemented a $27.9 million interim rate increase, reflecting a cap equal to 2% of 2022 retail revenues, effective in April 2023.

Entergy Mississippi, LLC and Subsidiaries

Management's Financial Discussion and Analysis

In May 2023, Entergy Mississippi and the Mississippi Public Utilities Staff entered into a joint stipulation that confirmed a 2023 test year filing resulting in a total revenue increase of $26.5 million for 2023. Pursuant to the joint stipulation, Entergy Mississippi’s 2022 look-back filing reflected an earned return on rate base of 6.10% in calendar year 2022, which is below the look-back bandwidth, resulting in a $19.0 million increase in the formula rate plan revenues on an interim basis through June 2024. Entergy Mississippi recorded a regulatory credit of $0.8 million in June 2023 to reflect the increase in the look-back regulatory asset. In addition, certain long-term service agreement and conductor handling costs were authorized for realignment from the formula rate plan to the annual power management and grid modernization riders effective January 2023, resulting in regulatory credits recorded in June 2023 of $4.1 million and $4.3 million, respectively. Also, the amortization of Entergy Mississippi’s COVID-19 bad debt deferral was suspended for calendar year 2023 and will resume in 2024. In June 2023 the MPSC approved the joint stipulation with rates effective in July 2023.

Fuel and purchased power recovery

In June 2023 the MPSC approved the joint stipulation agreement between Entergy Mississippi and the Mississippi Public Utilities Staff for Entergy Mississippi’s 2023 formula rate plan filing. The stipulation directed Entergy Mississippi to make a compliance filing to revise its power management cost adjustment factor, to revise its grid modernization cost adjustment factor, and to include a revision to reduce the net energy cost factor to a level necessary to reflect an average natural gas price of $4.50 per MMBtu. The MPSC approved the compliance filing in June 2023, effective for July 2023 bills. See “Retail Rates - 2023 Formula Rate Plan Filing” above for further discussion of the 2023 formula rate plan filing and the joint stipulation agreement.

RenewABLE Community Option

In January 2022, Entergy Mississippi filed its RenewABLE Community Option (Schedule RCO), an offering for qualifying non-residential customers to subscribe to renewable resource capacity to satisfy their environmental, sustainability, and governance goals. The MPSC approved Schedule RCO in December 2022. Registration for the Schedule RCO launched in May 2023 and subscriptions as of September 30, 2023 totaled 17 MW of the 40 MW available.

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.

Entergy Mississippi, 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 MISSISSIPPI, LLC AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Nine Months Ended September 30, 2023 and 2022
(Unaudited)

	Three Months Ended		Nine Months Ended
	2023	2022	2023	2022
	(In Thousands)		(In Thousands)
OPERATING REVENUES
Electric	$538,815	$459,132	$1,396,373	$1,213,620

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	151,755	86,145	453,570	197,093
Purchased power	89,465	84,653	212,419	235,211
Other operation and maintenance	78,959	82,698	217,377	223,407

Taxes other than income taxes	42,374	37,045	113,409	102,259
Depreciation and amortization	66,760	61,921	196,135	182,623
Other regulatory charges (credits) - net	(25,470)	(11,470)	(84,260)	16,290
TOTAL	403,843	340,992	1,108,650	956,883

OPERATING INCOME	134,972	118,140	287,723	256,737

OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction	2,260	1,606	6,313	4,179
Interest and investment income	107	136	1,890	234
Miscellaneous - net	(3,828)	181	(9,349)	17
TOTAL	(1,461)	1,923	(1,146)	4,430

INTEREST EXPENSE
Interest expense	25,257	22,473	74,634	63,910
Allowance for borrowed funds used during construction	(911)	(753)	(2,596)	(1,876)
TOTAL	24,346	21,720	72,038	62,034

INCOME BEFORE INCOME TAXES	109,165	98,343	214,539	199,133

Income taxes	26,428	23,454	52,597	44,935

NET INCOME	82,737	74,889	161,942	154,198

Net loss attributable to noncontrolling interest	(1,640)	(9,117)	(7,404)	(9,117)

EARNINGS APPLICABLE TO MEMBER'S EQUITY	$84,377	$84,006	$169,346	$163,315

See Notes to Financial Statements.

(Page left blank intentionally)


ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2023 and 2022
(Unaudited)
	2023	2022
	(In Thousands)
OPERATING ACTIVITIES
Net income	$161,942	$154,198
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation and amortization	196,135	182,623
Deferred income taxes, investment tax credits, and non-current taxes accrued	23,405	45,811
Changes in assets and liabilities:
Receivables	(52,905)	(50,712)
Fuel inventory	(1,746)	(2,856)
Accounts payable	(56,477)	34,776
Taxes accrued	14,269	(12,542)
Interest accrued	11,334	11,171
Deferred fuel costs	215,892	(214,459)
Other working capital accounts	(24,420)	(23,012)
Provisions for estimated losses	2,627	(461)
Other regulatory assets	(35,970)	(53,830)
Other regulatory liabilities	(52,712)	31,682
Pension and other postretirement liabilities	(22,529)	(18,489)
Other assets and liabilities	30,059	17,691
Net cash flow provided by operating activities	408,904	101,591

INVESTING ACTIVITIES
Construction expenditures	(435,188)	(368,151)
Allowance for equity funds used during construction	6,313	4,179

Changes in money pool receivable - net	26,879	40,456
Payment for purchase of assets	(30,433)	(105,149)

Increase in other investments	(1,076)	(111)
Net cash flow used in investing activities	(433,505)	(428,776)

FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	396,853	249,298
Retirement of long-term debt	(400,000)	—

Capital contributions from noncontrolling interest	25,708	9,595
Changes in money pool payable - net	23,893	19,319

Common equity distributions paid	(40,000)	—

Other	11,484	4,243
Net cash flow provided by financing activities	17,938	282,455

Net decrease in cash and cash equivalents	(6,663)	(44,730)
Cash and cash equivalents at beginning of period	16,979	47,627
Cash and cash equivalents at end of period	$10,316	$2,897

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized	$61,352	$50,719


See Notes to Financial Statements.


ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2023 and December 31, 2022
(Unaudited)
	2023	2022
	(In Thousands)
CURRENT ASSETS
Cash and cash equivalents:
Cash	$26	$26
Temporary cash investments	10,290	16,953
Total cash and cash equivalents	10,316	16,979
Accounts receivable:
Customer	170,454	99,504
Allowance for doubtful accounts	(3,035)	(2,472)
Associated companies	10,025	37,673
Other	18,525	34,564
Accrued unbilled revenues	72,799	73,473
Total accounts receivable	268,768	242,742
Deferred fuel costs	—	143,211

Fuel inventory - at average cost	17,294	15,548
Materials and supplies - at average cost	94,877	84,346

Prepayments and other	10,350	9,603
TOTAL	401,605	512,429

OTHER PROPERTY AND INVESTMENTS
Non-utility property - at cost (less accumulated depreciation)	4,501	4,512
Storm reserve escrow account	34,694	33,549
Other	841	910
TOTAL	40,036	38,971

UTILITY PLANT
Electric	7,381,120	7,079,849


Construction work in progress	249,991	170,191
TOTAL UTILITY PLANT	7,631,111	7,250,040
Less - accumulated depreciation and amortization	2,417,190	2,264,786
UTILITY PLANT - NET	5,213,921	4,985,254

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets	555,430	519,460
Other	25,558	22,650
TOTAL	580,988	542,110

TOTAL ASSETS	$6,236,550	$6,078,764

See Notes to Financial Statements.


ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2023 and December 31, 2022
(Unaudited)
	2023	2022
	(In Thousands)
CURRENT LIABILITIES
Currently maturing long-term debt	$200,000	$400,000

Accounts payable:
Associated companies	60,679	60,532
Other	115,126	176,162
Customer deposits	91,944	89,668
Taxes accrued	139,174	124,905

Interest accrued	29,542	18,208
Deferred fuel costs	72,681	—



Other	24,747	38,908
TOTAL	733,893	908,383

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	812,716	780,030
Accumulated deferred investment tax credits	14,294	14,591

Regulatory liability for income taxes - net	193,812	202,058

Other regulatory liabilities	35,399	79,865
Asset retirement cost liabilities	8,119	7,797
Accumulated provisions	40,136	37,509
Pension and other postretirement liabilities	890	23,742
Long-term debt	2,129,185	1,931,096
Other	79,919	53,156
TOTAL	3,314,470	3,129,844

Commitments and Contingencies



EQUITY
Member's equity	2,166,536	2,037,190
Noncontrolling interest	21,651	3,347
TOTAL	2,188,187	2,040,537

TOTAL LIABILITIES AND EQUITY	$6,236,550	$6,078,764

See Notes to Financial Statements.


ENTERGY MISSISSIPPI, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Nine Months Ended September 30, 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

Net income	—	48,955	48,955
Capital contribution from noncontrolling interest	9,595	—	9,595
Balance at June 30, 2022	9,595	1,918,878	1,928,473

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

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


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

Net income (loss)	(3,623)	61,888	58,265

Common equity distributions	—	(27,500)	(27,500)
Capital contribution from noncontrolling interest	25,708	—	25,708
Balance at June 30, 2023	23,291	2,082,159	2,105,450

Net income (loss)	(1,640)	84,377	82,737

Balance at September 30, 2023	$21,651	$2,166,536	$2,188,187

See Notes to Financial Statements.

ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Third Quarter 2023 Compared to Third Quarter 2022

Net income increased $16.6 million primarily due to higher volume/weather and higher retail electric price, partially offset by higher other operation and maintenance expenses and higher taxes other than income taxes.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Net income increased $6 million primarily due to higher retail electric price, higher volume/weather, and higher other income, partially offset by higher taxes other than income taxes, a higher effective income tax rate, higher depreciation and amortization expenses, and higher interest expense.

Operating Revenues

Third Quarter 2023 Compared to Third Quarter 2022

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


			Amount
			(In Millions)
2022 operating revenues			$291.7
Fuel, rider, and other revenues that do not significantly affect net income			(66.7)
Retail electric price			4.5
Volume/weather			24.8
2023 operating revenues			$254.3

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 an increase of 296 GWh, or 19%, in electricity usage across all customer classes, including the effect of more favorable weather on residential and commercial sales.

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Total electric energy sales for Entergy New Orleans for the three months ended September 30, 2023 and 2022 are as follows:


	2023	2022	% Change
	(GWh)
Residential	877	702	25
Commercial	652	561	16
Industrial	129	109	18
Governmental	232	222	5
Total retail	1,890	1,594	19
Sales for resale:
Non-associated companies	600	499	20
Total	2,490	2,093	19

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

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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


			Amount
			(In Millions)
2022 operating revenues			$744.2
Fuel, rider, and other revenues that do not significantly affect net income			(113.0)
Volume/weather			6.4
Retail electric price			13.6
2023 operating revenues			$651.2

The volume/weather variance is primarily due to an increase in weather-adjusted commercial usage and the effect of more favorable weather on commercial sales. The increase in weather-adjusted commercial usage is primarily due to an increase in customers.

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Total electric energy sales for Entergy New Orleans for the nine months ended September 30, 2023 and 2022 are as follows:


	2023	2022	% Change
	(GWh)
Residential	1,906	1,909	—
Commercial	1,647	1,569	5
Industrial	325	318	2
Governmental	600	606	(1)
Total retail	4,478	4,402	2
Sales for resale:
Non-associated companies	2,194	1,820	21
Total	6,672	6,222	7

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

Other Income Statement Variances

Third Quarter 2023 Compared to Third Quarter 2022

Other operation and maintenance expenses increased primarily due to an increase of $5 million in non-nuclear generation expenses primarily resulting from a higher scope of work performed in 2023 as compared to the same period in 2022.

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

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Other operation and maintenance expenses remained relatively unchanged, increasing by $1.3 million, primarily due to an increase of $4.5 million in non-nuclear generation expenses resulting from a higher scope of work performed in 2023 as compared to the same period in 2022. The increase was partially offset by a decrease of $2.6 million in bad debt expense and a decrease of $1.9 million in compensation and benefits costs primarily due to lower health and welfare costs as a result of higher prescription drug rebates in second quarter 2023 and a decrease in net periodic pension and other postretirement benefits service costs as a result of an increase in the discount rates used to value the benefits 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.

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

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

Other income increased primarily due to higher interest earned on money pool investments, partially offset by an increase in net periodic pension non-service costs as a result of a non-qualified pension settlement charge recorded in third quarter 2023. 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.

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Interest expense increased primarily due to a higher fixed interest rate on its unsecured term loan and interest on the $34 million regulatory liability recorded when Entergy New Orleans received a refund from System Energy in January 2023 related to the sale-leaseback renewal costs and depreciation litigation. 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 and in the Form 10-K for further discussion of the refund and the related proceedings.

Income Taxes

The effective income tax rates were 27.3% for the third quarter 2023 and 28.5% for the nine months ended September 30, 2023. The differences in the effective income tax rates for the third quarter 2023 and the nine months ended September 30, 2023 versus the federal statutory rate of 21% were primarily due to the accrual for state income taxes.

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

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

Income Tax Legislation and Regulation

Planned Sale of Gas Distribution Business

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Liquidity and Capital Resources

Cash Flow

Cash flows for the nine months ended September 30, 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	185,632	96,194
Investing activities	1,914	(130,584)
Financing activities	(77,203)	9,509
Net increase (decrease) in cash and cash equivalents	110,343	(24,881)

Cash and cash equivalents at end of period	$114,807	$17,981

Operating Activities

Net cash flow provided by operating activities increased $89.4 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to:

lower fuel costs and the timing of recovery of fuel and purchased power costs. See Note 2 to the financial statements in the Form 10-K for a discussion of fuel and purchased power cost recovery;
the timing of payments to vendors;
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 the refund and the related proceedings;
higher collections from customers; and
a decrease of $18.4 million in storm spending primarily due to Hurricane Ida restoration efforts in 2022.

The increase was partially offset by higher receipts from associated companies in 2022.

Investing Activities

Entergy New Orleans’s investing activities provided $1.9 million of cash for the nine months ended September 30, 2023 compared to using $130.6 million of cash for the nine months ended September 30, 2022 primarily due to the following activity:

money pool activity;
a decrease of $34.9 million in distribution construction expenditures primarily due to higher capital expenditures for Hurricane Ida storm restoration efforts in 2022, partially offset by increased investment in the reliability and infrastructure of Entergy New Orleans’s distribution system in 2023; and
an increase of $9 million in transmission construction expenditures primarily due to higher spending in 2023 related to Entergy New Orleans’s construction of the New Orleans Sewerage and Water Board Sullivan substation.

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 $135.4 million for the nine months ended September 30,

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

2023 compared to decreasing by $36 million for the nine months ended September 30, 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 used $77.2 million of cash for the nine months ended September 30, 2023 compared to providing $9.5 million of cash for the nine months ended September 30, 2022 primarily due to the repayment, at maturity, of $100 million of 3.9% Series mortgage bonds in July 2023 and additional borrowings of $15 million in May 2023 on an unsecured term loan due June 2024. 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 New Orleans’s debt to capital ratio is shown in the following table. The decrease in the debt to capital ratio for Entergy New Orleans is primarily due to the net retirement of long-term debt in 2023.


	September 30, 2023		December 31, 2022
Debt to capital	47.2	%	52.6	%
Effect of excluding securitization bonds	(0.4	%)	(0.6	%)
Debt to capital, excluding securitization bonds (non-GAAP) (a)	46.8	%	52.0	%
Effect of subtracting cash	(4.6	%)	(0.1	%)
Net debt to net capital, excluding securitization bonds (non-GAAP) (a)	42.2	%	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. The following are updates to the information provided in the Form 10-K.

Entergy New Orleans is developing its capital investment plan for 2024 through 2026 and currently anticipates making $525 million in capital investments during that period. The preliminary estimate includes distribution and Utility support spending to deliver reliability, resilience, and customer experience; transmission spending to drive reliability and resilience; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

requirements, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.

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


September 30, 2023	December 31, 2022	September 30, 2022	December 31, 2021
(In Thousands)
$11,827	$147,254	$433	$36,410

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

Entergy New Orleans has a credit facility in the amount of $25 million scheduled to expire in June 2024. The credit facility includes fronting commitments for the issuance of letters of credit against $10 million of the borrowing capacity of the facility. As of September 30, 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 September 30, 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.

Hurricane Ida

As discussed in the Form 10-K, in August 2021, Hurricane Ida caused significant damage to Entergy New Orleans’s service area, including Entergy’s electrical grid. The storm resulted in widespread power outages, including the loss of 100% of Entergy New Orleans’s load and damage to distribution and transmission infrastructure, including the loss of connectivity to the eastern interconnection. In September 2021, Entergy New Orleans withdrew $39 million from its funded storm reserves. In June 2022, Entergy New Orleans filed an application with the City Council requesting approval and certification that storm restoration costs associated with Hurricane Ida of approximately $170 million, which included $11 million in estimated costs, were reasonable, necessary, and prudently incurred to enable Entergy New Orleans to restore electric service to its customers and to repair Entergy New Orleans’s electric utility infrastructure. In addition, estimated carrying costs through December 2022 related to Hurricane Ida restoration costs were $9 million, which were subsequently included in an addendum to the June 2022 application. Also, Entergy New Orleans requested approval that the $39 million withdrawal from its funded storm reserve in September 2021, the $125 million withdrawal from its securitized storm reserve, and $7 million in excess storm reserve escrow withdrawals related to Hurricane Zeta and prior miscellaneous storms were properly applied to Hurricane Ida storm restoration costs.

In August 2023 the City Council advisors issued a report recommending that the City Council find that Entergy New Orleans prudently incurred approximately $164.1 million in storm restoration costs and $7.5 million in carrying charges and that such costs have already been properly recovered by Entergy New Orleans through withdrawals from the storm reserve escrow account. The City Council advisors also recommended that the City Council find that approximately $1.2 million in storm restoration costs had already been recovered through Entergy New Orleans’s base rates and that approximately $0.9 million in unused credits be applied against future storm costs. In August 2023 the City Council hearing officer certified the evidentiary record.

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

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

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. In July 2023, Entergy New Orleans filed comments in support of its application.

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 of 7.34% and a gas earned return on equity of 3.52% compared to the authorized return on equity for each of 9.35%. Entergy New Orleans sought approval of a $25.6 million rate increase based on the formula set by the City Council in the 2018 rate case. The formula would result 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 sought to commence collecting $3.4 million in electric revenues that were previously approved by the City Council for collection through the formula rate plan. In July 2023, Entergy New Orleans filed a report to decrease its requested formula rate plan revenues by approximately $0.5 million to account for minor errors discovered after the filing. The City Council advisors issued a report seeking a reduction in the requested formula rate plan revenues of approximately $8.3 million, combined for electric and gas, due to alleged errors. The City Council advisors proposed additional rate mitigation in the amount of $12 million through offsets to the formula rate plan rate increase by certain regulatory liabilities. In September 2023 the City Council approved an agreement to settle the 2023 formula rate plan filing. Effective with the first billing cycle of September 2023, Entergy New Orleans implemented rates reflecting an amount agreed upon by Entergy New Orleans and the City Council, per the approved process for formula rate plan implementation. The agreement provides for a total increase in electric revenues of $10.5 million and a total increase in gas revenues of $6.9 million. The agreement also provides for a minor storm accrual of $0.5 million per year and the distribution of $8.9 million of currently held customer credits to implement the City Council advisors’ mitigation recommendations.

Request for Extension and Modification of Formula Rate Plan

In September 2023, Entergy New Orleans filed a motion seeking City Council approval of a three-year extension of Entergy New Orleans’s electric and gas formula rate plans. In October 2023 the City Council granted Entergy New Orleans’s request for an extension, subject to minor modifications which included a capital structure not to exceed 55% equity.

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 Orleans and whether fines should be imposed. In January 2019, Entergy New Orleans filed testimony in response

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

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.

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. In April 2023, Entergy New Orleans filed the compliance filings required by the resolution 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.

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 imposed in 2019. In May 2023, Entergy New Orleans filed with the Orleans Civil District Court a petition for judicial review and (or alternatively) declaratory judgment of, together with a request for injunctive relief from, the City Council’s April 2023 resolution. In June 2023 the City Council filed exceptions requesting the Orleans Civil District Court dismiss the suit as premature, and a hearing date was set on the exceptions. In September 2023, Entergy New Orleans filed an unopposed motion to continue the hearing on the City Council’s exceptions without date, which was granted. Entergy New Orleans expects to file its opposition to the City Council’s exceptions by the applicable deadlines.

Renewable Portfolio Standard Rulemaking

As discussed in the Form 10-K, in May 2021 the City Council approved the draft rule, as amended, establishing the Renewable and Clean Portfolio Standard. In May 2023, Entergy New Orleans submitted its compliance demonstration report to the City Council for the 2022 compliance year, which describes and demonstrates Entergy New Orleans’s compliance with the Renewable and Clean Portfolio Standard in 2022 and satisfies certain informational requirements. Entergy New Orleans requested, among other things, that the City Council determine that Entergy New Orleans achieved the target under the portfolio standard for 2022 and remains within the customer protection cost cap, and that the City Council approve a proposal to recover costs associated with 2022 compliance. In July 2023 intervenors filed comments on the compliance demonstration report, and Entergy New Orleans responded to those comments in August 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 further discussion of nuclear matters.

Entergy New Orleans, LLC and Subsidiaries

Management's Financial Discussion and Analysis

Environmental Risks

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

Critical Accounting Estimates

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy 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 and Nine Months Ended September 30, 2023 and 2022
(Unaudited)

	Three Months Ended		Nine Months Ended
	2023	2022	2023	2022
	(In Thousands)		(In Thousands)
OPERATING REVENUES
Electric	$235,280	$262,904	$573,191	$641,634
Natural gas	19,036	28,759	77,961	102,550
TOTAL	254,316	291,663	651,152	744,184

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	28,922	81,847	99,920	180,059
Purchased power	68,115	88,103	200,664	227,661
Other operation and maintenance	45,273	38,806	117,461	116,173
Taxes other than income taxes	17,251	12,920	48,155	41,353
Depreciation and amortization	20,831	19,556	60,470	57,322
Other regulatory charges (credits) - net	4,946	5,452	6,133	14,991
TOTAL	185,338	246,684	532,803	637,559

OPERATING INCOME	68,978	44,979	118,349	106,625

OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction	332	396	1,062	316
Interest and investment income	1,535	215	5,986	307
Miscellaneous - net	(1,943)	(184)	(2,687)	766
TOTAL	(76)	427	4,361	1,389

INTEREST EXPENSE
Interest expense	9,171	8,683	28,793	26,075
Allowance for borrowed funds used during construction	(161)	(215)	(516)	(255)
TOTAL	9,010	8,468	28,277	25,820

INCOME BEFORE INCOME TAXES	59,892	36,938	94,433	82,194

Income taxes	16,347	10,023	26,889	20,607

NET INCOME	$43,545	$26,915	$67,544	$61,587

See Notes to Financial Statements.

(Page left blank intentionally)


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2023 and 2022
(Unaudited)
	2023	2022
	(In Thousands)
OPERATING ACTIVITIES
Net income	$67,544	$61,587
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation and amortization	60,470	57,322
Deferred income taxes, investment tax credits, and non-current taxes accrued	23,529	22,429
Changes in assets and liabilities:
Receivables	5,119	(9,022)
Fuel inventory	2,909	(3,245)
Accounts payable	(28,968)	3,319
Taxes accrued	734	(4,241)
Interest accrued	2,195	(204)
Deferred fuel costs	8,025	(33,301)
Other working capital accounts	14,598	(5,973)
Provisions for estimated losses	6,585	8,409
Other regulatory assets	8,597	24,449
Other regulatory liabilities	17,878	(8,921)

Pension and other postretirement liabilities	(4,506)	(6,598)
Other assets and liabilities	923	(9,816)
Net cash flow provided by operating activities	185,632	96,194

INVESTING ACTIVITIES
Construction expenditures	(128,477)	(163,403)
Allowance for equity funds used during construction	1,062	316


Changes in money pool receivable - net	135,427	35,977


Changes in securitization account	(3,437)	(3,474)
Increase in other investments	(2,661)	—
Net cash flow provided by (used in) investing activities	1,914	(130,584)

FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	14,630	—
Retirement of long-term debt	(106,073)	(5,916)




Contributions from customer for construction	15,000	15,000


Other	(760)	425
Net cash flow provided by (used in) financing activities	(77,203)	9,509

Net increase (decrease) in cash and cash equivalents	110,343	(24,881)
Cash and cash equivalents at beginning of period	4,464	42,862
Cash and cash equivalents at end of period	$114,807	$17,981

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized	$25,545	$25,231
Income taxes	$1,600	$—

See Notes to Financial Statements.


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2023 and December 31, 2022
(Unaudited)
	2023	2022
	(In Thousands)
CURRENT ASSETS
Cash and cash equivalents:
Cash	$435	$27
Temporary cash investments	114,372	4,437
Total cash and cash equivalents	114,807	4,464
Securitization recovery trust account	5,672	2,235
Accounts receivable:
Customer	91,353	93,288
Allowance for doubtful accounts	(9,213)	(11,909)
Associated companies	13,531	149,927
Other	5,415	6,110
Accrued unbilled revenues	33,068	37,284
Total accounts receivable	134,154	274,700
Deferred fuel costs	2,128	10,153
Fuel inventory - at average cost	2,963	5,872
Materials and supplies - at average cost	26,998	22,498

Prepayments and other	13,884	6,312
TOTAL	300,606	326,234

OTHER PROPERTY AND INVESTMENTS
Non-utility property at cost (less accumulated depreciation)	832	1,050
Storm reserve escrow account	77,712	75,000
Other	624	675
TOTAL	79,168	76,725

UTILITY PLANT
Electric	2,010,846	1,934,837
Natural gas	400,808	390,252
Construction work in progress	31,152	39,607
TOTAL UTILITY PLANT	2,442,806	2,364,696
Less - accumulated depreciation and amortization	842,197	808,224
UTILITY PLANT - NET	1,600,609	1,556,472

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Deferred fuel costs	4,080	4,080
Other regulatory assets (includes securitization property of $3,550 as of September 30, 2023 and $13,363 as of December 31, 2022)	193,515	202,112
Other	54,278	46,778
TOTAL	251,873	252,970

TOTAL ASSETS	$2,232,256	$2,212,401

See Notes to Financial Statements.


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2023 and December 31, 2022
(Unaudited)
	2023	2022
	(In Thousands)
CURRENT LIABILITIES
Currently maturing long-term debt	$85,000	$170,000
Payable due to associated company	1,306	1,306
Accounts payable:
Associated companies	40,883	53,258
Other	34,283	57,291
Customer deposits	32,310	31,826
Taxes accrued	11,042	10,308
Interest accrued	10,275	8,080


Other	32,899	6,560
TOTAL	247,998	338,629

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	405,836	385,259
Accumulated deferred investment tax credits	16,463	16,481
Regulatory liability for income taxes - net	42,028	39,738
Other regulatory liabilities	36,323	20,735
Asset retirement cost liabilities	4,539	—
Accumulated provisions	93,633	87,048

Long-term debt (includes securitization bonds of $11,806 as of September 30, 2023 and $17,697 as of December 31, 2022)	590,417	596,047
Long-term payable due to associated company	8,279	8,279
Other	16,380	17,369
TOTAL	1,213,898	1,170,956

Commitments and Contingencies

EQUITY
Member's equity	770,360	702,816
TOTAL	770,360	702,816

TOTAL LIABILITIES AND EQUITY	$2,232,256	$2,212,401

See Notes to Financial Statements.


ENTERGY NEW ORLEANS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S EQUITY
For the Nine Months Ended September 30, 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

Net income			19,546

Balance at June 30, 2022			673,387

Net income			26,915

Balance at September 30, 2022			$700,302


Balance at December 31, 2022			$702,816

Net income			10,142

Balance at March 31, 2023			712,958

Net income			13,857

Balance at June 30, 2023			726,815

Net income			43,545

Balance at September 30, 2023			$770,360

See Notes to Financial Statements.

ENTERGY TEXAS, INC. AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS

Results of Operations

Net Income

Third Quarter 2023 Compared to Third Quarter 2022

Net income increased $32.1 million primarily due to higher volume/weather and higher retail electric price, partially offset by higher depreciation and amortization expenses.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Net income increased $14.3 million primarily due to higher retail electric price, lower other operation and maintenance expenses, and higher other income. The increase was partially offset by higher depreciation and amortization expenses, the recognition of the equity component of carrying costs as part of the securitization of the Hurricane Laura, Hurricane Delta, and Winter Storm Uri system restoration costs in April 2022, higher taxes other than income taxes, and higher interest expense.

Operating Revenues

Third Quarter 2023 Compared to Third Quarter 2022

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


			Amount
			(In Millions)
2022 operating revenues			$659.6
Fuel, rider, and other revenues that do not significantly affect net income			(105.3)
Return of unprotected excess accumulated deferred income taxes to customers			10.3
Retail electric price			25.8
Volume/weather			26.2
2023 operating revenues			$616.6

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

The 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 third quarter 2022, $10.3 million was returned to customers through reductions in operating revenues. There was no return of unprotected excess accumulated deferred income taxes to customers for third quarter 2023. There was no effect on net income as the reductions in operating revenues were offset by reductions in income tax expense. See Note 2 to the financial statements in the Form 10-K for discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

The retail electric price variance is primarily due to an increase in the annual base rate, including the realignment of the costs previously being collected through the distribution and transmission cost recovery factor riders and the generation cost recovery rider to base rates, effective June 2023 on an interim basis and approved by the PUCT in August 2023. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the 2022 base rate case.

The volume/weather variance is primarily due to the effect of more favorable weather on residential sales and an increase in weather-adjusted residential usage. The increase in weather-adjusted residential usage was primarily due to an increase in customers.

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


	2023	2022	% Change
	(GWh)
Residential	2,474	2,125	16
Commercial	1,485	1,416	5
Industrial	2,459	2,538	(3)
Governmental	73	77	(5)
Total retail	6,491	6,156	5
Sales for resale:
Non-associated companies	128	127	1
Total	6,619	6,283	5

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

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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


			Amount
			(In Millions)
2022 operating revenues			$1,696.6
Fuel, rider, and other revenues that do not significantly affect net income			(165.5)
System restoration carrying costs			(21.7)
Volume/weather			4.8
Return of unprotected excess accumulated deferred income taxes to customers			24.0
Retail electric price			50.3
2023 operating revenues			$1,588.5

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

System restoration carrying costs represent the equity component of system restoration carrying costs, recorded in second quarter 2022, recognized as part of the securitization of the Hurricane Laura, Hurricane Delta, and Winter Storm Uri system restoration costs in April 2022. See Note 2 to the financial statements in the Form 10-K for a discussion of the securitization.

The volume/weather variance is primarily due to an increase in residential usage resulting from an increase in customers.

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 nine months ended September 30, 2022, $24 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 nine months ended September 30, 2023. There was no effect on net income as the reductions in operating revenues were offset by reductions in income tax expense. See Note 2 to the financial statements in the Form 10-K for discussion of regulatory activity regarding the Tax Cuts and Jobs Act.

Total electric energy sales for Entergy Texas for the nine months ended September 30, 2023 and 2022 are as follows:


	2023	2022	% Change
	(GWh)
Residential	5,388	5,345	1
Commercial	3,726	3,706	1
Industrial	7,051	7,291	(3)
Governmental	203	207	(2)
Total retail	16,368	16,549	(1)
Sales for resale:
Associated companies	—	279	(100)
Non-associated companies	367	432	(15)
Total	16,735	17,260	(3)

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

Other Income Statement Variances

Third Quarter 2023 Compared to Third Quarter 2022

Depreciation and amortization expenses increased primarily due to an increase in depreciation rates effective with an interim increase in the annual base rate in June 2023, which was approved by the PUCT in August 2023, and additions to plant in service. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the 2022 base rate case filing.

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

been resolved. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the 2022 base rate case.

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, including the Orange County Advanced Power Station project, and higher interest earned on money pool investments.

Interest expense increased primarily due to the issuance of $350 million of 5.80% Series mortgage bonds in August 2023 and the issuance of $325 million of 5.00% Series mortgage bonds in August 2022, partially offset by an increase in the allowance for borrowed funds used during construction due to higher construction work in progress in 2023, including the Orange County Advanced Power Station project.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Other operation and maintenance expenses decreased primarily due to:

a decrease of $7.3 million in transmission costs allocated by MISO;
a gain of $6.9 million on the partial sale of a service center in April 2023 as part of an eminent domain proceeding; and
a decrease of $4.3 million in non-nuclear generation expenses primarily due to a lower scope of work performed in 2023 as compared to prior year.

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

Other regulatory charges (credits) - net includes the reversal in third quarter 2023 of $21.9 million of regulatory liabilities to reflect the recognition of certain receipts by Entergy Texas under affiliated PPAs that have been resolved. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the 2022 base rate case.

Interest expense increased primarily due to the issuance of $325 million of 5.00% Series mortgage bonds in August 2022 and the issuance of $350 million of 5.80% Series mortgage bonds in August 2023, partially offset by an increase in the allowance for borrowed funds used during construction due to higher construction work in progress in 2023, including the Orange County Advanced Power Station project.

Income Taxes

The effective income tax rates were 20.1% for the third quarter 2023 and 19.8% for the nine months ended September 30, 2023. The differences in the effective income tax rates for the third quarter 2023 and the nine months ended September 30, 2023 versus the federal statutory rate of 21% were primarily due to book and tax differences related to the allowance for equity funds used during construction and certain book and tax differences related to utility plant items.

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

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

Income Tax Legislation and Regulation

Liquidity and Capital Resources

Cash Flow

Cash flows for the nine months ended September 30, 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	498,457	224,735
Investing activities	(608,945)	(487,729)
Financing activities	357,787	477,070
Net increase in cash and cash equivalents	247,299	214,076

Cash and cash equivalents at end of period	$250,796	$214,104

Operating Activities

Net cash flow provided by operating activities increased $273.7 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to the timing of recovery of fuel and purchased power costs and the timing of payments to vendors. The increase was partially offset by an increase of $29.4 million in income taxes paid in 2023 as a result of higher estimated income tax payments in comparison to 2022. 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 increased $121.2 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to an increase of $178.7 million in non-nuclear generation construction expenditures primarily due to higher spending on the Orange County Advanced Power Station project and an increase of $51.4 million in transmission construction expenditures primarily due to increased investment in the reliability and infrastructure of Entergy Texas's transmission system. The increase was partially offset by:

money pool activity;

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

cash collateral of $31.2 million posted in 2022 to support Entergy Texas’s obligations to MISO; and
the partial sale of a service center in April 2023 for $11 million as part of an eminent domain proceeding.

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 $73.7 million for the nine months ended September 30, 2023 compared to increasing by $5.1 million for the nine months ended September 30, 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 decreased $119.3 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 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. The decrease was partially offset by:

the issuance of $350 million of 5.80% Series mortgage bonds in August 2023;
money pool activity;
principal payments of $54.3 million on Entergy Texas’s 4.38% Series senior secured transition bonds in 2022 as compared to principal payments of $8.9 million on Entergy Texas’s 3.051% Series senior secured system restoration bonds in 2023; and
an increase of $17.3 million in prepaid deposits related to contributions-in-aid-of-construction for generation interconnection agreements.

Decreases in Entergy Texas’s payable to the money pool are a use of cash flow, and Entergy Texas’s payable to the money pool decreased $79.6 million for the nine months ended September 30, 2022.

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

Capital Structure

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


	September 30, 2023		December 31, 2022
Debt to capital	52.3	%	52.0	%
Effect of excluding securitization bonds	(2.2	%)	(2.5	%)
Debt to capital, excluding securitization bonds (non-GAAP) (a)	50.1	%	49.5	%
Effect of subtracting cash	(2.2	%)	—	%
Net debt to net capital, excluding securitization bonds (non-GAAP) (a)	47.9	%	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

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

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. The following are updates to information provided in the Form 10-K.

Entergy Texas is developing its capital investment plan for 2024 through 2026 and currently anticipates making $4.7 billion in capital investments during that period. The preliminary estimate includes investments in generation projects to modernize, decarbonize, and diversify Entergy Texas’s portfolio, including Orange County Advanced Power Station; distribution and Utility support spending to improve reliability, resilience, and customer experience; transmission spending to drive reliability and resilience while also supporting renewables expansion and customer growth; and other investments. Estimated capital expenditures are subject to periodic review and modification and may vary based on the ongoing effects of regulatory constraints and requirements, government actions, environmental compliance, business opportunities, market volatility, economic trends, business restructuring, changes in project plans, and the ability to access capital.

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


September 30, 2023	December 31, 2022	September 30, 2022	December 31, 2021
(In Thousands)
$25,808	$99,468	$5,146	($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 2028. The credit facility includes fronting commitments for the issuance of letters of credit against $30 million of the borrowing capacity of the facility. As of September 30, 2023, there were no cash borrowings and $1.1 million in letters of credit outstanding under the credit facility. In addition, Entergy Texas is a party to an uncommitted letter of credit facility as a means to post collateral to support its obligations to MISO. As of September 30, 2023, $12.8 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

Retail Rates

2022 Base Rate Case

As discussed in the Form 10-K, in July 2022, Entergy Texas filed a base rate case with the PUCT seeking a net increase in base rates of approximately $131.4 million. The base rate case was based on a 12-month test year ending December 31, 2021. Key drivers of the requested increase were changes in depreciation rates as the result of a depreciation study and an increase in the return on equity. In addition, Entergy Texas included capital additions placed into service for the period of January 1, 2018 through December 31, 2021, including those additions reflected

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

in the then-effective distribution and transmission cost recovery factor riders and the generation cost recovery rider, all of which have been reset to zero as a result of this proceeding.

In May 2023, Entergy Texas filed on behalf of the parties an unopposed settlement resolving all issues in the proceeding, except for issues related to electric vehicle charging infrastructure, and Entergy Texas filed an agreed motion for interim rates, subject to refund or surcharge to the extent that the interim rates differ from the final approved rates. The unopposed settlement reflected a net base rate increase to be effective and relate back to December 2022 of $54 million, exclusive of, and incremental to, the costs being realigned from the distribution and transmission cost recovery factor riders and the generation cost recovery rider and $4.8 million of rate case expenses to be recovered through a rider over a period of 36 months. The net base rate increase of $54 million includes updated depreciation rates and a total annual revenue requirement of $14.5 million for the accrual of a self-insured storm reserve and the recovery of the regulatory assets for the pension and postretirement benefits expense deferral, costs associated with the COVID-19 pandemic, and retired non-advanced metering system electric meters. In May 2023 the ALJ with the State Office of Administrative Hearings granted the motion for interim rates, which became effective in June 2023. Additionally, the ALJ remanded the proceeding, except for the issues related to electric vehicle charging infrastructure, to the PUCT to consider the settlement. In June 2023 the ALJ issued a proposal for decision related to the electric vehicle charging infrastructure issues and which noted recent legislation enacted which permits electric utilities to own and operate such infrastructure. The ALJ’s proposal for decision deferred to the PUCT regarding whether it is appropriate for any vertically integrated electric utility, or Entergy Texas specifically, to own electric vehicle charging infrastructure, and in the event that the PUCT decided ownership is permissible, the ALJ recommended approval of the proposed tariff to charge host customers for utility-owned and operated electric vehicle charging infrastructure sited on customer premises and denial of the proposed tariff to temporarily adjust billing demand charges for separately metered electric vehicle charging infrastructure, citing cost-shifting concerns. In July 2023 the parties filed exceptions and replies to exceptions to the proposal for decision. In August 2023 the PUCT issued an order approving the unopposed settlement and also issued an order severing the issues related to electric vehicle charging infrastructure addressed in the ALJ’s proposal for decision to a separate proceeding. Concurrently, Entergy Texas recorded the reversal of $21.9 million of regulatory liabilities to reflect the recognition of certain receipts by Entergy Texas under affiliated PPAs that have been resolved.

Following the PUCT’s approval of the unopposed settlement in August 2023, Entergy Texas recorded a regulatory liability of $8.9 million, which reflects the net effects of higher depreciation and amortizations for the relate back period, partially offset by the relate back of base rate revenues that would have been collected had the approved rates been in effect for the period from December 2022 through June 2023, the date the new base rates were implemented on an interim basis. In October 2023, Entergy Texas filed a relate back surcharge rider to collect over six months beginning in January 2024 an additional approximately $24.6 million, which is the revenue requirement associated with the relate back of rates from December 2022 through June 2023, including carrying costs, as authorized by the PUCT’s August 2023 order. A final decision by the PUCT is expected by first quarter 2024.

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 with rates effective over three months beginning in May 2023.

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

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. Pursuant to the August 2023 PUCT approval of the unopposed settlement in Entergy Texas’s 2022 base rate case proceeding, the base rate increase of $54 million includes an annual revenue requirement of $3.4 million related to recovery of the regulatory asset for costs associated with the COVID-19 pandemic. Entergy Texas began recovery of the regulatory asset with the interim increase in the annual base rate effective in June 2023.

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 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. The PUCT staff proposed no disallowance. Entergy Texas filed rebuttal testimony in April 2023. In May 2023, Entergy Texas filed, and the ALJ with the State Office of Administrative Hearings granted, a joint motion to abate the proceeding to give parties additional time to finalize a settlement and cancelling the hearing on the merits previously scheduled for May 2023. In July 2023, Entergy Texas filed an unopposed settlement, supporting testimony, and an agreed motion to admit evidence and remand the proceeding to the PUCT. Pursuant to the unopposed settlement, Entergy Texas would receive no disallowance of fuel costs incurred over the three-year reconciliation period and retain $9.3 million in margins from off-system sales made during the reconciliation period, resulting in a cumulative under-recovery balance of approximately $99.7 million, including interest, as of the end of the reconciliation period. In July 2023 the ALJ with the State Office of Administrative Hearings granted the motion to admit evidence and remanded the proceeding to the PUCT for consideration of the unopposed settlement. The PUCT approved the settlement 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.

Entergy Texas, Inc. and Subsidiaries

Management's Financial Discussion and Analysis

Critical Accounting Estimates

See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates” in the Form 10-K for a discussion of the estimates and judgments necessary in 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 and Nine Months Ended September 30, 2023 and 2022
(Unaudited)

	Three Months Ended		Nine Months Ended
	2023	2022	2023	2022
	(In Thousands)		(In Thousands)
OPERATING REVENUES
Electric	$616,595	$659,556	$1,588,531	$1,696,629

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	94,099	113,154	325,155	247,929

Purchased power	131,927	208,703	352,568	564,809
Other operation and maintenance	85,929	83,014	213,430	230,580

Taxes other than income taxes	28,372	29,886	85,085	73,817
Depreciation and amortization	76,888	58,472	202,288	171,781
Other regulatory charges (credits) - net	(5,909)	8,072	6,541	43,917
TOTAL	411,306	501,301	1,185,067	1,332,833

OPERATING INCOME	205,289	158,255	403,464	363,796

OTHER INCOME
Allowance for equity funds used during construction	7,244	3,616	19,093	9,375
Interest and investment income	2,741	1,062	5,004	1,597
Miscellaneous - net	(619)	(1,655)	(2,121)	(1,757)
TOTAL	9,366	3,023	21,976	9,215

INTEREST EXPENSE
Interest expense	29,524	24,613	83,333	68,626
Allowance for borrowed funds used during construction	(2,714)	(1,218)	(7,127)	(3,150)
TOTAL	26,810	23,395	76,206	65,476

INCOME BEFORE INCOME TAXES	187,845	137,883	349,234	307,535

Income taxes	37,756	19,881	69,015	41,645

NET INCOME	150,089	118,002	280,219	265,890

Preferred dividend requirements	518	518	1,554	1,554

EARNINGS APPLICABLE TO COMMON STOCK	$149,571	$117,484	$278,665	$264,336

See Notes to Financial Statements.

(Page left blank intentionally)


ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2023 and 2022
(Unaudited)
	2023	2022
	(In Thousands)
OPERATING ACTIVITIES
Net income	$280,219	$265,890
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation and amortization	202,288	171,781
Deferred income taxes, investment tax credits, and non-current taxes accrued	57,279	57,532
Changes in assets and liabilities:
Receivables	(40,609)	(63,743)
Fuel inventory	(25,734)	16,868
Accounts payable	(9,871)	77,740
Taxes accrued	(29,995)	2,520
Interest accrued	13,612	(4,832)
Deferred fuel costs	97,451	(273,644)
Other working capital accounts	(23,042)	(11,927)
Provisions for estimated losses	511	(414)
Other regulatory assets	(17,997)	(130,042)
Other regulatory liabilities	(13,111)	(23,014)
Effect of securitization on regulatory asset	—	153,383
Pension and other postretirement liabilities	(8,961)	(12,458)
Other assets and liabilities	16,417	(905)
Net cash flow provided by operating activities	498,457	224,735

INVESTING ACTIVITIES
Construction expenditures	(711,382)	(469,630)
Allowance for equity funds used during construction	19,093	9,375
Proceeds from sale of assets	11,000	—

Litigation proceeds from settlement agreement	—	4,134
Changes in money pool receivable - net	73,660	(5,146)
Changes in securitization account	(1,402)	4,698
Decrease (increase) in other investments	86	(31,160)

Net cash flow used in investing activities	(608,945)	(487,729)

FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	344,966	606,444
Retirement of long-term debt	(8,856)	(54,257)


Change in money pool payable - net	—	(79,594)


Preferred stock dividends paid	(1,554)	(1,542)
Other	23,231	6,019
Net cash flow provided by financing activities	357,787	477,070

Net increase in cash and cash equivalents	247,299	214,076
Cash and cash equivalents at beginning of period	3,497	28
Cash and cash equivalents at end of period	$250,796	$214,104

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized	$67,605	$71,311
Income taxes	$30,500	$1,085

See Notes to Financial Statements.


ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2023 and December 31, 2022
(Unaudited)
	2023	2022
	(In Thousands)
CURRENT ASSETS
Cash and cash equivalents:
Cash	$1,235	$500
Temporary cash investments	249,561	2,997
Total cash and cash equivalents	250,796	3,497
Securitization recovery trust account	12,281	10,879
Accounts receivable:
Customer	141,865	115,955
Allowance for doubtful accounts	(2,397)	(2,352)
Associated companies	32,915	115,549
Other	29,145	21,587
Accrued unbilled revenues	85,368	69,208
Total accounts receivable	286,896	319,947
Deferred fuel costs	160,664	258,115
Fuel inventory - at average cost	52,484	26,750
Materials and supplies - at average cost	103,683	93,031

Prepayments and other	30,324	20,568
TOTAL	897,128	732,787

OTHER PROPERTY AND INVESTMENTS
Investments in affiliates - at equity	225	250
Non-utility property - at cost (less accumulated depreciation)	376	376
Other	17,041	18,975
TOTAL	17,642	19,601

UTILITY PLANT
Electric	7,734,635	7,409,461
Construction work in progress	784,116	339,139
TOTAL UTILITY PLANT	8,518,751	7,748,600
Less - accumulated depreciation and amortization	2,310,663	2,135,400
UTILITY PLANT - NET	6,208,088	5,613,200

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets (includes securitization property of $253,952 as of September 30, 2023 and $269,523 as of December 31, 2022)	596,679	578,682

Other	102,743	99,694
TOTAL	699,422	678,376

TOTAL ASSETS	$7,822,280	$7,043,964

See Notes to Financial Statements.


ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2023 and December 31, 2022
(Unaudited)
	2023	2022
	(In Thousands)
CURRENT LIABILITIES

Accounts payable:
Associated companies	$67,665	$70,321
Other	200,767	201,982
Customer deposits	39,459	38,764
Taxes accrued	63,038	93,033
Interest accrued	37,540	23,928




Other	14,089	16,963
TOTAL	422,558	444,991

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	814,181	744,227
Accumulated deferred investment tax credits	8,150	8,711
Regulatory liability for income taxes - net	121,472	132,647
Other regulatory liabilities	43,311	45,247
Asset retirement cost liabilities	11,584	11,121
Accumulated provisions	8,104	7,593

Long-term debt (includes securitization bonds of $266,480 as of September 30, 2023 and $275,064 as of December 31, 2022)	3,233,614	2,895,913
Other	201,180	74,053
TOTAL	4,441,596	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	1,819,799	1,541,134
Total common shareholder's equity	2,919,376	2,640,711
Preferred stock without sinking fund	38,750	38,750
TOTAL	2,958,126	2,679,461

TOTAL LIABILITIES AND EQUITY	$7,822,280	$7,043,964

See Notes to Financial Statements.


ENTERGY TEXAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Nine Months Ended September 30, 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

Net income	—	—	—	97,485	97,485

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

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

Net income	—	—	—	118,002	118,002


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

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

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

Net income	—	—	—	88,457	88,457

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

Balance at June 30, 2023	38,750	49,452	1,050,125	1,670,228	2,808,555

Net income	—	—	—	150,089	150,089
Preferred stock dividends	—	—	—	(518)	(518)

Balance at September 30, 2023	$38,750	$49,452	$1,050,125	$1,819,799	$2,958,126

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 and the Unit Power Sales Agreement are currently the subject of several litigation proceedings at the FERC, including challenges with respect to System Energy’s authorized return on equity and capital structure, renewal of its sale-leaseback arrangement, treatment of uncertain tax positions, a broader investigation of rates under the Unit Power Sales Agreement, and two prudence complaints, one challenging the extended power uprate completed at Grand Gulf in 2012 and the operation and management of Grand Gulf, particularly in the 2016-2020 time period, and the second challenging the operation and management of Grand Gulf in the 2021-2022 time period. 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. The settlement in principle with the APSC described in “Complaints Against System Energy - System Energy Settlement with the APSC” below, if approved by the FERC, will substantially reduce the aggregate amount of this exposure. 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

Third Quarter 2023 Compared to Third Quarter 2022

Net income remained relatively unchanged, increasing $0.3 million, for the third quarter 2023 compared to the third quarter 2022. The increase was primarily due to an increase in operating revenues resulting from changes in rate base, substantially offset by 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. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the Grand Gulf sale-leaseback renewal complaint.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

System Energy had net income of $81 million for the nine months ended September 30, 2023 compared to a net loss of $321.4 million for the nine months ended September 30, 2022 primarily due to a regulatory charge of $551 million ($413 million net-of-tax) recorded in the second quarter 2022 to reflect the effects of the partial settlement agreement and offer of settlement related to pending proceedings before the FERC. The increase was partially offset by the disallowance of the recovery of sale-leaseback lease 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. See Note 2 to the financial statements in the Form 10-K for discussion of the partial settlement agreement. See Note 2 to the financial statements herein and in the Form 10-K for discussion of the Grand Gulf sale-leaseback renewal complaint.

System Energy Resources, Inc.

Management's Financial Discussion and Analysis

Income Taxes

The effective income tax rates were 22.5% for the third quarter 2023 and 22.9% for the nine months ended September 30, 2023. The differences in the effective income tax rates for the third quarter 2023 and the nine months ended September 30, 2023 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 and book and tax differences related to the allowance for equity funds used during construction.

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

Income Tax Legislation and Regulation

Liquidity and Capital Resources

Cash Flow

Cash flows for the nine months ended September 30, 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	155,190	177,739
Investing activities	(27,165)	(118,663)
Financing activities	(35,172)	46,958
Net increase in cash and cash equivalents	92,853	106,034

Cash and cash equivalents at end of period	$95,793	$195,235

Operating Activities

Net cash flow provided by operating activities decreased $22.5 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to:

aggregate refunds 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 of these refunds and the related proceedings; and
refunds of $19.3 million included in May 2023 service month bills under the Unit Power Sales Agreement to reflect the effects of the partial settlement agreement approved by the FERC in April 2023. See Note 2 to

System Energy Resources, Inc.

Management's Financial Discussion and Analysis

the financial statements herein and in the Form 10-K for discussion of the Unit Power Sales Agreement complaint.

The decrease was partially offset by a decrease in spending of $36.7 million on nuclear refueling outages in 2023 as compared to the same period in 2022 and the timing of collections of receivables.

Investing Activities

Net cash flow used in investing activities decreased $91.5 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due:

a decrease of $53.1 million in nuclear construction expenditures primarily due to higher spending in 2022 for Grand Gulf outage projects and upgrades;
a decrease of $38.2 million as a result of fluctuations in nuclear fuel activity due to variations from year to year in the timing and pricing of fuel reload requirements, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle; and
money pool activity.

The decrease was partially offset by a decrease of $12.1 million in decommissioning trust fund investment activity.

Decreases in System Energy’s receivable from the money pool are a source of cash flow and System Energy’s receivable from the money pool decreased $85.2 million for the nine months ended September 30, 2023 compared to decreasing by $70.9 million for the nine months ended September 30, 2022. The money pool is an intercompany borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

System Energy’s financing activities used $35.2 million of cash for the nine months ended September 30, 2023 compared to providing $47 million of cash for the nine months ended September 30, 2022 primarily due to the following activity:

the repayment, at maturity, of $250 million of 4.10% Series mortgage bonds in April 2023;
the issuance of a $50 million term loan in May 2022, which was repaid, prior to maturity, in March 2023;
net repayments of $43.4 million in 2023 compared to net long-term borrowings of $47.8 million in 2022 on the nuclear fuel company variable interest entity’s credit facilities;
the repayment, at maturity, of $50.3 million of 2.5% Series governmental bonds in April 2022; and
the issuance of $325 million of 6.00% Series mortgage bonds in March 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 decrease in the debt to capital ratio is primarily due to net income in 2023 and the net retirement of long-term debt in 2023.


	September 30, 2023		December 31, 2022
Debt to capital	42.0	%	45.0	%
Effect of subtracting cash	(3.3	%)	(0.1	%)
Net debt to net capital (non-GAAP)	38.7	%	44.9	%

System Energy Resources, Inc.

Management's Financial Discussion and Analysis

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. The following are updates to the information provided in the Form 10-K.

System Energy is developing its capital investment plan for 2024 through 2026 and currently anticipates making $460 million in capital investments during that period. The preliminary estimate includes amounts associated with Grand Gulf investments and initiatives.

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


September 30, 2023	December 31, 2022	September 30, 2022	December 31, 2021
(In Thousands)
$9,772	$94,981	$4,802	$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 September 30, 2023, $29.2 million in loans were outstanding under the System Energy nuclear fuel company variable interest entity credit facility. See Note 4 to the financial statements herein for additional discussion of the variable interest entity credit facility.

Federal Regulation

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

Complaints Against System Energy

See Note 2 to the financial statements in the Form 10-K for information regarding pending complaints against System Energy. The following are updates to that discussion.

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

System Energy Resources, Inc.

Management's Financial Discussion and Analysis

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 $40 million, which includes interest through September 30, 2023, and the estimated resulting annual rate reduction would be approximately $29 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, the APSC, the MPSC, the 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, the APSC, the 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 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 Resources, Inc.

Management's Financial Discussion and Analysis

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.

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 a 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.

In August 2023 the FERC issued an order addressing arguments raised on rehearing and partially setting aside the prior order (rehearing order). The rehearing order addresses rehearing requests that were filed in January 2023 separately by System Energy and the LPSC, the APSC, and the City Council.

In the rehearing order, the FERC directs System Energy to recalculate refunds for two issues: (1) refunds of rental expenses related to the renewal of the sale-leaseback arrangements and (2) refunds for the net effect of correcting the depreciation inputs for capital additions associated with the sale-leaseback. With regard to the sale-leaseback renewal rental expenses, the rehearing order allows System Energy to recover an implied return of and on the depreciated cost of the portion of the plant subject to the sale-leaseback as of the expiration of the initial lease term. With regard to the depreciation input issue, the rehearing order allows System Energy to offset refunds so that System Energy may collect interest on the rate base recalculations that were part of the overall depreciation rate recalculations. The rehearing order further directs System Energy to submit within 60 days of the date of the rehearing order an additional compliance filing to revise the total refunds for these two issues. As discussed above, System Energy’s January 2023 compliance filing calculated $103.5 million in total refunds, and the refunds were paid in January 2023. In October 2023, System Energy filed its compliance report with the FERC as directed in the August 2023 rehearing order. The October 2023 compliance report reflected recalculated refunds totaling $35.7 million for the two issues resulting in $67.8 million in refunds that could be recouped by System Energy. As discussed below in “System Energy Settlement with the APSC,” System Energy reached a settlement in principle with the APSC to resolve several pending cases under the FERC’s jurisdiction, including this one, pursuant to which it has agreed not to recoup the $27.3 million calculated for Entergy Arkansas in the compliance filing. Consistent with the compliance filing, in October 2023, Entergy Louisiana and Entergy New Orleans paid recoupment amounts of $18.2 million and $22.3 million, respectively, to System Energy. As a result of the FERC’s rulings on the sale-leaseback and depreciation input issues in the August 2023 rehearing order, in third quarter 2023, System Energy recorded a regulatory asset and corresponding regulatory credit of $40 million to reflect the portion of the January 2023 refunds to be recouped from Entergy Louisiana and Entergy New Orleans.

System Energy Resources, Inc.

Management's Financial Discussion and Analysis

On the third refund issue identified in the rehearing requests, concerning the decommissioning uncertain tax positions, the rehearing order denied all rehearing requests, re-affirmed the remedy contained in the December 2022 order, and did not direct System Energy to recalculate refunds or to submit an additional compliance filing. On this issue, as reflected in its January 2023 compliance filing, System Energy believes it has already paid the refunds due under the remedy that the FERC outlined for the uncertain tax positions issue in its December 2022 order. In August 2023 the LPSC issued a media release in which it stated that it disagrees with System Energy’s determination that the rehearing order requires no further refunds to be made on this issue.

In September 2023, System Energy filed a protective appeal of the rehearing order with the United States Court of Appeals for the Fifth Circuit. The appeal was consolidated with System Energy’s prior appeal of the December 2022 order, and both appeals are currently in abeyance.

In September 2023 the LPSC filed with the FERC a request for rehearing and clarification of the rehearing order. The LPSC requests that the FERC reverse its determination in the rehearing order that System Energy may collect an implied return of and on the depreciated cost of the portion of the plant subject to the sale-leaseback, as of the expiration of the initial lease term, as well as its determination in the rehearing order that System Energy may offset the refunds for the depreciation rate input issue and collect interest on the rate base recalculations that were part of the overall depreciation rate recalculations. In addition, the LPSC requests that the FERC either confirm the LPSC’s interpretation of the refund associated with the decommissioning uncertain tax positions or explain why it is not doing so. In October 2023 the FERC issued a notice that the rehearing request has 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.

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.

System Energy Resources, Inc.

Management's Financial Discussion and Analysis

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 May 2023 deadline for the initial decision was granted.

In November 2022, System Energy filed a partial settlement agreement with the APSC, the City Council, and the LPSC that resolved 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 provided that System Energy would 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 provided 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 addressed 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 was included in the May 2023 service month bills under the Unit Power Sales Agreement.

In May 2023 the presiding ALJ issued an initial decision finding that System Energy should have excluded multiple identified categories of accumulated deferred income taxes from rate base when calculating Unit Power Sales Agreement bills. Based on this finding, the initial decision recommended refunds; System Energy estimates that those refunds for Entergy Arkansas, Entergy Louisiana, and Entergy New Orleans would total approximately $116 million plus $147 million of interest through September 30, 2023. The initial decision also finds that the Unit Power Sales Agreement should be modified such that a cash working capital allowance of negative $36.4 million is applied prospectively. If the FERC ultimately orders these modifications to cash working capital be implemented, the estimated annual revenue requirement impact is expected to be immaterial. On the other non-settled issues for which the complainants sought refunds or changes to the Unit Power Sales Agreement, the initial decision ruled against the complainants.

The initial decision is an interim step in the FERC litigation process, and an ALJ’s determination made in an initial decision is not controlling on the FERC. System Energy disagrees with the ALJ’s findings concerning the accumulated deferred income taxes issues and cash working capital. In July 2023, System Energy filed a brief on exceptions to the initial decision’s accumulated deferred income taxes findings. Also in July 2023, the APSC, the LPSC, the City Council, and the FERC trial staff filed separate briefs on exceptions. The APSC’s brief on exceptions challenges the ALJ’s determinations on the money pool interest and retained earnings issues. The LPSC’s brief on exceptions challenges the ALJ’s determinations regarding the sale-leaseback transaction costs, legal fees, and retained earnings issues. The City Council’s brief on exceptions challenges the ALJ’s determinations on the money pool and cash management issues. The FERC trial staff’s brief on exceptions challenges the ALJ’s determinations on the cash working capital issue as well as certain of the accumulated deferred income taxes issues. In August 2023 all parties filed separate briefs opposing exceptions. System Energy filed a brief opposing the exceptions of the APSC, the LPSC, and the City Council. The APSC, the LPSC, and the City Council filed separate briefs opposing the exceptions raised by System Energy and the FERC trial staff. The FERC trial staff filed its own brief opposing certain exceptions raised by System Energy, the APSC, the LPSC, and the City Council. The case is now pending a decision by the FERC. Refunds, if any, that might be required will become due only after the FERC issues its order reviewing the initial decision.

System Energy Resources, Inc.

Management's Financial Discussion and Analysis

Grand Gulf Prudence Complaint

As discussed in the Form 10-K, in March 2021, the second of the additional complaints was filed at the FERC by the LPSC, the APSC, and the City Council against System Energy, Entergy Services, Entergy Operations, and Entergy Corporation. In November 2022 the FERC issued an order setting the complaint for settlement and hearing procedures. In February 2023 the FERC issued an order denying rehearing and thereby affirming its order setting the complaint for settlement and hearing procedures. In July 2023 the FERC chief ALJ terminated settlement procedures and appointed a presiding ALJ to oversee hearing procedures. In September 2023 a procedural schedule for hearing procedures was established. Pursuant to that schedule, testimony is due in December 2023 and throughout 2024. The hearing is scheduled to begin in January 2025, with the presiding ALJ’s initial decision due in July 2025.

In September 2023 the LPSC authorized its staff to file an additional complaint concerning the prudence of System Energy’s operation and management of Grand Gulf in the year 2022. In October 2023 the LPSC, the APSC, and the City Council filed what they styled as an amended and supplemental complaint with the FERC against System Energy, Entergy Services, and Entergy Operations. The amended complaint states that it is being filed for three primary purposes: (1) to include System Energy’s performance in 2021-2022 in the scope of the hearing; (2) to explicitly allege that System Energy’s inadequate performance, excessive costs, unplanned outages, and costs attributable to safety violations violate the contractual obligation to maintain and operate the plant in accordance with “good utility practice”; and (3) to provide and substantiate allegations concerning the damages attributable to the alleged breach of contractual obligations. The amended complaint alleges that potentially more than $1 billion in damages may be due. The current deadline for System Energy and the other named respondents to respond is in November 2023.

System Energy Settlement with the APSC

In October 2023, System Energy, Entergy Arkansas, and additional named Entergy parties involved in multiple docketed proceedings pending before the FERC reached a settlement in principle with the APSC to globally resolve all of their actual and potential claims in those dockets and with System Energy’s past implementation of the Unit Power Sales Agreement. The settlement in principle also covers the amended and supplemental complaint, discussed above in “Grand Gulf Prudence Complaint,” filed at the FERC in October 2023. The Unit Power Sales Agreement is a FERC-jurisdictional formula rate tariff for sales of energy and capacity from System Energy’s owned and leased share of Grand Gulf to Entergy Mississippi, Entergy Arkansas, Entergy Louisiana, and Entergy New Orleans. System Energy previously settled with the MPSC with respect to these complaints before the FERC. Entergy Mississippi has nearly 40% of System Energy’s share of Grand Gulf’s output, after its additional purchases from affiliates are considered. The settlements with both the APSC and the MPSC represent almost 65% of System Energy’s share of the output of Grand Gulf.

The terms of the settlement in principle align with the $588 million global black box settlement reached between System Energy and the MPSC in June 2022 and provide for Entergy Arkansas to receive a black box refund of $142 million from System Energy, inclusive of $50 million already received by Entergy Arkansas from System Energy. In November 2022 the FERC approved the System Energy settlement with the MPSC and stated that the settlement “appears to be fair and reasonable and in the public interest.”

System Energy, Entergy Arkansas, additional Entergy parties, and the APSC intend to file the settlement agreement and supporting materials with the FERC in November 2023. In addition to the black box refund of $142 million described above, beginning with the November 2023 service month, the settlement in principle provides for Entergy Arkansas’s bills from System Energy to be adjusted to reflect an authorized rate of return on equity of 9.65% and a capital structure not to exceed 52% equity.

If the FERC approves the filed settlement in accordance with its terms, it will become binding upon the Entergy parties and the APSC.

System Energy Resources, Inc.

Management's Financial Discussion and Analysis

System Energy Regulatory Liability for Pending Complaints

Prior to June 2022, System Energy recorded a provision and associated liability of $37 million for elements of the complaints against System Energy. In June 2022, as discussed in “System Energy Settlement with the MPSC” in the Form 10-K, System Energy recorded a regulatory charge of $551 million ($413 million net-of-tax), increasing System Energy’s regulatory liability to $588 million, which consisted of $235 million for the settlement with the MPSC and $353 million for potential future refunds to Entergy Arkansas, Entergy New Orleans, and Entergy Louisiana. The $142 million of refunds for Entergy Arkansas, discussed above in “System Energy Settlement with the APSC” is covered within the $353 million previously recorded. System Energy paid the black-box refund of $235 million to Entergy Mississippi in November 2022. As discussed above in “Grand Gulf Sale-leaseback Renewal Complaint and Uncertain Tax Position Rate Base Issue,” in January 2023 System Energy paid refunds of $103.5 million as a result of the FERC’s order in December 2022 in that proceeding and recouped $40.5 million of the $103.5 million from Entergy Louisiana and Entergy New Orleans in October 2023. In addition, as discussed above in “Unit Power Sales Agreement Complaint,” a black-box refund of $18 million was made by System Energy in 2023 in connection with a partial settlement in that proceeding.

Based on analysis of the pending complaints against System Energy and potential future settlement negotiations, in third quarter 2023, System Energy recorded a regulatory charge of $40 million to increase System Energy’s regulatory liability related to complaints against System Energy. System Energy’s remaining regulatory liability related to complaints against System Energy as of September 30, 2023 is approximately $270 million. This regulatory liability is consistent with the settlement agreements reached with the MPSC and the APSC, as described above, taking into account amounts already refunded.

Unit Power Sales Agreement

System Energy Formula Rate Annual Protocols Formal Challenge Concerning 2021 Calendar Year Bills

In March 2023, pursuant to the protocols procedures discussed in Note 2 to the financial statements in the Form 10-K, the LPSC, the APSC, and the City Council filed with the FERC a formal challenge to System Energy’s implementation of the formula rate during calendar year 2021. The formal challenge alleges: (1) that it was imprudent for System Energy to accept the IRS’s partial acceptance of a previously uncertain tax position; (2) that System Energy used incorrect inputs for retained earnings that are used to determine the capital structure; (3) that the equity ratio charged in rates was excessive; and (4) that all issues in the ongoing Unit Power Sales Agreement complaint proceeding should also be reflected in calendar year 2021 bills. The first, third, and fourth allegations are identical to issues that were raised in the formal challenge to the calendar year 2020 bills. The formal challenge to the calendar year 2021 bills states that the impact of the first allegation is “tens of millions of dollars,” but it does not provide an estimate of the financial impact of the remaining allegations.

In May 2023, System Energy filed an answer to the formal challenge in which it requested that the FERC either deny the formal challenge as a matter of law or hold the proceeding in abeyance pending the resolution of related dockets.

Depreciation Amendment Proceeding

As discussed in Note 2 to the financial statements in the Form 10-K, in December 2021, System Energy submitted to the FERC proposed amendments to the Unit Power Sales Agreement to adopt updated rates for use in calculating Grand Gulf plant depreciation and amortization expenses. The proposed amendments would result in higher charges to the Utility operating companies that buy capacity and energy from System Energy under the Unit Power Sales Agreement. In February 2022 the FERC accepted System Entergy’s proposed increased depreciation rates with an effective date of March 1, 2022, subject to refund pending the outcome of the settlement and/or hearing procedures. In June 2023 System Energy filed with the FERC an unopposed offer of settlement that it had

System Energy Resources, Inc.

Management's Financial Discussion and Analysis

negotiated with intervenors to the proceeding. In August 2023 the FERC approved the settlement, which resolves the proceeding. In third quarter 2023, System Energy recorded a reduction in depreciation expense of $41 million representing the cumulative difference in depreciation expense resulting from the depreciation rates used from March 2022 through June 2023 and the depreciation rates included in the settlement filing approved by the FERC. In October 2023, System Energy filed a refund report with the FERC. The refund provided for in the refund report was included in the September 2023 service month bills under the Unit Power Sales Agreement. The deadline for any comments and protests is November 2023.

Pension Costs Amendment Proceeding

In October 2021, System Energy submitted to the FERC proposed amendments to the Unit Power Sales Agreement to include in rate base the prepaid and accrued pension costs associated with System Energy’s qualified pension plans. Based on data ending in 2020, the increased annual revenue requirement associated with the filing is approximately $8.9 million. In March 2022 the FERC accepted System Entergy’s proposed amendments with an effective date of December 1, 2021, subject to refund pending the outcome of the settlement and/or hearing procedures. In August 2023 the FERC chief ALJ terminated settlement procedures and designated a presiding ALJ to oversee hearing procedures. In October 2023, System Energy filed direct testimony in support of its proposed amendments. Under the procedural schedule, testimony will be filed through April 2024, and the hearing is scheduled to begin in May 2024. The presiding ALJ’s initial decision is expected to be due in September 2024.

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.
STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2023 and 2022
(Unaudited)

	Three Months Ended		Nine Months Ended
	2023	2022	2023	2022
	(In Thousands)		(In Thousands)
OPERATING REVENUES
Electric	$119,467	$179,800	$429,423	$485,048

OPERATING EXPENSES
Operation and Maintenance:
Fuel, fuel-related expenses, and gas purchased for resale	18,881	12,125	56,511	31,658
Nuclear refueling outage expenses	6,717	6,483	20,028	17,730
Other operation and maintenance	52,623	69,719	149,809	168,308
Decommissioning	10,495	10,117	31,173	30,050
Taxes other than income taxes	7,261	7,430	22,271	22,431
Depreciation and amortization	(11,597)	38,742	60,843	106,442
Other regulatory charges (credits) - net	(9,207)	(8,324)	(48,081)	510,667
TOTAL	75,173	136,292	292,554	887,286

OPERATING INCOME (LOSS)	44,294	43,508	136,869	(402,238)

OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction	1,866	1,536	5,289	6,164
Interest and investment income (loss)	2,738	3,669	10,140	(58)
Miscellaneous - net	(1,405)	(9,028)	(12,096)	(13,408)
TOTAL	3,199	(3,823)	3,333	(7,302)

INTEREST EXPENSE
Interest expense	12,199	9,189	36,325	27,782
Allowance for borrowed funds used during construction	(448)	(246)	(1,239)	(982)
TOTAL	11,751	8,943	35,086	26,800

INCOME (LOSS) BEFORE INCOME TAXES	35,742	30,742	105,116	(436,340)

Income taxes	8,045	3,385	24,115	(114,981)

NET INCOME (LOSS)	$27,697	$27,357	$81,001	($321,359)

See Notes to Financial Statements.


SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2023 and 2022
(Unaudited)
	2023	2022
	(In Thousands)
OPERATING ACTIVITIES
Net income (loss)	$81,001	($321,359)
Adjustments to reconcile net income (loss) to net cash flow provided by operating activities:
Depreciation, amortization, and decommissioning, including nuclear fuel amortization	141,213	163,043
Deferred income taxes, investment tax credits, and non-current taxes accrued	24,887	(129,093)
Changes in assets and liabilities:
Receivables	49,881	(29,703)
Accounts payable	(16,504)	(7,193)
Prepaid taxes and taxes accrued	(5,782)	9,106
Interest accrued	4,571	(972)
Other working capital accounts	8,936	(34,961)
Other regulatory assets	(64,565)	(23,107)
Other regulatory liabilities	(15,981)	282,463
Pension and other postretirement liabilities	(14,484)	(14,704)
Other assets and liabilities	(37,983)	284,219
Net cash flow provided by operating activities	155,190	177,739

INVESTING ACTIVITIES
Construction expenditures	(80,068)	(132,100)
Allowance for equity funds used during construction	5,289	6,164
Nuclear fuel purchases	(57,790)	(77,707)
Proceeds from sale of nuclear fuel	37,104	18,845
Increase in other investments	(4)	—
Proceeds from nuclear decommissioning trust fund sales	245,386	273,108
Investment in nuclear decommissioning trust funds	(262,291)	(277,916)
Changes in money pool receivable - net	85,209	70,943

Net cash flow used in investing activities	(27,165)	(118,663)

FINANCING ACTIVITIES
Proceeds from the issuance of long-term debt	662,965	955,587
Retirement of long-term debt	(698,137)	(908,629)





Net cash flow provided by (used in) financing activities	(35,172)	46,958

Net increase in cash and cash equivalents	92,853	106,034
Cash and cash equivalents at beginning of period	2,940	89,201
Cash and cash equivalents at end of period	$95,793	$195,235

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amount capitalized	$30,249	$30,231


See Notes to Financial Statements.


SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEETS
ASSETS
September 30, 2023 and December 31, 2022
(Unaudited)
	2023	2022
	(In Thousands)
CURRENT ASSETS
Cash and cash equivalents:
Cash	$1,291	$78
Temporary cash investments	94,502	2,862
Total cash and cash equivalents	95,793	2,940
Accounts receivable:
Associated companies	24,356	158,601
Other	5,300	6,145
Total accounts receivable	29,656	164,746

Materials and supplies - at average cost	160,143	135,346
Deferred nuclear refueling outage costs	13,334	33,377

Sale-leaseback/depreciation regulatory asset	40,267	—
Prepayments and other	5,577	9,097
TOTAL	344,770	345,506

OTHER PROPERTY AND INVESTMENTS
Decommissioning trust funds	1,219,196	1,142,914
TOTAL	1,219,196	1,142,914

UTILITY PLANT
Electric	5,479,592	5,425,449

Construction work in progress	105,468	102,987
Nuclear fuel	138,708	193,004
TOTAL UTILITY PLANT	5,723,768	5,721,440
Less - accumulated depreciation and amortization	3,467,414	3,412,257
UTILITY PLANT - NET	2,256,354	2,309,183

DEFERRED DEBITS AND OTHER ASSETS
Regulatory assets:

Other regulatory assets	439,419	415,121

Other	793	1,422
TOTAL	440,212	416,543

TOTAL ASSETS	$4,260,532	$4,214,146

See Notes to Financial Statements.


SYSTEM ENERGY RESOURCES, INC.
BALANCE SHEETS
LIABILITIES AND EQUITY
September 30, 2023 and December 31, 2022
(Unaudited)
	2023	2022
	(In Thousands)
CURRENT LIABILITIES
Currently maturing long-term debt	$57	$300,037

Accounts payable:
Associated companies	19,125	21,701
Other	32,022	58,178
Taxes accrued	1,815	7,597

Interest accrued	16,162	11,591

Sale-leaseback/depreciation regulatory liability	—	103,497
Other	4,066	4,071
TOTAL	73,247	506,672

NON-CURRENT LIABILITIES
Accumulated deferred income taxes and taxes accrued	404,385	376,070
Accumulated deferred investment tax credits	43,660	44,692
Regulatory liability for income taxes - net	108,577	110,840
Other regulatory liabilities	754,803	665,024
Decommissioning	1,073,634	1,042,461
Pension and other postretirement liabilities	26,266	40,750
Long-term debt	745,190	477,868
Other	2	2
TOTAL	3,156,517	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	(56,082)	(137,083)
TOTAL	1,030,768	949,767

TOTAL LIABILITIES AND EQUITY	$4,260,532	$4,214,146

See Notes to Financial Statements.


SYSTEM ENERGY RESOURCES, INC.
STATEMENTS OF CHANGES IN COMMON EQUITY
For the Nine Months Ended September 30, 2023 and 2022
(Unaudited)

	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

Net loss	—	(380,148)	(380,148)

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

Net income	—	27,357	27,357

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


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

Net income	—	25,759	25,759

Balance at June 30, 2023	1,086,850	(83,779)	1,003,071

Net income	—	27,697	27,697

Balance at September 30, 2023	$1,086,850	($56,082)	$1,030,768

See Notes to Financial Statements.

ENTERGY CORPORATION AND SUBSIDIARIES

PART II. OTHER INFORMATION

Previous: Item 3. Quantitative and Qualitative Disclosures About Market Risk · Next: Item 1. Legal Proceedings