ENTERGY CORPORATION Entergy operates primarily through two business segments: Utility and
•The Utility business segment includes the generation, transmission, distribution, and sale of electric power in portions ofArkansas ,Mississippi ,Texas , andLouisiana , including theCity of New Orleans ; and operation of a small natural gas distribution business. •The Entergy Wholesale Commodities business segment includes the ownership, operation, and decommissioning of nuclear power plants located in the northernUnited States and the sale of the electric power produced by its operating plants to wholesale customers.Entergy Wholesale Commodities also provides services to other nuclear power plant owners and owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. See "Entergy Wholesale Commodities Exit from theMerchant Power Business" below and in the Form 10-K for discussion of the operation and planned shutdown and sale of each of theEntergy Wholesale Commodities nuclear power plants.
See Note 7 to the financial statements herein for financial information regarding Entergy's business segments.
The COVID-19 Pandemic
The COVID-19 pandemic and the measures to control it have adversely affected economic activity and conditions worldwide and have affected the demand for the products and services of many businesses in Entergy's service area. Entergy expects a decline in sales volume in 2020 due to the COVID-19 pandemic, especially in the commercial and industrial sectors. In addition, Entergy has experienced negative changes to its customers' payment patterns and its operating cash flow activity due to the COVID-19 pandemic, and expects them to continue throughout 2020. These negative changes are likely to include an increase in uncollectible accounts in 2020. Entergy provides critical services to its customers and has implemented its comprehensive incident response plan, which contemplates major events such as storms or pandemics. Entergy's focus during the pandemic has been on the safety and wellness of its employees; providing safe, reliable service for its customers; analyzing and addressing the financial effects of the COVID-19 pandemic; and continuing its plans for the future. Entergy implemented precautionary measures for safety on and off the job for employees working at plants and in the field and implemented telecommuting practices for employees who can work from home. Entergy temporarily suspended service disconnections for customers and is working with regulators to address routine and non-routine matters and allow continuation of capital spending plans. The Utility operating companies have received accounting orders to defer costs associated with COVID-19. To date, Entergy has not had material effects to its major projects or capital spending plans. Entergy is working with suppliers and contractors for continued availability of resources, equipment, and supplies to keep operations and major projects going forward and on schedule. Entergy is implementing expense-related spending reductions in 2020, which it does not expect to affect safety or service reliability, in order to offset some of the financial effects of the COVID-19 pandemic. Despite the negative effects of the pandemic on financial markets, beginning inMarch 2020 the Utility operating companies issued a total of$1.235 billion of long-term mortgage bonds,Entergy Corporation issued$1.2 billion of senior notes, andEntergy Arkansas andEntergy Mississippi renewed their short-term credit facilities. In addition to cash on hand, Entergy's sources of liquidity are outlined in "Capital Structure and Resources" and in Note 4 to the financial statements herein.
Despite Entergy's actions in response to the COVID-19 pandemic, uncertainty exists regarding the full depth and length of the effects of COVID-19 on Entergy's sales volume, revenue, collections and cash flows, expenses, liquidity, and capital needs. Entergy will continue to monitor actively the COVID-19 pandemic and related developments affecting its workforce, customers, suppliers, operations, and financial condition.
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Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Results of Operations
Second Quarter 2020 Compared to Second Quarter 2019
Following are income statement variances for Utility,Entergy Wholesale Commodities , Parent & Other, and Entergy comparing the second quarter 2020 to the second quarter 2019 showing how much the line item increased or (decreased) in comparison to the prior period: Entergy Wholesale Parent & Utility Commodities Other (a) Entergy (In Thousands) 2019 Net Income (Loss) Attributable to Entergy Corporation$331,190 ($25,929 ) ($68,837 )$236,424 Operating revenues (163,376) (90,074) 29 (253,421) Fuel, fuel-related expenses, and gas purchased for resale (117,633) (8,697) 12 (126,318) Purchased power (128,599) (5,289) (12) (133,900) Other regulatory charges (credits) 1,285 - - 1,285 Other operation and maintenance (61,489) (47,410) 3,290 (105,609) Asset write-offs, impairments, and related - (9,644) - charges (9,644) Taxes other than income taxes 1,216 (5,866) (112) (4,762) Depreciation and amortization 52,920 (12,652) 5 40,273 Other income (deductions) (4,018) 129,959 6,115 132,056 Interest expense 20,764 (2,160) 1,751 20,355 Other expenses (2,568) (12,714) - (15,282) Income taxes 52,560 33,757 1,340 87,657 Preferred dividend requirements of 471 - - 471
subsidiaries
2020 Net Income (Loss) Attributable to Entergy Corporation$344,869 $84,631 ($68,967 )$360,533
(a)Parent & Other includes eliminations, which are primarily intersegment activity.
Refer to "ENTERGY CORPORATION AND SUBSIDIARIES - SELECTED OPERATING RESULTS" for further information with respect to operating statistics.
Results of operations for the second quarter 2020 include gains of$225 million (pre-tax) onEntergy Wholesale Commodities' nuclear decommissioning trust fund investments reflecting the equity market rebound from theMarch 2020 decline associated with the COVID-19 pandemic. See Notes 8 and 9 to the financial statements herein for a discussion of decommissioning trust fund investments. 2 --------------------------------------------------------------------------------
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Management's Financial Discussion and Analysis
Operating Revenues
Utility
Following is an analysis of the change in operating revenues comparing the second quarter 2020 to the second quarter 2019:
Amount
(In Millions)
2019 operating revenues $2,376 Fuel, rider, and other revenues that do not significantly affect net income
(223)
Volume/weather (54)
Return of unprotected excess accumulated deferred income taxes to
customers 47
Retail electric price 67
2020 operating revenues $2,213
The Utility operating companies' results include revenues from rate mechanisms
designed to recover fuel, purchased power, and other costs such that the
revenues and expenses associated with these items generally offset and do not
affect net income. "Fuel, rider, and other revenues that do not significantly
affect net income" includes the revenue variance associated with these items.
The volume/weather variance is primarily due to decreased commercial and small
industrial usage as a result of the COVID-19 pandemic, the effect of less
favorable weather on residential sales, and decreased usage during the unbilled
sales period, partially offset by an increase in residential usage as a result
of the COVID-19 pandemic. The decrease in industrial usage, resulting from the
COVID-19 pandemic, is partially offset by increased demand from co-generation
customers. Entergy continues to expect a decline in sales volume during 2020 due
to the COVID-19 pandemic, especially in the commercial and industrial customer
classes. See "The COVID-19 Pandemic" section of Entergy Corporation and
Subsidiaries Management's Financial Discussion and Analysis for discussion of
the COVID-19 pandemic.
The return of unprotected excess accumulated deferred income taxes to customers
resulted from activity at the Utility operating companies in response to the
enactment of the Tax Cuts and Jobs Act. The return of unprotected excess
accumulated deferred income taxes began in second quarter 2018. In second
quarter 2020, $13 million was returned to customers through reductions in
operating revenues as compared to $60 million in second quarter 2019. There is
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 herein
and in the Form 10-K for further discussion of regulatory activity regarding the
Tax Cuts and Jobs Act.
The retail electric price variance is primarily due to:
•interim increases in Entergy Louisiana's formula rate plan revenues effectiveJune 2019 due to the inclusion of the first-year revenue requirement for theJ. Wayne Leonard Power Station (formerlySt. Charles Power Station ) and effectiveApril 2020 due to the inclusion of the first-year revenue requirement for theLake Charles Power Station , each as approved by the LPSC; •increases inEntergy Mississippi's formula rate plan rates effective with the first billing cycles ofJuly 2019 andApril 2020 and an interim capacity rate adjustment to the formula rate plan to recover non-fuel related costs of acquiring and operating theChoctaw Generating Station , each as approved by the MPSC; •an increase inEntergy Arkansas's formula rate plan rates effective with the first billing cycle ofJanuary 2020 , as approved by the APSC; and 3 -------------------------------------------------------------------------------- Table of ContentsEntergy Corporation and Subsidiaries Management's Financial Discussion and Analysis
•an increase in
The increase was partially offset by the effects ofEntergy New Orleans's rate reduction implemented withApril 2020 bills that was effectiveAugust 2019 in accordance with theCity Council resolution and related agreement in principle reached in the 2018 base rate case.
See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the regulatory proceedings discussed above.
Operating revenues forEntergy Wholesale Commodities decreased from$290 million for the second quarter 2019 to$200 million for the second quarter 2020 primarily due to the shutdown ofIndian Point 2 inApril 2020 and the shutdown of Pilgrim inMay 2019 .
Following are key performance measures for
2020 2019
Owned capacity (MW) (a) 2,246 3,274
GWh billed 4,958 7,258
Entergy Wholesale Commodities Nuclear Fleet
Capacity factor 96% 92%
GWh billed 4,580 6,703
Average energy price ($/MWh) $35.48 $32.17
Average capacity price ($/kW-month) $2.33 $5.24
Refueling outage days:
Indian Point 3 - 8
(a)The reduction in owned capacity is due to the shutdown of the
Other Income Statement Items Utility Other operation and maintenance expenses decreased from$651 million for the second quarter 2019 to$589 million for the second quarter 2020 primarily due to: •a decrease of$25 million in non-nuclear generation expenses due to a lower scope of work performed during plant outages in 2020 as compared to 2019, including a delay in planned outages in 2020 as a result of the COVID-19 pandemic; •a decrease of$22 million in nuclear generation expenses primarily due to a lower scope of work performed in 2020 as compared to 2019 and lower nuclear labor costs, including contract labor; •a decrease of$12 million primarily due to contract costs in 2019 related to initiatives to explore new customer products and services; and •the effects of recording in second quarter 2020 final judgments to resolve claims in theWaterford 3 damages case against theDOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately$8 million of spent nuclear fuel storage costs previously recorded as 4 --------------------------------------------------------------------------------
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Management's Financial Discussion and Analysisother operation and maintenance expense. See Note 1 to the financial statements herein for discussion of the spent nuclear fuel litigation.
Depreciation and amortization expenses increased primarily due to additions to plant in service, including theJ. Wayne Leonard Power Station (formerlySt. Charles Power Station ), theLake Charles Power Station , and theChoctaw Generating Station , and new depreciation rates atEntergy Mississippi , as approved by the MPSC. Interest expense increased primarily due to the issuances by Entergy Louisiana of$350 million of 2.90% Series mortgage bonds and$300 million of 4.20% Series mortgage bonds, each inMarch 2020 , and the issuance byEntergy Texas of$175 million of 3.55% Series mortgage bonds inMarch 2020 .
Other operation and maintenance expenses decreased from$188 million for the second quarter 2019 to$140 million for the second quarter 2020 primarily due to a decrease of$43 million resulting from the absence of expenses from the Pilgrim plant after it was shut down inMay 2019 and theIndian Point 2 plant after it was shut down inApril 2020 . Asset write-offs, impairments, and related charges for the second quarter 2020 include impairment charges of$7 million ($5 million net-of-tax) as a result of expenditures for capital assets. Asset write-offs, impairments, and related charges for the second quarter 2019 include impairment charges of$16 million ($13 million net-of-tax) as a result of nuclear refueling outage spending and expenditures for capital assets, partially offset by the gain on the sale of the Pilgrim switchyard. These costs were charged to expense as incurred as a result of the impaired fair value of theEntergy Wholesale Commodities nuclear plants' long-lived assets due to the significantly reduced remaining estimated operating lives associated with management's strategy to exit theEntergy Wholesale Commodities merchant power business. See "Entergy Wholesale Commodities Exit from the Merchant Power Business" below and in the Form 10-K for a discussion of management's strategy to shut down and sell all of the remaining plants in theEntergy Wholesale Commodities merchant nuclear fleet. See Note 14 to the financial statements in the Form 10-K for a discussion of impairment of long-lived assets. Other income increased primarily due to higher gains on decommissioning trust fund investments. See Notes 8 and 9 to the financial statements herein for a discussion of decommissioning trust fund investments. Other expenses decreased primarily due to the absence of decommissioning expense from the Pilgrim plant, after it was sold inAugust 2019 . See Note 14 to the financial statements in the Form 10-K for further discussion of the sale of the Pilgrim plant. Income Taxes The effective income tax rate was 19.6% for the second quarter 2020. The difference in the effective income tax rate for the second quarter 2020 versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes and certain book and tax differences related to utility plant items, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. The effective income tax rate was 0.6% for the second quarter 2019. The difference in the effective income tax rate for the second quarter 2019 versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes and certain book and tax differences related to utility plant items, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. 5 -------------------------------------------------------------------------------- Table of ContentsEntergy Corporation and Subsidiaries Management's Financial Discussion and Analysis
Six Months Ended
Following are income statement variances for Utility,
Entergy
Wholesale Parent &
Utility Commodities Other (a) Entergy
(In Thousands)
2019 Net Income (Loss) Attributable to
Entergy Corporation $561,775 $70,603 ($141,417 ) $490,961
Operating revenues (244,729) (191,136) 40 (435,825)
Fuel, fuel-related expenses, and gas
purchased for resale (193,596) (13,661) 12 (207,245)
Purchased power (246,410) (10,371) (12) (256,793)
Other regulatory charges (credits) 10,553 - - 10,553
Other operation and maintenance (81,139) (105,058) (379) (186,576)
Asset write-offs, impairments, and related - (78,527) -
charges (78,527)
Taxes other than income taxes 5,683 1,476 (202) 6,957
Depreciation and amortization 98,404 (15,778) 82 82,708
Other income (deductions) (11,986) (222,284) 7,106 (227,164)
Interest expense 32,749 (5,907) 114 26,956
Other expenses 2,015 (25,955) - (23,940)
Income taxes 11,175 (62,691) 25,208 (26,308)
Preferred dividend requirements of 941 (1) - 940
subsidiaries
2020 Net Income (Loss) Attributable to Entergy Corporation$664,685 ($26,344 ) ($159,094 )$479,247
(a)Parent & Other includes eliminations, which are primarily intersegment activity.
Refer to "ENTERGY CORPORATION AND SUBSIDIARIES - SELECTED OPERATING RESULTS" for further information with respect to operating statistics.
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Management's Financial Discussion and Analysis
Operating Revenues
Utility
Following is an analysis of the change in operating revenues comparing the six
months ended
Amount
(In Millions)
2019 operating revenues $4,552 Fuel, rider, and other revenues that do not significantly affect net income
(387)
Volume/weather (64)
Return of unprotected excess accumulated deferred income taxes to
customers 81
Retail electric price 126
2020 operating revenues $4,308
The Utility operating companies' results include revenues from rate mechanisms
designed to recover fuel, purchased power, and other costs such that the
revenues and expenses associated with these items generally offset and do not
affect net income. "Fuel, rider, and other revenues that do not significantly
affect net income" includes the revenue variance associated with these items.
The volume/weather variance is primarily due to decreased commercial usage as a
result of the COVID-19 pandemic and the effect of less favorable weather on
residential sales, partially offset by an increase in residential usage as a
result of the COVID-19 pandemic. Entergy continues to expect declines in sales
volume during 2020 due to the COVID-19 pandemic, especially in the commercial
and industrial customer classes. See "The COVID-19 Pandemic" section of Entergy
Corporation and Subsidiaries Management's Financial Discussion and Analysis for
discussion of the COVID-19 pandemic.
The return of unprotected excess accumulated deferred income taxes to customers
resulted from activity at the Utility operating companies in response to the
enactment of the Tax Cuts and Jobs Act. The return of unprotected excess
accumulated deferred income taxes began in second quarter 2018. In the six
months ended June 30, 2020 , $40 million was returned to customers through
reductions in operating revenues as compared to $121 million in the six months
ended June 30, 2019 . There is 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 herein and in the Form 10-K for further discussion
of regulatory activity regarding the Tax Cuts and Jobs Act.
The retail electric price variance is primarily due to:
•interim increases in Entergy Louisiana's formula rate plan revenues effectiveJune 2019 due to the inclusion of the first-year revenue requirement for theJ. Wayne Leonard Power Station (formerlySt. Charles Power Station ) and effectiveApril 2020 due to the inclusion of the first-year revenue requirement for theLake Charles Power Station , each as approved by the LPSC; •increases inEntergy Mississippi's formula rate plan rates effective with the first billing cycles ofJuly 2019 andApril 2020 and an interim capacity rate adjustment to the formula rate plan to recover non-fuel related costs of acquiring and operating theChoctaw Generating Station , each as approved by the MPSC; •an increase inEntergy Arkansas's formula rate plan rates effective with the first billing cycle ofJanuary 2020 , as approved by the APSC; and •an increase inEntergy Texas's transmission cost recovery factor rider inJanuary 2020 , as approved by the PUCT. 7 -------------------------------------------------------------------------------- Table of ContentsEntergy Corporation and Subsidiaries Management's Financial Discussion and Analysis The increase was partially offset by the effects ofEntergy New Orleans's rate reduction implemented withApril 2020 bills that was effectiveAugust 2019 in accordance with theCity Council resolution and related agreement in principle reached in the 2018 base rate case.
See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the regulatory proceedings discussed above.
Operating revenues forEntergy Wholesale Commodities decreased from$723 million for the six months endedJune 30, 2019 to$532 million for the six months endedJune 30, 2020 primarily due to the shutdown of Pilgrim inMay 2019 , the shutdown ofIndian Point 2 inApril 2020 , and lower realized wholesale energy and capacity prices. The decrease was partially offset by higher volume in the remainingEntergy Wholesale Commodities nuclear fleet resulting from fewer outage days in the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 .
Following are key performance measures for
2020 2019
Owned capacity (MW) (a) 2,246 3,274
GWh billed 11,714 14,461
Entergy Wholesale Commodities Nuclear Fleet
Capacity factor 98% 89%
GWh billed 10,839 13,392
Average energy price ($/MWh) $42.37 $42.50
Average capacity price ($/kW-month) $1.58 $4.96
Refueling outage days:
Indian Point 3 - 29
(a)The reduction in owned capacity is due to the shutdown of the
Other Income Statement Items Utility Other operation and maintenance expenses decreased from$1,236 million for the six months endedJune 30, 2019 to$1,155 million for the six months endedJune 30, 2020 primarily due to: •a decrease of$40 million in non-nuclear generation expenses due to a lower scope of work performed during plant outages in 2020 as compared to 2019, including a delay in planned outages in 2020 as a result of the COVID-19 pandemic; •a decrease of$34 million in nuclear generation expenses primarily due to a lower scope of work performed in 2020 as compared to 2019 and lower nuclear labor costs, including contract labor; •higher nuclear insurance refunds of$18 million ; •a decrease of$13 million primarily due to contract costs in 2019 related to initiatives to explore new customer products and services; and 8 --------------------------------------------------------------------------------
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Management's Financial Discussion and Analysis
•the effects of recording in second quarter 2020 final judgments to resolve
claims in the Waterford 3 damages case against the DOE related to spent nuclear
fuel storage costs. The damages awarded include the reimbursement of
approximately $8 million of spent nuclear fuel storage costs previously recorded
as other operation and maintenance expense. See Note 1 to the financial
statements herein for discussion of the spent nuclear fuel litigation.
The decrease was partially offset by an increase of $14 million in compensation
and benefits costs primarily due to an increase in net periodic pension and
other postretirement benefits costs as a result of a decrease in the discount
rate used to value the benefit liabilities and an increase in employee health
benefits costs. 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 benefit costs.
Depreciation and amortization expenses increased primarily due to additions to
plant in service, including the J. Wayne Leonard Power Station (formerly St.
Charles Power Station ), the Lake Charles Power Station , and the Choctaw
Generating Station , and new depreciation rates at Entergy Mississippi , as
approved by the MPSC.
Interest expense increased primarily due to:
•the issuances byEntergy Texas of$300 million inSeptember 2019 and$175 million inMarch 2020 of 3.55% Series mortgage bonds; •the issuances by Entergy Louisiana of$300 million of 4.20% Series mortgage bonds and$350 million of 2.90% Series mortgage bonds, each inMarch 2020 , and$525 million of 4.20% Series mortgage bonds inMarch 2019 ; and •the issuance byEntergy Arkansas of$350 million of 4.20% Series mortgage bonds inMarch 2019 .Entergy Wholesale Commodities Other operation and maintenance expenses decreased from$376 million for the six months endedJune 30, 2019 to$271 million for the six months endedJune 30, 2020 primarily due to: •a decrease of$85 million resulting from the absence of expenses from the Pilgrim plant after it was shut down inMay 2019 and theIndian Point 2 plant after it was shut down inApril 2020 ; and •a decrease of$20 million in severance and retention expenses. Severance and retention expenses were incurred in 2020 and 2019 due to management's strategy to exit theEntergy Wholesale Commodities merchant power business. See "Entergy Wholesale Commodities Exit from the Merchant Power Business" below and in the Form 10-K for a discussion of management's strategy to shut down and sell all of the remaining plants in theEntergy Wholesale Commodities merchant nuclear fleet. See Note 7 to the financial statements herein for further discussion of severance and retention expenses resulting from management's strategy to shut down and sell all of the remaining plants in theEntergy Wholesale Commodities merchant nuclear fleet. Asset write-offs, impairments, and related charges for the six months endedJune 30, 2020 include impairment charges of$12 million ($9 million net-of-tax) as a result of expenditures for capital assets. Asset write-offs, impairments, and related charges for the six months endedJune 30, 2019 include impairment charges of$90 million ($71 million net-of-tax) as a result of nuclear refueling outage spending and expenditures for capital assets. These costs were charged to expense as incurred as a result of the impaired fair value of theEntergy Wholesale Commodities nuclear plants' long-lived assets due to the significantly reduced remaining estimated operating lives associated with management's strategy to exit theEntergy Wholesale Commodities merchant power business. See "Entergy Wholesale Commodities Exit from the Merchant Power Business" below and in the Form 10-K for a discussion of management's strategy to shut down and sell all of the remaining plants in the Entergy Wholesale 9 -------------------------------------------------------------------------------- Table of ContentsEntergy Corporation and Subsidiaries Management's Financial Discussion and Analysis
Commodities merchant nuclear fleet. See Note 14 to the financial statements in the Form 10-K for a discussion of impairment of long-lived assets.
Other income decreased primarily due to lower gains on decommissioning trust fund investments in the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 . See Notes 8 and 9 to the financial statements herein for a discussion of decommissioning trust fund investments. Other expenses decreased primarily due to the absence of decommissioning expense from the Pilgrim plant, after it was sold inAugust 2019 . See Note 14 to the financial statements in the Form 10-K for further discussion of the sale of the Pilgrim plant. Income Taxes The effective income tax rate was 3.5% for the six months endedJune 30, 2020 . The difference in the effective income tax rate for the six months endedJune 30, 2020 versus the federal statutory rate of 21% was primarily due to the settlement with theIRS on the treatment of funds received in conjunction with the Act 55 financing of Hurricane Isaac storm costs, permanent differences related to income tax deductions for stock-based compensation, amortization of excess accumulated deferred income taxes, and certain book and tax differences related to utility plant items, partially offset by state income taxes. See Note 10 to the financial statements herein for discussion of theIRS settlement and the income tax deductions for stock-based compensation. 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 and regulatory activity regarding the Tax Cuts and Jobs Act. The effective income tax rate was 8.1% for the six months endedJune 30, 2019 . The difference in the effective income tax rate for the six months endedJune 30, 2019 versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes, partially offset by the tax effects of the disposition ofVermont Yankee . 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 and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 3 to the financial statements in the Form 10-K for a discussion of the tax effects of the Vermont Yankee disposition.
Income Tax Legislation
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Income Tax Legislation" in the Form 10-K for a discussion of the Tax Cuts and Jobs Act, the federal income tax legislation enacted inDecember 2017 . Note 3 to the financial statements in the Form 10-K contains additional discussion of the effect of the Tax Act on 2019, 2018, and 2017 results of operations and financial position, the provisions of the Tax Act, and the uncertainties associated with accounting for the Tax Act, and Note 10 to the financial statements herein contains updates to that discussion. Note 2 to the financial statements in the Form 10-K contains a discussion of the regulatory proceedings that have considered the effects of the Tax Act.
Entergy Wholesale Commodities Exit from the Merchant Power Business
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale
Commodities Exit from the Merchant Power Business" in the Form 10-K for a
discussion of management's strategy to shut down and sell all remaining plants
in the
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Management's Financial Discussion and Analysis
Shutdown and Sale of Pilgrim
As discussed in the Form 10-K, Pilgrim ceased operations in May 2019 . In August
2019 the NRC approved the transfer of Pilgrim's facility licenses to Holtec
International . At that time, hearing requests filed by the Commonwealth of
Massachusetts and Pilgrim Watch challenging Holtec's financial qualifications
and the sufficiency of the NRC's review of the associated environmental impacts
of the license transfer were pending with the NRC Commissioners. The NRC
approval order included a condition acknowledging the NRC's longstanding
authority to modify, condition, or rescind the license transfer order as a
result of any hearing that may be conducted. On August 26, 2019 , as permitted by
the August 22 order, Entergy and Holtec closed the transaction. On September 25,
2019 , Massachusetts filed a petition with the U.S. Court of Appeals for the
District of Columbia Circuit , asking the court to vacate the NRC's August 22
license transfer approval order and related approvals. On November 22, 2019 ,
Entergy and Holtec filed a motion to dismiss Massachusetts's petition; the NRC
also filed a motion to dismiss on the same date. On January 22, 2020 ,
Massachusetts filed a second petition with the D.C. Circuit asking the court to
review the NRC's December 17 order denying its stay motion. On June 16, 2020 ,
Holtec and Massachusetts reached a settlement to resolve issues related to the
Pilgrim transaction. Pursuant to the settlement agreement, Massachusetts
withdrew its hearing request pending before the NRC and withdrew both of its
petitions for review before the D.C. Circuit, thereby terminating
Massachusetts's pending legal challenges to the Pilgrim transfer.
Planned Shutdown and Sale of
As discussed in the Form 10-K, inApril 2019 , Entergy entered into an agreement to sell, directly or indirectly, 100% of the equity interests in the subsidiaries that ownIndian Point 1,Indian Point 2, andIndian Point 3, afterIndian Point 3 has been shut down and defueled, to aHoltec subsidiary for decommissioning. The sale will include the transfer of the licenses, spent fuel, decommissioning liabilities, and nuclear decommissioning trusts for the three units. Subject to the conditions discussed in the Form 10-K, the transaction is targeted to close inMay 2021 , following the defueling ofIndian Point 3. As consideration for the transfer toHoltec of its interest inIndian Point , Entergy will receive nominal cash consideration. The terms of the transaction do not require a minimum level of funding in the nuclear decommissioning trusts as a condition to closing.The Indian Point transaction is expected to result in a loss based on the difference between Entergy's adjusted net investment in the subsidiaries at closing and the sale price net of any agreed adjustments. As ofJune 30, 2020 , Entergy's adjusted net investment in theIndian Point units was$175 million . The primary variables in the ultimate loss that Entergy will incur are the values of the nuclear decommissioning trusts and the asset retirement obligations at closing, the financial results from plant operations until the closing, and the level of any unrealized deferred tax balances at closing.Indian Point 2 ceased operations onApril 30, 2020 .
Planned Shutdown and Sale of Palisades
As discussed in the Form 10-K, inJuly 2018 , Entergy entered into a purchase and sale agreement to sell 100% of the equity interests inEntergy Nuclear Palisades, LLC , the owner of Palisades and the Big Rock Point Site, for$1,000 (subject to adjustment for net liabilities and other amounts). The sale ofEntergy Nuclear Palisades will include the transfer of the nuclear decommissioning trust and obligation for spent fuel management and plant decommissioning. InFebruary 2020 the parties signed an amendment to the purchase and sale agreement to remove the closing condition that the nuclear decommissioning trust fund must have a specified amount and Entergy agreed to contribute$20 million to the nuclear decommissioning trust fund at closing, among other amendments. Subject to the conditions discussed in the Form 10-K, the transaction is expected to close by the end of 2022. As ofJune 30, 2020 , Entergy's adjusted net investment in Palisades was$55 million . The primary variables in the ultimate loss or gain that Entergy will incur on the transaction are the values of the nuclear decommissioning trust and the asset retirement obligations at closing, the financial results from plant operations until the closing, and the level of any unrealized deferred tax balances at closing. 11 -------------------------------------------------------------------------------- Table of ContentsEntergy Corporation and Subsidiaries Management's Financial Discussion and Analysis
Costs Associated with Entergy Wholesale Commodities Strategic Transactions
Entergy expects to incur employee retention and severance expenses associated with management's strategy to exit theEntergy Wholesale Commodities merchant power business of approximately$70 million in 2020, of which$38 million has been incurred as ofJune 30, 2020 , and a total of approximately$60 million from 2021 through 2022. In addition,Entergy Wholesale Commodities incurred impairment charges related to nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets of$7 million for the three months endedJune 30, 2020 and$12 million for the six months endedJune 30, 2020 . These costs were charged to expense as incurred as a result of the impaired value of certain of theEntergy Wholesale Commodities nuclear plants' long-lived assets due to the significantly reduced remaining estimated operating lives associated with management's strategy to exit theEntergy Wholesale Commodities merchant power business. Entergy expects to continue to incur costs associated with nuclear fuel-related spending and expenditures for capital assets and, except for Palisades, expects to continue to charge these costs to expense as incurred because Entergy expects the value of the plants to continue to be impaired.
Liquidity and Capital Resources
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy's capital structure, capital expenditure plans and other uses of capital, and sources of capital. Following are updates to that discussion.
Entergy has experienced negative changes during 2020 to its customer payment patterns and its operating cash flow activity due to the COVID-19 pandemic, and expects them to continue throughout 2020. See "The COVID-19 Pandemic" section ofEntergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for discussion of the COVID-19 pandemic. Additional discussion of Entergy's liquidity and capital resources follows.
Capital Structure and Resources
Entergy's debt to capital ratio is shown in the following table. The increase in the debt to capital ratio for Entergy as ofJune 30, 2020 is primarily due to the net issuance of debt in 2020. June 30, December 31, 2020 2019 Debt to capital 66.8 % 65.5 % Effect of excluding securitization bonds (0.2 %) (0.4 %) Debt to capital, excluding securitization bonds (a) 66.6 % 65.1 % Effect of subtracting cash (1.0 %) (0.5 %) Net debt to net capital, excluding securitization bonds (a) 65.6 % 64.6 %
(a)Calculation excludes the
Net debt consists of debt less cash and cash equivalents. Debt consists of notes
payable and commercial paper, finance lease obligations, and long-term debt,
including the currently maturing portion. Capital consists of debt, common
shareholders' equity, and subsidiaries' preferred stock without sinking
fund. Net capital consists of capital less cash and cash equivalents. Entergy
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's financial condition because the
securitization bonds are non-recourse to Entergy, as more fully described in
Note 5 to the financial statements in the Form 10-K. Entergy 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's financial condition because net debt
indicates Entergy's outstanding debt position that could not be readily
satisfied by cash and cash equivalents on hand.
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Entergy Corporation has in place a credit facility that has a borrowing capacity
of $3.5 billion and expires in September 2024 . The facility includes fronting
commitments for the issuance of letters of credit against $20 million of the
total borrowing capacity of the credit facility. The commitment fee is currently
0.225% of the undrawn commitment amount. Commitment fees and interest rates on
loans under the credit facility can fluctuate depending on the senior unsecured
debt ratings of Entergy Corporation . The weighted average interest rate for the
six months ended June 30, 2020 was 2.62% on the drawn portion of the facility.
Following is a summary of the borrowings outstanding and capacity available
under the facility as of June 30, 2020 :
Letters Capacity
Capacity Borrowings of Credit Available
(In Millions)
$3,500 $160 $6 $3,334
A covenant in Entergy Corporation's credit facility requires Entergy to maintain
a consolidated debt ratio, as defined, of 65% or less of its total
capitalization. The calculation of this debt ratio under Entergy Corporation's
credit facility is different than the calculation of the debt to
capital ratio above. One such difference is that it excludes the effects, among
other things, of certain impairments related to the Entergy Wholesale
Commodities nuclear generation assets. Entergy is currently in compliance with
the covenant and expects to remain in compliance with this covenant. If Entergy
fails to meet this ratio, or if Entergy or one of the Registrant Subsidiaries
(except Entergy New Orleans ) defaults on other indebtedness or is in bankruptcy
or insolvency proceedings, an acceleration of the facility's maturity date may
occur. See Note 4 to the financial statements herein for additional discussion
of the Entergy Corporation credit facility and discussion of the Registrant
Subsidiaries' credit facilities.
Certain of the Utility operating companies have a total of
Capital Expenditure Plans and Other Uses of Capital
See the table and discussion in the Form 10-K under "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Capital Expenditure Plans and Other Uses of Capital," that sets forth the amounts of planned construction and other capital investments by operating segment for 2020 through 2022. Following are updates to that discussion.
As discussed in the Form 10-K, the LPSC issued an order inJuly 2017 approving certification that the public necessity and convenience would be served by the construction of theLake Charles Power Station . The plant commenced commercial operation inMarch 2020 .New Orleans Power Station As discussed in the Form 10-K, inJune 2019 , a state court judge inNew Orleans affirmed theCity Council's approval of theNew Orleans Power Station and dismissed the petition for judicial review of that decision that had been filed inApril 2018 . The petitioners have filed an appeal of that ruling. Also inJune 2019 , with regard to the lawsuit challenging theCity Council's decision on the basis of a violation of the open meetings law, the same state court judge inNew Orleans ruled that there was a violation of the open meetings law at theFebruary 2018 meeting of theCity Council's Utility Committee at which that Committee considered theNew Orleans Power 13 -------------------------------------------------------------------------------- Table of ContentsEntergy Corporation and Subsidiaries Management's Financial Discussion and Analysis Station approval, and further ruled that, although there was no violation of the open meetings law at theMarch 2018 City Council meeting at which theNew Orleans Power Station was approved, both the approval of the Utility Committee and the approval of theCity Council were void.The City Council andEntergy New Orleans each filed a suspensive appeal of the open meetings law ruling. A suspensive appeal suspends the effect of the judgment in the open meetings law proceeding while the appeal is being taken. The petitioners sought in the state appellate court, and then at theLouisiana Supreme Court , to terminate the suspension of the effect of the judgment, but both courts declined to do so. Oral argument in both cases was heard inJanuary 2020 . InFebruary 2020 the state appellate court reversed the lower court's ruling that theCity Council's approval of theNew Orleans Power Station was void due to a violation of the open meetings law at theCity Council's Utility Committee meeting inFebruary 2018 . The state appellate court ruled that there was no violation of the open meetings law at theCity Council meeting inMarch 2018 and that the lower court erred in voiding theCity Council resolution approving theNew Orleans Power Station . InMarch 2020 the appellees in that proceeding filed a writ application with theLouisiana Supreme Court seeking review of the appellate court's decision and severalNew Orleans -based organizations filed an amicus brief in support of the appellees' writ application.Entergy New Orleans and theCity Council each filed an opposition to the writ application inJune 2020 , and theCity Council also filed its own writ application seeking reversal of the appellate court's holding that there was a violation of the open meetings law at theFebruary 2018 City Council's Utility Committee meeting. In its writ application theCity Council requested that theLouisiana Supreme Court deny the appellees' writ application, and grant theCity Council's writ application only if the Supreme Court grants the appellees' writ application. InApril 2020 the state appellate court affirmed the district court's judicial review decision that affirmed theCity Council's approval of theNew Orleans Power Station as in the public interest. InJune 2020 appellants in that case filed a writ application with theLouisiana Supreme Court seeking review and reversal of that appellate court ruling. InJuly 2020 theCity Council andEntergy New Orleans each filed an opposition to appellants' writ application in the judicial review case. Commercial operation of the plant commenced inMay 2020 . In accordance with theCity Council resolution issued in the 2018 base rate case proceeding,Entergy New Orleans is deferring theNew Orleans Power Station non-fuel costs pending the conclusion of the appellate proceedings.
Sunflower Solar Facility
InNovember 2018 ,Entergy Mississippi announced that it signed an agreement for the purchase of an approximately 100 MW to-be-constructed solar photovoltaic facility that will be sited on approximately 1,000 acres inSunflower County, Mississippi . The estimated base purchase price is approximately$138.4 million . The estimated total investment, including the base purchase price and other related costs, forEntergy Mississippi to acquire the Sunflower Solar Facility is approximately$153.2 million . The purchase is contingent upon, among other things, obtaining necessary approvals, including full cost recovery, from applicable federal and state regulatory and permitting agencies. The project will be built bySunflower County Solar Project, LLC , an indirect subsidiary ofRecurrent Energy, LLC .Entergy Mississippi will purchase the facility upon mechanical completion and after the other purchase contingencies have been met. InDecember 2018 ,Entergy Mississippi filed a joint petition withSunflower Solar Project at the MPSC forSunflower Solar Project to construct and forEntergy Mississippi to acquire and thereafter own, operate, improve, and maintain the solar facility.Entergy Mississippi has proposed revisions to its formula rate plan that would provide for a mechanism, the interim capacity rate adjustment mechanism, in the formula rate plan to recover the non-fuel related costs of additional owned capacity acquired byEntergy Mississippi , including the annual ownership costs of the Sunflower Solar Facility. InDecember 2019 the MPSC approvedEntergy Mississippi's proposed revisions to its formula rate plan to provide for an interim capacity rate adjustment mechanism. Recovery through the interim capacity rate adjustment requires MPSC approval for each new resource. InAugust 2019 consultants retained by theMississippi Public Utilities Staff filed a report expressing concerns regarding the project economics. InMarch 2020 ,Entergy Mississippi filed supplemental testimony addressing questions and observations raised by the consultants retained by theMississippi Public Utilities Staff and proposing an alternative structure for the transaction that would reduce its cost. A hearing before the MPSC was held inMarch 2020 . InApril 2020 the MPSC issued an order approving certification of the Sunflower Solar Facility and its recovery through the interim capacity rate adjustment mechanism, subject to certain conditions including: (i) thatEntergy Mississippi pursue a partnership structure through which the partnership 14 --------------------------------------------------------------------------------
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would acquire and own the facility under the build-own-transfer agreement and
(ii) that if Entergy Mississippi does not consummate the partnership structure
under the terms of the order, there will be a cap of $136 million on the level
of recoverable costs. Closing is targeted to occur by the end of 2021.
Searcy Solar Facility
As discussed in the Form 10-K, inMay 2019 ,Entergy Arkansas filed a petition with the APSC seeking a finding that the purchase of the Searcy Solar Facility was in the public interest. InApril 2020 the APSC issued an order approvingEntergy Arkansas's acquisition of the Searcy Solar facility as being in the public interest, but declined to approveEntergy Arkansas's preferred cost recovery rider mechanism, finding instead, based on the particular facts and circumstances presented, that the formula rate plan rider was a sufficient recovery mechanism for this resource.
Dividends
Declarations of dividends on Entergy's common stock are made at the discretion of the Board. Among other things, the Board evaluates the level of Entergy's common stock dividends based upon earnings per share from the Utility operating segment and the Parent and Other portion of the business, financial strength, and future investment opportunities. At itsJuly 2020 meeting, the Board declared a dividend of$0.93 per share, which is the same quarterly dividend per share that Entergy has paid since the third quarter 2019.
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