ETR-06-30-2014-10Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One) | |
X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the Quarterly Period Ended June 30, 2014 |
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from ____________ to ____________ |
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Commission File Number | Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number, and IRS Employer Identification No. | |
Commission File Number | Registrant, State of Incorporation or Organization, Address of Principal Executive Offices, Telephone Number, and IRS Employer Identification No. |
1-11299 | ENTERGY CORPORATION (a Delaware corporation) 639 Loyola Avenue New Orleans, Louisiana 70113 Telephone (504) 576-4000 72-1229752 | | 1-31508 | ENTERGY MISSISSIPPI, INC. (a Mississippi corporation) 308 East Pearl Street Jackson, Mississippi 39201 Telephone (601) 368-5000 64-0205830 |
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1-10764 | ENTERGY ARKANSAS, INC. (an Arkansas corporation) 425 West Capitol Avenue Little Rock, Arkansas 72201 Telephone (501) 377-4000 71-0005900 | | 0-05807 | ENTERGY NEW ORLEANS, INC. (a Louisiana corporation) 1600 Perdido Street New Orleans, Louisiana 70112 Telephone (504) 670-3700 72-0273040 |
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0-20371 | ENTERGY GULF STATES LOUISIANA, L.L.C. (a Louisiana limited liability company) 446 North Boulevard Baton Rouge, Louisiana 70802 Telephone (800) 368-3749 74-0662730 | | 1-34360 | ENTERGY TEXAS, INC. (a Texas corporation) 350 Pine Street Beaumont, Texas 77701 Telephone (409) 981-2000 61-1435798 |
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1-32718 | ENTERGY LOUISIANA, LLC (a Texas limited liability company) 446 North Boulevard Baton Rouge, Louisiana 70802 Telephone (800) 368-3749 75-3206126 | | 1-09067 | SYSTEM ENERGY RESOURCES, INC. (an Arkansas corporation) Echelon One 1340 Echelon Parkway Jackson, Mississippi 39213 Telephone (601) 368-5000 72-0752777 |
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Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes R No o
Indicate by check mark whether the registrants have submitted electronically and posted on Entergy’s corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.
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| Large accelerated filer | | Accelerated filer | | Non- accelerated filer | | Smaller reporting company |
Entergy Corporation | ü | | | | | | |
Entergy Arkansas, Inc. | | | | | ü | | |
Entergy Gulf States Louisiana, L.L.C. | | | | | ü | | |
Entergy Louisiana, LLC | | | | | ü | | |
Entergy Mississippi, Inc. | | | | | ü | | |
Entergy New Orleans, Inc. | | | | | ü | | |
Entergy Texas, Inc. | | | | | ü | | |
System Energy Resources, Inc. | | | | | ü | | |
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act). Yes o No R
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Common Stock Outstanding | | Outstanding at July 31, 2014 |
Entergy Corporation | ($0.01 par value) | 179,608,009 |
Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States Louisiana, L.L.C., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., Entergy Texas, Inc., and System Energy Resources, Inc. separately file this combined Quarterly Report on Form 10-Q. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company reports herein only as to itself and makes no other representations whatsoever as to any other company. This combined Quarterly Report on Form 10-Q supplements and updates the Annual Report on Form 10-K for the calendar year ended December 31, 2013 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed by the individual registrants with the SEC, and should be read in conjunction therewith.
ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2014
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Entergy Corporation and Subsidiaries | |
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Entergy Arkansas, Inc. and Subsidiaries | |
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Entergy Gulf States Louisiana, L.L.C. | |
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Entergy Louisiana, LLC and Subsidiaries | |
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Entergy Mississippi, Inc. | |
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ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2014
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Entergy New Orleans, Inc. | |
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Entergy Texas, Inc. and Subsidiaries | |
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System Energy Resources, Inc. | |
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FORWARD-LOOKING INFORMATION
In this combined report and from time to time, Entergy Corporation and the Registrant Subsidiaries each makes statements as a registrant concerning its expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. Such statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “intend,” “expect,” “estimate,” “continue,” “potential,” “plan,” “predict,” “forecast,” and other similar words or expressions are intended to identify forward-looking statements but are not the only means to identify these statements. Although each of these registrants believes that these forward-looking statements and the underlying assumptions are reasonable, it cannot provide assurance that they will prove correct. Any forward-looking statement is based on information current as of the date of this combined report and speaks only as of the date on which such statement is made. Except to the extent required by the federal securities laws, these registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Forward-looking statements involve a number of risks and uncertainties. There are factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, including those factors discussed or incorporated by reference in (a) Item 1A. Risk Factors in the Form 10-K, (b) Management’s Financial Discussion and Analysis in the Form 10-K and in this report, and (c) the following factors (in addition to others described elsewhere in this combined report and in subsequent securities filings):
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• | resolution of pending and future rate cases and negotiations, including various performance-based rate discussions, Entergy’s utility supply plan, and recovery of fuel and purchased power costs; |
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• | the termination of Entergy Arkansas’s participation in the System Agreement, which occurred in December 2013, the termination of Entergy Mississippi’s participation in the System Agreement in November 2015, the termination of Entergy Texas’s, Entergy Gulf States Louisiana’s, and Entergy Louisiana’s participation in the System Agreement after expiration of the proposed 60-month notice period or such other period as approved by the FERC; |
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• | regulatory and operating challenges and uncertainties and economic risks associated with the Utility operating companies’ move to the MISO RTO, which occurred in December 2013, including the effect of current or projected RTO market rules and system conditions in the MISO markets, the allocation of MISO system transmission upgrade costs, and the effect of planning decisions that MISO makes with respect to future transmission investments by the Utility operating companies; |
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• | changes in utility regulation, including the beginning or end of retail and wholesale competition, the ability to recover net utility assets and other potential stranded costs, and the application of more stringent transmission reliability requirements or market power criteria by the FERC; |
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• | changes in the regulation or regulatory oversight of Entergy’s nuclear generating facilities and nuclear materials and fuel, including with respect to the planned or potential shutdown of nuclear generating facilities owned or operated by the Entergy Wholesale Commodities business, and the effects of new or existing safety or environmental concerns regarding nuclear power plants and nuclear fuel; |
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• | resolution of pending or future applications, and related regulatory proceedings and litigation, for license renewals or modifications or other authorizations required of nuclear generating facilities; |
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• | the performance of and deliverability of power from Entergy’s generation resources, including the capacity factors at its nuclear generating facilities; |
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• | Entergy’s ability to develop and execute on a point of view regarding future prices of electricity, natural gas, and other energy-related commodities; |
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• | prices for power generated by Entergy’s merchant generating facilities and the ability to hedge, meet credit support requirements for hedges, sell power forward or otherwise reduce the market price risk associated with those facilities, including the Entergy Wholesale Commodities nuclear plants; |
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• | the prices and availability of fuel and power Entergy must purchase for its Utility customers, and Entergy’s ability to meet credit support requirements for fuel and power supply contracts; |
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• | volatility and changes in markets for electricity, natural gas, uranium, and other energy-related commodities; |
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• | changes in law resulting from federal or state energy legislation or legislation subjecting energy derivatives used in hedging and risk management transactions to governmental regulation; |
FORWARD-LOOKING INFORMATION (Concluded)
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• | changes in environmental, tax, and other laws, including requirements for reduced emissions of sulfur, nitrogen, greenhouse gases, mercury, and other regulated air emissions, and changes in costs of compliance with environmental and other laws and regulations; |
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• | uncertainty regarding the establishment of interim or permanent sites for spent nuclear fuel and nuclear waste storage and disposal and the level of spent fuel disposal fees charged by the U.S. government related to such sites; |
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• | variations in weather and the occurrence of hurricanes and other storms and disasters, including uncertainties associated with efforts to remediate the effects of hurricanes, ice storms, or other weather events and the recovery of costs associated with restoration, including accessing funded storm reserves, federal and local cost recovery mechanisms, securitization, and insurance; |
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• | effects of climate change; |
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• | changes in the quality and availability of water supplies and the related regulation of water use and diversion; |
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• | Entergy’s ability to manage its capital projects and operation and maintenance costs; |
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• | Entergy’s ability to purchase and sell assets at attractive prices and on other attractive terms; |
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• | the economic climate, and particularly economic conditions in Entergy’s Utility service area and the Northeast United States and events that could influence economic conditions in those areas; |
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• | the effects of Entergy’s strategies to reduce tax payments; |
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• | changes in the financial markets, particularly those affecting the availability of capital and Entergy’s ability to refinance existing debt, execute share repurchase programs, and fund investments and acquisitions; |
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• | actions of rating agencies, including changes in the ratings of debt and preferred stock, changes in general corporate ratings, and changes in the rating agencies’ ratings criteria; |
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• | changes in inflation and interest rates; |
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• | the effect of litigation and government investigations or proceedings; |
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• | changes in technology, including with respect to new, developing, or alternative sources of generation; |
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• | the potential effects of threatened or actual terrorism, cyber attacks or data security breaches, including increased security costs, and war or a catastrophic event such as a nuclear accident or a natural gas pipeline explosion; |
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• | Entergy’s ability to attract and retain talented management and directors; |
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• | changes in accounting standards and corporate governance; |
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• | declines in the market prices of marketable securities and resulting funding requirements for Entergy’s defined benefit pension and other postretirement benefit plans; |
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• | future wage and employee benefit costs, including changes in discount rates and returns on benefit plan assets; |
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• | changes in decommissioning trust fund values or earnings or in the timing of or cost to decommission nuclear plant sites; |
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• | the implementation of the shutdown of Vermont Yankee by the end of 2014 and the related decommissioning of Vermont Yankee; |
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• | the effectiveness of Entergy’s risk management policies and procedures and the ability and willingness of its counterparties to satisfy their financial and performance commitments; |
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• | factors that could lead to impairment of long-lived assets; and |
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• | the ability to successfully complete merger, acquisition, or divestiture plans, regulatory or other limitations imposed as a result of merger, acquisition, or divestiture, and the success of the business following a merger, acquisition, or divestiture. |
DEFINITIONS
Certain abbreviations or acronyms used in the text and notes are defined below: |
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Abbreviation or Acronym | Term |
AFUDC | Allowance for Funds Used During Construction |
ALJ | Administrative Law Judge |
ANO 1 and 2 | Units 1 and 2 of Arkansas Nuclear One (nuclear), owned by Entergy Arkansas |
APSC | Arkansas Public Service Commission |
ASLB | Atomic Safety and Licensing Board, the board within the NRC that conducts hearings and performs other regulatory functions that the NRC authorizes |
ASU | Accounting Standards Update issued by the FASB |
Board | Board of Directors of Entergy Corporation |
capacity factor | Actual plant output divided by maximum potential plant output for the period |
City Council or Council | Council of the City of New Orleans, Louisiana |
D.C. Circuit | U.S. Court of Appeals for the District of Columbia Circuit |
DOE | United States Department of Energy |
Entergy | Entergy Corporation and its direct and indirect subsidiaries |
Entergy Corporation | Entergy Corporation, a Delaware corporation |
Entergy Gulf States, Inc. | Predecessor company for financial reporting purposes to Entergy Gulf States Louisiana that included the assets and business operations of both Entergy Gulf States Louisiana and Entergy Texas |
Entergy Gulf States Louisiana | Entergy Gulf States Louisiana, L.L.C., a company formally created as part of the jurisdictional separation of Entergy Gulf States, Inc. and the successor company to Entergy Gulf States, Inc. for financial reporting purposes. The term is also used to refer to the Louisiana jurisdictional business of Entergy Gulf States, Inc., as the context requires. |
Entergy Texas | Entergy Texas, Inc., a company formally created as part of the jurisdictional separation of Entergy Gulf States, Inc. The term is also used to refer to the Texas jurisdictional business of Entergy Gulf States, Inc., as the context requires. |
Entergy Wholesale Commodities (EWC) | Entergy’s non-utility business segment primarily comprised of the ownership and operation of six nuclear power plants, the ownership of interests in non-nuclear power plants, and the sale of the electric power produced by those plants to wholesale customers |
EPA | United States Environmental Protection Agency |
ERCOT | Electric Reliability Council of Texas |
FASB | Financial Accounting Standards Board |
FERC | Federal Energy Regulatory Commission |
FitzPatrick | James A. FitzPatrick Nuclear Power Plant (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
Form 10-K | Annual Report on Form 10-K for the calendar year ended December 31, 2013 filed with the SEC by Entergy Corporation and its Registrant Subsidiaries |
FTR | Financial transmission right |
Grand Gulf | Unit No. 1 of Grand Gulf Nuclear Station (nuclear), 90% owned or leased by System Energy |
GWh | Gigawatt-hour(s), which equals one million kilowatt-hours |
Independence | Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power, LLC |
Indian Point 2 | Unit 2 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
Indian Point 3 | Unit 3 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
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Abbreviation or Acronym | Term |
IRS | Internal Revenue Service |
ISO | Independent System Operator |
kW | Kilowatt, which equals one thousand watts |
kWh | Kilowatt-hour(s) |
LPSC | Louisiana Public Service Commission |
MISO | Midcontinent Independent System Operator, Inc., a regional transmission organization |
MMBtu | One million British Thermal Units |
MPSC | Mississippi Public Service Commission |
MW | Megawatt(s), which equals one thousand kilowatts |
MWh | Megawatt-hour(s) |
Net debt to net capital ratio | Gross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents |
Net MW in operation | Installed capacity owned and operated |
NRC | Nuclear Regulatory Commission |
NYPA | New York Power Authority |
Palisades | Palisades Power Plant (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
Pilgrim | Pilgrim Nuclear Power Station (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
PPA | Purchased power agreement or power purchase agreement |
PUCT | Public Utility Commission of Texas |
Registrant Subsidiaries | Entergy Arkansas, Inc., Entergy Gulf States Louisiana, L.L.C., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., Entergy Texas, Inc., and System Energy Resources, Inc. |
River Bend | River Bend Station (nuclear), owned by Entergy Gulf States Louisiana |
RTO | Regional transmission organization |
SEC | Securities and Exchange Commission |
SMEPA | South Mississippi Electric Power Association, which owns a 10% interest in Grand Gulf |
System Agreement | Agreement, effective January 1, 1983, as modified, among the Utility operating companies relating to the sharing of generating capacity and other power resources. Entergy Arkansas terminated its participation in the System Agreement effective December 18, 2013. |
System Energy | System Energy Resources, Inc. |
TWh | Terawatt-hour(s), which equals one billion kilowatt-hours |
Unit Power Sales Agreement | Agreement, dated as of June 10, 1982, as amended and approved by FERC, among Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, relating to the sale of capacity and energy from System Energy’s share of Grand Gulf |
Utility | Entergy’s business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution |
Utility operating companies | Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas |
Vermont Yankee | Vermont Yankee Nuclear Power Station (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment |
Waterford 3 | Unit No. 3 (nuclear) of the Waterford Steam Electric Station, 100% owned or leased by Entergy Louisiana |
weather-adjusted usage | Electric usage excluding the effects of deviations from normal weather |
ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS
Entergy operates primarily through two business segments: Utility and Entergy Wholesale Commodities.
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• | The Utility business segment includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and operation of a small natural gas distribution business. |
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• | The Entergy Wholesale Commodities business segment includes the ownership and operation of six nuclear power plants located in the northern United States and the sale of the electric power produced by those plants to wholesale customers. In August 2013, Entergy announced plans to close and decommission Vermont Yankee. The plant is expected to cease power production in the fourth quarter 2014 after its current fuel cycle. 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. |
Results of Operations
Second Quarter 2014 Compared to Second Quarter 2013
Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing the second quarter 2014 to the second quarter 2013 showing how much the line item increased or (decreased) in comparison to the prior period:
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Utility | | Entergy Wholesale Commodities | |
Parent & Other (a) | |
Entergy |
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2nd Quarter 2013 Consolidated Net Income (Loss) | |
| $200,555 |
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| $11,531 |
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| ($44,031 | ) | |
| $168,055 |
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Net revenue (operating revenue less fuel expense, purchased power, and other regulatory charges/credits) | | 46,765 |
| | 88,371 |
| | (4,789 | ) | | 130,347 |
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Other operation and maintenance expenses | | (30,646 | ) | | 9,037 |
| | (5,977 | ) | | (27,586 | ) |
Taxes other than income taxes | | 4,798 |
| | 2,901 |
| | 149 |
| | 7,848 |
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Depreciation and amortization | | 13,557 |
| | 20,631 |
| | 38 |
| | 34,226 |
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Other income | | (16,036 | ) | | (1,466 | ) | | (1,773 | ) | | (19,275 | ) |
Interest expense | | 5,484 |
| | (655 | ) | | 2,005 |
| | 6,834 |
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Other expenses | | 1,999 |
| | 5,895 |
| | — |
| | 7,894 |
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Income taxes | | 23,958 |
| | 34,164 |
| | (2,492 | ) | | 55,630 |
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2nd Quarter 2014 Consolidated Net Income (Loss) | |
| $212,134 |
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| $26,463 |
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| ($44,316 | ) |
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| $194,281 |
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(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.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Net Revenue
Utility
Following is an analysis of the change in net revenue comparing the second quarter 2014 to the second quarter 2013:
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| Amount |
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2013 net revenue |
| $1,371 |
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Retail electric price | 36 |
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Asset retirement obligation | 16 |
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Volume/weather | (4 | ) |
Other | (1 | ) |
2014 net revenue |
| $1,418 |
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The retail electric price variance is primarily due to:
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• | an annual base rate increase at Entergy Arkansas, as approved by the APSC, effective January 2014; |
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• | a formula rate plan increase at Entergy Mississippi, as approved by the MPSC, effective September 2013; |
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• | an annual base rate increase at Entergy Texas, effective April 2014, as a result of the PUCT’s order in the September 2013 rate case; |
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• | an increase in the energy efficiency rider at Entergy Arkansas, as approved by the APSC, effective July 2013. Energy efficiency revenues are largely offset by costs included in other operation and maintenance expenses and have minimal effect on net income; and |
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• | an increase in Entergy Mississippi’s storm damage rider, as approved by the MPSC, effective October 2013. The increase in the storm damage rider is offset by other operation and maintenance expenses and has no effect on net income. |
See Note 2 to the financial statements herein and in the Form 10-K for a discussion of rate proceedings.
The asset retirement obligation affects net revenue because Entergy records a regulatory credit for the difference between asset retirement obligation-related expenses and trust earnings plus asset retirement obligation-related costs collected in revenue. The variance for the second quarter 2014 compared to the second quarter 2013 is primarily caused by an increase in the regulatory credits because of a decrease in decommissioning trust earnings.
The volume/weather variance is primarily due to the effect of less favorable weather on residential and commercial sales in second quarter 2014 as compared to the second quarter 2013, substantially offset by an increase in sales to industrial customers, primarily due to expansions in the chemicals and refining industries and growth in the small industrial segments.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Entergy Wholesale Commodities
Following is an analysis of the change in net revenue comparing the second quarter 2014 to the second quarter 2013:
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| Amount |
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2013 net revenue |
| $383 |
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Nuclear volume | 60 |
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Nuclear realized price changes | 24 |
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Mark-to-market value changes | 17 |
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Nuclear fuel expenses | (6 | ) |
Other | (7 | ) |
2014 net revenue |
| $471 |
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As shown in the table above, net revenue for Entergy Wholesale Commodities increased by $88 million in the second quarter 2014 compared to the second quarter 2013 primarily due to:
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• | higher volume in its nuclear fleet resulting from fewer unplanned and refueling outage days in second quarter 2014 as compared to second quarter 2013, partially offset by a larger exercise of resupply options in second quarter 2013 compared to second quarter 2014 provided for in purchase power agreements where Entergy Wholesale Commodities may elect to supply power from another source when the plant is not running. Amounts related to the exercise of resupply options are included in the GWh billed in the table below; |
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• | mark-to-market activity, which was positive for the quarter. See Note 8 to the financial statements herein for discussion of derivative instruments; and |
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• | an increase in nuclear fuel expenses primarily due to increased generation as a result of fewer outage days, partially offset by lower DOE spent fuel disposal fees. |
Following are key performance measures for Entergy Wholesale Commodities for the second quarter 2014 and 2013:
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| 2014 | | 2013 |
Owned capacity (MW) (a) | 6,068 | | 6,612 |
GWh billed | 11,533 | | 11,172 |
Average realized revenue per MWh | $49.75 | | $47.36 |
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Entergy Wholesale Commodities Nuclear Fleet | | | |
Capacity factor | 95% | | 82% |
GWh billed | 10,588 | | 9,789 |
Average realized revenue per MWh | $49.79 | | $46.40 |
Refueling Outage Days: | | | |
Pilgrim | — | | 45 |
Vermont Yankee | — | | 5 |
(a) The reduction in owned capacity is due to the retirement of the 544 MW Ritchie Unit 2 in November 2013.
Realized Revenue per MWh for Entergy Wholesale Commodities Nuclear Plants
See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Results of Operations - Realized Revenue per MWh for Entergy Wholesale Commodities Nuclear Plants" in the Form 10-K for a discussion
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
of the effects of sustained low natural gas prices and power market structure challenges on market prices for electricity in the New York and New England power regions over the past few years.
Other Income Statement Items
Utility
Other operation and maintenance expenses decreased from $587 million for the second quarter 2013 to $556 million for the second quarter 2014 primarily due to:
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• | a decrease of $22 million in payroll, compensation, and benefits costs primarily due to fewer employees, an increase in the discount rates used to determine net periodic pension and other postretirement benefit costs, and other postretirement benefit plan design changes. See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Critical Accounting Estimates" in the Form 10-K and Note 6 to the financial statements herein for further discussion of benefits costs; |
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• | a decrease of $14 million resulting from costs incurred in 2013 related to the generator stator incident at ANO, including an offset for insurance proceeds. See “ANO Damage and Outage” below for further discussion of the incident; |
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• | a decrease of $13 million resulting from costs incurred in 2013 related to the now-terminated plan to spin off and merge the Utility’s transmission business; |
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• | a decrease of $10 million in fossil-fueled generation expenses primarily resulting from a lower scope of work done during plant outages in 2014 as compared to the same period in 2013; and |
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• | a decrease of $5 million due to costs incurred in 2013 related to the implementation of and transition to the MISO RTO. |
The decrease was partially offset by:
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• | an increase of $8 million due to administration fees in 2014 related to participation in the MISO RTO. The net income effect is partially offset due to deferrals of these fees in certain jurisdictions. See Note 2 to the financial statements in the Form 10-K for further information on deferrals; |
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• | an increase of $7 million in energy efficiency costs at Entergy Arkansas and Entergy Texas. These costs are recovered through energy efficiency riders and have a minimal effect on net income; and |
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• | an increase of $6 million in storm damage accruals primarily at Entergy Arkansas effective January 2014, as approved by the APSC, and Entergy Mississippi effective October 2013, as approved by the MPSC. |
Depreciation and amortization expenses increased primarily due to additions to plant in service and an increase in Entergy Arkansas depreciation rates.
Other income decreased primarily due to a decrease in earnings on decommissioning trust fund investments.
Entergy Wholesale Commodities
Depreciation and amortization expenses increased primarily due to a change effective in 2014 in the estimated average useful lives of plant in service as a result of a new depreciation study as well as additions to plant in service. The depreciation rate on average depreciable property for Entergy Wholesale Commodities property is approximately 5.6% in 2014.
Other operation and maintenance expenses increased from $252 million for the second quarter 2013 to $261 million for the second quarter 2014 primarily due to:
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• | $10 million in expenses incurred in the second quarter 2014 related to the shutdown of Vermont Yankee including severance and retention costs. See “Impairment of Long-Lived Assets” in Note 11 to the financial |
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
statements herein for discussion regarding the planned shutdown of the Vermont Yankee plant by the end of 2014; and
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• | $5 million in transmission service credits received in the second quarter 2013. |
The increase was partially offset by:
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• | a decrease of $5 million in compensation and benefits costs primarily due to fewer employees, an increase in the discount rates used to determine net periodic pension and other postretirement benefit costs, and other postretirement benefit plan design changes. See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates" in the Form 10-K and Note 6 to the financial statements herein for further discussion of benefits costs; and |
| |
• | a decrease of $4 million due to the absence of expenses from Entergy Solutions District Energy, which was sold in November 2013. |
Income Taxes
The effective income tax rate was 39.9% for the second quarter 2014. The difference in the effective income tax rate for the second quarter 2014 versus the statutory rate of 35% was primarily due to state income taxes, the provision for uncertain tax positions, and certain book and tax differences related to utility plant items.
The effective income tax rate was 30.3% for the second quarter 2013. The difference in the effective income tax rate for the second quarter 2013 versus the statutory rate of 35% was primarily due to lower state income taxes resulting from a state deferred tax adjustment. Also contributing to the lower rate were book and tax differences related to the allowance for equity funds used during construction, partially offset by certain book and tax differences related to utility plant items.
Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013
Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing the six months ended June 30, 2014 to the six months ended June 30, 2013 showing how much the line item increased or (decreased) in comparison to the prior period:
|
| | | | | | | | | | | | | | | | |
| |
Utility | | Entergy Wholesale Commodities | |
Parent & Other (a) | |
Entergy |
| | (In Thousands) |
2013 Consolidated Net Income (Loss) | |
| $328,391 |
| |
| $93,646 |
| |
| ($86,999 | ) | |
| $335,038 |
|
| | | | | | | | |
Net revenue (operating revenue less fuel expense, purchased power, and other regulatory charges/credits) | | 160,856 |
| | 343,394 |
| | (7,609 | ) | | 496,641 |
|
Other operation and maintenance expenses | | (53,165 | ) | | 12,575 |
| | (3,273 | ) | | (43,863 | ) |
Taxes other than income taxes | | 8,019 |
| | 2,988 |
| | 214 |
| | 11,221 |
|
Depreciation and amortization | | 20,583 |
| | 41,536 |
| | (46 | ) | | 62,073 |
|
Other income | | (12,060 | ) | | (4,301 | ) | | (1,676 | ) | | (18,037 | ) |
Interest expense | | 12,080 |
| | 1,338 |
| | 985 |
| | 14,403 |
|
Other expenses | | 4,150 |
| | 9,263 |
| | — |
| | 13,413 |
|
Income taxes | | 67,946 |
| | 96,106 |
| | (7,991 | ) | | 156,061 |
|
| | | | | | | | |
2014 Consolidated Net Income (Loss) | |
| $417,574 |
| |
| $268,933 |
| |
| ($86,173 | ) | |
| $600,334 |
|
| |
(a) | Parent & Other includes eliminations, which are primarily intersegment activity. |
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Refer to "ENTERGY CORPORATION AND SUBSIDIARIES - SELECTED OPERATING RESULTS" for further information with respect to operating statistics.
Net Revenue
Utility
Following is an analysis of the change in net revenue comparing the six months ended June 30, 2014 to the six months ended June 30, 2013:
|
| | | |
| Amount |
| (In Millions) |
2013 net revenue |
| $2,594 |
|
Retail electric price | 69 |
|
Volume/weather | 66 |
|
Asset retirement obligation | 21 |
|
Other | 5 |
|
2014 net revenue |
| $2,755 |
|
The retail electric price variance is primarily due to:
| |
• | a formula rate plan increase at Entergy Mississippi, as approved by the MPSC, effective September 2013; |
| |
• | an increase in the energy efficiency rider at Entergy Arkansas, as approved by the APSC, effective July 2013. Energy efficiency revenues are largely offset by costs included in other operation and maintenance expenses and have minimal effect on net income; |
| |
• | an annual base rate increase at Entergy Arkansas, as approved by the APSC, effective January 2014; |
| |
• | an annual base rate increase at Entergy Texas, effective April 2014, as a result of the PUCT’s order in the September 2013 rate case; |
| |
• | an increase in Entergy Mississippi’s storm damage rider, as approved by the MPSC, effective October 2013. The increase in the storm damage rider is offset by other operation and maintenance expenses and has no effect on net income; and |
| |
• | an increase in purchased power capacity costs at Entergy Louisiana and Entergy Gulf States Louisiana that are recovered through base rates set in the annual formula rate plan mechanisms. |
See Note 2 to the financial statements herein and in the Form 10-K for a discussion of rate proceedings.
The volume/weather variance is primarily due to an increase of 2,823 GWh, or 6%, in billed electricity usage, including the effect of more favorable weather on residential and commercial sales in the six months ended June 30, 2014 as compared to the six months ended June 30, 2013 and an increase in sales to industrial customers. The increase in industrial sales was primarily due to expansions, recovery of a major refining customer from an unplanned outage in 2013, and continued moderate growth in the manufacturing sector.
The asset retirement obligation affects net revenue because Entergy records a regulatory credit for the difference between asset retirement obligation-related expenses and trust earnings plus asset retirement obligation-related costs collected in revenue. The variance for the six months ended June 30, 2014 as compared to the six months ended June 30, 2013 is primarily caused by an increase in the regulatory credits because of a decrease in decommissioning trust earnings.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Entergy Wholesale Commodities
Following is an analysis of the change in net revenue comparing the six months ended June 30, 2014 to the six months ended June 30, 2013:
|
| | | |
| Amount |
| (In Millions) |
2013 net revenue |
| $876 |
|
Nuclear realized price changes | 261 |
|
Nuclear volume | 62 |
|
Mark-to-market value changes | 46 |
|
Nuclear fuel expenses | (8 | ) |
Other | (18 | ) |
2014 net revenue |
| $1,219 |
|
As shown in the table above, net revenue for Entergy Wholesale Commodities increased by $343 million in the six months ended June 30, 2014 compared to the six months ended June 30, 2013 primarily due to:
| |
• | higher realized wholesale energy prices primarily due to increases in Northeast market power prices and higher capacity prices. Entergy Wholesale Commodities’ hedging strategies routinely include financial instruments that manage operational and liquidity risk. These positions, in addition to a larger-than-normal unhedged position in 2014 due to Vermont Yankee being in its final year of operation, allowed Entergy Wholesale Commodities to benefit from increases in Northeast market power prices; |
| |
• | higher volume in its nuclear fleet resulting from fewer unplanned and refueling outage days in the six months ended June 30, 2014 compared to the six months ended June 30, 2013, partially offset by a larger exercise of resupply options in the six months ended June 30, 2013 compared to the six months ended June 30, 2014 provided for in purchase power agreements where Entergy Wholesale Commodities may elect to supply power from another source when the plant is not running. Amounts related to the exercise of resupply options are included in the GWh billed in the table below; |
| |
• | mark-to-market activity, which was positive for the six months ended June 30, 2014. See Note 8 to the financial statements herein for discussion of derivative instruments; and |
| |
• | an increase in nuclear fuel expenses primarily due to increased generation as a result of fewer outage days, partially offset by lower DOE spent fuel disposal fees. |
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Following are key performance measures for Entergy Wholesale Commodities for the six months ended June 30, 2014 and 2013:
|
| | | |
| 2014 | | 2013 |
Owned capacity (MW) (a) | 6,068 | | 6,612 |
GWh billed | 21,547 | | 21,559 |
Average realized revenue per MWh | $68.77 | | $52.80 |
| | | |
Entergy Wholesale Commodities Nuclear Fleet | | | |
Capacity factor | 89% | | 82% |
GWh billed | 19,667 | | 19,035 |
Average realized revenue per MWh | $67.83 | | $51.95 |
Refueling Outage Days: | | | |
Indian Point 2 | 24 | | — |
Indian Point 3 | — | | 28 |
Palisades | 56 | | — |
Pilgrim | — | | 45 |
Vermont Yankee | — | | 27 |
(a) The reduction in owned capacity is due to the retirement of the 544 MW Ritchie Unit 2 in November 2013.
Other Income Statement Items
Utility
Other operation and maintenance expenses decreased from $1,107 million for the six months ended June 30, 2013 to $1,054 million for the six months ended June 30, 2014 primarily due to:
| |
• | a decrease of $37 million in payroll, compensation, and benefits costs primarily due to fewer employees, an increase in the discount rates used to determine net periodic pension and other postretirement benefit costs, and other postretirement benefit plan design changes. See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Critical Accounting Estimates" in the Form 10-K and Note 6 to the financial statements herein for further discussion of benefits costs; |
| |
• | a decrease of $23 million in fossil-fueled generation expenses primarily resulting from a lower scope of work done during plant outages in 2014 as compared to the same period in 2013; |
| |
• | a decrease of $19 million resulting from costs incurred in 2013 related to the now-terminated plan to spin off and merge the Utility’s transmission business; |
| |
• | a decrease of $14 million resulting from costs incurred in 2013 related to the generator stator incident at ANO, including an offset for insurance proceeds. See “ANO Damage and Outage” below for further discussion of the incident; and |
| |
• | a decrease of $9 million due to costs incurred in 2013 related to the implementation of and transition to the MISO RTO. |
The decrease was partially offset by:
| |
• | an increase of $18 million due to administration fees in 2014 related to participation in the MISO RTO. The net income effect is partially offset due to deferrals of these fees in certain jurisdictions. See Note 2 to the financial statements in the Form 10-K for further information on deferrals; |
| |
• | an increase of $14 million in energy efficiency costs at Entergy Arkansas and Entergy Texas. These costs are recovered through energy efficiency riders and have a minimal effect on net income; and |
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
| |
• | an increase of $13 million in storm damage accruals primarily at Entergy Arkansas effective January 2014, as approved by the APSC, and at Entergy Mississippi effective October 2013, as approved by the MPSC. |
Depreciation and amortization expenses increased primarily due to additions to plant in service and an increase in Entergy Arkansas depreciation rates.
Other income decreased primarily due to a decrease in earnings on decommissioning trust fund investments.
Interest expense increased primarily due to net debt issuances of first mortgage bonds by Entergy Louisiana in the second and third quarters of 2013 and the lease renewal in December 2013 of the Grand Gulf sale leaseback. See Note 5 to the financial statements in the Form 10-K for more details of long-term debt.
Entergy Wholesale Commodities
Depreciation and amortization expenses increased primarily due to a change effective in 2014 in the estimated average useful lives of plant in service as a result of a new depreciation study as well as additions to plant in service.
Other operation and maintenance expenses increased from $483 million for the six months ended June 30, 2013 to $496 million for the six months ended June 30, 2014 primarily due to:
| |
• | $19 million in expenses incurred in the six months ended June 30, 2014 related to the shutdown of Vermont Yankee including severance and retention costs. See “Impairment of Long-Lived Assets” in Note 11 to the financial statements herein for discussion regarding the planned shutdown of the Vermont Yankee plant by the end of 2014; and |
| |
• | $8 million in transmission service credits received in the six months ended June 30, 2013. |
The increase was partially offset by:
| |
• | a decrease of $9 million in compensation and benefits costs primarily due to fewer employees, an increase in the discount rates used to determine net periodic pension and other postretirement benefit costs, and other postretirement benefit plan design changes. See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates" in the Form 10-K and Note 6 to the financial statements herein for further discussion of benefits costs; and |
| |
• | a decrease of $7 million due to the absence of expenses from Entergy Solutions District Energy, which was sold in November 2013. |
Income Taxes
The effective income tax rate was 36.5% for the six months ended June 30, 2014. The difference in the effective income tax rate for the six months ended June 30, 2014 versus the statutory rate of 35% was primarily due to the provision for uncertain tax positions and certain book and tax differences related to utility plant items, partially offset by book and tax differences related to the allowance for equity funds used during construction and from a deferred state income tax reduction related to a New York tax law change. See Note 10 to the financial statements herein for a discussion of the New York tax law change.
The effective income tax rate was 36.2% for the six months ended June 30, 2013. The difference in the effective income tax rate for the six months ended June 30, 2013 versus the statutory rate of 35% was primarily due to certain book and tax differences related to utility plant items, partially offset by book and tax differences related to the allowance for equity funds used during construction and lower state income taxes resulting from a state deferred tax adjustment.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Entergy Wholesale Commodities Authorizations to Operate Its Nuclear Power Plants
See the Form 10-K for a discussion of the NRC operating licenses for Indian Point 2 and Indian Point 3 and the NRC license renewal applications in process for these plants. Following is an update to the discussion regarding the NRC proceedings. In April 2014 the ASLB granted Entergy’s motion to dismiss as moot a contention by Riverkeeper alleging that the Final Supplemental Environmental Impact Statement failed to adequately address endangered species issues. At the same time, the ASLB denied a motion filed by Riverkeeper in August 2013 to amend its endangered species contention. These ASLB decisions were not appealed and are now final, leaving three Track 2 contentions. The NRC staff expects to issue a further supplemental Safety Evaluation Report no later than November 7, 2014. Testimony on the remaining Track 2 contentions has not been completed, and Track 2 hearings have not been scheduled.
In proceedings before the New York State Department of Environmental Conservation (NYSDEC), the ALJs conducted an additional legislative hearing and issues conference in July 2014 triggered by NYSDEC staff’s proposal of permanent outages to protect fish organisms as an alternative form of best technology available. The ALJs stated at the issues conference that as a result of comments received, hearings on NYSDEC staff’s alternative best technology available proposal preliminarily scheduled for January 2015 would be postponed to a future date.
With respect to Entergy’s first Coastal Zone Management Act (CZMA) initiative (previous review), in May 2014 the New York State Department of State (NYSDOS) responded to questions the NRC staff submitted in December 2013. In July 2014, Entergy submitted comments on NYSDOS’s responses and NYSDOS filed a reply to those comments. The NRC staff advised the ASLB that it plans to issue further questions on previous review to NYSDOS and Entergy by late September 2014. With respect to Entergy’s second CZMA initiative (grandfathering), briefing of Entergy’s appeal to the intermediate New York State court was completed and the court stated it will schedule oral argument in October 2014.
See “Critical Accounting Estimates - Nuclear Decommissioning Costs” below and “Impairment of Long-Lived Assets” in Note 11 to the financial statements herein for discussions regarding the planned shutdown of the Vermont Yankee plant by the end of 2014.
ANO Damage and Outage
See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - ANO Damage and Outage" in the Form 10-K for a discussion of the ANO stator incident. The total cost of assessment, restoration of off-site power, site restoration, debris removal, and replacement of damaged property and equipment was approximately $95 million as of June 30, 2014. In addition, Entergy Arkansas incurred replacement power costs for ANO 2 power during its outage and incurred incremental replacement power costs for ANO 1 power because the outage extended beyond the originally-planned duration of the refueling outage. In February 2014 the APSC approved Entergy Arkansas’s request to exclude from the calculation of its revised energy cost rate $65.9 million of deferred fuel and purchased energy costs incurred in 2013 as a result of the ANO stator incident. The APSC authorized Entergy Arkansas to retain the $65.9 million in its deferred fuel balance with recovery to be reviewed in a later period after more information regarding various claims associated with the ANO stator incident is available.
Entergy Arkansas is assessing its options for recovering damages that resulted from the stator drop, including its insurance coverage and legal action. Entergy is a member of Nuclear Electric Insurance Limited (NEIL), a mutual insurance company that provides property damage coverage to the members’ nuclear generating plants, including ANO. NEIL has notified Entergy that it believes that a $50 million course of construction sublimit applies to any loss associated with the lifting apparatus failure and stator drop at ANO. Entergy has responded that it disagrees with NEIL’s position and is evaluating its options for enforcing its rights under the policy. On July 12, 2013, Entergy Arkansas filed a complaint in the Circuit Court in Pope County, Arkansas against the owner of the heavy-lifting apparatus that collapsed, an engineering firm, a contractor, and certain individuals asserting claims of breach of contract, negligence, and gross negligence in connection with their responsibility for the stator drop. During 2014, Entergy Arkansas collected $33 million from NEIL and is pursuing additional recoveries due under the policy.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Shortly after the stator incident, the NRC deployed an augmented inspection team to review the plant's response. In July 2013 a second team of NRC inspectors visited ANO to evaluate certain items that were identified as requiring follow-up inspection to determine whether performance deficiencies existed. In March 2014 the NRC issued an inspection report on the follow-up inspection that discussed two preliminary findings, one that was preliminarily determined to be “red with high safety significance” for Unit 1 and one that was preliminarily determined to be “yellow with substantial safety significance” for Unit 2, with the NRC indicating further that these preliminary findings may warrant additional regulatory oversight. This report also noted that one additional item related to flood barrier effectiveness was still under review.
In May 2014 the NRC met with Entergy during a regulatory conference to discuss the preliminary red and yellow findings and Entergy's response to the findings. During the regulatory conference, Entergy presented information on the facts and assumptions the NRC used to assess the potential findings. The NRC used the information provided by Entergy at the regulatory conference to finalize its decision regarding the inspection team’s findings. In a letter dated June 23, 2014, the NRC classified both findings as “yellow with substantial safety significance.” In an assessment follow-up letter for ANO dated July 29, 2014, the NRC stated that given the two yellow findings, it determined that the performance at ANO is in the “degraded cornerstone column,” or column 3, of the NRC’s reactor oversight process action matrix beginning the first quarter 2014. The NRC plans to conduct supplemental inspection activity to review the actions taken to address the yellow findings. Corrective actions in response to the NRC’s findings have been taken and remain ongoing at ANO. Entergy will continue to interact with the NRC to address the NRC’s findings.
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.
Capital Structure
Entergy’s capitalization is balanced between equity and debt, as shown in the following table.
|
| | | | | |
| June 30, 2014 | | December 31, 2013 |
Debt to capital | 56.9 | % | | 57.9 | % |
Effect of excluding the securitization bonds | (1.5 | %) | | (1.6 | %) |
Debt to capital, excluding securitization bonds (a) | 55.4 | % | | 56.3 | % |
Effect of subtracting cash | (1.3 | %) | | (1.5 | %) |
Net debt to net capital, excluding securitization bonds (a) | 54.1 | % | | 54.8 | % |
| |
(a) | Calculation excludes the Arkansas, Louisiana, and Texas securitization bonds, which are non-recourse to Entergy Arkansas, Entergy Louisiana, and Entergy Texas, respectively. |
Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable and commercial paper, capital 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.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in March 2019. Entergy Corporation has the ability to issue letters of credit against 50% of the total borrowing capacity of the facility. Following is a summary of the borrowings outstanding and capacity available under the facility as of June 30, 2014:
|
| | | | | | | | | | | | | | |
Capacity | | Borrowings | | Letters of Credit | | Capacity Available |
(In Millions) |
| $3,500 |
| |
| $195 |
| |
| $8 |
| |
| $3,297 |
|
A covenant in Entergy Corporation’s credit facility requires Entergy to maintain a consolidated debt ratio 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. Entergy is currently in compliance with the covenant. If Entergy fails to meet this ratio, or if Entergy or one of the Utility operating companies (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.
See Note 4 to the financial statements herein for additional discussion of the Entergy Corporation commercial paper program. As of June 30, 2014, Entergy Corporation had $909 million of commercial paper outstanding.
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 2014 through 2016.
Following are the amounts of Entergy’s planned construction and other capital investments by operating segment for 2014 through 2016.
|
| | | | | | | | | | | | |
Planned construction and capital investments | | 2014 | | 2015 | | 2016 |
| | (In Millions) |
Utility: | | | | | | |
Generation | |
| $660 |
| |
| $490 |
| |
| $605 |
|
Transmission | | 540 |
| | 645 |
| | 605 |
|
Distribution | | 685 |
| | 565 |
| | 580 |
|
Other | | 160 |
| | 180 |
| | 150 |
|
Total | | 2,045 |
| | 1,880 |
| | 1,940 |
|
Entergy Wholesale Commodities | | 420 |
| | 380 |
| | 230 |
|
Total | |
| $2,465 |
| |
| $2,260 |
| |
| $2,170 |
|
The updated capital plan for 2014-2016 reflects additional spending for 2014 storms, potential new generation resource requirements, transmission to support economic development and reliability, partially offset by a shift in environmental compliance spending due to a likely later compliance date as well as other capital plan refinements.
Ninemile Point Unit 6 Self-Build Project
See the Form 10-K for a discussion of Entergy Louisiana’s construction of a combined-cycle gas turbine generating facility (Ninemile 6) at its existing Ninemile Point electric generating station. The Ninemile 6 capacity and energy will be allocated 55% to Entergy Louisiana, 25% to Entergy Gulf States Louisiana, and 20% to Entergy New
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Orleans. Under terms approved by the LPSC, costs may be recovered through Entergy Louisiana’s and Entergy Gulf States Louisiana’s formula rate plans beginning in the month after the unit is placed in service. In July 2014, Entergy Louisiana and Entergy Gulf States Louisiana filed an unopposed stipulation with the LPSC that estimates a first year revenue requirement associated with Ninemile 6 of $57.1 million for Entergy Louisiana and $28.5 million for Entergy Gulf States Louisiana. A hearing on the stipulation is scheduled to be held before an ALJ in August 2014. Entergy New Orleans expects to recover the costs associated with Ninemile 6 through a rider until new base rates are established in its next base rate proceeding.
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 Entergy’s earnings, financial strength, and future investment opportunities. At its July 2014 meeting, the Board declared a dividend of $0.83 per share, which is the same quarterly dividend per share that Entergy has paid since the second quarter 2010.
Sources of Capital
Hurricane Isaac
As discussed in the Form 10-K, total restoration costs for the repair and replacement of electric facilities damaged by Hurricane Isaac were $73.8 million for Entergy Gulf States Louisiana and $247.7 million for Entergy Louisiana. In January 2013, Entergy Gulf States Louisiana and Entergy Louisiana drew $65 million and $187 million, respectively, from their funded storm reserve escrow accounts. In April 2013, Entergy Gulf States Louisiana and Entergy Louisiana filed a joint application with the LPSC relating to Hurricane Isaac system restoration costs. Following an evidentiary hearing and recommendations by the ALJ, the LPSC voted in June 2014 to approve a series of orders which (i) quantify the amount of Hurricane Isaac system restoration costs prudently incurred ($66.5 million for Entergy Gulf States Louisiana and $224.3 million for Entergy Louisiana); (ii) determine the level of storm reserves to be re-established ($90 million for Entergy Gulf States Louisiana and $200 million for Entergy Louisiana); (iii) authorize Entergy Gulf States Louisiana and Entergy Louisiana to utilize Louisiana Act 55 financing for Hurricane Isaac system restoration costs; and (iv) grant other requested relief associated with storm reserves and Act 55 financing of Hurricane Isaac system restoration costs. Approvals for the Act 55 financings were obtained from the Louisiana Utilities Restoration Corporation (LURC) and the Louisiana State Bond Commission.
In August 2014 the Louisiana Local Government Environmental Facilities and Community Development Authority (LCDA) issued $71 million in bonds under Act 55 of the Louisiana Legislature. From the $69 million of bond proceeds loaned by the LCDA to the LURC, the LURC deposited $3 million in a restricted escrow account as a storm damage reserve for Entergy Gulf States Louisiana and transferred $66 million directly to Entergy Gulf States Louisiana. From the bond proceeds received by Entergy Gulf States Louisiana from the LURC, Entergy Gulf States Louisiana then immediately used the $66 million to acquire 662,426.80 Class C preferred, non-voting, membership interest units of Entergy Holdings Company LLC, a company wholly-owned and consolidated by Entergy, that carry a 7.5% annual distribution rate. Distributions are payable quarterly commencing on September 15, 2014, and the membership interests have a liquidation price of $100 per unit. The preferred membership interests are callable at the option of Entergy Holdings Company LLC after ten years under the terms of the LLC agreement. The terms of the membership interests include certain financial covenants to which Entergy Holdings Company LLC is subject, including the requirement to maintain a net worth of at least $1.75 billion.
In August 2014 the LCDA issued another $243.85 million in bonds under Act 55 of the Louisiana Legislature. From the $240 million of bond proceeds loaned by the LCDA to the LURC, the LURC deposited $13 million in a restricted escrow account as a storm damage reserve for Entergy Louisiana and transferred $227 million directly to Entergy Louisiana. From the bond proceeds received by Entergy Louisiana from the LURC, Entergy Louisiana then immediately used the $227 million to acquire 2,272,725.89 Class C preferred, non-voting, membership interest units of Entergy Holdings Company LLC that carry a 7.5% annual distribution rate. Distributions are payable
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
quarterly commencing on September 15, 2014, and the membership interests have a liquidation price of $100 per unit. The preferred membership interests are callable at the option of Entergy Holdings Company LLC after ten years under the terms of the LLC agreement. The terms of the membership interests include certain financial covenants to which Entergy Holdings Company LLC is subject, including the requirement to maintain a net worth of at least $1.75 billion.
Entergy, Entergy Gulf States Louisiana, and Entergy Louisiana will not report the bonds on their balance sheets because the bonds are the obligation of the LCDA and there is no recourse against Entergy, Entergy Gulf States Louisiana, or Entergy Louisiana in the event of a bond default. To service the bonds, Entergy Gulf States Louisiana and Entergy Louisiana will collect a system restoration charge on behalf of the LURC, and remit the collections to the bond indenture trustee. Entergy, Entergy Gulf States Louisiana, and Entergy Louisiana will not report the collections as revenue because they are merely acting as the billing and collection agents for the state.
Total restoration costs for the repair and replacement of Entergy New Orleans’s electric facilities damaged by Hurricane Isaac were $47.3 million. Entergy New Orleans withdrew $17.4 million from the storm reserve escrow account to partially offset these costs. In February 2014, Entergy New Orleans made a filing with the City Council seeking certification of the Hurricane Isaac costs. In July 2014 the City Council adopted a procedural schedule that provides for hearings on the merits in September 2015.
Cash Flow Activity
As shown in Entergy’s Consolidated Statements of Cash Flows, cash flows for the six months ended June 30, 2014 and 2013 were as follows:
|
| | | | | | | |
| 2014 | | 2013 |
| (In Millions) |
Cash and cash equivalents at beginning of period |
| $739 |
| |
| $533 |
|
Cash flow provided by (used in): | |
| | |
|
Operating activities | 1,529 |
| | 1,116 |
|
Investing activities | (1,391 | ) | | (1,305 | ) |
Financing activities | (227 | ) | | (33 | ) |
Net decrease in cash and cash equivalents | (89 | ) | | (222 | ) |
Cash and cash equivalents at end of period |
| $650 |
| |
| $311 |
|
Operating Activities
Net cash provided by operating activities increased by $413 million for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 primarily due to:
| |
• | higher Entergy Wholesale Commodities and Utility net revenues in 2014 as compared to the same period in 2013, as discussed previously; |
| |
• | a decrease in income tax payments of $69 million in the six months ended June 30, 2014 compared to the six months ended June 30, 2013; and |
| |
• | approximately $25 million in spending in 2013 related to the generator stator incident at ANO, as discussed previously. |
The increase was partially offset by an increase of $94 million in pension contributions in 2014 and decreased recovery of fuel costs. See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Critical Accounting Estimates" in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Investing Activities
Net cash flow used in investing activities increased by $86 million for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 primarily due to:
| |
• | the withdrawal of a total of $252 million from Entergy Louisiana’s and Entergy Gulf States Louisiana’s storm reserve escrow accounts in 2013 as a result of Hurricane Isaac. See Note 2 to the financial statements herein and in the Form 10-K for a discussion of Hurricane Isaac; |
| |
• | deposit of Entergy Louisiana bond proceeds with a trustee in June 2014. Entergy Louisiana issued $170 million of 5.0% Series first mortgage bonds in June 2014 and used the proceeds, in July 2014, to redeem, prior to maturity, its $70 million of 6.4% Series first mortgage bonds due October 2034 and its $100 million of 6.3% Series first mortgage bonds due September 2035; and |
| |
• | an increase in nuclear fuel purchases 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. |
The increase was partially offset by:
| |
• | a decrease in construction expenditures, primarily in the Utility business, including a decrease in spending on the Ninemile 6 self-build project, spending in 2013 on the generator stator incident at ANO, and spending in 2013 on the Waterford 3 steam generator project, partially offset by an increase in storm restoration spending; |
| |
• | a change in collateral deposit activity, reflected in the “Increase in other investments” line on the Consolidated Statement of Cash Flows, as Entergy received net deposits of $28 million in 2014 and returned net deposits of $34 million in 2013. Entergy Wholesale Commodities’s forward sales contracts are discussed in the “Market and Credit Risk Sensitive Instruments” section below; and |
| |
• | $24 million in insurance proceeds received in the first quarter 2014 for property damages related to the generator stator incident at ANO, as discussed above. |
Financing Activities
Net cash flow used in financing activities increased by $194 million for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 primarily due to:
| |
• | long-term debt activity providing approximately $7 million of cash in 2014 compared to using $36 million of cash in 2013. Included in the long-term debt activity is $60 million in 2014 and $605 million in 2013 for the repayment of borrowings on the Entergy Corporation long-term credit facility; |
| |
• | Entergy Corporation repaid $136 million of commercial paper in 2014 and issued, in part, $283 million in 2013 to repay borrowings on its long-term credit facility; |
| |
• | a net increase of $188 million in 2014 in short-term borrowings by the nuclear fuel company variable interest entities; |
| |
• | $70 million in short-term borrowings under the Utility operating companies’ credit facilities in 2013; |
| |
• | an increase of $65 million in treasury stock issuances in 2014 primarily due to a larger amount of previously repurchased Entergy Corporation common stock issued in 2014 to satisfy stock option exercises; and |
| |
• | the repurchase of $18 million of common stock in 2014. |
For details of long-term debt activity and Entergy’s commercial paper program in 2014, see Note 4 to the financial statements herein and Note 5 to the financial statements in the Form 10-K.
Rate, Cost-recovery, and Other Regulation
See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Rate, Cost-recovery, and Other Regulation" in the Form 10-K for discussions of rate regulation, federal regulation, and related regulatory proceedings.
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
State and Local Rate Regulation and Fuel-Cost Recovery
See Note 2 to the financial statements herein for updates to the discussion in the Form 10-K regarding these proceedings.
Federal Regulation
See the Form 10-K for a discussion of federal regulatory proceedings. Following are updates to that discussion.
Entergy’s Integration Into the MISO Regional Transmission Organization
As discussed in the Form 10-K, on December 19, 2013, the Utility operating companies successfully completed their planned integration into the MISO RTO.
In January 2013, Occidental Chemical Corporation filed with the FERC a petition for declaratory judgment and complaint against MISO alleging that MISO’s proposed treatment of Qualifying Facilities (QFs) in the Entergy region is unduly discriminatory in violation of sections 205 and 206 of the Federal Power Act and violates the Public Utility Regulatory Policies Act (PURPA) and the FERC’s implementing regulations. Occidental’s filing asks that the FERC declare that MISO’s QF integration plan is unlawful, find that the plan cannot be implemented because MISO did not file it pursuant to section 205 of the Federal Power Act, and direct that MISO modify certain aspects of the plan. Entergy sought to intervene and filed a protest to the pleadings.
In February 2014, Occidental filed a petition for enforcement against the LPSC. Occidental’s petition for enforcement alleges that the LPSC’s January 2014 order, which approved Entergy Gulf States Louisiana’s and Entergy Louisiana’s application for modification of Entergy’s methodology for calculating avoided cost rates paid to QFs, is inconsistent with the requirements of PURPA and the FERC’s regulations implementing PURPA. In April 2014 the FERC issued a “Notice Of Intent Not To Act At This Time” with respect to Occidental’s petition for enforcement against the LPSC. The FERC concluded that Occidental’s petition for enforcement largely raises the same issues as those raised in the January 2013 complaint and petition for declaratory order that Occidental had filed against MISO, and that the two proceedings should be addressed at the same time. The FERC reserved its ability to issue a further order or to take further action at a future date should it find that doing so is appropriate.
In April 2014, Occidental filed a complaint in federal district court for the Middle District of Louisiana against the LPSC and Entergy Louisiana that challenges the January 2014 order issued by the LPSC on grounds similar to those raised in the 2013 complaint and 2014 petition for enforcement that Occidental previously filed at the FERC. The district court complaint seeks a declaration that the January 2014 order conflicts with and is preempted by PURPA and the Supremacy Clause of the United States Constitution, and also seeks an injunction prohibiting the LPSC and Entergy Louisiana from enforcing or utilizing the practices approved in the order. The district court complaint seeks damages from Entergy Louisiana and a declaration from the district court that in pursuing the January 2014 order Entergy Louisiana breached an existing agreement with Occidental and an implied covenant of good faith and fair dealing. Entergy Louisiana has moved to stay the district court proceeding, asserting that the FERC has primary jurisdiction to address Occidental’s claims and should be allowed to do so in the context of Occidental’s 2013 complaint.
In February 2013, Entergy Services, on behalf of the Utility operating companies, made a filing with the FERC requesting to adopt the standard Attachment O formula rate template used by transmission owners to establish transmission rates within MISO. The filing proposed four transmission pricing zones for the Utility operating companies, one for Entergy Arkansas, one for Entergy Mississippi, one for Entergy Texas, and one for Entergy Louisiana, Entergy Gulf States Louisiana, and Entergy New Orleans. In June 2013 the FERC issued an order accepting the use of four transmission pricing zones and set for hearing and settlement judge procedures those issues of material fact that FERC decided could not be resolved based on the existing record. Several parties, including the City Council, filed requests for rehearing of the June 2013 order. In February 2014 the FERC issued an order addressing the rehearing requests. Among other things, the FERC denied rehearing and affirmed its prior decision allowing the four transmission
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
pricing zones for the Utility operating companies in MISO. The FERC granted rehearing and set for hearing and settlement judge proceedings certain challenges of MISO’s regional through and out rates. In March 2014 certain parties filed a request for rehearing of the FERC’s February 2014 order on issues related to MISO’s regional through and out rates. In February 2014 and April 2014 various parties appealed the FERC’s June 2013 and February 2014 orders to the U.S. Court of Appeals for the D.C. Circuit where the appeals have been consolidated for further proceedings.
System Agreement
Utility Operating Company Notices of Termination of System Agreement Participation
As discussed in the Form 10-K, in February 2014, Entergy Louisiana and Entergy Gulf States Louisiana provided notice of their respective decisions to terminate their participation in the System Agreement and made a filing with the FERC seeking acceptance of the notice. In the FERC filing, Entergy Louisiana and Entergy Gulf States Louisiana requested an effective date of February 14, 2019 or such other effective date approved by the FERC for the termination. In March 2014 the City Council submitted comments to the FERC regarding the notices of termination. The City Council requested the FERC either to condition its acceptance of the notices on compliance with the prior 96-month notice termination period, or in the alternative, to consolidate the notice filings with the proceeding related to the Utility operating companies’ proposal to shorten the System Agreement’s termination notice period from 96 months to 60 months, and to set all of the proceedings for hearing. Also in March 2014, Entergy Louisiana and Entergy Gulf States Louisiana filed a response to the City Council’s comments requesting that the FERC accept the notices without hearing and with an effective date subject to and consistent with the notice period established by the FERC in the proceeding related to the Utility operating companies’ proposal to shorten the System Agreement’s termination notice period. Entergy Louisiana, Entergy Gulf States Louisiana, Entergy New Orleans, and Entergy Texas continue to explore with the LPSC staff, City Council advisors, and the PUCT staff the early termination of the System Agreement on a consensual basis.
Market and Credit Risk Sensitive Instruments
Commodity Price Risk
Power Generation
As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers. Entergy Wholesale Commodities enters into forward contracts with its customers and also sells energy in the day ahead or spot markets. In addition to selling the energy produced by its plants, Entergy Wholesale Commodities sells unforced capacity, which allows load-serving entities to meet specified reserve and related requirements placed on them by the ISOs in their respective areas. Entergy Wholesale Commodities’ forward physical power contracts consist of contracts to sell energy only, contracts to sell capacity only, and bundled contracts in which it sells both capacity and energy. While the terminology and payment mechanics vary in these contracts, each of these types of contracts requires Entergy Wholesale Commodities to deliver MWh of energy, make capacity available, or both. In addition to its forward physical power contracts, Entergy Wholesale Commodities also uses a combination of financial contracts, including swaps, collars, and options, to manage forward commodity price risk. Certain hedge volumes have price downside and upside relative to market price movement. The contracted minimum, expected value, and sensitivities are provided in the table below to show potential variations. The sensitivities may not reflect the total maximum upside potential from higher market prices. The information contained in the following table represents projections at a point in time and will vary over time based on numerous factors, such as future market prices, contracting activities, and generation. Following is a summary of Entergy Wholesale Commodities’ current forward capacity and generation contracts as well as total revenue projections based on market prices as of June 30, 2014 (2014 represents the remainder of the year):
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
Entergy Wholesale Commodities Nuclear Portfolio
|
| | | | | | | | | | |
| | 2014 | | 2015 | | 2016 | | 2017 | | 2018 |
Energy | | | | | | | | | | |
Percent of planned generation under contract (a): | | | | | | | | | | |
Unit-contingent (b) | | 24% | | 28% | | 16% | | 14% | | 14% |
Unit-contingent with availability guarantees (c) | | 18% | | 15% | | 14% | | 15% | | 3% |
Firm LD (d) | | 60% | | 39% | | 10% | | —% | | —% |
Offsetting positions (e) | | (25%) | | —% | | —% | | —% | | —% |
Total | | 77% | | 82% | | 40% | | 29% | | 17% |
Planned generation (TWh) (f) (g) | | 20 | | 35 | | 36 | | 35 | | 35 |
Average revenue per MWh on contracted volumes: | | | | | | | | | | |
Minimum | | $44 | | $45 | | $47 | | $51 | | $56 |
Expected based on market prices as of June 30, 2014 | | $49 | | $51 | | $51 | | $53 | | $56 |
Sensitivity: -/+ $10 per MWh market price change | | $47-$52 | | $48-$53 | | $49-$52 | | $53-$54 | | $56 |
| | | | | | | | | | |
Capacity | | | | | | | | | | |
Percent of capacity sold forward (h): | | | | | | | | | | |
Bundled capacity and energy contracts (i) | | 15% | | 18% | | 18% | | 18% | | 18% |
Capacity contracts (j) | | 40% | | 15% | | 15% | | 16% | | 7% |
Total | | 55% | | 33% | | 33% | | 34% | | 25% |
Planned net MW in operation (g) | | 5,011 | | 4,406 | | 4,406 | | 4,406 | | 4,406 |
Average revenue under contract per kW per month (applies to capacity contracts only) | | $6.0 | | $3.2 | | $3.4 | | $5.6 | | $7.0 |
| | | | | | | | | | |
Total Nuclear Energy and Capacity Revenues | | | | | | | | | | |
Expected sold and market total revenue per MWh | | $57 | | $56 | | $54 | | $54 | | $56 |
Sensitivity: -/+ $10 per MWh market price change | | $55-$63 | | $52-$60 | | $47-$60 | | $47-$62 | | $47-$64 |
Entergy Wholesale Commodities Non-Nuclear Portfolio
|
| | | | | | | | | | |
| | 2014 | | 2015 | | 2016 | | 2017 | | 2018 |
Energy | | | | | | | | | | |
Percent of planned generation under contract (a): | | | | | | | | | | |
Cost-based contracts (k) | | 47% | | 36% | | 34% | | 33% | | 33% |
Firm LD (d) | | 9% | | 7% | | 7% | | 6% | | 7% |
Total | | 56% | | 43% | | 41% | | 39% | | 40% |
Planned generation (TWh) (f) (l) | | 4 | | 6 | | 6 | | 6 | | 6 |
| | | | | | | | | | |
Capacity | | | | | | | | | | |
Percent of capacity sold forward (h): | | | | | | | | | | |
Cost-based contracts (k) | | 30% | | 24% | | 24% | | 26% | | 26% |
Bundled capacity and energy contracts (i) | | 9% | | 8% | | 8% | | 8% | | 8% |
Capacity contracts (j) | | 44% | | 53% | | 53% | | 56% | | 24% |
Total | | 83% | | 85% | | 85% | | 90% | | 58% |
Planned net MW in operation (l) | | 1,052 | | 1,052 | | 1,052 | | 977 | | 977 |
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
| |
(a) | Percent of planned generation output sold or purchased forward under contracts, forward physical contracts, forward financial contracts, or options that mitigate price uncertainty that may require regulatory approval or approval of transmission rights. Positions that are no longer classified as hedges are netted in the planned generation under contract. |
| |
(b) | Transaction under which power is supplied from a specific generation asset; if the asset is not operating, seller is generally not liable to buyer for any damages. |
| |
(c) | A sale of power on a unit-contingent basis coupled with a guarantee of availability provides for the payment to the power purchaser of contract damages, if incurred, in the event the seller fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold. All of Entergy’s outstanding guarantees of availability provide for dollar limits on Entergy’s maximum liability under such guarantees. |
| |
(d) | Transaction that requires receipt or delivery of energy at a specified delivery point (usually at a market hub not associated with a specific asset) or settles financially on notional quantities; if a party fails to deliver or receive energy, defaulting party must compensate the other party as specified in the contract, a portion of which may be capped through the use of risk management products. |
| |
(e) | Transactions for the purchase of energy, generally to offset a Firm LD transaction. |
| |
(f) | Amount of output expected to be generated by Entergy Wholesale Commodities resources considering plant operating characteristics, outage schedules, and expected market conditions that affect dispatch. |
| |
(g) | Assumes NRC license renewals for plants whose current licenses expire within five years. Assumes shutdown of Vermont Yankee in the fourth quarter 2014 and uninterrupted normal operation at remaining plants. NRC license renewal applications are in process for two units, as follows (with current license expirations in parentheses): Indian Point 2 (September 2013 and now operating under its period of extended operations) and Indian Point 3 (December 2015). For a discussion regarding the shutdown of the Vermont Yankee plant, see “Impairment of Long-Lived Assets” in Note 11 to the financial statements herein. For a discussion regarding the license renewals for Indian Point 2 and Indian Point 3, see “Entergy Wholesale Commodities Authorizations to Operate Its Nuclear Power Plants” above and in the Form10-K. |
| |
(h) | Percent of planned qualified capacity sold to mitigate price uncertainty under physical or financial transactions. |
| |
(i) | A contract for the sale of installed capacity and related energy, priced per megawatt-hour sold. |
| |
(j) | A contract for the sale of an installed capacity product in a regional market. |
| |
(k) | Contracts priced in accordance with cost-based rates, a ratemaking concept used for the design and development of rate schedules to ensure that the filed rate schedules recover only the cost of providing the service; these contracts are on owned non-utility resources located within Entergy’s Utility service area and were executed prior to receiving market-based rate authority under MISO. The percentage sold assumes completion of the necessary transmission upgrades required for the approved transmission rights. |
| |
(l) | Non-nuclear planned generation and net MW in operation include purchases from affiliated and non-affiliated counterparties under long-term contracts and exclude energy and capacity from Entergy Wholesale Commodities’ wind investment. The decrease in planned net MW in operation beginning in 2017 is due to the expiration of a non-affiliated 75 MW contact. |
Entergy estimates that a positive $10 per MWh change in the annual average energy price in the markets in which the Entergy Wholesale Commodities nuclear business sells power, based on June 30, 2014 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax net income of $126 million for the remainder of 2014. A negative $10 per MWh change in the annual average energy price in the markets based on June 30, 2014 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax net income of ($55) million for the remainder of 2014.
Some of the agreements to sell the power produced by Entergy Wholesale Commodities’s power plants contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations under the agreements. The Entergy subsidiary is required to provide collateral based upon the difference between the current market and contracted power prices in the regions where Entergy Wholesale Commodities sells power. The primary form of collateral to satisfy these requirements is an Entergy Corporation guaranty. Cash and letters of credit are also acceptable forms of collateral. At June 30, 2014, based on power prices at that time, Entergy had liquidity exposure of $242 million under
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
the guarantees in place supporting Entergy Wholesale Commodities transactions and $28 million of posted cash collateral. As of June 30, 2014, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by $195 million for a $1 per MMBtu increase in gas prices in both the short-and long-term markets. In the event of a decrease in Entergy Corporation’s credit rating to below investment grade, based on power prices as of June 30, 2014, Entergy would have been required to provide approximately $141 million of additional cash or letters of credit under some of the agreements.
As of June 30, 2014, substantially all of the counterparties or their guarantors for 100% of the planned energy output under contract for Entergy Wholesale Commodities nuclear plants through 2018 have public investment grade credit ratings.
Nuclear Matters
See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Nuclear Matters" in the Form 10-K for a discussion of nuclear matters.
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’s accounting for nuclear decommissioning costs, unbilled revenue, impairment of long-lived assets and trust fund investments, qualified pension and other postretirement benefits, and other contingencies. Following are updates to that discussion.
Nuclear Decommissioning Costs
In the first quarter 2014, Entergy Arkansas recorded a revision to its estimated decommissioning cost liabilities for ANO 1 and ANO 2 as a result of a revised decommissioning cost study. The revised estimates resulted in a $43.6 million increase in the decommissioning cost liabilities, along with a corresponding increase in the related asset retirement cost assets that will be depreciated over the remaining lives of the units.
See “Impairment of Long-Lived Assets” in Note 1 to the financial statements in the Form 10-K and Note 11 to the financial statements herein for a discussion of the planned shutdown of Vermont Yankee and the December 2013 settlement agreement involving Entergy and Vermont parties. In the settlement agreement, Entergy Vermont Yankee agreed to complete and shall provide to the Vermont parties by December 31, 2014, a site assessment study of the costs and tasks of radiological decommissioning, spent nuclear fuel management, and site restoration of Vermont Yankee. Entergy Vermont Yankee also agreed that it shall file its Post-Shutdown Decommissioning Activities Report (PSDAR) for Vermont Yankee with the NRC no sooner than sixty days after completing the site assessment study. It is possible that development of the site assessment study and PSDAR will lead to a revision of Vermont Yankee’s decommissioning cost liability estimate.
New Accounting Pronouncements
The accounting standard-setting process, including projects between the FASB and the International Accounting Standards Board (IASB) to converge U.S. GAAP and International Financial Reporting Standards, is ongoing and the FASB and the IASB are each currently working on several projects that have not yet resulted in final pronouncements. Final pronouncements that result from these projects could have a material effect on Entergy’s future net income, financial position, or cash flows.
In April 2014 the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” which changes the requirements for reporting discontinued operations. The ASU states that a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued
Entergy Corporation and Subsidiaries
Management's Financial Discussion and Analysis
operations if the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results when the component of an entity or group of components of an entity meets the criteria to be classified as held for sale, is disposed of by sale, or is disposed of other than by sale. The amendments in this ASU also require additional disclosures about discontinued operations. ASU 2014-08 is effective for Entergy for the first quarter 2015. Entergy does not currently expect ASU 2014-08 to affect materially its results of operations, financial position, or cash flows.
In May 2014 the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The ASU’s core principle is that “an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The ASU details a five-step model that should be followed to achieve the core principle. ASU 2014-09 is effective for Entergy for the first quarter 2017. Entergy does not expect ASU 2014-09 to affect materially its results of operations, financial position, or cash flows.
|
| | | | | | | | | | | | | | | |
ENTERGY CORPORATION AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF INCOME |
For the Three and Six Months Ended June 30, 2014 and 2013 |
(Unaudited) |
| | | |
| Three Months Ended | | Six Months Ended |
| 2014 | | 2013 | | 2014 | | 2013 |
| (In Thousands, Except Share Data) |
OPERATING REVENUES | | | | | | | |
Electric |
| $2,373,842 |
| |
| $2,177,210 |
| |
| $4,600,306 |
| | $4,126,490 |
Natural gas | 35,469 |
| | 33,881 |
| | 113,689 |
| | 87,202 |
|
Competitive businesses | 587,339 |
| | 527,117 |
| | 1,491,498 |
| | 1,133,390 |
|
TOTAL | 2,996,650 |
| | 2,738,208 |
| | 6,205,493 |
| | 5,347,082 |
|
| | | | | | | |
OPERATING EXPENSES | | | | | | | |
Operating and Maintenance: | | | | | | | |
Fuel, fuel-related expenses, and gas purchased for resale | 604,081 |
| | 489,608 |
| | 1,147,910 |
| | 999,940 |
|
Purchased power | 517,898 |
| | 485,744 |
| | 1,092,525 |
| | 858,873 |
|
Nuclear refueling outage expenses | 66,497 |
| | 66,464 |
| | 126,041 |
| | 127,183 |
|
Other operation and maintenance | 816,609 |
| | 844,195 |
| | 1,554,590 |
| | 1,598,453 |
|
Decommissioning | 67,250 |
| | 59,389 |
| | 133,049 |
| | 118,494 |
|
Taxes other than income taxes | 152,736 |
| | 144,888 |
| | 307,204 |
| | 295,983 |
|
Depreciation and amortization | 331,742 |
| | 297,516 |
| | 660,465 |
| | 598,392 |
|
Other regulatory charges (credits) | (14,640 | ) | | 3,892 |
| | (10,645 | ) | | 9,207 |
|
TOTAL | 2,542,173 |
| | 2,391,696 |
| | 5,011,139 |
| | 4,606,525 |
|
| | | | | | | |
OPERATING INCOME | 454,477 |
| | 346,512 |
| | 1,194,354 |
| | 740,557 |
|
| | | | | | | |
OTHER INCOME | | | | | | | |
Allowance for equity funds used during construction | 14,788 |
| | 16,249 |
| | 29,917 |
| | 29,000 |
|
Interest and investment income | 24,245 |
| | 40,541 |
| | 59,493 |
| | 78,847 |
|
Miscellaneous - net | (14,675 | ) | | (13,157 | ) | | (26,379 | ) | | (26,779 | ) |
TOTAL | 24,358 |
| | 43,633 |
| | 63,031 |
| | 81,068 |
|
| | | | | | | |
INTEREST EXPENSE | | | | | | | |
Interest expense | 164,327 |
| | 155,768 |
| | 326,877 |
| | 308,918 |
|
Allowance for borrowed funds used during construction | (8,516 | ) | | (6,791 | ) | | (15,535 | ) | | (11,979 | ) |
TOTAL | 155,811 |
| | 148,977 |
| | 311,342 |
| | 296,939 |
|
| | | | | | | |
INCOME BEFORE INCOME TAXES | 323,024 |
| | 241,168 |
| | 946,043 |
| | 524,686 |
|
| | | | | | | |
Income taxes | 128,743 |
| | 73,113 |
| | 345,709 |
| | 189,648 |
|
| | | | | | | |
CONSOLIDATED NET INCOME | 194,281 |
| | 168,055 |
| | 600,334 |
| | 335,038 |
|
| | | | | | | |
Preferred dividend requirements of subsidiaries | 4,898 |
| | 4,332 |
| | 9,777 |
| | 9,915 |
|
| | | | | | | |
NET INCOME ATTRIBUTABLE TO ENTERGY CORPORATION |
| $189,383 |
| |
| $163,723 |
| |
| $590,557 |
| |
| $325,123 |
|
| | | | | | | |
Earnings per average common share: | | | | | | | |
Basic |
| $1.06 |
| |
| $0.92 |
| |
| $3.30 |
| |
| $1.83 |
|
Diluted |
| $1.05 |
| |
| $0.92 |
| |
| $3.29 |
| |
| $1.82 |
|
Dividends declared per common share |
| $0.83 |
| |
| $0.83 |
| |
| $1.66 |
| |
| $1.66 |
|
| | | | | | | |
Basic average number of common shares outstanding | 179,354,103 |
| | 178,196,525 |
| | 179,077,503 |
| | 178,112,709 |
|
Diluted average number of common shares outstanding | 180,045,432 |
| | 178,614,383 |
| | 179,547,020 |
| | 178,534,201 |
|
| | | | | | | |
See Notes to Financial Statements. | | | | | | | |
|
| | | | | | | | | | | | | | | |
ENTERGY CORPORATION AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
For the Three and Six Months Ended June 30, 2014 and 2013 |
(Unaudited) |
| | | |
| Three Months Ended | | Six Months Ended |
| 2014 | | 2013 | | 2014 | | 2013 |
| (In Thousands) |
| | | | | | | |
Net Income |
| $194,281 |
| |
| $168,055 |
| |
| $600,334 |
| |
| $335,038 |
|
| | | | | | | |
Other comprehensive income (loss) | | | | | | | |
Cash flow hedges net unrealized gain (loss) | | | | | | | |
(net of tax expense (benefit) of ($3,772), $14,531, $3,453, and ($26,604)) | (6,744 | ) | | 27,590 |
| | 7,010 |
| | (48,385 | ) |
Pension and other postretirement liabilities | | | | | | | |
(net of tax expense of $1,822, $5,885, $19,583, and $11,754) | 3,459 |
| | 9,779 |
| | (9,237 | ) | | 19,574 |
|
Net unrealized investment gains (losses) | | | | | | | |
(net of tax expense (benefit) of $29,580, ($9,325), $35,328, and $44,986) | 39,235 |
| | (8,033 | ) | | 62,224 |
| | 48,344 |
|
Foreign currency translation | | | | | | | |
(net of tax expense (benefit) of $172, $11, $213, and ($405)) | 320 |
| | 19 |
| | 395 |
| | (753 | ) |
Other comprehensive income | 36,270 |
| | 29,355 |
| | 60,392 |
| | 18,780 |
|
| | | | | | | |
Comprehensive Income | 230,551 |
| | 197,410 |
| | 660,726 |
| | 353,818 |
|
Preferred dividend requirements of subsidiaries | 4,898 |
| | 4,332 |
| | 9,777 |
| | 9,915 |
|
Comprehensive Income Attributable to Entergy Corporation |
| $225,653 |
| |
| $193,078 |
| |
| $650,949 |
| |
| $343,903 |
|
| | | | | | | |
See Notes to Financial Statements. | | | | | | | |
|
| | | | | | | | |
ENTERGY CORPORATION AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
For the Six Months Ended June 30, 2014 and 2013 |
(Unaudited) |
| | 2014 | | 2013 |
| | (In Thousands) |
OPERATING ACTIVITIES | | | | |
Consolidated net income | |
| $600,334 |
| |
| $335,038 |
|
Adjustments to reconcile consolidated net income to net cash flow provided by operating activities: |
Depreciation, amortization, and decommissioning, including nuclear fuel amortization | | 1,041,970 |
| | 948,950 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued | | 357,571 |
| | 162,189 |
|
Changes in working capital: | | | | |
Receivables | | (47,120 | ) | | (218,279 | ) |
Fuel inventory | | 32,125 |
| | 6,190 |
|
Accounts payable | | 46,697 |
| | 151,993 |
|
Prepaid taxes and taxes accrued | | (39,317 | ) | | (58,176 | ) |
Interest accrued | | 1,508 |
| | (3,172 | ) |
Deferred fuel costs | | (237,726 | ) | | (101,421 | ) |
Other working capital accounts | | (115,605 | ) | | (133,575 | ) |
Changes in provisions for estimated losses | | 4,314 |
| | (250,343 | ) |
Changes in other regulatory assets | | 26,070 |
| | 216,659 |
|
Changes in other regulatory liabilities | | 89,860 |
| | 98,807 |
|
Changes in pensions and other postretirement liabilities | | (128,922 | ) | | 24,955 |
|
Other | | (103,196 | ) | | (63,910 | ) |
Net cash flow provided by operating activities | | 1,528,563 |
| | 1,115,905 |
|
| | | | |
INVESTING ACTIVITIES | | | | |
Construction/capital expenditures | | (959,618 | ) | | (1,244,859 | ) |
Allowance for equity funds used during construction | | 31,577 |
| | 30,977 |
|
Nuclear fuel purchases | | (236,296 | ) | | (209,509 | ) |
Proceeds from sale of assets | | 10,100 |
| | — |
|
Insurance proceeds received for property damages | | 28,226 |
| | — |
|
Changes in securitization account | | 6,987 |
| | 9,118 |
|
NYPA value sharing payment | | (72,000 | ) | | (71,736 | ) |
Payments to storm reserve escrow account | | (3,624 | ) | | (3,855 | ) |
Receipts from storm reserve escrow account | | — |
| | 260,230 |
|
Increase in other investments | | (140,772 | ) | | (28,895 | ) |
Litigation proceeds for reimbursement of spent nuclear fuel storage costs | | — |
| | 10,763 |
|
Proceeds from nuclear decommissioning trust fund sales | | 981,530 |
| | 779,706 |
|
Investment in nuclear decommissioning trust funds | | (1,036,770 | ) | | (837,114 | ) |
Net cash flow used in investing activities | | (1,390,660 | ) | | (1,305,174 | ) |
| | | | |
See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
ENTERGY CORPORATION AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
For the Six Months Ended June 30, 2014 and 2013 |
(Unaudited) |
| | 2014 | | 2013 |
| | (In Thousands) |
FINANCING ACTIVITIES | | | | |
Proceeds from the issuance of: | | | | |
Long-term debt | | 1,232,161 |
| | 1,973,866 |
|
Treasury stock | | 81,358 |
| | 16,634 |
|
Retirement of long-term debt | | (1,224,733 | ) | | (2,010,111 | ) |
Repurchase of common stock | | (18,259 | ) | | — |
|
Changes in credit borrowings and commercial paper - net | | (7,538 | ) | | 294,123 |
|
Other | | 17,030 |
| | — |
|
Dividends paid: | | | | |
Common stock | | (297,228 | ) | | (297,054 | ) |
Preferred stock | | (9,752 | ) | | (10,137 | ) |
Net cash flow used in financing activities | | (226,961 | ) | | (32,679 | ) |
| | | | |
Effect of exchange rates on cash and cash equivalents | | — |
| | 751 |
|
| | | | |
Net decrease in cash and cash equivalents | | (89,058 | ) | | (221,197 | ) |
| | | | |
Cash and cash equivalents at beginning of period | | 739,126 |
| | 532,569 |
|
| | | | |
Cash and cash equivalents at end of period | |
| $650,068 |
| |
| $311,372 |
|
| | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
Cash paid during the period for: | | | | |
Interest - net of amount capitalized | |
| $312,747 |
| |
| $302,179 |
|
Income taxes | |
| $19,505 |
| |
| $88,665 |
|
| | | | |
See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
ENTERGY CORPORATION AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
ASSETS |
June 30, 2014 and December 31, 2013 |
(Unaudited) |
| | 2014 | | 2013 |
| | (In Thousands) |
CURRENT ASSETS | | | | |
Cash and cash equivalents: | | | | |
Cash | |
| $148,639 |
| |
| $129,979 |
|
Temporary cash investments | | 501,429 |
| | 609,147 |
|
Total cash and cash equivalents | | 650,068 |
| | 739,126 |
|
Accounts receivable: | | | | |
Customer | | 703,524 |
| | 670,641 |
|
Allowance for doubtful accounts | | (33,719 | ) | | (34,311 | ) |
Other | | 191,147 |
| | 195,028 |
|
Accrued unbilled revenues | | 371,997 |
| | 340,828 |
|
Total accounts receivable | | 1,232,949 |
| | 1,172,186 |
|
Deferred fuel costs | | 311,018 |
| | 116,379 |
|
Accumulated deferred income taxes | | 33,241 |
| | 175,073 |
|
Fuel inventory - at average cost | | 176,833 |
| | 208,958 |
|
Materials and supplies - at average cost | | 932,982 |
| | 915,006 |
|
Deferred nuclear refueling outage costs | | 307,287 |
| | 192,474 |
|
Prepayments and other | | 600,755 |
| | 410,489 |
|
TOTAL | | 4,245,133 |
| | 3,929,691 |
|
| | | | |
OTHER PROPERTY AND INVESTMENTS | | | | |
Investment in affiliates - at equity | | 38,333 |
| | 40,350 |
|
Decommissioning trust funds | | 5,164,746 |
| | 4,903,144 |
|
Non-utility property - at cost (less accumulated depreciation) | | 198,727 |
| | 199,375 |
|
Other | | 138,063 |
| | 210,616 |
|
TOTAL | | 5,539,869 |
| | 5,353,485 |
|
| | | | |
PROPERTY, PLANT AND EQUIPMENT | | | | |
Electric | | 43,569,861 |
| | 42,935,712 |
|
Property under capital lease | | 940,688 |
| | 941,299 |
|
Natural gas | | 370,658 |
| | 366,365 |
|
Construction work in progress | | 1,668,324 |
| | 1,514,857 |
|
Nuclear fuel | | 1,532,498 |
| | 1,566,904 |
|
TOTAL PROPERTY, PLANT AND EQUIPMENT | | 48,082,029 |
| | 47,325,137 |
|
Less - accumulated depreciation and amortization | | 19,972,785 |
| | 19,443,493 |
|
PROPERTY, PLANT AND EQUIPMENT - NET | | 28,109,244 |
| | 27,881,644 |
|
| | | | |
DEFERRED DEBITS AND OTHER ASSETS | | | | |
Regulatory assets: | | | | |
Regulatory asset for income taxes - net | | 846,935 |
| | 849,718 |
|
Other regulatory assets (includes securitization property of $775,911 as of June 30, 2014 and $822,218 as of December 31, 2013) | | 3,870,076 |
| | 3,893,363 |
|
Deferred fuel costs | | 172,202 |
| | 172,202 |
|
Goodwill | | 377,172 |
| | 377,172 |
|
Accumulated deferred income taxes | | 42,532 |
| | 62,011 |
|
Other | | 947,584 |
| | 887,160 |
|
TOTAL | | 6,256,501 |
| | 6,241,626 |
|
| | | | |
TOTAL ASSETS | |
| $44,150,747 |
| |
| $43,406,446 |
|
| | | | |
See Notes to Financial Statements. | | | | |
|
| | | | | | | | |
ENTERGY CORPORATION AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
LIABILITIES AND EQUITY |
June 30, 2014 and December 31, 2013 |
(Unaudited) |
| | 2014 | | 2013 |
| | (In Thousands) |
CURRENT LIABILITIES | | | | |
Currently maturing long-term debt | |
| $682,666 |
| |
| $457,095 |
|
Notes payable and commercial paper | | 1,039,349 |
| | 1,046,887 |
|
Accounts payable | | 1,159,726 |
| | 1,173,313 |
|
Customer deposits | | 401,055 |
| | 370,997 |
|
Taxes accrued | | 151,776 |
| | 191,093 |
|
Accumulated deferred income taxes | | 36,098 |
| | 28,307 |
|
Interest accrued | | 182,505 |
| | 180,997 |
|
Deferred fuel costs | | 14,545 |
| | 57,631 |
|
Obligations under capital leases | | 2,413 |
| | 2,323 |
|
Pension and other postretirement liabilities | | 51,844 |
| | 67,419 |
|
Other | | 406,092 |
| | 484,510 |
|
TOTAL | | 4,128,069 |
| | 4,060,572 |
|
| | | | |
NON-CURRENT LIABILITIES | | | | |
Accumulated deferred income taxes and taxes accrued | | 8,986,343 |
| | 8,724,635 |
|
Accumulated deferred investment tax credits | | 258,419 |
| | 263,765 |
|
Obligations under capital leases | | 30,988 |
| | 32,218 |
|
Other regulatory liabilities | | 1,385,816 |
| | 1,295,955 |
|
Decommissioning and asset retirement cost liabilities | | 4,108,256 |
| | 3,933,416 |
|
Accumulated provisions | | 120,015 |
| | 115,139 |
|
Pension and other postretirement liabilities | | 2,207,357 |
| | 2,320,704 |
|
Long-term debt (includes securitization bonds of $831,928 as of June 30, 2014 and $883,013 as of December 31, 2013) | | 11,936,105 |
| | 12,139,149 |
|
Other | | 622,151 |
| | 583,667 |
|
TOTAL | | 29,655,450 |
| | 29,408,648 |
|
| | | | |
Commitments and Contingencies | | | | |
| | | | |
Subsidiaries' preferred stock without sinking fund | |