ENTERGY CORPORATION Entergy operates primarily through two business segments: Utility and
•The Utility business segment includes the generation, transmission, distribution, and sale of electric power in portions ofArkansas ,Mississippi ,Texas , andLouisiana , including theCity of New Orleans ; and operation of a small natural gas distribution business. •The Entergy Wholesale Commodities business segment includes the ownership, operation, and decommissioning of nuclear power plants located in the northernUnited States and the sale of the electric power produced by its operating plants to wholesale customers.Entergy Wholesale Commodities also provides services to other nuclear power plant owners and owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. See "Entergy Wholesale Commodities Exit from theMerchant Power Business" below and in the Form 10-K for discussion of the operation and planned shutdown and sale of each of theEntergy Wholesale Commodities nuclear power plants.
See Note 7 to the financial statements herein for financial information regarding Entergy's business segments.
The COVID-19 Pandemic
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - The COVID-19 Pandemic" in the Form 10-K for a discussion of the COVID-19 pandemic and its effects on Entergy's business.
Hurricane Laura,
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Hurricane Laura,Hurricane Delta , and Hurricane Zeta" in the Form 10-K for a discussion of Hurricane Laura,Hurricane Delta , and Hurricane Zeta, which caused significant damage to portions of the Utility's service territories inLouisiana , includingNew Orleans ,Texas , and to a lesser extent, inArkansas andMississippi . See Note 2 to the financial statements herein for discussion of storm cost filings made in 2021 by EntergyLouisiana ,Entergy New Orleans , andEntergy Texas .
Winter Storm Uri
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -February 2021 Winter Storms" in the Form 10-K for a discussion of the winter storms and extreme cold temperatures experienced inthe United States , including Entergy's service area, inFebruary 2021 (Winter Storm Uri). Fuel and purchased power costs forFebruary 2021 for Entergy were approximately$720 million , including$145 million forEntergy Arkansas ,$285 million for Entergy Louisiana,$65 million forEntergy Mississippi ,$35 million forEntergy New Orleans , and$185 million forEntergy Texas . This compares to fuel and purchased power costs forFebruary 2020 for Entergy of$245 million , including$40 million forEntergy Arkansas ,$95 million for Entergy Louisiana,$35 million forEntergy Mississippi ,$25 million forEntergy New Orleans , and$50 million forEntergy Texas . See Note 2 to the financial statements herein for discussion of storm cost filings made in 2021 by Entergy Louisiana andEntergy Texas . See Note 2 to the financial statements herein and in the Form 10-K for discussion of fuel cost recovery at the Utility operating companies. 1
-------------------------------------------------------------------------------- Table of ContentsEntergy Corporation and Subsidiaries Management's Financial Discussion and Analysis Results of Operations
Second Quarter 2021 Compared to Second Quarter 2020
Following are income statement variances for Utility,Entergy Wholesale Commodities , Parent & Other, and Entergy comparing the second quarter 2021 to the second quarter 2020 showing how much the line item increased or (decreased) in comparison to the prior period: Entergy Wholesale Parent & Utility Commodities Other (a) Entergy (In Thousands) 2020 Net Income (Loss) Attributable to Entergy Corporation$344,869 $84,631 ($68,967 )$360,533 Operating revenues 460,324 (51,053) 11 409,282 Fuel, fuel-related expenses, and gas purchased for resale 284,683 376 - 285,059 Purchased power 32,515 7,895 - 40,410 Other regulatory charges (credits) - net (29,891) - - (29,891) Other operation and maintenance 102,213 (56,992) (364) 44,857 Asset write-offs, impairments, and related - 335,317 - charges 335,317 Taxes other than income taxes 5,654 (8,346) (43) (2,735) Depreciation and amortization 28,904 (11,040) (88) 17,776 Other income (deductions) (45,535) (152,885) 4,205 (194,215) Interest expense 10,085 (2,809) 1,444 8,720 Other expenses 1,942 (12,350) - (10,408) Income taxes (2,350) (96,163) (9,018) (107,531) 2021 Net Income (Loss) Attributable to Entergy Corporation$325,903 ($275,195 ) ($56,682 ) ($5,974 )
(a)Parent & Other includes eliminations, which are primarily intersegment activity.
Second quarter 2021 results of operations include a charge of$340 million ($268 million net-of-tax) as a result of the sale of the Indian Point Energy Center inMay 2021 . See Note 14 to the financial statements herein for further discussion of the sale of the Indian Point Energy Center. Second quarter 2020 results of operations include gains of$225 million (pre-tax) onEntergy Wholesale Commodities' nuclear decommissioning trust fund investments reflecting the equity market rebound from theMarch 2020 decline associated with the COVID-19 pandemic. See Notes 8 and 9 to the financial statements herein for a discussion of decommissioning trust fund investments. 2 --------------------------------------------------------------------------------
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Management's Financial Discussion and Analysis
Operating Revenues
Utility
Following is an analysis of the change in operating revenues comparing the second quarter 2021 to the second quarter 2020:
Amount
(In Millions)
2020 operating revenues $2,213
Fuel, rider, and other revenues that do not significantly affect net
income 354
Retail electric price 96
Volume/weather 10
2021 operating revenues $2,673
The Utility operating companies' results include revenues from rate mechanisms
designed to recover fuel, purchased power, and other costs such that the
revenues and expenses associated with these items generally offset and do not
affect net income. "Fuel, rider, and other revenues that do not significantly
affect net income" includes the revenue variance associated with these items.
The retail electric price variance is primarily due to:
•an increase inEntergy Arkansas's formula rate plan rates effective with the first billing cycle ofMay 2021 ; •increases in Entergy Louisiana's overall formula rate plan revenues, including an increase in the transmission recovery mechanism effectiveSeptember 2020 , and an interim increase effectiveDecember 2020 due to the inclusion of the first-year revenue requirement for the Washington Parish Energy Center; •an increase inEntergy Mississippi's formula rate plan rates effective, in part, with the first billing cycle ofApril 2021 ; •an interim increase inEntergy New Orleans's formula rate plan revenues resulting from the recovery ofNew Orleans Power Station costs, effectiveNovember 2020 ; and •the implementation of the generation cost recovery rider, which includes the first-year revenue requirement for theMontgomery County Power Station , effectiveJanuary 2021 , an increase in the transmission cost recovery factor rider effectiveMarch 2021 , and an increase in the distribution cost recovery factor rider effectiveMarch 2021 , each atEntergy Texas .
See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the regulatory proceedings discussed above.
The volume/weather variance is primarily due to an increase of 777 GWh, or 3%, in billed electricity usage primarily due to an increase in commercial usage resulting from reduced impacts from the COVID-19 pandemic on businesses as compared to prior year and an increase in industrial usage primarily due to an increase in demand from expansion projects, primarily in the transportation, metals, and chemicals industries, and an increase in demand from cogeneration customers. The increase was partially offset by a decrease in usage from residential customers primarily due to the impact that the COVID-19 pandemic had on prior year usage. See "The COVID-19 Pandemic" section ofEntergy Corporation and Subsidiaries Management's Financial Discussion and Analysis in the Form 10-K for discussion of the COVID-19 pandemic. 3 -------------------------------------------------------------------------------- Table of ContentsEntergy Corporation and Subsidiaries Management's Financial Discussion and Analysis
Billed electric energy sales for Utility for the three months ended
2021 2020 % Change
(GWh)
Residential 7,361 7,759 (5)
Commercial 6,370 6,071 5
Industrial 12,690 11,846 7
Governmental 602 570 6
Total retail 27,023 26,246 3
Sales for resale 4,716 3,111 52
Total 31,739 29,357 8
See Note 13 to the financial statements herein for additional discussion of operating revenues.
Operating revenues forEntergy Wholesale Commodities decreased from$200 million for the second quarter 2020 to$149 million for the second quarter 2021 primarily due to the shutdown ofIndian Point 3 inApril 2021 and the shutdown ofIndian Point 2 inApril 2020 .
Following are key performance measures for
2021 2020
Owned capacity (MW) (a) 1,205 2,246
GWh billed 2,687 4,958
Entergy Wholesale Commodities Nuclear Fleet
Capacity factor 94% 96%
GWh billed 2,356 4,580
Average energy price ($/MWh) $48.75 $35.48
Average capacity price ($/kW-month) $0.32 $2.33
(a)The reduction in owned capacity is due to the shutdown of the
Other Income Statement Items Utility Other operation and maintenance expenses increased from$589 million for the second quarter 2020 to$691 million for the second quarter 2021 primarily due to: •an increase of$16 million in non-nuclear generation expenses primarily due to a higher scope of work performed during plant outages in 2021 as compared to 2020 and higher expenses associated with plants placed in service, including theNew Orleans Power Station , which began commercial operation inMay 4 --------------------------------------------------------------------------------
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2020; the Washington Parish Energy Center, purchased in November 2020 ; and the
Montgomery County Power Station , which began commercial operation in January
2021 ;
•an increase of $15 million in nuclear generation expenses primarily due to
higher nuclear labor costs and a higher scope of work performed in 2021 as
compared to 2020;
•an increase of $14 million in compensation and benefits costs primarily due to
lower healthcare claims activity in 2020 as a result of the COVID-19 pandemic,
an increase in healthcare cost rates, and an increase in net periodic pension
and other postretirement benefits costs as a result of a decrease in the
discount rate used to value the benefit liabilities. See "MANAGEMENT'S FINANCIAL
DISCUSSION AND ANALYSIS - Critical Accounting Estimates" in the Form 10-K, Note
6 to the financial statements herein, and Note 11 to the financial statements in
the Form 10-K for further discussion of pension and other postretirement benefit
costs;
•an increase of $14 million in distribution operations expenses primarily due to
higher distribution reliability costs and higher vegetation maintenance costs;
•the effects of recording in second quarter 2020 final judgments to resolve
claims in the Waterford 3 damages case against the DOE related to spent nuclear
fuel storage costs. The damages awarded included the reimbursement of
approximately $8 million of spent nuclear fuel storage costs previously recorded
as other operation and maintenance expense. See Note 8 to the financial
statements in the Form 10-K for discussion of the spent nuclear fuel litigation;
•an increase of $7 million in information technology costs primarily due to
higher contract costs and higher costs associated with system maintenance;
•an increase of $6 million primarily due to contract costs in 2021 related to
customer solutions and sustainability initiatives; and
•several individually insignificant items.
Depreciation and amortization expenses increased primarily due to additions to
plant in service, including the
Other regulatory charges (credits) - net includes:
•regulatory credits of$11 million , recorded in the second quarter 2020 atEntergy Arkansas , to reflect the amortization of the 2018 historical year netting adjustment reflected in the 2019 formula rate plan filing. See Note 2 to the financial statements in the Form 10-K for discussion of the 2019 formula rate plan filing; and •regulatory credits of$20 million , recorded in the second quarter 2021 atEntergy Mississippi , to reflect the effects of the joint stipulation reached in the 2021 formula rate plan filing proceeding. See Note 2 to the financial statements herein for discussion of the 2021 formula rate plan filing. Other income decreased primarily due to changes in decommissioning trust fund activity and a decrease in the allowance for equity funds used during construction due to higher construction work in progress in 2020, including theMontgomery County Power Station project.
Interest expense increased primarily due to:
•the issuances by Entergy Louisiana of$1.1 billion of 0.62% Series mortgage bonds,$300 million of 2.90% Series mortgage bonds, and$300 million of 1.60% Series mortgage bonds, each inNovember 2020 ; •the issuances by Entergy Louisiana of$500 million of 2.35% Series mortgage bonds and$500 million of 3.10% Series mortgage bonds, each inMarch 2021 ; •the issuance byEntergy Mississippi of$370 million of 3.50% Series mortgage bonds inMarch 2021 ; and •a decrease in the allowance for borrowed funds used during construction due to higher construction work in progress in 2020, including theMontgomery County Power Station project. 5 -------------------------------------------------------------------------------- Table of ContentsEntergy Corporation and Subsidiaries Management's Financial Discussion and Analysis
The increase was partially offset by:
•the repayments by Entergy Louisiana of$200 million of 5.25% Series mortgage bonds and$100 million of 4.70% Series mortgage bonds, each inDecember 2020 ; and •the repayment by Entergy Louisiana of$200 million of 4.8% Series mortgage bonds inMay 2021 .Entergy Wholesale Commodities
Other operation and maintenance expenses decreased from
•a decrease of$35 million primarily resulting from the absence of expenses fromIndian Point 2, after it was shut down inApril 2020 , andIndian Point 3, after it was shut down inApril 2021 ; and •a decrease of$22 million in severance and retention expenses. Severance and retention expenses were incurred in 2021 and 2020 due to management's strategy to exit theEntergy Wholesale Commodities merchant power business. See "Entergy Wholesale Commodities Exit from the Merchant Power Business" below and in the Form 10-K for a discussion of management's strategy to shut down and sell all of the plants inEntergy Wholesale Commodities' merchant nuclear fleet. See Note 7 to the financial statements herein for further discussion of severance and retention expenses. Asset write-offs, impairments, and related charges for the second quarter 2021 include a charge of$340 million ($268 million net-of-tax) as a result of the sale of the Indian Point Energy Center inMay 2021 . See Note 14 to the financial statements herein for further discussion of the sale of the Indian Point Energy Center. See "Entergy Wholesale Commodities Exit from theMerchant Power Business" below and in the Form 10-K for a discussion of management's strategy to shut down and sell all of the plants in theEntergy Wholesale Commodities merchant nuclear fleet. Depreciation and amortization expenses decreased primarily due to the absence of depreciation expense fromIndian Point 3, after it was shut down inApril 2021 , andIndian Point 2, after it was shut down inApril 2020 . Other income decreased primarily due to lower gains on decommissioning trust fund investments, including the absence of earnings from nuclear decommissioning trust funds that were transferred in the sale of the Indian Point Energy Center inMay 2021 . See Notes 8 and 9 to the financial statements herein for a discussion of decommissioning trust fund investments. See Note 14 to the financial statements herein for further discussion of the sale of the Indian Point Energy Center. Other expenses decreased primarily due to the absence of decommissioning expense fromIndian Point 2 andIndian Point 3, after the sale of theIndian Point Energy Center inMay 2021 . See Note 14 to the financial statements herein for further discussion of the sale of the Indian Point Energy Center.
Income Taxes
The effective income tax rate was 93% for the second quarter 2021. The
difference in the effective income tax rate for the second quarter 2021 versus
the federal statutory rate of 21% was primarily due to the amortization of
excess accumulated deferred income taxes, a reduction of a valuation allowance,
certain book and tax differences related to utility plant items, and book and
tax differences related to the allowance for equity funds used during
construction, partially offset by state income taxes. See Note 10 to the
financial statements herein and Notes 2 and 3 to the financial statements in the
Form 10-K for a discussion of the effects and regulatory activity regarding the
Tax Cuts and Jobs Act. See Note 10 to the financial statements herein for
discussion of the valuation allowance reduction.
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The effective income tax rate was 19.6% for the second quarter 2020. The
difference in the effective income tax rate for the second quarter 2020 versus
the federal statutory rate of 21% was primarily due to the amortization of
excess accumulated deferred income taxes and certain book and tax differences
related to utility plant items, partially offset by state income taxes. See Note
10 to the financial statements herein and Notes 2 and 3 to the financial
statements in the Form 10-K for a discussion of the effects and regulatory
activity regarding the Tax Cuts and Jobs Act.
Six Months Ended
Following are income statement variances for Utility,
Entergy
Wholesale Parent &
Utility Commodities Other (a) Entergy
(In Thousands)
2020 Net Income (Loss) Attributable to
Entergy Corporation $664,685 ($26,344 ) ($159,094 ) $479,247
Operating revenues 962,310 (135,384) 14 826,940
Fuel, fuel-related expenses, and gas
purchased for resale 387,363 1,470 (10) 388,823
Purchased power 188,483 15,037 10 203,530
Other regulatory charges (credits) 10,066 - - 10,066
Other operation and maintenance 138,801 (89,042) (200) 49,559
Asset write-offs, impairments, and related - 333,495 -
charges 333,495
Taxes other than income taxes 5,399 (21,988) 262 (16,327)
Depreciation and amortization 65,956 (33,187) (183) 32,586
Other income (deductions) (15,488) 65,285 10,463 60,260
Interest expense 23,933 (3,914) (1,570) 18,449
Other expenses (1,297) (10,633) - (11,930)
Income taxes 110,333 (50,062) (30,666) 29,605
2021 Net Income (Loss) Attributable to
Entergy Corporation $682,470 ($237,619 ) ($116,260 ) $328,591 (a)Parent & Other includes eliminations, which are primarily intersegment activity.
Results of operations for the six months endedJune 30, 2021 include a charge of$340 million ($268 million net-of-tax) as a result of the sale of the Indian Point Energy Center inMay 2021 . See Note 14 to the financial statements herein for further discussion of the sale of the Indian Point Energy Center. 7 -------------------------------------------------------------------------------- Table of ContentsEntergy Corporation and Subsidiaries Management's Financial Discussion and Analysis
Operating Revenues
Utility
Following is an analysis of the change in operating revenues comparing the six
months ended
Amount
(In Millions)
2020 operating revenues $4,308
Fuel, rider, and other revenues that do not significantly affect net
income 682
Retail electric price 187
Volume/weather 107
Return of unprotected excess accumulated deferred income taxes to
customers (14)
2021 operating revenues $5,270
The Utility operating companies' results include revenues from rate mechanisms
designed to recover fuel, purchased power, and other costs such that the
revenues and expenses associated with these items generally offset and do not
affect net income. "Fuel, rider, and other revenues that do not significantly
affect net income" includes the revenue variance associated with these items.
The retail electric price variance is primarily due to:
•an increase inEntergy Arkansas's formula rate plan rates effective with the first billing cycle ofMay 2021 ; •increases in Entergy Louisiana's overall formula rate plan revenues, including an interim increase effectiveApril 2020 due to the inclusion of the first-year revenue requirement for theLake Charles Power Station , an increase in the transmission recovery mechanism effectiveSeptember 2020 , and an interim increase effectiveDecember 2020 due to the inclusion of the first-year revenue requirement for the Washington Parish Energy Center; •increases inEntergy Mississippi's formula rate plan rates effective, in part, with the first billing cycles ofApril 2020 andApril 2021 and the implementation of a vegetation management rider effective with theApril 2020 billing cycle; •an interim increase inEntergy New Orleans's formula rate plan revenues resulting from the recovery ofNew Orleans Power Station costs, effectiveNovember 2020 ; and •the implementation of the generation cost recovery rider, which includes the first-year revenue requirement for theMontgomery County Power Station , effectiveJanuary 2021 , an increase in the transmission cost recovery factor rider effectiveMarch 2021 , and an increase in the distribution cost recovery factor rider effectiveMarch 2021 , each atEntergy Texas .
See Note 2 to the financial statements herein and in the Form 10-K for further discussion of the regulatory proceedings discussed above.
The volume/weather variance is primarily due to an increase of 1,767 GWh, or 3%,
in billed electricity usage, including the effect of more favorable weather on
residential sales, an increase in industrial usage, and an increase in usage
during the unbilled sales period. The increase in industrial usage is primarily
due to an increase in demand from expansion projects, primarily in the
transportation, metals, and chemicals industries, partially offset by decreased
demand from existing customers in the chemicals and petroleum refining
industries as a result of temporary plant shutdowns and operational issues.
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The return of unprotected excess accumulated deferred income taxes to customers
resulted from activity at the Utility operating companies in response to the
enactment of the Tax Cuts and Jobs Act. The return of unprotected excess
accumulated deferred income taxes began in the second quarter 2018. In the six
months ended June 30, 2021 , $54 million was returned to customers through
reductions in operating revenues as compared to $40 million in the six months
ended June 30, 2020 . There is no effect on net income as the reductions in
operating revenues were offset by reductions in income tax expense. See Note 2
to the financial statements in the Form 10-K for further discussion of
regulatory activity regarding the Tax Cuts and Jobs Act.
Billed electric energy sales for Utility for the six months ended
2021 2020 % Change
(GWh)
Residential 16,961 15,885 7
Commercial 12,504 12,315 2
Industrial 24,148 23,662 2
Governmental 1,181 1,165 1
Total retail 54,794 53,027 3
Sales for resale 9,016 6,228 45
Total 63,810 59,255 8
See Note 13 to the financial statements herein for additional discussion of operating revenues.
Operating revenues forEntergy Wholesale Commodities decreased from$532 million for the six months endedJune 30, 2020 to$397 million for the six months endedJune 30, 2021 primarily due to the shutdown ofIndian Point 2 inApril 2020 and the shutdown ofIndian Point 3 inApril 2021 .
Following are key performance measures for
2021 2020
Owned capacity (MW) (a) 1,205 2,246
GWh billed 7,099 11,714
Entergy Wholesale Commodities Nuclear Fleet
Capacity factor 97% 98%
GWh billed 6,344 10,839
Average energy price ($/MWh) $50.70 $42.37
Average capacity price ($/kW-month) $0.26 $1.58
(a)The reduction in owned capacity is due to the shutdown of the
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Management's Financial Discussion and Analysis
Other Income Statement Items
Utility
Other operation and maintenance expenses increased from$1,155 million for the six months endedJune 30, 2020 to$1,294 million for the six months endedJune 30, 2021 primarily due to: •an increase of$24 million in non-nuclear generation expenses primarily due to a higher scope of work performed during plant outages in 2021 as compared to 2020 and higher expenses associated with plants placed in service, including theLake Charles Power Station , which began commercial operation inMarch 2020 ; theNew Orleans Power Station , which began commercial operation inMay 2020 ; the Washington Parish Energy Center, purchased inNovember 2020 ; and theMontgomery County Power Station , which began commercial operation inJanuary 2021 ; •an increase of$20 million in nuclear generation expenses primarily due to higher nuclear labor costs and a higher scope of work performed in 2021 as compared to 2020; •an increase of$18 million in compensation and benefits costs primarily due to lower healthcare claims activity in 2020 as a result of the COVID-19 pandemic, an increase in healthcare cost rates, and an increase in net periodic pension and other postretirement benefits costs as a result of a decrease in the discount rate used to value the benefit liabilities. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates" in the Form 10-K, Note 6 to the financial statements herein, and Note 11 to the financial statements in the Form 10-K for further discussion of pension and other postretirement benefit costs; •an increase of$17 million in distribution operations expenses primarily due to higher distribution reliability costs and higher vegetation maintenance costs; •lower nuclear insurance refunds of$13 million ; •the effects of recording in second quarter 2020 final judgments to resolve claims in theWaterford 3 damages case against theDOE related to spent nuclear fuel storage costs. The damages awarded included the reimbursement of approximately$8 million of spent nuclear fuel storage costs previously recorded as other operation and maintenance expense. See Note 8 to the financial statements in the Form 10-K for discussion of the spent nuclear fuel litigation; •an increase of$8 million as a result of the amount of transmission costs allocated by MISO. See Note 2 to the financial statements in the Form 10-K for further information on the recovery of these costs; •an increase of$7 million primarily due to contract costs in 2021 related to customer solutions and sustainability initiatives; and •an increase of$6 million in information technology costs due to higher contract costs and higher costs associated with system maintenance. Depreciation and amortization expenses increased primarily due to additions to plant in service, including theLake Charles Power Station and theMontgomery County Power Station .
Other regulatory charges (credits) - net includes:
•regulatory credits of$22 million , recorded in 2020 atEntergy Arkansas , to reflect the amortization of the 2018 historical year netting adjustment reflected in the 2019 formula rate plan filing. See Note 2 to the financial statements in the Form 10-K for discussion of the 2019 formula rate plan filing; •the reversal in 2021 of the remaining$39 million regulatory liability forEntergy Arkansas's 2019 historical year netting adjustment as part of its 2020 formula rate plan proceeding. See Note 2 to the financial statements herein and in the Form 10-K for discussion ofEntergy Arkansas's 2020 formula rate plan filing; •$29 million recorded in the first quarter 2020, at Entergy Louisiana, due to a settlement with theIRS related to the uncertain tax position regarding the Hurricane Isaac Louisiana Act 55 financing because the savings will be shared with customers. See Note 3 to the financial statements in the Form 10-K for further discussion of the settlement and savings obligation; and 10 --------------------------------------------------------------------------------
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•regulatory credits of $20 million , recorded in the second quarter 2021 at
Entergy Mississippi , to reflect the effects of the joint stipulation reached in
the 2021 formula rate plan filing proceeding. See Note 2 to the financial
statements herein for discussion of the 2021 formula rate plan filing.
Other income decreased primarily due to a decrease in the allowance for equity
funds used during construction due to higher construction work in progress in
2020, including the Lake Charles Power Station project and the Montgomery County
Power Station project, partially offset by changes in decommissioning trust fund
activity.
Interest expense increased primarily due to:
•the issuance by Entergy Louisiana of$350 million of 2.90% Series mortgage bonds inMarch 2020 ; •the issuances by Entergy Louisiana of$1.1 billion of 0.62% Series mortgage bonds,$300 million of 2.90% Series mortgage bonds, and$300 million of 1.60% Series mortgage bonds, each inNovember 2020 ; •the issuances by Entergy Louisiana of$500 million of 2.35% Series mortgage bonds and$500 million of 3.10% Series mortgage bonds, each inMarch 2021 ; •the issuance byEntergy Mississippi of$370 million of 3.50% Series mortgage bonds inMarch 2021 ; and •a decrease in the allowance for borrowed funds used during construction due to higher construction work in progress in 2020, including theLake Charles Power Station project and theMontgomery County Power Station project.
The increase was partially offset by:
•the repayments by Entergy Louisiana of$200 million of 5.25% Series mortgage bonds and$100 million of 4.70% Series mortgage bonds, each inDecember 2020 ; and •the repayment by Entergy Louisiana of$200 million of 4.8% Series mortgage bonds inMay 2021 .Entergy Wholesale Commodities Other operation and maintenance expenses decreased from$271 million for the six months endedJune 30, 2020 to$182 million for the six months endedJune 30, 2021 primarily due to: •a decrease of$63 million resulting from the absence of expenses fromIndian Point 2, after it was shut down inApril 2020 , andIndian Point 3, after it was shut down inApril 2021 ; and •a decrease of$28 million in severance and retention expenses. Severance and retention expenses were incurred in 2021 and 2020 due to management's strategy to exit theEntergy Wholesale Commodities merchant power business. See "Entergy Wholesale Commodities Exit from the Merchant Power Business" below and in the Form 10-K for a discussion of management's strategy to shut down and sell all of the remaining plants inEntergy Wholesale Commodities' merchant nuclear fleet. See Note 7 to the financial statements herein for further discussion of severance and retention expenses. Asset write-offs, impairments, and related charges for the six months endedJune 30, 2021 include a charge of$340 million ($268 million net-of-tax) as a result of the sale of the Indian Point Energy Center inMay 2021 . See Note 14 to the financial statements herein for further discussion of the sale of the Indian Point Energy Center. See "Entergy Wholesale Commodities Exit from the Merchant Power Business" below and in the Form 10-K for a discussion of management's strategy to shut down and sell all of the remaining plants in theEntergy Wholesale Commodities merchant nuclear fleet.
Taxes other than income taxes decreased primarily due to lower payroll taxes and lower ad valorem taxes.
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Depreciation and amortization expenses decreased primarily due to:
•the absence of depreciation expense fromIndian Point 2, after it was shut down inApril 2020 , and fromIndian Point 3, after it was shut down inApril 2021 ; and •the effect of recording in 2021 a final judgment to resolve claims in the Palisades damages case against theDOE related to spent nuclear fuel storage costs. The damages awarded included$9 million of spent nuclear fuel storage costs previously recorded as depreciation expense. See Note 1 to the financial statements herein for discussion of the spent nuclear fuel litigation. Other income increased primarily due to higher gains on decommissioning trust fund investments, partially offset by the absence of earnings from nuclear decommissioning trust funds that were transferred in the sale of the Indian Point Energy Center inMay 2021 . See Notes 8 and 9 to the financial statements herein for a discussion of decommissioning trust fund investments. See Note 14 to the financial statements herein for further discussion of the sale of the Indian Point Energy Center. Other expenses decreased primarily due to the absence of decommissioning expense fromIndian Point 2 andIndian Point 3, after the sale of theIndian Point Energy Center inMay 2021 . See Note 14 to the financial statements herein for further discussion of the sale of the Indian Point Energy Center.
Income Taxes
The effective income tax rate was 12.3% for the six months endedJune 30, 2021 . The difference in the effective income tax rate for the six months endedJune 30, 2021 versus the federal statutory rate of 21% was primarily due to the amortization of excess accumulated deferred income taxes, a reduction of a valuation allowance, certain book and tax differences related to utility plant items, and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 10 to the financial statements herein for discussion of the valuation allowance reduction. The effective income tax rate was 3.5% for the six months endedJune 30, 2020 . The difference in the effective income tax rate for the six months endedJune 30, 2020 versus the federal statutory rate of 21% was primarily due to the settlement with theIRS on the treatment of funds received in conjunction with the Act 55 financing of Hurricane Isaac storm costs, permanent differences related to income tax deductions for stock-based compensation, amortization of excess accumulated deferred income taxes, and certain book and tax differences related to utility plant items, partially offset by state income taxes. See Note 3 to the financial statements in the Form 10-K for discussion of theIRS settlement and the income tax deductions for stock-based compensation. See Note 10 to the financial statements herein and Notes 2 and 3 to the financial statements in the Form 10-K for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act.
Entergy Wholesale Commodities Exit from the Merchant Power Business
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale
Commodities Exit from the Merchant Power Business" in the Form 10-K for a
discussion of management's strategy to shut down and sell all remaining plants
in the
Shutdown and Sale of
As discussed in the Form 10-K, inApril 2019 , Entergy entered into an agreement to sell, directly or indirectly, 100% of the equity interests in the subsidiaries that ownIndian Point 1,Indian Point 2, andIndian Point 3 to aHoltec subsidiary for decommissioning the plants. 12 --------------------------------------------------------------------------------
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In November 2019 , Entergy and Holtec submitted a license transfer application to
the NRC. The NRC issued an order approving the application in November 2020 ,
subject to the NRC's authority to condition, revise, or rescind the approval
order based on the resolution of four pending hearing requests. In January 2021
the NRC issued an order denying all four hearing requests challenging the
license transfer application. In January 2021 , New York State filed a petition
for review with the D.C. Circuit asking the court to vacate the NRC's January
2021 order denying the State's hearing request, as well as the NRC's November
2020 order approving the license transfers. In January 2021 the D.C. Circuit
issued a scheduling order, setting deadlines for initial procedural filings in
March 2021 . In March 2021 additional parties also filed petitions for review
with the D.C. Circuit seeking review of the same NRC orders. In March 2021 the
court consolidated all of the appeals into the same proceeding. Pursuant to an
April 2021 settlement among Entergy, Holtec , New York State , and several other
parties, discussed below, all petitioners to the D.C. Circuit proceeding
withdrew their pending appeals, and the court terminated the consolidated
proceeding in June 2021 .
In November 2019 , Entergy and Holtec also submitted a petition to the New York
State Public Service Commission (NYPSC) seeking an order from the NYPSC
disclaiming jurisdiction or abstaining from review of the transaction or,
alternatively, approving the transaction. Closing was also conditioned on
obtaining from the New York State Department of Environmental Conservation an
agreement related to Holtec's decommissioning plan as being consistent with
applicable standards. In April 2021 , Entergy and Holtec filed a joint settlement
proposal with the NYPSC that resolved all issues among all parties, including
financial assurance, site restoration, financial reporting, continued funding
for state and local emergency management and response activities, a memorandum
of understanding with local taxing jurisdictions, and the dismissal of the
federal appeals described in the preceding paragraph. In May 2021 the NYPSC
approved the joint settlement proposal and the transaction.
Indian Point 2 permanently ceased operations on April 30, 2020 and Indian Point
3 permanently ceased operations on April 30, 2021 . The transaction closed in May
2021 . The sale included the transfer of the licenses, spent fuel,
decommissioning liabilities, and nuclear decommissioning trusts for the three
units. The transaction resulted in a charge of $340 million ($268 million
net-of-tax) in the second quarter of 2021. See Note 14 to the financial
statements for discussion of the closing of the Indian Point transaction.
Planned Shutdown and Sale of Palisades
As discussed in the Form 10-K, inJuly 2018 , Entergy entered into a purchase and sale agreement to sell 100% of the equity interests in the subsidiary that owns Palisades and the Big Rock Point Site, for$1,000 (subject to adjustment for net liabilities and other amounts) to aHoltec subsidiary. The sale will include the transfer of the nuclear decommissioning trust and obligation for spent fuel management and plant decommissioning. InDecember 2020 , Entergy andHoltec submitted a license transfer application to the NRC requesting approval to transfer the Palisades andBig Rock Point licenses from Entergy toHoltec . The NRC has indicated that it expects to complete its review of the application byJanuary 2022 . InFebruary 2021 several parties filed with the NRC petitions to intervene and requests for hearing challenging the license transfer application. InMarch 2021 , Entergy andHoltec filed answers opposing the petitions to intervene and hearing requests, and the petitioners filed replies. InMarch 2021 an additional party also filed a petition to intervene and request for hearing. Entergy andHoltec filed an answer to theMarch 2021 petition inApril 2021 . Subject to the conditions discussed in the Form 10-K, the transaction is expected to close by the end of 2022. As ofJune 30, 2021 , Entergy's adjusted net investment in Palisades was$5 million . The primary variables in the ultimate loss or gain that Entergy will incur on the transaction are the values of the nuclear decommissioning trust and the asset retirement obligations at closing, the financial results from plant operations until the closing, and the level of any unrealized deferred tax balances at closing. 13 -------------------------------------------------------------------------------- Table of ContentsEntergy Corporation and Subsidiaries Management's Financial Discussion and Analysis
Costs Associated with Entergy Wholesale Commodities Strategic Transactions
Entergy expects to incur employee retention and severance expenses associated with management's strategy to exit theEntergy Wholesale Commodities merchant power business of approximately$10 million in 2021, of which$7 million has been incurred as ofJune 30, 2021 , and a total of approximately$5 million in 2022. In addition,Entergy Wholesale Commodities incurred impairment charges primarily related to expenditures for capital assets of$2 million for the three months endedJune 30, 2021 and$5 million for the six months endedJune 30, 2021 . These costs were charged to expense as incurred as a result of the impaired value of certain of theEntergy Wholesale Commodities nuclear plants' long-lived assets due to the significantly reduced remaining estimated operating lives associated with management's strategy to exit theEntergy Wholesale Commodities merchant power business.
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 and Resources
Entergy's debt to capital ratio is shown in the following table. The increase in the debt to capital ratio for Entergy as ofJune 30, 2021 is primarily due to the net issuance of debt in 2021. June 30, December 31, 2021 2020 Debt to capital 69.5 % 68.3 % Effect of excluding securitization bonds (0.1 %) (0.2 %) Debt to capital, excluding securitization bonds (a) 69.4 % 68.1 % Effect of subtracting cash (0.5 %) (1.7 %) Net debt to net capital, excluding securitization bonds (a) 68.9 % 66.4 % (a)Calculation excludes theLouisiana ,New Orleans , andTexas securitization bonds, which are non-recourse to Entergy Louisiana,Entergy New Orleans , andEntergy Texas , respectively. As ofJune 30, 2021 , 22.3% of the debt outstanding is at the parent company,Entergy Corporation , 77.2% is at the Utility, and 0.5% is atEntergy Wholesale Commodities . Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable and commercial paper, finance lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt, common shareholders' equity, and subsidiaries' preferred stock without sinking fund. Net capital consists of capital less cash and cash equivalents. Entergy uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy's financial condition because the securitization bonds are non-recourse to Entergy, as more fully described in Note 5 to the financial statements in the Form 10-K. Entergy also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy's financial condition because net debt indicates Entergy's outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand. 14 --------------------------------------------------------------------------------
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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 June 2026 . The facility includes fronting
commitments for the issuance of letters of credit against $20 million of the
total borrowing capacity of the credit facility. The commitment fee is currently
0.225% of the undrawn commitment amount. Commitment fees and interest rates on
loans under the credit facility can fluctuate depending on the senior unsecured
debt ratings of Entergy Corporation . The weighted average interest rate for the
six months ended June 30, 2021 was 1.61% on the drawn portion of the facility.
Following is a summary of the borrowings outstanding and capacity available
under the facility as of June 30, 2021 :
Letters Capacity
Capacity Borrowings of Credit Available
(In Millions)
$3,500 $150 $6 $3,344
A covenant in Entergy Corporation's credit facility requires Entergy to maintain
a consolidated debt ratio, as defined, of 65% or less of its total
capitalization. The calculation of this debt ratio under Entergy Corporation's
credit facility is different than the calculation of the debt to
capital ratio above. One such difference is that it excludes the effects, among
other things, of certain impairments related to the Entergy Wholesale
Commodities nuclear generation assets. Entergy is currently in compliance with
the covenant and expects to remain in compliance with this covenant. If Entergy
fails to meet this ratio, or if Entergy or one of the Registrant Subsidiaries
(except Entergy New Orleans ) defaults on other indebtedness or is in bankruptcy
or insolvency proceedings, an acceleration of the facility's maturity date may
occur. See Note 4 to the financial statements herein for additional discussion
of the Entergy Corporation credit facility and discussion of the Registrant
Subsidiaries' credit facilities.
Entergy Corporation has a commercial paper program with a Board-approved program
limit of up to $2 billion . As of June 30, 2021 , Entergy Corporation had
approximately $866 million of commercial paper outstanding. The weighted-average
interest rate for the six months ended June 30, 2021 was 0.32%.
Certain of the Utility operating companies have a total of
Equity Distribution Program
InJanuary 2021 , Entergy entered into an equity distribution sales agreement with several counterparties establishing an at the market equity distribution program, pursuant to which Entergy may offer and sell from time to time shares of its common stock. The sales agreement provides that, in addition to the issuance and sale of shares of Entergy common stock, Entergy may enter into forward sale agreements for the sale of its common stock. The aggregate number of shares of common stock sold under this sales agreement and under any forward sale agreement may not exceed an aggregate gross sales price of$1 billion . See Note 3 to the financial statement herein for discussion of the forward sales agreements and common stock issuances and sales under the equity distribution program.
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 2021 through 2023. Following are updates to that discussion.
Searcy Solar Facility
As discussed in the Form 10-K, inApril 2020 the APSC issued an order approvingEntergy Arkansas's acquisition of the Searcy Solar facility as being in the public interest. InMay 2021 ,Entergy Arkansas filed with the APSC an application seeking to amend its certificate for the Searcy Solar facility to allow for the use of a tax equity 15 -------------------------------------------------------------------------------- Table of ContentsEntergy Corporation and Subsidiaries Management's Financial Discussion and Analysis partnership. The tax equity partnership structure is expected to reduce costs and yield incremental net benefits to customers beyond those expected under the build-own-transfer structure alone. A decision on the tax equity partnership is requested bySeptember 2021 .Entergy Arkansas will purchase the facility upon mechanical completion and after the other purchase contingencies have been met. Closing is expected to occur by the end of 2021.
Walnut Bend Solar Facility
InOctober 2020 ,Entergy Arkansas filed a petition with the APSC seeking a finding that the purchase of the 100 MW Walnut Bend Solar Facility is in the public interest.Entergy Arkansas primarily requested cost recovery through the formula rate plan rider. A procedural schedule was established with a paper hearing held inApril 2021 . InJuly 2021 the APSC grantedEntergy Arkansas's petition and approved the acquisition of the resource and cost recovery through the formula rate plan rider. In addition, the APSC directedEntergy Arkansas to file a report within 180 days detailing its efforts to obtain a tax equity partnership. Closing is expected to occur in 2022.
Liberty County Solar Facility
InSeptember 2020 ,Entergy Texas filed an application seeking PUCT approval to amendEntergy Texas's certificate of convenience and necessity to acquire the 100 MW Liberty County Solar Facility and a determination thatEntergy Texas's acquisition of the facility through a tax equity partnership is in the public interest. In its preliminary order, the PUCT determined that, in consideringEntergy Texas's application, it would not specifically address whetherEntergy Texas's use of a tax equity partnership is in the public interest. InMarch 2021 intervenors and PUCT staff filed testimony, andEntergy Texas filed rebuttal testimony inApril 2021 . A hearing on the merits was held inApril 2021 . Post-hearing and reply briefing was completed inMay 2021 . InJuly 2021 the presiding administrative law judges issued a proposal for decision recommending that the PUCT deny the certification requested in the application. This proposal for decision is subject to change based on exceptions filed by the parties. Once it is final, it will be presented to the PUCT, which may adopt or modify it. A decision by the PUCT is expected inSeptember 2021 . Closing, subject to receipt of required regulatory approvals and other conditions, is expected to occur in 2023. Dividends Declarations of dividends on Entergy's common stock are made at the discretion of the Board. Among other things, the Board evaluates the level of Entergy's common stock dividends based upon earnings per share from the Utility operating segment and the Parent and Other portion of the business, financial strength, and future investment opportunities. At itsJuly 2021 meeting, the Board declared a dividend of$0.95 per share, which is the same quarterly dividend per share that Entergy has paid since the third quarter 2020. 16 -------------------------------------------------------------------------------- Table of
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