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ETR > SEC Filings for ETR > Form 10-Q on 7-Aug-2014All Recent SEC Filings

Show all filings for ENTERGY CORP /DE/

Form 10-Q for ENTERGY CORP /DE/


7-Aug-2014

Quarterly Report


MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS

Entergy operates primarily through two business segments: Utility and Entergy Wholesale Commodities.

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.

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:
                                                              Entergy
                                                             Wholesale        Parent &
                                             Utility        Commodities      Other (a)       Entergy
                                                                  (In Thousands)
2nd Quarter 2013 Consolidated Net Income     $200,555           $11,531       ($44,031 )     $168,055
(Loss)

Net revenue (operating revenue less fuel
expense, purchased power, and other
regulatory charges/credits)                    46,765            88,371         (4,789 )      130,347
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
Depreciation and amortization                  13,557            20,631             38         34,226
Other income                                  (16,036 )          (1,466 )       (1,773 )      (19,275 )
Interest expense                                5,484              (655 )        2,005          6,834
Other expenses                                  1,999             5,895              -          7,894
Income taxes                                   23,958            34,164         (2,492 )       55,630

2nd Quarter 2014 Consolidated Net Income     $212,134           $26,463       ($44,316 )     $194,281
(Loss)

(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.


Table of Contents
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:
                                Amount
                             (In Millions)
2013 net revenue                   $1,371
Retail electric price                  36
Asset retirement obligation            16
Volume/weather                         (4 )
Other                                  (1 )
2014 net revenue                   $1,418

The retail electric price variance is primarily due to:

an annual base rate increase at Entergy Arkansas, as approved by the APSC, effective January 2014;

a formula rate plan increase at Entergy Mississippi, as approved by the MPSC, effective September 2013;

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 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

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.


Table of Contents
                                            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:
                                   Amount
                                (In Millions)
2013 net revenue                        $383
Nuclear volume                            60
Nuclear realized price changes            24
Mark-to-market value changes              17
Nuclear fuel expenses                     (6 )
Other                                     (7 )
2014 net revenue                        $471

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:

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;

higher capacity prices;

mark-to-market activity, which was positive for the quarter. 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.

Following are key performance measures for Entergy Wholesale Commodities for the second quarter 2014 and 2013:

                                             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

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


Table of Contents
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:

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;

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;

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;

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

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:

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;

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

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:

$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


Table of Contents 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
$5 million in transmission service credits received in the second quarter 2013.

The increase was partially offset by:

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:
                                                             Entergy
                                                            Wholesale        Parent &
                                             Utility       Commodities      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.


Table of Contents
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.


Table of Contents
                                            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.


Table of Contents
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


Table of Contents 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 . . .

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