Entergy Corporation — Q2 2021 Form 10-Q
Business context and reporting period
Unaudited results for the quarter and six months ended June 30, 2021, compared with the same 2020 periods. Entergy operates regulated electric and gas utilities across parts of Arkansas, Louisiana, Mississippi and Texas, and a merchant-generation business, Entergy Wholesale Commodities (EWC). The combined filing also reports separately for several subsidiaries.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue | $2.822bn | $2.413bn | $5.667bn | $4.840bn |
| Operating income | $168m | $439m | $676m | $839m |
| Net income attributable to Entergy | ($6m) | $361m | $329m | $479m |
| Diluted EPS | ($0.03) | $1.79 | $1.63 | $2.39 |
| Operating margin | 6.0% | 18.2% | 11.9% | 17.3% |
- Revenue increased 17% in both comparison periods, but much of the increase reflected fuel, rider and other pass-through revenues that generally offset related expenses and do not materially affect net income.
- Q2 included a $340m pre-tax ($268m after-tax) charge on the May sale of Indian Point. Q2 2020 benefited from $225m of pre-tax gains on EWC decommissioning-trust investments during the market rebound. These unusual items substantially affected the year-over-year earnings comparison.
- For the six months, operating cash flow was $747m, down from $1.448bn. Investing cash flow was a $2.826bn outflow and financing cash flow provided $1.007bn. Construction and capital expenditures were $2.883bn.
- Cash and cash equivalents were $687m at June 30, versus $1.759bn at December 31, 2020. Current assets were $3.795bn and current liabilities $3.805bn.
- Entergy reported a 69.5% debt-to-capital ratio (69.4% excluding securitization bonds) and a 68.9% net debt-to-net-capital ratio excluding securitization bonds, up from 66.4% at year-end. Long-term debt, including current maturities, was about $24.5bn; commercial paper outstanding was about $866m.
- The $3.5bn parent revolving facility had $3.344bn available after $150m of borrowings and $6m of letters of credit. Entergy said it was complying with its credit-facility debt covenant. The Board declared a $0.95-per-share quarterly dividend in July, unchanged from the quarterly rate since Q3 2020.
Material changes, outlook and risks
- Storm and fuel costs: February’s Winter Storm Uri produced about $720m of Entergy fuel and purchased-power costs, versus $245m in February 2020. Recoverability and prudence remain subject to regulatory review. Entergy Louisiana sought approval to recover about $2.11bn of storm restoration costs and authorization for up to $2.18bn of restoration bonds. Entergy Texas sought recovery of about $250m to date; Entergy New Orleans sought certification of about $36m.
- EWC exit: Indian Point 2 and 3 ceased operations in 2020 and April 2021, respectively, and the sale to Holtec closed in May 2021, transferring licenses, spent fuel, decommissioning liabilities and trusts. Palisades was the remaining merchant nuclear plant; Entergy planned shutdown for May 2022 and expected its sale to close by year-end 2022, subject to approvals. Management estimated retention and severance expenses of about $10m in 2021 and $5m in 2022.
- Regulatory rates: Utility revenue growth reflected rate adjustments and riders, including formula-rate increases and recovery for recently placed-in-service generation and transmission/distribution investment. Several regulatory filings remained pending or subject to refund, review or hearing.
- Significant litigation exposure: A FERC administrative law judge’s non-final decision in System Energy’s return-on-equity and capital-structure case implied an estimated $59m refund and about $46m of annual rate reduction if upheld; Entergy recorded a $37m provision. In a separate Grand Gulf sale-leaseback and tax-rate-base case, the ALJ’s non-final decision implied about $422m of refunds plus approximately $119m interest for one issue, and about $19m for another. A separate complaint seeks at least $360m over alleged imprudent Grand Gulf operations. These are contested proceedings; any refunds depend on final FERC action.
- Operations and other uncertainties: The NRC placed Grand Gulf in Column 3 after five unplanned scrams in 2020 and planned a supplemental inspection. COVID-19 effects on customer arrears, bad debt, operations and regulatory recovery remained uncertain; the filing cited spread of the Delta variant. Weather, fuel and power prices, MISO market matters, rate decisions, capital-project execution, nuclear regulation and environmental requirements are additional risks.
- Guidance: The supplied filing text does not provide a clear updated earnings forecast. Management cautioned that interim results should not be used to estimate full-year results because of seasonal fluctuations.
Important facts for investors to verify
- How much of the storm and Uri-related costs regulators ultimately approve for recovery, on what timetable, and through which financing mechanism.
- Final FERC outcomes and potential customer refunds or prospective rate reductions in the System Energy and Grand Gulf proceedings.
- Palisades shutdown and sale timing, transaction economics and remaining EWC costs as Entergy exits merchant nuclear generation.
- Whether operating cash flow recovers after the storm-related costs, pension contributions and working-capital pressures, and how debt and liquidity evolve.
- How much reported utility revenue growth translates into earnings after pass-through items, regulatory adjustments and higher operating costs.