Business context and reporting period
Entergy Corporation’s combined Form 10-Q covers the quarter and six months ended June 30, 2011. Entergy operates regulated electric and gas utilities across parts of Arkansas, Louisiana, Mississippi, and Texas, and the Entergy Wholesale Commodities segment, primarily a fleet of six nuclear plants selling power wholesale. The filing also contains separate reports for subsidiary registrants; figures below are consolidated Entergy Corporation results unless noted.
Financial performance and liquidity
- Second quarter: Operating revenue was $2.803 billion, down 2.1% year over year. Operating income fell to $558.7 million from $626.2 million. Consolidated net income was $320.6 million, essentially flat against $320.3 million; net income attributable to Entergy was $315.6 million. Diluted EPS increased to $1.76 from $1.65, with lower average shares outstanding contributing.
- First six months: Revenue was $5.344 billion versus $5.622 billion. Operating income was $1.070 billion versus $1.103 billion. Consolidated net income rose to $574.3 million from $539.1 million; attributable net income was $564.2 million versus $529.1 million. Diluted EPS increased to $3.14 from $2.77.
- Segment trends: Utility net revenue rose to $1.305 billion in Q2 from $1.293 billion, supported by rate increases and higher usage. Wholesale Commodities net revenue fell 11% to $474 million, primarily from lower realized contract prices. For the six months, Utility net revenue increased $30 million to $2.453 billion, while Wholesale Commodities fell 9% to $999 million.
- Cash flow: Operating cash flow for the six months was $977 million, down from $1.468 billion, principally reflecting lower deferred-fuel collections and $163 million more in pension contributions. Investing used $1.828 billion, including about $300 million for the Acadia plant purchase. Financing provided $86 million, including net long-term debt proceeds, while Entergy repurchased $160 million of shares. Cash ended June at $530 million, versus $1.294 billion at year-end 2010.
- Debt and liquidity: Debt-to-capital was 58.1% at June 30 (56.3% excluding Arkansas and Texas securitization bonds); net debt-to-net capital excluding those bonds was 55.1%, versus 52.1% at year-end. Entergy had $1.545 billion available under its $3.465 billion revolving facility, which expires August 2012, and was in compliance with its debt covenant.
- Dividends: The quarterly common dividend was $0.83 per share; the board declared the same amount in July 2011.
Material changes, outlook, and notable items
- Wholesale nuclear performance was strong operationally, with a 91% six-month capacity factor, but lower realized prices and increased forced outages reduced segment revenue. Average realized nuclear revenue was $54.91/MWh for the first half, compared with $58.22/MWh a year earlier. As of August 2, 96% of planned 2011 nuclear generation and 87% of 2012 output had been sold forward, at average contracted energy prices of $54/MWh and $49/MWh, respectively.
- Entergy completed the approximately $300 million acquisition of Acadia Unit 2 in April. Other proposed generation investments remained subject to approvals: the Hot Spring and Hinds plant acquisitions were expected to close in mid-2012, and the proposed 550 MW Ninemile 6 gas facility was estimated to cost about $721 million, excluding transmission and interconnection upgrades.
- Entergy proposed that its utility companies join MISO, targeting implementation by December 2013. Estimated transition and implementation costs were about $105 million if all utility companies join, potentially about $140 million including costs to preserve alternatives for Arkansas; regulatory approvals and cost allocation remained unresolved.
- Waterford 3 steam-generator replacement was expected in the Fall 2012 outage; estimated project cost, including carrying costs, had risen to about $687 million. Comparable future rate recovery had not yet been secured.
- Vermont Yankee received a 20-year NRC license renewal, but state-related litigation continued. A federal court denied Entergy’s preliminary-injunction motion without deciding the merits; trial was scheduled for September 2011. Entergy reported no impairment at June 30 and a $415 million carrying value, while noting future impairment risk if continued operation became unlikely.
- The NRC’s post-Japan nuclear safety review could increase operating costs or capital requirements. Other risks include power and fuel prices, weather and storm restoration, environmental rules, regulatory rate and cost-recovery proceedings, and nuclear licensing and litigation. Management reported no material change to the Form 10-K risk factors.
- A second-quarter tax settlement reversed about $41 million of uncertain-tax-position provision. A revised Grand Gulf decommissioning study reduced the liability and related regulatory asset by $38.9 million. Entergy cautioned that utility results are seasonal, with peak demand in Q3, and interim results should not be treated as a full-year forecast; no specific new full-year earnings guidance is stated in the supplied text.
Important facts for investors to verify
- Whether Wholesale Commodities’ lower realized power prices, forced outages, and forward-sale prices affect full-year earnings as expected.
- Availability and maturity terms of credit facilities, debt covenant headroom, and the planned refinancing of the parent revolving facility before August 2012.
- Regulatory approvals, cost recovery, and final costs for MISO participation and proposed generation acquisitions and construction.
- Developments in Vermont Yankee litigation and NRC safety requirements, including potential impairment or additional compliance spending.
- Resolution of material fuel-cost, rate, storm-cost, and environmental proceedings; reconcile the filing’s separate storm-repair estimates, including approximately $55 million for Entergy overall and $70 million in the Arkansas discussion.