Entergy Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 6, 2021. This combined filing covers Entergy Corporation and its separately reporting utility and generation subsidiaries. Entergy operates regulated electric utilities in the Gulf South and a merchant nuclear business that it is exiting.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenue | $2.845 billion | $2.427 billion | +17% |
| Operating income | $508 million | $400 million | +27% |
| Net income attributable to Entergy Corporation | $335 million | $119 million | +182% |
| Diluted EPS | $1.66 | $0.59 | +$1.07 |
| Operating cash flow | ($50) million | $659 million | Down $709 million |
| Capital expenditures | $1.552 billion | $1.044 billion | +$508 million |
Operating margin was approximately 17.9%, compared with 16.5% a year earlier. Revenue growth reflected higher fuel and rider revenues that generally offset related costs, stronger billed usage and higher retail rates. Utility billed retail electricity use rose 4%; residential usage rose 18%, while industrial usage fell 3%. Merchant-business revenue declined to $248 million from $333 million, principally following the Indian Point 2 shutdown.
The earnings comparison is affected by unusually weak Q1 2020 results, including $211 million of pretax losses on merchant nuclear decommissioning-trust investments amid the March 2020 market decline. Q1 2021 also benefited from investment-related changes and the reversal of an Arkansas regulatory liability. Accordingly, the year-over-year EPS increase is not solely indicative of underlying operating growth.
Cash, debt and liquidity
- Cash and cash equivalents were $1.743 billion at March 31, 2021, versus $1.759 billion at year-end 2020.
- Operating cash flow turned negative, chiefly reflecting Winter Storm Uri fuel costs, storm restoration spending, pension contributions and working-capital movements. Financing cash flow was $1.546 billion, including substantial long-term debt issuance.
- Entergy reported debt-to-capital of 69.6% and net debt-to-net capital, excluding securitization bonds, of 68.0%, compared with 68.3% and 66.4%, respectively, at year-end.
- Long-term debt was $24.075 billion, with $629 million currently maturing; notes payable and commercial paper were $1.028 billion. Entergy had $3.439 billion of available capacity under its $3.5 billion parent credit facility and was in compliance with its debt covenant.
- The board declared a quarterly common dividend of $0.95 per share, unchanged from the prior quarter.
Material developments, outlook and risks
- Winter Storm Uri and storm recovery: Entergy incurred approximately $720 million of fuel and purchased-power costs in February 2021, versus $245 million in February 2020. Recovery remains subject to regulatory review. Louisiana received approval to defer and recover $166 million of incremental fuel costs over five months beginning April 2021. Entergy Louisiana sought recovery of approximately $2.10 billion of storm restoration costs, including carrying costs; Entergy Texas filed for review of approximately $250 million of restoration costs. These recovery requests were pending at filing.
- Merchant nuclear exit: Indian Point 3 ceased operations on April 30, 2021, after the reporting date; Entergy targeted a May 2021 sale of the Indian Point units to Holtec, subject to outstanding conditions, and estimated a $285 million net loss on the transaction. The Palisades sale was expected by the end of 2022. Management expected merchant-exit severance and retention costs of about $40 million in 2021 ($13 million incurred by March 31) and $15 million in 2022.
- Regulatory and litigation exposure: A FERC administrative law judge recommended a lower System Energy return on equity and equity ratio; if upheld, estimated refunds were approximately $59 million and an annual rate reduction approximately $46 million. Separate Grand Gulf proceedings include ALJ recommendations that could imply substantial refunds, including an estimated $422 million plus approximately $115 million interest on one issue and approximately $19 million on another, if affirmed. These are interim decisions, not final FERC orders. A 2021 complaint also seeks at least $360 million relating to alleged Grand Gulf operating and uprate imprudence; Entergy disputes the claims.
- Operations and regulation: The NRC placed Grand Gulf in its increased-inspection Column 3 after five unplanned scrams in 2020. Entergy New Orleans faced a City Council investigation after an automated load-shed event cut approximately 105 MW when at least 26 MW was required; a report recommended further review, and a possible fine was discussed.
- Other outlook: No consolidated full-year earnings guidance is provided in the supplied filing text. Entergy’s forward-looking statements identify regulatory outcomes, fuel and power prices, extreme weather, storm-cost recovery, nuclear operations and decommissioning, capital-market access, climate and environmental rules, and COVID-19 effects as risks. Management states interim results are seasonal and should not be used as a full-year estimate.
Most important facts for investors to verify
- Progress and final regulatory approval of storm restoration and Winter Storm Uri fuel-cost recovery, including timing and financing of any recovery.
- Final FERC decisions, refund exposure and prospective rate impacts in the System Energy and Grand Gulf proceedings.
- Completion terms and final loss on the Indian Point transaction, and milestones and decommissioning economics for Palisades.
- Whether operating cash flow recovers after the storm-related outflows, alongside debt levels, credit metrics and utility capital needs.
- Grand Gulf’s NRC inspection results and the outcome of the New Orleans load-shed investigation.
- Customer credit quality and collections: the consolidated allowance for doubtful accounts was $119 million at March 31, 2021, compared with $118 million at year-end 2020.