ENTERGY CORP annual report, FY2021

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Entergy Corporation — FY2021 Form 10-K

Business context and reporting period. This combined filing covers Entergy Corporation and six registrant subsidiaries. The reporting period is the fiscal year ended December 31, 2021—not a standalone fourth-quarter report. Entergy’s principal business is regulated electric generation, transmission and distribution in Arkansas, Louisiana, Mississippi and Texas; its smaller Entergy Wholesale Commodities segment was winding down merchant nuclear generation.

Financial performance and condition

  • Revenue: $11.74 billion, up 16.1% from $10.11 billion in 2020. Utility revenue rose to $11.04 billion; competitive-business revenue fell to $698 million as Indian Point units shut down. Fuel and rider revenues largely offset related expenses and generally did not affect net income.
  • Profit: Net income attributable to Entergy Corporation was $1.118 billion, down 19.4% from $1.388 billion. Diluted EPS was $5.54 versus $6.90. Operating income increased to $1.846 billion from $1.769 billion. Net margin was approximately 9.5%; operating margin approximately 15.7%.
  • Drivers and comparability: Retail pricing and billed retail electricity usage supported Utility results; billed retail usage increased 3%. 2021 included a $340 million pretax ($268 million after-tax) charge on the Indian Point sale. 2020 benefited from a $230 million reduction in deferred income tax expense upon resolution of the 2014–2015 IRS audit, making the year-over-year earnings comparison less favorable.
  • Cash flow: Operating cash flow was $2.301 billion, down from $2.690 billion. Capital expenditures were $6.087 billion; investing cash outflow was $6.179 billion. Financing provided $2.562 billion, and cash ended the year at $443 million, versus $1.759 billion at year-end 2020.
  • Debt and liquidity: Long-term debt, including current maturities, was approximately $25.88 billion; commercial paper outstanding was $1.201 billion. Debt-to-capital was 69.5%, or 69.4% excluding securitization bonds; net debt-to-net capital excluding those bonds was 69.1%, up from 66.4%. The parent had a $3.5 billion revolving facility with $3.329 billion available. Entergy reported compliance with its credit-facility debt covenant.
  • Assets and investment: Total assets were $59.45 billion, including net property, plant and equipment of $42.24 billion. Routine planned capital investment is $3.735 billion for 2022, $3.975 billion for 2023 and $4.305 billion for 2024; Entergy also expected $885 million of 2022 Ida restoration capital spending accrued at year-end.
  • Dividend: Entergy paid $775 million of common dividends in 2021; the Board declared a $1.01-per-share dividend in January 2022. The 2021 dividend was $3.86 per share.

Material changes versus 2020

  • Hurricane Ida caused extensive Louisiana system damage and outages. Entergy estimated approximately $2.7 billion of restoration costs for Entergy Louisiana and Entergy New Orleans; the outages also reduced Utility revenue.
  • Utility billed retail electricity sales increased 3%, with industrial sales up 6%. Higher retail rates and favorable weather contributed to revenue growth.
  • Entergy Wholesale Commodities revenue declined to $698 million from $943 million, principally reflecting shutdowns of Indian Point 2 and 3. Owned capacity fell to 1,205 MW from 2,246 MW.
  • Entergy sold Indian Point in May 2021, transferring the units’ decommissioning obligations and trusts. The sale generated the $340 million pretax charge. Palisades was the segment’s only remaining operating nuclear plant at year-end.
  • Debt-to-capital increased, while cash and operating cash flow declined. Capital investment rose, substantially reflecting storm restoration and Utility infrastructure work.

Outlook, commentary and key risks

  • Storm recovery: Management considered recovery of Ida costs probable based on precedent, but said recovery amount and timing remained uncertain pending regulatory review. In February 2022, the LPSC approved a settlement permitting Entergy Louisiana to securitize approximately $3.186 billion, including eligible prior-storm restoration costs, carrying costs and storm reserves. Entergy New Orleans separately sought approval to increase its storm reserve through securitization.
  • Merchant exit: Entergy planned to shut down Palisades by May 31, 2022 and expected its sale to Holtec to close in mid-2022, subject to conditions and regulatory approvals. The sale outcome could vary with decommissioning trust and obligation values, operating results and deferred taxes. Management expected approximately $5 million of additional exit-related retention and severance costs in 2022.
  • Investment and transition: Planned spending includes reliability, resilience, generation modernization and renewables. Entergy Louisiana’s proposed 475 MW solar portfolio was estimated to provide $242 million in customer net benefits, subject to LPSC review. Entergy Texas’s proposed 1,215 MW Orange County gas-fired plant was estimated to cost $1.2 billion, with a final PUCT decision expected in 2022 and service targeted for 2026. Entergy stated a goal of net-zero carbon emissions by 2050.
  • Regulatory and litigation exposure: System Energy’s Grand Gulf rates face multiple FERC challenges involving return on equity, capital structure, sale-leaseback treatment, tax positions, rate calculations and plant prudence. An ALJ recommended approximately $60 million of refunds in the return-on-equity/capital-structure proceeding and an estimated annual rate reduction of about $45 million; Entergy recorded a $37 million provision. In a separate sale-leaseback proceeding, the ALJ’s initial decision would imply an estimated $422 million refund plus interest on one issue and approximately $19 million on another; the FERC had not issued a final decision. A separate Grand Gulf prudence complaint sought at least $360 million in alleged replacement-energy costs. These claims are contested and should not be treated as final or additive without reviewing the proceedings.
  • Other risks: Results and liquidity remain sensitive to regulatory cost recovery, severe weather, fuel and purchased-power costs, MISO market rules, nuclear operating performance and decommissioning funding, inflation and interest rates, capital-market access, environmental requirements, cybersecurity, and workforce and supply-chain constraints. Management identified rate regulation as a critical audit matter because recovery and refund judgments are significant and depend on future regulator decisions.
  • Audit and controls: Deloitte issued unqualified opinions on the consolidated financial statements and on Entergy Corporation’s internal control over financial reporting. Management stated that internal controls were effective at year-end.

Investor verification checklist

  • Track final regulatory orders, timing and customer-bill effects for Hurricane Ida recovery and securitization, including prudence review and Entergy New Orleans’s separate request.
  • Review FERC decisions and updated exposure estimates for System Energy’s Grand Gulf proceedings, distinguishing recorded provisions from disputed claims and potential prospective rate reductions.
  • Verify Palisades shutdown and Holtec sale milestones, closing conditions, and any resulting gain or loss and decommissioning funding needs.
  • Assess whether operating cash flow, debt issuance and planned equity funding can support the multi-year capital program, storm restoration and dividend commitments.
  • Compare recurring earnings with reported earnings, particularly the Indian Point charge, the 2020 IRS audit benefit, pension settlement costs and storm-related effects.
  • Monitor construction approvals, schedules and costs for major generation and solar projects, including the Orange County plant and projects affected by counterparty changes.