Business context and reporting period
Entergy Corporation’s Form 10-K covers the fiscal year ended December 31, 2015, with comparisons to 2014 and 2013. It reports an integrated electric utility business serving about 2.8 million customers in Arkansas, Louisiana, Mississippi and Texas, alongside Entergy Wholesale Commodities (EWC), which owns and operates merchant nuclear and other generation assets. This is an annual report, not a standalone fourth-quarter filing.
Key financial metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Operating revenues | $11.513 billion | $12.495 billion |
| Operating income (loss) | $(299) million | $2.007 billion |
| Consolidated net income (loss) | $(157) million | $960 million |
| Net income (loss) attributable to Entergy Corporation | $(177) million | $941 million |
| Diluted earnings (loss) per share | $(0.99) | $5.22 |
| Net cash provided by operating activities | $3.291 billion | $3.890 billion |
| Net cash used in investing activities | $(2.609) billion | $(2.954) billion |
| Cash and cash equivalents at year-end | $1.351 billion | $1.422 billion |
| Total assets | $44.648 billion | $46.414 billion |
Entergy’s disclosed debt-to-capital ratio was 59.1%, up from 57.4%; excluding non-recourse securitization bonds, it was 57.7%, versus 56.0%. Net debt to net capital, excluding securitization bonds, was 55.0%, versus 53.2%. Long-term debt on the balance sheet was $13.112 billion, excluding current maturities; current debt maturities were $214 million and notes payable and commercial paper were $494 million. The filing does not present a single consolidated margin measure as a key performance metric.
Utility segment net income rose to $1.115 billion from $846 million. EWC swung to a $1.066 billion net loss from $295 million of income. The consolidated effective tax rate was 80.4%, primarily reflecting the Louisiana business combination’s tax effects and a pretax loss associated with nuclear impairments; income tax benefit was $643 million.
Material changes versus the prior comparable period
- Revenue fell about 8%, while consolidated results moved from profit to loss, largely because of EWC impairment and related charges of $2.036 billion pretax ($1.317 billion after tax).
- EWC net revenue declined $558 million, primarily from lower realized wholesale power prices and Vermont Yankee’s December 2014 shutdown. Nuclear fleet capacity factor remained 91%, but average realized nuclear revenue per MWh fell to $51.49 from $60.35.
- Entergy recorded impairment and related charges for FitzPatrick, Pilgrim and Palisades. It announced plans to close FitzPatrick at the end of its current fuel cycle, planned for January 2017, and Pilgrim no later than June 1, 2019. Vermont Yankee remained in decommissioning.
- Utility net revenue increased to $5.829 billion from $5.735 billion, reflecting retail pricing and usage gains, partly offset by $107 million of customer credits tied to the Louisiana business combination and other items.
- Operating cash flow decreased $599 million. Investing cash use was lower, partly because of approximately $490 million in proceeds from the December 2015 sale of the 583-MW Rhode Island State Energy Center, which generated a $154 million pretax gain.
Outlook, management commentary, risks and unusual items
- Capital plans: Planned construction and capital investments are $3.810 billion in 2016, $3.250 billion in 2017 and $3.260 billion in 2018. The 2016 plan includes $1.790 billion for Utility generation, $715 million for transmission and $775 million for distribution. Plans may change with regulatory outcomes, project needs, market conditions and access to capital.
- Liquidity and funding: Entergy had a $3.5 billion revolving credit facility, with $2.656 billion available at year-end after borrowings and letters of credit. The company reported compliance with its 65% debt-ratio covenant. It expected 2016 pension contributions of about $387.5 million and other postretirement contributions of about $52.8 million.
- Utility and regulatory developments: Entergy Louisiana completed the combination with Entergy Gulf States Louisiana on October 1, 2015; the settlement provides $107 million in guaranteed customer benefits over nine years. The System Agreement is scheduled to terminate in its entirety on August 31, 2016; Entergy Mississippi’s participation ended in November 2015. The utility companies’ MISO participation and future transmission costs remain risks.
- Generation investment: Entergy Louisiana’s proposed 980-MW St. Charles Power Station remained subject to LPSC approval, with commercial operation estimated for summer 2019. The approximately $948 million Union Power Station acquisition remained subject to FERC approval at filing date; the power blocks were allocated among Entergy Arkansas, Louisiana and New Orleans.
- Operating and regulatory exposures: The NRC placed Arkansas Nuclear One in Column 4 oversight. Entergy Arkansas incurred about $53 million in incremental costs in 2015 and expected about $50 million in 2016 for inspection support and improvement initiatives, excluding potential remediation. Pilgrim was also placed in Column 4; its inspection response was expected to add costs.
- Other unusual items and contingencies: Entergy Louisiana recorded about $77 million in charges relating to the Waterford 3 replacement steam generator project after an administrative law judge recommended a $67 million capital-cost disallowance and a $2 million replacement-power disallowance. The LPSC had not made a final decision. Other material uncertainties include Indian Point license renewal and related state proceedings, spent-fuel storage and DOE recovery claims, fuel and rate proceedings, environmental compliance, severe weather, litigation, pension assumptions and commodity prices.
- Reporting controls: Deloitte issued an unqualified opinion on Entergy’s consolidated financial statements and an unqualified opinion on Entergy Corporation’s internal control over financial reporting. Management reported effective controls as of December 31, 2015.
Important facts for investors to verify
- How much of the reported loss and any future earnings volatility depends on EWC impairment valuations, power-price assumptions, plant closure costs and decommissioning estimates.
- Whether the FitzPatrick and Pilgrim shutdown schedules, and the remaining operating outlook for Palisades and Indian Point, change; verify license and environmental proceeding outcomes.
- Whether the Waterford 3 prudence review results in the proposed disallowance, and whether Entergy Arkansas recovers deferred ANO replacement-power costs and limits further NRC-related expenses.
- Whether FERC approves the Union Power Station acquisition and the associated cost recovery, and whether the St. Charles project obtains regulatory approval within the expected schedule and budget.
- How the System Agreement termination and MISO market and transmission-cost changes affect utility costs, customer rates, cash flow and capital needs.
- Whether operating cash flow, the revolver and debt ratios remain adequate as capital spending, pension contributions and other funding needs proceed.
- How the $107 million Louisiana customer-benefit commitment is implemented and whether outstanding tax, legal and regulatory matters alter expected cash payments or recovery.