Business Context and Reporting Period
This Form 8-K Current Report was filed by Entergy Corporation and its registrant subsidiaries on January 29, 2018. The filing primarily addresses the financial and operational impacts of the Tax Cuts and Jobs Act (H.R.1), signed into law on December 22, 2017, which reduced the federal corporate income tax rate to 21%.
Key Financial Metrics and Impacts
- Deferred Tax Liability Adjustment: Entergy preliminarily expects an approximate $4 billion reduction in consolidated net deferred tax liabilities, resulting in a corresponding increase in net regulatory liabilities.
- Deferred Tax Asset Adjustment: An approximate $0.6 billion reduction in net deferred tax assets for non-utility businesses is expected, leading to a corresponding charge to income tax expense.
- Amortization Schedule: Approximately two-thirds of the new regulatory liability will be amortized over roughly 30 years, with the remainder amortized over a shorter period.
- 2017 Earnings Impact: The re-measurement is recorded as a special item in December 2017 and is not expected to affect 2017 consolidated operational earnings or Utility, Parent & Other adjusted earnings.
- Interest Deductibility: The Act's limitation on interest expense deductibility is not expected to have a material effect on financial results.
Material Changes Versus Prior Period
The primary material change is the re-measurement of deferred tax assets and liabilities due to the statutory tax rate reduction. While the filing does not provide specific comparative revenue or profit figures for the prior period, it notes that the Act will benefit customers through lower rates due to reduced income tax expense and the return of deferred taxes. Additionally, rate base is expected to increase as a consequence of the Act.
Guidance, Outlook, and Risks
Management Guidance
- 2018 Adjusted EPS: $4.50 to $4.90
- 2019 Adjusted EPS: $4.90 to $5.30
- 2020 Adjusted EPS: $5.20 to $5.60
- Financing: Entergy plans to finance incremental cash requirements through utility company debt, parent debt, and new external equity.
- Credit Rating: Despite potential adverse effects on certain credit metrics, Entergy expects to maintain an investment-grade credit rating.
Risks and Contingencies
The timing and amount of earnings and cash impacts depend on regulatory treatment. Potential regulatory options include adjusting the period for income tax benefits, accelerating depreciation, or modifying capital investments. Key risks include uncertainties in rate proceedings, storm restoration costs, nuclear plant relicensing and decommissioning, and changes in legislative or regulatory policies.
Investor Verification Checklist
- Confirm the final regulatory treatment of the $4 billion deferred tax liability adjustment across different jurisdictions.
- Verify the actual amortization periods approved by regulators for the new regulatory liabilities.
- Monitor the impact of the Act on future rate base calculations and customer rates.
- Review upcoming quarterly reports for the specific accounting treatment of the $0.6 billion charge to income tax expense.
- Assess the company's execution of its financing plan to manage incremental cash requirements.