a01513.htm

 __________________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
  
X
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the Quarterly Period Ended March 31, 2013
 
                                              OR
 
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from ____________ to ____________

 
Commission
File Number
Registrant, State of Incorporation or Organization,
Address of Principal Executive Offices, Telephone
Number, and IRS Employer Identification No.
  
 
Commission
File Number
Registrant, State of Incorporation or Organization,
Address of Principal Executive Offices, Telephone
Number, and IRS Employer Identification No.
1-11299
ENTERGY CORPORATION
(a Delaware corporation)
639 Loyola Avenue
New Orleans, Louisiana 70113
Telephone (504) 576-4000
72-1229752
  
1-31508
ENTERGY MISSISSIPPI, INC.
(a Mississippi corporation)
308 East Pearl Street
Jackson, Mississippi 39201
Telephone (601) 368-5000
64-0205830
         
         
1-10764
ENTERGY ARKANSAS, INC.
(an Arkansas corporation)
425 West Capitol Avenue
Little Rock, Arkansas 72201
Telephone (501) 377-4000
71-0005900
  
0-05807
ENTERGY NEW ORLEANS, INC.
(a Louisiana corporation)
1600 Perdido Street
New Orleans, Louisiana 70112
Telephone (504) 670-3700
72-0273040
         
         
0-20371
ENTERGY GULF STATES LOUISIANA, L.L.C.
(a Louisiana limited liability company)
446 North Boulevard
Baton Rouge, Louisiana 70802
Telephone (800) 368-3749
74-0662730
  
1-34360
ENTERGY TEXAS, INC.
(a Texas corporation)
350 Pine Street
Beaumont, Texas 77701
Telephone (409) 981-2000
61-1435798
         
         
1-32718
ENTERGY LOUISIANA, LLC
(a Texas limited liability company)
446 North Boulevard
Baton Rouge, Louisiana 70802
Telephone (800) 368-3749
75-3206126
  
1-09067
SYSTEM ENERGY RESOURCES, INC.
(an Arkansas corporation)
Echelon One
1340 Echelon Parkway
Jackson, Mississippi 39213
Telephone (601) 368-5000
72-0752777
         

__________________________________________________________________________________________


Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.  Yes þ No o

Indicate by check mark whether the registrants have submitted electronically and posted on Entergy’s corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.

 
Large
accelerated
filer
  
 
Accelerated
filer
  
Non-
accelerated
filer
  
Smaller
reporting
company
Entergy Corporation
Ö
            
Entergy Arkansas, Inc.
        
Ö
    
Entergy Gulf States Louisiana, L.L.C.
        
Ö
    
Entergy Louisiana, LLC
        
Ö
    
Entergy Mississippi, Inc.
        
Ö
    
Entergy New Orleans, Inc.
        
Ö
    
Entergy Texas, Inc.
        
Ö
    
System Energy Resources, Inc.
        
Ö
    

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No þ

Common Stock Outstanding
  
Outstanding at April 30, 2013
Entergy Corporation
($0.01 par value)
178,184,969

Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States Louisiana, L.L.C., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., Entergy Texas, Inc., and System Energy Resources, Inc. separately file this combined Quarterly Report on Form 10-Q.  Information contained herein relating to any individual company is filed by such company on its own behalf.  Each company reports herein only as to itself and makes no other representations whatsoever as to any other company.  This combined Quarterly Report on Form 10-Q supplements and updates the Annual Report on Form 10-K for the calendar year ended December 31, 2012, filed by the individual registrants with the SEC, and should be read in conjunction therewith.



ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2013

 
Page Number
   
iii
v
Entergy Corporation and Subsidiaries
  
1
16
17
18
20
22
23
24
64
Entergy Arkansas, Inc. and Subsidiaries
  
65
71
73
74
76
77
Entergy Gulf States Louisiana, L.L.C.
  
78
85
86
87
88
90
91
Entergy Louisiana, LLC and Subsidiaries
  
92
99
100
101
102
104
105
Entergy Mississippi, Inc.
  
106
111
113
114
116
117


ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2013

 
Page Number
   
Entergy New Orleans, Inc.
  
118
122
123
124
126
127
Entergy Texas, Inc. and Subsidiaries
  
128
132
133
134
136
137
System Energy Resources, Inc.
  
138
141
143
144
146
 
147
147
147
148
151
153




FORWARD-LOOKING INFORMATION

In this combined report and from time to time, Entergy Corporation and the Registrant Subsidiaries each makes statements as a registrant concerning its expectations, beliefs, plans, objectives, goals, strategies, and future events or performance.  Such statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Words such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “intend,” “expect,” “estimate,” “continue,” “potential,” “plan,” “predict,” “forecast,” and other similar words or expressions are intended to identify forward-looking statements but are not the only means to identify these statements.  Although each of these registrants believes that these forward-looking statements and the underlying assumptions are reasonable, it cannot provide assurance that they will prove correct.  Any forward-looking statement is based on information current as of the date of this combined report and speaks only as of the date on which such statement is made.  Except to the extent required by the federal securities laws, these registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Forward-looking statements involve a number of risks and uncertainties.  There are factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, including those factors discussed or incorporated by reference in (a) Item 1A. Risk Factors in the Form 10-K, (b) Management’s Financial Discussion and Analysis in the Form 10-K and in this report, and (c) the following factors (in addition to others described elsewhere in this combined report and in subsequent securities filings):

·  
resolution of pending and future rate cases and negotiations, including various performance-based rate discussions, Entergy’s utility supply plan, and recovery of fuel and purchased power costs;
·  
the termination of Entergy Arkansas’s and Entergy Mississippi’s participation in the System Agreement in December 2013 and November 2015, respectively, and the potential for other Entergy operating companies to terminate participation in the System Agreement by providing notice pursuant to the current 96-month notice period and/or by seeking an amendment to the System Agreement that would allow for an Entergy operating company to terminate its participation in less than 96 months;
·  
regulatory and operating challenges and uncertainties associated with the Utility operating companies’ proposal to move to the MISO RTO;
·  
risks associated with the proposed spin-off and subsequent merger of Entergy’s electric transmission business into a subsidiary of ITC Holdings Corp., including the risk that Entergy and the Utility operating companies may not be able to timely satisfy the conditions or obtain the approvals required to complete such transaction or such approvals may contain material restrictions or conditions, and the risk that if completed, the transaction may not achieve its anticipated results;
·  
changes in utility regulation, including the beginning or end of retail and wholesale competition, the ability to recover net utility assets and other potential stranded costs, and the application of more stringent transmission reliability requirements or market power criteria by the FERC;
·  
changes in regulation of nuclear generating facilities and nuclear materials and fuel, including possible shutdown of nuclear generating facilities, particularly those owned or operated by the Entergy Wholesale Commodities business, and the effects of new or existing safety or environmental concerns regarding nuclear power plants and nuclear fuel;
·  
resolution of pending or future applications, and related regulatory proceedings and litigation, for license renewals or modifications of nuclear generating facilities;
·  
the performance of and deliverability of power from Entergy’s generation resources, including the capacity factors at its nuclear generating facilities;
·  
Entergy’s ability to develop and execute on a point of view regarding future prices of electricity, natural gas, and other energy-related commodities;
·  
prices for power generated by Entergy’s merchant generating facilities and the ability to hedge, meet credit support requirements for hedges, sell power forward, or otherwise reduce the market price risk associated with those facilities, including the Entergy Wholesale Commodities nuclear plants;



FORWARD-LOOKING INFORMATION (Concluded)

·  
the prices and availability of fuel and power Entergy must purchase for its Utility customers, and Entergy’s ability to meet credit support requirements for fuel and power supply contracts;
·  
volatility and changes in markets for electricity, natural gas, uranium, and other energy-related commodities;
·  
changes in law resulting from federal or state energy legislation or legislation subjecting energy derivatives used in hedging and risk management transactions to governmental regulation;
·  
changes in environmental, tax, and other laws, including requirements for reduced emissions of sulfur, nitrogen, carbon, greenhouse gases, mercury, and other regulated air emissions, and changes in costs of compliance with environmental and other laws and regulations;
·  
uncertainty regarding the establishment of interim or permanent sites for spent nuclear fuel and nuclear waste storage and disposal;
·  
variations in weather and the occurrence of hurricanes and other storms and disasters, including uncertainties associated with efforts to remediate the effects of hurricanes, ice storms, or other weather events and the recovery of costs associated with restoration, including accessing funded storm reserves, federal and local cost recovery mechanisms, securitization, and insurance;
·  
effects of climate change;
·  
changes in the quality and availability of water supplies and the related regulation of water use and diversion;
·  
Entergy’s ability to manage its capital projects and operation and maintenance costs;
·  
Entergy’s ability to purchase and sell assets at attractive prices and on other attractive terms;
·  
the economic climate, and particularly economic conditions in Entergy’s Utility service area and the Northeast United States and events that could influence economic conditions in those areas;
·  
the effects of Entergy’s strategies to reduce tax payments;
·  
changes in the financial markets, particularly those affecting the availability of capital and Entergy’s ability to refinance existing debt, execute share repurchase programs, and fund investments and acquisitions;
·  
actions of rating agencies, including changes in the ratings of debt and preferred stock, changes in general corporate ratings, and changes in the rating agencies’ ratings criteria;
·  
changes in inflation and interest rates;
·  
the effect of litigation and government investigations or proceedings;
·  
advances in technology;
·  
the potential effects of threatened or actual terrorism, cyber attacks or data security breaches, including increased security costs, and war or a catastrophic event such as a nuclear accident or a natural gas pipeline explosion;
·  
Entergy’s ability to attract and retain talented management and directors;
·  
changes in accounting standards and corporate governance;
·  
declines in the market prices of marketable securities and resulting funding requirements for Entergy’s defined benefit pension and other postretirement benefit plans;
·  
future wage and employee benefit costs, including changes in discount rates and returns on benefit plan assets;
·  
changes in decommissioning trust fund values or earnings or in the timing of or cost to decommission nuclear plant sites;
·  
the effectiveness of Entergy’s risk management policies and procedures and the ability and willingness of its counterparties to satisfy their financial and performance commitments;
·  
factors that could lead to impairment of long-lived assets; and
·  
the ability to successfully complete merger, acquisition, or divestiture plans, regulatory or other limitations imposed as a result of merger, acquisition, or divestiture, and the success of the business following a merger, acquisition, or divestiture.


DEFINITIONS

Certain abbreviations or acronyms used in the text and notes are defined below:
 
Abbreviation or Acronym
 
 
Term
AFUDC
Allowance for Funds Used During Construction
ALJ
Administrative Law Judge
ANO 1 and 2
Units 1 and 2 of Arkansas Nuclear One (nuclear), owned by Entergy Arkansas
APSC
Arkansas Public Service Commission
ASLB
Atomic Safety and Licensing Board, the board within the NRC that conducts hearings and performs other regulatory functions that the NRC authorizes
ASU
Accounting Standards Update issued by the FASB
Board
Board of Directors of Entergy Corporation
capacity factor
Actual plant output divided by maximum potential plant output for the period
City Council or Council
Council of the City of New Orleans, Louisiana
D.C. Circuit
U.S. Court of Appeals for the District of Columbia Circuit
DOE
United States Department of Energy
Entergy
Entergy Corporation and its direct and indirect subsidiaries
Entergy Corporation
Entergy Corporation, a Delaware corporation
Entergy Gulf States, Inc.
Predecessor company for financial reporting purposes to Entergy Gulf States Louisiana that included the assets and business operations of both Entergy Gulf States Louisiana and Entergy Texas
Entergy Gulf States Louisiana
Entergy Gulf States Louisiana, L.L.C., a company formally created as part of the jurisdictional separation of Entergy Gulf States, Inc. and the successor company to Entergy Gulf States, Inc. for financial reporting purposes.  The term is also used to refer to the Louisiana jurisdictional business of Entergy Gulf States, Inc., as the context requires.
Entergy Texas
Entergy Texas, Inc., a company formally created as part of the jurisdictional separation of Entergy Gulf States, Inc.  The term is also used to refer to the Texas jurisdictional business of Entergy Gulf States, Inc., as the context requires.
Entergy Wholesale
Commodities (EWC)
Entergy’s non-utility business segment primarily comprised of the ownership and operation of six nuclear power plants, the ownership of interests in non-nuclear power plants, and the sale of the electric power produced by those plants to wholesale customers
  
EPA
United States Environmental Protection Agency
ERCOT
Electric Reliability Council of Texas
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
FitzPatrick
James A. FitzPatrick Nuclear Power Plant (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
Form 10-K
Annual Report on Form 10-K for the calendar year ended December 31, 2012 filed with the SEC by Entergy Corporation and its Registrant Subsidiaries
Grand Gulf
Unit No. 1 of Grand Gulf Nuclear Station (nuclear), 90% owned or leased by System Energy
GWh
Gigawatt-hour(s), which equals one million kilowatt-hours
Independence
Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power
Indian Point 2
Unit 2 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
Indian Point 3
Unit 3 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
IRS
Internal Revenue Service
ISO
Independent System Operator


DEFINITIONS (Concluded)

Abbreviation or Acronym
 
Term
kW
Kilowatt, which equals one thousand watts
kWh
Kilowatt-hour(s)
LPSC
Louisiana Public Service Commission
MISO
Midcontinent Independent System Operator, Inc., a regional transmission organization
MMBtu
One million British Thermal Units
MPSC
Mississippi Public Service Commission
MW
Megawatt(s), which equals one thousand kilowatts
MWh
Megawatt-hour(s)
Net debt to net capital ratio
Gross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents
Net MW in operation
Installed capacity owned and operated
NRC
Nuclear Regulatory Commission
NYPA
New York Power Authority
Palisades
Palisades Power Plant (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
Pilgrim
Pilgrim Nuclear Power Station (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
PPA
Purchased power agreement or power purchase agreement
PUCT
Public Utility Commission of Texas
Registrant Subsidiaries
Entergy Arkansas, Inc., Entergy Gulf States Louisiana, L.L.C., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., Entergy Texas, Inc., and System Energy Resources, Inc.
River Bend
River Bend Station (nuclear), owned by Entergy Gulf States Louisiana
RTO
Regional transmission organization
SEC
Securities and Exchange Commission
SMEPA
South Mississippi Electric Power Association, which owns a 10% interest in Grand Gulf
System Agreement
Agreement, effective January 1, 1983, as modified, among the Utility operating companies relating to the sharing of generating capacity and other power resources
System Energy
System Energy Resources, Inc.
TWh
Terawatt-hour(s), which equals one billion kilowatt-hours
Unit Power Sales Agreement
Agreement, dated as of June 10, 1982, as amended and approved by FERC, among Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, relating to the sale of capacity and energy from System Energy’s share of Grand Gulf
Utility
Entergy’s business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution
Utility operating companies
Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas
Vermont Yankee
Vermont Yankee Nuclear Power Station (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment
Waterford 3
Unit No. 3 (nuclear) of the Waterford Steam Electric Station, 100% owned or leased by Entergy Louisiana
weather-adjusted usage
Electric usage excluding the effects of deviations from normal weather






ENTERGY CORPORATION AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS


Entergy operates primarily through two business segments: Utility and Entergy Wholesale Commodities.

·  
The Utility business segment includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and operates a small natural gas distribution business.  As discussed in more detail in “Plan to Spin Off the Utility’s Transmission Business,” in the Form 10-K, in December 2011, Entergy entered into an agreement to spin off its transmission business and merge it with a newly-formed subsidiary of ITC Holdings Corp.
·  
The Entergy Wholesale Commodities business segment includes the ownership and operation of six nuclear power plants located in the northern United States and the sale of the electric power produced by those plants to wholesale customers.  This business also provides services to other nuclear power plant owners.  Entergy Wholesale Commodities also owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers.

Results of Operations

Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing the first quarter 2013 to the first quarter 2012 showing how much the line item increased or (decreased) in comparison to the prior period:

   
 
Utility
    
Entergy
Wholesale
Commodities
    
Parent &
Other (a)
    
 
Entergy
  
   
(In Thousands)
  
                         
1st Quarter 2012 Consolidated Net Income (Loss)
   $ 67,212     $ (175,949 )   $ (38,003 )   $ (146,740 )
                                 
Net revenue (operating revenue less fuel
  expense, purchased power, and other
  regulatory charges/credits)
       117,644         41,426         1,553         160,623  
Other operation and maintenance expenses
     29,529       (1,400 )     4,494       32,623  
Asset impairment
     -       (355,524 )     -       (355,524 )
Taxes other than income taxes
     10,964       2,978       (17 )     13,925  
Depreciation and amortization
     22,445       (1,829 )     45       20,661  
Other income
     (12,253 )     1,170       1,208       (9,875 )
Interest expense
     6,792       (3,136 )     6,951       10,607  
Other expenses
     3,670       (5,633 )     (1 )     (1,964 )
Income taxes
     (28,632 )     149,077       (3,747 )     116,698  
                                 
1st Quarter 2013 Consolidated Net Income (Loss)
   $ 127,835     $ 82,114     $ (42,967 )   $ 166,982  

(a)
Parent & Other includes eliminations, which are primarily intersegment activity.

Refer to "ENTERGY CORPORATION AND SUBSIDIARIES - SELECTED OPERATING RESULTS" for further information with respect to operating statistics.

In the fourth quarter 2012, Entergy moved two subsidiaries from Parent & Other to the Entergy Wholesale Commodities segment to improve the alignment of certain intercompany items and income tax activity.  The prior period financial information in this Form 10-Q has been restated to reflect this change.

 
1
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis



As discussed in more detail in Note 11 to the financial statements, first quarter 2012 results of operations include a $355.5 million ($223.5 million after-tax) impairment charge to write down the carrying values of Vermont Yankee and related assets to their fair values.

Net Revenue

Utility

Following is an analysis of the change in net revenue comparing the first quarter 2013 to the first quarter 2012.

  
  
Amount
  
  
  
(In Millions)
  
       
2012 net revenue
   $ 1,106  
Retail electric price
     61  
Grand Gulf recovery
     33  
Volume/weather
     19  
Other
     4  
2013 net revenue
   $ 1,223  

The retail electric price variance is primarily due to:

·  
the recovery of Hinds plant costs through the power management rider at Entergy Mississippi, as approved by the MPSC, effective with the first billing cycle of 2013.  The net income effect of the Hinds plant cost recovery is limited to a portion representing an allowed return on equity on the net plant investment with the remainder offset by the Hinds plant costs in other operation and maintenance expenses, depreciation expenses, and taxes other than income taxes;
·  
an increase in the capacity acquisition rider at Entergy Arkansas, as approved by the APSC, effective with the first billing cycle of December 2012, relating to the Hot Spring plant acquisition.  The net income effect of the Hot Spring plant cost recovery is limited to a portion representing an allowed return on equity on the net plant investment with the remainder offset by the Hot Spring plant costs in other operation and maintenance expenses, depreciation expenses, and taxes other than income taxes;
·  
an increase in the energy efficiency rider, as approved by the APSC, effective July 2012.  Energy efficiency revenues are offset by costs included in other operation and maintenance expenses and have no effect on net income;
·  
a formula rate plan increase at Entergy Louisiana, effective January 2013, which includes an increase relating to the Waterford 3 steam generator replacement project, which was placed in service in December 2012.  The net income effect of the formula rate plan increase is limited to a portion representing an allowed return on equity with the remainder offset by costs included in other operation and maintenance expenses, depreciation expenses, and taxes other than income taxes; and
·  
an annual base rate increase at Entergy Texas, effective July 2012, as a result of the PUCT’s order in the December 2011 rate case that was issued in September 2012.

See Note 2 to the financial statements herein and in the Form 10-K for a discussion of rate proceedings.

                The Grand Gulf recovery variance is primarily due to increased recovery of higher costs resulting from the Grand Gulf uprate.

The volume/weather variance is primarily due to the effect of more favorable weather, primarily on residential sales, in the first quarter 2013 compared to the same period in the prior year.

 
2
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis



Entergy Wholesale Commodities

Following is an analysis of the change in net revenue comparing the first quarter 2013 to the first quarter 2012.

  
  
Amount
  
  
  
(In Millions)
  
       
2012 net revenue
   $ 452  
Nuclear realized price changes
     66  
Nuclear volume
     (25 )
2013 net revenue
   $ 493  

As shown in the table above, net revenue for Entergy Wholesale Commodities increased by $41 million in the first quarter 2013 compared to the first quarter 2012 primarily due to higher energy and capacity prices partially offset by lower volume in its nuclear fleet resulting from more unplanned and refueling outage days in 2013 compared to the same period in 2012.

Following are key performance measures for Entergy Wholesale Commodities for the first quarter 2013 and 2012:

   
2013
  
2012
         
Owned capacity
  
6,612
  
6,612
GWh billed
  
10,387
  
11,281
Average realized revenue per MWh
  
$58.66
  
$49.29
         
Entergy Wholesale Commodities Nuclear Fleet
Capacity factor
  
83%
  
88%
GWh billed
  
9,246
  
9,838
Average realized revenue per MWh
  
$57.82
  
$50.32
Refueling Outage Days:
        
Indian Point 2
  
-
  
27
Indian Point 3
  
28
  
-
Vermont Yankee
  
22
  
-

Realized Revenue per MWh Trend for Entergy Wholesale Commodities Nuclear Plants

The economic downturn and negative trends in the energy commodity markets have resulted over the past few years in lower natural gas prices and lower market prices for electricity in the New York and New England power regions, which is where five of the six Entergy Wholesale Commodities nuclear power plants are located.  Entergy Wholesale Commodities’ nuclear business experienced a decrease in realized price per MWh to $50.29 in 2012 from $54.73 in 2011 and $59.16 in 2010.  As shown in the contracted sale of energy table in “Market and Credit Risk Sensitive Instruments,” Entergy Wholesale Commodities has sold forward 84% of its planned nuclear energy output for the remainder of 2013 for an expected average contracted energy price of $45 per MWh based on market prices at March 31, 2013.  In addition, Entergy Wholesale Commodities has sold forward 76% of its planned nuclear energy output for 2014 for an expected average contracted energy price of $47 per MWh based on market prices at March 31, 2013.  These near-term price trends present a challenging economic situation for the Entergy Wholesale Commodities plants.  The challenge is greater for some of these plants based on a variety of factors such as their market for both energy and capacity, their size, their contracted positions, and the investment required to maintain the safety and integrity of the plants.  If, in the future, economic conditions or regulatory activity no longer support the continued operation of a plant it could adversely affect Entergy’s
 
 
3
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis


results of operations through impairment charges, increased depreciation rates, transitional costs, or accelerated decommissioning costs.  Impairment of long-lived assets and nuclear decommissioning costs, and the factors that influence these items, are both discussed in detail in the Form 10-K in “Critical Accounting Estimates.”  See also the discussion below in “Entergy Wholesale Commodities Authorizations to Operate Its Nuclear Power Plants” regarding Entergy Wholesale Commodities nuclear plant operating license and related activity.

Other Income Statement Items

Utility

Other operation and maintenance expenses increased from $490 million for the first quarter 2012 to $520 million for the first quarter 2013 primarily due to:

·  
an increase of $16 million in compensation and benefits costs primarily due to a decrease in the discount rates used to determine net periodic pension and other postretirement benefit costs.  See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Critical Accounting Estimates" in the Form 10-K and Note 6 to the financial statements herein for further discussion of benefits costs;
·  
an increase of $9 million in nuclear expenses, primarily due to higher labor costs, including higher contract labor;
·  
an increase of $7 million in fossil-fueled generation expenses primarily due to the acquisition of the Hot Spring plant by Entergy Arkansas and the Hinds plant by Entergy Mississippi in November 2012.  Costs related to the Hot Spring and Hinds plants are recovered through the capacity acquisition rider and power management rider, respectively, as previously discussed; and
·  
an increase of $5 million in energy efficiency costs at Entergy Arkansas.  These costs are recovered through the energy efficiency rider and have no effect on net income.

Taxes other than income taxes increased primarily due to an increase in ad valorem taxes resulting from a higher 2013 assessment as compared to 2012 as well as an increase in local franchise taxes resulting from higher residential and commercial revenues as compared with prior year.

Depreciation and amortization expenses increased primarily due to additions to plant in service, including the Hot Spring and Hinds plant acquisitions in 2012 and the completion of the Waterford 3 steam generator replacement project and the Grand Gulf uprate project in 2012.  Also contributing to the increase is an increase in depreciation rates as a result of the rate order approved by the PUCT in September 2012.

Other income decreased primarily due to a decrease in AFUDC accrued on projects under construction resulting from the completion of the Grand Gulf uprate project and Waterford 3 steam generator replacement project in 2012.

Entergy Wholesale Commodities

           The asset impairment variance is due to a $355.5 million ($223.5 million after-tax) impairment charge recorded in first quarter 2012 to write down the carrying values of Vermont Yankee and related assets to their fair values.  See Note 11 to the financial statements for further discussion of this charge.

Income Taxes

The effective income tax rate for the first quarter 2013 was 41.1%. The difference in the effective income tax rate for the first quarter 2013 versus the statutory rate of 35% is due to state income taxes, the provision for uncertain tax positions, and certain book and tax differences related to utility plant items, partially offset by book and tax differences related to the allowance for equity funds used during construction.

The effective income tax rate for the first quarter 2012 was 0.11%.  The difference in the effective income tax rate for the first quarter 2012 versus the statutory rate of 35% was primarily because the expected tax benefit of the pre-tax loss that Entergy incurred in the first quarter 2012 was partially offset by the write-off of a portion of the regulatory asset for income taxes that is discussed in Note 2 to the financial statements in the Form 10-K.
 
 
4
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis


Plan to Spin Off the Utility’s Transmission Business

See the Form 10-K for a discussion of Entergy’s plan to spin off its transmission business and merge it with a newly formed subsidiary of ITC Holdings Corp.  Following are updates to that discussion.

Filings with Retail Regulators

See the Form 10-K for a discussion of the applications that each of the Utility operating companies has filed with their respective retail regulators seeking approval for the proposal to spin off and merge the transmission business with ITC.  On April 18, 2013, the Public Service Commission of Missouri consolidated for purposes of a hearing in June 2013 Entergy Arkansas’s separate MISO case that is related to Entergy Arkansas’s notice of its intent to integrate into MISO with the Entergy and ITC case that is related to the proposal to spin off and merge the transmission business with ITC.

In April 2013, the LPSC staff, APSC staff, and other parties filed testimony in the proceedings pending at the LPSC and APSC, respectively, identifying concerns with the proposed transaction and concluding that the transaction in its current form does not satisfy the applicable criteria for approval.  The LPSC staff testimony also included a comprehensive set of conditions should the LPSC determine that the transaction is in the public interest.  Conditions were also recommended by the Arkansas Attorney General should the APSC consider approving the transaction.  Intervening parties previously filed testimony in the City Council and MPSC proceedings.  The PUCT staff and the City Council advisors are scheduled to file testimony in May 2013, and staff testimony in the MPSC proceeding is scheduled for June 2013.  Hearings are scheduled for May 2013 in the PUCT proceeding, July 2013 in the APSC, LPSC, and City Council proceedings, and August 2013 in the MPSC proceeding.

Filings with the FERC

See the Form 10-K for a discussion of the series of filings with the FERC made by Entergy, ITC, and certain of their subsidiaries to obtain regulatory approvals related to the proposed transfer to ITC subsidiaries of the transmission assets owned by the Utility operating companies.  In February 2013, Entergy and ITC filed a response to various comments and protests regarding the joint application filed with the FERC.  The response argued, among other things, that the proposed transaction is consistent with the public interest, that the proposed rates for the ITC Midsouth Operating Companies are just and reasonable, and that there is no need for a hearing in the proceeding.  On March 22, 2013, the FERC issued an order concluding that, based on the two comment period extensions granted at the request of state and retail regulators, further consideration is required to determine whether the proposed transaction meets the standards of Federal Power Act section 203.   The FERC therefore extended the time to act on the joint application for an additional 180 days, until September 18, 2013.

Entergy Wholesale Commodities Authorizations to Operate Its Nuclear Power Plants

See the Form 10-K for a discussion of the NRC operating licenses for Indian Point 2 and Indian Point 3 and the NRC license renewal applications in process for these plants.

The New York State Department of Environmental Conservation (NYSDEC) has taken the position that Indian Point must obtain a new state-issued Clean Water Act Section 401 water quality certification as part of the license renewal process.  Entergy submitted its application for a water quality certification to the NYSDEC in April 2009, with a reservation of rights regarding the applicability of Section 401 in this case.  After Entergy submitted certain additional information in response to NYSDEC requests for additional information, in February 2010 the NYSDEC staff determined that Entergy’s water quality certification application was complete.  In April 2010 the NYSDEC staff issued a proposed notice of denial of Entergy’s water quality certification application (the Notice).  NYSDEC staff’s Notice triggered an administrative adjudicatory hearing before NYSDEC ALJs on the proposed Notice.  The NYSDEC staff decision does not restrict Indian Point operations, but the issuance of a certification is potentially required prior to NRC issuance of renewed unit licenses.  In June 2011, Entergy filed notice with the NRC that the NYSDEC, the agency that would issue or deny a water quality certification for the Indian Point license renewal process, has taken longer than one year to take final
 
 
 
5
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis


action on Entergy’s application for a water quality certification and, therefore, has waived its opportunity to require a certification under the provisions of Section 401 of the Clean Water Act.  The NYSDEC has notified the NRC that it disagrees with Entergy’s position and does not believe that it has waived the right to require a certification.  The NYSDEC ALJs overseeing the agency’s certification adjudicatory process stated in a ruling issued in July 2011 that while the waiver issue is pending before the NRC, the NYSDEC hearing process will continue on selected issues.  The judges held a Legislative Hearing (agency public comment session) and an Issues Conference (pre-trial conference) in July 2010.  Issue-by-issue hearings before the NYSDEC ALJs began in October 2011 and are expected to continue, on an episodic basis, through the end of 2013 and perhaps longer.    After hearings and briefing on all issues, the ALJs will issue a recommended decision to the Commissioner or his delegate, who will then issue the final agency decision.  A party to the proceeding can appeal the decision of the Commissioner to state court.

In addition, the consistency of Indian Point’s operations with New York State’s coastal management policies must be resolved to the extent required by the Coastal Zone Management Act (CZMA).  Entergy has undertaken three independent initiatives to resolve CZMA issues.  First, on July 24, 2012, Entergy filed a supplement to the Indian Point license renewal application currently pending before the NRC.  The supplement states that, based on applicable federal law and in light of prior reviews by the State of New York, the NRC may issue the requested renewed operating licenses for Indian Point without the need for an additional consistency review by the State of New York under the CZMA.  On July 30, 2012, Entergy filed a motion for declaratory order with the ASLB seeking confirmation of its position that no further CZMA consistency determination is required before the NRC may issue renewed licenses.  On April 5, 2013, the State of New York and Riverkeeper filed answers opposing Entergy’s motion.  The State of New York also filed a cross-motion for declaratory order seeking confirmation that Indian Point had not been previously reviewed, and that only the New York State Department of State (NYSDOS) could conduct a CZMA review for NRC license renewal purposes.  On April 15, 2013, the NRC Staff filed answers recommending the ASLB deny both Entergy’s and the State of New York’s motions for declaratory order.  Entergy intends to file an answer to the State of New York’s cross-motion for declaratory order and a reply to the answers of the State of New York and Riverkeeper to Entergy’s motion for declaratory order.  It is uncertain when the ASLB will act on the motions.

Second, Entergy filed with the NYSDOS on November 7, 2012 a petition for declaratory order that Indian Point is grandfathered under either of two criteria prescribed by the New York Coastal Management Program (NYCMP), which sets forth the state coastal policies applied in a CZMA consistency review.   NYSDOS denied the motion by order dated January 9, 2013.  Entergy filed a petition for judicial review of NYSDOS’s decision with the New York State Supreme Court for Albany County on March 13, 2013.  NYSDOS’s opposition (which is expected to be jointly filed with that of NYSDEC, a co-respondent) is due May 10, 2013.  Entergy’s reply is due June 7, 2013.  It is uncertain when the court will act on the petition for review.  The losing party may file an appeal as of right with the next level state appellate court.

Third, on December 17, 2012, Entergy filed with NYSDOS a consistency determination explaining why Indian Point satisfies all applicable NYCMP policies.  Entergy included in the consistency determination a “reservation of rights” clarifying that Entergy does not concede NYSDOS’s right to conduct a new CZMA review for Indian Point.  On January 16, 2013, NYSDOS notified Entergy that it deemed the consistency determination incomplete because it does not include the further supplement to the Final Supplemental Environmental Impact Statement that is targeted for issuance by May 10, 2013.  The six-month federal deadline for state decision on a consistency determination does not begin to run until the submission is complete.

ANO Damage and Outage

On March 31, 2013, during a scheduled refueling outage at ANO 1, a contractor-owned and operated heavy-lifting apparatus collapsed while moving the generator stator out of the turbine building.  The collapse resulted in the death of an ironworker and injuries to several other contract workers, caused ANO 2 to shut down, and damaged the ANO turbine building.  The turbine building serves both ANO 1 and 2 and is a non-radiological area of the plant.  Entergy is still analyzing the incident; the extent of the damage; the cost of assessment, debris removal, and replacing damaged property and equipment; and the schedule for restoring ANO 1 to service, but was able to restart ANO 2 on April 28, 2013.  In addition, Entergy Arkansas incurred replacement power costs for ANO 2 power during its outage and expects to incur incremental replacement power costs for ANO 1 power to the extent its outage extends beyond the originally-planned duration of the refueling outage.  Each of the Utility operating companies has recovery mechanisms in place designed to recover its prudently-incurred fuel and purchased power costs.
 
 
6
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis



Entergy Arkansas is assessing its options for recovering damages that resulted from the stator drop, including its insurance coverage.  Entergy is a member of Nuclear Electric Insurance Limited (NEIL), a mutual insurance company that provides property damage coverage to the members’ nuclear generating plants, including ANO.  NEIL has notified Entergy that it believes that a $50 million course of construction sublimit applies to any loss associated with the lifting apparatus failure and stator drop at ANO.  Entergy has responded that it disagrees with NEIL's position and is evaluating its options for enforcing its rights under the policy.

Liquidity and Capital Resources

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy’s capital structure, capital expenditure plans and other uses of capital, and sources of capital.  Following are updates to that discussion.

Capital Structure

Entergy’s capitalization is balanced between equity and debt, as shown in the following table.

   
March 31,
2013
  
December 31,
2012
         
Debt to capital
  
58.7% 
  
58.7% 
Effect of excluding the securitization bonds
  
(1.8%)
  
(1.8%)
Debt to capital, excluding securitization bonds (a)
  
56.9% 
  
56.9% 
Effect of subtracting cash
  
(0.6%)
  
(1.1%)
Net debt to net capital, excluding securitization bonds (a)
  
56.3% 
  
55.8% 

(a)
Calculation excludes the Arkansas, Louisiana, and Texas securitization bonds, which are non-recourse to Entergy Arkansas, Entergy Louisiana, and Entergy Texas, respectively.

Net debt consists of debt less cash and cash equivalents.  Debt consists of notes payable and commercial paper, capital lease obligations, and long-term debt, including the currently maturing portion.  Capital consists of debt, common shareholders’ equity, and subsidiaries’ preferred stock without sinking fund.  Net capital consists of capital less cash and cash equivalents.  Entergy uses the net debt to net capital ratio and the ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy’s financial condition.

Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in March 2018.  Entergy Corporation has the ability to issue letters of credit against 50% of the total borrowing capacity of the facility.  Following is a summary of the borrowings outstanding and capacity available under the facility as of March 31, 2013.

 
Capacity (a)
  
 
Borrowings
  
Letters
of Credit
  
Capacity
Available
(In Millions)
             
$3,500
  
$570
  
$8
  
$2,922

(a)
The capacity decreases to $3,490 million in March 2017.

A covenant in Entergy Corporation’s credit facility requires Entergy to maintain a consolidated debt ratio of 65% or less of its total capitalization.  The calculation of this debt ratio under Entergy Corporation’s credit facility is different than the calculation of the debt to capital ratio above.  Entergy is currently in compliance with the covenant.  If Entergy fails to meet this ratio, or if Entergy or one of the Utility operating companies (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the facility’s maturity date may occur.  See Note 4 to the financial statements for additional discussion of the Entergy Corporation credit facility and discussion of the Registrant Subsidiaries’ credit facilities.
 
 
 
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Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis


See Note 4 to the financial statements for additional discussion of the Entergy Corporation commercial paper program.  As of March 31, 2013, Entergy Corporation had $883.7 million of commercial paper outstanding.

Capital Expenditure Plans and Other Uses of Capital

See the table and discussion in the Form 10-K under "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Capital Expenditure Plans and Other Uses of Capital," that sets forth the amounts of planned construction and other capital investments by operating segment for 2013 through 2015.  As discussed in the Form 10-K, the planned amounts disclosed in the Form 10-K do not include costs for the capital projects that might result from the NRC’s post-Fukushima requirements.  The current preliminary cost estimate (including both capital and operation and maintenance expense) to implement the post-Fukushima requirements is approximately $240 million for Utility and approximately $260 million for Entergy Wholesale Commodities.  These costs are expected to be incurred over the 2012 through 2018 time period, and do not include any amounts for filtered vents, for which the NRC initiated a rulemaking in first quarter 2013.  Also, Entergy now expects a delay in the spending associated with potential wedgewire screens at the Indian Point site from the timing reflected in the amounts in the table in the Form 10-K.

Dividends

Declarations of dividends on Entergy’s common stock are made at the discretion of the Board.  Among other things, the Board evaluates the level of Entergy’s common stock dividends based upon Entergy’s earnings, financial strength, and future investment opportunities.  At its April 2013 meeting, the Board declared a dividend of $0.83 per share, which is the same quarterly dividend per share that Entergy has paid since second quarter 2010.

Cash Flow Activity

As shown in Entergy’s Consolidated Statements of Cash Flows, cash flows for the three months ended March 31, 2013 and 2012 were as follows:

   
2013
    
2012
  
   
(In Millions)
  
             
Cash and cash equivalents at beginning of period
   $ 533     $ 694  
                 
Cash flow provided by (used in):
                
Operating activities
     544       601  
Investing activities
     (661 )     (749 )
Financing activities
     (153 )     139  
Net decrease in cash and cash equivalents
     (270 )     (9 )
                 
Cash and cash equivalents at end of period
   $ 263     $ 685  

Operating Activities

Net cash provided by operating activities decreased by $57 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to:

·  
higher deferred fuel refunds in 2013 compared to the same period in prior year;
·  
approximately $31 million in storm restoration spending in 2013 resulting from the Arkansas December 2012 Winter storm and Hurricane Isaac; and
·  
an increase of $21 million in spending on nuclear refueling outages in 2013 compared to the same period in prior year.
 
 
8
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis


These decreases in cash flow were partially offset by:

·  
a decrease of $24 million in income tax payments;
·  
a decrease of $36 million in pension contributions.  See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Critical Accounting Estimates" in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding; and
·  
the increase in Entergy Wholesale Commodities net revenue that is discussed previously.

Investing Activities

Net cash used in investing activities decreased by $88 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to:

·  
the withdrawal of a total of $252 million from Entergy Gulf States Louisiana’s and Entergy Louisiana’s storm reserve escrow accounts in 2013 after Hurricane Isaac.  See Note 2 to the financial statements herein and in the Form 10-K for a discussion of Hurricane Isaac; and
·  
a decrease in nuclear fuel purchases because of variations from year to year in the timing and pricing of fuel reload requirements, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle.

These decreases were partially offset by an increase in construction expenditures, primarily in the Utility business, resulting from an increase of approximately $62 million in storm restoration spending in 2013 resulting from the Arkansas December 2012 Winter storm and Hurricane Isaac and approximately $51 million in spending on the Ninemile 6 self-build project, partially offset by spending in 2012 on the uprate project at Grand Gulf.

Financing Activities

Entergy’s financing activities used $153 million of cash for the three months ended March 31, 2013 compared to providing $139 million of cash for the three months ended March 31, 2012 primarily due to:

·  
long-term debt activity using approximately $285 million of cash in 2013 compared to providing $175 million of cash in 2012.  Included in the long-term debt activity in 2013 is $225 million repayment of borrowings on the Entergy Corporation long-term credit facility.  Entergy Corporation issued $219 million of commercial paper in 2013 to repay borrowings on its long-term credit facility;
·  
$51 million in proceeds from the sale to a third party in 2012 of a portion of Entergy Gulf States Louisiana’s investment in Entergy Holdings Company’s Class A preferred membership interests; and
·  
a decrease of $25 million in treasury stock issuances in 2013 compared to the same period in 2012.

For details of Entergy's commercial paper program, the nuclear fuel company variable interest entities’ short-term borrowings, and long-term debt activity in 2013 see Note 4 to the financial statements herein.

Rate, Cost-recovery, and Other Regulation

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Rate, Cost-recovery, and Other Regulation" in the Form 10-K for discussions of rate regulation, federal regulation, and related regulatory proceedings.
 
State and Local Rate Regulation and Fuel-Cost Recovery

See Note 2 to the financial statements herein for updates to the discussion in the Form 10-K regarding these proceedings.
 
 
 
9
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis


Federal Regulation

See the Form 10-K for a discussion of federal regulatory proceedings.  Following are updates to that discussion.

System Agreement

Utility Operating Company Notices of Termination of System Agreement Participation

As discussed in the Form 10-K, in November 2012 the Utility operating companies filed amendments to the System Agreement with the FERC pursuant to section 205 of the Federal Power Act.  The LPSC, MPSC, PUCT, and City Council filed protests at the FERC regarding the amendments and other aspects of the Utility operating companies’ future operating arrangements, including requests that the continued viability of the System Agreement in MISO (among other issues) be set for hearing by the FERC.  On March 12, 2013, the Utility operating companies filed an answer to the protests.  The answer proposed, among other things, that: (1) the FERC allow the System Agreement revisions to go into effect as of December 19, 2013, without a hearing and for an initial two-year transition period; (2) no later than October 18, 2013, Entergy Services submit a filing pursuant to section 205 of the Federal Power Act that provides Entergy Texas’s notice of cancellation to terminate participation in the System Agreement and responds to the PUCT’s position that Entergy Texas be allowed to terminate its participation prior to the end of the mandatory 96-month notice period; and (3) at least six months prior to the end of the two-year transition period, Entergy Services submits an additional filing under section 205 of the Federal Power Act that addresses the allocation of MISO charges and credits among the Utility operating companies that remain in the System Agreement.  Prior to the filing to be made no later than October 18, 2013, Entergy Services, Entergy Texas, and Entergy will exercise reasonable best efforts to engage the Utility operating companies and their retail regulators in searching for a consensual means of allowing Entergy Texas to exit the System Agreement prior to the end of the mandatory 96-month notice period.  If a consensual resolution is reached on such early termination, the filing will reflect such a resolution.  The matter remains pending at the FERC.

Entergy’s Proposal to Join MISO

See the Form 10-K for a discussion of the Utility operating companies’ proposal to join MISO.  Following are updates to that discussion.

On April 8, 2013, the APSC issued an order resolving the outstanding issues in Entergy Arkansas’s change of control docket and granted Entergy Arkansas’s application subject to the conditions set forth in the APSC’s October 2012 order.  On April 18, 2013, the Public Service Commission of Missouri consolidated for purposes of a hearing in June 2013 Entergy Arkansas’s separate MISO case that is related to Entergy Arkansas’s notice of its intent to integrate into MISO with the Entergy and ITC case that is related to the proposal to spin off and merge the transmission business with ITC.

On April 3, 2013, the PUCT staff filed a study performed by its independent consultant assessing Entergy Texas’s January 2013 updated analysis of the effect of termination of certain power purchase agreements on Entergy Texas’s costs upon Entergy Texas’s exit from the System Agreement.  While the independent consultant study concluded that the adjustments made in Entergy Texas’s updated analysis were analytically correct, the consultant also recommended further study regarding the effect of the termination of the power purchase agreements on the benefits associated with Entergy Texas joining MISO.  On April 5, 2013, Entergy Texas filed a response to the consultant study, noting a number of errors in the analysis and recommending against any further study of this matter.

On March 28, 2013, the FERC issued an order conditionally accepting MISO’s proposed tariff changes related to the allocation of long-term transmission rights and auction revenue rights, subject to a further compliance filing.  The amendments are intended to address the anticipated integration of the Utility operating companies, as well as other load-serving entities and transmission-owning utilities, into the MISO region.
 
 
10
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis


FERC Reliability Standards Investigation

On March 19, 2013, the FERC issued an order approving a settlement between Entergy Services and the FERC Enforcement Staff (the Staff) arising from the Staff’s November 20, 2012 “Notice of Alleged Violations” which stated that the Staff had concluded that Entergy Services’s practices in certain areas violated various requirements of the North American Electric Reliability Corporation reliability standards.  Under the terms of the settlement, Entergy Services neither admits nor denies the alleged violations, but agrees to pay a civil penalty of $975,000 and undertake certain mitigation activities agreed to during discussions with Staff.

Market and Credit Risk Sensitive Instruments

Commodity Price Risk

Power Generation

As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers.  Entergy Wholesale Commodities enters into forward contracts with its customers and sells energy in the day ahead or spot markets.  In addition to selling the energy produced by its plants, Entergy Wholesale Commodities sells unforced capacity, which allows load-serving entities to meet specified reserve and related requirements placed on them by the ISOs in their respective areas.  Entergy Wholesale Commodities’ forward physical power contracts consist of contracts to sell energy only, contracts to sell capacity only, and bundled contracts in which it sells both capacity and energy.  While the terminology and payment mechanics vary in these contracts, each of these types of contracts requires Entergy Wholesale Commodities to deliver MWh of energy, make capacity available, or both.  In addition to its forward physical power contracts, Entergy Wholesale Commodities also uses a combination of financial contracts, including swaps, collars, put and/or call options, to manage forward commodity price risk.  Certain hedge volumes have price downside and upside relative to market price movement.  The contracted minimum, expected value, and sensitivity are provided to show potential variations.  While the sensitivity reflects the minimum, it does not reflect the total maximum upside potential from higher market prices.  The information contained in the table below represents projections at a point in time and will vary over time based on numerous factors, such as future market prices, contracting activities, and generation.  Following is a summary of Entergy Wholesale Commodities’ current forward capacity and generation contracts as well as total revenue projections based on market prices as of March 31, 2013 (2013 represents the remainder of the year).


 
11
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis



Entergy Wholesale Commodities Nuclear Portfolio

   
2013
  
2014
  
2015
  
2016
  
2017
                     
Energy
                    
Percent of planned generation under contract (a):
                    
Unit-contingent (b)
  
41%
  
22%
  
12%
  
12%
  
13%
Unit-contingent with availability guarantees (c)
  
20%
  
15%
  
 13%
  
 13%
  
 13%
Firm LD (d)
  
23%
  
58%
  
14%
  
-%
  
-%
Offsetting positions (e)
  
-%
  
(19)%
  
-%
  
-%
  
-%
Total
  
84%
  
76%
  
39%
  
25%
  
26%
Planned generation (TWh) (f) (g)
  
31
  
41
  
41
  
40
  
41
Average revenue per MWh on contracted volumes:
                    
Minimum
  
$44
  
$44
  
$45
  
$50
  
$51
Expected based on market prices as of March 31, 2013
  
$45
  
$47
  
$48
  
$51
  
$52
Sensitivity: -/+ $10 per MWh market price change
  
$44-$48
  
$44-$51
  
$45-$54
  
$50-$54
  
$51-$55
                     
Capacity
                    
Percent of capacity sold forward (h):
                    
Bundled capacity and energy contracts (i)
  
16%
  
16%
  
16%
  
16%
  
16%
Capacity contracts (j)
  
35%
  
17%
  
 12%
  
 18%
  
 9%
Total
  
51%
  
33%
  
28%
  
34%
  
25%
Planned net MW in operation (g) (k)
  
5,011
  
5,011
  
5,011
  
5,011
  
5,011
Average revenue under contract per kW per month
(applies to capacity contracts only)
  
$2.0
  
$2.4
  
$3.3
  
$3.2
  
$3.2
                     
Total Nuclear Energy and Capacity Revenues
                    
Expected sold and market total revenue per MWh
  
$48
  
$47
  
$47
  
$49
  
$51
Sensitivity: -/+ $10 per MWh market price change
  
$46-$53
  
$44-$53
  
$40-$55
  
$42-$57
  
$43-$58

Entergy Wholesale Commodities Non-Nuclear Portfolio

   
2013
  
2014
  
2015
  
2016
  
2017
                     
Energy
                    
Percent of planned generation under contract (a):
                    
Cost-based contracts (l)
  
35%
  
32%
  
35%
  
32%
  
32%
Firm LD (d)
  
6%
  
6%
  
6%
  
6%
  
6%
Total
  
41%
  
38%
  
41%
  
38%
  
38%
Planned generation (TWh) (f) (m)
  
5
  
6
  
6
  
6
  
6
                     
Capacity
                    
Percent of capacity sold forward (h):
                    
Cost-based contracts (l)
  
30%
  
24%
  
24%
  
24%
  
26%
Bundled capacity and energy contracts (i)
  
9%
  
8%
  
 8%
  
 8%
  
 8%
Capacity contracts (j)
  
45%
  
50%
  
48%
  
47%
  
21%
Total
  
84%
  
82%
  
80%
  
79%
  
55%
Planned net MW in operation (k) (m)
  
1,052
  
1,052
  
1,052
  
1,052
  
977


 
12
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis




(a)
Percent of planned generation output sold or purchased forward under contracts, forward physical contracts, forward financial contracts, or options that mitigate price uncertainty that may require regulatory approval or approval of transmission rights.
(b)
Transaction under which power is supplied from a specific generation asset; if the asset is not operating, seller is generally not liable to buyer for any damages.
(c)
A sale of power on a unit-contingent basis coupled with a guarantee of availability provides for the payment to the power purchaser of contract damages, if incurred, in the event the seller fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold.  All of Entergy’s outstanding guarantees of availability provide for dollar limits on Entergy’s maximum liability under such guarantees.
(d)
Transaction that requires receipt or delivery of energy at a specified delivery point (usually at a market hub not associated with a specific asset) or settles financially on notional quantities; if a party fails to deliver or receive energy, defaulting party must compensate the other party as specified in the contract, a portion of which may be capped through the use of risk management products.
(e)
Transactions for the purchase of energy, generally to offset a firm LD transaction.
(f)
Amount of output expected to be generated by Entergy Wholesale Commodities resources considering plant operating characteristics, outage schedules, and expected market conditions that effect dispatch.
(g)
Assumes NRC license renewal for plants whose current licenses expire within five years and uninterrupted normal operation at all plants.  NRC license renewal applications are in process for two units, as follows (with current license expirations in parentheses): Indian Point 2 (September 2013) and Indian Point 3 (December 2015).  For a discussion regarding the continued operation of the Vermont Yankee plant, see “Impairment of Long-Lived Assets” in Note 11 to the financial statements herein and Note 1 to the financial statements in the Form 10-K.  For a discussion regarding the license renewals for Indian Point 2 and Indian Point 3, see “Entergy Wholesale Commodities Authorizations to Operate Its Nuclear Power Plants” above.
(h)
Percent of planned qualified capacity sold to mitigate price uncertainty under physical or financial transactions.
(i)
A contract for the sale of installed capacity and related energy, priced per megawatt-hour sold.
(j)
A contract for the sale of an installed capacity product in a regional market.
(k)
Amount of capacity to be available to generate power and/or sell capacity considering uprates planned to be completed during the year.
(l)
Contracts priced in accordance with cost-based rates, a ratemaking concept used for the design and development of rate schedules to ensure that the filed rate schedules recover only the cost of providing the service; these contracts are on owned non-utility resources located within Entergy’s Utility service area, which do not operate under market-based rate authority.  The percentage sold assumes approval of long-term transmission rights.  Includes sales to the Utility through 2013 of 121 MW of capacity and energy from Entergy Power sourced from Independence Steam Electric Station Unit 2.
(m)
Non-nuclear planned generation and net MW in operation include purchases from affiliated and non-affiliated counterparties under long-term contracts and exclude energy and capacity from Entergy Wholesale Commodities’ wind investment and from the 544 MW Ritchie plant that is not planned to operate.

Entergy estimates that a positive $10 per MWh change in the annual average energy price in the markets in which the Entergy Wholesale Commodities nuclear business sells power, based on March 31, 2013 market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax net income of $122 million in 2013.


 
13
Entergy Corporation and Subsidiaries
Management’s Financial Discussion and Analysis



Some of the agreements to sell the power produced by Entergy Wholesale Commodities’ power plants contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations under the agreements.  The Entergy subsidiary is required to provide collateral based upon the difference between the current market and contracted power prices in the regions where Entergy Wholesale Commodities sells power.  The primary form of collateral to satisfy these requirements is an Entergy Corporation guaranty.  Cash and letters of credit are also acceptable forms of collateral.  At March 31, 2013, based on power prices at that time, Entergy had liquidity exposure of $203 million under the guarantees in place supporting Entergy Wholesale Commodities transactions, $20 million of guarantees that support letters of credit, and $7 million of posted cash collateral to the ISOs.  As of March 31, 2013, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by $82 million for a $1 per MMBtu increase in gas prices in both the short-and long-term markets.  In the event of a decrease in Entergy Corporation’s credit rating to below investment grade, based on power prices as of March 31, 2013, Entergy would have been required to provide approximately $54 million of additional cash or letters of credit under some of the agreements.

As of March 31, 2013, substantially all of the counterparties or their guarantors for 100% of the planned energy output under contract for Entergy Wholesale Commodities nuclear plants through 2017 have public investment grade credit ratings.

Nuclear Matters

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Nuclear Matters" in the Form 10-K for a discussion of nuclear matters.

Critical Accounting Estimates

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy’s accounting for nuclear decommissioning costs, unbilled revenue, impairment of long-lived assets and trust fund investments, qualified pension and other postretirement benefits, and other contingencies.  Following is an update to that discussion.

Nuclear Decommissioning Costs

In the first quarter of 2013, Entergy Wholesale Commodities recorded a revision to its estimated decommissioning cost liability for a nuclear site as a result of a revised decommissioning cost study.  The revised estimate resulted in a $46.6 million reduction in the decommissioning cost liability, along with a corresponding reduction in the related asset retirement cost asset.

New Accounting Pronouncements

The accounting standard-setting process, including projects between the FASB and the International Accounting Standards Board (IASB) to converge U.S. GAAP and International Financial Reporting Standards, is ongoing and the FASB and the IASB are each currently working on several projects that have not yet resulted in final pronouncements.  Final pronouncements that result from these projects could have a material effect on Entergy’s future net income, financial position, or cash flows.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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CONSOLIDATED STATEMENTS OF INCOME (LOSS)
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
   
2013
    
2012
  
   
(In Thousands, Except Share Data)
  
             
OPERATING REVENUES
            
Electric
   $ 1,949,280     $ 1,784,841  
Natural gas
     53,321       46,008  
Competitive businesses
     606,273       552,810  
TOTAL
     2,608,874       2,383,659  
                 
OPERATING EXPENSES
                
Operating and Maintenance:
                
   Fuel, fuel-related expenses, and
                
     gas purchased for resale
     510,333       538,837  
   Purchased power
     373,129       284,966  
   Nuclear refueling outage expenses
     60,719       63,884  
   Asset impairment
     -       355,524  
   Other operation and maintenance
     754,258       721,635  
Decommissioning
     59,104       57,903  
Taxes other than income taxes
     151,095       137,170  
Depreciation and amortization
     300,876       280,215  
Other regulatory charges
     5,315       382  
TOTAL
     2,214,829       2,440,516  
                 
OPERATING INCOME (LOSS)
     394,045       (56,857 )
                 
OTHER INCOME
                
Allowance for equity funds used during construction
     12,751       24,307  
Interest and investment income
     38,306       40,992  
Miscellaneous - net
     (13,623 )     (17,990 )
TOTAL
     37,434       47,309  
                 
INTEREST EXPENSE
                
Interest expense
     153,149       146,745  
Allowance for borrowed funds used during construction
     (5,188 )     (9,391 )
TOTAL
     147,961       137,354  
                 
INCOME (LOSS) BEFORE INCOME TAXES
     283,518       (146,902 )
                 
Income taxes
     116,536       (162 )
                 
CONSOLIDATED NET INCOME (LOSS)
     166,982       (146,740 )
                 
Preferred dividend requirements of subsidiaries
     5,582       4,943  
                 
NET INCOME (LOSS) ATTRIBUTABLE TO ENTERGY CORPORATION
   $ 161,400     $ (151,683 )
                 
                 
Earnings (loss) per average common share:
                
    Basic
   $ 0.91     $ (0.86 )
    Diluted
   $ 0.90     $ (0.86 )
Dividends declared per common share
   $ 0.83     $ 0.83  
                 
Basic average number of common shares outstanding
     178,027,961       176,865,363  
Diluted average number of common shares outstanding
     178,413,287       177,388,045  
                 
See Notes to Financial Statements.
                
                 

 
 
 
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
Net Income (loss)
   $ 166,982     $ (146,740 )
                 
Other comprehensive income (loss)
                
   Cash flow hedges net unrealized gain (loss)
                
     (net of tax expense (benefit) of ($41,135) and $75,494)
     (75,975 )     145,435  
   Pension and other postretirement liabilities
                
     (net of tax expense of $5,869 and $3,876)
     9,795       6,266  
   Net unrealized investment gains
                
     (net of tax expense of $54,311 and $49,138)
     56,377       50,107  
   Foreign currency translation
                
     (net of tax expense (benefit) of ($416) and $167)
     (772 )     311  
         Other comprehensive income (loss)
     (10,575 )     202,119  
                 
Comprehensive Income
     156,407       55,379  
                 
Preferred dividend requirements of subsidiaries
     5,582       4,943  
                 
Comprehensive Income Attributable to Entergy Corporation
   $ 150,825     $ 50,436  
                 
                 
See Notes to Financial Statements.
                


 

 
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
   
2013
    
2012
  
   
(In Thousands)
  
             
OPERATING ACTIVITIES
            
Consolidated net income (loss)
   $ 166,982     $ (146,740 )
Adjustments to reconcile consolidated net income (loss) to net cash flow
                
 provided by operating activities:
                
  Depreciation, amortization, and decommissioning, including nuclear fuel amortization
     472,933       450,009  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
     98,671       38,858  
  Asset impairment
     -       355,524  
  Changes in working capital:
                
     Receivables
     (29,845 )     156,202  
     Fuel inventory
     (5,147 )     (20,213 )
     Accounts payable
     (40,861 )     (145,599 )
     Prepaid taxes and taxes accrued
     (35,648 )     (89,583 )
     Interest accrued
     (30,570 )     (32,194 )
     Deferred fuel costs
     (2,149 )     77,405  
     Other working capital accounts
     (151,958 )     (34,753 )
  Changes in provisions for estimated losses
     (245,972 )     (15,030 )
  Changes in other regulatory assets
     167,634       60,857  
  Changes in pensions and other postretirement liabilities
     32,696       (4,764 )
  Other
     147,223       (49,479 )
Net cash flow provided by operating activities
     543,989       600,500  
                 
  INVESTING ACTIVITIES
                
Construction/capital expenditures
     (631,857 )     (563,539 )
Allowance for equity funds used during construction
     13,672       25,448  
Nuclear fuel purchases
     (145,168 )     (201,059 )
Changes in securitization account
     1,601       940  
NYPA value sharing payment
     (71,736 )     (72,000 )
Payments to storm reserve escrow account
     (2,219 )     (1,483 )
Receipts from storm reserve escrow account
     252,482       861  
Decrease (increase) in other investments
     (44,298 )     93,786  
Proceeds from nuclear decommissioning trust fund sales
     398,010       535,551  
Investment in nuclear decommissioning trust funds
     (432,247 )     (567,780 )
Net cash flow used in investing activities
     (661,760 )     (749,275 )
                 
See Notes to Financial Statements.
                
                 


 

ENTERGY CORPORATION AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
   
2013
    
2012
  
   
(In Thousands)
  
             
FINANCING ACTIVITIES
            
Proceeds from the issuance of:
            
  Long-term debt
     564,717       1,034,945  
  Mandatorily redeemable preferred membership units of subsidiary
     -       51,000  
  Treasury stock
     8,102       32,826  
Retirement of long-term debt
     (849,860 )     (859,648 )
Changes in credit borrowings and commercial paper - net
     277,886       32,782  
Dividends paid:
                
  Common stock
     (147,902 )     (146,674 )
  Preferred stock
     (5,582 )     (5,582 )
Net cash flow provided by (used in) financing activities
     (152,639 )     139,649  
                 
Effect of exchange rates on cash and cash equivalents
     772       (310 )
                 
Net decrease in cash and cash equivalents
     (269,638 )     (9,436 )
                 
Cash and cash equivalents at beginning of period
     532,569       694,438  
                 
Cash and cash equivalents at end of period
   $ 262,931     $ 685,002  
                 
                 
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                
  Cash paid during the period for:
                
    Interest - net of amount capitalized
   $ 138,217     $ 134,655  
    Income taxes
   $ 12,341     $ 35,992  
                 
                 
See Notes to Financial Statements.
                


 

 
CONSOLIDATED BALANCE SHEETS
  
ASSETS
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT ASSETS
            
Cash and cash equivalents:
            
  Cash
   $ 66,114     $ 112,992  
  Temporary cash investments
     196,817       419,577  
     Total cash and cash equivalents
     262,931       532,569  
Securitization recovery trust account
     44,438       46,040  
Accounts receivable:
                
  Customer
     636,694       568,871  
  Allowance for doubtful accounts
     (32,122 )     (31,956 )
  Other
     157,978       161,408  
  Accrued unbilled revenues
     269,010       303,392  
     Total accounts receivable
     1,031,560       1,001,715  
Deferred fuel costs
     83,758       150,363  
Accumulated deferred income taxes
     192,816       306,902  
Fuel inventory - at average cost
     218,978       213,831  
Materials and supplies - at average cost
     928,103       928,530  
Deferred nuclear refueling outage costs
     318,024       243,374  
System agreement cost equalization
     16,880       16,880  
Prepayments and other
     225,385       242,922  
TOTAL
     3,322,873       3,683,126  
                 
OTHER PROPERTY AND INVESTMENTS
                
Investment in affiliates - at equity
     45,977       46,738  
Decommissioning trust funds
     4,452,707       4,190,108  
Non-utility property - at cost (less accumulated depreciation)
     260,068       256,039  
Other
     188,473       436,234  
TOTAL
     4,947,225       4,929,119  
                 
PROPERTY, PLANT AND EQUIPMENT
                
Electric
     42,064,616       41,944,567  
Property under capital lease
     934,495       935,199  
Natural gas
     356,988       353,492  
Construction work in progress
     1,413,897       1,365,699  
Nuclear fuel
     1,607,352       1,598,430  
TOTAL PROPERTY, PLANT AND EQUIPMENT
     46,377,348       46,197,387  
Less - accumulated depreciation and amortization
     19,067,907       18,898,842  
PROPERTY, PLANT AND EQUIPMENT - NET
     27,309,441       27,298,545  
                 
DEFERRED DEBITS AND OTHER ASSETS
                
Regulatory assets:
                
  Regulatory asset for income taxes - net
     752,696       742,030  
  Other regulatory assets (includes securitization property of
                
     $894,330 as of March 31, 2013 and $914,751 as of
                
     December 31, 2012)
     4,860,886       5,025,912  
  Deferred fuel costs
     172,202       172,202  
Goodwill
     377,172       377,172  
Accumulated deferred income taxes
     66,833       37,748  
Other
     983,645       936,648  
TOTAL
     7,213,434       7,291,712  
                 
TOTAL ASSETS
   $ 42,792,973     $ 43,202,502  
                 
See Notes to Financial Statements.
                


 

ENTERGY CORPORATION AND SUBSIDIARIES
  
CONSOLIDATED BALANCE SHEETS
  
LIABILITIES AND EQUITY
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT LIABILITIES
            
Currently maturing long-term debt
   $ 630,622     $ 718,516  
Notes payable and commercial paper
     1,073,888       796,002  
Accounts payable
     1,036,122       1,217,180  
Customer deposits
     361,299       359,078  
Taxes accrued
     298,071       333,719  
Accumulated deferred income taxes
     15,004       13,109  
Interest accrued
     154,095       184,664  
Deferred fuel costs
     27,684       96,439  
Obligations under capital leases
     3,495       3,880  
Pension and other postretirement liabilities
     97,404       95,900  
System agreement cost equalization
     16,880       25,848  
Other
     181,856       261,986  
TOTAL
     3,896,420       4,106,321  
                 
NON-CURRENT LIABILITIES
                
Accumulated deferred income taxes and taxes accrued
     8,348,976       8,311,756  
Accumulated deferred investment tax credits
     270,912       273,696  
Obligations under capital leases
     33,976       34,541  
Other regulatory liabilities
     1,046,106       898,614  
Decommissioning and asset retirement cost liabilities
     3,525,687       3,513,634  
Accumulated provisions
     116,542       362,226  
Pension and other postretirement liabilities
     3,757,078       3,725,886  
Long-term debt (includes securitization bonds of $951,520 as of
                
  March 31, 2013 and $973,480 as of December 31, 2012)
     11,729,134       11,920,318  
Other
     574,555       577,910  
TOTAL
     29,402,966       29,618,581  
                 
Commitments and Contingencies
                
                 
Subsidiaries' preferred stock without sinking fund
     186,511       186,511  
                 
EQUITY
                
Common Shareholders' Equity:
                
Common stock, $.01 par value, authorized 500,000,000 shares;
                
  issued 254,752,788 shares in 2013 and in 2012
     2,548       2,548  
Paid-in capital
     5,349,885       5,357,852  
Retained earnings
     9,718,171       9,704,591  
Accumulated other comprehensive loss
     (303,658 )     (293,083 )
Less - treasury stock, at cost (76,656,819 shares in 2013 and
                
  76,945,239 shares in 2012)
     5,553,870       5,574,819  
Total common shareholders' equity
     9,213,076       9,197,089  
Subsidiaries' preferred stock without sinking fund
     94,000       94,000  
TOTAL
     9,307,076       9,291,089  
                 
TOTAL LIABILITIES AND EQUITY
   $ 42,792,973     $ 43,202,502  
                 
See Notes to Financial Statements.
                


 

 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
                                           
         
Common Shareholders' Equity
        
   
Subsidiaries'
Preferred Stock
    
Common Stock
    
Treasury Stock
    
Paid-in Capital
    
Retained Earnings
    
Accumulated Other Comprehensive Income (Loss)
    
Total
  
   
(In Thousands)
  
                                           
Balance at December 31, 2011
   $ 94,000     $ 2,548     $ (5,680,468 )   $ 5,360,682     $ 9,446,960     $ (168,452 )   $ 9,055,270  
                                                         
Consolidated net income (loss) (a)
     4,943       -       -       -       (151,683 )     -       (146,740 )
Other comprehensive income
     -       -       -       -       -       202,119       202,119  
Common stock issuances related to stock plans
     -       -       57,995       (8,426 )     -       -       49,569  
Common stock dividends declared
     -       -       -       -       (147,015 )     -       (147,015 )
Preferred dividend requirements of subsidiaries (a)
     (4,943 )     -       -       -       -       -       (4,943 )
                                                         
Balance at March 31, 2012
   $ 94,000     $ 2,548     $ (5,622,473 )   $ 5,352,256     $ 9,148,262     $ 33,667     $ 9,008,260  
                                                         
                                                         
                                                         
Balance at December 31, 2012
   $ 94,000     $ 2,548     $ (5,574,819 )   $ 5,357,852     $ 9,704,591     $ (293,083 )   $ 9,291,089  
                                                         
Consolidated net income (a)
     5,582       -       -       -       161,400       -       166,982  
Other comprehensive loss
     -       -       -       -       -       (10,575 )     (10,575 )
Common stock issuances related to stock plans
     -       -       20,949       (7,967 )     -       -       12,982  
Common stock dividends declared
     -       -       -       -       (147,820 )     -       (147,820 )
Preferred dividend requirements of subsidiaries (a)
     (5,582 )     -       -       -       -       -       (5,582 )
                                                         
Balance at March 31, 2013
   $ 94,000     $ 2,548     $ (5,553,870 )   $ 5,349,885     $ 9,718,171     $ (303,658 )   $ 9,307,076  
                                                         
See Notes to Financial Statements.
                                                        
                                                         
(a) Consolidated net income and preferred dividend requirements of subsidiaries for 2013 and 2012 include $3.9 million and $3.3 million, respectively, of preferred dividends on subsidiaries' preferred stock without sinking fund that is not presented within equity.
  
                                                         


 

 
SELECTED OPERATING RESULTS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
                         
                         
               
Increase/
        
Description
  
2013
    
2012
    
(Decrease)
    
%
  
   
(Dollars in Millions)
        
Utility Electric Operating Revenues:
                        
  Residential
   $ 751     $ 670     $ 81       12  
  Commercial
     523       503       20       4  
  Industrial
     544       489       55       11  
  Governmental
     52       48       4       8  
    Total retail
     1,870       1,710       160       9  
  Sales for resale
     52       39       13       33  
  Other
     27       36       (9 )     (25 )
    Total
   $ 1,949     $ 1,785     $ 164       9  
                                 
Utility Billed Electric Energy
                                
 Sales (GWh):
                                
  Residential
     8,344       7,760       584       8  
  Commercial
     6,421       6,414       7       -  
  Industrial
     9,868       9,958       (90 )     (1 )
  Governmental
     584       578       6       1  
    Total retail
     25,217       24,710       507       2  
  Sales for resale
     630       732       (102 )     (14 )
    Total
     25,847       25,442       405       2  
                                 
                                 
Entergy Wholesale Commodities:
                                
Operating Revenues
   $ 614     $ 560     $ 54       10  
Billed Electric Energy Sales (GWh)
     10,387       11,281       (894 )     (8 )
                                 
 


ENTERGY CORPORATION AND SUBSIDIARIES

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

NOTE 1.  COMMITMENTS AND CONTINGENCIES  (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Entergy and the Registrant Subsidiaries are involved in a number of legal, regulatory, and tax proceedings before various courts, regulatory commissions, and governmental agencies in the ordinary course of business.  While management is unable to predict the outcome of such proceedings, management does not believe that the ultimate resolution of these matters will have a material adverse effect on Entergy’s results of operations, cash flows, or financial condition, except as otherwise discussed in the Form 10-K or in this report.  Entergy discusses regulatory proceedings in Note 2 to the financial statements in the Form 10-K and herein, discusses tax proceedings in Note 3 to the financial statements in the Form 10-K and Note 10 to the financial statements herein, and discusses a judicial proceeding involving Vermont Yankee in Note 1 to the financial statements in the Form 10-K and in Note 11 to the financial statements herein.

ANO Damage and Outage

On March 31, 2013, during a scheduled refueling outage at ANO 1, a contractor-owned and operated heavy-lifting apparatus collapsed while moving the generator stator out of the turbine building.  The collapse resulted in the death of an ironworker and injuries to several other contract workers, caused ANO 2 to shut down, and damaged the ANO turbine building.  The turbine building serves both ANO 1 and 2 and is a non-radiological area of the plant.  Entergy is still analyzing the incident; the extent of the damage; the cost of assessment, debris removal, and replacing damaged property and equipment; and the schedule for restoring ANO 1 to service, but was able to restart ANO 2 on April 28, 2013.  In addition, Entergy Arkansas incurred replacement power costs for ANO 2 power during its outage and expects to incur incremental replacement power costs for ANO 1 power to the extent its outage extends beyond the originally-planned duration of the refueling outage.  Each of the Utility operating companies has recovery mechanisms in place designed to recover its prudently-incurred fuel and purchased power costs.

Entergy Arkansas is assessing its options for recovering damages that resulted from the stator drop, including its insurance coverage.  Entergy is a member of Nuclear Electric Insurance Limited (NEIL), a mutual insurance company that provides property damage coverage to the members’ nuclear generating plants, including ANO.  NEIL has notified Entergy that it believes that a $50 million course of construction sublimit applies to any loss associated with the lifting apparatus failure and stator drop at ANO.  Entergy has responded that it disagrees with NEIL's position and is evaluating its options for enforcing its rights under the policy.

Nuclear Insurance

See Note 8 to the financial statements in the Form 10-K for information on nuclear liability and property insurance associated with Entergy’s nuclear power plants.

Conventional Property Insurance

See Note 8 to the financial statements in the Form 10-K for information on Entergy’s non-nuclear property insurance program.

 
24
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Employment Litigation

The Registrant Subsidiaries and other Entergy subsidiaries are responding to various lawsuits in both state and federal courts and to other labor-related proceedings filed by current and former employees and third parties not selected for open positions.  These actions include, but are not limited to, allegations of wrongful employment actions; wage disputes and other claims under the Fair Labor Standards Act or its state counterparts; claims of race, gender and disability discrimination; disputes arising under collective bargaining agreements; unfair labor practice proceedings and other administrative proceedings before the National Labor Relations Board; claims of retaliation; and claims for or regarding benefits under various Entergy Corporation sponsored plans.  Entergy and the Registrant Subsidiaries are responding to these lawsuits and proceedings and deny liability to the claimants.

Asbestos Litigation  (Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas)

See Note 8 to the financial statements in the Form 10-K for information regarding asbestos litigation at Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas.


NOTE 2.  RATE AND REGULATORY MATTERS (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Regulatory Assets

See Note 2 to the financial statements in the Form 10-K for information regarding regulatory assets in the Utility business presented on the balance sheets of Entergy and the Registrant Subsidiaries.  The following are updates to that information.

Fuel and Purchased Power Cost Recovery

Entergy Louisiana

In April 2010 the LPSC authorized its staff to initiate an audit of Entergy Louisiana’s fuel adjustment clause filings.  The audit includes a review of the reasonableness of charges flowed through the fuel adjustment clause by Entergy Louisiana for the period from 2005 through 2009.  The LPSC Staff issued its audit report in January 2013.  The LPSC staff recommended that Entergy Louisiana refund approximately $1.9 million, plus interest, to customers and realign the recovery of approximately $1 million from Entergy Louisiana’s fuel adjustment clause to base rates.  Two parties have intervened in the proceeding.  A procedural schedule has been established for the identification of issues by the intervenors and for Entergy Louisiana to submit comments regarding the LPSC Staff report, with this process to be completed by October 4, 2013.  If any open issues remain, a procedural schedule will be established to address those issues.  Entergy Louisiana has recorded provisions for the estimated outcome of this proceeding.

Entergy Texas

In November 2012, Entergy Texas filed a pleading seeking a PUCT finding that special circumstances exist for limited cost recovery of capacity costs associated with two power purchase agreements until such time that these costs are included in base rates or a purchased capacity recovery rider or other recovery mechanism.  In March 2013 the PUCT Staff and intervenors filed a joint motion to dismiss Entergy Texas’s application seeking special circumstances recovery of these capacity costs.  Entergy Texas filed a response and the matter remains pending.
 
        At the April 11, 2013 open meeting, the PUCT Commissioners discussed their view that a purchased power capacity rider was good public policy.  The PUCT subsequently proposed a second draft of the rule that incorporates a pre-approval process as discussed at the meeting.  A final decision is expected by the end of May 2013.  If the PUCT finalizes the rule, Entergy Texas would have the option to recover its capacity costs under the new rider mechanism or could proceed with a full base rate proceeding.
 
 
25
Entergy Corporation and Subsidiaries
Notes to Financial Statements

 
Retail Rate Proceedings

See Note 2 to the financial statements in the Form 10-K for detailed information regarding retail rate proceedings involving the Utility operating companies.  The following are updates to that information.

Filings with the APSC (Entergy Arkansas)

Retail Rates

2013 Base Rate Filing

In March 2013, Entergy Arkansas filed with the APSC for a general change in rates, charges, and tariffs.  Recognizing that the final structure of Entergy Arkansas’s transmission business has not been determined, the filing presents two alternative scenarios for the APSC to establish the appropriate level of rates for Entergy Arkansas.  In the primary scenario, which assumes that Entergy Arkansas will transition to MISO in December 2013, Entergy Arkansas requests a rate increase of $174 million, including $49 million of revenue being transferred from collection in riders to base rates.  The alternate scenario, which also assumes completion of the proposed spin-merge of the transmission business with ITC, reflects a $218 million total rate increase request.  Both scenarios propose a new transmission rider and a capacity cost recovery rider.  The filing requests a 10.4% return on common equity.  The APSC established a procedural schedule that includes hearings in the proceeding beginning in October 2013. New rates are expected to become effective by January 2014.

Filings with the LPSC

Retail Rates - Electric

(Entergy Gulf States Louisiana)

In November 2011 the LPSC approved a one-year extension of Entergy Gulf States Louisiana’s formula rate plan.  In May 2012, Entergy Gulf States Louisiana made its formula rate plan filing with the LPSC for the 2011 test year.  The filing reflected an 11.94% earned return on common equity, which is above the earnings bandwidth and would indicate a $6.5 million cost of service rate change was necessary under the formula rate plan.  The filing also reflected a $22.9 million rate decrease for incremental capacity costs.  Subsequently, in August 2012, Entergy Gulf States Louisiana submitted a revised filing that reflected an earned return on common equity of 11.86% indicating a $5.7 million cost of service rate decrease is necessary under the formula rate plan.  The revised filing also indicates that a reduction of $20.3 million should be reflected in the incremental capacity rider.  The rate reductions were implemented, subject to refund, effective for bills rendered the first billing cycle of September 2012.  The September 2012 rate change reduced Entergy Gulf States Louisiana’s revenues by approximately $8.7 million in 2012.  Subsequently, in December 2012, Entergy Gulf States Louisiana submitted a revised evaluation report that reflects expected retail jurisdictional cost of $16.9 million for the first-year capacity charges for the purchase from Entergy Louisiana of one-third of Acadia Unit 2 capacity and energy.  This rate change was implemented effective with the first billing cycle of January 2013.  The 2011 test year filings, as revised, were approved by the LPSC in February 2013.  In April 2013, Entergy Gulf States Louisiana submitted a revised evaluation report increasing the incremental capacity rider by approximately $7.3 million to reflect the cost of an additional capacity contract.

See Note 2 to the financial statements in the Form 10-K for a discussion of the base rate case filed by Entergy Gulf States Louisiana with the LPSC in February 2013.  In April 2013 the LPSC established a procedural schedule providing for hearings in November 2013, with a decision by the LPSC expected by February 2014.

(Entergy Louisiana)

In November 2011 the LPSC approved a one-year extension of Entergy Louisiana’s formula rate plan.  In May 2012, Entergy Louisiana made its formula rate plan filing with the LPSC for the 2011 test year.  The filing reflected a 9.63% earned return on common equity, which is within the earnings bandwidth and results in no cost of service rate change under the formula rate plan.  The filing also reflected an $18.1 million rate increase for incremental capacity costs.  In August 2012, Entergy Louisiana submitted a revised filing that reflects an earned return on common equity of 10.38%, which is still within the earnings bandwidth, resulting in no cost of service rate change.  The revised filing also indicates that an increase of $15.9 million should be reflected in the
 
 
26
Entergy Corporation and Subsidiaries
Notes to Financial Statements


incremental capacity rider.  The rate change was implemented, subject to refund, effective for bills rendered the first billing cycle of September 2012.  The September 2012 rate change contributed approximately $5.3 million to Entergy Louisiana’s revenues in 2012.  Subsequently, in December 2012, Entergy Louisiana submitted a revised evaluation report that reflects two items: 1) a $17 million reduction for the first-year capacity charges for the purchase by Entergy Gulf States Louisiana from Entergy Louisiana of one-third of Acadia Unit 2 capacity and energy, and 2) an $88 million increase for the first-year retail revenue requirement associated with the Waterford 3 replacement steam generator project, which was in-service in December 2012.  These rate changes were implemented, subject to refund, effective with the first billing cycle of January 2013.  In April 2013, Entergy Louisiana and the LPSC staff filed a joint report resolving the 2011 test year formula rate plan and recovery related to the Grand Gulf uprate.  This report was approved by the LPSC in April 2013.  With completion of the Waterford 3 replacement steam generator project, the LPSC will undertake a prudence review in connection with a filing made by Entergy Louisiana in April 2013 with regard to the following aspects of the replacement project: 1) project management; 2) cost controls; 3) success in achieving stated objectives; 4) the costs of the replacement project; and 5) the outage length and replacement power costs.

See Note 2 to the financial statements in the Form 10-K for a discussion of the base rate case filed by Entergy Louisiana with the LPSC in February 2013.  In April 2013 the LPSC established a procedural schedule providing for hearings in December 2013, with a decision by the LPSC expected by February 2014.

Retail Rates - Gas (Entergy Gulf States Louisiana)

In January 2013, Entergy Gulf States Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2012.  The filing showed an earned return on common equity of 11.18%, which results in a $43 thousand rate reduction.  In March 2013 the LPSC Staff issued its proposed findings and recommended two adjustments.  The first is to normalize property insurance expense, and the second is to modify the return on equity for gas operations to reflect the return on equity that ultimately is approved by the LPSC in the investigation previously initiated by the LPSC to review the return on equity for Louisiana gas utilities.  Exceptions to the LPSC Staff report were due April 25, 2013, however, the parties have agreed to an extension of time through May 10, 2013 for Entergy Gulf States Louisiana to submit its response to the LPSC Staff’s findings.

Filings with the MPSC (Entergy Mississippi)

Formula Rate Plan Filings

In March 2013, Entergy Mississippi submitted its formula rate plan 2012 test year filing.  The filing requests a $36.3 million revenue increase to reset Entergy Mississippi's return on common equity to 10.55%, which is a point within the formula rate plan bandwidth.  The formula rate plan calls for new rates to be implemented in June 2013 (or in July 2013 if any part of the filing is disputed by the Mississippi Public Utilities Staff).  The filing is currently subject to MPSC review.  A scheduling order was filed in April 2013 setting a hearing for July 2, 2013, with a final order to be issued on or before July 15, 2013 and revised rate adjustments to begin billing on July 28, 2013.

Filings with the City Council (Entergy Louisiana)

In March 2013, Entergy Louisiana filed a rate case for the Algiers area, which is in New Orleans and is regulated by the City Council.  Entergy Louisiana is requesting a rate increase of $13 million over three years, including a 10.4% return on common equity and a formula rate plan mechanism identical to its LPSC request.  New rates are currently expected to become effective in second quarter 2014.

System Agreement Cost Equalization Proceedings

See Note 2 to the financial statements in the Form 10-K for a discussion of the proceedings regarding the System Agreement.  Following are updates to that discussion.


 
27
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Rough Production Cost Equalization Rates

2008 Rate Filing Based on Calendar Year 2007 Production Costs

See Note 2 to the financial statements in the Form 10-K for a discussion of this proceeding.  In March 2013 the LPSC filed a petition for review with the U.S. Court of Appeals for the Fifth Circuit seeking appellate review of the FERC’s earlier orders addressing the ALJ’s initial decision.

2009 Rate Filing Based on Calendar Year 2008 Production Costs

See Note 2 to the financial statements in the Form 10-K for a discussion of this proceeding.  In January 2013 the LPSC filed a protest of Entergy’s July 2012 compliance filing submitted in response to the FERC’s May 2012 order.

Interruptible Load Proceeding

See Note 2 to the financial statements in the Form 10-K for a discussion of the proceeding regarding the treatment under the System Agreement of the Utility operating companies’ interruptible loads.  On March 21, 2013, the FERC issued an order denying the LPSC's request for rehearing of the FERC's June 2011 order wherein the FERC concluded it would exercise its discretion and not order refunds in the interruptible load proceeding.  Based on its review of the LPSC’s request for rehearing and the briefs filed as part of the paper hearing established in October 2011, the FERC affirmed its earlier ruling and declined to order refunds under the circumstances of the case.

Storm Cost Recovery Filings with Retail Regulators

Entergy Gulf States Louisiana and Entergy Louisiana

Hurricane Isaac

See Note 2 to the financial statements in the Form 10-K for a discussion of Hurricane Isaac and the damage caused to portions of Entergy’s service area in Louisiana.  In January 2013, Entergy Gulf States Louisiana and Entergy Louisiana withdrew $65 million and $187 million, respectively, from their storm reserve escrow accounts.  In April 2013, Entergy Gulf States Louisiana and Entergy Louisiana filed a joint application with the LPSC relating to Hurricane Isaac system restoration costs.  Specifically, Entergy Gulf States Louisiana and Entergy Louisiana requested that the LPSC determine the amount of such costs that were prudently incurred and are, thus, eligible for recovery from customers.  Including carrying costs and additional storm escrow funds, Entergy Gulf States Louisiana is seeking an LPSC determination that $73.8 million in system restoration costs were prudently incurred and Entergy Louisiana is seeking an LPSC determination that $247.7 million in system restoration costs were prudently incurred.  Entergy Gulf States Louisiana and Entergy Louisiana intend to replenish their storm escrow accounts to $90 million and $200 million, respectively, primarily through traditional debt markets and have requested special rate treatment of any borrowings for that purpose.  This filing does not, however, seek to implement any rate change; rather, Entergy Gulf States Louisiana and Entergy Louisiana anticipate filing a supplemental application in May 2013 proposing a specific means to finance system restoration costs.  Entergy Gulf States Louisiana and Entergy Louisiana plan to pursue Louisiana Act 55 financing of the costs, which was the same method they used for Hurricanes Katrina, Rita, Gustav, and Ike.

Texas Power Price Lawsuit

See Note 2 to the financial statements in the Form 10-K for a discussion of the lawsuit filed in August 2003 in the district court of Chambers County, Texas by Texas residents on behalf of a purported class of the Texas retail customers of Entergy Gulf States, Inc. who were billed and paid for electric power from January 1, 1994 to the present.  The case is pending in state district court, and in March 2012 the court found that the case met the requirements to be maintained as a class action under Texas law.  In April 2012 the court entered an order certifying the class.  The defendants have appealed the order to the Texas Court of Appeals – First District.  The appeal is pending, and proceedings in district court are stayed until the appeal is resolved.  Oral arguments before the court of appeals were conducted on April 23, 2013, and the matter awaits that court’s decision.
 
 
28
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Entergy Arkansas Opportunity Sales Proceeding

See Note 2 to the financial statements in the Form 10-K for a discussion of the Entergy Arkansas opportunity sales proceeding.  As required by the procedural schedule established in the calculation proceeding, Entergy filed its direct testimony that included a proposed illustrative re-run, consistent with the directives in FERC’s order, of intra-system bills for 2003, 2004, and 2006, the three years with the highest volume of opportunity sales.  Entergy’s proposed illustrative re-run of intra-system bills shows that the potential cost for Entergy Arkansas would be up to $12 million for the years 2003, 2004, and 2006, and the potential benefit would be significantly less than that for each of the other Utility operating companies.  Entergy’s proposed illustrative re-run of the intra-system bills also shows an offsetting potential benefit to Entergy Arkansas for the years 2003, 2004, and 2006 resulting from the effects of the FERC’s order on System Agreement Service Schedules MSS-1, MSS-2, and MSS-3, and the potential offsetting cost would be significantly less than that for each of the other Utility operating companies.  Entergy provided to the LPSC an illustrative intra-system bill recalculation as specified by the LPSC for the years 2003, 2004, and 2006, and the LPSC then filed answering testimony in December 2012.  In its testimony the LPSC claims that the damages that should be paid by Entergy Arkansas to the other Utility operating companies’ customers for 2003, 2004, and 2006 are $42 million to Entergy Gulf States, Inc., $7 million to Entergy Louisiana, $23 million to Entergy Mississippi, and $4 million to Entergy New Orleans; and that Entergy Arkansas “shareholders” should pay Entergy Arkansas customers $34 million.  The FERC staff and certain intervenors filed direct and answering testimony in February 2013.  In April 2013, Entergy filed its rebuttal testimony in that proceeding, including a revised illustrative re-run of the intra-system bills for the years 2003, 2004, and 2006.  The revised calculation determines the re-pricing of the opportunity sales based on consideration of moveable resources only and the removal of exchange energy received by Entergy Arkansas, which increases the potential cost for Entergy Arkansas over the three years 2003, 2004, and 2006 by $2.3 million from the potential costs identified in the Utility operating companies’ prior filings in September and October 2012.  A hearing is scheduled for May 2013, and the ALJ’s initial decision on the calculation of the effects is due by August 28, 2013.


NOTE 3.  EQUITY  (Entergy Corporation, Entergy Gulf States Louisiana, and Entergy Louisiana)

Common Stock

Earnings per Share

The following table presents Entergy’s basic and diluted earnings per share calculations included on the consolidated income statements:

   
For the Three Months Ended March 31,
  
   
2013
    
2012
  
   
(In Millions, Except Per Share Data)
  
                                     
Basic earnings per share
  
Income
    
Shares
    
$/share
    
Income
    
Shares
    
$/share
  
                                     
Net income attributable to
Entergy Corporation
   $ 161.4       178.0     $ 0.91     $ (151.7 )     176.9     $ (0.86 )
Average dilutive effect of:
                                                
Stock options
             0.1       -               0.5       -  
Other equity plans
             0.3       (0.01 )             -       -  
                                                 
Diluted earnings per share
   $ 161.4       178.4     $ 0.90     $ (151.7 )     177.4     $ (0.86 )

Entergy’s stock options and other equity compensation plans are discussed in Note 5 herein and in Note 12 to the financial statements in the Form 10-K.


 
29
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Treasury Stock

During the three months ended March 31, 2013, Entergy Corporation issued 288,420 shares of its previously repurchased common stock to satisfy stock option exercises, vesting of shares of restricted stock, and other stock-based awards.  Entergy Corporation did not repurchase any of its common stock during the three months ended March 31, 2013.

Retained Earnings

On April 17, 2013, Entergy Corporation’s Board of Directors declared a common stock dividend of $0.83 per share, payable on June 3, 2013 to holders of record as of May 9, 2013.

Comprehensive Income

Accumulated other comprehensive loss is included in the equity section of the balance sheets of Entergy, Entergy Gulf States Louisiana, and Entergy Louisiana.  The following table presents changes in accumulated other comprehensive income (loss) for Entergy for the three months ended March 31, 2013 by component:

   
Cash flow
hedges
net
unrealized
gain
    
Pension
and
other
postretirement
liabilities
    
Net
unrealized
investment
gains
    
 
Foreign
currency
translation
    
Total
Accumulated
Other
Comprehensive
Loss
  
   
(In Thousands)
  
                               
Beginning balance, December 31, 2012
   $ 79,905     $ (590,712 )   $ 214,547     $ 3,177     $ (293,083 )
                                         
Other comprehensive income (loss)
before reclassifications
     (77,561 )     -       57,372       (772 )     (20,961 )
Amounts reclassified from
accumulated other comprehensive
income (loss)
       1,586         9,795       (995 )       -         10,386  
Net other comprehensive income (loss) for the period
     (75,975 )     9,795       56,377       (772 )     (10,575 )
                                         
Ending balance, March 31, 2013
   $ 3,930     $ (580,917 )   $ 270,924     $ 2,405     $ (303,658 )

The following table presents changes in accumulated other comprehensive loss for Entergy Gulf States Louisiana and Entergy Louisiana for the three months ended March 31, 2013:

   
Pension and Other
Postretirement Liabilities
  
   
Entergy
Gulf States
Louisiana
    
Entergy
Louisiana
  
   
(In Thousands)
  
             
Beginning balance, December 31, 2012
   $ (65,229 )   $ (46,132 )
                 
Amounts reclassified from accumulated other
comprehensive loss
     955       678  
Net other comprehensive income for the period
     955       678  
                 
Ending balance, March 31, 2013
   $ (64,274 )   $ (45,454 )

 
30
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Total reclassifications out of accumulated other comprehensive loss (AOCI) for Entergy for the three months ended March 31, 2013 are as follows:

   
Amounts
reclassified
from
AOCI
  
 
 
 
Income Statement Location
   
(In Thousands)
    
         
Cash flow hedges net unrealized gain
        
Power contracts
   $ (2,117 )
Competitive business operating revenues
Interest rate swaps
     (405 )
Miscellaneous - net
Total realized losses on cash flow hedges
     (2,522 )  
      936  
Income taxes
Total realized losses on cash flow hedges (net of tax)
   $ (1,586 )  
           
Pension and other postretirement liabilities
          
Amortization of prior-service costs
     2,384  
(a)
Amortization of loss
     (18,048 )
(a)
Total amortization
     (15,664 )  
      5,869  
Income taxes
Total amortization (net of tax)
   $ (9,795 )  
           
Net unrealized investment gains
          
Realized gains (net of tax expense of $956)
   $ 995  
Interest and investment income
           
Total reclassifications for the period (net of tax)
   $ (10,386 )  

(a)
These accumulated other comprehensive income components are included in the computation of net periodic pension cost.  See Note 6 to the financial statements for additional details.

Total reclassifications out of accumulated other comprehensive loss (AOCI) for Entergy Gulf States Louisiana and Entergy Louisiana for the three months ended March 31, 2013 are as follows:

   
Amounts reclassified
from AOCI
    
   
Entergy
Gulf States
Louisiana
    
Entergy
Louisiana
  
 
 
Income Statement Location
   
(In Thousands)
    
               
Pension and other postretirement liabilities
              
Amortization of prior-service costs
   $ 206     $ 62  
(a)
Amortization of loss
     (1,947 )     (1,287 )
(a)
Total amortization
     (1,741 )     (1,225 )  
      786       547  
Income taxes
Total amortization (net of tax)
     (955 )     (678 )  
                   
Total reclassifications for the period (net of tax)
   $ (955 )   $ (678 )  

(a)
These accumulated other comprehensive income components are included in the computation of net periodic pension cost.  See Note 6 to the financial statements for additional details.

 
 
31
Entergy Corporation and Subsidiaries
Notes to Financial Statements


NOTE 4.  REVOLVING CREDIT FACILITIES, LINES OF CREDIT, SHORT-TERM BORROWINGS, AND LONG-TERM DEBT (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in March 2018.  Entergy Corporation also has the ability to issue letters of credit against 50% of the total borrowing capacity of the credit facility.  The commitment fee is currently 0.275% of the undrawn commitment amount.  Commitment fees and interest rates on loans under the credit facility can fluctuate depending on the senior unsecured debt ratings of Entergy Corporation.  The weighted average interest rate for the three months ended March 31, 2013 was 1.98% on the drawn portion of the facility.  Following is a summary of the borrowings outstanding and capacity available under the facility as of March 31, 2013.

 
Capacity (a)
  
 
Borrowings
  
Letters
of Credit
  
Capacity
Available
(In Millions)
             
$3,500
  
$570
  
$8
  
$2,922
 

(a)
The capacity decreases to $3,490 million in March 2017.
 
Entergy Corporation’s facility requires it to maintain a consolidated debt ratio of 65% or less of its total capitalization.  Entergy is in compliance with this covenant.  If Entergy fails to meet this ratio, or if Entergy Corporation or one of the Utility operating companies (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the facility maturity date may occur.

Entergy Corporation has a commercial paper program with a program limit of up to $1 billion.  As of March 31, 2013, Entergy Corporation had $883.7 million of commercial paper outstanding.  The weighted-average interest rate for the three months ended March 31, 2013 was 0.84%.

Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each had credit facilities available as of March 31, 2013 as follows:

 
 
 
Company
  
 
 
Expiration
Date
  
 
 
Amount of
Facility
  
 
 
 
Interest Rate (a)
  
Amount Drawn
as of
March 31,
2013
                 
Entergy Arkansas
  
April 2013
  
$20 million (b)
  
1.78%
  
$-
Entergy Arkansas
  
March 2018
  
$150 million (c)
  
1.70%
  
$-
Entergy Gulf States Louisiana
  
March 2018
  
$150 million (d)
  
1.70%
  
$50 million
Entergy Louisiana
  
March 2018
  
$200 million (e)
  
1.70%
  
$-
Entergy Mississippi
  
May 2013
  
$35 million (f)
  
1.95%
  
$35 million
Entergy Mississippi
  
May 2013
  
$25 million (f)
  
1.95%
  
$25 million
Entergy Mississippi
  
May 2013
  
$10 million (f)
  
1.95%
  
$10 million
Entergy New Orleans
  
November 2013
  
$25 million (g)
  
1.68%
  
$25 million
Entergy Texas
  
March 2018
  
$150 million (h)
  
1.95%
  
$-

(a)
The interest rate is the rate as of March 31, 2013 that would most likely apply to outstanding borrowings under the facility.
(b)
The credit facility requires Entergy Arkansas to maintain a debt ratio of 65% or less of its total capitalization.  Borrowings under the Entergy Arkansas credit facility may be secured by a security interest in its accounts receivable.  The credit facility expired in April 2013.  Entergy Arkansas plans to renew the credit facility.
(c)
The credit facility allows Entergy Arkansas to issue letters of credit against 50% of the borrowing capacity of the facility.  As of March 31, 2013, no letters of credit were outstanding.  The credit facility requires Entergy Arkansas to maintain a consolidated debt ratio of 65% or less of its total capitalization.

 
32
Entergy Corporation and Subsidiaries
Notes to Financial Statements



(d)
The credit facility allows Entergy Gulf States Louisiana to issue letters of credit against 50% of the borrowing capacity of the facility.  As of March 31, 2013, no letters of credit were outstanding.  The credit facility requires Entergy Gulf States Louisiana to maintain a consolidated debt ratio of 65% or less of its total capitalization.
(e)
The credit facility allows Entergy Louisiana to issue letters of credit against 50% of the borrowing capacity of the facility.  As of March 31, 2013, no letters of credit were outstanding.  The credit facility requires Entergy Louisiana to maintain a consolidated debt ratio of 65% or less of its total capitalization.
(f)
Borrowings under the Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable.  Entergy Mississippi is required to maintain a consolidated debt ratio of 65% or less of its total capitalization.  Prior to expiration on May 31, 2013, Entergy Mississippi expects to renew all of its credit facilities.
(g)
The credit facility requires Entergy New Orleans to maintain a debt ratio of 65% or less of its total capitalization.
(h)
The credit facility allows Entergy Texas to issue letters of credit against 50% of the borrowing capacity of the facility.  As of March 31, 2013, no letters of credit were outstanding.  The credit facility requires Entergy Texas to maintain a consolidated debt ratio of 65% or less of its total capitalization.

The commitment fees on the credit facilities range from 0.125% to 0.275% of the undrawn commitment amount.

The short-term borrowings of the Registrant Subsidiaries are limited to amounts authorized by the FERC.  The current FERC-authorized limits are effective through October 31, 2013.  In addition to borrowings from commercial banks, these companies are authorized under a FERC order to borrow from the Entergy System money pool.  The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ dependence on external short-term borrowings.  Borrowings from the money pool and external borrowings combined may not exceed the FERC-authorized limits.  The following are the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings as of March 31, 2013 (aggregating both money pool and external short-term borrowings) for the Registrant Subsidiaries:


   
Authorized
  
Borrowings
   
(In Millions)
         
Entergy Arkansas
  
$250
  
$-
Entergy Gulf States Louisiana
  
$200
  
$59
Entergy Louisiana
  
$250
  
$-
Entergy Mississippi
  
$175
  
$74
Entergy New Orleans
  
$100
  
$25
Entergy Texas
  
$200
  
$-
System Energy
  
$200
  
$-

Variable Interest Entities (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, and System Energy)

See Note 18 to the financial statements in the Form 10-K for a discussion of the consolidation of the nuclear fuel company variable interest entities (VIE).  The nuclear fuel company variable interest entities have credit facilities and also issue commercial paper to finance the acquisition and ownership of nuclear fuel as follows as of March 31, 2013:

 
33
Entergy Corporation and Subsidiaries
Notes to Financial Statements



 
 
 
 
 
Company
  




Expiration
Date
  
 
 
 
Amount
of
Facility
  
Weighted
Average
Interest
Rate on
Borrowings
(a)
  
 
Amount
Outstanding
as of
March 31,
2013
   
(Dollars in Millions)
                 
Entergy Arkansas VIE
  
July 2013
  
$85
  
2.28%
  
$21.4
Entergy Gulf States Louisiana VIE
  
July 2013
  
$85
  
n/a
  
$-
Entergy Louisiana VIE
  
July 2013
  
$90
  
2.32%
  
$54.4
System Energy VIE
  
July 2013
  
$100
  
2.32%
  
$20.2

(a)
Includes letter of credit fees and bank fronting fees on commercial paper issuances by the nuclear fuel company variable interest entities for Entergy Arkansas, Entergy Louisiana, and System Energy.  The nuclear fuel company variable interest entity for Entergy Gulf States Louisiana does not issue commercial paper, but borrows directly on its bank credit facility.

Amounts outstanding on the Entergy Gulf States Louisiana nuclear fuel company variable interest entity’s credit facility, if any, are included in long-term debt on its balance sheet and commercial paper outstanding for the other nuclear fuel company variable interest entities is classified as a current liability on the respective balance sheets.  The commitment fees on the credit facilities are 0.20% of the undrawn commitment amount.  Each credit facility requires the respective lessee of nuclear fuel (Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, or Entergy Corporation as guarantor for System Energy) to maintain a consolidated debt ratio of 70% or less of its total capitalization.

The nuclear fuel company variable interest entities had notes payable that are included in debt on the respective balance sheets as of March 31, 2013 as follows:

Company
  
Description
  
Amount
         
Entergy Arkansas VIE
  
9% Series H due June 2013
  
$30 million
Entergy Arkansas VIE
  
5.69% Series I due July 2014
  
$70 million
Entergy Arkansas VIE
  
3.23% Series J due July 2016
  
$55 million
Entergy Arkansas VIE
  
2.62% Series K due December 2017
  
$60 million
Entergy Gulf States Louisiana VIE
  
5.56% Series N due May 2013
  
$75 million
Entergy Gulf States Louisiana VIE
  
3.25% Series Q due July 2017
  
$75 million
Entergy Gulf States Louisiana VIE
  
3.38% Series R due August 2020
  
$70 million
Entergy Louisiana VIE
  
5.69% Series E due July 2014
  
$50 million
Entergy Louisiana VIE
  
3.30% Series F due March 2016
  
$20 million
Entergy Louisiana VIE
  
3.25% Series G due July 2017
  
$25 million
System Energy VIE
  
6.29% Series F due September 2013
  
$70 million
System Energy VIE
  
5.33% Series G due April 2015
  
$60 million
System Energy VIE
  
4.02% Series H due February 2017
  
$50 million

In accordance with regulatory treatment, interest on the nuclear fuel company variable interest entities’ credit facilities, commercial paper, and long-term notes payable is reported in fuel expense.

Debt Issuances and Redemptions

(Entergy Arkansas)

In January 2013, Entergy Arkansas arranged for the issuance by (i) Independence County, Arkansas of $45 million of 2.375% Pollution Control Revenue Refinancing Bonds (Entergy Arkansas, Inc. Project) Series 2013 due January 2021, and (ii) Jefferson County, Arkansas of $54.7 million of 1.55% Pollution Control Revenue Refunding Bonds (Entergy Arkansas, Inc. Project) Series 2013 due October 2017, each of which series is secured by a separate series of non-interest bearing first mortgage bonds of Entergy Arkansas.  The proceeds of these issuances were applied to the refunding of outstanding series of pollution control revenue bonds previously issued by the respective issuers.
 
 
34
Entergy Corporation and Subsidiaries
Notes to Financial Statements

 
(Entergy Mississippi)

           In February 2013, Entergy Mississippi redeemed, at maturity, its $100 million 5.15% Series first mortgage bonds.

Fair Value

The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of March 31, 2013 are as follows:

   
Book Value
of Long-Term Debt
  
Fair Value
of Long-Term Debt (a) (b)
   
(In Thousands)
         
Entergy
  
$12,359,756
  
$12,866,746
Entergy Arkansas
  
$2,123,945
  
$2,020,198
Entergy Gulf States Louisiana
  
$1,637,489
  
$1,805,683
Entergy Louisiana
  
$2,813,918
  
$2,913,342
Entergy Mississippi
  
$1,139,556
  
$1,211,692
Entergy New Orleans
  
$221,302
  
$225,865
Entergy Texas
  
$1,595,957
  
$1,833,724
System Energy
  
$742,926
  
$667,758

(a)
The values exclude lease obligations of $151 million at Entergy Louisiana and $98 million at System Energy, long-term DOE obligations of $181 million at Entergy Arkansas, and the note payable to NYPA of $110 million at Entergy, and include debt due within one year.
(b)
Fair values are classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements and are based on prices derived from inputs such as benchmark yields and reported trades.

The book value and the fair value of long-term debt for Entergy Corporation and the Registrant Subsidiaries as of December 31, 2012 were as follows:

   
Book Value
of Long-Term Debt
  
Fair Value
of Long-Term Debt (a) (b)
   
(In Thousands)
         
Entergy
  
$12,638,834
  
$12,849,330
Entergy Arkansas
  
$2,123,895
  
$1,876,335
Entergy Gulf States Louisiana
  
$1,517,429
  
$1,668,819
Entergy Louisiana
  
$2,826,095
  
$2,921,322
Entergy Mississippi
  
$1,169,519
  
$1,230,714
Entergy New Orleans
  
$196,300
  
$200,725
Entergy Texas
  
$1,617,813
  
$1,885,672
System Energy
  
$783,799
  
$664,670

(a)
The values exclude lease obligations of $163 million at Entergy Louisiana and $139 million at System Energy, long-term DOE obligations of $181 million at Entergy Arkansas, and the note payable to NYPA of $110 million at Entergy, and include debt due within one year.
 
 
35
Entergy Corporation and Subsidiaries
Notes to Financial Statements


(b)
Fair values are classified as Level 2 in the fair value hierarchy discussed in Note 8 to the financial statements and are based on prices derived from inputs such as benchmark yields and reported trades.
 
 

NOTE 5.  STOCK-BASED COMPENSATION (Entergy Corporation)

Entergy grants stock awards, which are described more fully in Note 12 to the financial statements in the Form 10-K.  Awards under Entergy’s plans generally vest over three years.

Stock Options

Entergy granted 600,700 stock options during the first quarter 2013 with a weighted-average fair value of $8.00 per option.  At March 31, 2013, there are 9,757,536 stock options outstanding with a weighted-average exercise price of $79.66.  The intrinsic value, which has no effect on net income, of the outstanding stock options is calculated by the difference in the weighted average exercise price of the stock options granted and Entergy Corporation’s common stock price as of March 31, 2013.  Because Entergy’s stock price at March 31, 2013 is less than the weighted average exercise price, the aggregate intrinsic value of the stock options outstanding as of March 31, 2013 is zero.  The intrinsic value of “in the money” stock options is $4 million as of March 31, 2013.

The following table includes financial information for stock options for the first quarters of 2013 and 2012:

 
2013
  
2012
 
(In Millions)
       
Compensation expense included in Entergy’s net income
$1.3
  
$2.1
Tax benefit recognized in Entergy’s net income
$0.5
  
$0.8
Compensation cost capitalized as part of fixed assets and inventory
$0.2
  
$0.4

Other Equity Plans

In January 2013 the Board approved and Entergy granted 361,700 restricted stock awards and 201,474 long-term incentive awards under the 2011 Equity Ownership and Long-term Cash Incentive Plan.  The restricted stock awards were made effective as of January 31, 2013 and were valued at $64.60 per share, which was the closing price of Entergy’s common stock on that date.  One-third of the restricted stock awards will vest upon each anniversary of the grant date.  The long-term incentive awards are granted in the form of performance units, which are equal to the cash value of shares of Entergy Corporation at the end of the performance period, which is the last day of the year.  The performance units were made effective as of January 31, 2013 and were valued at $65.36 per share.  Entergy considers various factors, primarily market conditions, in determining the value of the performance units.  Shares of the restricted stock awards have the same dividend and voting rights as other common stock, are considered issued and outstanding shares of Entergy upon vesting, and are expensed ratably over the three-year vesting period.  Shares of the performance units have the same dividend rights as other common stock, are considered issued and outstanding shares of Entergy upon vesting, and are expensed ratably over the three-year vesting period.

The following table includes financial information for other equity plans for the first quarters of 2013 and 2012:

 
2013
  
2012
 
(In Millions)
       
Compensation expense included in Entergy’s net income
$5.9
  
$2.9
Tax benefit recognized in Entergy’s net income
$2.3
  
$1.1
Compensation cost capitalized as part of fixed assets and inventory
$0.7
  
$0.5


 
36
Entergy Corporation and Subsidiaries
Notes to Financial Statements


NOTE 6.  RETIREMENT AND OTHER POSTRETIREMENT BENEFITS (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Components of Qualified Net Pension Cost

Entergy’s qualified pension cost, including amounts capitalized, for the first quarters of 2013 and 2012, included the following components:

   
2013
    
2012
  
   
(In Thousands)
  
             
Service cost - benefits earned during the period
   $ 44,051     $ 37,691  
Interest cost on projected benefit obligation
     65,266       65,232  
Expected return on assets
     (81,748 )     (79,356 )
Amortization of prior service cost
     567       683  
Amortization of loss
     54,951       41,820  
Net pension costs
   $ 83,087     $ 66,070  

The Registrant Subsidiaries’ qualified pension cost, including amounts capitalized, for the first quarters of 2013 and 2012, included the following components:

 
 
2013
  
Entergy
Arkansas
    
Entergy
Gulf States
Louisiana
    
Entergy
Louisiana
    
Entergy
 Mississippi
    
Entergy
New Orleans
    
Entergy
Texas
    
System
Energy
  
   
(In Thousands)
  
Service cost - benefits earned
                                          
  during the period
   $ 6,371     $ 3,599     $ 4,334     $ 1,842     $ 832     $ 1,637     $ 1,836  
Interest cost on projected
                                                        
  benefit obligation
     13,550       6,657       8,644       3,930       1,849       4,055       3,016  
Expected return on assets
     (16,717 )     (8,734 )     (10,454 )     (5,279 )     (2,270 )     (5,566 )     (4,299 )
Amortization of prior service
                                                        
  cost
     6       2       21       2       -       2       3  
Amortization of loss
     12,544       5,933       8,727       3,344       2,011       3,373       2,429  
Net pension cost
   $ 15,754     $ 7,457     $ 11,272     $ 3,839     $ 2,422     $ 3,501     $ 2,985  


 
 
2012
  
Entergy
Arkansas
    
Entergy
Gulf States
Louisiana
    
Entergy
Louisiana
    
Entergy
 Mississippi
    
Entergy
New Orleans
    
Entergy
Texas
    
System
Energy
  
   
(In Thousands)
  
Service cost - benefits earned
                                          
  during the period
   $ 5,542     $ 3,068     $ 3,669     $ 1,602     $ 706     $ 1,421     $ 1,480  
Interest cost on projected
                                                        
  benefit obligation
     13,922       6,420       8,800       4,070       1,902       4,206       3,247  
Expected return on assets
     (16,441 )     (8,593 )     (10,209 )     (5,236 )     (2,215 )     (5,581 )     (4,109 )
Amortization of prior service
                                                        
  cost
     50       5       52       7       2       4       3  
Amortization of loss
     10,193       4,043       7,050       2,633       1,719       2,544       2,251  
Net pension cost
   $ 13,266     $ 4,943     $ 9,362     $ 3,076     $ 2,114     $ 2,594     $ 2,872  

 
37
Entergy Corporation and Subsidiaries
Notes to Financial Statements



Entergy recognized $5.5 million and $5.1 million in pension cost for its non-qualified pension plans in the first quarters of 2013 and 2012, respectively.

The Registrant Subsidiaries recognized the following pension cost for their non-qualified pension plans in the first quarters of 2013 and 2012:

   
 
Entergy
Arkansas
  
Entergy
Gulf States
Louisiana
  
 
Entergy
Louisiana
  
 
Entergy
Mississippi
  
 
Entergy
New Orleans
  
 
Entergy
Texas
   
(In Thousands)
Non-qualified pension cost
 first quarter 2013
  
 
$103
  
 
$38
  
 
$3
  
 
$47
  
 
$23
  
 
$149
Non-qualified pension cost
  first quarter 2012
  
 
$107
  
 
$39
  
 
$3
  
 
$46
  
 
$19
  
 
$163


Components of Net Other Postretirement Benefit Cost

Entergy’s other postretirement benefit cost, including amounts capitalized, for the first quarters of 2013 and 2012, included the following components:

   
2013
    
2012
  
   
(In Thousands)
  
             
Service cost - benefits earned during the period
   $ 18,917     $ 17,221  
Interest cost on accumulated postretirement benefit
     obligation (APBO)
     19,766       20,640  
Expected return on assets
     (9,950 )     (8,626 )
Amortization of transition obligation
     -       794  
Amortization of prior service cost
     (3,334 )     (4,541 )
Amortization of loss
     11,304       9,113  
Net other postretirement benefit cost
   $ 36,703     $ 34,601  

The Registrant Subsidiaries’ other postretirement benefit cost, including amounts capitalized, for the first quarters of 2013 and 2012, included the following components:

 
 
2013
  
Entergy
Arkansas
    
Entergy
Gulf States
Louisiana
    
Entergy
Louisiana
    
Entergy
Mississippi
    
Entergy
New Orleans
    
Entergy
Texas
    
System
Energy
  
   
(In Thousands)
  
Service cost - benefits earned
                                          
  during the period
   $ 2,414     $ 2,001     $ 2,172     $ 819     $ 447     $ 950     $ 907  
Interest cost on APBO
     3,360       2,226       2,349       1,074       785       1,515       729  
Expected return on assets
     (4,149 )     -       -       (1,317 )     (1,014 )     (2,321 )     (825 )
Amortization of prior service
                                                        
  cost
     (133 )     (206 )     (62 )     (35 )     10       (107 )     (16 )
Amortization of loss
     2,041       1,174       1,287       662       396       976       479  
Net other postretirement
                                                        
  benefit cost
   $ 3,533     $ 5,195     $ 5,746     $ 1,203     $ 624     $ 1,013     $ 1,274  


 
38
Entergy Corporation and Subsidiaries
Notes to Financial Statements



 
 
2012
  
Entergy
Arkansas
    
Entergy
Gulf States
Louisiana
    
Entergy
Louisiana
    
Entergy
Mississippi
    
Entergy
New Orleans
    
Entergy
Texas
    
System
Energy
  
   
(In Thousands)
  
Service cost - benefits earned
                                          
  during the period
   $ 2,272     $ 1,880     $ 1,949     $ 773     $ 422     $ 913     $ 823  
Interest cost on APBO
     3,613       2,398       2,445       1,179       856       1,663       757  
Expected return on assets
     (3,507 )     -       -       (1,130 )     (928 )     (2,104 )     (650 )
Amortization of transition
                                                        
  obligation
     205       60       96       88       297       47       2  
Amortization of prior service
                                                        
  cost
     (133 )     (206 )     (62 )     (35 )     10       (107 )     (16 )
Amortization of loss
     2,077       1,184       1,090       730       390       1,079       493  
Net other postretirement
                                                        
  benefit cost
   $ 4,527     $ 5,316     $ 5,518     $ 1,605     $ 1,047     $ 1,491     $ 1,409  

Reclassification out of Accumulated Other Comprehensive Income

For the first quarter of 2013, Entergy’s and the Registrant Subsidiaries’ reclassified the following costs out of accumulated other comprehensive income (before taxes and including amounts capitalized):

   
Qualified Pension Costs
    
Other Postretirement Costs
    
Non-Qualified Pension Costs
    
 
Total
  
   
(In Thousands)
        
 Entergy
                        
Amortization of prior service cost
   $ (502 )   $ 3,007     $ (121 )   $ 2,384  
Amortization of loss
     (11,845 )     (5,486 )     (717 )     (18,048 )
    $ (12,347 )   $ (2,479 )   $ (838 )   $ (15,664 )
                                 
 Entergy Gulf States Louisiana
                                
Amortization of prior service cost
   $ -     $ 206     $ -     $ 206  
Amortization of loss
     (771 )     (1,174 )     (2 )   $ (1,947 )
    $ (771 )   $ (968 )   $ (2 )   $ (1,741 )
 Entergy Louisiana
                                
Amortization of prior service cost
   $ -     $ 62     $ -     $ 62  
Amortization of loss
     -       (1,287 )     -       (1,287 )
    $ -     $ (1,225 )   $ -     $ (1,225 )



 
39
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Employer Contributions

Based on current assumptions, Entergy expects to contribute $163.4 million to its qualified pension plans in 2013.  As of March 31, 2013, Entergy had contributed $3.6 million to its pension plans.  Based on current assumptions, the Registrant Subsidiaries expect to contribute the following to qualified pension plans in 2013:

   
 
Entergy
Arkansas
  
Entergy
Gulf States
Louisiana
  
 
Entergy
Louisiana
  
 
Entergy
Mississippi
  
 
Entergy
New Orleans
  
 
Entergy
Texas
  
 
System
Energy
   
(In Thousands)
Expected 2013 pension
  contributions
  
 
$35,382
  
 
$11,550
  
 
$21,151
  
 
$8,152
  
 
$4,175
  
 
$6,880
  
 
$8,304
Pension contributions made
  through March 2013
  
 
$ -
  
 
$ -
  
 
$ -
  
 
$ -
  
 
$ -
  
 
$ -
  
 
$ -
Remaining estimated pension
  contributions to be made in 2013
  
 
$35,382
  
 
$11,550
  
 
$21,151
  
 
$8,152
  
 
$4,175
  
 
$6,880
  
 
$8,304


NOTE 7.  BUSINESS SEGMENT INFORMATION (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Entergy Corporation

Entergy’s reportable segments as of March 31, 2013 are Utility and Entergy Wholesale Commodities.  Utility includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Louisiana, Mississippi, and Texas, and natural gas utility service in portions of Louisiana.  Entergy Wholesale Commodities includes the ownership and operation of six nuclear power plants located in the northern United States and the sale of the electric power produced by those plants to wholesale customers.  Entergy Wholesale Commodities also includes the ownership of interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers.  “All Other” includes the parent company, Entergy Corporation, and other business activity, including the earnings on the proceeds of sales of previously-owned businesses.

In the fourth quarter 2012, Entergy moved two subsidiaries from All Other to the Entergy Wholesale Commodities segment to improve the alignment of certain intercompany items and income tax activity.  The 2012 information in the table below has been restated to reflect the change.

Entergy’s segment financial information for the first quarters of 2013 and 2012 is as follows:

   
 
Utility
    
Entergy
Wholesale
Commodities*
    
 
All Other
    
 
Eliminations
    
 
Entergy
  
   
(In Thousands)
  
2013
                              
Operating revenues
   $ 2,003,441     $ 613,733     $ 1,000     $ (9,300 )   $ 2,608,874  
Income taxes
   $ 71,075     $ 56,936     $ (11,475 )   $ -     $ 116,536  
Consolidated net income (loss)
   $ 127,835     $ 82,114     $ (16,572 )   $ (26,395 )   $ 166,982  
                                         
2012
                                        
Operating revenues
   $ 1,831,640     $ 560,251     $ 959     $ (9,191 )   $ 2,383,659  
Income taxes
   $ 99,707     $ (92,141 )   $ (7,728 )   $ -     $ (162 )
Consolidated net income (loss)
   $ 67,212     $ (175,949 )   $ (10,968 )   $ (27,035 )   $ (146,740 )
 
 
40
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Businesses marked with * are sometimes referred to as the “competitive businesses.”  Eliminations are primarily intersegment activity.

Registrant Subsidiaries

Each of the Registrant Subsidiaries has one reportable segment, which is an integrated utility business, except for System Energy, which is an electricity generation business.  Each of the Registrant Subsidiaries’ operations is managed on an integrated basis by that company because of the substantial effect of cost-based rates and regulatory oversight on the business process, cost structures, and operating results.


NOTE 8.  RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Market and Commodity Risks

In the normal course of business, Entergy is exposed to a number of market and commodity risks.  Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular instrument or commodity.  All financial and commodity-related instruments, including derivatives, are subject to market risk.  Entergy is subject to a number of commodity and market risks, including:

Type of Risk
  
Affected Businesses
     
Power price risk
  
Utility, Entergy Wholesale Commodities
Fuel price risk
  
Utility, Entergy Wholesale Commodities
Equity price and interest rate risk - investments
  
Utility, Entergy Wholesale Commodities

Entergy manages a portion of these risks using derivative instruments, some of which are classified as cash flow hedges due to their financial settlement provisions while others are classified as normal purchase/normal sale transactions due to their physical settlement provisions.  Normal purchase/normal sale risk management tools include power purchase and sales agreements, fuel purchase agreements, capacity contracts, and tolling agreements.  Financially-settled cash flow hedges can include natural gas and electricity swaps and options, and interest rate swaps.  Entergy will occasionally enter into financially settled swap and option contracts to manage market risk under certain hedging transactions which may or may not be designated as hedging instruments. Entergy enters into derivatives only to manage natural risks inherent in its physical or financial assets or liabilities.

Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Gulf States Louisiana and Entergy Louisiana) and Entergy Mississippi primarily through the purchase of short-term natural gas swaps.  These swaps are marked-to-market with offsetting regulatory assets or liabilities.  The notional volumes of these swaps are based on a portion of projected annual exposure to gas for electric generation and projected winter purchases for gas distribution at Entergy Gulf States Louisiana.

Entergy’s exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity.  For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option’s contractual strike or exercise price also affects the level of market risk.  A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk.  Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies.  Entergy’s risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods.  These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy’s objectives.


 
41
Entergy Corporation and Subsidiaries
Notes to Financial Statements



Derivatives

The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2013 are shown in the table below.  Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.

Instrument
  
Balance Sheet Location
  
Fair Value (a)
  
Offset (b)
  
Net (c) (d)
  
Business
       
(In Millions)
    
                     
Derivatives designated as hedging instruments
                    
                     
Assets:
                    
Electricity swaps and options
  
Prepayments and other (current portion)
  
$46
  
($26)
  
$20
  
Entergy Wholesale Commodities
Electricity swaps and options
  
Other deferred debits and other assets (non-current portion)
  
$36
  
($14)
  
$22
  
Entergy Wholesale Commodities
                     
Liabilities:
                    
Electricity swaps and options
  
Other current liabilities
(current portion)
  
$30
  
($20)
  
$10
  
Entergy Wholesale Commodities
Electricity swaps and options
  
Other non-current liabilities (non-current portion)
  
$25
  
($16)
  
$9
  
Entergy Wholesale Commodities
 
 
Derivatives not designated as hedging instruments
                    
                     
Assets:
                    
Electricity swaps and options
  
Prepayments and other (current portion)
  
$58
  
($25)
  
$33
  
Entergy Wholesale Commodities
Electricity swaps and options
  
Other deferred debits and other assets (non-current portion)
  
$15
  
($10)
  
$5
  
Entergy Wholesale Commodities
Natural gas swaps
  
Prepayments and other
  
$24
  
($-)
  
$24
  
Utility
                     
Liabilities:
                    
Electricity swaps and options
  
Other current liabilities
(current portion)
  
$36
  
($31)
  
$5
  
Entergy Wholesale Commodities
Electricity swaps and options
  
Other non-current liabilities (non-current portion)
  
$11
  
($7)
  
$4
  
Entergy Wholesale Commodities


 
42
Entergy Corporation and Subsidiaries
Notes to Financial Statements



The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2012 are shown in the table below.  Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.

Instrument
  
Balance Sheet Location
  
Fair Value (a)
  
Offset (b)
  
Net (c) (d)
  
Business
       
(In Millions)
    
                     
Derivatives designated as hedging instruments
                    
                     
Assets:
                    
Electricity swaps and options
  
Prepayments and other (current portion)
  
$123
  
($-)
  
$123
  
Entergy Wholesale Commodities
Electricity swaps and options
  
Other deferred debits and other assets (non-current portion)
  
$46
  
($10)
  
$36
  
Entergy Wholesale Commodities
                     
Liabilities:
                    
Electricity swaps and options
  
Other non-current liabilities (non-current portion)
  
$18
  
($11)
  
$7
  
Entergy Wholesale Commodities

Derivatives not designated as hedging instruments
                    
                     
Assets:
                    
Electricity swaps and options
  
Prepayments and other (current portion)
  
$22
  
($-)
  
$22
  
Entergy Wholesale Commodities
Electricity swaps and options
  
Other deferred debits and other assets (non-current portion)
  
$24
  
($14)
  
$10
  
Entergy Wholesale Commodities
                     
Liabilities:
                    
Electricity swaps and options
  
Other non-current liabilities (non-current portion)
  
$19
  
($13)
  
$6
  
Entergy Wholesale Commodities
Natural gas swaps
  
Other current liabilities
  
$8
  
($-)
  
$8
  
Utility
 
 
(a)
Represents the gross amounts of recognized assets/liabilities
(b)
Represents the netting of fair value balances with the same counterparty
(c)
Represents the net amounts of assets /liabilities presented on the Entergy Consolidated Balance Sheets
(d)
Excludes cash collateral in the amounts of $12 million and $56 million held as of March 31, 2013 and December 31, 2012, respectively


 
43
Entergy Corporation and Subsidiaries
Notes to Financial Statements



The effect of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended March 31, 2013 and 2012 are as follows:

 
 
Instrument
  
Amount of gain (loss)
recognized in other
comprehensive income
  
 
 
Income Statement location
  
Amount of gain (loss)
 reclassified from
AOCI into income
             
2013
            
Electricity swaps and options
  
($120) million
  
Competitive businesses operating revenues
  
($2) million
             
2012
            
Electricity swaps and options
  
$291 million
  
Competitive businesses operating revenues
  
$71 million

Electricity over-the-counter instruments that financially settle against day-ahead power pool prices are used to manage price exposure for Entergy Wholesale Commodities generation.  Unrealized gains or losses recorded in other comprehensive income result from hedging power output at the Entergy Wholesale Commodities power plants.  The related gains or losses from hedging power are included in operating revenues when realized.  Gains (losses) totaling approximately ($2) million and $71 million were realized on the maturity of cash flow hedges, before taxes (benefit) of ($1) million and $25 million, for the three months ended March 31, 2013 and 2012, respectively.  The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2013 and March 31, 2012 was ($1.3) million and $0.2 million, respectively. The ineffective portion of cash flow hedges is recorded in competitive businesses operating revenues.
 
Based on market prices as of March 31, 2013, unrealized gains (losses) recorded in AOCI on cash flow hedges relating to power sales totaled $15 million of net unrealized gains.  Approximately $5 million is expected to be reclassified from AOCI to operating revenues in the next twelve months.  The actual amount reclassified from AOCI, however, could vary due to future changes in market prices.  The maximum length of time over which Entergy is currently hedging the variability in future cash flows with derivatives for forecasted power transactions at March 31, 2013 is approximately 1.75 years.  Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 84% for the remaining three quarters of 2013, of which approximately 51% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts.

Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations when the current market prices exceed the contracted power prices.  The primary form of collateral to satisfy these requirements is an Entergy Corporation guarantee.  As of March 31, 2013, hedge contracts with six counterparties were in a liability position (approximately $25 million total), but were significantly below the amount of the guarantee provided under the contract and no cash collateral was required. As of March 31, 2012, there were no hedge contracts with counterparties in a liability position.  If the Entergy Corporation credit rating falls below investment grade, the effect of the corporate guarantee is typically ignored and Entergy would have to post collateral equal to the estimated outstanding liability under the contract at the applicable date.

Entergy may effectively liquidate a cash flow hedge instrument by entering into a contract offsetting the original hedge, and then de-designating the original hedge in this situation.  Gains or losses accumulated in other comprehensive income prior to de-designation continue to be deferred in other comprehensive income until they are included in income as the original hedged transaction settles. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract are recorded as assets or liabilities on the balance sheet and offset as they flow through to earnings.


 
44
Entergy Corporation and Subsidiaries
Notes to Financial Statements



Natural gas over-the-counter swaps that financially settle against NYMEX futures are used to manage fuel price volatility for the Utility’s Louisiana and Mississippi customers.  All benefits or costs of the program are recorded in fuel costs.  The total volume of natural gas swaps outstanding as of March 31, 2013 is 60,540,000 MMBtu for Entergy, 18,270,000 MMBtu for Entergy Gulf States Louisiana, 25,140,000 MMBtu for Entergy Louisiana, and 17,130,000 MMBtu for Entergy Mississippi.  Credit support for these natural gas swaps is covered by master agreements that do not require collateralization based on mark-to-market value, but do carry adequate assurance language that may lead to collateralization requests.

The effect of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2013 and 2012 is as follows:

 
Instrument
  
Amount of gain
recognized in AOCI
  
Income Statement
location
  
Amount of gain (loss)
recorded in income
             
2013
            
Natural gas swaps
  
-
  
Fuel, fuel-related expenses, and gas purchased for resale
  
($20) million
Electricity swaps and options de-designated as hedged items
  
$1 million
  
Competitive businesses operating revenues
  
($1) million
             
2012
            
Natural gas swaps
  
 -
  
Fuel, fuel-related expenses, and gas purchased for resale
  
($51) million
Electricity swaps and options de-designated as hedged items
  
$3 million
  
Competitive businesses operating revenues
  
($2) million

Due to regulatory treatment, the natural gas swaps are marked to market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability.  The gains or losses recorded as fuel expenses when the swaps are settled are recovered or refunded through fuel cost recovery mechanisms.

The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of March 31, 2013 are as follows:

Instrument
  
Balance Sheet Location
  
Fair Value
  
Registrant
             
Assets:
            
Natural gas swaps
  
Gas hedge contracts
  
$7.5 million
  
Entergy Gulf States Louisiana
Natural gas swaps
  
Gas hedge contracts
  
$10.0 million
  
Entergy Louisiana
Natural gas swaps
  
Gas hedge contracts
  
$6.6 million
  
Entergy Mississippi


 
45
Entergy Corporation and Subsidiaries
Notes to Financial Statements


The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2012 are as follows:

Instrument
  
Balance Sheet Location
  
Fair Value
  
Registrant
             
Liabilities:
            
Natural gas swaps
  
Gas hedge contracts
  
$2.6 million
  
Entergy Gulf States Louisiana
Natural gas swaps
  
Gas hedge contracts
  
$3.4 million
  
Entergy Louisiana
Natural gas swaps
  
Other current liabilities
  
$2.2 million
  
Entergy Mississippi

The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their statements of income for the three months ended March 31, 2013 and 2012 are as follows:

 
 
Instrument
  
 
 
Statement of Income Location
  
Amount of loss
recorded
in income
  
 
 
Registrant
             
2013
            
Natural gas swaps
  
Fuel, fuel-related expenses, and gas purchased for resale
  
($6.2) million
  
Entergy Gulf States Louisiana
Natural gas swaps
  
Fuel, fuel-related expenses, and gas purchased for resale
  
($8.3) million
  
Entergy Louisiana
Natural gas swaps
  
Fuel, fuel-related expenses, and gas purchased for resale
  
($5.4) million
  
Entergy Mississippi
2012
            
Natural gas swaps
  
Fuel, fuel-related expenses, and gas purchased for resale
  
($15.0) million
  
Entergy Gulf States Louisiana
Natural gas swaps
  
Fuel, fuel-related expenses, and gas purchased for resale
  
($20.7) million
  
Entergy Louisiana
Natural gas swaps
  
Fuel, fuel-related expenses, and gas purchased for resale
  
($13.4) million
  
Entergy Mississippi
Natural gas swaps
  
Fuel, fuel-related expenses, and gas purchased for resale
  
($1.5) million
  
Entergy New Orleans

Fair Values

The estimated fair values of Entergy’s financial instruments and derivatives are determined using bid prices, market quotes, and financial modeling.  Considerable judgment is required in developing the estimates of fair value.  Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange.  Gains or losses realized on financial instruments other than those instruments held by the Entergy Wholesale Commodities business are reflected in future rates and therefore do not accrue to the benefit or detriment of shareholders.  Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments.

Accounting standards define fair value as an exit price, or the price that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between knowledgeable market participants at the date of measurement.  Entergy and the Registrant Subsidiaries use assumptions or market input data that market participants would use in pricing assets or liabilities at fair value.  The inputs can be readily observable, corroborated by market data, or generally unobservable.  Entergy and the Registrant Subsidiaries endeavor to use the best available information to determine fair value.


 
46
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value.  The hierarchy establishes the highest priority for unadjusted market quotes in an active market for the identical asset or liability and the lowest priority for unobservable inputs.  The three levels of the fair value hierarchy are:

·  
Level 1 - Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.  Level 1 primarily consists of individually owned common stocks, cash equivalents (temporary cash investments, securitization recovery trust account, and escrow accounts), debt instruments, and gas hedge contracts. See Note 1 to the financial statements in the Form 10-K for a discussion of cash and cash equivalents.

·  
Level 2 - Level 2 inputs are inputs other than quoted prices included in Level 1 that are, either directly or indirectly, observable for the asset or liability at the measurement date.  Assets are valued based on prices derived by independent third parties that use inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads.  Prices are reviewed and can be challenged with the independent parties and/or overridden by Entergy if it is believed such would be more reflective of fair value.  Level 2 inputs include the following:

-  
quoted prices for similar assets or liabilities in active markets;
-  
quoted prices for identical assets or liabilities in inactive markets;
-  
inputs other than quoted prices that are observable for the asset or liability; or
-  
inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 2 consists primarily of individually-owned debt instruments or shares in common trusts.  Common trust funds are stated at estimated fair value based on the fair market value of the underlying investments.

·  
Level 3 - Level 3 inputs are pricing inputs that are generally less observable or unobservable from objective sources.  These inputs are used with internally developed methodologies to produce management’s best estimate of fair value for the asset or liability.  Level 3 consists primarily of derivative power contracts used as cash flow hedges of power sales at merchant power plants.

The values for power contract assets or liabilities are based on both observable inputs including public market prices and interest rates, and unobservable inputs such as implied volatilities, unit contingent discounts, expected basis differences, and credit adjusted counterparty interest rates.  They are classified as Level 3 assets and liabilities.  The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control group and sent to the Entergy Wholesale Commodities Back Office and Entergy Nuclear Finance groups for evaluation.  The primary functions of the Entergy Wholesale Commodities Risk Control Group include: gathering, validating and reporting market data, providing market and credit risk analyses and valuations in support of Entergy Wholesale Commodities’ commercial transactions, developing and administering protocols for the management of market and credit risks, implementing and maintaining controls around changes to market data in the energy trading and risk management system, reviewing creditworthiness of counterparties, supporting contract negotiations with new counterparties, administering credit support for contracts, and managing the daily margining process.  The primary functions of the Entergy Wholesale Commodities Back Office are managing the energy trading and risk management system, forecasting revenues, forward positions and analysis, performing contract administration, market and counterparty settlements and revenue reporting and analysis along with maintaining related controls for Entergy Wholesale Commodities.  Both Entergy Wholesale Commodities Risk Control and Entergy Wholesale Commodities Back Office report to the Entergy Wholesale Commodities VP, Finance & Risk Group.  Entergy Nuclear Finance is primarily responsible for the financial planning of Entergy’s utility and non-utility nuclear businesses and has a significant role in accounting for the activities and transactions of the associated companies.  The VP, Chief Financial Officer – Nuclear Operations within Entergy Nuclear Finance reports to the Chief Accounting Officer.
 
 
47
Entergy Corporation and Subsidiaries
Notes to Financial Statements


The amounts reflected as the fair value of electricity swaps are based on the estimated amount that the contracts are in-the-money at the balance sheet date (treated as an asset) or out-of-the-money at the balance sheet date (treated as a liability) and would equal the estimated amount receivable or payable by Entergy if the contracts were settled at that date.  These derivative contracts include cash flow hedges that swap fixed for floating cash flows for sales of the output from the Entergy Wholesale Commodities business.  The fair values are based on the mark-to-market comparison between the fixed contract prices and the floating prices determined each period from quoted forward power market prices.  The differences between the fixed price in the swap contract and these market-related prices multiplied by the volume specified in the contract and discounted at the counterparties’ credit adjusted risk free rate are recorded as derivative contract assets or liabilities.  For contracts that have unit contingent terms, a further discount is applied based on the historical relationship between contract and market prices for similar contract terms.

The amounts reflected as the fair values of electricity options are valued based on a Black Scholes model, and are calculated at the end of each month for accounting purposes.  Inputs to the valuation  include end of day forward market prices for the period when the transactions will settle, implied volatilities based on market volatilities provided by a third party data aggregator, and US Treasury rates for a risk-free return rate.  As described further below, prices and implied volatilities are reviewed and can be adjusted if it is determined that there is a better representation of fair value.  As of March 31, 2013, Entergy had in-the-money derivative contracts with a fair value of $77 million with counterparties or their guarantor who are all currently investment grade.  $25 million of the derivative contracts as of March 31, 2013 are out-of-the-money contracts supported by corporate guarantees, which would require additional cash or letters of credit in the event of a decrease in Entergy Corporation’s credit rating to below investment grade.

On a daily basis, Entergy Wholesale Commodities calculates the mark-to-market for all derivative transactions.  Entergy Wholesale Commodities Risk Control Group also validates forward market prices by comparing them to other sources of forward market prices and/or to settlement prices of actual market transactions.  Significant differences are analyzed and potentially adjusted based on these other sources of forward market prices and/or settlement prices of actual market transactions.  Implied volatilities used to value options are also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and using multiple sources of market implied volatilities.  Moreover, on at least a monthly basis the Office of Corporate Risk Oversight confirms the mark-to-market calculations and prepares price scenarios and credit downgrade scenario analysis.  The scenario analysis is communicated to senior management within Entergy and within Entergy Wholesale Commodities.  Finally, for all proposed derivative transactions an analysis is completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’ portfolio.  In particular, the credit, liquidity, and financial metrics impacts are calculated for this analysis.  This analysis is communicated to senior management within Entergy and Entergy Wholesale Commodities.

The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2013 and December 31, 2012.  The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.

 
48
Entergy Corporation and Subsidiaries
Notes to Financial Statements

 


2013
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Temporary cash investments
   $ 197     $ -     $ -     $ 197  
Decommissioning trust funds (a):
                                
Equity securities
     386       2,319       -       2,705  
Debt securities
     745       1,003       -       1,748  
Power contracts
     -       -       80       80  
Gas hedge contracts
     24       -       -       24  
Securitization recovery trust account
     44       -       -       44  
Escrow accounts
     138       -       -       138  
    $ 1,534     $ 3,322     $ 80     $ 4,936  
                                 
Liabilities:
                                
Power contracts
   $ -     $ -     $ 28     $ 28  

2012
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Temporary cash investments
   $ 420     $ -     $ -     $ 420  
Decommissioning trust funds (a):
                                
Equity securities
     358       2,101       -       2,459  
Debt securities
     769       962       -       1,731  
Power contracts
     -       -       191       191  
Securitization recovery trust account
     46       -       -       46  
Escrow accounts
     386       -       -       386  
    $ 1,979     $ 3,063     $ 191     $ 5,233  
                                 
Liabilities:
                                
Power contracts
   $ -     $ -     $ 13     $ 13  
Gas hedge contracts
     8       -       -       8  
    $ 8     $ -     $ 13     $ 21  

(a)
The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices.  Fixed income securities are held in various governmental and corporate securities.  See Note 9 for additional information on the investment portfolios.


 
49
Entergy Corporation and Subsidiaries
Notes to Financial Statements



The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2013 and 2012:

   
2013
    
2012
  
   
(In Millions)
  
             
Balance as of January 1,
   $ 178     $ 312  
                 
Unrealized gains (losses) from price changes
     (115 )     286  
Unrealized gains on originations
     1       1  
Realized losses included in earnings
     (14 )     -  
Realized (gains) losses on settlements
     2       (71 )
                 
Balance as of March 31,
   $ 52     $ 528  

The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy, and the valuation techniques and significant unobservable inputs to each which cause that classification, as of March 31, 2013:

 
 
 
Transaction Type
  
Fair Value
as of
March 31,
2013
  
 
 
Significant
Unobservable Inputs
  
Range
from
Average
%
  
 
 
Effect on
Fair Value
                 
Electricity swaps
  
$12 million
  
Unit contingent discount
  
+/-3%
  
$1 million
Electricity options
  
$40 million
  
Implied volatility
  
+/-9%
  
$27 million

The following table sets forth an analysis of each of the types of unobservable inputs impacting the fair value of items classified as Level 3 within the fair value hierarchy, and the sensitivity to changes to those inputs:

Significant
Unobservable
Input
  
 
 
Transaction Type
  
 
 
Position
  
 
 
Change to Input
  
 
Effect on
Fair Value
                 
Unit contingent
discount
  
 
Electricity swaps
  
 
Sell
  
 
Increase (Decrease)
  
 
Decrease (Increase)
Implied volatility
  
Electricity options
  
Sell
  
Increase (Decrease)
  
Increase (Decrease)
Implied volatility
  
Electricity options
  
Buy
  
Increase (Decrease)
  
Increase (Decrease)

The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets that are accounted for at fair value on a recurring basis as of March 31, 2013 and December 31, 2012.  The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels.


 
50
Entergy Corporation and Subsidiaries
Notes to Financial Statements



Entergy Arkansas

2013
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Temporary cash investments
   $ 12.4     $ -     $ -     $ 12.4  
Decommissioning trust funds (a):
                                
Equity securities
     2.8       417.0       -       419.8  
Debt securities
     70.3       153.1       -       223.4  
Securitization recovery trust account
     7.9       -       -       7.9  
Escrow accounts
     38.0       -       -       38.0  
    $ 131.4     $ 570.1     $ -     $ 701.5  

2012
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Temporary cash investments
   $ 24.9     $ -     $ -     $ 24.9  
Decommissioning trust funds (a):
                                
Equity securities
     9.5       374.5       -       384.0  
Debt securities
     94.3       122.3       -       216.6  
Securitization recovery trust account
     4.4       -       -       4.4  
Escrow accounts
     38.0       -       -       38.0  
    $ 171.1     $ 496.8     $ -     $ 667.9  

Entergy Gulf States Louisiana

2013
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Temporary cash investments
   $ 0.8     $ -     $ -     $ 0.8  
Decommissioning trust funds (a):
                                
Equity securities
     5.0       315.2       -       320.2  
Debt securities
     53.0       138.5       -       191.5  
Gas hedge contracts
     7.5       -       -       7.5  
Escrow accounts
     21.5       -       -       21.5  
    $ 87.8     $ 453.7     $ -     $ 541.5  

2012
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Temporary cash investments
   $ 0.6     $ -     $ -     $ 0.6  
Decommissioning trust funds (a):
                                
Equity securities
     5.5       283.0       -       288.5  
Debt securities
     49.5       139.4       -       188.9  
Escrow accounts
     87.0       -       -       87.0  
    $ 142.6     $ 422.4     $ -     $ 565.0  
                                 
Liabilities:
                                
Gas hedge contracts
   $ 2.6     $ -     $ -     $ 2.6  


 
51
Entergy Corporation and Subsidiaries
Notes to Financial Statements



Entergy Louisiana

2013
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Temporary cash investments
   $ 9.6     $ -     $ -     $ 9.6  
Decommissioning trust funds (a):
                                
Equity securities
     2.9       193.2       -       196.1  
Debt securities
     52.2       60.2       -       112.4  
Securitization recovery trust account
     9.7       -       -       9.7  
Gas hedge contracts
     10.0       -       -       10.0  
    $ 84.4     $ 253.4     $ -     $ 337.8  

2012
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Temporary cash investments
   $ 29.3     $ -     $ -     $ 29.3  
Decommissioning trust funds (a):
                                
Equity securities
     2.0       173.5       -       175.5  
Debt securities
     52.6       59.3       -       111.9  
Securitization recovery trust account
     4.4       -       -       4.4  
Escrow accounts
     187.0       -       -       187.0  
    $ 275.3     $ 232.8     $ -     $ 508.1  
                                 
Liabilities:
                                
Gas hedge contracts
   $ 3.4     $ -     $ -     $ 3.4  

Entergy Mississippi

2013
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Gas hedge contracts
   $ 6.6     $ -     $ -     $ 6.6  
Escrow accounts
     61.8       -       -       61.8  
    $ 68.4     $ -     $ -     $ 68.4  

2012
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Temporary cash investments
   $ 52.4     $ -     $ -     $ 52.4  
Escrow accounts
     61.8       -       -       61.8  
    $ 114.2     $ -     $ -     $ 114.2  
                                 
Liabilities:
                                
Gas hedge contracts
   $ 2.2     $ -     $ -     $ 2.2  


 
52
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Entergy New Orleans

2013
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Temporary cash investments
   $ 4.3     $ -     $ -     $ 4.3  
Escrow accounts
     12.8       -       -       12.8  
    $ 17.1     $ -     $ -     $ 17.1  

2012
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Temporary cash investments
   $ 9.1     $ -     $ -     $ 9.1  
Escrow accounts
     10.6       -       -       10.6  
    $ 19.7     $ -     $ -     $ 19.7  

Entergy Texas

2013
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Securitization recovery trust account
   $ 26.9     $ -     $ -     $ 26.9  

2012
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Temporary cash investments
   $ 59.7     $ -     $ -     $ 59.7  
Securitization recovery trust account
     37.3       -       -       37.3  
    $ 97.0     $ -     $ -     $ 97.0  

System Energy

2013
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Temporary cash investments
   $ 15.4     $ -     $ -     $ 15.4  
Decommissioning trust funds (a):
                                
Equity securities
     2.6       315.5       -       318.1  
Debt securities
     144.5       65.6       -       210.1  
    $ 162.5     $ 381.1     $ -     $ 543.6  

2012
  
Level 1
    
Level 2
    
Level 3
    
Total
  
   
(In Millions)
  
Assets:
                        
Temporary cash investments
   $ 83.5     $ -     $ -     $ 83.5  
Decommissioning trust funds (a):
                                
Equity securities
     1.6       282.0       -       283.6  
Debt securities
     141.1       65.9       -       207.0  
    $ 226.2     $ 347.9     $ -     $ 574.1  

(a)
The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices.  Fixed income securities are held in various governmental and corporate securities.  See Note 9 for additional information on the investment portfolios.
 
 
 
53
Entergy Corporation and Subsidiaries
Notes to Financial Statements


NOTE 9.  DECOMMISSIONING TRUST FUNDS (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, and System Energy)

Entergy holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts.  The NRC requires Entergy subsidiaries to maintain trusts to fund the costs of decommissioning ANO 1, ANO 2, River Bend, Waterford 3, Grand Gulf, Pilgrim, Indian Point 1 and 2, Vermont Yankee, and Palisades (NYPA currently retains the decommissioning trusts and liabilities for Indian Point 3 and FitzPatrick).  The funds are invested primarily in equity securities, fixed-rate fixed-income securities, and cash and cash equivalents.

Entergy records decommissioning trust funds on the balance sheet at their fair value.  Because of the ability of the Registrant Subsidiaries to recover decommissioning costs in rates and in accordance with the regulatory treatment for decommissioning trust funds, the Registrant Subsidiaries have recorded an offsetting amount of unrealized gains/(losses) on investment securities in other regulatory liabilities/assets.  For the nonregulated portion of River Bend, Entergy Gulf States Louisiana has recorded an offsetting amount of unrealized gains/(losses) in other deferred credits.  Decommissioning trust funds for Pilgrim, Indian Point 1 and 2, Vermont Yankee, and Palisades do not meet the criteria for regulatory accounting treatment.  Accordingly, unrealized gains recorded on the assets in these trust funds are recognized in the accumulated other comprehensive income component of shareholders’ equity because these assets are classified as available for sale.  Unrealized losses (where cost exceeds fair market value) on the assets in these trust funds are also recorded in the accumulated other comprehensive income component of shareholders’ equity unless the unrealized loss is other than temporary and therefore recorded in earnings.  Generally, Entergy records realized gains and losses on its debt and equity securities using the specific identification method to determine the cost basis of its securities.

The securities held as of March 31, 2013 and December 31, 2012 are summarized as follows:

   
Fair
Value
    
Total
Unrealized
Gains
    
Total
Unrealized
Losses
  
   
(In Millions)
  
                   
2013
                  
Equity Securities
   $ 2,705     $ 897     $ -  
Debt Securities
     1,748       102       5  
  Total
   $ 4,453     $ 999     $ 5  

   
Fair
Value
    
Total
Unrealized
Gains
    
Total
Unrealized
Losses
  
   
(In Millions)
  
                   
2012
                  
Equity Securities
   $ 2,459     $ 662     $ 1  
Debt Securities
     1,731       116       5  
  Total
   $ 4,190     $ 778     $ 6  

Deferred taxes on unrealized gains/(losses) are recorded in other comprehensive income for the decommissioning trusts which do not meet the criteria for regulatory accounting treatment as described above. Unrealized gains/(losses) above are reported before deferred taxes of $265 million and $211 million as of March 31, 2013 and December 31, 2012, respectively.  The amortized cost of debt securities was $1,654 million as of March 31, 2013 and $1,637 million as of December 31, 2012.  As of March 31, 2013, the debt securities have an average coupon rate of approximately 3.71%, an average duration of approximately 5.27 years, and an average maturity of approximately 8.08 years.  The equity securities are generally held in funds that are designed to approximate or somewhat exceed the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the securities are held in funds intended to replicate the return of the Wilshire 4500 Index or the Russell 3000 Index.
 
 
54
Entergy Corporation and Subsidiaries
Notes to Financial Statements



The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of March 31, 2013:

   
Equity Securities
    
Debt Securities
  
   
Fair
Value
    
Gross
Unrealized
Losses
    
Fair
Value
    
Gross
Unrealized
Losses
  
   
(In Millions)
  
                         
Less than 12 months
   $ 3     $ -     $ 223     $ 2  
More than 12 months
     -       -       36       3  
  Total
   $ 3     $ -     $ 259     $ 5  

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2012:

   
Equity Securities
    
Debt Securities
  
   
Fair
Value
    
Gross
Unrealized
Losses
    
Fair
Value
    
Gross
Unrealized
Losses
  
   
(In Millions)
  
                         
Less than 12 months
   $ 37     $ 1     $ 175     $ 1  
More than 12 months
     20       -       48       4  
  Total
   $ 57     $ 1     $ 223     $ 5  

The unrealized losses in excess of twelve months on equity securities above relate to Entergy’s Utility operating companies and System Energy.

The fair value of debt securities, summarized by contractual maturities, as of March 31, 2013 and December 31, 2012 are as follows:

   
2013
    
2012
  
   
(In Millions)
  
less than 1 year
   $ 71     $ 53  
1 year - 5 years
     692       681  
5 years - 10 years
     558       562  
10 years - 15 years
     161       164  
15 years - 20 years
     69       61  
20 years+
     197       210  
  Total
   $ 1,748     $ 1,731  

During the three months ended March 31, 2013 and 2012, proceeds from the dispositions of securities amounted to $398 million and $536 million, respectively.  During the three months ended March 31, 2013 and 2012, gross gains of $6 million and $12 million, respectively, and gross losses of $2 million and $2 million, respectively, were reclassified out of other comprehensive income or other regulatory liabilities/assets into earnings.
 
 
55
Entergy Corporation and Subsidiaries
Notes to Financial Statements



Entergy Arkansas

Entergy Arkansas holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts.  The securities held as of March 31, 2013 and December 31, 2012 are summarized as follows:

   
Fair
Value
    
Total
Unrealized
Gains
    
Total
Unrealized
Losses
  
   
(In Millions)
  
2013
                  
Equity Securities
   $ 419.8     $ 156.1     $ -  
Debt Securities
     223.4       12.2       0.5  
Total
   $ 643.2     $ 168.3     $ 0.5  
                         
2012
                        
Equity Securities
   $ 384.0     $ 116.1     $ -  
Debt Securities
     216.6       14.5       0.2  
Total
   $ 600.6     $ 130.6     $ 0.2  

The amortized cost of debt securities was $211.7 million as of March 31, 2013 and $202.3 million as of December 31, 2012.  As of March 31, 2013, the debt securities have an average coupon rate of approximately 3.12%, an average duration of approximately 5.06 years, and an average maturity of approximately 5.77 years.  The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the securities are held in funds intended to replicate the return of the Wilshire 4500 Index.

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of March 31, 2013:

   
Equity Securities
    
Debt Securities
  
   
Fair
Value
    
Gross
Unrealized
Losses
    
Fair
Value
    
Gross
Unrealized
Losses
  
   
(In Millions)
  
                         
Less than 12 months
   $ -     $ -     $ 35.5     $ 0.4  
More than 12 months
     -       -       2.0       0.1  
Total
   $ -     $ -     $ 37.5     $ 0.5  

           The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2012:

 
56
Entergy Corporation and Subsidiaries
Notes to Financial Statements



   
Equity Securities
    
Debt Securities
  
   
Fair
Value
    
Gross
Unrealized
Losses
    
Fair
Value
    
Gross
Unrealized
Losses
  
   
(In Millions)
  
                         
Less than 12 months
   $ 0.2     $ -     $ 24.4     $ 0.2  
More than 12 months
     -       -       1.0       -  
Total
   $ 0.2     $ -     $ 25.4     $ 0.2  

The fair value of debt securities, summarized by contractual maturities, as of March 31, 2013 and December 31, 2012 are as follows:

   
2013
    
2012
  
   
(In Millions)
  
             
less than 1 year
   $ 5.3     $ 8.8  
1 year - 5 years
     115.2       98.6  
5 years - 10 years
     90.3       93.1  
10 years - 15 years
     4.0       5.1  
15 years - 20 years
     1.0       -  
20 years+
     7.6       11.0  
Total
   $ 223.4     $ 216.6  

During the three months ended March 31, 2013 and 2012, proceeds from the dispositions of securities amounted to $56.1 million and $54.7 million, respectively.  During the three months ended March 31, 2013 and 2012, gross gains of $1.4 million and $2 million, respectively, were reclassified out of other regulatory liabilities/assets into earnings. During the three months ended March 31, 2013 gross losses of $0.1 million were reclassified out of other regulatory liabilities/assets into earnings. During the three months ended March 31, 2012, gross losses were insignificant.

Entergy Gulf States Louisiana

Entergy Gulf States Louisiana holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts.  The securities held as of March 31, 2013 and December 31, 2012 are summarized as follows:

   
Fair
Value
    
Total
Unrealized
Gains
    
Total
Unrealized
Losses
  
   
(In Millions)
  
2013
                  
Equity Securities
   $ 320.2     $ 99.3     $ -  
Debt Securities
     191.5       14.0       0.3  
Total
   $ 511.7     $ 113.3     $ 0.3  
                         
2012
                        
Equity Securities
   $ 288.5     $ 69.8     $ -  
Debt Securities
     188.9       15.8       0.1  
Total
   $ 477.4     $ 85.6     $ 0.1  
                         
 
 
57
Entergy Corporation and Subsidiaries
Notes to Financial Statements


The amortized cost of debt securities was $175.2 million as of March 31, 2013 and $174.1 million as of December 31, 2012.  As of March 31, 2013, the debt securities have an average coupon rate of approximately 4.60%, an average duration of approximately 5.47 years, and an average maturity of approximately 8.36 years.  The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the securities are held in funds intended to replicate the return of the Wilshire 4500 Index.

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of March 31, 2013:

   
Equity Securities
    
Debt Securities
  
   
Fair
Value
    
Gross
Unrealized
Losses
    
Fair
Value
    
Gross
Unrealized
Losses
  
   
(In Millions)
  
                         
Less than 12 months
   $ -     $ -     $ 18.4     $ 0.3  
More than 12 months
     -       -       -       -  
  Total
   $ -     $ -     $ 18.4     $ 0.3  

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2012:

   
Equity Securities
    
Debt Securities
  
   
Fair
Value
    
Gross
Unrealized
Losses
    
Fair
Value
    
Gross
Unrealized
Losses
  
   
(In Millions)
  
                         
Less than 12 months
   $ 1.2     $ -     $ 9.1     $ 0.1  
More than 12 months
     1.0       -       -       -  
  Total
   $ 2.2     $ -     $ 9.1     $ 0.1  

The fair value of debt securities, summarized by contractual maturities, as of March 31, 2013 and December 31, 2012 are as follows:

   
2013
    
2012
  
   
(In Millions)
  
             
less than 1 year
   $ 6.8     $ 8.0  
1 year - 5 years
     40.9       43.5  
5 years - 10 years
     64.8       63.5  
10 years - 15 years
     58.0       55.8  
15 years - 20 years
     9.5       8.5  
20 years+
     11.5       9.6  
  Total
   $ 191.5     $ 188.9  

During the three months ended March 31, 2013 and 2012, proceeds from the dispositions of securities amounted to $23.3 million and $38.1 million, respectively.  During the three months ended March 31, 2013 and 2012, gross gains of $1.1 million and $1.5 million, respectively, and gross losses of $1.7 thousand and $5.5 thousand, respectively, were reclassified out of other regulatory liabilities/assets into earnings.
 
 
58
Entergy Corporation and Subsidiaries
Notes to Financial Statements


Entergy Louisiana

Entergy Louisiana holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts.  The securities held as of March 31, 2013 and December 31, 2012 are summarized as follows:

   
Fair
Value
    
Total
Unrealized
Gains
    
Total
Unrealized
Losses
  
   
(In Millions)
  
2013
                  
Equity Securities
   $ 196.1     $ 67.3     $ -  
Debt Securities
     112.4       8.5       0.2  
Total
   $ 308.5     $ 75.8     $ 0.2  
                         
2012
                        
Equity Securities
   $ 175.5     $ 48.9     $ 0.1  
Debt Securities
     111.9       9.4       0.1  
Total
   $ 287.4     $ 58.3     $ 0.2  

The amortized cost of debt securities was $104.5 million as of March 31, 2013 and $102.6 million as of December 31, 2012.  As of March 31, 2013, the debt securities have an average coupon rate of approximately 3.57%, an average duration of approximately 5.21 years, and an average maturity of approximately 9.18 years.  The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the securities are held in funds intended to replicate the return of the Wilshire 4500 Index.

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of March 31, 2013:

   
Equity Securities
    
Debt Securities
  
   
Fair
Value
    
Gross
Unrealized
Losses
    
Fair
Value
    
Gross
Unrealized
Losses
  
   
(In Millions)
  
                         
Less than 12 months
   $ -     $ -     $ 9.5     $ 0.1  
More than 12 months
     -       -       0.5       0.1  
  Total
   $ -     $ -     $ 10.0     $ 0.2  

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2012:

   
Equity Securities
    
Debt Securities
  
   
Fair
Value
    
Gross
Unrealized
Losses
    
Fair
Value
    
Gross
Unrealized
Losses
  
   
(In Millions)
  
                         
Less than 12 months
   $ 0.7     $ -     $ 3.4     $ -  
More than 12 months
     5.6       0.1       0.5       0.1  
  Total
   $ 6.3     $ 0.1     $ 3.9     $ 0.1  
 
 
59
Entergy Corporation and Subsidiaries
Notes to Financial Statements


 The fair value of debt securities, summarized by contractual maturities, as of March 31, 2013 and December 31, 2012 are as follows:

   
2013
    
2012
  
   
(In Millions)
  
             
less than 1 year
   $ 10.9     $ 1.9  
1 year - 5 years
     34.8       42.3  
5 years - 10 years
     25.7       24.9  
10 years - 15 years
     17.4       18.8  
15 years - 20 years
     2.3       1.7  
20 years+
     21.3       22.3  
  Total
   $ 112.4     $ 111.9  

During the three months ended March 31, 2013 and 2012, proceeds from the dispositions of securities amounted to $3.6 million and $6.8 million, respectively.  During the three months ended March 31, 2013 and 2012, gross gains of $0.04 million and $0.03 million, respectively, and gross losses of $0.01 million and $2.8 thousand, respectively, were reclassified out of other regulatory liabilities/assets into earnings.

System Energy

System Energy holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts.  The securities held as of March 31, 2013 and December 31, 2012 are summarized as follows:

   
Fair
Value
    
Total
Unrealized
Gains
    
Total
Unrealized
Losses
  
   
(In Millions)
  
2013
                  
Equity Securities
   $ 318.1     $ 93.4     $ -  
Debt Securities
     210.1       8.4       0.1  
Total
   $ 528.2     $ 101.8     $ 0.1  
                         
2012
                        
Equity Securities
   $ 283.6     $ 63.6     $ 0.2  
Debt Securities
     207.0       9.3       0.1  
Total
   $ 490.6     $ 72.9     $ 0.3  

The amortized cost of debt securities was $203.3 million as of March 31, 2013 and $197.8 million as of December 31, 2012.  As of March 31, 2013, the debt securities have an average coupon rate of approximately 2.75%, an average duration of approximately 4.59 years, and an average maturity of approximately 6.21 years.  The equity securities are generally held in funds that are designed to approximate the return of the Standard & Poor’s 500 Index.  A relatively small percentage of the securities are held in funds intended to replicate the return of the Wilshire 4500 Index.


 
60
Entergy Corporation and Subsidiaries
Notes to Financial Statements


The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of March 31, 2013:

   
Equity Securities
    
Debt Securities
  
   
Fair
Value
    
Gross
Unrealized
Losses
    
Fair
Value
    
Gross
Unrealized
Losses
  
   
(In Millions)
  
                         
Less than 12 months
   $ -     $ -     $ 17.0     $ 0.1  
More than 12 months
     -       -       -       -  
  Total
   $ -     $ -     $ 17.0     $ 0.1  

The fair value and gross unrealized losses of available-for-sale equity and debt securities, summarized by investment type and length of time that the securities have been in a continuous loss position, are as follows as of December 31, 2012:

   
Equity Securities
    
Debt Securities
  
   
Fair
Value
    
Gross
Unrealized
Losses
    
Fair
Value
    
Gross
Unrealized
Losses
  
   
(In Millions)
  
                         
Less than 12 months
   $ 1.4     $ -     $ 15.5     $ 0.1  
More than 12 months
     13.0       0.2       -       -  
  Total
   $ 14.4     $ 0.2     $ 15.5     $ 0.1  

The fair value of debt securities, summarized by contractual maturities, as of March 31, 2013 and December 31, 2012 are as follows:

   
2013
    
2012
  
   
(In Millions)
  
             
less than 1 year
   $ 6.5     $ 1.3  
1 year - 5 years
     119.5       128.7  
5 years - 10 years
     62.7       53.9  
10 years - 15 years
     2.4       2.3  
15 years - 20 years
     1.7       1.4  
20 years+
     17.3       19.4  
  Total
   $ 210.1     $ 207.0  

During the three months ended March 31, 2013 and 2012, proceeds from the dispositions of securities amounted to $25.6 million and $125.4 million, respectively.  During the three months ended March 31, 2013 and 2012, gross gains of $0.02 million and $1.2 million, respectively, and gross losses of $0.07 million and $0.1 million, respectively, were reclassified out of other regulatory liabilities/assets into earnings.

Other-than-temporary impairments and unrealized gains and losses

Entergy, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, and System Energy evaluate unrealized losses at the end of each period to determine whether an other-than-temporary impairment has occurred.  The assessment of whether an investment in a debt security has suffered an other-than-temporary impairment is based on whether Entergy has the intent to sell or more likely than not will be required to sell the debt security before recovery of its amortized costs.  Further, if Entergy does not
 
 
 
61
Entergy Corporation and Subsidiaries
Notes to Financial Statements


expect to recover the entire amortized cost basis of the debt security, an other-than-temporary impairment is considered to have occurred and it is measured by the present value of cash flows expected to be collected less the amortized cost basis (credit loss).  Entergy did not have any material other-than-temporary impairments relating to credit losses on debt securities for the three months ended March 31, 2013 and 2012.  The assessment of whether an investment in an equity security has suffered an other-than-temporary impairment continues to be based on a number of factors including, first, whether Entergy has the ability and intent to hold the investment to recover its value, the duration and severity of any losses, and, then, whether it is expected that the investment will recover its value within a reasonable period of time.  Entergy’s trusts are managed by third parties who operate in accordance with agreements that define investment guidelines and place restrictions on the purchases and sales of investments.  Entergy did not record material charges to other income in the three months ended March 31, 2013 and 2012, respectively, resulting from the recognition of the other-than-temporary impairment of certain equity securities held in its decommissioning trust funds.


NOTE 10.  INCOME TAXES (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

See Income Tax Litigation, Income Tax Audits, and Other Tax Matters in Note 3 to the financial statements in the Form 10-K for a discussion of income tax proceedings, income tax audits, and other income tax matters involving Entergy.  As discussed in the Form 10-K, oral argument in PPL’s U.K. Windfall Tax case at the U.S. Supreme Court was heard in February 2013, and the U.S. Supreme Court’s decision is pending.  Also, in March 2013, Entergy Louisiana distributed to its parent, Entergy Louisiana Holdings, Inc., Louisiana income tax credits of $20.6 million which resulted in a decrease in Entergy Louisiana’s member’s equity account.


NOTE 11.  PROPERTY, PLANT, AND EQUIPMENT (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

Construction Expenditures in Accounts Payable

Construction expenditures included in accounts payable at March 31, 2013 are $161.9 million for Entergy, $12 million for Entergy Arkansas, $27.1 million for Entergy Gulf States Louisiana, $54.1 million for Entergy Louisiana, $1.7 million for Entergy Mississippi, $1.6 million for Entergy New Orleans, $3.6 million for Entergy Texas, and $6 million for System Energy.  Construction expenditures included in accounts payable at December 31, 2012 are $267 million for Entergy, $56.3 million for Entergy Arkansas, $9.7 million for Entergy Gulf States Louisiana, $110.4 million for Entergy Louisiana, $4.8 million for Entergy Mississippi, $1.9 million for Entergy New Orleans, $8.6 million for Entergy Texas, and $13.5 million for System Energy.

Impairment of Long-Lived Assets

See “Impairment of Long-Lived Assets” in Note 1 to the financial statements in the Form 10-K for a discussion of the periodic reviews that Entergy performs whenever events or changes in circumstances indicate that the recoverability of long-lived assets is uncertain.  Following is an update to that discussion regarding the Vermont Yankee nuclear power plant.

As discussed in the Form 10-K, the New England Coalition in December 2012 filed a complaint in the Vermont Supreme Court seeking an order to shut down Vermont Yankee while its Certificate of Public Good application is pending, and Entergy moved to dismiss that complaint.  On March 25, 2013, the Vermont Supreme Court granted Entergy’s motion and dismissed the complaint.  As also discussed in the 10-K, Entergy appealed a January 2013 order of the VPSB that made ripe for appeal two earlier orders in which
 
 
62
Entergy Corporation and Subsidiaries
Notes to Financial Statements


the VPSB had found that the state’s timely renewal law, 3 V.S.A. § 814(b), did not apply to certain conditions in the orders issued by the VPSB in 2002 and 2006 precluding Vermont Yankee’s operation after March 21, 2012.  Entergy filed its appeal brief on March 28, 2013 and briefing will continue into June 2013.  The remaining schedule for that appeal has not yet been determined.  Additionally, as discussed in the 10-K, in February 2013, the VPSB issued a notice allowing comments to be filed regarding Vermont Yankee’s petition for a Certificate of Public Good to install a diesel generator to enable it to comply with the NRC’s station blackout requirements.  The VPSB has since invited further comments and other submissions, and has issued a scheduling order that allows the assigned hearing officer to issue a proposal for decision in the second half of May 2013.  Because Vermont Yankee must commence installation of the generator by mid-June 2013 in order to be confident that it will be operational by September 1, 2013, the date by which it will be needed to meet the NRC’s station blackout requirements, on April 25, 2013, Entergy as a precaution filed a complaint in the United States District Court for the District of Vermont seeking a determination that federal law preempts Vermont from enforcing any state law that would prevent Vermont Yankee from installing the generator to comply with the NRC’s requirements, as well as preliminary and permanent injunctive relief against such enforcement.

Impairment of Vermont Yankee in First Quarter 2012

See the Form 10-K for a discussion of the impairment charge recorded for the Vermont Yankee plant in the first quarter 2012.


NOTE 12.  VARIABLE INTEREST ENTITIES (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

See Note 18 to the financial statements in the Form 10-K for a discussion of variable interest entities.  See Note 4 to the financial statements herein for details of the nuclear fuel companies’ credit facility and commercial paper borrowings and long-term debt.

Entergy Louisiana and System Energy are each considered to hold a variable interest in the lessors from which they lease, respectively, undivided interests representing approximately 9.3% of the Waterford 3 and 11.5% of the Grand Gulf nuclear plants.  Entergy Louisiana and System Energy are the lessees under these arrangements, which are described in more detail in Note 10 to the financial statements in the Form 10-K.  Entergy Louisiana made payments on its lease, including interest, of $18.5 million and $26.8 million in the three months ended March 31, 2013 and 2012, respectively.  System Energy made payments on its lease, including interest, of $46.8 million and $48.1 million in the three months ended March 31, 2013 and 2012, respectively.


NOTE 13.  ASSET RETIREMENT OBLIGATIONS  (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

See Note 9 to the financial statements in the Form 10-K for a discussion of asset retirement obligations.  Following is an update to that discussion.

 In the first quarter of 2013, Entergy Wholesale Commodities recorded a revision to its estimated decommissioning cost liability for a nuclear site as a result of a revised decommissioning cost study.  The revised estimate resulted in a $46.6 million reduction in the decommissioning cost liability, along with a corresponding reduction in the related asset retirement cost asset.
__________________________________

In the opinion of the management of Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassification of previously reported amounts to conform to current classifications) necessary for a fair statement of the results for the interim periods presented.  The business of the Registrant Subsidiaries is subject to seasonal fluctuations, however, with the peak periods occurring during the third quarter.  The results for the interim periods presented should not be used as a basis for estimating results of operations for a full year.


Part I, Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of March 31, 2013, evaluations were performed under the supervision and with the participation of Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy (individually “Registrant” and collectively the “Registrants”) management, including their respective Principal Executive Officers (PEO) and Principal Financial Officers (PFO).  The evaluations assessed the effectiveness of the Registrants’ disclosure controls and procedures.  Based on the evaluations, each PEO and PFO has concluded that, as to the Registrant or Registrants for which they serve as PEO or PFO, the Registrant’s or Registrants’ disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms; and that the Registrant’s or Registrants’ disclosure controls and procedures are also effective in reasonably assuring that such information is accumulated and communicated to the Registrant’s or Registrants’ management, including their respective PEOs and PFOs, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

Under the supervision and with the participation of each Registrants’ management, including its respective PEO and PFO, each Registrant evaluated changes in internal control over financial reporting that occurred during the quarter ended March 31, 2013 and found no change that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.



ENTERGY ARKANSAS, INC. AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS


Plan to Spin Off the Utility’s Transmission Business

See the “Plan to Spin Off the Utility’s Transmission Business” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K and herein for a discussion of Entergy’s plan to spin off its transmission business and merge it with a newly formed subsidiary of ITC Holdings Corp., including the planned retirement of debt and preferred securities.

Results of Operations

Net Income

Net income increased slightly, by $0.8 million, primarily due to higher net revenue, substantially offset by higher other operation and maintenance expenses, higher depreciation and amortization expenses, higher taxes other than income taxes, and higher interest expense.

Net Revenue

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits.  Following is an analysis of the change in net revenue comparing the first quarter 2013 to the first quarter 2012.

  
  
Amount
  
   
(In Millions)
  
       
2012 net revenue
   $ 262.8  
Retail electric price
     16.8  
Volume/weather
     5.1  
Net wholesale revenue
     3.2  
Other
     1.0  
2013 net revenue
   $ 288.9  

The retail electric price variance is primarily due to:

·  
an increase in the capacity acquisition rider, as approved by the APSC, effective with the first billing cycle of December 2012, relating to the Hot Spring plant acquisition.  The net income effect of the Hot Spring plant cost recovery is limited to a portion representing an allowed return on equity on the net plant investment with the remainder offset by the Hot Spring plant costs in other operation and maintenance expenses, depreciation expenses, and taxes other than income taxes; and
·  
an increase in the energy efficiency rider, as approved by the APSC, effective July 2012.  Energy efficiency revenues are offset by costs included in other operation and maintenance expenses and have no effect on net income.

The volume/weather variance is primarily due to the effect of more favorable weather, primarily on residential sales, in the first quarter 2013 as compared to the same period in prior year.

The net wholesale revenue variance is primarily due to higher margins on co-owner contracts.


 
65
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis


Gross operating revenues and fuel and purchased power expenses

Gross operating revenues increased primarily due to:

·  
an increase of $29.5 million in gross wholesale revenues primarily due to increased sales to affiliated customers;
·  
an increase of $10.6 million in rider revenues related to higher System Agreement production cost equalization payments.  These revenues are offset in deferred fuel expenses.  See Note 2 to the financial statements herein and in the Form 10-K for a discussion of the FERC orders in the System Agreement production cost equalization proceedings;
·  
an increase of $10 million primarily due to the increase in the capacity acquisition rider, as discussed above;
·  
an increase of $5.9 million in rider revenues due to an increase in the energy efficiency rider effective July 2012, as discussed above; and
·  
the increase related to volume/weather, as discussed above.

Fuel and purchased power expenses increased primarily due to an increase in gas-fired generation as a result of the Hot Spring plant acquisition, an increase in the average market price of purchased power, and higher System Agreement production cost equalization payments, as discussed above.  The increase was partially offset by a decrease in the recovery from customers of deferred fuel costs.

Other Income Statement Variances

Other operation and maintenance expenses increased primarily due to:

·  
an increase of $5.9 million in fossil-fueled generation expenses primarily due to higher plant outage costs in 2013 and the addition of the Hot Spring plant in November 2012;
·  
an increase of $5.3 million in energy efficiency costs.  These costs are recovered through the energy efficiency rider and have no effect on net income;
·  
an increase of $3.4 million in compensation and benefits costs primarily due to a decrease in the discount rates used to determine net periodic pension and other postretirement benefit costs.  See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Critical Accounting Estimates" in the Form 10-K and Note 6 to the financial statements herein for further discussion of benefits costs; and
·  
an increase of $2.6 million in nuclear generation expenses primarily due to higher nuclear labor costs.

Taxes other than income taxes increased primarily due to an increase in ad valorem taxes resulting from higher assessments and an expiring exemption and an increase in local franchise taxes resulting from higher residential and commercial revenues compared to the same period in prior year.  Franchise taxes have no effect on net income as these taxes are recovered through the franchise tax rider.

Depreciation and amortization expenses increased primarily due to the acquisition of the Hot Spring plant in November 2012.

Interest expense increased primarily due to the issuance of $200 million of 4.9% Series first mortgage bonds in December 2012.

Income Taxes

The effective income tax rate for the first quarter 2013 was 48.1%.  The difference in the effective income tax rate for the first quarter 2013 versus the federal statutory rate of 35% is due to state income taxes, certain book and tax differences related to utility plant items, and the provision for uncertain tax positions, partially offset by book and tax differences related to the allowance for equity funds used during construction.


 
66
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis



The effective income tax rate for the first quarter 2012 was 45.9%.  The difference in the effective income tax rate for the first quarter 2012 versus the federal statutory rate of 35% was due to state income taxes and certain book and tax differences related to utility plant items, partially offset by book and tax differences related to the allowance for equity funds used during construction.

ANO Damage and Outage

On March 31, 2013, during a scheduled refueling outage at ANO 1, a contractor-owned and operated heavy-lifting apparatus collapsed while moving the generator stator out of the turbine building.  The collapse resulted in the death of an ironworker and injuries to several other contract workers, caused ANO 2 to shut down, and damaged the ANO turbine building.  The turbine building serves both ANO 1 and 2 and is a non-radiological area of the plant.  Entergy is still analyzing the incident; the extent of the damage; the cost of assessment, debris removal, and replacing damaged property and equipment; and the schedule for restoring ANO 1 to service, but was able to restart ANO 2 on April 28, 2013.  In addition, Entergy Arkansas incurred replacement power costs for ANO 2 power during its outage and expects to incur incremental replacement power costs for ANO 1 power to the extent its outage extends beyond the originally-planned duration of the refueling outage.  Each of the Utility operating companies has recovery mechanisms in place designed to recover its prudently-incurred fuel and purchased power costs.

Entergy Arkansas is assessing its options for recovering damages that resulted from the stator drop, including its insurance coverage.  Entergy is a member of Nuclear Electric Insurance Limited (NEIL), a mutual insurance company that provides property damage coverage to the members’ nuclear generating plants, including ANO.  NEIL has notified Entergy that it believes that a $50 million course of construction sublimit applies to any loss associated with the lifting apparatus failure and stator drop at ANO.  Entergy has responded that it disagrees with NEIL's position and is evaluating its options for enforcing its rights under the policy.

Liquidity and Capital Resources

Cash Flow

Cash flows for the three months ended March 31, 2013 and 2012 were as follows:

   
2013
    
2012
  
   
(In Thousands)
  
             
Cash and cash equivalents at beginning of period
   $ 34,533     $ 22,599  
                 
Cash flow provided by (used in):
                
Operating activities
     173,391       11,046  
Investing activities
     (159,889 )     (53,146 )
Financing activities
     (33,113 )     25,184  
Net decrease in cash and cash equivalents
     (19,611 )     (16,916 )
                 
Cash and cash equivalents at end of period
   $ 14,922     $ 5,683  

Operating Activities

           Net cash flow provided by operating activities increased $162.3 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to the $156 million System Agreement bandwidth remedy payment made in January 2012 as a result of the payment required to implement the FERC’s remedy for the period June – December 2005 and $9.1 million in pension contributions in 2012, partially offset by $18 million in storm restoration spending in 2013 resulting from the December 2012 Winter storm which caused significant damage to Entergy Arkansas’s distribution lines, equipment, poles, and other facilities and income tax payments of $4.1 million in 2013 compared to income tax refunds of $10.6 million in 2012.  See Note 2 to the
 
 
67
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis

financial statements in the Form 10-K for a discussion of the System Agreement bandwidth remedy payment.  See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Critical Accounting Estimates" in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits funding.

Investing Activities

Net cash flow used in investing activities increased $106.7 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to:

·  
money pool activity;
·  
an increase of $37.3 million in distribution expenditures due to the December 2012 Winter storm;
·  
an increase in nuclear construction expenditures due to the increase in scope of various nuclear projects; and
·  
fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle.

The increase was partially offset by a decrease in transmission construction expenditures due to higher reliability work performed in 2012.

Increases in Entergy Arkansas’s receivable from the money pool are a use of cash flow, and Entergy Arkansas’s receivable from the money pool increased by $33.4 million for the three months ended March 31, 2013 compared to decreasing by $17.4 million for the three months ended March 31, 2012.  The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Financing activities used $33.1 million of cash for the three months ended March 31, 2013 compared to providing $25.2 million of cash for the three months ended March 31, 2012 primarily due to money pool activity and $15 million in dividends paid on common stock in 2013, partially offset by a decrease in net repayments of borrowings from the nuclear fuel company variable interest entity credit facility.

Increases in Entergy Arkansas’s payable to the money pool are a source of cash flow, and Entergy Arkansas’s payable to the money pool increased by $49 million for the three months ended March 31, 2012.

In January 2013, Entergy Arkansas arranged for the issuance by (i) Independence County, Arkansas of $45 million of 2.375% Pollution Control Revenue Refinancing Bonds (Entergy Arkansas, Inc. Project) Series 2013 due January 2021, and (ii) Jefferson County, Arkansas of $54.7 million of 1.55% Pollution Control Revenue Refunding Bonds (Entergy Arkansas, Inc. Project) Series 2013 due October 2017, each of which series is secured by a separate series of non-interest bearing first mortgage bonds of Entergy Arkansas.  The proceeds of these issuances were applied to the refunding of outstanding series of pollution control revenue bonds previously issued by the respective issuers.

Capital Structure

Entergy Arkansas’s capitalization is balanced between equity and debt, as shown in the following table.

   
March 31,
 2013
  
December 31,
2012
         
Debt to capital
  
55.9% 
  
56.0% 
Effect of excluding the securitization bonds
  
(1.2%)
  
(1.2%)
Debt to capital, excluding securitization bonds (a)
  
54.7% 
  
54.8% 
Effect of subtracting cash
  
(0.2%)
  
(0.4%)
Net debt to net capital, excluding securitization bonds (a)
  
54.5% 
  
54.4% 

(a)
Calculation excludes the securitization bonds, which are non-recourse to Entergy Arkansas.
 
 
68
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis


Net debt consists of debt less cash and cash equivalents.  Debt consists of short-term borrowings and long-term debt, including the currently maturing portion.  Capital consists of debt, preferred stock without sinking fund, and common equity.  Net capital consists of capital less cash and cash equivalents.  Entergy Arkansas uses the net debt to net capital ratio and the ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Arkansas’s financial condition.

Uses and Sources of Capital

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Arkansas’s uses and sources of capital.  Following are additional updates to the information provided in the Form 10-K.  As discussed in the Form 10-K, the planned construction and capital investment amounts in the table do not include significant costs for the capital projects that might result from the NRC post-Fukushima requirements.  The current preliminary cost estimate (including both capital and operation and maintenance expense) to implement the post-Fukushima requirements for Entergy Arkansas is approximately $90 million.  These costs are expected to be incurred over the 2012 through 2018 time period.

Entergy Arkansas’s receivables from or (payables to) the money pool were as follows:

March 31,
2013
  
December 31,
2012
  
March 31,
2012
  
December 31,
2011
(In Thousands)
             
$41,478
  
$8,035
  
($49,043)
  
$17,362

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.

Entergy Arkansas has a credit facility in the amount of $150 million scheduled to expire in March 2018.  Entergy Arkansas also had a $20 million credit facility that expired in April 2013.  Entergy Arkansas plans to renew the $20 million credit facility.  No borrowings were outstanding under the credit facilities as of March 31, 2013.  See Note 4 to the financial statements herein for additional discussion of the credit facilities.

The Entergy Arkansas nuclear fuel company variable interest entity has a credit facility in the amount of $85 million scheduled to expire in July 2013.  As of March 31, 2013, $21.4 million in letters of credit were outstanding under the credit facility to support a like amount of commercial paper issued by the Entergy Arkansas nuclear fuel company variable interest entity.  See Note 4 to the financial statements for additional discussion of the nuclear fuel company variable interest entity credit facility.

State and Local Rate Regulation and Fuel-Cost Recovery

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – State and Local Rate Regulation and Fuel-Cost Recovery" in the Form 10-K for a discussion of state and local rate regulation and fuel cost recovery.  Following are updates to that discussion.

2013 Base Rate Filing

In March 2013, Entergy Arkansas filed with the APSC for a general change in rates, charges, and tariffs.  Recognizing that the final structure of Entergy Arkansas’s transmission business has not been determined, the filing presents two alternative scenarios for the APSC to establish the appropriate level of rates for Entergy Arkansas.  In the primary scenario, which assumes that Entergy Arkansas will transition to MISO in December 2013, Entergy Arkansas requests a rate increase of $174 million, including $49 million of revenue being transferred from collection in riders to base rates.  The alternate scenario, which also assumes completion of the proposed spin-merge of the transmission business with ITC, reflects a $218 million total rate increase request.  Both scenarios propose a new transmission rider and a capacity cost recovery rider.  The filing requests a 10.4% return on common equity.  The APSC established a procedural schedule that includes hearings in the proceeding beginning in October 2013. New rates are expected to become effective by January 2014.
 
 
 
69
Entergy Arkansas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis


Opportunity Sales Proceeding

See Note 2 to the financial statements for an update to the discussion of the opportunity sales proceeding.

Federal Regulation

See “System Agreement” and “Entergy’s Proposal to Join MISO” in the “Rate, Cost-recovery, and Other Regulation – Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for updates to the Federal Regulation discussion in the Form 10-K.

Nuclear Matters

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Nuclear Matters" in the Form 10-K for a discussion of nuclear matters.

Environmental Risks

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks" in the Form 10-K for a discussion of environmental risks.

Critical Accounting Estimates

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Arkansas’s accounting for nuclear decommissioning costs, unbilled revenue, and qualified pension and other postretirement benefits.

 
70
 
 
 
CONSOLIDATED INCOME STATEMENTS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
OPERATING REVENUES
            
Electric
   $ 542,392     $ 475,178  
                 
OPERATING EXPENSES
                
Operation and Maintenance:
                
   Fuel, fuel-related expenses, and
                
     gas purchased for resale
     147,773       134,802  
   Purchased power
     106,314       78,796  
   Nuclear refueling outage expenses
     11,540       11,787  
   Other operation and maintenance
     141,620       125,373  
Decommissioning
     10,517       9,888  
Taxes other than income taxes
     23,252       20,684  
Depreciation and amortization
     58,636       55,241  
Other regulatory credits - net
     (574 )     (1,209 )
TOTAL
     499,078       435,362  
                 
OPERATING INCOME
     43,314       39,816  
                 
OTHER INCOME
                
Allowance for equity funds used during construction
     2,226       1,725  
Interest and investment income
     5,775       5,857  
Miscellaneous - net
     (1,165 )     (1,453 )
TOTAL
     6,836       6,129  
                 
INTEREST EXPENSE
                
Interest expense
     22,579       20,750  
Allowance for borrowed funds used during construction
     (776 )     (442 )
TOTAL
     21,803       20,308  
                 
INCOME BEFORE INCOME TAXES
     28,347       25,637  
                 
Income taxes
     13,628       11,763  
                 
NET INCOME
     14,719       13,874  
                 
Preferred dividend requirements
     1,718       1,718  
                 
EARNINGS APPLICABLE TO
                
COMMON STOCK
   $ 13,001     $ 12,156  
                 
See Notes to Financial Statements.
                
                 
 






 
 
 
 
 
 
 
 
 
 
 
 

 








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CONSOLIDATED STATEMENTS OF CASH FLOWS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
OPERATING ACTIVITIES
            
Net income
   $ 14,719     $ 13,874  
Adjustments to reconcile net income to net cash flow provided by operating activities:
          
  Depreciation, amortization, and decommissioning, including nuclear fuel amortization
     92,988       88,981  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
     24,215       34,625  
  Changes in assets and liabilities:
                
    Receivables
     2,124       17,958  
    Fuel inventory
     5,103       (2,455 )
    Accounts payable
     (9,139 )     (211,524 )
    Prepaid taxes and taxes accrued
     (6,164 )     (9,127 )
    Interest accrued
     (10,117 )     (10,974 )
    Deferred fuel costs
     43,740       53,521  
    Other working capital accounts
     (2,572 )     14,682  
    Provisions for estimated losses
     95       (112 )
    Other regulatory assets
     16,763       21,956  
    Pension and other postretirement liabilities
     (1,327 )     (9,770 )
    Other assets and liabilities
     2,963       9,411  
Net cash flow provided by operating activities
     173,391       11,046  
                 
INVESTING ACTIVITIES
                
Construction expenditures
     (126,629 )     (81,518 )
Allowance for equity funds used during construction
     3,147       2,865  
Nuclear fuel purchases
     (32,561 )     (34,595 )
Proceeds from sale of nuclear fuel
     36,478       49,879  
Proceeds from nuclear decommissioning trust fund sales
     56,118       54,727  
Investment in nuclear decommissioning trust funds
     (59,540 )     (57,898 )
Change in money pool receivable - net
     (33,443 )     17,362  
Remittances to transition charge account
     (3,459 )     (3,968 )
Net cash flow used in investing activities
     (159,889 )     (53,146 )
                 
FINANCING ACTIVITIES
                
Proceeds from the issuance of long-term debt
     98,660       -  
Retirement of long-term debt
     (99,703 )     -  
Changes in short-term borrowings - net
     (15,352 )     (21,376 )
Changes in money pool payable - net
     -       49,043  
Dividends paid:
                
  Common stock
     (15,000 )     -  
  Preferred stock
     (1,718 )     (1,718 )
Other
     -       (765 )
Net cash flow provided by (used in) financing activities
     (33,113 )     25,184  
                 
Net decrease in cash and cash equivalents
     (19,611 )     (16,916 )
                 
Cash and cash equivalents at beginning of period
     34,533       22,599  
                 
Cash and cash equivalents at end of period
   $ 14,922     $ 5,683  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                
Cash paid (received) during the period for:
                
  Interest - net of amount capitalized
   $ 31,358     $ 30,476  
  Income taxes
   $ 4,107     $ (10,584 )
                 
See Notes to Financial Statements.
                


 

 
CONSOLIDATED BALANCE SHEETS
  
ASSETS
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT ASSETS
            
Cash and cash equivalents:
            
  Cash
   $ 2,561     $ 9,597  
  Temporary cash investments
     12,361       24,936  
    Total cash and cash equivalents
     14,922       34,533  
Securitization recovery trust account
     7,862       4,403  
Accounts receivable:
                
  Customer
     111,366       98,036  
  Allowance for doubtful accounts
     (28,430 )     (28,343 )
  Associated companies
     95,046       67,277  
  Other
     70,602       71,956  
  Accrued unbilled revenues
     64,563       72,902  
    Total accounts receivable
     313,147       281,828  
Accumulated deferred income taxes
     81,471       72,196  
Deferred fuel costs
     53,565       97,305  
Fuel inventory - at average cost
     43,872       48,975  
Materials and supplies - at average cost
     151,712       148,682  
Deferred nuclear refueling outage costs
     38,950       38,410  
Prepayments and other
     13,481       10,586  
TOTAL
     718,982       736,918  
                 
OTHER PROPERTY AND INVESTMENTS
                
Decommissioning trust funds
     643,190       600,578  
Non-utility property - at cost (less accumulated depreciation)
     1,669       1,671  
Other
     41,182       41,182  
TOTAL
     686,041       643,431  
                 
UTILITY PLANT
                
Electric
     8,674,092       8,693,659  
Property under capital lease
     1,133       1,154  
Construction work in progress
     208,581       205,982  
Nuclear fuel
     268,976       303,825  
TOTAL UTILITY PLANT
     9,152,782       9,204,620  
Less - accumulated depreciation and amortization
     4,074,302       4,104,882  
UTILITY PLANT - NET
     5,078,480       5,099,738  
                 
DEFERRED DEBITS AND OTHER ASSETS
                
Regulatory assets:
                
  Regulatory asset for income taxes - net
     78,572       80,751  
Other regulatory assets (includes securitization property of
          
$90,245 as of March 31, 2013 and $93,238 as of
          
       December 31, 2012)
     1,207,053       1,221,636  
Other
     41,046       36,971  
TOTAL
     1,326,671       1,339,358  
                 
TOTAL ASSETS
   $ 7,810,174     $ 7,819,445  
                 
See Notes to Financial Statements.
                


 

ENTERGY ARKANSAS, INC. AND SUBSIDIARIES
  
CONSOLIDATED BALANCE SHEETS
  
LIABILITIES AND EQUITY
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT LIABILITIES
            
Currently maturing long-term debt
   $ 330,000     $ 330,000  
Short-term borrowings
     21,383       36,735  
Accounts payable:
                
  Associated companies
     40,826       39,288  
  Other
     143,875       200,964  
Customer deposits
     86,143       85,198  
Taxes accrued
     208,805       214,969  
Accumulated deferred income taxes
     3,824       5,927  
Interest accrued
     18,301       28,418  
Other
     48,196       45,208  
TOTAL
     901,353       986,707  
                 
NON-CURRENT LIABILITIES
                
Accumulated deferred income taxes and taxes accrued
     1,865,020       1,829,281  
Accumulated deferred investment tax credits
     40,450       40,947  
Other regulatory liabilities
     176,769       143,901  
Decommissioning
     691,229       680,712  
Accumulated provisions
     5,917       5,822  
Pension and other postretirement liabilities
     613,441       614,805  
Long-term debt (includes securitization bonds of $101,548 as of
          
   March 31, 2013 and $101,547 as of December 31, 2012)
     1,793,945       1,793,895  
Other
     28,083       27,409  
TOTAL
     5,214,854       5,136,772  
                 
Commitments and Contingencies
                
                 
Preferred stock without sinking fund
     116,350       116,350  
                 
COMMON EQUITY
                
Common stock, $0.01 par value, authorized 325,000,000
          
shares; issued and outstanding 46,980,196 shares in 2013
          
  and 2012
     470       470  
Paid-in capital
     588,444       588,444  
Retained earnings
     988,703       990,702  
TOTAL
     1,577,617       1,579,616  
                 
TOTAL LIABILITIES AND EQUITY
   $ 7,810,174     $ 7,819,445  
                 
See Notes to Financial Statements.
                


 

 
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited) (In Thousands)
  
                         
   
Common Equity
        
   
Common Stock
    
Paid-in Capital
    
Retained Earnings
    
Total
  
Balance at December 31, 2011
   $ 470     $ 588,444     $ 855,210     $ 1,444,124  
                                 
Net income
     -       -       13,874       13,874  
Preferred stock dividends
     -       -       (1,718 )     (1,718 )
                                 
Balance at March 31, 2012
   $ 470     $ 588,444     $ 867,366     $ 1,456,280  
                                 
                                 
Balance at December 31, 2012
   $ 470     $ 588,444     $ 990,702     $ 1,579,616  
                                 
Net income
     -       -       14,719       14,719  
Common stock dividends
     -       -       (15,000 )     (15,000 )
Preferred stock dividends
     -       -       (1,718 )     (1,718 )
                                 
Balance at March 31, 2013
   $ 470     $ 588,444     $ 988,703     $ 1,577,617  
                                 
See Notes to Financial Statements.
                                
                                 


 

 
SELECTED OPERATING RESULTS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
                         
               
Increase/
        
Description
  
2013
    
2012
    
(Decrease)
    
%
  
   
(Dollars In Millions)
        
Electric Operating Revenues:
                        
  Residential
   $ 201     $ 175     $ 26       15  
  Commercial
     109       102       7       7  
  Industrial
     99       94       5       5  
  Governmental
     5       5       -       -  
    Total retail
     414       376       38       10  
  Sales for resale:
                                
     Associated companies
     106       77       29       38  
     Non-associated companies
     17       17       -       -  
  Other
     5       5       -       -  
    Total
   $ 542     $ 475     $ 67       14  
                                 
Billed Electric Energy
                                
 Sales (GWh):
                                
  Residential
     2,175       1,987       188       9  
  Commercial
     1,355       1,340       15       1  
  Industrial
     1,555       1,599       (44 )     (3 )
  Governmental
     57       63       (6 )     (10 )
    Total retail
     5,142       4,989       153       3  
  Sales for resale:
                                
     Associated companies
     2,690       2,111       579       27  
     Non-associated companies
     185       265       (80 )     (30 )
    Total
     8,017       7,365       652       9  
                                 
                                 



ENTERGY GULF STATES LOUISIANA, L.L.C.

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS


Plan to Spin Off the Utility’s Transmission Business

See the “Plan to Spin Off the Utility’s Transmission Business” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K and herein for a discussion of Entergy’s plan to spin off its transmission business and merge it with a newly formed subsidiary of ITC Holdings Corp., including the planned retirement of debt and preferred securities.

Results of Operations

Net Income

Net income decreased slightly, by $1.2 million, primarily due to higher other operation and maintenance expenses, substantially offset by higher net revenue.

Net Revenue

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges.  Following is an analysis of the change in net revenue comparing the first quarter 2013 to the first quarter 2012.

   
Amount
  
   
(In Millions)
  
       
2012 net revenue
   $ 203.9  
Volume/weather
     2.7  
Net wholesale revenue
     2.6  
Net gas revenue
     1.7  
Retail electric price
     (2.6 )
Other
     1.3  
2013 net revenue
   $ 209.6  

The volume/weather variance is primarily due to the effect of more favorable weather on residential sales in the first quarter 2013 as compared to the same period in prior year.

The net wholesale revenue variance is primarily due to increased sales volume to municipal and co-op customers and higher prices.

The net gas revenue variance is primarily due to the effect of more favorable weather, primarily in the residential sector, in the first quarter 2013 as compared to the same period in prior year.

The retail electric price variance is primarily due to decreased rider revenues.

 
78
Entergy Gulf States Louisiana, L.L.C.
Management’s Financial Discussion and Analysis



Gross operating revenues and fuel and purchased power expenses

Gross operating revenues increased primarily due to an increase of $9.2 million in fuel cost recovery revenues primarily due to higher fuel rates, an increase of $9.1 million in gross wholesale revenues, as discussed above, and an increase in natural gas revenues, as discussed above.

Fuel and purchased power expenses increased primarily due to an increase in the average market price of purchased power and increased demand, partially offset by a decrease in deferred fuel expense due to fuel and purchased power expense increases in excess of higher fuel cost recovery revenues.

Other Income Statement Variances

Other operation and maintenance expenses increased primarily due to:

·  
an increase of $3.5 million in compensation and benefits costs primarily due to a decrease in the discount rates used to determine net periodic pension and other postretirement benefit costs.  See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Critical Accounting Estimates" in the Form 10-K and Note 6 to the financial statements herein for further discussion of benefits costs; and
·  
an increase of $3 million in nuclear generation expenses primarily due to higher nuclear labor costs, including higher contract labor.

Income Taxes

The effective income tax rate for the first quarter 2013 was 36%.  The difference in the effective income tax rate for the first quarter 2013 versus the federal statutory rate of 35% is primarily due to the provision for uncertain tax positions and state income taxes, partially offset by book and tax differences related to the non-taxable income distributions earned on preferred membership interests. 

The effective income tax rate for the first quarter 2012 was 38.3%.  The difference in the effective income tax rate for the first quarter 2012 versus the federal statutory rate of 35% was due to state income taxes and certain book and tax differences related to utility plant items, partially offset by book and tax differences related to the non-taxable income distributions earned on preferred membership interests. 

Hurricane Isaac

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Hurricane Isaac" in the Form 10-K for a discussion of Hurricane Isaac and the damage caused to Entergy Gulf States Louisiana’s service area in August 2012.  In April 2013, Entergy Gulf States Louisiana and Entergy Louisiana filed a joint application with the LPSC relating to Hurricane Isaac system restoration costs.  Specifically, Entergy Gulf States Louisiana requested that the LPSC determine the amount of such costs that were prudently incurred and are, thus, eligible for recovery from customers.  Including carrying costs and additional storm escrow funds, Entergy Gulf States Louisiana is seeking determination that $73.8 million in system restoration costs were prudently incurred.  Entergy Gulf States Louisiana intends to replenish its storm escrow accounts to $90 million primarily through traditional debt markets and has requested special rate treatment of any borrowings for that purpose.  This filing does not, however, seek to implement any rate change; rather, Entergy Gulf States Louisiana anticipates filing a supplemental application in May 2013 proposing a specific means to recover the system restoration costs.  Entergy Gulf States Louisiana plans to pursue Louisiana Act 55 financing of the costs, which was the same method it used for Hurricanes Katrina, Rita, Gustav, and Ike.


 
79
Entergy Gulf States Louisiana, L.L.C.
Management’s Financial Discussion and Analysis



Liquidity and Capital Resources

Cash Flow

Cash flows for the three months ended March 31, 2013 and 2012 were as follows:

   
2013
    
2012
  
   
(In Thousands)
  
             
Cash and cash equivalents at beginning of period
   $ 35,686     $ 24,845  
                 
Cash flow provided by (used in):
                
Operating activities
     86,639       191,558  
Investing activities
     (119,776 )     (51,137 )
Financing activities
     1,360       (36,219 )
Net increase (decrease) in cash and cash equivalents
     (31,777 )     104,202  
                 
Cash and cash equivalents at end of period
   $ 3,909     $ 129,047  

Operating Activities

Net cash flow provided by operating activities decreased $104.9 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to:

·  
the receipt, in January 2012, of $75 million in System Agreement bandwidth remedy payments required to implement the FERC’s remedy in an October 2011 order for the period June – December 2005.  See Note 2 to the financial statements herein and in the Form 10-K for a discussion of the System Agreement proceedings; and
·  
higher nuclear refueling outage spending at River Bend.  River Bend had a refueling outage in 2013 and did not have one in 2012.

Investing Activities

Net cash flow used in investing activities increased $68.6 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to:

·  
fluctuations in nuclear fuel activity because of variations from year to year in the timing and pricing of fuel reload requirements in the Utility business, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle;
·  
$51 million in proceeds in 2012 from the sale of a portion of Entergy Gulf States Louisiana’s investment in Entergy Holdings Company’s Class A preferred membership interests to a third party; and
·  
an increase in nuclear construction expenditures as a result of spending on nuclear projects during the River Bend refueling outage in 2013.

The increase was partially offset by the withdrawal of $65.5 million from the storm reserve escrow account in 2013 and money pool activity.

Increases in Entergy Gulf States Louisiana’s receivable from the money pool are a use of cash flow, and Entergy Gulf States Louisiana’s receivable from the money pool increased by $49.6 million for the three months ended March 31, 2012. The money pool is an inter-company borrowing arrangement designed to reduce the Utility operating companies’ need for external short-term borrowings.


 
80
Entergy Gulf States Louisiana, L.L.C.
Management’s Financial Discussion and Analysis



Financing Activities

Financing activities provided cash of $1.4 million for the three months ended March 31, 2013 compared to using cash of $36.2 million for the three months ended March 31, 2012 primarily due to:

·  
the issuance of $70 million of 3.38% Series R notes by the nuclear fuel company variable interest entity in February 2013; and
·  
an increase of $50 million in credit borrowings for the three months ended March 31, 2013 compared to payments of $12.7 million on credit borrowings for the three months ended March 31, 2012 against the nuclear fuel company variable interest entity credit facility.

Cash flows provided by financing activities were offset by an increase of $97.3 million in common equity distributions.

Capital Structure

Entergy Gulf States Louisiana’s capitalization is balanced between equity and debt, as shown in the following table.  The increase in the debt to capital ratio for Entergy Gulf States Louisiana as of March 31, 2013 is primarily due to a decrease in member’s equity as a result of an increase of $97.3 million in common equity distributions.

   
March 31,
2013
  
December 31,
2012
         
Debt to capital
  
55.9% 
  
52.3% 
Effect of subtracting cash
  
-% 
  
(0.6%)
Net debt to net capital
  
55.9% 
  
51.7% 

Net debt consists of debt less cash and cash equivalents.  Debt consists of short-term borrowings and long-term debt, including the currently maturing portion.  Capital consists of debt and equity.  Net capital consists of capital less cash and cash equivalents.  Entergy Gulf States Louisiana uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Gulf States Louisiana’s financial condition.

Uses and Sources of Capital

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Gulf States Louisiana’s uses and sources of capital.  Following are updates to the information provided in the Form 10-K.  As discussed in the Form 10-K, the planned construction and capital investment amounts in the table do not include significant costs for the capital projects that might result from the NRC post-Fukushima requirements.  The current preliminary cost estimate (including both capital and operation and maintenance expense) to implement the post-Fukushima requirements for Entergy Gulf States Louisiana is approximately $45 million.  These costs are expected to be incurred over the 2012 through 2018 time period.

Entergy Gulf States Louisiana’s receivables from or (payables to) the money pool were as follows:

March  31,
2013
  
December 31,
2012
  
March 31,
2012
  
December 31,
2011
(In Thousands)
             
($8,736)
  
($7,074)
  
$73,180
  
$23,596

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.
 
 
 
81
Entergy Gulf States Louisiana, L.L.C.
Management’s Financial Discussion and Analysis


Entergy Gulf States Louisiana has a credit facility in the amount of $150 million scheduled to expire in March 2018.  As of March 31, 2013, $50 million was outstanding on the credit facility.  See Note 4 to the financial statements herein for additional discussion of the credit facility.

The Entergy Gulf States Louisiana nuclear fuel company variable interest entity has a credit facility in the amount of $85 million scheduled to expire in July 2013.  No borrowings were outstanding on the variable interest entity credit facility as of March 31, 2013.  See Note 4 to the financial statements for additional discussion of the variable interest entity credit facility.

In February 2013, the Entergy Gulf States Louisiana nuclear fuel company variable interest entity issued $70 million of 3.38% Series R notes due August 2020.  The Entergy Gulf States Louisiana nuclear fuel company variable interest entity used the proceeds principally to purchase additional nuclear fuel.

State and Local Rate Regulation and Fuel-Cost Recovery

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – State and Local Rate Regulation and Fuel-Cost Recovery" in the Form 10-K for a discussion of state and local rate regulation and fuel-cost recovery.  Following are updates to that discussion.

Retail Rates - Electric

In November 2011 the LPSC approved a one-year extension of Entergy Gulf States Louisiana’s formula rate plan.  In May 2012, Entergy Gulf States Louisiana made its formula rate plan filing with the LPSC for the 2011 test year.  The filing reflected an 11.94% earned return on common equity, which is above the earnings bandwidth and would indicate a $6.5 million cost of service rate change was necessary under the formula rate plan.  The filing also reflected a $22.9 million rate decrease for incremental capacity costs.  Subsequently, in August 2012, Entergy Gulf States Louisiana submitted a revised filing that reflected an earned return on common equity of 11.86% indicating a $5.7 million cost of service rate decrease is necessary under the formula rate plan.  The revised filing also indicates that a reduction of $20.3 million should be reflected in the incremental capacity rider.  The rate reductions were implemented, subject to refund, effective for bills rendered the first billing cycle of September 2012.  The September 2012 rate change reduced Entergy Gulf States Louisiana’s revenues by approximately $8.7 million in 2012.  Subsequently, in December 2012, Entergy Gulf States Louisiana submitted a revised evaluation report that reflects expected retail jurisdictional cost of $16.9 million for the first-year capacity charges for the purchase from Entergy Louisiana of one-third of Acadia Unit 2 capacity and energy.  This rate change was implemented effective with the first billing cycle of January 2013.  The 2011 test year filings, as revised, were approved by the LPSC in February 2013.  In April 2013, Entergy Gulf States Louisiana submitted a revised evaluation report increasing the incremental capacity rider by approximately $7.3 million to reflect the cost of an additional capacity contract.

See Note 2 to the financial statements in the Form 10-K for a discussion of the base rate case filed by Entergy Gulf States Louisiana with the LPSC in February 2013.  In April 2013 the LPSC established a procedural schedule providing for hearings in November 2013, with a decision by the LPSC expected by February 2014.

Retail Rates - Gas

In January 2013, Entergy Gulf States Louisiana filed with the LPSC its gas rate stabilization plan for the test year ended September 30, 2012.  The filing showed an earned return on common equity of 11.18%, which results in a $43 thousand rate reduction.  In March 2013 the LPSC Staff issued its proposed findings and recommended two adjustments.  The first is to normalize property insurance expense, and the second is to modify the return on equity for gas operations to reflect the return on equity that ultimately is approved by the LPSC in the investigation previously initiated by the LPSC to review the return on equity for Louisiana gas utilities.  Exceptions to the LPSC Staff report were due April 25, 2013, however, the parties have agreed to an extension of time through May 10, 2013 for Entergy Gulf States Louisiana to submit its response to the Staff’s findings.


 
82
Entergy Gulf States Louisiana, L.L.C.
Management’s Financial Discussion and Analysis


Industrial and Commercial Customers

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Industrial and Commercial Customers" in the Form 10-K for a discussion of industrial and commercial customers.

Federal Regulation

See “System Agreement” and “Entergy’s Proposal to Join MISO” in the “Rate, Cost-recovery, and Other Regulation – Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for updates to the Federal Regulation discussion in the Form 10-K.

Nuclear Matters

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Nuclear Matters" in the Form 10-K for a discussion of nuclear matters.

Environmental Risks

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks" in the Form 10-K for a discussion of environmental risks.

Critical Accounting Estimates

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Gulf States Louisiana’s accounting for nuclear decommissioning costs, unbilled revenue, and qualified pension and other postretirement benefits.




















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INCOME STATEMENTS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
OPERATING REVENUES
            
Electric
   $ 399,137     $ 382,186  
Natural gas
     20,818       17,436  
TOTAL
     419,955       399,622  
                 
OPERATING EXPENSES
                
Operation and Maintenance:
                
   Fuel, fuel-related expenses, and
                
     gas purchased for resale
     47,838       71,297  
   Purchased power
     162,077       124,164  
   Nuclear refueling outage expenses
     4,326       4,365  
   Other operation and maintenance
     92,722       85,635  
Decommissioning
     3,892       3,676  
Taxes other than income taxes
     19,238       18,895  
Depreciation and amortization
     37,372       36,097  
Other regulatory charges - net
     407       267  
TOTAL
     367,872       344,396  
                 
OPERATING INCOME
     52,083       55,226  
                 
OTHER INCOME
                
Allowance for equity funds used during construction
     1,650       2,262  
Interest and investment income
     10,855       11,238  
Miscellaneous - net
     (2,640 )     (2,628 )
TOTAL
     9,865       10,872  
                 
INTEREST EXPENSE
                
Interest expense
     20,199       21,055  
Allowance for borrowed funds used during construction
     (691 )     (899 )
TOTAL
     19,508       20,156  
                 
INCOME BEFORE INCOME TAXES
     42,440       45,942  
                 
Income taxes
     15,275       17,584  
                 
NET INCOME
     27,165       28,358  
                 
Preferred distribution requirements
     206       206  
                 
EARNINGS APPLICABLE TO
                
COMMON EQUITY
   $ 26,959     $ 28,152  
                 
See Notes to Financial Statements.
                
                 


 

 
STATEMENTS OF COMPREHENSIVE INCOME
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
 
            
   
2013
    
2012
  
   
(In Thousands)
  
             
Net Income
   $ 27,165     $ 28,358  
Other comprehensive income
                
   Pension and other postretirement liabilities
                
     (net of tax expense of $786 and $781)
     955       1,028  
         Other comprehensive income
     955       1,028  
Comprehensive Income
   $ 28,120     $ 29,386  
                 
                 
See Notes to Financial Statements.
                


 

 
STATEMENTS OF CASH FLOWS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
OPERATING ACTIVITIES
            
Net income
   $ 27,165     $ 28,358  
Adjustments to reconcile net income to net cash flow provided by operating activities:
          
  Depreciation, amortization, and decommissioning, including nuclear fuel amortization
     51,283       53,528  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
     27,177       (56,657 )
  Changes in working capital:
                
    Receivables
     (38,252 )     97,172  
    Fuel inventory
     (5,231 )     (7,611 )
    Accounts payable
     36,618       (35,277 )
    Prepaid taxes and taxes accrued
     383       85,148  
    Interest accrued
     5,631       5,137  
    Deferred fuel costs
     (16,866 )     8,144  
    Other working capital accounts
     (42,526 )     4,806  
  Changes in provisions for estimated losses
     (64,253 )     (2,870 )
  Changes in other regulatory assets
     27,154       5,634  
  Changes in pension and other postretirement liabilities
     4,004       513  
  Other
     74,352       5,533  
Net cash flow provided by operating activities
     86,639       191,558  
                 
INVESTING ACTIVITIES
                
Construction expenditures
     (70,474 )     (57,921 )
Allowance for equity funds used during construction
     1,650       2,262  
Nuclear fuel purchases
     (130,406 )     (18,614 )
Proceeds from the sale of nuclear fuel
     19,401       26,820  
Payment to storm reserve escrow account
     (15 )     (17 )
Receipts from storm reserve escrow account
     65,475       52  
Proceeds from nuclear decommissioning trust fund sales
     23,305       38,087  
Investment in nuclear decommissioning trust funds
     (28,712 )     (43,222 )
Change in money pool receivable - net
     -       (49,584 )
Proceeds from the sale of investment
     -       51,000  
Net cash flow used in investing activities
     (119,776 )     (51,137 )
                 
FINANCING ACTIVITIES
                
Proceeds from the issuance of long-term debt
     69,804       (713 )
Change in money pool payable - net
     1,662       -  
Changes in credit borrowings - net
     50,000       (12,700 )
Dividends/distributions paid:
                
  Common equity
     (119,900 )     (22,600 )
  Preferred membership interests
     (206 )     (206 )
Net cash flow provided by (used in) financing activities
     1,360       (36,219 )
                 
Net increase (decrease) in cash and cash equivalents
     (31,777 )     104,202  
                 
Cash and cash equivalents at beginning of period
     35,686       24,845  
                 
Cash and cash equivalents at end of period
   $ 3,909     $ 129,047  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                
Cash paid during the period for:
                
  Interest - net of amount capitalized
   $ 13,845     $ 15,152  
                 
See Notes to Financial Statements.
                
                 


 

 
BALANCE SHEETS
  
ASSETS
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT ASSETS
            
Cash and cash equivalents:
            
  Cash
   $ 3,133     $ 35,085  
  Temporary cash investments
     776       601  
        Total cash and cash equivalents
     3,909       35,686  
Accounts receivable:
                
  Customer
     68,683       53,480  
  Allowance for doubtful accounts
     (550 )     (711 )
  Associated companies
     94,524       71,697  
  Other
     22,359       18,736  
  Accrued unbilled revenues
     48,024       51,586  
    Total accounts receivable
     233,040       194,788  
Deferred fuel costs
     15,918       -  
Fuel inventory - at average cost
     32,198       26,967  
Materials and supplies - at average cost
     119,196       121,289  
Deferred nuclear refueling outage costs
     39,110       5,953  
Gas hedge contracts
     7,511       -  
Prepayments and other
     10,256       7,911  
TOTAL
     461,138       392,594  
                 
OTHER PROPERTY AND INVESTMENTS
                
Investment in affiliate preferred membership interests
     289,664       289,664  
Decommissioning trust funds
     511,678       477,391  
Non-utility property - at cost (less accumulated depreciation)
     170,993       165,410  
Storm reserve escrow account
     21,524       86,984  
Other
     13,847       13,404  
TOTAL
     1,007,706       1,032,853  
                 
UTILITY PLANT
                
Electric
     7,301,763       7,279,953  
Natural gas
     137,571       135,723  
Construction work in progress
     117,203       125,448  
Nuclear fuel
     225,482       146,768  
TOTAL UTILITY PLANT
     7,782,019       7,687,892  
Less - accumulated depreciation and amortization
     4,026,450       4,003,385  
UTILITY PLANT - NET
     3,755,569       3,684,507  
                 
DEFERRED DEBITS AND OTHER ASSETS
                
Regulatory assets:
                
  Regulatory asset for income taxes - net
     170,894       171,051  
  Other regulatory assets
     382,656       409,653  
  Deferred fuel costs
     100,124       100,124  
Other
     16,243       12,337  
TOTAL
     669,917       693,165  
                 
TOTAL ASSETS
   $ 5,894,330     $ 5,803,119  
                 
See Notes to Financial Statements.
                



ENTERGY GULF STATES LOUISIANA, L.L.C.
  
BALANCE SHEETS
  
LIABILITIES AND EQUITY
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT LIABILITIES
            
Currently maturing long-term debt
   $ 75,000     $ 75,000  
Accounts payable:
                
  Associated companies
     96,723       89,377  
  Other
     127,931       97,509  
Customer deposits
     48,527       48,265  
Taxes accrued
     21,404       21,021  
Accumulated deferred income taxes
     40,640       22,249  
Interest accrued
     31,068       25,437  
Deferred fuel costs
     -       948  
Pension and other postretirement liabilities
     7,909       7,803  
Gas hedge contracts
     -       2,620  
Other
     12,751       11,999  
TOTAL
     461,953       402,228  
                 
NON-CURRENT LIABILITIES
                
Accumulated deferred income taxes and taxes accrued
     1,414,707       1,403,195  
Accumulated deferred investment tax credits
     77,558       78,312  
Other regulatory liabilities
     134,869       103,444  
Decommissioning and asset retirement cost liabilities
     386,269       380,822  
Accumulated provisions
     32,977       97,230  
Pension and other postretirement liabilities
     420,118       416,220  
Long-term debt
     1,562,489       1,442,429  
Long-term payables - associated companies
     29,107       29,510  
Other
     83,275       66,725  
TOTAL
     4,141,369       4,017,887  
                 
Commitments and Contingencies
                
                 
EQUITY
                
Preferred membership interests without sinking fund
     10,000       10,000  
Member's equity
     1,345,282       1,438,233  
Accumulated other comprehensive loss
     (64,274 )     (65,229 )
TOTAL
     1,291,008       1,383,004  
                 
TOTAL LIABILITIES AND EQUITY
   $ 5,894,330     $ 5,803,119  
                 
See Notes to Financial Statements.
                



 
STATEMENTS OF CHANGES IN EQUITY
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited) (In Thousands)
  
                         
         
Common Equity
        
   
Preferred Membership Interests
    
Member's Equity
    
Accumulated Other Comprehensive Income (Loss)
    
Total
  
Balance at December 31, 2011
   $ 10,000     $ 1,393,386     $ (69,610 )   $ 1,333,776  
                                 
Net income
     -       28,358       -       28,358  
Member contribution
     -       1,000       -       1,000  
Other comprehensive income
     -       -       1,028       1,028  
Dividends/distributions declared on common equity
     -       (22,600 )     -       (22,600 )
Dividends/distributions declared on preferred membership interests
     -       (206 )     -       (206 )
Other
     -       (5 )     -       (5 )
                                 
Balance at March 31, 2012
   $ 10,000     $ 1,399,933     $ (68,582 )   $ 1,341,351  
                                 
                                 
Balance at December 31, 2012
   $ 10,000     $ 1,438,233     $ (65,229 )   $ 1,383,004  
                                 
Net income
     -       27,165       -       27,165  
Other comprehensive income
     -       -       955       955  
Dividends/distributions declared on common equity
     -       (119,900 )     -       (119,900 )
Dividends/distributions declared on preferred membership interests
     -       (206 )     -       (206 )
Other
     -       (10 )     -       (10 )
                                 
Balance at March 31, 2013
   $ 10,000     $ 1,345,282     $ (64,274 )   $ 1,291,008  
                                 
See Notes to Financial Statements.
                                
                                 



 
SELECTED OPERATING RESULTS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
                         
                         
               
Increase/
        
Description
  
2013
    
2012
    
(Decrease)
    
%
  
   
(Dollars In Millions)
        
Electric Operating Revenues:
                        
  Residential
   $ 94     $ 88     $ 6       7  
  Commercial
     89       86       3       3  
  Industrial
     107       106       1       1  
  Governmental
     5       5       -       -  
    Total retail
     295       285       10       4  
  Sales for resale:
                                
     Associated companies
     85       84       1       1  
     Non-associated companies
     11       3       8       267  
  Other
     8       10       (2 )     (20 )
    Total
   $ 399     $ 382     $ 17       4  
                                 
Billed Electric Energy
                                
 Sales (GWh):
                                
  Residential
     1,112       1,059       53       5  
  Commercial
     1,167       1,178       (11 )     (1 )
  Industrial
     2,058       2,195       (137 )     (6 )
  Governmental
     58       59       (1 )     (2 )
    Total retail
     4,395       4,491       (96 )     (2 )
  Sales for resale:
                                
     Associated companies
     1,228       1,843       (615 )     (33 )
     Non-associated companies
     228       170       58       34  
    Total
     5,851       6,504       (653 )     (10 )
                                 
                                 
                                 

 


ENTERGY LOUISIANA, LLC AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS


Plan to Spin Off the Utility’s Transmission Business

See the “Plan to Spin Off the Utility’s Transmission Business” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K and herein for a discussion of Entergy’s plan to spin off its transmission business and merge it with a newly formed subsidiary of ITC Holdings Corp., including the planned retirement of debt and preferred securities.

Results of Operations

Net Income

Net income increased $12.1 million primarily due to higher net revenue and lower other operation and maintenance expenses, partially offset by a higher effective income tax rate, higher depreciation and amortization expenses, and higher interest expense.

Net Revenue

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits.  Following is an analysis of the change in net revenue comparing the first quarter 2013 to the first quarter 2012.

   
Amount
  
   
(In Millions)
  
       
2012 net revenue
   $ 235.7  
Retail electric price
     15.7  
Volume/weather
     8.6  
Other
     0.6  
2013 net revenue
   $ 260.6  

The retail electric price variance is primarily due to a formula rate plan increase effective January 2013.  See Note 2 to the financial statements herein and in the Form 10-K for more discussion of the formula rate plan increase.

The volume/weather variance is primarily due to increased billed electricity usage in all sectors, including increased industrial usage primarily in the petroleum industry, and the effect of more favorable weather on residential sales in the first quarter 2013 as compared to the same period in prior year.  Billed electricity usage increased 232 GWh, or 3%.

Gross operating revenues and fuel and purchased power expenses

Gross operating revenues increased primarily due to:

·  
an increase of $102.1 million in fuel cost recovery revenues primarily due to higher fuel rates;
·  
the formula rate plan increase, as discussed above; and
·  
the increase related to volume/weather, as discussed above.

 
92
Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis


Fuel and purchased power expenses increased primarily due to an increase in the recovery of deferred fuel costs as a result of higher fuel revenues and an increase in the average market price of purchased power.

Other Income Statement Variances

Other operation and maintenance expenses decreased primarily due to:

·  
a decrease of $6.5 million in fossil-fueled generation expenses due to an overall lower scope of work done during plant outages compared to prior year;
·  
a decrease of $1.5 million in nuclear insurance expenses primarily due to decreases in premiums;
·  
a decrease of $1.1 million as a result of lower write-offs of uncollectible customer accounts in 2013; and
·  
several individually insignificant items.

The decrease was partially offset by an increase of $2.8 million in compensation and benefits costs primarily due to a decrease in the discount rates used to determine net periodic pension and other postretirement benefit costs.  See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Critical Accounting Estimates" in the Form 10-K and Note 6 to the financial statements herein for further discussion of benefits costs.

Depreciation and amortization expenses increased primarily due to additions to plant in service, including the completion of the Waterford 3 steam generator replacement project in December 2012.

Interest expense increased primarily due to the issuance of $200 million of 5.25% Series first mortgage bonds in July 2012 and the issuance of $200 million of 3.3% Series first mortgage bonds in December 2012.

Income Taxes

The effective income tax rate for the first quarter 2013 was 21%.  The difference in the effective income tax rate for the first quarter 2013 versus the federal statutory rate of 35% is due to book and tax differences related to the non-taxable income distributions earned on preferred membership interests and book and tax differences related to the allowance for equity funds used during construction.

The effective income tax rate for the first quarter 2012 was 6.6%.  The difference in the effective income tax rate for the first quarter 2012 versus the federal statutory rate of 35% was due to book and tax differences related to the non-taxable income distributions earned on preferred membership interests and book and tax differences related to the allowance for equity funds used during construction.

Hurricane Isaac

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Hurricane Isaac" in the Form 10-K for a discussion of Hurricane Isaac and the damage caused to Entergy Louisiana’s service area in August 2012.  In April 2013, Entergy Gulf States Louisiana and Entergy Louisiana filed a joint application with the LPSC relating to Hurricane Isaac system restoration costs.  Specifically, Entergy Louisiana requested that the LPSC determine the amount of such costs that were prudently incurred and are, thus, eligible for recovery from customers.  Including carrying costs and additional storm escrow funds, Entergy Louisiana is seeking determination that $247.7 million in system restoration costs were prudently incurred.  Entergy Louisiana intends to replenish its storm escrow accounts to $200 million primarily through traditional debt markets and has requested special rate treatment of any borrowings for that purpose.  This filing does not, however, seek to implement any rate change; rather, Entergy Louisiana anticipates filing a supplemental application in May 2013 proposing a specific means to recover the system restoration costs.  Entergy Louisiana plans to pursue Louisiana Act 55 financing of the costs, which was the same method it used for Hurricanes Katrina, Rita, Gustav, and Ike.


 
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Management’s Financial Discussion and Analysis


Liquidity and Capital Resources

Cash Flow

Cash flows for the three months ended March 31, 2013 and 2012 were as follows:

   
2013
    
2012
  
   
(In Thousands)
  
             
Cash and cash equivalents at beginning of period
   $ 30,086     $ 878  
                 
Cash flow provided by (used in):
                
Operating activities
     69,934       79,357  
Investing activities
     (55,482 )     (97,949 )
Financing activities
     (34,525 )     42,348  
Net increase (decrease) in cash and cash equivalents
     (20,073 )     23,756  
                 
Cash and cash equivalents at end of period
   $ 10,013     $ 24,634  

Operating Activities

Net cash flow provided by operating activities decreased $9.4 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to $8.4 million in Hurricane Isaac storm restoration spending in 2013 and income tax refunds of $3.6 million in 2012, offset by $8.9 million in pension contributions in 2012.  See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Critical Accounting Estimates” in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits.

Investing Activities

Net cash flow used in investing activities decreased $42.5 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to the receipt of $187 million from the storm reserve escrow account in 2013, partially offset by an increase in fossil construction expenditures due to spending on the Ninemile Unit 6 self-build project, an increase in transmission construction expenditures due to additional reliability work performed in 2013, an increase in distribution expenditures due to Hurricane Isaac, and money pool activity.

Increases in Entergy Louisiana’s receivable from the money pool are a use of cash flow, and Entergy Louisiana’s receivable from the money pool increased by $22.9 million for the three months ended March 31, 2013 compared to increasing by $13.4 million for the three months ended March 31, 2012.  The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Entergy Louisiana’s financing activities used $34.5 million of cash for the three months ended March 31, 2013 compared to providing $42.3 million of cash for the three months ended March 31, 2012 primarily due to the issuance of $250 million of 1.875% Series first mortgage bonds in January 2012 and an increase of $19.4 million in common equity dividends in 2013, partially offset by the following:

·  
money pool activity;
·  
the net repayment of credit borrowings of $50 million on Entergy Louisiana’s credit facility in 2012;
·  
the net repayment of borrowings of $15 million on the nuclear fuel company variable interest entity’s credit facility in 2012; and
·  
a principal payment of $12.2 million in 2013 for the Waterford 3 sale-leaseback obligation compared to a principal payment of $19.6 million in 2012.
 
 
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Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis

Decreases in Entergy Louisiana’s payable to the money pool are a use of cash flow, and Entergy Louisiana’s payable to the money pool decreased by $118.4 million for the three months ended March 31, 2012.

Capital Structure

Entergy Louisiana’s capitalization is balanced between equity and debt, as shown in the following table.

   
March 31,
2013
  
December 31,
2012
         
Debt to capital
  
48.3% 
  
48.4% 
Effect of excluding securitization bonds
  
(1.7%)
  
(1.6%)
Debt to capital, excluding securitization bonds (a)
  
46.6% 
  
46.8% 
Effect of subtracting cash
  
(0.1%)
  
(0.3%)
Net debt to net capital, excluding securitization bonds (a)
  
46.5% 
  
46.5% 

(a)
Calculation excludes the securitization bonds, which are non-recourse to Entergy Louisiana.

Net debt consists of debt less cash and cash equivalents.  Debt consists of short-term borrowings and long-term debt, including the currently maturing portion.  Capital consists of debt and member’s equity.  Net capital consists of capital less cash and cash equivalents.  Entergy Louisiana uses the net debt to net capital ratio and the ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Louisiana’s financial condition.

Uses and Sources of Capital

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Louisiana’s uses and sources of capital.  Following are additional updates to the information provided in the Form 10-K.  As discussed in the Form 10-K, the planned construction and capital investment amounts in the table do not include significant costs for the capital projects that might result from the NRC post-Fukushima requirements.  The current preliminary cost estimate (including both capital and operation and maintenance expense) to implement the post-Fukushima requirements for Entergy Louisiana is approximately $40 million.  These costs are expected to be incurred over the 2012 through 2018 time period.

Entergy Louisiana’s receivables from or (payables to) the money pool were as follows:

March 31,
2013
  
December 31,
2012
  
March 31,
2012
  
December 31,
2011
(In Thousands)
             
$32,342
  
$9,433
  
$13,383
  
($118,415)

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.

Entergy Louisiana has a credit facility in the amount of $200 million scheduled to expire in March 2018.  No borrowings were outstanding under the facility as of March 31, 2013.  See Note 4 to the financial statements herein for additional discussion of the credit facility.

The Entergy Louisiana nuclear fuel company variable interest entity has a credit facility in the amount of $90 million scheduled to expire in July 2013.  As of March 31, 2013, $54.4 million in letters of credit were outstanding under the credit facility to support a like amount of commercial paper issued by the Entergy Louisiana nuclear fuel company variable interest entity.  See Note 4 to the financial statements for additional discussion of the nuclear fuel company variable interest entity credit facility.
 
 
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Entergy Louisiana, LLC and Subsidiaries
Management’s Financial Discussion and Analysis


State and Local Rate Regulation and Fuel-Cost Recovery

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – State and Local Rate Regulation and Fuel Cost Recovery" in the Form 10-K for a discussion of state and local rate regulation and fuel cost recovery.  Following are updates to that discussion.

In November 2011 the LPSC approved a one-year extension of Entergy Louisiana’s formula rate plan.  In May 2012, Entergy Louisiana made its formula rate plan filing with the LPSC for the 2011 test year.  The filing reflected a 9.63% earned return on common equity, which is within the earnings bandwidth and results in no cost of service rate change under the formula rate plan.  The filing also reflected an $18.1 million rate increase for incremental capacity costs.  In August 2012, Entergy Louisiana submitted a revised filing that reflects an earned return on common equity of 10.38%, which is still within the earnings bandwidth, resulting in no cost of service rate change.  The revised filing also indicates that an increase of $15.9 million should be reflected in the incremental capacity rider.  The rate change was implemented, subject to refund, effective for bills rendered the first billing cycle of September 2012.  The September 2012 rate change contributed approximately $5.3 million to Entergy Louisiana’s revenues in 2012.  Subsequently, in December 2012, Entergy Louisiana submitted a revised evaluation report that reflects two items: 1) a $17 million reduction for the first-year capacity charges for the purchase by Entergy Gulf States Louisiana from Entergy Louisiana of one-third of Acadia Unit 2 capacity and energy, and 2) an $88 million increase for the first-year retail revenue requirement associated with the Waterford 3 replacement steam generator project, which was in-service in December 2012.  These rate changes were implemented, subject to refund, effective with the first billing cycle of January 2013.  In April 2013, Entergy Louisiana and the LPSC staff filed a joint report resolving the 2011 test year formula rate plan and recovery related to the Grand Gulf uprate.  This report was approved by the LPSC in April 2013.  With completion of the Waterford 3 replacement steam generator project, the LPSC will undertake a prudence review in connection with a filing made by Entergy Louisiana in April 2013 with regard to the following aspects of the replacement project: 1) project management; 2) cost controls; 3) success in achieving stated objectives; 4) the costs of the replacement project; and 5) the outage length and replacement power costs.

See Note 2 to the financial statements in the Form 10-K for a discussion of the base rate case filed by Entergy Louisiana with the LPSC in February 2013.  In April 2013 the LPSC established a procedural schedule providing for hearings in December 2013, with a decision by the LPSC expected by February 2014.

In March 2013, Entergy Louisiana filed a rate case for the Algiers area, which is in New Orleans and is regulated by the City Council.  Entergy Louisiana is requesting a rate increase of $13 million over three years, including a 10.4% return on common equity and a formula rate plan mechanism identical to its LPSC request. New rates are currently expected to become effective in second quarter 2014.

Federal Regulation

See “System Agreement” and “Entergy’s Proposal to Join MISO” in the “Rate, Cost-recovery, and Other Regulation – Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for updates to the Federal Regulation discussion in the Form 10-K.

Nuclear Matters

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Nuclear Matters" in the Form 10-K for a discussion of nuclear matters.

Environmental Risks

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks" in the Form 10-K for a discussion of environmental risks.


 
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Critical Accounting Estimates

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Louisiana’s accounting for nuclear decommissioning costs, unbilled revenue, and qualified pension and other postretirement benefits.



























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CONSOLIDATED INCOME STATEMENTS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
OPERATING REVENUES
            
Electric
   $ 606,085     $ 482,358  
                 
OPERATING EXPENSES
                
Operation and Maintenance:
                
   Fuel, fuel-related expenses, and
                
     gas purchased for resale
     118,707       72,059  
   Purchased power
     229,009       178,213  
   Nuclear refueling outage expenses
     6,852       6,386  
   Other operation and maintenance
     105,127       115,741  
Decommissioning
     5,301       6,444  
Taxes other than income taxes
     18,800       17,282  
Depreciation and amortization
     59,838       53,679  
Other regulatory credits - net
     (2,277 )     (3,588 )
TOTAL
     541,357       446,216  
                 
OPERATING INCOME
     64,728       36,142  
                 
OTHER INCOME
                
Allowance for equity funds used during construction
     5,742       8,449  
Interest and investment income
     21,789       21,248  
Miscellaneous - net
     (860 )     (1,371 )
TOTAL
     26,671       28,326  
                 
INTEREST EXPENSE
                
Interest expense
     36,429       32,668  
Allowance for borrowed funds used during construction
     (2,448 )     (3,859 )
TOTAL
     33,981       28,809  
                 
INCOME BEFORE INCOME TAXES
     57,418       35,659  
                 
Income taxes
     12,042       2,364  
                 
NET INCOME
     45,376       33,295  
                 
Preferred dividend requirements
     1,738       1,738  
                 
EARNINGS APPLICABLE TO
                
COMMON EQUITY
   $ 43,638     $ 31,557  
                 
See Notes to Financial Statements.
                
                 



 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
 
            
   
2013
    
2012
  
   
(In Thousands)
  
             
Net Income
   $ 45,376     $ 33,295  
Other comprehensive income
                
   Pension and other postretirement liabilities
                
     (net of tax expense of $547 and $470)
     678       653  
         Other comprehensive income
     678       653  
Comprehensive Income
   $ 46,054     $ 33,948  
                 
                 
See Notes to Financial Statements.
                
                 



 
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
OPERATING ACTIVITIES
            
Net income
   $ 45,376     $ 33,295  
Adjustments to reconcile net income to net cash flow provided by operating activities:
          
  Depreciation, amortization, and decommissioning, including nuclear fuel amortization
     79,633       76,616  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
     41,558       22,771  
  Changes in working capital:
                
    Receivables
     (57,924 )     27,098  
    Fuel inventory
     454       57  
    Accounts payable
     (69,131 )     (57,561 )
    Prepaid taxes and taxes accrued
     3,550       (4,447 )
    Interest accrued
     (2,113 )     (4,574 )
    Deferred fuel costs
     30,741       (21,520 )
    Other working capital accounts
     (8,040 )     19,986  
  Changes in provisions for estimated losses
     (186,070 )     (10,981 )
  Changes in other regulatory assets
     82,089       7,800  
  Changes in pension and other postretirement liabilities
     5,231       (3,965 )
  Other
     104,580       (5,218 )
Net cash flow provided by operating activities
     69,934       79,357  
                 
INVESTING ACTIVITIES
                
Construction expenditures
     (223,758 )     (93,844 )
Allowance for equity funds used during construction
     5,742       8,449  
Nuclear fuel purchases
     (16,368 )     (22,327 )
Proceeds from the sale of nuclear fuel
     23,438       32,168  
Receipts from storm reserve escrow account
     186,985       770  
Remittances to transition charge account
     (5,270 )     (6,716 )
Proceeds from nuclear decommissioning trust fund sales
     3,639       6,795  
Investment in nuclear decommissioning trust funds
     (6,981 )     (9,861 )
Change in money pool receivable - net
     (22,909 )     (13,383 )
Net cash flow used in investing activities
     (55,482 )     (97,949 )
                 
FINANCING ACTIVITIES
                
Proceeds from the issuance of long-term debt
     -       247,725  
Changes in short-term borrowings - net
     -       (65,021 )
Retirement of long-term debt
     (12,237 )     (19,603 )
Change in money pool payable - net
     -       (118,415 )
Distributions paid:
                
  Common equity
     (20,000 )     (600 )
  Preferred membership interests
     (1,738 )     (1,738 )
Other
     (550 )     -  
Net cash flow provided by (used in) financing activities
     (34,525 )     42,348  
                 
Net increase (decrease) in cash and cash equivalents
     (20,073 )     23,756  
                 
Cash and cash equivalents at beginning of period
     30,086       878  
                 
Cash and cash equivalents at end of period
   $ 10,013     $ 24,634  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                
Cash paid (received) during the period for:
                
  Interest - net of amount capitalized
   $ 37,215     $ 36,039  
  Income taxes
   $ -     $ (3,601 )
                 
See Notes to Financial Statements.
                



 
CONSOLIDATED BALANCE SHEETS
  
ASSETS
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT ASSETS
            
Cash and cash equivalents:
            
  Cash
   $ 375     $ 814  
  Temporary cash investments
     9,638       29,272  
    Total cash and cash equivalents
     10,013       30,086  
Securitization recovery trust account
     9,652       4,382  
Accounts receivable:
                
  Customer
     157,052       86,072  
  Allowance for doubtful accounts
     (1,119 )     (867 )
  Associated companies
     60,405       42,938  
  Other
     8,224       9,354  
  Accrued unbilled revenues
     73,122       79,354  
    Total accounts receivable
     297,684       216,851  
Accumulated deferred income taxes
     51,809       113,319  
Deferred fuel costs
     -       26,568  
Fuel inventory
     23,129       23,583  
Materials and supplies - at average cost
     151,452       152,170  
Deferred nuclear refueling outage costs
     40,561       44,457  
Prepaid taxes
     4,387       7,937  
Gas hedge contracts
     10,016       -  
Prepayments and other
     15,543       12,129  
TOTAL
     614,246       631,482  
                 
OTHER PROPERTY AND INVESTMENTS
                
Investment in affiliate preferred membership interests
     807,423       807,423  
Decommissioning trust funds
     308,524       287,418  
Storm reserve escrow account
     -       186,985  
Non-utility property - at cost (less accumulated depreciation)
     533       578  
TOTAL
     1,116,480       1,282,404  
                 
UTILITY PLANT
                
Electric
     8,605,593       8,603,319  
Property under capital lease
     324,440       324,440  
Construction work in progress
     452,639       404,714  
Nuclear fuel
     179,235       204,019  
TOTAL UTILITY PLANT
     9,561,907       9,536,492  
Less - accumulated depreciation and amortization
     3,634,215       3,590,146  
UTILITY PLANT - NET
     5,927,692       5,946,346  
                 
DEFERRED DEBITS AND OTHER ASSETS
                
Regulatory assets:
                
  Regulatory asset for income taxes - net
     196,216       193,114  
  Other regulatory assets (includes securitization property of
                
  $168,940 as of March 31, 2013 and
                
  $172,838 as of December 31, 2012)
     828,371       913,562  
  Deferred fuel costs
     67,998       67,998  
Other
     44,043       39,178  
TOTAL
     1,136,628       1,213,852  
                 
TOTAL ASSETS
   $ 8,795,046     $ 9,074,084  
                 
See Notes to Financial Statements.
                

 
 
ENTERGY LOUISIANA, LLC AND SUBSIDIARIES
  
CONSOLIDATED BALANCE SHEETS
  
LIABILITIES AND EQUITY
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT LIABILITIES
            
Currently maturing long-term debt
   $ 19,016     $ 14,236  
Short-term borrowings
     54,396       54,657  
Accounts payable:
                
  Associated companies
     72,759       103,454  
  Other
     160,721       266,904  
Customer deposits
     89,094       88,805  
Accumulated deferred income taxes
     3,533       -  
Interest accrued
     35,151       37,264  
Deferred fuel costs
     4,173       -  
Pension and other postretirement liabilities
     9,253       9,170  
Gas hedge contracts
     -       3,442  
Other
     17,311       13,382  
TOTAL
     465,407       591,314  
                 
NON-CURRENT LIABILITIES
                
Accumulated deferred income taxes and taxes accrued
     913,296       930,606  
Accumulated deferred investment tax credits
     69,481       70,193  
Other regulatory liabilities
     428,595       376,801  
Decommissioning
     423,422       418,122  
Accumulated provisions
     10,404       196,474  
Pension and other postretirement liabilities
     544,851       539,703  
Long-term debt (includes securitization bonds of
                
  $181,554 as of March 31, 2013 and
                
  $181,553 as of December 31, 2012)
     2,794,902       2,811,859  
Other
     70,477       68,516  
TOTAL
     5,255,428       5,412,274  
                 
Commitments and Contingencies
                
                 
EQUITY
                
Preferred membership interests without sinking fund
     100,000       100,000  
Member's equity
     3,019,665       3,016,628  
Accumulated other comprehensive loss
     (45,454 )     (46,132 )
TOTAL
     3,074,211       3,070,496  
                 
TOTAL LIABILITIES AND EQUITY
   $ 8,795,046     $ 9,074,084  
                 
See Notes to Financial Statements.
                


 

 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited) (In Thousands)
  
                         
         
Common Equity
        
   
Preferred Membership Interests
    
Member's Equity
    
Accumulated Other Comprehensive Income (Loss)
    
Total
  
Balance at December 31, 2011
   $ 100,000     $ 2,504,436     $ (39,507 )   $ 2,564,929  
                                 
Net income
     -       33,295       -       33,295  
Other comprehensive income
     -       -       653       653  
Dividends/distributions declared on common equity
     -       (600 )     -       (600 )
Dividends/distributions declared on preferred membership interests
     -       (1,738 )     -       (1,738 )
                                 
Balance at March 31, 2012
   $ 100,000     $ 2,535,393     $ (38,854 )   $ 2,596,539  
                                 
Balance at December 31, 2012
   $ 100,000     $ 3,016,628     $ (46,132 )   $ 3,070,496  
                                 
Net income
     -       45,376       -       45,376  
Distribution to parent
     -       (20,601 )     -       (20,601 )
Other comprehensive income
     -       -       678       678  
Dividends/distributions declared on common equity
     -       (20,000 )     -       (20,000 )
Dividends/distributions declared on preferred membership interests
     -       (1,738 )     -       (1,738 )
                                 
Balance at March 31, 2013
   $ 100,000     $ 3,019,665     $ (45,454 )   $ 3,074,211  
                                 
See Notes to Financial Statements.
                                
                                 


 

 
SELECTED OPERATING RESULTS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
                         
                         
               
Increase/
        
Description
  
2013
    
2012
    
(Decrease)
    
%
  
   
(Dollars In Millions)
              
Electric Operating Revenues:
                        
  Residential
   $ 187     $ 146     $ 41       28  
  Commercial
     134       110       24       22  
  Industrial
     245       184       61       33  
  Governmental
     12       9       3       33  
    Total retail
     578       449       129       29  
  Sales for resale:
                                
     Associated companies
     19       21       (2 )     (10 )
  Other
     9       12       (3 )     (25 )
    Total
   $ 606     $ 482     $ 124       26  
                                 
Billed Electric Energy
                                
 Sales (GWh):
                                
  Residential
     2,002       1,890       112       6  
  Commercial
     1,377       1,361       16       1  
  Industrial
     4,202       4,107       95       2  
  Governmental
     125       116       9       8  
    Total retail
     7,706       7,474       232       3  
  Sales for resale:
                                
     Associated companies
     209       436       (227 )     (52 )
     Non-associated companies
     7       11       (4 )     (36 )
    Total
     7,922       7,921       1       -  
                                 
                                 

 


ENTERGY MISSISSIPPI, INC.

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS


Plan to Spin Off the Utility’s Transmission Business

See the “Plan to Spin Off the Utility’s Transmission Business” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K and herein for a discussion of Entergy’s plan to spin off its transmission business and merge it with a newly formed subsidiary of ITC Holdings Corp., including the planned retirement of debt and preferred securities.

Results of Operations

Net Income

Net income increased $5.3 million primarily due to higher net revenue, partially offset by higher other operation and maintenance expenses and higher depreciation expense.

Net Revenue

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits.  Following is an analysis of the change in net revenue comparing the first quarter 2013 to the first quarter 2012.

   
Amount
  
   
(In Millions)
  
       
2012 net revenue
   $ 119.2  
Retail electric price
     17.9  
Reserve equalization
     4.4  
Other
     0.1  
2013 net revenue
   $ 141.6  

The retail electric price variance is primarily due to the recovery of Hinds plant costs through the power management rider, as approved by the MPSC, effective with the first billing cycle of 2013.  The net income effect of the Hinds plant cost recovery is limited to a portion representing an allowed return on equity on the net plant investment with the remainder offset by the Hinds plant costs in other operation and maintenance expenses, depreciation expenses, and taxes other than income taxes. 

The reserve equalization variance is primarily due to increased reserve equalization revenue resulting from the acquisition of the Hinds plant in November 2012.
 
 
Gross operating revenues and fuel and purchased power expenses

Gross operating revenues increased primarily due to:

·  
an increase of $14.4 million in power management rider revenue, as approved by the MPSC, primarily resulting from the acquisition of the Hinds plant in November 2012, as discussed above;
·  
an increase of $12.8 million in gross wholesale revenues due to an increase in sales to affiliated customers; and
·  
an increase of $11.4 million in rider revenue primarily due to an increase in the Grand Gulf rate effective October 2012.

 
106
Entergy Mississippi, Inc.
Management’s Financial Discussion and Analysis


The increase was partially offset by a decrease of $9.5 million in fuel cost recovery revenues primarily due to lower fuel rates.

Fuel and purchased power expenses increased primarily due to an increase in net area demand and an increase in the average market price of purchased power, partially offset by a decrease in the recovery of deferred fuel costs from customers.

Other Income Statement Variances

Other operation and maintenance expenses increased primarily due to an increase of $11.8 million in fossil-fueled generation expenses resulting from a higher scope of work done during plant outages in 2013 compared to the same period in 2012 and the acquisition of the Hinds plant in November 2012.

Depreciation and amortization expenses increased primarily due to an increase in plant in service, including the acquisition of the Hinds plant in November 2012.

Income Taxes

The effective income tax rate for the first quarter 2013 was 37.5%.  The difference in the effective income tax rate for the first quarter 2013 versus the federal statutory rate of 35% is due to state income taxes and certain book and tax differences related to utility plant items, partially offset by the reversal of the provision for uncertain tax positions and book and tax differences related to the allowance for equity funds used during construction.

The effective income tax rate for the first quarter 2012 was 40.2%.  The difference in the effective income tax rate for the first quarter 2012 versus the federal statutory rate of 35% was due to state income taxes and certain book and tax differences related to utility plant items, partially offset by book and tax differences related to the allowance for equity funds used during construction.

Liquidity and Capital Resources

Cash Flow

Cash flows for the three months ended March 31, 2013 and 2012 were as follows:

   
2013
    
2012
  
   
(In Thousands)
  
             
Cash and cash equivalents at beginning of period
   $ 52,970     $ 16  
                 
Cash flow provided by (used in):
                
Operating activities
     4,659       61,339  
Investing activities
     (22,123 )     (43,489 )
Financing activities
     (34,044 )     (2,770 )
Net increase (decrease) in cash and cash equivalents
     (51,508 )     15,080  
                 
Cash and cash equivalents at end of period
   $ 1,462     $ 15,096  


 
107
Entergy Mississippi, Inc.
Management’s Financial Discussion and Analysis


Operating Activities

Net cash provided by operating activities decreased $56.7 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to:

·  
a decrease in the recovery of fuel costs, including System Agreement bandwidth remedy payments of $33 million received in January 2012 to implement the FERC’s remedy in an October 2011 order for the period June-December 2005.  See Note 2 to the financial statements herein and in the Form 10-K for a discussion of the System Agreement proceedings; and
·  
income tax refunds of $8.4 million in the three months ended March 31, 2012.

Investing Activities

Net cash used in investing activities decreased $21.4 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to money pool activity.

Decreases in Entergy Mississippi’s receivable from the money pool are a source of cash flow, and Entergy Mississippi’s receivable from the money pool decreased $16.9 million for the three months ended March 31, 2013 compared to increasing $8 million for the three months ended March 31, 2012.  The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

Net cash used in financing activities increased $31.3 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to the payment at maturity of $100 million of 5.15% Series first mortgage bonds in February 2013, partially offset by borrowings of $70 million on Entergy Mississippi’s credit facilities in 2013.  See Note 4 to the financial statements herein for a discussion of long-term debt and credit facilities.

Capital Structure

Entergy Mississippi’s capitalization is balanced between equity and debt, as shown in the following table.

   
March 31,
2013
  
December 31,
2012
         
Debt to capital
  
55.1% 
  
55.9% 
Effect of subtracting cash
  
(0.1%)
  
(1.2%)
Net debt to net capital
  
55.0% 
  
54.7% 

Net debt consists of debt less cash and cash equivalents.  Debt consists of short-term borrowings, capital lease obligations, and long-term debt, including the currently maturing portion.  Capital consists of debt, preferred stock without sinking fund, and common equity.  Net capital consists of capital less cash and cash equivalents.  Entergy Mississippi uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi’s financial condition.

Uses and Sources of Capital

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Mississippi’s uses and sources of capital.  Following are additional updates to the information provided in the Form 10-K.


 
108
Entergy Mississippi, Inc.
Management’s Financial Discussion and Analysis


Entergy Mississippi’s receivables from or (payables to) the money pool were as follows:

March 31,
2013
  
December 31,
2012
  
March 31,
2012
  
December 31,
2011
(In Thousands)
             
($4,101)
  
$16,878
  
$7,978
  
($1,999)

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.

Entergy Mississippi has three separate credit facilities in the aggregate amount of $70 million scheduled to expire in May 2013.  Entergy Mississippi expects to renew all of its credit facilities prior to expiration.  As of March 31, 2013, there was an aggregate of $70 million in borrowings outstanding under the credit facilities.  See Note 4 to the financial statements herein for additional discussion of the credit facilities.

State and Local Rate Regulation and Fuel-Cost Recovery

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - State and Local Rate Regulation and Fuel-Cost Recovery" in the Form 10-K for a discussion of the formula rate plan and fuel and purchased power cost recovery. Following are updates to that discussion.

Formula Rate Plan

In March 2013, Entergy Mississippi submitted its formula rate plan 2012 test year filing.  The filing requests a $36.3 million revenue increase to reset Entergy Mississippi's return on common equity to 10.55%, which is a point within the formula rate plan bandwidth.  The formula rate plan calls for new rates to be implemented in June 2013 (or in July 2013 if any part of the filing is disputed by the Mississippi Public Utilities Staff).  The filing is currently subject to MPSC review.  A scheduling order was filed in April 2013 setting a hearing for July 2, 2013, with a final order to be issued on or before July 15, 2013 and revised rate adjustments to begin billing on July 28, 2013.

In August 2012 the MPSC opened inquiries to review whether the current formulaic methodology used to calculate the return on common equity in both Entergy Mississippi’s formula rate plan and Mississippi Power Company’s annual formula rate plan is still appropriate or can be improved to better serve the public interest. The intent of this inquiry and review is for informational purposes only; the evaluation of any recommendations for changes to the existing methodology would take place in a general rate case or in the existing formula rate plan docket.  In March 2013 the Staff filed its consultant’s report which noted the return on common equity estimation methods used by Entergy Mississippi and Mississippi Power Company are commonly used throughout the electric utility industry.  The report suggested ways in which the methods used by Entergy Mississippi and Mississippi Power Company might be improved, but did not recommend specific changes in the return on common equity formulas or calculations at this time.

Federal Regulation

See “System Agreement” and “Entergy’s Proposal to Join MISO” in the “Rate, Cost-recovery, and Other Regulation – Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for updates to the Federal Regulation discussion in the Form 10-K.

Nuclear Matters

See “Nuclear Matters” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for a discussion of nuclear matters.


 
109
Entergy Mississippi, Inc.
Management’s Financial Discussion and Analysis


Environmental Risks

See “Environmental” in the “Other Contingencies” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for a discussion of environmental risks.
 environmental risks.

Critical Accounting Estimates

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Mississippi’s accounting for unbilled revenue and qualified pension and other postretirement benefits.

 

 
INCOME STATEMENTS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
OPERATING REVENUES
            
Electric
   $ 291,641     $ 261,760  
                 
OPERATING EXPENSES
                
Operation and Maintenance:
                
   Fuel, fuel-related expenses, and
                
     gas purchased for resale
     73,561       84,559  
   Purchased power
     84,912       65,428  
   Other operation and maintenance
     57,950       48,336  
Taxes other than income taxes
     19,887       18,784  
Depreciation and amortization
     26,651       23,787  
Other regulatory credits - net
     (8,443 )     (7,472 )
TOTAL
     254,518       233,422  
                 
OPERATING INCOME
     37,123       28,338  
                 
OTHER INCOME
                
Allowance for equity funds used during construction
     733       1,165  
Interest and investment income
     139       10  
Miscellaneous - net
     (858 )     (1,055 )
TOTAL
     14       120  
                 
INTEREST EXPENSE
                
Interest expense
     15,293       14,545  
Allowance for borrowed funds used during construction
     (455 )     (616 )
TOTAL
     14,838       13,929  
                 
INCOME BEFORE INCOME TAXES
     22,299       14,529  
                 
Income taxes
     8,365       5,847  
                 
NET INCOME
     13,934       8,682  
                 
Preferred dividend requirements
     707       707  
                 
EARNINGS APPLICABLE TO
                
COMMON STOCK
   $ 13,227     $ 7,975  
                 
See Notes to Financial Statements.
                
                 

 
























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STATEMENTS OF CASH FLOWS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
OPERATING ACTIVITIES
            
Net income
   $ 13,934     $ 8,682  
Adjustments to reconcile net income to net cash flow provided by operating activities:
          
  Depreciation and amortization
     26,651       23,787  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
     4,806       (8,348 )
  Changes in assets and liabilities:
                
    Receivables
     (3,831 )     56,711  
    Fuel inventory
     (255 )     (1,861 )
    Accounts payable
     (5,222 )     (16,700 )
    Taxes accrued
     (41,260 )     (14,046 )
    Interest accrued
     1,892       (4,633 )
    Deferred fuel costs
     12,216       26,247  
    Other working capital accounts
     (8,852 )     4,981  
    Provisions for estimated losses
     (1 )     196  
    Other regulatory assets
     (1,169 )     (6,491 )
    Pension and other postretirement liabilities
     (174 )     (2,793 )
    Other assets and liabilities
     5,924       (4,393 )
Net cash flow provided by operating activities
     4,659       61,339  
                 
INVESTING ACTIVITIES
                
Construction expenditures
     (39,730 )     (36,664 )
Allowance for equity funds used during construction
     733       1,165  
Change in money pool receivable - net
     16,878       (7,978 )
Other
     (4 )     (12 )
Net cash flow used in investing activities
     (22,123 )     (43,489 )
                 
FINANCING ACTIVITIES
                
Retirement of long-term debt
     (100,000 )     -  
Changes in credit borrowing, net
     70,000       -  
Change in money pool payable - net
     4,101       (1,999 )
Dividends paid:
                
  Common stock
     (7,400 )     -  
  Preferred stock
     (707 )     (707 )
Other
     (38 )     (64 )
Net cash flow used in financing activities
     (34,044 )     (2,770 )
                 
Net increase (decrease) in cash and cash equivalents
     (51,508 )     15,080  
                 
Cash and cash equivalents at beginning of period
     52,970       16  
                 
Cash and cash equivalents at end of period
   $ 1,462     $ 15,096  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
          
Cash paid (received) during the period for:
                
  Interest - net of amount capitalized
   $ 12,700     $ 18,522  
  Income taxes
   $ 901     $ (8,407 )
                 
See Notes to Financial Statements.
                
                 


 

 
BALANCE SHEETS
  
ASSETS
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT ASSETS
            
Cash and cash equivalents:
            
  Cash
   $ 1,452     $ 585  
  Temporary cash investments
     10       52,385  
    Total cash and cash equivalents
     1,462       52,970  
Accounts receivable:
                
  Customer
     67,163       49,836  
  Allowance for doubtful accounts
     (902 )     (910 )
  Associated companies
     6,903       25,504  
  Other
     7,569       11,072  
  Accrued unbilled revenues
     34,767       43,045  
    Total accounts receivable
     115,500       128,547  
Deferred fuel costs
     14,274       26,490  
Accumulated deferred income taxes
     38,263       44,027  
Fuel inventory - at average cost
     49,033       48,778  
Materials and supplies - at average cost
     40,606       40,331  
Gas hedge contracts
     6,608       -  
Prepayments and other
     7,712       5,329  
TOTAL
     273,458       346,472  
                 
OTHER PROPERTY AND INVESTMENTS
                
Non-utility property - at cost (less accumulated depreciation)
     4,691       4,698  
Escrow accounts
     61,840       61,836  
TOTAL
     66,531       66,534  
                 
UTILITY PLANT
                
Electric
     3,729,781       3,708,743  
Property under capital lease
     7,430       8,112  
Construction work in progress
     73,964       62,876  
TOTAL UTILITY PLANT
     3,811,175       3,779,731  
Less - accumulated depreciation and amortization
     1,348,567       1,324,627  
UTILITY PLANT - NET
     2,462,608       2,455,104  
                 
DEFERRED DEBITS AND OTHER ASSETS
                
Regulatory assets:
                
  Regulatory asset for income taxes - net
     62,936       63,614  
  Other regulatory assets
     403,318       401,471  
Other
     22,828       20,832  
TOTAL
     489,082       485,917  
                 
TOTAL ASSETS
   $ 3,291,679     $ 3,354,027  
                 
See Notes to Financial Statements.
                


 
 
ENTERGY MISSISSIPPI, INC.
  
BALANCE SHEETS
  
LIABILITIES AND EQUITY
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
 
  
CURRENT LIABILITIES
            
Currently maturing long-term debt
   $ -     $ 100,000  
Short-term borrowings
     70,021       21  
Accounts payable:
                
  Associated companies
     45,539       42,377  
  Other
     36,250       44,856  
Customer deposits
     72,221       71,182  
Taxes accrued
     11,067       52,327  
Interest accrued
     20,118       18,226  
Accumulated deferred income taxes
     32       218  
Other
     20,459       21,490  
TOTAL
     275,707       350,697  
                 
NON-CURRENT LIABILITIES
                
Accumulated deferred income taxes and taxes accrued
     760,975       761,812  
Accumulated deferred investment tax credits
     7,565       7,257  
Obligations under capital lease
     5,051       5,329  
Other regulatory liabilities
     7,981       1,235  
Asset retirement cost liabilities
     6,128       6,039  
Accumulated provisions
     35,819       35,820  
Pension and other postretirement liabilities
     160,693       160,866  
Long-term debt
     1,069,556       1,069,519  
Other
     26,350       25,426  
TOTAL
     2,080,118       2,073,303  
                 
Commitments and Contingencies
                
                 
Preferred stock without sinking fund
     50,381       50,381  
                 
COMMON EQUITY
                
Common stock, no par value, authorized 12,000,000
                
 shares; issued and outstanding 8,666,357 shares in 2013 and 2012
     199,326       199,326  
Capital stock expense and other
     (690 )     (690 )
Retained earnings
     686,837       681,010  
TOTAL
     885,473       879,646  
                 
TOTAL LIABILITIES AND EQUITY
   $ 3,291,679     $ 3,354,027  
                 
See Notes to Financial Statements.
                


 

 
STATEMENTS OF CHANGES IN COMMON EQUITY
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited) (In Thousands)
  
                         
   
Common Equity
        
   
Common Stock
    
Capital Stock Expense and Other
    
Retained Earnings
    
Total
  
Balance at December 31, 2011
   $ 199,326     $ (690 )   $ 637,070     $ 835,706  
                                 
Net income
     -       -       8,682       8,682  
Preferred stock dividends
     -       -       (707 )     (707 )
                                 
Balance at March 31, 2012
   $ 199,326     $ (690 )   $ 645,045     $ 843,681  
                                 
                                 
Balance at December 31, 2012
   $ 199,326     $ (690 )   $ 681,010     $ 879,646  
                                 
Net income
     -       -       13,934       13,934  
Common stock dividends
     -       -       (7,400 )     (7,400 )
Preferred stock dividends
     -       -       (707 )     (707 )
                                 
Balance at March 31, 2013
   $ 199,326     $ (690 )   $ 686,837     $ 885,473  
                                 
See Notes to Financial Statements.
                                
                                 

 
 
 
 
SELECTED OPERATING RESULTS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
                         
                         
               
Increase/
        
Description
  
2013
    
2012
    
(Decrease)
    
%
  
   
(Dollars In Millions)
        
Electric Operating Revenues:
                        
  Residential
   $ 124     $ 109       15       14  
  Commercial
     96       92       4       4  
  Industrial
     36       35       1       3  
  Governmental
     10       9       1       11  
    Total retail
     266       245       21       9  
  Sales for resale:
                                
     Associated companies
     16       4       12       300  
     Non-associated companies
     5       5       -       -  
  Other
     5       8       (3 )     (38 )
    Total
   $ 292     $ 262     $ 30       11  
                                 
Billed Electric Energy
                                
 Sales (GWh):
                                
  Residential
     1,360       1,245       115       9  
  Commercial
     1,091       1,114       (23 )     (2 )
  Industrial
     532       546       (14 )     (3 )
  Governmental
     94       93       1       1  
    Total retail
     3,077       2,998       79       3  
  Sales for resale:
                                
     Associated companies
     237       25       212       848  
     Non-associated companies
     44       29       15       52  
    Total
     3,358       3,052       306       10  
                                 
                                 



ENTERGY NEW ORLEANS, INC.

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS


Plan to Spin Off the Utility’s Transmission Business

See the “Plan to Spin Off the Utility’s Transmission Business” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K and herein for a discussion of Entergy’s plan to spin off its transmission business and merge it with a newly formed subsidiary of ITC Holdings Corp., including the planned retirement of debt and preferred securities.

Results of Operations

Net Income

Net income increased $1.3 million primarily due to higher net revenue and a lower effective income tax rate, partially offset by higher taxes other than income taxes.

Net Revenue

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges.  Following is an analysis of the changes in net revenue comparing the first quarter 2013 to the first quarter 2012.

   
Amount
  
   
(In Millions)
  
       
2012 net revenue
   $ 53.8  
Volume/weather
     1.1  
Net gas revenue
     1.0  
Other
     1.3  
2013 net revenue
   $ 57.2  

The volume/weather variance is primarily due to an increase in electricity usage primarily in the residential sector due to a 3% increase in the average number of residential customers and the effect of more favorable weather in the residential sector in the first quarter 2013 as compared to the same period in prior year.

The net gas revenue variance is primarily due to the effect of more favorable weather, primarily in the residential and commercial sectors, in the first quarter 2013 as compared to the same period in prior year.

Gross operating revenues and purchased power expenses

Gross operating revenues increased primarily due to:

·  
an increase of $14 million in electric fuel cost recovery revenues due to higher fuel rates.  Entergy New Orleans’s fuel and purchased power recovery mechanism is discussed in Note 2 to the financial statements in the Form 10-K;
·  
an increase of $3.9 million in gross gas revenues primarily due to the effect of more favorable weather, as discussed above; and
·  
more favorable volume/weather, as discussed above.

Purchased power expenses increased primarily due to an increase in the average market price of purchased power.

 
118
Entergy New Orleans, Inc.
Management’s Financial Discussion and Analysis



Other Income Statement Variances

Taxes other than income taxes increased primarily due to an increase in local franchise taxes resulting from higher electric and gas retail revenues as compared to prior year.

Income Taxes

The effective income tax rate for the first quarter 2013 was (26.9%).  The difference in the effective income tax rate for the first quarter 2013 versus the federal statutory rate of 35% is primarily due to flow-through tax accounting, partially offset by certain book and tax differences related to utility plant items and state income taxes.

The effective income tax rate for the first quarter 2012 was 83.8%.  The difference in the effective income tax rate for the first quarter 2012 versus the federal statutory rate of 35% was due to certain book and tax differences related to utility plant items, the provision for uncertain tax positions, and state income taxes.

Liquidity and Capital Resources

Cash Flow

Cash flows for the three months ended March 31, 2013 and 2012 were as follows:

   
2013
    
2012
  
   
(In Thousands)
  
             
Cash and cash equivalents at beginning of period
   $ 9,391     $ 9,834  
                 
Cash flow provided by (used in):
                
Operating activities
     2,344       (6,726 )
Investing activities
     (31,945 )     (7,128 )
Financing activities
     24,781       5,372  
Net decrease in cash and cash equivalents
     (4,820 )     (8,482 )
                 
Cash and cash equivalents at end of period
   $ 4,571     $ 1,352  

Operating Activities

Entergy New Orleans’s operating activities provided $2.3 million in cash for the three months ended March 31, 2013 compared to using $6.7 million in cash for the three months ended March 31, 2012 primarily due to the increased recovery of fuel costs and $1.8 million in pension contributions in 2012.  See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Critical Accounting Estimates" in the Form 10-K and Note 6 to the financial statements herein for a discussion of qualified pension and other postretirement benefits.

Investing Activities

Net cash flow used in investing activities increased $24.8 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to money pool activity.

Increases in Entergy New Orleans’s receivable from the money pool are a use of cash flow, and Entergy New Orleans’s receivable from the money pool increased $11.4 million for the three months ended March 31, 2013 compared to decreasing $9.1 million for the three months ended March 31, 2012.  The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.


 
119
Entergy New Orleans, Inc.
Management’s Financial Discussion and Analysis


Financing Activities

Net cash provided by financing activities increased $19.4 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to borrowings of $25 million under Entergy New Orleans’s credit facility in 2013, partially offset by money pool activity.

Increases in Entergy New Orleans’s payable to the money pool are a source of cash flow, and Entergy New Orleans’s payable to the money pool increased by $7.4 million for the three months ended March 31, 2012.

Capital Structure

Entergy New Orleans’s capitalization is balanced between equity and debt, as shown in the following table.  The increase in debt to capital ratio is due to borrowings of $25 million under Entergy New Orleans’s credit facility in 2013.

   
March 31,
 2013
  
December 31,
2012
         
Debt to capital
  
50.6% 
  
47.7% 
Effect of subtracting cash
  
(0.6%)
  
(1.2%)
Net debt to net capital
  
50.0% 
  
46.5% 

Net debt consists of debt less cash and cash equivalents.  Debt consists of short-term borrowings and long-term debt, including the currently maturing portion.  Capital consists of debt, preferred stock without sinking fund, and common equity.  Net capital consists of capital less cash and cash equivalents.  Entergy New Orleans uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy New Orleans’s financial condition.

Uses and Sources of Capital

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy New Orleans’s uses and sources of capital.  Following are additional updates to the information provided in the Form 10-K.

Entergy New Orleans’s receivables from or (payables to) the money pool were as follows:

March 31,
2013
  
December 31,
2012
  
March 31,
2012
  
December 31,
2011
(In Thousands)
             
$14,327
  
$2,923
  
($7,353)
  
$9,074

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.

Entergy New Orleans has a credit facility in the amount of $25 million scheduled to expire in November 2013.  As of March 31, 2013, $25 million was outstanding on the credit facility.  See Note 4 to the financial statements herein for additional discussion of the credit facility.

State and Local Rate Regulation

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – State and Local Rate Regulation" in the Form 10-K for a discussion of state and local rate regulation.


 
120
Entergy New Orleans, Inc.
Management’s Financial Discussion and Analysis


Federal Regulation

See “System Agreement” and “Entergy’s Proposal to Join MISO” in the “Rate, Cost-recovery, and Other Regulation – Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for updates to the Federal Regulation discussion in the Form 10-K.

Nuclear Matters

See “Nuclear Matters” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for a discussion of nuclear matters.

Environmental Risks

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks" in the Form 10-K for a discussion of environmental risks.

Critical Accounting Estimates

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy New Orleans’s accounting for unbilled revenue and qualified pension and other postretirement benefits.

 

 
INCOME STATEMENTS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
             
             
   
2013
    
2012
  
 
  
(In Thousands)
  
             
OPERATING REVENUES
            
Electric
   $ 113,963     $ 100,584  
Natural gas
     32,503       28,572  
TOTAL
     146,466       129,156  
                 
OPERATING EXPENSES
                
Operation and Maintenance:
                
   Fuel, fuel-related expenses, and
                
     gas purchased for resale
     28,863       27,682  
   Purchased power
     60,159       47,231  
   Other operation and maintenance
     31,233       30,896  
Taxes other than income taxes
     12,246       10,548  
Depreciation and amortization
     9,443       9,069  
Other regulatory charges - net
     250       480  
TOTAL
     142,194       125,906  
                 
OPERATING INCOME
     4,272       3,250  
                 
OTHER INCOME
                
Allowance for equity funds used during construction
     170       149  
Interest and investment income
     21       15  
Miscellaneous - net
     (316 )     (405 )
TOTAL
     (125 )     (241 )
                 
INTEREST EXPENSE
                
Interest expense
     3,203       2,833  
Allowance for borrowed funds used during construction
     (86 )     (71 )
TOTAL
     3,117       2,762  
                 
INCOME BEFORE INCOME TAXES
     1,030       247  
                 
Income taxes
     (277 )     207  
                 
NET INCOME
     1,307       40  
                 
Preferred dividend requirements
     241       241  
                 
EARNINGS (LOSS) APPLICABLE TO
                
COMMON STOCK
   $ 1,066     $ (201 )
                 
See Notes to Financial Statements.
                
                 


 

 
STATEMENTS OF CASH FLOWS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
             
             
   
2013
    
2012
  
   
(In Thousands)
  
             
OPERATING ACTIVITIES
            
Net income
   $ 1,307     $ 40  
Adjustments to reconcile net income to net cash flow provided by (used in) operating activities:
          
  Depreciation and amortization
     9,443       9,069  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
     (11,851 )     (3,531 )
  Changes in other assets and liabilities:
                
    Receivables
     281       2,182  
    Fuel inventory
     368       1,423  
    Accounts payable
     (7,777 )     (11,069 )
    Prepaid taxes and taxes accrued
     (399 )     1,116  
    Interest accrued
     (1,126 )     (1,128 )
    Deferred fuel costs
     4,936       1,800  
    Other working capital accounts
     (8,668 )     (11,241 )
    Provisions for estimated losses
     2,261       746  
    Other regulatory assets
     3,421       5,519  
    Pensions and other postretirement liabilities
     (42 )     (1,896 )
    Other assets and liabilities
     10,190       244  
Net cash flow provided by (used in) operating activities
     2,344       (6,726 )
                 
INVESTING ACTIVITIES
                
Construction expenditures
     (18,533 )     (14,938 )
Allowance for equity funds used during construction
     170       149  
Change in money pool receivable - net
     (11,404 )     9,074  
Payments to storm reserve escrow account
     (2,178 )     (1,413 )
Net cash flow used in investing activities
     (31,945 )     (7,128 )
                 
FINANCING ACTIVITIES
                
Change in credit borrowings - net
     25,000       -  
Change in money pool payable - net
     -       7,353  
Dividends paid:
                
  Common stock
     -       (1,700 )
  Preferred stock
     (241 )     (241 )
Other
     22       (40 )
Net cash flow provided by financing activities
     24,781       5,372  
                 
Net decrease in cash and cash equivalents
     (4,820 )     (8,482 )
                 
Cash and cash equivalents at beginning of period
     9,391       9,834  
                 
Cash and cash equivalents at end of period
   $ 4,571     $ 1,352  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                
Cash paid during the period for:
                
  Interest - net of amount capitalized
   $ 4,066     $ 3,719  
                 
See Notes to Financial Statements.
                
                 


 

 
BALANCE SHEETS
  
ASSETS
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT ASSETS
            
Cash and cash equivalents
            
  Cash
   $ 301     $ 319  
  Temporary cash investments
     4,270       9,072  
        Total cash and cash equivalents
     4,571       9,391  
Accounts receivable:
                
  Customer
     44,461       33,142  
  Allowance for doubtful accounts
     (486 )     (446 )
  Associated companies
     34,165       29,326  
  Other
     3,505       3,115  
  Accrued unbilled revenues
     12,739       18,124  
    Total accounts receivable
     94,384       83,261  
Accumulated deferred income taxes
     10,164       9,517  
Fuel inventory - at average cost
     1,409       1,777  
Materials and supplies - at average cost
     10,690       10,889  
Prepaid taxes
     1,776       1,377  
Prepayments and other
     14,280       3,201  
TOTAL
     137,274       119,413  
                 
OTHER PROPERTY AND INVESTMENTS
                
Non-utility property at cost (less accumulated depreciation)
     1,016       1,016  
Storm reserve escrow account
     12,783       10,605  
TOTAL
     13,799       11,621  
                 
UTILITY PLANT
                
Electric
     866,738       860,358  
Natural gas
     219,417       217,769  
Construction work in progress
     13,821       11,135  
TOTAL UTILITY PLANT
     1,099,976       1,089,262  
Less - accumulated depreciation and amortization
     557,099       549,587  
UTILITY PLANT - NET
     542,877       539,675  
                 
DEFERRED DEBITS AND OTHER ASSETS
                
Regulatory assets:
                
  Deferred fuel costs
     4,080       4,080  
  Other regulatory assets
     198,582       202,003  
Other
     6,656       4,997  
TOTAL
     209,318       211,080  
                 
TOTAL ASSETS
   $ 903,268     $ 881,789  
                 
See Notes to Financial Statements.
                


 

ENTERGY NEW ORLEANS, INC.
  
BALANCE SHEETS
  
LIABILITIES AND EQUITY
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT LIABILITIES
            
Currently maturing long-term debt
   $ 70,000     $ 70,000  
Short-term borrowings
     25,000       -  
Accounts payable:
                
  Associated companies
     29,120       28,778  
  Other
     21,099       31,209  
Customer deposits
     22,206       21,974  
Interest accrued
     1,894       3,020  
Deferred fuel costs
     7,093       2,157  
System agreement cost equalization
     16,880       16,880  
Other
     5,460       3,479  
TOTAL CURRENT LIABILITIES
     198,752       177,497  
                 
NON-CURRENT LIABILITIES
                
Accumulated deferred income taxes and taxes accrued
     175,342       172,790  
Accumulated deferred investment tax credits
     1,246       1,300  
Regulatory liability for income taxes - net
     11,016       24,291  
Other regulatory liabilities
     22,754       11,060  
Asset retirement cost liabilities
     2,231       2,193  
Accumulated provisions
     17,292       15,031  
Pension and other postretirement liabilities
     83,748       83,790  
Long-term debt
     126,302       126,300  
Gas system rebuild insurance proceeds
     40,859       44,207  
Other
     7,315       7,985  
TOTAL NON-CURRENT LIABILITIES
     488,105       488,947  
                 
                 
Commitments and Contingencies
                
                 
Preferred stock without sinking fund
     19,780       19,780  
                 
COMMON EQUITY
                
Common stock, $4 par value, authorized 10,000,000
                
  shares; issued and outstanding 8,435,900 shares in 2013
                
  and 2012
     33,744       33,744  
Paid-in capital
     36,294       36,294  
Retained earnings
     126,593       125,527  
TOTAL
     196,631       195,565  
                 
TOTAL LIABILITIES AND EQUITY
   $ 903,268     $ 881,789  
                 
See Notes to Financial Statements.
                


 

 
STATEMENTS OF CHANGES IN COMMON EQUITY
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited) (In Thousands)
  
                         
   
Common Equity
        
   
Common Stock
    
Paid-in Capital
    
Retained Earnings
    
Total
  
Balance at December 31, 2011
   $ 33,744     $ 36,294     $ 111,127     $ 181,165  
                                 
Net income
     -       -       40       40  
Common stock dividends
     -       -       (1,700 )     (1,700 )
Preferred stock dividends
     -       -       (241 )     (241 )
                                 
Balance at March 31, 2012
   $ 33,744     $ 36,294     $ 109,226     $ 179,264  
                                 
                                 
Balance at December 31, 2012
   $ 33,744     $ 36,294     $ 125,527     $ 195,565  
                                 
Net income
     -       -       1,307       1,307  
Preferred stock dividends
     -       -       (241 )     (241 )
                                 
Balance at March 31, 2013
   $ 33,744     $ 36,294     $ 126,593     $ 196,631  
                                 
See Notes to Financial Statements.
                                
                                 


 

 
SELECTED OPERATING RESULTS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
                         
                         
                         
               
Increase/
        
Description
  
2013
    
2012
    
(Decrease)
    
%
  
   
(Dollars In Millions)
        
Electric Operating Revenues:
                        
  Residential
   $ 45     $ 35     $ 10       29  
  Commercial
     42       36       6       17  
  Industrial
     8       7       1       14  
  Governmental
     16       14       2       14  
    Total retail
     111       92       19       21  
  Sales for resale:
                                
    Associated companies
     4       7       (3 )     (43 )
  Other
     (1 )     2       (3 )     (150 )
    Total
   $ 114     $ 101     $ 13       13  
                                 
Billed Electric Energy
                                
 Sales (GWh):
                                
  Residential
     432       383       49       13  
  Commercial
     451       447       4       1  
  Industrial
     103       111       (8 )     (7 )
  Governmental
     182       181       1       1  
    Total retail
     1,168       1,122       46       4  
  Sales for resale:
                                
     Associated companies
     86       139       (53 )     (38 )
     Non-associated companies
     1       1       -       -  
    Total
     1,255       1,262       (7 )     (1 )
                                 
                                 
                                 



ENTERGY TEXAS, INC. AND SUBSIDIARIES

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS


Plan to Spin Off the Utility’s Transmission Business

See the “Plan to Spin Off the Utility’s Transmission Business” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K and herein for a discussion of Entergy’s plan to spin off its transmission business and merge it with a newly formed subsidiary of ITC Holdings Corp., including the planned retirement of debt.

Results of Operations

Net Income

Net income decreased slightly, by $0.8 million, primarily due to higher depreciation and amortization expenses and a higher effective income tax rate, substantially offset by higher net revenue.

Net Revenue

Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges.  Following is an analysis of the change in net revenue comparing the first quarter 2013 to the first quarter 2012.

   
Amount
  
   
(In Millions)
  
       
2012 net revenue
   $ 117.4  
Retail electric price
     8.8  
Reserve equalization
     3.7  
Net wholesale revenue
     (3.5 )
Purchased power capacity
     (4.4 )
Other
     (1.2 )
2013 net revenue
   $ 120.8  

The retail electric price variance is primarily due to an annual base rate increase of $28 million, effective July 2012, as a result of the PUCT’s order in the December 2011 rate case. See Note 2 to the financial statements in the Form 10-K for further discussion of the rate case.

The reserve equalization variance is primarily due to decreased reserve equalization expense as a result of changes in the Entergy System generation mix compared to the same period in 2012.

The net wholesale revenue variance is primarily due to a decrease in sales to municipal and co-op customers compared to the same period in 2012.

The purchased power capacity variance is primarily due to additional capacity purchases.

Gross operating revenues and fuel and purchased power expenses

Gross operating revenues decreased primarily due to a decrease of $58.7 million in fuel cost recovery revenues primarily attributable to lower fuel rates, partially offset by an increase of $32 million in gross wholesale revenues as a result of an increase in sales to affiliated customers and higher prices and the annual base rate increase effective July 2012, as discussed above.


 
128
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis


Fuel and purchased power expenses decreased primarily due to a decrease in deferred fuel expense as a result of higher interim fuel refunds in 2013 compared to 2012, partially offset by increases in the average market prices of natural gas and purchased power and increased demand.

Other Income Statement Variances

Depreciation and amortization expenses increased primarily due to additions to plant in service and an increase in depreciation rates as a result of the rate order approved by the PUCT in September 2012.  See Note 2 to the financial statements in the Form 10-K for further discussion of the PUCT rate order.

Income Taxes

The effective income tax rate for the first quarter 2013 was 76.4%.  The difference in the effective income tax rate for the first quarter 2013 versus the federal statutory rate of 35% is due to certain book and tax differences related to utility plant items and state income taxes.

The effective income tax rate for the first quarter 2012 was 53.3%.  The difference in the effective income tax rate for the first quarter 2012 versus the federal statutory rate of 35% was due to certain book and tax differences related to utility plant items and state income taxes, partially offset by the amortization of investment tax credits and book and tax differences related to the allowance for equity funds used during construction.

Liquidity and Capital Resources

Cash Flow

Cash flows for the three months ended March 31, 2013 and 2012 were as follows:

   
2013
    
2012
  
   
(In Thousands)
  
             
Cash and cash equivalents at beginning of period
   $ 60,236     $ 65,289  
                 
Cash flow provided by (used in):
                
Operating activities
     (25,061 )     78,976  
Investing activities
     (13,118 )     (22,265 )
Financing activities
     (21,947 )     (22,358 )
Net increase (decrease) in cash and cash equivalents
     (60,126 )     34,353  
                 
Cash and cash equivalents at end of period
   $ 110     $ 99,642  

Operating Activities

Entergy Texas’s operating activities used $25.1 million of cash for the three months ended March 31, 2013 compared to providing $79 million of cash for the three months ended March 31, 2012 primarily due to:

·  
$86.1 million of fuel cost refunds for the three months ended March 31, 2013 compared to $35.8 million of fuel cost refunds for the three months ended March 31, 2012.  See Note 2 to the financial statements herein and in the Form 10-K for discussion of the fuel cost refunds; and
·  
the receipt, in January 2012, of $43 million in System Agreement bandwidth remedy payments required to implement the FERC’s remedy in an October 2011 order for the period June-December 2005.  As of March 31, 2013, all of the $43 million, plus interest, had been credited to Entergy Texas customers, with the final $9.5 million being credited in the first quarter 2013.  See Note 2 to the financial statements herein and in the Form 10-K for a discussion of the System Agreement proceedings.


 
129
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis



Investing Activities

Net cash flow used in investing activities decreased $9.1 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to money pool activity.

Decreases in Entergy Texas’s receivable from the money pool are a source of cash flow, and Entergy Texas’s receivable from the money pool decreased by $19.2 million for the three months ended March 31, 2013 compared to decreasing by $7.2 million for the three months ended March 31, 2012.  The money pool is an inter-company borrowing arrangement designed to reduce Entergy’s subsidiaries’ need for external short-term borrowings.

Capital Structure

Entergy Texas’s capitalization is balanced between equity and debt, as shown in the following table.

   
March 31,
 2013
  
December 31,
2012
         
Debt to capital
  
65.1% 
  
65.4% 
Effect of excluding the securitization bonds
  
(13.1%)
  
(13.3%)
Debt to capital, excluding securitization bonds (a)
  
52.0% 
  
52.1% 
Effect of subtracting cash
  
-% 
  
(1.7%)
Net debt to net capital, excluding securitization bonds (a)
  
52.0% 
  
50.4% 

(a)
Calculation excludes the securitization bonds, which are non-recourse to Entergy Texas.

Net debt consists of debt less cash and cash equivalents.  Debt consists of long-term debt, including the currently maturing.  Capital consists of debt and common equity.  Net capital consists of capital less cash and cash equivalents.  Entergy Texas uses the net debt to net capital ratio and the ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy Texas’s financial condition.

Uses and Sources of Capital

           See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Texas’s uses and sources of capital.  Following are updates to the information provided in the Form 10-K.

Entergy Texas’s receivables from or (payables to) the money pool were as follows:

March 31,
2013
  
December 31,
2012
  
March 31,
2012
  
December 31,
2011
(In Thousands)
             
($180)
  
$19,175
  
$56,007
  
$63,191

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.

Entergy Texas has a credit facility in the amount of $150 million scheduled to expire in March 2018.  No borrowings were outstanding under the facility as of March 31, 2013.  See Note 4 to the financial statements herein for additional discussion of the credit facility.


 
130
Entergy Texas, Inc. and Subsidiaries
Management’s Financial Discussion and Analysis


State and Local Rate Regulation and Fuel-Cost Recovery

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - State and Local Rate Regulation and Fuel-Cost Recovery" in the Form 10-K for a discussion of state and local rate regulation and fuel-cost recovery.  Following is an update to that discussion.

In November 2012, Entergy Texas filed a pleading seeking a PUCT finding that special circumstances exist for limited cost recovery of capacity costs associated with two power purchase agreements until such time that these costs are included in base rates or a purchased capacity recovery rider or other recovery mechanism.  In March 2013 the PUCT Staff and intervenors filed a joint motion to dismiss Entergy Texas’s application seeking special circumstances recovery of these capacity costs.  Entergy Texas filed a response and the matter remains pending.

At the April 11, 2013 open meeting, the PUCT Commissioners discussed their view that a purchased power capacity rider was good public policy.  The PUCT subsequently proposed a second draft of the rule that incorporates a pre-approval process as discussed at the meeting.  A final decision is expected by the end of May 2013.  If the PUCT finalizes the rule, Entergy Texas would have the option to recover its capacity costs under the new rider mechanism or could proceed with a full base rate proceeding.

Federal Regulation

See “System Agreement” and “Entergy’s Proposal to Join MISO” in the “Rate, Cost-recovery, and Other Regulation – Federal Regulation” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis for updates to the Federal Regulation discussion in the Form 10-K.

Industrial and Commercial Customers

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Industrial and Commercial Customers" in the Form 10-K for a discussion of industrial and commercial customers.

Nuclear Matters

See “Nuclear Matters” section of Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Form 10-K for a discussion of nuclear matters.

Environmental Risks

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Environmental Risks" in the Form 10-K for a discussion of environmental risks.

Critical Accounting Estimates

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates" in the Form 10-K for a discussion of the unbilled revenue and qualified pension and other postretirement benefits.

 

 
CONSOLIDATED INCOME STATEMENTS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
   
   
2013
    
2012
  
   
(In Thousands)
  
             
OPERATING REVENUES
            
Electric
   $ 306,173     $ 326,924  
                 
OPERATING EXPENSES
                
Operation and Maintenance:
                
   Fuel, fuel-related expenses, and
                
     gas purchased for resale
     (26,100 )     44,038  
   Purchased power
     192,719       152,123  
   Other operation and maintenance
     56,490       55,823  
Taxes other than income taxes
     14,650       15,794  
Depreciation and amortization
     23,360       20,727  
Other regulatory charges - net
     18,777       13,356  
TOTAL
     279,896       301,861  
                 
OPERATING INCOME
     26,277       25,063  
                 
OTHER INCOME
                
Allowance for equity funds used during construction
     759       1,089  
Interest and investment income
     347       1,460  
Miscellaneous - net
     (858 )     (795 )
TOTAL
     248       1,754  
                 
INTEREST EXPENSE
                
Interest expense
     23,181       23,810  
Allowance for borrowed funds used during construction
     (555 )     (726 )
TOTAL
     22,626       23,084  
                 
INCOME BEFORE INCOME TAXES
     3,899       3,733  
                 
Income taxes
     2,977       1,988  
                 
NET INCOME
   $ 922     $ 1,745  
                 
                 
See Notes to Financial Statements.
                


 

 
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
OPERATING ACTIVITIES
            
Net income
   $ 922     $ 1,745  
Adjustments to reconcile net income to net cash flow provided by (used in) operating activities:
  
  Depreciation and amortization
     23,360       20,727  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
     (31,998 )     3,184  
  Changes in assets and liabilities:
                
    Receivables
     21,476       82,506  
    Fuel inventory
     (3,453 )     (7,173 )
    Accounts payable
     12,838       (10,370 )
    Taxes accrued
     17,881       (17,324 )
    Interest accrued
     (8,763 )     (8,608 )
    Deferred fuel costs
     (76,915 )     9,213  
    Other working capital accounts
     (3,839 )     (3,131 )
    Provisions for estimated losses
     1,689       (192 )
    Other regulatory assets
     24,771       18,716  
    Pension and other postretirement liabilities
     (2,114 )     (3,097 )
    Other assets and liabilities
     (916 )     (7,220 )
Net cash flow provided by (used in) operating activities
     (25,061 )     78,976  
                 
INVESTING ACTIVITIES
                
Construction expenditures
     (43,382 )     (42,162 )
Allowance for equity funds used during construction
     759       1,089  
Change in money pool receivable - net
     19,175       7,184  
Remittances to transition charge account
     (20,274 )     (19,070 )
Payments from transition charge account
     30,604       30,694  
Net cash flow used in investing activities
     (13,118 )     (22,265 )
                 
FINANCING ACTIVITIES
                
Retirement of long-term debt
     (21,967 )     (21,670 )
Change in money pool payable - net
     180       -  
Other
     (160 )     (688 )
Net cash flow used in financing activities
     (21,947 )     (22,358 )
                 
Net increase (decrease) in cash and cash equivalents
     (60,126 )     34,353  
                 
Cash and cash equivalents at beginning of period
     60,236       65,289  
                 
Cash and cash equivalents at end of period
   $ 110     $ 99,642  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                
Cash paid (received) during the period for:
                
  Interest - net of amount capitalized
   $ 30,909     $ 31,320  
  Income taxes
   $ (1,941 )   $ -  
                 
See Notes to Financial Statements.
                
                 


 

 
CONSOLIDATED BALANCE SHEETS
  
ASSETS
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT ASSETS
            
Cash and cash equivalents:
            
  Cash
   $ 80     $ 528  
   Temporary cash investments
     30       59,708  
    Total cash and cash equivalents
     110       60,236  
Securitization recovery trust account
     26,925       37,255  
Accounts receivable:
                
  Customer
     41,105       53,836  
  Allowance for doubtful accounts
     (635 )     (680 )
  Associated companies
     45,539       68,750  
  Other
     8,324       10,450  
  Accrued unbilled revenues
     35,625       38,252  
    Total accounts receivable
     129,958       170,608  
Accumulated deferred income taxes
     28,754       34,988  
Fuel inventory - at average cost
     58,841       55,388  
Materials and supplies - at average cost
     30,515       32,853  
System agreement cost equalization
     16,880       16,880  
Prepaid taxes
     35,787       53,668  
Prepayments and other
     14,125       18,206  
TOTAL
     341,895       480,082  
                 
OTHER PROPERTY AND INVESTMENTS
                
Investments in affiliates - at equity
     668       678  
Non-utility property - at cost (less accumulated depreciation)
     565       638  
Other
     17,753       17,263  
TOTAL
     18,986       18,579  
                 
UTILITY PLANT
                
Electric
     3,511,218       3,475,776  
Construction work in progress
     84,711       90,469  
TOTAL UTILITY PLANT
     3,595,929       3,566,245  
Less - accumulated depreciation and amortization
     1,347,393       1,332,349  
UTILITY PLANT - NET
     2,248,536       2,233,896  
                 
DEFERRED DEBITS AND OTHER ASSETS
                
Regulatory assets:
                
  Regulatory asset for income taxes - net
     130,490       131,287  
  Other regulatory assets (includes securitization property
       of $635,271 as of March 31, 2013 and
       $648,863 as of December 31, 2012)
     1,090,563       1,114,536  
Long-term receivables - associated companies
     29,107       29,510  
Other
     21,208       17,891  
TOTAL
     1,271,368       1,293,224  
                 
TOTAL ASSETS
   $ 3,880,785     $ 4,025,781  
                 
See Notes to Financial Statements.
                


 
 
ENTERGY TEXAS, INC. AND SUBSIDIARIES
  
CONSOLIDATED BALANCE SHEETS
  
LIABILITIES AND EQUITY
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT LIABILITIES
            
Accounts payable:
            
  Associated companies
   $ 108,481     $ 88,743  
  Other
     53,508       65,261  
Customer deposits
     38,319       38,859  
Interest accrued
     23,403       32,166  
Deferred fuel costs
     16,419       93,334  
Pension and other postretirement liabilities
     837       853  
System agreement cost equalization
     -       8,968  
Other
     2,091       2,839  
TOTAL
     243,058       331,023  
                 
NON-CURRENT LIABILITIES
                
Accumulated deferred income taxes and taxes accrued
     971,241       1,009,081  
Accumulated deferred investment tax credits
     17,344       17,743  
Other regulatory liabilities
     6,760       6,150  
Asset retirement cost liabilities
     4,163       4,103  
Accumulated provisions
     8,298       6,609  
Pension and other postretirement liabilities
     153,143       155,241  
Long-term debt (includes securitization bonds of
       $668,418 as of March 31, 2013 and
       $690,380 as of December 31, 2012)
     1,595,957       1,617,813  
Other
     25,753       23,872  
TOTAL
     2,782,659       2,840,612  
                 
Commitments and Contingencies
                
                 
COMMON EQUITY
                
Common stock, no par value, authorized 200,000,000 shares;
                
  issued and outstanding 46,525,000 shares in 2013 and 2012
     49,452       49,452  
Paid-in capital
     481,994       481,994  
Retained earnings
     323,622       322,700  
TOTAL
     855,068       854,146  
                 
TOTAL LIABILITIES AND EQUITY
   $ 3,880,785     $ 4,025,781  
                 
See Notes to Financial Statements.
                


 
 
 
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited) (In Thousands)
  
                         
   
Common Equity
        
   
Common Stock
    
Paid-in Capital
    
Retained Earnings
    
Total
  
                         
Balance at December 31, 2011
   $ 49,452     $ 481,994     $ 367,909     $ 899,355  
                                 
Net income
     -       -       1,745       1,745  
                                 
Balance at March 31, 2012
   $ 49,452     $ 481,994     $ 369,654     $ 901,100  
                                 
                                 
Balance at December 31, 2012
   $ 49,452     $ 481,994     $ 322,700     $ 854,146  
                                 
Net income
     -       -       922       922  
                                 
Balance at March 31, 2013
   $ 49,452     $ 481,994     $ 323,622     $ 855,068  
                                 
See Notes to Financial Statements.
                                
                                 


 

 
SELECTED OPERATING RESULTS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
                         
                         
               
Increase/
        
Description
  
2013
    
2012
    
(Decrease)
    
%
  
   
(Dollars In Millions)
        
Electric Operating Revenues:
                        
  Residential
   $ 101     $ 117     $ (16 )     (14 )
  Commercial
     53       77       (24 )     (31 )
  Industrial
     50       63       (13 )     (21 )
  Governmental
     4       6       (2 )     (33 )
    Total retail
     208       263       (55 )     (21 )
  Sales for resale:
                                
     Associated companies
     84       52       32       62  
     Non-associated companies
     9       8       1       13  
  Other
     5       4       1       25  
    Total
   $ 306     $ 327     $ (21 )     (6 )
                                 
Billed Electric Energy
                                
 Sales (GWh):
                                
  Residential
     1,263       1,195       68       6  
  Commercial
     981       974       7       1  
  Industrial
     1,419       1,399       20       1  
  Governmental
     68       67       1       1  
    Total retail
     3,731       3,635       96       3  
  Sales for resale:
                                
     Associated companies
     1,325       730       595       82  
     Non-associated companies
     162       256       (94 )     (37 )
    Total
     5,218       4,621       597       13  
                                 
                                 



SYSTEM ENERGY RESOURCES, INC.

MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS


Results of Operations

System Energy’s principal asset currently consists of an ownership interest and a leasehold interest in Grand Gulf.  The capacity and energy from its 90% interest is sold under the Unit Power Sales Agreement to its only four customers, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans.  System Energy’s operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% interest in Grand Gulf pursuant to the Unit Power Sales Agreement.  Payments under the Unit Power Sales Agreement are System Energy’s only source of operating revenues.

Net income increased $1.5 million primarily due to increased operating income partially offset by lower other income.  Operating income was higher because of higher rate base compared to 2012 resulting from capital spending at Grand Gulf, including the uprate project.  Other income was lower due to AFUDC accrued on the Grand Gulf uprate project in the first quarter 2012.  Grand Gulf’s spring 2012 refueling outage was completed in June 2012, and the majority of uprate-related capital improvements were completed during this outage.

Liquidity and Capital Resources

Cash Flow

Cash flows for the three months ended March 31, 2013 and 2012 were as follows:

   
2013
    
2012
  
   
(In Thousands)
  
             
Cash and cash equivalents at beginning of period
   $ 83,622     $ 185,157  
                 
Cash flow provided by (used in):
                
Operating activities
     94,178       67,536  
Investing activities
     (49,239 )     (218,619 )
Financing activities
     (111,456 )     49,106  
Net decrease in cash and cash equivalents
     (66,517 )     (101,977 )
                 
Cash and cash equivalents at end of period
   $ 17,105     $ 83,180  

Operating Activities

Net cash provided by operating activities increased $26.6 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to spending on the Grand Gulf refueling outage in 2012.

Investing Activities

Net cash used in investing activities decreased $169.4 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 primarily due to an increase in nuclear fuel activity primarily due to the Grand Gulf refueling outage in 2012 and a decrease in construction expenditures resulting from spending on the uprate project at Grand Gulf completed during the refueling outage in 2012.  The decrease was partially offset by money pool activity.

 
138
System Energy Resources, Inc.
Management’s Financial Discussion and Analysis



Increases in System Energy’s receivable from the money pool are a use of cash flow, and System Energy’s receivable from the money pool increased $24.7 million for the three months ended March 31, 2013 compared to decreasing by $73.3 million for the three months ended March 31, 2012.  The money pool is an inter-company borrowing arrangement designed to reduce the Utility subsidiaries’ need for external short-term borrowings.

Financing Activities

System Energy’s financing activities used $111.5 million of cash for the three months ended March 31, 2013 compared to providing $49.1 million of cash for the three months ended March 31, 2012 primarily due to the following cash flow activity:

·  
the repayment of borrowings of $19.8 million on the nuclear fuel company variable interest entity’s credit facility in 2013 compared to an increase in borrowings of $69.2 million on the nuclear fuel company variable interest entity’s credit facility in 2012;
·  
the issuance of $50 million of 4.02% Series H notes by the nuclear fuel company variable interest entity in February 2012; and
·  
an increase of $21.3 million in common stock dividends in 2013.

Capital Structure

System Energy’s capitalization is balanced between equity and debt, as shown in the following table.

   
March 31,
 2013
  
December 31,
2012
         
Debt to capital
  
48.5% 
  
49.7% 
Effect of subtracting cash
  
(0.6%)
  
(2.6%)
Net debt to net capital
  
47.9% 
  
47.1% 

Net debt consists of debt less cash and cash equivalents.  Debt consists of short-term borrowings and long-term debt, including the currently maturing portion.  Capital consists of debt and common equity.  Net capital consists of capital less cash and cash equivalents.  System Energy uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating System Energy’s financial condition.

Uses and Sources of Capital

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources" in the Form 10-K for a discussion of System Energy’s uses and sources of capital.  Following are updates to the information provided in the Form 10-K.  As discussed in the Form 10-K, the planned construction and capital investment amounts in the table do not include significant costs for the capital projects that might result from the NRC post-Fukushima requirements.  The current preliminary cost estimate (including both capital and operation and maintenance expense) to implement the post-Fukushima requirements for System Energy is approximately $65 million.  These costs are expected to be incurred over the 2012 through 2018 time period.

System Energy’s receivables from the money pool were as follows:

March 31,
2013
  
December 31,
2012
  
March 31,
2012
  
December 31,
2011
(In Thousands)
             
$51,602
  
$26,915
  
$47,129
  
$120,424

See Note 4 to the financial statements in the Form 10-K for a description of the money pool.
 
 
139
System Energy Resources, Inc.
Management’s Financial Discussion and Analysis

The System Energy nuclear fuel company variable interest entity has a credit facility in the amount of $100 million scheduled to expire in July 2013.  As of March 31, 2013, $20.2 million in letters of credit were outstanding under the credit facility to support a like amount of commercial paper issued by the System Energy nuclear fuel company variable interest entity.  See Note 4 to the financial statements for additional discussion of the variable interest entity credit facility.

Nuclear Matters

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Nuclear Matters" in the Form 10-K for a discussion of nuclear matters.

Environmental Risks

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS – Environmental Risks" in the Form 10-K for a discussion of environmental risks.

Critical Accounting Estimates

See "MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in System Energy’s accounting for nuclear decommissioning costs and qualified pension and other postretirement benefits.
 
 
 

 
INCOME STATEMENTS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
OPERATING REVENUES
            
Electric
   $ 168,578     $ 126,034  
                 
OPERATING EXPENSES
                
Operation and Maintenance:
                
   Fuel, fuel-related expenses, and
                
     gas purchased for resale
     21,517       10,361  
   Nuclear refueling outage expenses
     7,357       4,164  
   Other operation and maintenance
     39,941       34,284  
Decommissioning
     8,631       8,034  
Taxes other than income taxes
     6,489       5,513  
Depreciation and amortization
     35,416       29,674  
Other regulatory credits - net
     (2,825 )     (1,452 )
TOTAL
     116,526       90,578  
                 
OPERATING INCOME
     52,052       35,456  
                 
OTHER INCOME
                
Allowance for equity funds used during construction
     1,471       9,469  
Interest and investment income
     2,677       3,526  
Miscellaneous - net
     (168 )     (157 )
TOTAL
     3,980       12,838  
                 
INTEREST EXPENSE
                
Interest expense
     9,204       10,849  
Allowance for borrowed funds used during construction
     (178 )     (2,777 )
TOTAL
     9,026       8,072  
                 
INCOME BEFORE INCOME TAXES
     47,006       40,222  
                 
Income taxes
     19,000       13,686  
                 
NET INCOME
   $ 28,006     $ 26,536  
                 
See Notes to Financial Statements.
                

 






 
 
 
 
 
 
 

 





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STATEMENTS OF CASH FLOWS
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
OPERATING ACTIVITIES
            
Net income
   $ 28,006     $ 26,536  
Adjustments to reconcile net income to net cash flow provided by operating activities:
          
  Depreciation, amortization, and decommissioning, including nuclear fuel amortization
     61,067       45,391  
  Deferred income taxes, investment tax credits, and non-current taxes accrued
     16,477       45,966  
  Changes in assets and liabilities:
                
    Receivables
     10,146       11,964  
    Accounts payable
     (11,351 )     8,260  
    Taxes accrued and prepaid taxes
     (17,238 )     (46,362 )
    Interest accrued
     161       (2,300 )
    Other working capital accounts
     33       (23,236 )
    Other regulatory assets
     5,784       2,716  
    Pensions and other postretirement liabilities
     266       (2,859 )
    Other assets and liabilities
     827       1,460  
Net cash flow provided by operating activities
     94,178       67,536  
                 
INVESTING ACTIVITIES
                
Construction expenditures
     (21,349 )     (140,334 )
Allowance for equity funds used during construction
     1,471       9,469  
Nuclear fuel purchases
     (22,932 )     (152,928 )
Proceeds from sale of nuclear fuel
     26,522       -  
Proceeds from nuclear decommissioning trust fund sales
     25,612       125,431  
Investment in nuclear decommissioning trust funds
     (33,876 )     (133,552 )
Changes in money pool receivable - net
     (24,687 )     73,295  
Net cash flow used in investing activities
     (49,239 )     (218,619 )
                 
FINANCING ACTIVITIES
                
Proceeds from the issuance of long-term debt
     -       50,000  
Retirement of long-term debt
     (40,902 )     (39,892 )
Changes in credit borrowings - net
     (19,797 )     69,179  
Dividends paid:
                
  Common stock
     (50,000 )     (28,750 )
Other
     (757 )     (1,431 )
Net cash flow provided by (used in) financing activities
     (111,456 )     49,106  
                 
Net decrease in cash and cash equivalents
     (66,517 )     (101,977 )
                 
Cash and cash equivalents at beginning of period
     83,622       185,157  
                 
Cash and cash equivalents at end of period
   $ 17,105     $ 83,180  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                
Cash paid (received) during the period for:
                
  Interest - net of amount capitalized
   $ 5,938     $ 9,805  
  Income taxes
   $ 4,334     $ (1,020 )
                 
See Notes to Financial Statements.
                
                 


 

 
BALANCE SHEETS
  
ASSETS
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT ASSETS
            
Cash and cash equivalents:
            
  Cash
   $ 1,728     $ 100  
  Temporary cash investments
     15,377       83,522  
    Total cash and cash equivalents
     17,105       83,622  
Accounts receivable:
                
  Associated companies
     109,567       93,381  
  Other
     4,259       5,904  
    Total accounts receivable
     113,826       99,285  
Accumulated deferred income taxes
     53,719       74,331  
Materials and supplies - at average cost
     83,194       82,443  
Deferred nuclear refueling outage costs
     27,556       35,155  
Prepayments and other
     8,906       2,080  
TOTAL
     304,306       376,916  
                 
OTHER PROPERTY AND INVESTMENTS
                
Decommissioning trust funds
     528,162       490,572  
TOTAL
     528,162       490,572  
                 
UTILITY PLANT
                
Electric
     3,995,665       3,987,672  
Property under capital lease
     569,355       569,355  
Construction work in progress
     39,513       40,392  
Nuclear fuel
     225,466       252,682  
TOTAL UTILITY PLANT
     4,829,999       4,850,101  
Less - accumulated depreciation and amortization
     2,600,781       2,568,862  
UTILITY PLANT - NET
     2,229,218       2,281,239  
                 
DEFERRED DEBITS AND OTHER ASSETS
                
Regulatory assets:
                
  Regulatory asset for income taxes - net
     124,604       126,503  
  Other regulatory assets
     326,189       330,074  
Other
     17,703       18,212  
TOTAL
     468,496       474,789  
                 
TOTAL ASSETS
   $ 3,530,182     $ 3,623,516  
                 
See Notes to Financial Statements.
                


 

SYSTEM ENERGY RESOURCES, INC.
  
BALANCE SHEETS
  
LIABILITIES AND EQUITY
  
March 31, 2013 and December 31, 2012
  
(Unaudited)
  
             
   
2013
    
2012
  
   
(In Thousands)
  
             
CURRENT LIABILITIES
            
Currently maturing long-term debt
   $ 119,229     $ 111,854  
Short-term borrowings
     20,189       39,986  
Accounts payable:
                
  Associated companies
     7,400       5,564  
  Other
     19,536       44,433  
Taxes accrued
     164,239       181,477  
Accumulated deferred income taxes
     1,420       1,789  
Interest accrued
     15,780       15,619  
Other
     2,440       2,429  
TOTAL
     350,233       403,151  
                 
NON-CURRENT LIABILITIES
                
Accumulated deferred income taxes and taxes accrued
     791,637       782,469  
Accumulated deferred investment tax credits
     55,547       56,188  
Other regulatory liabilities
     268,378       256,024  
Decommissioning
     487,002       478,371  
Pension and other postretirement liabilities
     142,883       142,617  
Long-term debt
     623,697       671,945  
Other
     70       22  
TOTAL
     2,369,214       2,387,636  
                 
Commitments and Contingencies
                
                 
COMMON EQUITY
                
Common stock, no par value, authorized 1,000,000 shares;
                
  issued and outstanding 789,350 shares in 2013 and 2012
     789,350       789,350  
Retained earnings
     21,385       43,379  
TOTAL
     810,735       832,729  
                 
TOTAL LIABILITIES AND EQUITY
   $ 3,530,182     $ 3,623,516  
                 
See Notes to Financial Statements.
                


 

 
STATEMENTS OF CHANGES IN COMMON EQUITY
  
For the Three Months Ended March 31, 2013 and 2012
  
(Unaudited) (In Thousands)
  
                   
   
Common Equity
        
   
Common Stock
    
Retained Earnings
    
Total
  
Balance at December 31, 2011
   $ 789,350     $ 11,213     $ 800,563  
                         
Net income
     -       26,536       26,536  
Common stock dividends
     -       (28,750 )     (28,750 )
                         
Balance at March 31, 2012
   $ 789,350     $ 8,999     $ 798,349  
                         
                         
Balance at December 31, 2012
   $ 789,350     $ 43,379     $ 832,729  
                         
Net income
     -       28,006       28,006  
Common stock dividends
     -       (50,000 )     (50,000 )
                         
Balance at March 31, 2013
   $ 789,350     $ 21,385     $ 810,735  
                         
See Notes to Financial Statements.
                        
                         
 
 

ENTERGY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

See "PART I, Item 1, Litigation" in the Form 10-K for a discussion of legal, administrative, and other regulatory proceedings affecting Entergy.  Following is an update to that discussion.  Also see "Item 5, Other Information, Environmental Regulation", below, for updates regarding environmental proceedings and regulation.

Texas Power Price Lawsuit

See the Form 10-K for a discussion of the lawsuit filed in August 2003 in the district court of Chambers County, Texas by Texas residents on behalf of a purported class of the Texas retail customers of Entergy Gulf States, Inc. who were billed and paid for electric power from January 1, 1994 to the present.  The case is pending in state district court, and in March 2012 the court found that the case met the requirements to be maintained as a class action under Texas law.  On April 30, 2012, the court entered an order certifying the class.  The defendants have appealed the order to the Texas Court of Appeals – First District.  The appeal is pending, and proceedings in district court are stayed until the appeal is resolved.  Oral arguments before the court of appeals were conducted on April 23, 2013, and the matter awaits that court’s decision.

Item 1A.  Risk Factors

There have been no material changes to the risk factors discussed in "PART I, Item 1A, Risk Factors" in the Form 10-K.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities (a)

 
 
 
 
Period
  
 
 
 
Total Number of
Shares Purchased
  
 
 
 
Average Price Paid
per Share
  
Total Number of
Shares Purchased
as Part of a
Publicly
Announced Plan
  
Maximum $
Amount
of Shares that May
Yet be Purchased
Under a Plan (b)
                 
1/01/2013-1/31/2013
  
-
  
$-
  
-
  
$350,052,918
2/01/2013-2/28/2013
  
-
  
$-
  
-
  
$350,052,918
3/01/2013-3/31/2013
  
-
  
$-
  
-
  
$350,052,918
Total
  
-
  
$-
  
-
    

In accordance with Entergy’s stock-based compensation plans, Entergy periodically grants stock options to key employees, which may be exercised to obtain shares of Entergy’s common stock.  According to the plans, these shares can be newly issued shares, treasury stock, or shares purchased on the open market.  Entergy’s management has been authorized by the Board to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans.  The amount of share repurchases under these programs may vary as a result of material changes in business results or capital spending or new investment opportunities.  In addition, in the first quarter 2013, Entergy withheld 62,841 shares of its common stock at $64.45 per share to pay taxes due upon vesting of restricted stock granted as part of its long-term incentive program.

(a)
See Note 12 to the financial statements in the Form 10-K for additional discussion of the stock-based compensation plans.
(b)
Maximum amount of shares that may yet be repurchased does not include an estimate of the amount of shares that may be purchased to fund the exercise of grants under the stock-based compensation plans.


Item 5.  Other Information

Regulation of the Nuclear Power Industry

Nuclear Waste Policy Act of 1982

Spent Nuclear Fuel

See the discussion in Part I, Item 1 in the Form 10-K for information regarding litigation against the DOE related to the DOE’s breach of its obligation to remove spent fuel from nuclear sites.  Following is an update to that discussion.  On April 2, 2013, the U.S. Court of Appeals for the Federal Circuit issued a ruling in favor of Entergy Nuclear FitzPatrick and Entergy Nuclear Indian Point 3 and against the DOE that the DOE may not raise as a defense to damages claims in the spent fuel litigation a claim that it was unavoidably delayed in commencing performance.  On April 5, 2013, the U.S. Treasury paid Entergy Nuclear Generation Company $4.2 million representing the judgment in favor of Entergy Nuclear Generation Company against the DOE for the Pilgrim plant.  On April 11, 2013, the U.S. Treasury paid Entergy Nuclear Vermont Yankee $40.8 million representing the judgment in favor of Entergy Nuclear Vermont Yankee against the DOE for the Vermont Yankee plant.  On April 23, 2013, the U.S. Court of Federal Claims issued a judgment in favor of Entergy Arkansas and against the DOE in the remanded spent fuel case for damages in the amount of $47.8 million.  This decision may be appealed by either party.  Management cannot predict the timing or amount of receipt of funds pursuant to this judgment.

Nuclear Plant Decommissioning

See the discussion in Part I, Item 1 in the Form 10-K for information regarding decommissioning funding for the nuclear plants.  Following is an update to that discussion.  On March 29, 2013, Entergy Operations and Entergy Nuclear Operations made filings with the NRC reporting on decommissioning funding for its nuclear plants.  Those reports all showed that decommissioning funding for the nuclear plants met the NRC’s financial assurance requirements.

Environmental Regulation

Following are updates to the Environmental Regulation section of Part I, Item 1 of the Form 10-K.

Clean Air Act and Subsequent Amendments

Potential SO2 Nonattainment

The EPA issued a final rule in June 2010 adopting an SO2 1-hour national ambient air quality standard of 75 parts per billion.  The EPA designations for counties in attainment and nonattainment were originally due in June 2012, but the EPA has indicated that it will delay designations except for those areas with existing monitoring data from 2009 to 2011 indicating violations of the new standard. In those few areas, final designations are expected in the summer of 2013.  In all other areas, analysis is required once EPA issues additional final regulations and guidance.  Additional capital projects or operational changes may be required for Entergy facilities in these areas.
 
Hazardous Air Pollutants

The EPA released the final Mercury and Air Toxics Standard (MATS) rule in December 2011 and the rule became effective in April 2012.  Entergy currently is developing compliance plans to meet requirements of the rule, which could result in significant capital expenditures for Entergy’s coal-fired units.  Compliance with MATS is required by the Clean Air Act within three years, or by 2015, although certain extensions of this deadline are available from state permit authorities and the EPA.  Entergy has applied for a one-year extension, as allowed by the Clean Air Act, for its affected facilities in Arkansas and Louisiana.
 

Cross-State Air Pollution

See the Form 10-K for a discussion of the Clean Air Interstate Rule (CAIR) and the Cross-State Air Pollution Rule (CSAPR, which previously was referred to as the Transport Rule).  In December 2011 the D.C. Circuit Court of Appeals stayed CSAPR and instructed the EPA to continue administering CAIR, pending further judicial review.  In August 2012 the court issued a decision vacating CSAPR and leaving CAIR in place pending the promulgation of a lawful replacement for both rules.  In January 2013 the court denied petitions for reconsideration filed by the EPA and certain states and intervenors.  In March 2013 the EPA and other parties filed petitions for certiorari with the U.S. Supreme Court.  Entergy is complying with CAIR as it continues to be implemented until further instruction from the court or the EPA.

Clean Water Act

Effluent Limitation Guidelines

On April 19, 2013, the EPA issued proposed effluent limitation guidelines that, if adopted as final, would apply to discharges from Entergy’s generating facilities that hold national pollutant discharge elimination system permits under the Clean Water Act.  The proposal includes several options for public consideration.  Entergy is in the process of reviewing the proposal and will engage in the public comment process as appropriate. 

Indian Point Units 1 and 2 Hazardous Waste Remediation

Prior to Entergy’s purchase of Indian Point Unit 1, the previous owner completed the cleanup and desludging of the Unit 1 water storage pool, generating mixed waste.  The existing mixed waste storage permit and an associated order on consent were transferred to Entergy upon purchasing the unit.  The waste is stored in the Unit 1 containment building in accordance with NRC regulations controlling low level radioactive waste.  An order on consent with NYSDEC requires a quarterly survey of the availability of any commercial facility capable of treating, processing, and disposing of this waste in a commercially reasonable manner.  However, in 2005, NYSDEC revised its regulations to conditionally exempt the storage and disposal of mixed waste that is regulated by the NRC.   Thus, in October 2005 and again in January 2013, Entergy requested that NYSDEC terminate the mixed waste permit and order on consent because the waste falls within the mixed waste exemption.  NYSDEC has not yet completed any action on Entergy’s request.  Therefore, pursuant to the terms of the order on consent, Entergy continues to review this matter and to conduct its quarterly searches for a commercially reasonable vendor that is acceptable both to the NRC and the NYSDEC.  The cost of this disposal cannot be estimated at this time due to the many variables existing in the type and manner of disposal.

Earnings Ratios (Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy)

The Registrant Subsidiaries have calculated ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred dividends/distributions pursuant to Item 503 of Regulation S-K of the SEC as follows:

 
Ratios of Earnings to Fixed Charges
 
Twelve Months Ended
 
December 31,
  
March 31,
 
2008
  
2009
  
2010
  
2011
  
2012
  
2013
                       
Entergy Arkansas
2.33
  
2.39
  
3.91
  
4.31
  
3.79
  
3.76
Entergy Gulf States Louisiana
2.44
  
2.99
  
3.58
  
4.36
  
3.48
  
3.46
Entergy Louisiana
3.14
  
3.52
  
3.41
  
1.86
  
2.08
  
2.20
Entergy Mississippi
2.92
  
3.31
  
3.35
  
3.55
  
2.79
  
2.89
Entergy New Orleans
3.71
  
3.61
  
4.43
  
5.37
  
3.02
  
3.03
Entergy Texas
2.04
  
1.92
  
2.10
  
2.34
  
1.76
  
1.77
System Energy
3.29
  
3.73
  
3.64
  
3.85
  
5.12
  
5.42


 
Ratios of Earnings to Combined Fixed Charges
and Preferred Dividends/Distributions
 
Twelve Months Ended
 
December 31,
  
March 31,
  
 
2008
  
2009
  
2010
  
2011
  
2012
  
2013
  
                         
Entergy Arkansas
1.95
  
2.09
  
3.60
  
3.83
  
3.36
  
3.34
  
Entergy Gulf States Louisiana
2.42
  
2.95
  
3.54
  
4.30
  
3.43
  
3.41
  
Entergy Louisiana
2.87
  
3.27
  
3.19
  
1.70
  
1.93
  
2.04
  
Entergy Mississippi
2.67
  
3.06
  
3.16
  
3.27
  
2.59
  
2.69
  
Entergy New Orleans
3.45
  
3.33
  
4.08
  
4.74
  
2.67
  
2.69
  

The Registrant Subsidiaries accrue interest expense related to unrecognized tax benefits in income tax expense and do not include it in fixed charges.




Item 6.  Exhibits *

 
12(a) -
Entergy Arkansas’s Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.
     
 
12(b) -
Entergy Gulf States Louisiana’s Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Distributions, as defined.
     
 
12(c) -
Entergy Louisiana’s Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Distributions, as defined.
     
 
12(d) -
Entergy Mississippi’s Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.
     
 
12(e) -
Entergy New Orleans’s Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Pre­ferred Dividends, as defined.
     
 
12(f) -
Entergy Texas’s Computation of Ratios of Earnings to Fixed Charges, as defined.
     
 
12(g) -
System Energy’s Computation of Ratios of Earnings to Fixed Charges, as defined.
     
 
31(a) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Corporation.
     
 
31(b) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Corporation.
     
 
31(c) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Arkansas.
     
 
31(d) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Arkansas.
     
 
31(e) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States Louisiana.
     
 
31(f) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States Louisiana.
     
 
31(g) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Louisiana.
     
 
31(h) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Louisiana.
     
 
31(i) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Mississippi.
     
 
31(j) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Mississippi.
     
 
31(k) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy New Orleans.
     
 
31(l) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy New Orleans.
     
 
31(m) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Texas.
     
 
31(n) -
Rule 13a-14(a)/15d-14(a) Certification for Entergy Texas.
     
 
31(o) -
Rule 13a-14(a)/15d-14(a) Certification for System Energy.
     
 
31(p) -
Rule 13a-14(a)/15d-14(a) Certification for System Energy.
     
 
32(a) -
Section 1350 Certification for Entergy Corporation.
     
 
32(b) -
Section 1350 Certification for Entergy Corporation.
     
 
 
 
32(c) -
Section 1350 Certification for Entergy Arkansas.
     
 
32(d) -
Section 1350 Certification for Entergy Arkansas.
     
 
32(e) -
Section 1350 Certification for Entergy Gulf States Louisiana.
     
 
32(f) -
Section 1350 Certification for Entergy Gulf States Louisiana.
     
 
32(g) -
Section 1350 Certification for Entergy Louisiana.
     
 
32(h) -
Section 1350 Certification for Entergy Louisiana.
     
 
32(i) -
Section 1350 Certification for Entergy Mississippi.
     
 
32(j) -
Section 1350 Certification for Entergy Mississippi.
     
 
32(k) -
Section 1350 Certification for Entergy New Orleans.
     
 
32(l) -
Section 1350 Certification for Entergy New Orleans.
     
 
32(m) -
Section 1350 Certification for Entergy Texas.
     
 
32(n) -
Section 1350 Certification for Entergy Texas.
     
 
32(o) -
Section 1350 Certification for System Energy.
     
 
32(p) -
Section 1350 Certification for System Energy.
     
 
101 INS -
XBRL Instance Document.
     
 
101 SCH -
XBRL Taxonomy Extension Schema Document.
     
 
101 PRE -
XBRL Taxonomy Presentation Linkbase Document.
     
 
101 LAB -
XBRL Taxonomy Label Linkbase Document.
     
 
101 CAL -
XBRL Taxonomy Calculation Linkbase Document.
     
 
101 DEF -
XBRL Definition Linkbase Document.
___________________________

Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Entergy Corporation agrees to furnish to the Commission upon request any instrument with respect to long-term debt that is not registered or listed herein as an Exhibit because the total amount of securities authorized under such agreement does not exceed ten percent of the total assets of Entergy Corporation and its subsidiaries on a consolidated basis.

*
Incorporated herein by reference as indicated.


SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.  The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.

ENTERGY CORPORATION
ENTERGY ARKANSAS, INC.
ENTERGY GULF STATES LOUISIANA, L.L.C.
ENTERGY LOUISIANA, LLC
ENTERGY MISSISSIPPI, INC.
ENTERGY NEW ORLEANS, INC.
ENTERGY TEXAS, INC.
SYSTEM ENERGY RESOURCES, INC.
 
 
/s/ Alyson M. Mount
Alyson M. Mount
Senior Vice President and Chief Accounting Officer
(For each Registrant and for each as
Principal Accounting Officer)


Date:           May 8, 2013

 
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