Entergy Corporation (NYSE: ETR) reported Tuesday earnings of $1.34 per share on an as-reported basis and $2.41 per share on an operational basis for third quarter 2013, as shown in Table 1 below. Entergy also affirmed 2013 operational earnings guidance and initiated operational earnings guidance for 2014 as well as issued a preliminary three-year capital plan for 2014 through 2016, all on a business as usual basis.
Table 1: Consolidated Earnings ‘ Reconciliation of GAAP to Non-GAAP Measures
Third Quarter and Year-to-Date 2013 vs. 2012
(Per share in U.S. $)
‘
‘
‘
‘
‘
‘
‘
Third Quarter
Year-to-Date
‘
2013
2012
Change
2013
2012
Change
As-Reported Earnings
1.34
1.89
(0.55)
3.16
3.10
0.06
Less Special Items
(1.07)
(0.06)
(1.01)
(1.20)
(1.41)
0.21
Operational Earnings
2.41
1.95
0.46
4.36
4.51
(0.15)
Weather Impact
0.01
0.08
(0.07)
(0.11)
(0.01)
(0.10)
‘
‘
‘
‘
‘
‘
‘
‘
Operational Earnings Highlights for Third Quarter 2013
‘·’ ‘
Utility earnings were higher driven largely by increased net revenue and a lower effective income tax rate, partially offset by higher non-fuel operation and maintenance and depreciation expenses.
‘·’ ‘
Entergy Wholesale Commodities earnings decreased due primarily to higher non-fuel operation and maintenance and depreciation expenses, partially offset by a lower effective income tax rate on operational earnings.
‘·’ ‘
Parent & Other results increased due to lower income tax expense.
‘
‘During the quarter, we saw positive results in Utility top-line growth, reflecting strong industrial sales during the quarter,’ said Leo Denault, Entergy’s chairman and chief executive officer. ‘EWC net revenue reflected higher capacity prices, which were offset by other declines. As we look ahead, we see opportunities in each of our businesses. At the Utility, we’re aggressively pursuing initiatives that benefit customers such as the proposed spin-merge of the transmission business with ITC as well as growth prospects and investment opportunities presented by the strong economic development pipeline. At EWC, we remain focused on optimizing financial performance at each of the assets. In addition, savings realized from the Human Capital Management effort benefit both businesses, helping to maintain reasonable rates at the Utility and improving the cost position of EWC.’
‘
Entergy’s business highlights also included the following:
‘·’ ‘
The FERC issued its decision accepting NYISO’s new capacity zone for Lower Hudson Valley.
‘·’ ‘
EMI and ENOI received orders in August on formula rate plan filings.
‘·’ ‘
EGSL signed an agreement with Methanex USA LLC to supply up to 30 megawatts of power to Methanex’s new methanol facility in Geismar, La., for an initial 10-year term.
‘·’ ‘
Entergy was included in the 2013/2014 Dow Jones Sustainability World and North America Indices.
‘·’ ‘
Entergy was added to the CDP S&P 500 Climate Performance Leadership Index, the only utility added to the performance index this year. Entergy was also named to the CDP S&P 500 Climate Disclosure Leadership Index.
‘
I.’ ‘
Consolidated Results
‘
Consolidated Earnings
‘
Table 2 provides a comparative summary of consolidated earnings per share for third quarter and year-to-date 2013 versus 2012, including a reconciliation of GAAP as-reported earnings to non-GAAP operational earnings. A detailed discussion of the factors driving quarterly results at each business segment follows.
‘
Table 2: Consolidated Earnings ‘ Reconciliation of GAAP to Non-GAAP Measures
Third Quarter and Year-to-Date 2013 vs. 2012 (see Appendix F for definitions of certain measures)
(Per share in U.S. $)
‘
Third Quarter
Year-to-Date
‘
2013
2012
Change
2013
2012
Change
As-Reported
‘
‘
‘
‘
‘
‘
Utility
1.95
1.66
0.29
3.74
3.73
0.01
Entergy Wholesale Commodities
(0.52)
0.49
(1.01)
-
(0.10)
0.10
Parent & Other
(0.09)
(0.26)
0.17
(0.58)
(0.53)
(0.05)
‘ ‘ Consolidated As-Reported Earnings
1.34
1.89
(0.55)
3.16
3.10
0.06
‘
‘
‘
‘
‘
‘
‘
Less Special Items
‘
‘
‘
‘
‘
‘
Utility
(0.09)
(0.06)
(0.03)
(0.21)
(0.15)
(0.06)
Entergy Wholesale Commodities
(0.98)
-
(0.98)
(0.99)
(1.26)
0.27
Parent & Other
-
-
-
-
-
-
‘ ‘ Consolidated Special Items
(1.07)
(0.06)
(1.01)
(1.20)
(1.41)
0.21
‘
‘
‘
‘
‘
‘
‘
Operational
‘
‘
‘
‘
‘
‘
Utility
2.04
1.72
0.32
3.95
3.88
0.07
Entergy Wholesale Commodities
0.46
0.49
(0.03)
0.99
1.16
(0.17)
Parent & Other
(0.09)
(0.26)
0.17
(0.58)
(0.53)
(0.05)
‘ ‘ Consolidated Operational Earnings
2.41
1.95
0.46
4.36
4.51
(0.15)
Weather Impact
0.01
0.08
(0.07)
(0.11)
(0.01)
(0.10)
‘
‘
‘
‘
‘
‘
‘
‘
Detailed earnings variance analyses are included in Appendix B-1 and Appendix B-2 to this release. In addition, Appendix B-3 provides details of special items shown in Table 2 above.
‘
Consolidated Operating Cash Flow
‘
Entergy’s operating cash flow in third quarter 2013 was $1,084 million compared to $1,032 million in third quarter 2012. The overall quarterly increase was due to several factors, including EAI’s receipt of damages from DOE litigation for spent nuclear fuel costs in third quarter 2013. Variations in cash flow from net revenue also contributed to the period-over-period cash flow variance. Higher income tax payments provided a partial offset.
‘
Table 3 provides the components of operating cash flow contributed by each business with current quarter and year-to-date comparisons.
‘
Table 3: Consolidated Operating Cash Flow
Third Quarter and Year-to-Date 2013 vs. 2012
(U.S. $ in millions)
‘
Third Quarter
Year-to-Date
‘
2013
2012
Change
2013
2012
Change
Utility
921
821
100
1,302
1,797
(495)
Entergy Wholesale Commodities
220
273
(53)
535
566
(31)
Parent & Other
(57)
(62)
5
362
(143)
505
‘ ‘ Total Operating Cash Flow
1,084
1,032
52
2,199
2,220
(21)
‘
‘
‘
‘
‘
‘
‘
‘
‘
II.’ ‘
Utility
‘
In third quarter 2013, Utility earnings were $1.95 per share on an as-reported basis and $2.04 per share on an operational basis, compared to as-reported earnings per share of $1.66 and operational earnings per share of $1.72 in third quarter 2012. The quarter-over-quarter increase in operational earnings per share was due largely to higher net revenue and a lower effective income tax rate, partially offset by higher non-fuel operation and maintenance and depreciation expenses.
‘
Utility net revenue was higher than a year ago. Pricing adjustments contributed to the net revenue increase. Current quarter net revenue reflected regulatory actions from placing major generation investments in service. A portion of the net revenue increase was for recovery of costs below the net revenue line. Also contributing to the increase in net revenue was higher volume, including effects in unbilled retail sales. Weather was less favorable in third quarter 2013 compared to one year ago.
‘
Retail electric sales in billed gigawatt-hours by customer segment are summarized in Table 4. Current quarter sales reflected the following:
‘·’ ‘
Residential sales in third quarter 2013, on a weather-adjusted basis, increased 0.1 percent compared to third quarter 2012.
‘·’ ‘
Commercial and governmental sales, on a weather-adjusted basis, increased 0.4 percent quarter over quarter.
‘·’ ‘
Industrial sales in the third quarter increased 2.7 percent compared to the same quarter of 2012.
‘
Billed retail sales increased 1.1 percent on a weather-adjusted basis, driven largely by strong growth in the industrial segment. The industrial sales increase was due primarily to growth in the chemicals and refining segments. Residential and commercial weather-adjusted sales reflected continued sluggish regional economic growth and increasing emphasis on energy efficiency and demand-side management programs.
‘
As noted above, a portion of the higher non-fuel operation and maintenance and depreciation expense increases were offset in net revenue. Also contributing to the O&M increase was higher compensation and benefits costs, primarily pension expenses.
‘
Table 4 provides a comparative summary of Utility operational performance measures.
‘
Table 4: Utility Operational Performance Measures
Third Quarter and Year-to-Date 2013 vs. 2012 (see Appendix F for definitions of certain measures)
‘
‘
‘
‘
Third Quarter
Year-to-Date
‘
2013
2012
% Change
% Weather Adjusted
2013
2012
% Change
% Weather Adjusted
GWh billed
‘
‘
‘
‘
‘
‘
‘
‘
Residential
11,359
11,605
(2.1%)
0.1%
27,080
27,305
(0.8%)
(0.7%)
Commercial and governmental
9,041
9,101
(0.7%)
0.4%
23,312
23,846
(2.2%)
(0.5%)
Industrial
11,038
10,748
2.7%
2.7%
31,264
31,114
0.5%
0.5%
Total Retail Sales
31,438
31,454
(0.1%)
1.1%
81,656
82,265
(0.7%)
(0.2%)
Wholesale
667
833
(19.9%)
‘
1,887
2,402
(21.4%)
‘
Total Sales
32,105
32,287
(0.6%)
‘
83,543
84,667
(1.3%)
‘
Non-fuel O&M expense per MWh (a)
$18.15
$16.66
8.9%
‘
$20.65
$18.73
10.3%
‘
Number of electric retail customers
‘
‘
‘
‘
‘
‘
‘
‘
Residential
‘
‘
‘
‘
2,397,877
2,379,080
0.8%
‘
Commercial and governmental
‘
‘
‘
‘
359,232
356,014
0.9%
‘
Industrial
‘
‘
‘
‘
48,709
47,209
3.2%
‘
Total Retail Customers
‘
‘
‘
‘
2,805,818
2,782,303
0.8%
‘
‘
‘
‘
‘
‘
‘
‘
‘
‘
(a)
Third quarter and year-to-date 2012 and 2013 exclude the special item associated with the proposed spin-merge of the transmission business; third quarter and year-to-date 2013 exclude the special item for HCM implementation expenses.
‘
Appendix C provides information on selected pending local and federal regulatory cases.
‘
‘
III.’ ‘
Entergy Wholesale Commodities
‘
EWC operational adjusted EBITDA was $165 million in third quarter 2013, compared to $185 million in the same period a year ago, as shown in Table 5.
‘
Table 5: Entergy Wholesale Commodities Operational Adjusted EBITDA ‘ Reconciliation of GAAP to Non-GAAP Measures
Third Quarter and Year-to-Date 2013 vs. 2012 (see Appendix F for definitions of certain measures)
($ in millions)
‘
Third Quarter
Year-to-Date
‘
2013
2012
Change
2013
2012
Change
Net income
(93)
87
(180)
1
(18)
19
Add back: interest expense
4
3
1
11
15
(4)
Add back: income tax expense
(107)
57
(164)
(65)
11
(76)
Add back: depreciation and amortization
55
29
26
155
129
26
Subtract: interest and investment income
21
20
1
72
78
(6)
Add back: decommissioning expense
32
29
3
92
42
50
Adjusted EBITDA
(130)
185
(315)
122
101
21
Add back: special item for HCM implementation expenses (pre-tax)
3
-
3
5
-
5
Add back: special item for VY asset impairments / related charges (pre-tax)
292
-
292
292
356
(64)
Operational adjusted EBITDA
165
185
(20)
419
457
(38)
‘
‘
‘
‘
‘
‘
‘
‘
The EWC operational adjusted EBITDA decrease was due largely to an increase in period-over-period non-fuel operation and maintenance expense, driven largely by higher compensation and benefits costs, primarily pension expenses. Contributions to operational adjusted EBTIDA from VY, scheduled to be closed at the end of its current operating cycle next year, were $1.1 million in third quarter 2013 and $19.6 million year-to-date 2013.
‘
EWC reported an as-reported loss of $(0.52) per share and operational earnings of $0.46 per share for third quarter 2013, compared to third quarter 2012 earnings of $0.49 per share on both an as-reported and an operational basis. The decrease in operational earnings was partially attributable to the operational adjusted EBITDA drivers noted above. Also contributing was higher depreciation expense, mostly driven by a prior period item. An adjustment reducing depreciation expense was recorded in the third quarter of 2012 as a result of a favorable court decision on IP2 litigation against the DOE related to spent nuclear fuel disposal. The overall decrease was partially offset by a lower effective income tax rate on operational earnings.
‘
Table 6 provides a comparative summary of EWC operational performance measures.
‘
Table 6: Entergy Wholesale Commodities Operational Performance Measures
Third Quarter and Year-to-Date 2013 vs. 2012 (see Appendix F for definitions of certain measures)
‘
‘
Third Quarter
Year-to-Date
‘
2013
2012
% Change
2013
2012
% Change
Owned capacity (MW)
6,612
6,612
-
6,612
6,612
-
GWh billed
11,630
12,002
(3.1%)
33,189
34,957
(5.1%)
Net revenue ($ millions)
494
495
(0.2%)
1,370
1,391
(1.5%)
Average realized revenue per MWh
$53.22
$51.88
2.6%
$52.95
$49.84
6.2%
Non-fuel O&M expense per MWh (b)
$25.28
$23.15
9.2%
$25.40
$23.70
7.2%
‘
‘
‘
‘
‘
‘
‘
EWC Nuclear Fleet
‘
‘
‘
‘
‘
‘
Capacity factor
94%
90%
4.4%
86%
88%
(2.3%)
GWh billed
10,274
10,480
(2.0%)
29,309
30,744
(4.7%)
Average realized revenue per MWh
$53.16
$52.27
1.7%
$52.37
$50.42
3.9%
Production cost per MWh
$25.32
$26.14
(3.1%)
$26.73
$26.19
2.1%
Refueling outage days
‘
‘
‘
‘
‘
‘
‘ ‘ ‘ ‘ FitzPatrick
-
15
‘
-
15
‘
‘ ‘ ‘ ‘ IP2
-
-
‘
-
28
‘
‘ ‘ ‘ ‘ IP3
-
-
‘
28
-
‘
‘ ‘ ‘ ‘ Palisades
-
-
‘
-
34
‘
‘ ‘ ‘ ‘ Pilgrim
-
-
‘
45
-
‘
‘ ‘ ‘ ‘ VY
-
-
‘
27
-
‘
‘
‘
‘
‘
‘
‘
‘
(b)
Third quarter and year-to-date 2013 exclude the special item for HCM implementation expenses; year-to-date 2012 and third quarter and year-to-date 2013 exclude the effect of the special item for VY asset impairments / related charges.
‘
‘
‘
Table 7 provides information on current forward capacity and generation contracts for EWC’s fleet. It also provides total revenue projections using market prices as of Sept. 30, 2013 and adjusted for internal expectations for the new NYISO Lower Hudson Valley capacity zone starting in May 2014. EWC uses a combination of forward physical and 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 movements. The contracted minimum, current expected value and sensitivities are provided to show potential variations. Although the sensitivities reflect the minimum, they may not reflect the total maximum upside potential from higher market prices. Information contained in Table 7 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.
‘
Table 7: Entergy Wholesale Commodities Capacity and Generation
‘
Fourth Quarter 2013 through 2018 (see Appendix F for definitions of certain measures)
‘
(based on market prices as of Sept. 30, 2013) (c)
‘
‘
Balance of 2013
2014
2015
2016
2017
2018
EWC Nuclear Portfolio
‘
‘
‘
‘
‘
‘
Energy
‘
‘
‘
‘
‘
‘
Planned TWh of generation
11
40
35
36
35
35
Percent of planned generation under contract
‘
‘
‘
‘
‘
‘
Unit-contingent
45%
21%
15%
16%
14%
14%
Unit-contingent with availability guarantees
13%
16%
14%
14%
15%
3%
Firm LD
24%
64%
23%
-
-
-
Offsetting positions
-
(20%)
-
-
-
-
Total
82%
81%
52%
30%
29%
17%
Average revenue per MWh on contracted volumes
‘
‘
‘
‘
‘
‘
Minimum
$43
$44
$44
$50
$51
$56
Expected based on current market prices
$44
$47
$48
$50
$52
$56
Sensitivity: -/+ $10 per MWh market price change
$43 - $46
$44 - $50
$44 - $53
$50 - $53
$51 - $54
$56
‘
‘
‘
‘
‘
‘
‘
Capacity
‘
‘
‘
‘
‘
‘
Planned net MW in operation
5,011
5,011
4,406
4,406
4,406
4,406
Percent of capacity sold forward
‘
‘
‘
‘
‘
‘
Bundled capacity and energy contracts
16%
16%
18%
18%
18%
18%
Capacity contracts (d)
53%
19%
15%
15%
6%
-
Total
69%
35%
33%
33%
24%
18%
Average revenue under contract per kW per month
‘ ‘ (applies to capacity contracts only)
$3.0
$2.4
$3.2
$3.4
$3.6
-
‘
‘
‘
‘
‘
‘
‘
Total Nuclear Energy and Capacity Revenues (e)
‘
‘
‘
‘
‘
‘
Expected sold and market total revenue per MWh
$47
$51
$50
$50
$50
$51
Sensitivity: -/+ $10 per MWh market price change
$44 - $51
$47 - $55
$44 - $57
$43 - $57
$43 - $57
$44 - $59
‘
‘
‘
‘
‘
‘
‘
EWC Non-Nuclear Portfolio
‘
‘
‘
‘
‘
‘
Energy
‘
‘
‘
‘
‘
‘
Planned TWh of generation
2
6
6
6
6
6
Percent of planned generation under contract
‘
‘
‘
‘
‘
‘
Cost-based contracts
33%
34%
35%
34%
32%
33%
Firm LD
5%
6%
7%
6%
6%
7%
‘ ‘ Total (f)
38%
40%
42%
40%
38%
40%
‘
‘
‘
‘
‘
‘
‘
Capacity
‘
‘
‘
‘
‘
‘
Planned net MW in operation
1,052
1,052
1,052
1,052
977
977
Percent of capacity sold forward
‘
‘
‘
‘
‘
‘
Cost-based contracts
24%
24%
24%
24%
26%
26%
Bundled capacity and energy contracts
8%
8%
8%
8%
8%
8%
Capacity contracts (g)
53%
53%
53%
53%
23%
0%
‘ ‘ Total
85%
85%
85%
85%
57%
34%
‘
‘
‘
‘
‘
‘
‘
Total Non-Nuclear Net Revenue
‘
‘
‘
‘
‘
‘
Expected portfolio net revenue in $ millions
$22
$94
$93
$105
$108
$106
‘
‘
‘
‘
‘
‘
‘
(c)
Assumes shutdown of VY in fourth quarter 2014 and uninterrupted normal operation at the remaining nuclear plants. NRC license renewal applications are in process for both Indian Point units; at midnight on 9/28/13, IP2 entered the period of extended operations under its current license and the current license for IP3 expires 12/12/15.
(d)
The decrease in capacity contracts sold in 2016 and 2017 is due to the decision to close VY in 2014. VY has offset its ISO-NE FCA 7 commitments through a combination of third party bilateral purchases and prorated MWs from the Pilgrim and RISEC units; these offsets are subject to ISO approval, which is expected in May 2014.
(e)
Includes expectations for the new NYISO LHV capacity zone starting in May 2014.
(f)
A portion of the planned generation sold is subject to approval of transmission rights.
(g)
The increase in capacity contracts sold in 2016 and 2017 is due to prorated MWs from RISEC offsetting VY commitments in ISO-NE FCA 7.
‘
IV.’ ‘
Parent & Other
‘
Parent & Other reported a loss of $(0.09) per share on an as-reported and an operational basis in the current quarter, compared to a third quarter 2012 as-reported and operational loss of $(0.26) per share. The period-over-period improvement was due to a decrease in income tax expense.
‘
V.’ ‘
2013 Earnings Guidance
‘
Entergy affirmed its 2013 operational earnings guidance range of $4.60 to $5.40 per share, noting that current expectations point to around the middle of the range. The 2013 operational earnings guidance is detailed in Table 8. Year-over-year changes are shown as point estimates and are applied to 2012 operational earnings to compute the 2013 guidance midpoint. Drivers for the 2013 operational earnings guidance range are listed separately. Because there is a range of possible outcomes associated with each earnings driver, a range is applied to the guidance midpoint to produce Entergy’s guidance range.
‘
Table 8: 2013 Operational Earnings Per Share Guidance
(Per share in U.S. $) ‘ Prepared November 2012 (h)
Segment
Description of Drivers
2012 Earnings per Share
Expected Change
2013
Guidance
Midpoint
2013 Guidance Range
‘
‘
‘
‘
‘
‘
Utility
2012 Operational Earnings per Share
5.51
‘
‘
‘
Adjustment to normalize weather
‘
0.09
‘
‘
Increased net revenue due to absence of second quarter 2012 regulatory charge
‘
0.57
‘
‘
Increased net revenue due to retail sales growth and rate actions
‘
1.25
‘
‘
Increased non-fuel operation and maintenance expense
‘
(0.40)
‘
‘
Increased taxes other than income taxes
‘
(0.10)
‘
‘
Increased depreciation expense
‘
(0.35)
‘
‘
Decreased other income
‘
(0.05)
‘
‘
Increased interest and other charges
‘
(0.10)
‘
‘
Higher effective income tax rate
‘
(1.85)
‘
‘
Other
‘
0.13
‘
‘
Subtotal
5.51
(0.81)
4.70
‘
‘
‘
‘
‘
‘
‘
Entergy Wholesale Commodities
2012 Operational Earnings per Share
1.49
‘
‘
‘
Decreased net revenue due primarily to lower pricing on nuclear assets
‘
(0.40)
‘
‘
Increased non-fuel operation and maintenance expense
‘
(0.15)
‘
‘
Increased decommissioning expense
‘
(0.15)
‘
‘
Increased depreciation expense
‘
(0.10)
‘
‘
Lower effective income tax rate
‘
0.10
‘
‘
Other
‘
0.01
‘
‘
Subtotal
1.49
(0.69)
0.80
‘
‘
‘
‘
‘
‘
‘
Parent & Other
2012 Operational Earnings per Share
(0.77)
‘
‘
‘
Increased Parent interest expense
‘
(0.05)
‘
‘
Lower income tax expense
‘
0.30
‘
‘
‘
Other
‘
0.02
‘
‘
‘
Subtotal
(0.77)
0.27
(0.50)
‘
‘
‘
‘
‘
‘
‘
Consolidated Operational
2013 Operational Earnings per Share Guidance Range
6.23
(1.23)
5.00
4.60 ‘ 5.40
‘
‘
‘
‘
‘
‘
(h)
Originally prepared November 2012 and updated February 2013 to reflect 2012 final results.
‘
Key assumptions supporting 2013 operational earnings guidance are as follows:
‘
Utility
‘·’ ‘
Normal weather
‘·’ ‘
Increased net revenue due to the absence of the second quarter 2012 regulatory charge
‘·’ ‘
Retail sales growth of around 1.25 percent on a weather-adjusted basis
‘·’ ‘
Increased net revenue from rate actions, including those associated with the Waterford 3 steam generator replacement project, a full year of the Grand Gulf extended power uprate and the Hinds and Hot Spring acquisitions, which are partially offset by increases in non-fuel operation and maintenance expense, depreciation expense and taxes other than income taxes
‘·’ ‘
Increased non-fuel operation and maintenance expense due to plant acquisitions and other general expense increases
‘·’ ‘
Increased taxes other than income taxes resulting largely from new plant acquisitions as well as increased franchise taxes
‘·’ ‘
Increased depreciation expense associated with capital spending at the Utility and the new depreciation rates established in the ETI rate case in July 2012
‘·’ ‘
Decreased other income due primarily to lower allowance for equity funds used during construction as significant projects moved into service (Waterford 3 steam generator, Grand Gulf extended power uprate)
‘·’ ‘
Increased interest expense due primarily to a higher level of debt outstanding
‘·’ ‘
Higher effective income tax rate in 2013, due largely to the net effect of items recorded in 2012
‘
Entergy Wholesale Commodities
‘·’ ‘
EWC drivers represent expected variances at the segment level for 2013
‘·’ ‘
46 TWh of output for the total fleet, reflecting an approximate 92 percent nuclear capacity factor compared to an 89 percent nuclear capacity factor in 2012; 2013 includes approximately 30- to 35-day scheduled refueling outages at IP3, Pilgrim and VY in Spring 2013 and Palisades in Fall 2013 (outage days vary depending on the scope of the outage); as of second quarter 2013, the Palisades Fall 2013 refueling outage has been rescheduled to early 2014
‘·’ ‘
Assumes full year operations for all nuclear plants
‘·’ ‘
$47/MWh average total energy and capacity revenues for EWC-nuclear fleet based on published market prices at the end of September 2012
o’ ‘
$45/MWh average revenue per MWh on contracted energy volumes, representing 84 percent of planned generation (prepared November 2012)
o’ ‘
$43/MWh average market price on 16 percent unsold energy volumes (prepared November 2012); as of the end of September 2013, average market energy price for 2013 unsold volumes was approximately $47.4/MWh
o’ ‘
$2.3/kW-month average capacity revenue under contract on 28 percent capacity (excludes bundled capacity contracts, which are priced within the contracted energy volumes above) (prepared November 2012)
o’ ‘
$1.8/kW-month average capacity price on 56 percent unsold capacity (prepared November 2012); as of the end of September 2013, average market capacity price for 2013 unsold volumes was approximately $4.0/kW-month
‘·’ ‘
$77 million non-nuclear portfolio net revenue based on prices at the end of September 2012
‘·’ ‘
Nuclear fuel expense around $6.5/MWh for 2013 compared to approximately $5.9/MWh for 2012
‘·’ ‘
Decreased purchased power expense reflected in net revenue
‘·’ ‘
Non-fuel operation and maintenance expense, including nuclear refueling outage expenses, around $24.3/MWh reflecting increases in refueling outage amortization for VY following a reduction in 2012 due to the asset impairment, general expense increases and higher costs at RISEC due to higher maintenance outage costs
‘·’ ‘
Increased decommissioning expense due to the absence of a reduction in the asset retirement obligation resulting from updated decommissioning cost studies completed in the second quarter 2012, which reduced decommissioning expense in the prior year period
‘·’ ‘
Increased depreciation expense on nuclear assets due to higher depreciable plant balances as well as declining useful life of nuclear assets; also contributing was the absence of the third quarter 2012 DOE litigation awards for IP2 which resulted in a reversal of previously recorded depreciation expense
‘·’ ‘
Lower effective income tax rate in 2013
‘
Parent & Other
‘·’ ‘
Higher Parent interest expense due largely to higher average debt outstanding
‘·’ ‘
Lower income tax expense on Parent & Other activities
‘
Other
‘·’ ‘
2013 average fully diluted shares outstanding of approximately 177 million
‘·’ ‘
Overall effective income tax rate of 34 percent in 2013, the timing and segment of which may ultimately vary
‘·’ ‘
Pension discount rate of 5.1 percent; the final average pension discount rate is 4.36 percent
‘
‘
VI.’ ‘
2014 Earnings Guidance
‘
Entergy is initiating 2014 operational earnings guidance in the range of $4.60 to $5.40 per share. Operational guidance is based on Entergy’s current business operations, and does not reflect any impacts from the proposed spin-merge of the transmission business with ITC discussed in Appendix A. Year-over-year changes are shown as point estimates and are applied to the 2013 operational guidance midpoint to compute the 2014 guidance midpoint. While Entergy affirmed its 2013 operational earnings guidance range, the 2013 starting point by business segment was adjusted consistent with current indications. Drivers for the 2014 operational earnings guidance range are listed separately. Because there is a range of possible outcomes associated with each earnings driver, a range is applied to the guidance midpoint to produce Entergy’s guidance range. Entergy’s 2014 operational earnings guidance is detailed in Table 9 below.
‘
Table 9: 2014 Operational Earnings Per Share Guidance
(Per share in U.S. $) ‘ Prepared October 2013
Segment
Description of Drivers
2013
Guidance
Midpoint (i)
Expected Change
2014
Guidance
Midpoint
2014 Guidance Range
‘
‘
‘
‘
‘
‘
Utility
Revised 2013 Operational EPS Guidance Midpoint
4.60
‘
‘
‘
Adjustment to normalize weather
‘
0.11
‘
‘
Increased net revenue due to retail sales growth and rate changes
‘
0.35
‘
‘
Other decreases in net revenue, including rate changes associated with offsets in other line items
‘
(0.25)
‘
‘
Decreased non-fuel operation and maintenance expense
‘
0.35
‘
‘
Increased depreciation expense
‘
(0.15)
‘
‘
Increased other income
‘
0.15
‘
‘
Lower effective income tax rate
‘
0.05
‘
‘
Other
‘
(0.01)
‘
‘
Subtotal
4.60
0.60
5.20
‘
‘
‘
‘
‘
‘
‘
Entergy Wholesale Commodities
Revised 2013 Operational EPS Guidance Midpoint
1.25
‘
‘
‘
Increased net revenue due primarily to higher capacity pricing for nuclear assets
‘
0.15
‘
‘
Decreased non-fuel operation and maintenance expense
‘
0.15
‘
‘
Increased decommissioning expense
‘
(0.05)
‘
‘
Increased depreciation expense
‘
(0.25)
‘
‘
Gain on sale of District Energy business in 2013
‘
(0.15)
‘
‘
Higher effective income tax rate
‘
(0.25)
‘
‘
‘
1.25
(0.40)
0.85
‘
‘
‘
‘
‘
‘
‘
Parent & Other
Revised 2013 Operational EPS Guidance Midpoint
(0.85)
‘
‘
‘
Higher Parent non-fuel operation and maintenance expense
‘
(0.05)
‘
‘
Higher income tax expense
‘
(0.10)
‘
‘
Other
‘
(0.05)
‘
‘
‘
Subtotal
(0.85)
(0.20)
(1.05)
‘
‘
‘
‘
‘
‘
‘
Consolidated Operational
2014 Operational EPS Guidance Range
5.00
‘
5.00
4.60 ‘ 5.40
‘
‘
‘
‘
‘
‘
(i)
Reflects adjustments to the segment midpoints, which net to zero on consolidated basis.
‘
Key assumptions supporting 2014 operational earnings guidance are as follows:
‘
Utility
‘·’ ‘
Does not reflect the proposed spin-off and merger of the transmission business with ITC
‘·’ ‘
Normal weather
‘·’ ‘
Retail sales growth of around 1.9 percent on a weather-adjusted basis, driven largely by growth in the industrial segment; retail sales growth excluding the effect of industrial expansions is around 0.6 percent
‘·’ ‘
Increased net revenue from rate changes, including EAI, EGSL, ELL and ETI rate case adjustments, net of lower net revenue for Grand Gulf recovery attributable to lower rate base
‘·’ ‘
Other decreases in net revenue, approximately half due to rate changes with offsets in other line items and approximately half due to other items, including items recorded in 2013
‘·’ ‘
Decreased non-fuel operation and maintenance expense due largely to HCM and lower compensation and benefits costs (largely post-employment benefits); also reflects increased expenses associated with joining MISO (largely offset in net revenue) as well as other general cost increases
‘·’ ‘
Utility O&M savings from HCM assumed to be approximately $125 million (pre-tax) in 2014, exclusive of any cost to achieve the expected savings
‘·’ ‘
Increased depreciation expense associated with capital spending at the Utility, partially offset by lower depreciation rates at EAI (offset in net revenue)
‘·’ ‘
Increased other income due largely to higher allowance for equity funds used during construction including AFUDC from the Ninemile project and higher interest and investment income which reflects higher affiliate dividend income (offset at Parent & Other), assuming Hurricane Isaac financing is completed in early- to mid-2014
‘·’ ‘
Lower effective income tax rate; effective income tax rate estimated at approximately 33 percent in 2014
‘
Entergy Wholesale Commodities
‘·’ ‘
46 TWh of output for the total fleet, reflecting an approximate 90 percent nuclear capacity factor compared to an estimated 89 percent nuclear capacity factor in 2013; 2014 includes approximately 30- to 45-day scheduled refueling outages at Palisades in early 2014, IP2 in Spring 2014 and FitzPatrick in Fall 2014 (outage days vary depending on the scope of the outage)
‘·’ ‘
Assumes full year operations for all nuclear plants, including VY which is assumed to begin ramping down power production in fourth quarter 2014 for final shutdown by year end
‘·’ ‘
$51/MWh average price for EWC-nuclear fleet’s total energy and capacity revenues, using published market prices at the end of September 2013 and adjusting capacity prices for expectations for the new LHV capacity zone expected to be in place starting with the April 2014 summer strip auction
o’ ‘
$47/MWh average revenue per MWh on contracted energy volumes, representing 81 percent of planned generation
o’ ‘
$39/MWh average market price on 19 percent unsold energy volumes
o’ ‘
$2.4/kW-month average capacity revenue under contract on 19 percent capacity (excludes bundled capacity contracts, which are priced within the contracted energy volumes above)
o’ ‘
$5.2/kW-month average capacity price on 65 percent unsold capacity; assumes uplift associated with the LHV capacity zone of approximately $3/kW-month on an annualized basis
‘·’ ‘
Nuclear fuel expense around $6.6/MWh for 2014 compared to approximately $6.5/MWh for 2013 (average nuclear fuel expense in both years affected by VY impairments)
‘·’ ‘
Decreased purchased power expense reflected in net revenue
‘·’ ‘
Non-fuel operation and maintenance expense, including nuclear refueling outage expenses, around
‘
$24.3/MWh reflecting lower expense resulting from HCM and lower compensation and benefits costs (largely post-employment benefits) and lower expense resulting from the planned sale of the District Energy business in fourth quarter 2013; decreases were partially offset by higher refueling outage amortization as well as other general cost increases
‘·’ ‘
Excludes VY spending that would have been capital except for the shutdown decision, which will be reported as part of the Asset impairment and related charges line item, and any VY severance and retention expenses; these items will be reflected as special items
‘·’ ‘
EWC O&M savings from HCM assumed to be approximately $55 million (pre-tax) in 2014, exclusive of any cost to achieve the expected savings
‘·’ ‘
Increased decommissioning expense, reflecting accretion of asset retirement obligation largely at VY
‘·’ ‘
Increased depreciation expense due to higher depreciation expense for VY resulting from the shutdown decision in third quarter 2013 and higher depreciable plant balances; also reflects an estimated effect of revised depreciation rates based on a new depreciation rate study
‘·’ ‘
Higher effective income tax rate
‘·’ ‘
VY contribution to operational adjusted EBITDA approximately $50 million in 2014 compared to approximately $25 million in 2013
‘
Parent & Other
‘·’ ‘
Increased Parent non-fuel operation and maintenance expense due partly to the elimination of intercompany expense (offset at other business segments)
‘·’ ‘
Higher income tax expense
‘
Other
‘·’ ‘
2014 average fully diluted shares outstanding of approximately 178 million
‘·’ ‘
Overall effective income tax rate of 36 percent in 2014
‘·’ ‘
HCM savings in 2014 projected to total approximately $200 million, including non-fuel operation and maintenance expense and capital; HCM savings estimate is exclusive of any cost to achieve the expected savings
‘·’ ‘
Pension discount rate of 4.75 percent in 2014, compared to a final average pension discount rate of 4.36 percent in 2013
‘
Operational earnings guidance for 2014 should be considered in association with earnings sensitivities as shown in Table 10. These sensitivities illustrate the estimated change in operational earnings per share resulting from changes in various revenue and expense drivers. Traditionally, the most significant variables for earnings drivers are retail sales for the Utility and energy prices for EWC. In addition, the operational earnings guidance range for 2014 takes into consideration a number of regulatory initiatives underway across the Utility jurisdictions and potential variations in the pension discount rate to be measured at Dec. 31, 2013.
‘
Estimated annual impacts shown in Table 10 are intended to be indicative rather than precise guidance.
‘
Table 10: 2014 Earnings Sensitivities
(Per share in U.S. $) ‘ Prepared October 2013
‘
Variable
‘
2014 Guidance Assumption
‘
Description of Change
Estimated
Annual Impact
Utility
‘
‘
‘
Retail sales growth
‘ ‘ Residential
‘ ‘ Commercial / Governmental
‘ ‘ Industrial
‘
Around 1.9% retail sales growth on a weather adjusted basis, 0.6% excluding industrial expansions
‘
1% change in Residential MWh sold
1% change in Comm / Govt MWh sold
1% change in Industrial MWh sold
‘
- / + 0.05
- / + 0.04
- / + 0.02
Rate base
Growing rate base
$100 million change in rate base
- / + 0.03
Return on equity
Authorized regulatory ROEs
1% change in allowed ROE
- / + 0.44
Non-fuel operation and maintenance expense
Lower due to HCM and compensation and benefits costs, partially offset by other increases
1% change in expense
+ / - 0.08
Entergy Wholesale Commodities (j)
‘
‘
Nuclear capacity factor
90% capacity factor
1% change in capacity factor
- / + 0.06
EWC revenue (energy)
$51/MWh nuclear revenue;
Non-nuclear net revenue
$10/MWh market price change
‘ - 0.49 / + 0.60
EWC revenue (capacity)
$5.2/kW-month average capacity price on 65% unsold nuclear capacity (including VY)
$0.50/kW-month change in capacity price on nuclear capacity
- / + 0.06
Total non-fuel operation and maintenance expense
$24.3/MWh non-fuel operation and maintenance expense
1% change in expense
+ / - 0.04
Nuclear Outage (lost revenue only)
90% capacity factor, including refueling outages for three EWC nuclear units
1,000 MW plant for 10 days at average portfolio energy price of $47/MWh for contracted volumes and $39/MWh for unsold volumes in 2014 (assuming no resupply option exercise)
- 0.03 / n/a
Consolidated
‘
‘
‘
Interest expense
Higher debt outstanding balances
1% change in interest rate on $1 billion debt
+ / - 0.03
‘
Pension and other postretirement costs (expense portion only) (k)
Discount rate of 4.75%
0.25% change
- / + 0.07
Effective income tax rate
36% effective income tax rate
1% change in overall effective income tax rate
+ / - 0.08
‘
‘
(j)
Assumes shutdown of VY in fourth quarter 2014 and uninterrupted normal operation at the remaining nuclear plants.
(k)
Based on 2013 rules of thumb for pension and other post-retirement employee benefit costs.
‘
‘
‘