01—Abstract
Summary
Summary of the 10-K filed February 26, 2021. Cited figures are marked; the original filing is the authoritative source.
Entergy Corporation's 2020 Form 10-K (filed February 26, 2021) reports consolidated net income of $1.41 billiona and net income attributable to Entergy of $1.39 billion, up from $1.24 billion in 2019, with basic EPS of $6.94 versus $6.36.
The Utility segment generated roughly 91% of revenue and 96% of total assets, and drove the improvement, while Entergy Wholesale Commodities (EWC) posted a loss of about $65 millionb as it winds down its merchant nuclear fleet. Operating revenues declined to $10.11 billion from $10.88 billion, largely due to COVID-19-related sales declines, Hurricanes Laura, Delta and Zeta, and lower wholesale output, but these were offset by a $230 million reduction in deferred tax expense from the resolution of the 2014-2015 IRS audit. The balance sheet and financing needs are the main investor focus.
Total assets rose to $58.2 billionc, and the debt-to-capital ratio climbed to 68.3% from 65.5%, with net debt to net capital excluding securitization bonds at 66.4%. Entergy's capital expenditure plan totals roughly $3.5 billion in 2021 and $4.6 billion in 2023, and management expects to issue about $2.5 billion of equity through 2024, including a new at-the-market program authorized in January 2021. Estimated restoration costs for the 2020 hurricanes are about $2.4 billion, and recovery through regulatory mechanisms or securitization remains subject to approval and is not yet assured.
Key risks include regulatory outcomes (formula rate plan extensions, storm cost recovery, and FERC proceedings on System Energy's return on equity and Grand Gulf), the planned shutdown and sale of the remaining EWC nuclear plants by mid-2022, and the February 2021 winter storm, which drove Entergy's estimated natural gas purchases to about $510 milliond and restoration costs to roughly $125-140 million. Entergy's 2020 results were achieved despite these headwinds, and the filing notes that the outcome of these proceedings cannot be predicted.
02—Key points
Key Highlights
- Net income attributable to Entergy rose to $1.39 billion ($6.90 diluted EPS) from $1.24 billion ($6.30) in 2019, driven by the Utility segment and the IRS audit resolution.
- Utility segment net income was $1.80 billion, up from $1.41 billion, while EWC posted a $65 million loss as it exits the merchant nuclear business.
- Hurricanes Laura, Delta and Zeta caused an estimated $2.4 billion in restoration costs (about $1.98 billion capital), with recovery pending regulatory review and securitization.
- Debt-to-capital rose to 68.3% from 65.5%, and long-term debt grew to $21.2 billion, reflecting heavy 2020 issuance of about $12.6 billion of long-term debt.
- Planned capital investment totals $3.5 billion in 2021 and $4.6 billion in 2023, and Entergy expects to issue about $2.5 billion of equity through 2024.
- Indian Point 2 shut down in April 2020, Indian Point 3 is scheduled to close in April 2021, and Palisades in May 2022, with a $1.5 billion-plus deferred tax benefit reported from the IRS settlement.
- Operating cash flow declined slightly to $2.69 billion from $2.82 billion, reflecting storm spending and collection pressure from the COVID-19 pandemic.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 26, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $10.11B$10.88B | −7.0% |
| Operating Expenses | $8.34B$9.49B | −12.1% |
| Operating Income | $1.77B$1.39B | +27.2% |
| Interest Expense | $837.98M$807.38M | +3.8% |
| Net Income | $1.41B$1.26B | +11.8% |
| EPS (Basic) | $3.47$3.18 | +9.1% |
| EPS (Diluted) | $3.45$3.15 | +9.5% |
| Shares Outstanding (Basic) | 400.21M390.39M | +2.5% |
| Shares Outstanding (Diluted) | 402.20M394.00M | +2.1% |
05—Questions
Frequently Asked Questions
Why did net income grow in 2020 despite lower revenues?
Operating revenues fell about 7% to $10.11 billion because of lower COVID-19-related sales, hurricane outages, and reduced wholesale output. Net income still rose to $1.39 billion, mainly because of a $230 million reduction in deferred income tax expense from resolving the 2014-2015 IRS audit, along with retail price increases, lower O&M, and lower income taxes in the Utility segment.
How exposed is Entergy to the winding down of its nuclear merchant business?
EWC contributed only about 9% of 2020 revenue and posted a loss of roughly $65 million. Entergy has recorded impairments and expects further restructuring costs of about $40 million in 2021 and $15 million in 2022. Indian Point 3 closes in April 2021 and Palisades in May 2022, with sale agreements that could produce losses, and the Indian Point sale is expected to be a loss based on adjusted net investment of $255 million.
What are the main financing needs and risks for investors?
Debt-to-capital rose to 68.3%, and Entergy expects to issue about $2.5 billion of equity through 2024 through a new at-the-market program. Capital spending is heavy at roughly $3.5 billion in 2021, and the company holds $3.5 billion of credit facility capacity, of which $3.3 billion was available at year-end. The debt covenant on the credit facility is 65% debt to total capitalization.
How much of the hurricane and winter storm costs can Entergy recover?
Entergy estimates total 2020 hurricane restoration costs of about $2.4 billion and says recovery is probable through storm reserves, securitization or regulatory mechanisms, but it cannot predict the amount or timing. The February 2021 winter storm added an estimated $125-140 million of restoration costs and about $510 million of natural gas purchases, which the Utility companies plan to recover from customers through fuel mechanisms.
What regulatory proceedings could materially affect future earnings?
Key proceedings include Entergy Louisiana's pending formula rate plan extension and storm cost recovery filing, Entergy Arkansas's formula rate plan netting dispute and extension request, and FERC complaints against System Energy over its 10.94% return on equity, capital structure, and sale-leaseback. An ALJ initial decision in the Grand Gulf case proposed substantial refunds, but the FERC has not yet ruled and outcomes cannot be predicted.
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