01—Abstract
Summary
Summary of the 10-Q filed May 2, 2024. Cited figures are marked; the original filing is the authoritative source.
Entergy's first quarter 2024 results were sharply lower year over year, with consolidated net income attributable to Entergy Corporation falling to $75.3 milliona ($0.35 per diluted share) from $310.9 million ($1.47) in Q1 2023.
The decline was driven primarily by a $131.8 millionb ($99.1 million net-of-tax) asset write-off at Entergy Arkansas after an adverse federal court judgment in the opportunity sales proceeding, and a $78 million ($57 million net-of-tax) regulatory charge at Entergy New Orleans tied to a settlement in principle with the City Council over sharing IRS audit tax benefits with customers. Q1 2023 also included a one-time Hurricane Ida securitization tax benefit that inflated that period's earnings, so the year-over-year comparison is distorted in part by prior-year items. Underlying utility drivers were mixed: retail electric price increases from formula rate plans and base rates supported revenue, while operating revenues fell to $2.79 billion from $2.98 billion largely due to lower fuel pass-through revenues, and other operation and maintenance expense rose.
Balance sheet and financing indicators point to a more leveraged position. The debt-to-capital ratio rose to 65.8% at March 31, 2024 from 63.8% at year-end 2023 (63.5% to 65.6% excluding securitization bonds on a non-GAAP basis), driven by net debt issuance including $2.2 billionc of long-term debt proceeds and a $1.9 billion commercial paper balance. Cash rose to $1.29 billion, and total assets grew to $61.6 billion.
The company remains in compliance with its 65% debt covenant on its $3.5 billiond credit facility, which had $3.5 billion of available capacity, though the covenant headroom is narrow relative to the reported ratio. Capital spending continued, including the $170 million initial payment for the Walnut Bend Solar facility and a proposed $411 million Bayou Power Station. Regulatory and litigation developments were significant for investors.
The FERC System Energy/Grand Gulf complaints remain unresolved, though settlements with the Arkansas and Mississippi commissions were approved and a City Council settlement in principle (with a $116 million black box refund) was reached in April 2024. Entergy Louisiana received LPSC approval of a framework for an initial five-year, roughly $1.9 billion resilience plan, and the Entergy Louisiana formula rate plan extension remains pending with hearings now set for October 2024.
The SEC Division of Enforcement is investigating Entergy's accounting for materials and supplies inventory, with management stating it does not expect a material impact. Entergy also declared a $1.13 per share quarterly dividend, unchanged from the prior several quarters.
02—Key points
Key Highlights
- Q1 2024 consolidated net income attributable to Entergy fell to $75.3 million ($0.35 per diluted share) from $310.9 million ($1.47) in Q1 2023, primarily due to a $131.8 million pre-tax write-off at Entergy Arkansas and a $78 million regulatory charge at Entergy New Orleans.
- The Entergy Arkansas write-off stems from an adverse March 2024 district court judgment in the opportunity sales proceeding; Entergy Arkansas has appealed to the Eighth Circuit, with briefing scheduled May through July 2024.
- Debt-to-capital rose to 65.8% from 63.8% at year-end 2023, reflecting net debt issuance; the credit facility covenant caps the consolidated debt ratio at 65%, and Entergy reports it is currently in compliance.
- Operating revenues declined to $2.79 billion from $2.98 billion, mainly due to lower fuel and rider pass-through revenues, partially offset by retail electric price increases from formula rate plans and the Entergy Texas base rate increase effective June 2023.
- System Energy's Grand Gulf complaints continue at FERC; settlements totaling about $142 million (APSC) and $116 million (City Council, pending FERC filing) would substantially reduce exposure, but the ALJ initial decision and LPSC mandamus petition remain open.
- Entergy Louisiana obtained LPSC approval in April 2024 for an initial five-year resilience plan of about $1.9 billion, while the SEC Division of Enforcement is investigating Entergy's accounting for materials and supplies inventory, with no material impact expected by management.
- Entergy Louisiana's $1.9 billion long-term financing activity in March 2024 and planned Entergy New Orleans bond issuances show continued reliance on capital markets to fund a rising capital program.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed May 2, 2024Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $2.79B$2.98B | −6.3% |
| Operating Expenses | $2.56B$2.52B | +1.5% |
| Operating Income | $237.98M$462.11M | −48.5% |
| Interest Expense | $277.74M$255.33M | +8.8% |
| Net Income | $76.54M$312.30M | −75.5% |
| EPS (Basic) | $0.18$0.73 | −75.5% |
| EPS (Diluted) | $0.18$0.73 | −75.5% |
| Shares Outstanding (Basic) | 426.29M422.70M | +0.8% |
| Shares Outstanding (Diluted) | 427.75M424.29M | +0.8% |
05—Questions
Frequently Asked Questions
Why did Entergy's earnings drop so sharply in the first quarter of 2024?
The decline was driven mainly by a $131.8 million ($99.1 million after tax) write-off at Entergy Arkansas after an adverse federal court decision in the opportunity sales proceeding, and a $78 million ($57 million after tax) regulatory charge at Entergy New Orleans related to a settlement in principle with the City Council. The prior-year quarter also benefited from a one-time Hurricane Ida securitization tax reduction, which makes the year-over-year comparison look worse than underlying operations.
Is Entergy's balance sheet getting more leveraged, and is there covenant risk?
Yes. Debt-to-capital increased to 65.8% from 63.8% at year-end 2023, driven by net new debt including $2.2 billion of long-term debt proceeds and higher commercial paper. Entergy's $3.5 billion credit facility requires a consolidated debt ratio of 65% or less under the facility's own definition, and management says it is in compliance and expects to remain so, though that definition differs from the reported ratio.
What are the main pending regulatory and litigation risks?
The largest open item is the FERC litigation over System Energy's Grand Gulf rates, including the ALJ initial decision on return on equity and capital structure (estimated refunds of about $24.8 million if upheld) and an LPSC mandamus petition. Settlements with the Arkansas and Mississippi regulators were approved, and a City Council settlement is pending FERC filing. Entergy Arkansas's appeal of the opportunity sales judgment is also pending, and an SEC investigation into materials and supplies accounting remains open.
What is Entergy's capital investment and growth outlook in this filing?
Entergy continues heavy investment in resilience and generation, including an approximately $1.9 billion initial Entergy Louisiana resilience plan approved in April 2024, a proposed 112 MW Bayou Power Station estimated at $411 million, the Walnut Bend Solar acquisition (about $170 million paid initially), and a proposed 3 GW solar procurement with a hearing now set for June 2024. These programs are subject to regulatory approval and will require continued external financing.
Is the dividend at risk given the lower earnings?
The Board declared a quarterly dividend of $1.13 per share in April 2024, unchanged since the third quarter of 2023. Although Q1 earnings per share were only $0.35, the dividend was covered by operating cash flow of $521 million in the quarter after considering working capital and regulatory timing, though operating cash flow was down $439 million year over year. The Board evaluates dividends based on utility and parent earnings, financial strength, and investment opportunities, so future changes would depend on those factors.
06—Continue