8-KFinancial EventsOther Events

ENTERGY CORP /DE/ 8-K Report, Material Impairment (Dec 8, 2016)

Filed December 8, 2016For Securities:ETR

Summary

Entergy Corporation has announced a significant operational and financial shift concerning its Palisades Nuclear Power Plant. The company has entered into an agreement with Consumers Energy to terminate their power purchase agreement (PPA) for the plant, for which Consumers Energy will pay Entergy $172 million. This agreement, subject to regulatory approval, precedes Entergy's intention to permanently shut down the Palisades plant on October 1, 2018. This strategic decision is driven by the challenging economic environment in the wholesale commodities business, aligning with Entergy's strategy to reduce the size of its merchant power plant fleet and manage business risks. As a consequence of the PPA termination and planned shutdown, Entergy will recognize a substantial non-cash impairment charge of approximately $390 million ($252 million after-tax) in the fourth quarter of 2016. This charge reflects the revised fair value of the plant and related assets, which is estimated at $210 million, significantly lower than its carrying value of approximately $600 million. The carrying value was also impacted by an increase in estimated decommissioning costs. Additionally, Entergy anticipates recording approximately $55 million in charges related to severance and employee retention costs through the end of 2018.

Key Highlights

  • 1Entergy reached an agreement with Consumers Energy to terminate the power purchase agreement (PPA) for the Palisades Nuclear Power Plant.
  • 2Consumers Energy will pay Entergy $172 million for the early termination of the PPA.
  • 3Entergy plans to permanently shut down the Palisades nuclear power plant on October 1, 2018.
  • 4A non-cash impairment charge of approximately $390 million ($252 million after-tax) will be recognized in Q4 2016 due to the PPA termination and plant closure.
  • 5The impairment charge is based on a revised fair value of the plant and related assets estimated at $210 million.
  • 6The carrying value of the Palisades plant and related assets was approximately $600 million as of November 30, 2016.
  • 7Additional charges totaling approximately $55 million are expected for severance and employee retention costs through the end of 2018.

Frequently Asked Questions

Entergy will recognize a non-cash impairment charge of approximately $390 million ($252 million after-tax) in the fourth quarter of 2016. This is due to the plant being shut down and its estimated fair value being significantly lower than its carrying value.

Entergy intends to permanently shut down the Palisades nuclear power plant on October 1, 2018, after operating through the end of its fuel cycle in spring 2017.

The decision is part of Entergy's strategy to manage and reduce risk in its wholesale commodities business, which is facing a challenging economic environment. This includes reducing the size of its merchant power plant fleet.

Yes, Entergy expects to record additional charges totaling approximately $55 million through the end of 2018 related to severance and employee retention costs for staff impacted by the closure.