# ENTERGY CORP /DE/ (ETR) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from ENTERGY CORP /DE/'s 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/65984/000006598422000017/etr-20211231.htm Accession: 0000065984-22-000017 Filing date: 2022-02-25 Report date: 2021-12-31 Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub. Confidence: high Company profile: /company/ETR/ All MD&A years: /company/ETR/mda/ Next year: /company/ETR/mda/fy2022/ (FY 2022) Results of Operations 2021 Compared to 2020 Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing 2021 to 2020 showing how much the line item increased or (decreased) in comparison to the prior period. [[GREPCENT_TABLE]] [["","Utility","","Entergy Wholesale Commodities","","Parent & Other (a)","","Entergy"],["","(In Thousands)"],["2020 Net Income (Loss) Attributable to Entergy Corporation","$1,800,223","","","($64,951)","","","($346,938)","","","$1,388,334"],["Operating revenues","1,873,960","","","(244,705)","","","5","","","1,629,260"],["Fuel, fuel-related expenses, and gas purchased for resale","878,372","","","15,357","","","(4)","","","893,725"],["Purchased power","362,066","","","5,339","","","4","","","367,409"],["Other regulatory charges (credits) - net","97,019","","","\u2014","","","\u2014","","","97,019"],["Other operation and maintenance","179,005","","","(213,173)","","","163","","","(34,005)"],["Asset write-offs, impairments, and related charges","\u2014","","","237,002","","","\u2014","","","237,002"],["Taxes other than income taxes","44,050","","","(36,121)","","","(479)","","","7,450"],["Depreciation and amortization","128,953","","","(57,624)","","","(129)","","","71,200"],["Other income (deductions)","75,588","","","(87,105)","","","9,063","","","(2,454)"],["Interest expense","43,153","","","(9,098)","","","14,976","","","49,031"],["Other expenses","(1,723)","","","(85,248)","","","\u2014","","","(86,971)"],["Income taxes","546,520","","","(130,318)","","","(103,322)","","","312,880"],["Preferred dividend requirements of subsidiaries and noncontrolling interest","(18,064)","","","\u2014","","","(28)","","","(18,092)"],["2021 Net Income (Loss) Attributable to Entergy Corporation","$1,490,420","","","($122,877)","","","($249,051)","","","$1,118,492"]] [[/GREPCENT_TABLE]] (a)Parent & Other includes eliminations, which are primarily intersegment activity. Results of operations for 2021 include a charge of $340 million ($268 million net-of-tax), reflected in “Asset write-offs, impairments, and related charges,” as a result of the sale of the Indian Point Energy Center in May 2021. See Note 14 to the financial statements for further discussion of the sale of the Indian Point Energy Center. 2 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Results of operations for 2020 include resolution of the 2014-2015 IRS audit, which resulted in a reduction in deferred income tax expense of $230 million that includes a $396 million reduction in deferred income tax expense at Utility related to the basis of assets contributed in the 2015 Entergy Louisiana and Entergy Gulf States Louisiana business combination, including the recognition of previously uncertain tax positions, and deferred income tax expense of $105 million at Entergy Wholesale Commodities and $61 million at Parent and Other resulting from the revaluation of net operating losses as a result of the release of the reserves. See Note 3 to the financial statements for further discussion of the IRS audit resolution. Operating Revenues Utility Following is an analysis of the change in operating revenues comparing 2021 to 2020: [[GREPCENT_TABLE]] [["","Amount"],["","(In Millions)"],["2020 operating revenues","$9,171"],["Fuel, rider, and other revenues that do not significantly affect net income","1,409"],["Retail electric price","404"],["Volume/weather","55"],["System Energy provision for rate refund","25"],["Return of unprotected excess accumulated deferred income taxes to customers","(19)"],["2021 operating revenues","$11,045"]] [[/GREPCENT_TABLE]] The Utility operating companies’ results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items. The retail electric price variance is primarily due to: •an increase in Entergy Arkansas’s formula rate plan rates effective May 2021; •increases in Entergy Louisiana’s overall formula rate plan revenues, including an interim increase effective April 2020 due to the inclusion of the first-year revenue requirement for the Lake Charles Power Station, an increase in the transmission recovery mechanism effective September 2020, an interim increase effective December 2020 due to the inclusion of the first-year revenue requirement for the Washington Parish Energy Center, and increases in the transmission and distribution recovery mechanisms effective September 2021; •increases in Entergy Mississippi’s formula rate plan rates effective April 2020, April 2021, and July 2021; •an interim increase in Entergy New Orleans’s formula rate plan revenues resulting from the recovery of New Orleans Power Station costs, effective November 2020, and a rate increase effective November 2021; and •the implementation of the generation cost recovery rider, which includes the first-year revenue requirement for the Montgomery County Power Station, effective January 2021, an increase in the transmission cost recovery factor rider effective March 2021, and an increase in the distribution cost recovery factor rider effective March 2021, each at Entergy Texas. See Note 2 to the financial statements for further discussion of the regulatory proceedings discussed above. 3 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis The volume/weather variance is primarily due to an increase of 3,574 GWh, or 3%, in billed electricity usage, including the effect of more favorable weather on residential sales and an increase in industrial usage, partially offset by a decrease in weather-adjusted residential usage and a decrease in usage during the unbilled sales period. The increase in industrial usage is primarily due to an increase in demand from expansion projects, primarily in the transportation, metals, and chemicals industries, and an increase in demand from cogeneration customers. The decrease in weather-adjusted residential usage was primarily due to the impact that the COVID-19 pandemic had on prior year usage. The System Energy provision for rate refund variance is due to a provision for rate refund recorded in 2020 to reflect a one-time credit of $25 million provided for in the Federal Power Act section 205 filing made by System Energy in December 2020. The one-time credit was made in the first quarter 2021. See Note 2 to the financial statements for further discussion of the proceedings involving System Energy at the FERC. The return of unprotected excess accumulated deferred income taxes to customers resulted from activity at the Utility operating companies in response to the enactment of the Tax Cuts and Jobs Act. The return of unprotected excess accumulated deferred income taxes began in second quarter 2018. In 2021, $87 million was returned to customers through reductions in operating revenues as compared to $68 million in 2020. There is no effect on net income as the reductions in operating revenues were offset by reductions in income tax expense. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act. Billed electric energy sales for Utility for the years ended December 31, 2021 and 2020 are as follows: [[GREPCENT_TABLE]] [["","2021","","2020","","% Change"],["","(GWh)"],["Residential","35,669","","","35,173","","","1"],["Commercial","26,818","","","26,466","","","1"],["Industrial","49,819","","","47,117","","","6"],["Governmental","2,438","","","2,414","","","1"],["Total retail","114,744","","","111,170","","","3"],["Sales for resale","16,656","","","13,658","","","22"],["Total","131,400","","","124,828","","","5"]] [[/GREPCENT_TABLE]] See Note 19 to the financial statements for additional discussion of operating revenues. Entergy Wholesale Commodities Operating revenues for Entergy Wholesale Commodities decreased from $943 million for 2020 to $698 million for 2021 primarily due to the shutdown of Indian Point 2 in April 2020 and the shutdown of Indian Point 3 in April 2021. 4 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Following are key performance measures for Entergy Wholesale Commodities for 2021 and 2020: [[GREPCENT_TABLE]] [["","2021","","2020"],["Owned capacity (MW) (a)","1,205","","2,246"],["GWh billed","11,328","","20,581"],["Entergy Wholesale Commodities Nuclear Fleet"],["Capacity factor","97%","","93%"],["GWh billed","9,836","","18,863"],["Average energy price ($/MWh)","$54.56","","$40.33"],["Average capacity price ($/kW-month)","$0.26","","$1.92"],["Refueling outage days:"],["Palisades","\u2014","","52"]] [[/GREPCENT_TABLE]] (a)The reduction in owned capacity is due to the shutdown of the 1,041 MW Indian Point 3 plant in April 2021. Other Income Statement Items Utility             Other operation and maintenance expenses increased from $2,478 million for 2020 to $2,657 million for 2021 primarily due to: •an increase of $49 million in compensation and benefits costs in 2021 primarily due to higher incentive-based compensation accruals in 2021 as compared to prior year, lower healthcare claims activity in 2020 as a result of the COVID-19 pandemic, an increase in healthcare cost rates, and an increase in net periodic pension and other postretirement benefits costs as a result of a decrease in the discount rate used to value the benefit liabilities. See “Critical Accounting Estimates” below and Note 11 to the financial statements for further discussion of pension and other postretirement benefit costs; •an increase of $28 million in distribution operations expenses primarily due to higher reliability costs; •an increase of $27 million primarily due to an increase in contract costs related to customer solutions and sustainability initiatives, including customer service center support and enhanced customer billing; •an increase of $20 million in non-nuclear generation expenses primarily due to higher expenses associated with plants placed in service, including the Lake Charles Power Station, which began commercial operation in March 2020; the New Orleans Power Station, which began commercial operation in May 2020; the Washington Parish Energy Center, purchased in November 2020; and the Montgomery County Power Station, which began commercial operation in January 2021; •an increase of $16 million in nuclear generation expenses primarily due to higher nuclear labor costs, including contract labor, and a higher scope of work performed in 2021 as compared to 2020; •an increase of $15 million as a result of the amount of transmission costs allocated by MISO. See Note 2 to the financial statements for further information on the recovery of these costs; •the effects of recording final judgments to resolve claims in the Waterford 3 damages case and the Grand Gulf damages case in 2020 and the River Bend damages case in 2021, each against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $18 million in 2020 of spent nuclear fuel storage costs previously recorded as other operation and maintenance expense compared to the reimbursement of approximately $4 million in 2021. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; •lower nuclear insurance refunds of $13 million; and •several individually insignificant items. 5 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis The increase was partially offset by a decrease of $19 million in meter reading expenses as a result of the deployment of advanced metering systems and a gain of $15 million, recorded in 2021, on the sale of a pipeline. Taxes other than income taxes increased primarily due to increases in ad valorem taxes resulting from higher assessments and increases in franchise taxes resulting from an increase in revenue collected. Depreciation and amortization expenses increased primarily due to additions to plant in service, including the Lake Charles Power Station, the Montgomery County Power Station, and the Washington Parish Energy Center. Other regulatory charges (credits) - net includes: •regulatory charges of $44 million, recorded in the fourth quarter 2020 at Entergy Arkansas, to reflect the 2019 historical year netting adjustment included in the APSC’s December 2020 order in the 2020 formula rate plan proceeding. See Note 2 to the financial statements for discussion of Entergy Arkansas’s 2020 formula rate plan filing; •regulatory credits of $47 million, recorded in 2020 at Entergy Arkansas, to reflect the amortization of the 2018 historical year netting adjustment reflected in the 2019 formula rate plan filing. See Note 2 to the financial statements for discussion of Entergy Arkansas’s 2019 formula rate plan filing; •the reversal in 2021 of the remaining $39 million regulatory liability for Entergy Arkansas’s 2019 historical year netting adjustment as part of its 2020 formula rate plan proceeding. See Note 2 to the financial statements for discussion of Entergy Arkansas’s 2020 formula rate plan filing; •regulatory charges of $33 million, recorded in the fourth quarter 2020 at Entergy Louisiana, due to a settlement with the IRS related to the uncertain tax position regarding Hurricane Katrina and Hurricane Rita Louisiana Act 55 financing because the savings will be shared with customers. See Note 3 to the financial statements for further discussion of the settlement and savings obligation; •regulatory charges of $29 million, recorded in the first quarter 2020 at Entergy Louisiana, due to a settlement with the IRS related to the uncertain tax position regarding the Hurricane Isaac Louisiana Act 55 financing because the savings will be shared with customers. See Note 3 to the financial statements for further discussion of the settlement and savings obligation; •regulatory credits of $20 million, recorded in the second quarter 2021 at Entergy Mississippi, to reflect the effects of the joint stipulation reached in the 2021 formula rate plan filing proceeding. See Note 2 to the financial statements for discussion of Entergy Mississippi’s 2021 formula rate plan filing; and •regulatory credits of $19 million, recorded in the fourth quarter 2021 at Entergy Mississippi, to reflect that the 2021 earned return is below the formula bandwidth. See Note 2 to the financial statements for discussion of Entergy Mississippi’s formula rate plan filings. In addition, Entergy records a regulatory charge or credit for the difference between asset retirement obligation-related expenses and nuclear decommissioning trust earnings plus asset retirement obligation related costs collected in revenue. Other income increased primarily due to changes in decommissioning trust fund activity, including portfolio rebalancing of the decommissioning trust funds in 2021, partially offset by a decrease in the allowance for equity funds used during construction due to higher construction work in progress in 2020, including the Lake Charles Power Station project and the Montgomery County Power Station project. Interest expense increased primarily due to: •the issuances by Entergy Louisiana of $1.1 billion of 0.62% Series mortgage bonds, $300 million of 2.90% Series mortgage bonds, and $300 million of 1.60% Series mortgage bonds, each in November 2020; •the issuances by Entergy Louisiana of $500 million of 2.35% Series mortgage bonds and $500 million of 3.10% Series mortgage bonds, each in March 2021; •the issuance by Entergy Louisiana of $1 billion of 0.95% Series mortgage bonds in October 2021; 6 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis •the issuance by Entergy Mississippi of $170 million of 3.50% Series mortgage bonds in May 2020 and an additional $200 million in a reopening of the same series in March 2021; and •a decrease in the allowance for borrowed funds used during construction due to higher construction work in progress in 2020, including the Lake Charles Power Station project and the Montgomery County Power Station project. The increase was partially offset by the repayments by Entergy Louisiana of $200 million of 5.25% Series mortgage bonds and $100 million of 4.70% Series mortgage bonds, each in December 2020 and the repayment by Entergy Louisiana of $200 million of 4.8% Series mortgage bonds in May 2021. See Note 5 to the financial statements for a discussion of long-term debt. Noncontrolling interest reflects the earnings or losses attributable to the noncontrolling interest partner of Entergy Arkansas’s tax equity partnership for the Searcy Solar facility under HLBV accounting. Entergy Arkansas has recorded a regulatory charge of $18 million in 2021 to defer the difference between the losses allocated to the tax equity partner under the HLBV method of accounting and the earnings/loss that would have been allocated to the tax equity partner under its respective ownership percentage in the partnership. See Note 1 to the financial statements for discussion of the HLBV method of accounting. Entergy Wholesale Commodities Other operation and maintenance expenses decreased from $500 million for 2020 to $287 million for 2021 primarily due to: •a decrease of $162 million resulting from the absence of expenses from Indian Point 2, after it was shut down in April 2020, and Indian Point 3, after it was shut down in April 2021; and •a decrease of $53 million in severance and retention expenses. Severance and retention expenses were incurred in 2021 and 2020 due to management’s strategy to exit the Entergy Wholesale Commodities merchant power business. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” below for a discussion of management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet. See Note 13 to the financial statements for further discussion of severance and retention expenses. Asset write-offs, impairments, and related charges for 2021 include a charge of $340 million ($268 million net-of-tax) as a result of the sale of the Indian Point Energy Center in May 2021, partially offset by the effect of recording in 2021 a final judgment in the amount of $83 million ($66 million net-of-tax) to resolve the Indian Point 2 third round and Indian Point 3 second round combined damages case against the DOE related to spent nuclear fuel storage costs. Asset write-offs, impairments, and related charges for 2020 include impairment charges of $19 million ($15 million net-of-tax) primarily as a result of expenditures for capital assets. These costs were charged to expense as incurred as a result of the impaired fair value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” below for a discussion of management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet. See Note 14 to the financial statements for a discussion of the impairment of long-lived assets and the sale of the Indian Point Energy Center. See Note 8 to the financial statements for further discussion of spent nuclear fuel litigation. Taxes other than income taxes decreased primarily due to lower ad valorem taxes and lower payroll taxes. 7 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Depreciation and amortization expenses decreased primarily due to: •the absence of depreciation expense from Indian Point 2, after it was shut down in April 2020, and from Indian Point 3, after it was shut down in April 2021; and •the effect of recording in 2021 a final judgment to resolve claims in the Palisades damages case against the DOE related to spent nuclear fuel storage costs. The damages awarded included $9 million of spent nuclear fuel storage costs previously recorded as depreciation expense. See Note 8 to the financial statements for discussion of spent nuclear fuel litigation. Other income decreased primarily due to lower gains on decommissioning trust fund investments including the absence of earnings from nuclear decommissioning trust funds that were transferred in the sale of the Indian Point Energy Center in May 2021. The decrease was partially offset by lower non-service pension costs. See Notes 15 and 16 to the financial statements for a discussion of decommissioning trust fund investments. See Note 14 to the financial statements for a discussion of the sale of the Indian Point Energy Center. See Note 11 to the financial statements for a discussion of pension and other postretirement benefits costs. Other expenses decreased primarily due to the absence of decommissioning expense from Indian Point 2 and Indian Point 3, after the sale of the Indian Point Energy Center in May 2021. See Note 14 to the financial statements for a discussion of the sale of the Indian Point Energy Center. Income Taxes The effective income tax rates were 14.6% for 2021 and (9.5%) for 2020. See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 21% to the effective income tax rates, and for additional discussion regarding income taxes. 2020 Compared to 2019 See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Item 7 of Entergy’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 26, 2021 for discussion of results of operations for 2020 compared to 2019. Entergy Wholesale Commodities Exit from the Merchant Power Business Entergy sold its FitzPatrick plant to Exelon in March 2017 and, as discussed below, transferred its Vermont Yankee plant to NorthStar in January 2019, sold its Pilgrim plant to Holtec in August 2019, and sold its Indian Point plants to Holtec in May 2021. Entergy also sold the Rhode Island State Energy Center, a natural gas-fired combined cycle generating plant, in December 2015. As of December 31, 2021, Entergy Wholesale Commodities’ only remaining operating nuclear plant is the 811 MW Palisades plant, which is under contract to be sold, subject to certain conditions, after it is shut down in May 2022. These plant sales and the contract to sell Palisades are the result of a strategy that Entergy has undertaken to manage and reduce the risk of the Entergy Wholesale Commodities business, including exiting the merchant power business. Management evaluated the challenges for each of the plants based on a variety of factors such as their market for both energy and capacity, their size, their contracted positions, and the amount of investment required to continue to operate and maintain the safety and integrity of the plants, including the estimated asset retirement costs. Entergy Wholesale Commodities also includes the ownership of Big Rock Point, a non-operating nuclear facility in Michigan, that was acquired when Entergy purchased the Palisades nuclear plant. Big Rock Point is under contract to be sold with the Palisades plant. In addition, Entergy Wholesale Commodities provides operations and management services, including decommissioning-related services, to nuclear power plants owned by non-affiliated entities in the United States. A relatively minor portion of the Entergy Wholesale Commodities business 8 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis is the ownership of interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. Shutdown and Disposition of Vermont Yankee On December 29, 2014, the Vermont Yankee plant ceased power production and entered its decommissioning phase. In November 2016, Entergy entered into an agreement to transfer 100% of the membership interests in Entergy Nuclear Vermont Yankee, LLC to a subsidiary of NorthStar. Entergy Nuclear Vermont Yankee was the owner of the Vermont Yankee plant. The transaction included the transfer of the nuclear decommissioning trust fund and the asset retirement obligation for the spent fuel management and decommissioning of the plant. In March 2018, Entergy and NorthStar entered into a settlement agreement and a Memorandum of Understanding with State of Vermont agencies and other interested parties that set forth the terms on which the agencies and parties supported the Vermont Public Utility Commission’s approval of the transaction. The agreements provided additional financial assurance for decommissioning, spent fuel management and site restoration, and detailed the site restoration standards. In October 2018 the NRC issued an order approving the application to transfer Vermont Yankee’s license to NorthStar for decommissioning. In December 2018 the Vermont Public Utility Commission issued an order approving the transaction consistent with the Memorandum of Understanding’s terms. On January 11, 2019, Entergy and NorthStar closed the transaction. Entergy Nuclear Vermont Yankee had an outstanding credit facility that was used to pay for dry fuel storage costs. This credit facility was guaranteed by Entergy Corporation. A subsidiary of Entergy assumed the obligations under the credit facility, and it remains outstanding. At the closing of the sale transaction, NorthStar caused Entergy Nuclear Vermont Yankee, renamed NorthStar Vermont Yankee, to issue a $139 million promissory note to the Entergy subsidiary that assumed the credit facility obligations. The amount of the note includes the balance outstanding on the credit facility, as well as borrowing fees and costs incurred by Entergy in connection with the credit facility. See Note 14 to the financial statements for discussion of the closing of the Vermont Yankee transaction. Shutdown and Sale of Pilgrim In October 2015, Entergy determined that it would close the Pilgrim plant, and Pilgrim ceased operations in May 2019. See Note 14 to the financial statements for discussion of the impairment charges associated with the decision to cease operations earlier than expected. On July 30, 2018, Entergy entered into a purchase and sale agreement with Holtec International to sell to a Holtec subsidiary 100% of the equity interests in Entergy Nuclear Generation Company, LLC, the owner of Pilgrim, for $1,000 (subject to adjustments for net liabilities and other amounts). On August 22, 2019, the NRC approved the transfer of Pilgrim’s facility licenses to Holtec. On August 26, 2019, Entergy and Holtec closed the transaction. The sale of Entergy Nuclear Generation Company, LLC to Holtec included the transfer of the nuclear decommissioning trust and obligation for spent fuel management and plant decommissioning. The transaction resulted in a loss of $190 million ($156 million net-of-tax) in 2019. See Note 14 to the financial statements for discussion of the closing of the Pilgrim transaction. 9 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Shutdown and Sale of Indian Point 2 and Indian Point 3 In April 2007, Entergy submitted to the NRC a joint application to renew the operating licenses for Indian Point 2 and Indian Point 3 for an additional 20 years. In January 2017, Entergy reached a settlement with New York State, several State agencies, and Riverkeeper, Inc., under which Indian Point 2 and Indian Point 3 would cease commercial operation by April 30, 2020 and April 30, 2021, respectively, subject to certain conditions, including New York State’s withdrawal of opposition to Indian Point’s license renewals and issuance of contested permits and similar authorizations. In September 2018 the NRC issued renewed operating licenses for Indian Point 2 through April 2024 and for Indian Point 3 through April 2025. Pursuant to the January 2017 settlement agreement, Indian Point 2 ceased commercial operations on April 30, 2020, and Indian Point 3 ceased commercial operations on April 30, 2021. See Note 14 to the financial statements for discussion of the impairment charges associated with the decision to shut down the Indian Point plants. In April 2019, Entergy entered into an agreement to sell, directly or indirectly, 100% of the equity interests in the subsidiaries that own Indian Point 1, Indian Point 2, and Indian Point 3 to a Holtec subsidiary for decommissioning the plants. In November 2019, Entergy and Holtec submitted a license transfer application to the NRC. The NRC issued an order approving the application in November 2020, subject to the NRC’s authority to condition, revise, or rescind the approval order based on the resolution of four pending hearing requests. In January 2021 the NRC issued an order denying all four hearing requests challenging the license transfer application. In January 2021, New York State filed a petition for review with the D.C. Circuit asking the court to vacate the NRC’s January 2021 order denying the State’s hearing request, as well as the NRC’s November 2020 order approving the license transfers. In March 2021 additional parties also filed petitions for review with the D.C. Circuit seeking review of the same NRC orders. In March 2021 the court consolidated all of the appeals into the same proceeding. Pursuant to an April 2021 settlement among Entergy, Holtec, New York State, and several other parties, discussed below, all petitioners to the D.C. Circuit proceeding withdrew their pending appeals, and the court terminated the consolidated proceeding in June 2021. In November 2019, Entergy and Holtec also submitted a petition to the New York State Public Service Commission (NYPSC) seeking an order from the NYPSC disclaiming jurisdiction or abstaining from review of the transaction or, alternatively, approving the transaction. Closing was also conditioned on obtaining from the New York State Department of Environmental Conservation an agreement related to Holtec’s decommissioning plan as being consistent with applicable standards. In April 2021, Entergy and Holtec filed a joint settlement proposal with the NYPSC that resolved all issues among all parties, including financial assurance, site restoration, financial reporting, continued funding for state and local emergency management and response activities, a memorandum of understanding with local taxing jurisdictions, and the dismissal of the federal appeals described in the preceding paragraph. In May 2021 the NYPSC approved the joint settlement proposal and the transaction. The transaction closed in May 2021. The sale included the transfer of the licenses, spent fuel, decommissioning liabilities, and nuclear decommissioning trusts for the three units. The transaction resulted in a charge of $340 million ($268 million net-of-tax) in the second quarter of 2021. See Note 14 to the financial statements for discussion of the closing of the Indian Point transaction. Planned Shutdown and Sale of Palisades Almost all of the Palisades output is sold under a power purchase agreement with Consumers Energy, entered into when the plant was acquired in 2007, that is scheduled to expire in 2022. The PPA prices currently exceed market prices. In December 2016, Entergy reached an agreement with Consumers Energy to amend the existing PPA to terminate early, on May 31, 2018. Pursuant to the agreement to amend the PPA, Consumers Energy would pay Entergy $172 million for the early termination of the PPA. The PPA amendment agreement was subject to regulatory approvals, including approval by the Michigan Public Service Commission. Separately, Entergy intended to shut down the Palisades nuclear power plant permanently on October 1, 2018, after refueling in the spring of 2017 and operating through the end of that fuel cycle. 10 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis In September 2017 the Michigan Public Service Commission issued an order conditionally approving the PPA amendment transaction, but only granting Consumers Energy recovery of $136.6 million of the $172 million requested early termination payment. As a result, Entergy and Consumers Energy agreed to terminate the PPA amendment agreement. Entergy continues to operate Palisades under the existing PPA with Consumers Energy, instead of shutting down in the fall of 2018 as previously planned. Entergy intends to shut down the Palisades nuclear power plant permanently no later than May 31, 2022. As a result of the increase in the expected operating life of the plant, the expected probability-weighted undiscounted net cash flows as of September 30, 2017 exceeded the carrying value of the plant and related assets. Accordingly, nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets incurred at Palisades after September 30, 2017 are no longer charged to expense as incurred, but recorded as assets and depreciated or amortized, subject to the typical periodic impairment reviews prescribed in the accounting rules. On July 30, 2018, Entergy entered into a purchase and sale agreement with Holtec International to sell to a Holtec subsidiary 100% of the equity interests in the subsidiary that owns Palisades and the Big Rock Point Site. The sale will include the transfer of the nuclear decommissioning trust and obligation for spent fuel management and plant decommissioning. In February 2020 the parties signed an amendment to the purchase and sale agreement to remove the closing condition that the nuclear decommissioning trust fund must have a specified amount and Entergy agreed to contribute $20 million to the nuclear decommissioning trust fund at closing, among other amendments. Pursuant to a subsequent agreement the $20 million was paid to Holtec in September 2021. At the closing of the sale transaction, the Holtec subsidiary will pay $1,000 (subject to adjustment for net liabilities and other amounts) for the equity interests in the subsidiary that owns Palisades and the Big Rock Point Site. The Palisades transaction is subject to certain closing conditions, including: the permanent shutdown of Palisades and the transfer of all nuclear fuel from the reactor vessel to the spent nuclear fuel pool; NRC regulatory approval for the transfer of the Palisades and Big Rock Point operating and independent spent fuel storage installation licenses; receipt of a favorable private letter ruling from the IRS; and, the Pilgrim transaction having closed. In December 2020, Entergy and Holtec submitted a license transfer application to the NRC requesting approval to transfer the Palisades and Big Rock Point licenses from Entergy to Holtec. In February 2021 several parties filed with the NRC petitions to intervene and requests for hearing challenging the license transfer application. In March 2021, Entergy and Holtec filed answers opposing the petitions to intervene and hearing requests, and the petitioners filed replies. In March 2021 an additional party also filed a petition to intervene and request for hearing. Entergy and Holtec filed an answer to the March 2021 petition in April 2021. The NRC issued an order approving the application in December 2021, subject to the NRC’s authority to condition, revise, or rescind the approval order based on the resolution of four pending requests for hearing. In January 2022, Holtec submitted a supplement to the approved license transfer application to the NRC to reflect changes to Holtec’s planned decommissioning organizational structure for Palisades. Subject to the above conditions, the Palisades transaction is expected to close in mid-2022. As of December 31, 2021, Entergy’s adjusted net investment in Palisades was ($50) million. The primary variables in the ultimate loss or gain that Entergy will incur on the transaction are the values of the nuclear decommissioning trust and the asset retirement obligations at closing, the financial results from plant operations until the closing, and the level of any unrealized deferred tax balances at closing. Palisades completed its final refueling outage in October 2020. Costs Associated with Exit of the Entergy Wholesale Commodities Business Entergy incurred approximately $12 million in costs in 2021, $71 million in costs in 2020, and $91 million in costs in 2019 associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business, primarily employee retention and severance expenses and other benefits-related costs, and contracted economic development contributions. Entergy expects to incur employee retention and severance 11 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis expenses of approximately $5 million in 2022 associated with the exit from the merchant power business. See Note 13 to the financial statements for further discussion of these costs. Entergy Wholesale Commodities incurred $5 million in 2021, $19 million in 2020, and $100 million in 2019 of impairment charges related to nuclear fuel spending, nuclear refueling outage spending, expenditures for capital assets, and asset retirement obligation revisions. These costs were charged to expense as incurred as a result of the impaired value of certain of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business. See Note 14 to the financial statements for further discussion of the impairment charges. Liquidity and Capital Resources This section discusses Entergy’s capital structure, capital spending plans and other uses of capital, sources of capital, and the cash flow activity presented in the cash flow statement. Capital Structure Entergy’s debt to capital ratio is shown in the following table. The increase in the debt to capital ratio is primarily due to the net issuance of debt in 2021. See Note 5 to the financial statements for a discussion of long-term debt. [[GREPCENT_TABLE]] [["","December 31, 2021","","December 31, 2020"],["Debt to capital","69.5%","","68.3%"],["Effect of excluding securitization bonds","(0.1%)","","(0.2%)"],["Debt to capital, excluding securitization bonds (a)","69.4%","","68.1%"],["Effect of subtracting cash","(0.3%)","","(1.7%)"],["Net debt to net capital, excluding securitization bonds (a)","69.1%","","66.4%"]] [[/GREPCENT_TABLE]] (a)Calculation excludes the New Orleans and Texas securitization bonds, which are non-recourse to Entergy New Orleans and Entergy Texas, respectively. As of December 31, 2021, 22.2% of the debt outstanding is at the parent company, Entergy Corporation, 77.3% is at the Utility, and 0.5% is at Entergy Wholesale Commodities. Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable and commercial paper, finance 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 debt to capital 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 because the securitization bonds are non-recourse to Entergy, as more fully described in Note 5 to the financial statements. Entergy also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy’s financial condition because net debt indicates Entergy’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand. The Utility operating companies and System Energy seek to optimize their capital structures in accordance with regulatory requirements and to control their cost of capital while also maintaining equity capitalization at a level consistent with investment-grade debt ratings. To the extent that their operating cash flows are in excess of planned investments, cash may be used to reduce outstanding debt or may be paid as a dividend to their parent, or both, in appropriate amounts to maintain the capital structure. To the extent that their operating cash flows are insufficient to support planned investments, the Utility operating companies and System Energy may issue 12 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis incremental debt or reduce dividends, or both, to maintain their capital structures. In addition, Entergy may make equity contributions to the Utility operating companies and System Energy to maintain their capital structures in certain circumstances such as financing of large transactions or payments that would materially alter the capital structure if financed entirely with debt and reduced dividends. Long-term debt, including the currently maturing portion, makes up most of Entergy’s total debt outstanding. Following are Entergy’s long-term debt principal maturities and estimated interest payments as of December 31, 2021. To estimate future interest payments for variable rate debt, Entergy used the rate as of December 31, 2021. The amounts below include payments on System Energy’s Grand Gulf sale-leaseback transaction, which are included in long-term debt on the balance sheet. [[GREPCENT_TABLE]] [["Long-term debt maturities and estimated interest payments","","2022","","2023","","2024","","2025-2026","","after 2026"],["","","(In Millions)"],["Utility","","$1,017","","","$3,141","","","$2,929","","","$3,345","","","$22,112"],["Entergy Wholesale Commodities","","141","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Parent and Other","","763","","","99","","","99","","","1,896","","","3,171"],["Total","","$1,921","","","$3,240","","","$3,028","","","$5,241","","","$25,283"]] [[/GREPCENT_TABLE]] Note 5 to the financial statements provides more detail concerning long-term debt outstanding. Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in June 2026. The facility includes fronting commitments for the issuance of letters of credit against $20 million of the total borrowing capacity of the credit facility. The commitment fee is currently 0.225% 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 year ended December 31, 2021 was 1.60% on the drawn portion of the facility. As of December 31, 2021, amounts outstanding and capacity available under the $3.5 billion credit facility are: [[GREPCENT_TABLE]] [["Capacity","","Borrowings","","Letters of Credit","","Capacity Available"],["(In Millions)"],["$3,500","","$165","","$6","","$3,329"]] [[/GREPCENT_TABLE]] A covenant in Entergy Corporation’s credit facility requires Entergy to maintain a consolidated debt ratio, as defined, 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 and expects to remain in compliance with this 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 Entergy Corporation credit facility’s maturity date may occur. Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion. As of December 31, 2021, Entergy Corporation had $1.201 billion of commercial paper outstanding. The weighted-average interest rate for the year ended December 31, 2021 was 0.28%. 13 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Finance lease obligations are a minimal part of Entergy’s overall capital structure. Following are Entergy’s payment obligations under those leases. [[GREPCENT_TABLE]] [["","2022","","2023","","2024","","2025-2026","","after 2026"],["","(In Millions)"],["Finance lease payments","$15","","$15","","$13","","$22","","$16"]] [[/GREPCENT_TABLE]] Leases are discussed in Note 10 to the financial statements. Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each had credit facilities available as of December 31, 2021 as follows: [[GREPCENT_TABLE]] [["Company","","Expiration Date","","Amount of Facility","","Interest Rate (a)","","Amount Drawn as of December 31, 2021","","Letters of Credit Outstanding as of December 31, 2021"],["Entergy Arkansas","","April 2022","","$25 million (b)","","2.75%","","\u2014","","\u2014"],["Entergy Arkansas","","June 2026","","$150 million (c)","","1.23%","","\u2014","","\u2014"],["Entergy Louisiana","","June 2026","","$350 million (c)","","1.32%","","$125 million","","\u2014"],["Entergy Mississippi","","April 2022","","$10 million (d)","","1.60%","","\u2014","","\u2014"],["Entergy Mississippi","","April 2022","","$35 million (d)","","1.60%","","\u2014","","\u2014"],["Entergy Mississippi","","April 2022","","$37.5 million (d)","","1.60%","","\u2014","","\u2014"],["Entergy New Orleans","","June 2024","","$25 million (c)","","1.73%","","\u2014","","\u2014"],["Entergy Texas","","June 2026","","$150 million (c)","","1.60%","","\u2014","","$1.3 million"]] [[/GREPCENT_TABLE]] (a)The interest rate is the estimated interest rate as of December 31, 2021 that would have been applied to outstanding borrowings under the facility. (b)Borrowings under this Entergy Arkansas credit facility may be secured by a security interest in its accounts receivable at Entergy Arkansas’s option. (c)The credit facility includes fronting commitments for the issuance of letters of credit against a portion of the borrowing capacity of the facility as follows: $5 million for Entergy Arkansas; $15 million for Entergy Louisiana; $10 million for Entergy New Orleans; and $30 million for Entergy Texas. (d)Borrowings under the Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable at Entergy Mississippi’s option. Each of the credit facilities requires the Registrant Subsidiary borrower to maintain a debt ratio, as defined, of 65% or less of its total capitalization. Each Registrant Subsidiary is in compliance with this covenant. 14 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis In addition, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each entered into an uncommitted standby letter of credit facility as a means to post collateral to support its obligations to MISO. Following is a summary of the uncommitted standby letter of credit facilities as of December 31, 2021: [[GREPCENT_TABLE]] [["Company","","","Amount of Uncommitted Facility","","Letter of Credit Fee","","Letters of Credit Issued as of December 31, 2021 (a) (b)"],["Entergy Arkansas","","","$25 million","","0.78%","","$8.5 million"],["Entergy Louisiana","","","$125 million","","0.78%","","$15.0 million"],["Entergy Mississippi","","","$65 million","","0.78%","","$9.3 million"],["Entergy New Orleans","","","$15 million","","1.00%","","$1.0 million"],["Entergy Texas","","","$80 million","","0.875%","","$79.6 million"]] [[/GREPCENT_TABLE]] (a)As of December 31, 2021, letters of credit posted with MISO covered financial transmission right exposure of $0.2 million for Entergy Mississippi and $0.1 million for Entergy Texas. See Note 15 to the financial statements for discussion of financial transmission rights. (b)As of December 31, 2021, in addition to the $9.3 million in MISO letters of credit, Entergy Mississippi has $1 million in non-MISO letters of credit outstanding under this facility. Operating Lease Obligations and Guarantees of Unconsolidated Obligations Entergy has a minimal amount of operating lease obligations and guarantees in support of unconsolidated obligations. Entergy’s guarantees in support of unconsolidated obligations are not likely to have a material effect on Entergy’s financial condition, results of operations, or cash flows. Following are Entergy’s payment obligations as of December 31, 2021 on non-cancelable operating leases with a term over one year: [[GREPCENT_TABLE]] [["","2022","","2023","","2024","","2025-2026","","after 2026"],["","(In Millions)"],["Operating lease payments","$65","","$56","","$48","","$44","","$15"]] [[/GREPCENT_TABLE]] Leases are discussed in Note 10 to the financial statements. Other Obligations Entergy currently expects to contribute approximately $200 million to its pension plans and approximately $42.8 million to other postretirement plans in 2022, although the 2022 required pension contributions will be known with more certainty when the January 1, 2022 valuations are completed, which is expected by April 1, 2022. See “Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits” below and Note 11 for a discussion of qualified pension and other postretirement benefits funding. Entergy has $712 million of unrecognized tax benefits and interest net of unused tax attributes for which the timing of payments beyond 12 months cannot be reasonably estimated due to uncertainties in the timing of effective settlement of tax positions. See Note 3 to the financial statements for additional information regarding unrecognized tax benefits. In addition, the Registrant Subsidiaries enter into fuel and purchased power agreements that contain minimum purchase obligations. The Registrant Subsidiaries each have rate mechanisms in place to recover fuel, purchased power, and associated costs incurred under these purchase obligations. 15 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Capital Expenditure Plans and Other Uses of Capital Following are the amounts of Entergy’s planned construction and other capital investments by operating segment for 2022 through 2024. [[GREPCENT_TABLE]] [["Planned construction and capital investments","","2022","","2023","","2024"],["","","(In Millions)"],["Utility:"],["Generation","","$1,105","","","$1,235","","","$1,580"],["Transmission","","755","","","765","","","795"],["Distribution","","1,285","","","1,535","","","1,620"],["Utility Support","","580","","","440","","","310"],["Total","","3,725","","","3,975","","","4,305"],["Entergy Wholesale Commodities and Other","","10","","","\u2014","","","\u2014"],["Total","","$3,735","","","$3,975","","","$4,305"]] [[/GREPCENT_TABLE]] In addition to the planned spending in the table above, the Utility also expects to pay for $885 million of capital investments in 2022 related to Hurricane Ida restoration work that has been accrued as of December 31, 2021. Planned construction and capital investments refer to amounts Entergy plans to spend on routine capital projects that are necessary to support reliability of its service, equipment, or systems and to support normal customer growth. In addition to routine capital projects, they also refer to amounts Entergy plans to spend on non-routine capital investments for which Entergy is either contractually obligated, has Board approval, or otherwise expects to make to satisfy regulatory or legal requirements. Amounts include the following types of construction and capital investments: •Investments in generation projects to modernize, decarbonize, and diversify Entergy’s portfolio, including the Sunflower Solar Facility, Walnut Bend Solar Facility, West Memphis Solar Facility, Orange County Advanced Power Station, St. Jacques Louisiana Solar, and potential construction of additional generation. •Investments in Entergy’s Utility nuclear fleet. •Transmission spending to drive reliability and resilience while also supporting renewables expansion. •Distribution and Utility Support spending to improve reliability, resilience, and customer experience through projects focused on asset renewals and enhancements and grid stability. For the next several years, the Utility’s owned generating capacity is projected to be adequate to meet MISO reserve requirements; however, in the longer-term additional supply resources will be needed, and its supply plan initiative will continue to seek to transform its generation portfolio with new generation resources.  Opportunities resulting from the supply plan initiative, including new projects or the exploration of alternative financing sources, could result in increases or decreases in the capital expenditure estimates given above. Estimated capital expenditures are also subject to periodic review and modification and may vary based on the ongoing effects of business restructuring, regulatory constraints and requirements, environmental regulations, business opportunities, market volatility, economic trends, changes in project plans, and the ability to access capital. 16 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Renewables Sunflower Solar Facility In November 2018, Entergy Mississippi announced that it signed an agreement for the purchase of an approximately 100 MW solar photovoltaic facility that will be sited on approximately 1,000 acres in Sunflower County, Mississippi.  The estimated base purchase price is approximately $138.4 million.  The estimated total investment, including the base purchase price and other related costs, for Entergy Mississippi to acquire the Sunflower Solar Facility is approximately $153.2 million. The purchase is contingent upon, among other things, obtaining necessary approvals, including full cost recovery, from applicable federal and state regulatory and permitting agencies.  The project is being built by Sunflower County Solar Project, LLC, an indirect subsidiary of Recurrent Energy, LLC. Entergy Mississippi will purchase the facility upon mechanical completion and after the other purchase contingencies have been met.  In December 2018, Entergy Mississippi filed a joint petition with Sunflower Solar Project with the MPSC for Sunflower Solar Project to construct and for Entergy Mississippi to acquire and thereafter own, operate, improve, and maintain the solar facility.  Entergy Mississippi proposed revisions to its formula rate plan that would provide for a mechanism, the interim capacity rate adjustment mechanism, in the formula rate plan to recover the non-fuel related costs of additional owned capacity acquired by Entergy Mississippi, including the annual ownership costs of the Sunflower Solar Facility.  In December 2019 the MPSC approved Entergy Mississippi’s proposed revisions to its formula rate plan to provide for an interim capacity rate adjustment mechanism. Recovery through the interim capacity rate adjustment requires MPSC approval for each new resource. In August 2019 consultants retained by the Mississippi Public Utilities Staff filed a report expressing concerns regarding the project economics. In March 2020, Entergy Mississippi filed supplemental testimony addressing questions and observations raised by the consultants retained by the Mississippi Public Utilities Staff and proposing an alternative structure for the transaction that would reduce its cost. A hearing before the MPSC was held in March 2020. In April 2020 the MPSC issued an order approving certification of the Sunflower Solar Facility and its recovery through the interim capacity rate adjustment mechanism, subject to certain conditions including: (i) that Entergy Mississippi pursue a partnership structure through which the partnership would acquire and own the facility under the build-own-transfer agreement and (ii) that if Entergy Mississippi does not consummate the partnership structure under the terms of the order, there will be a cap of $136 million on the level of recoverable costs. Closing is targeted to occur by the end of the second quarter 2022. Walnut Bend Solar Facility In October 2020, Entergy Arkansas filed a petition with the APSC seeking a finding that the purchase of the 100 MW Walnut Bend Solar Facility is in the public interest. Entergy Arkansas primarily requested cost recovery through the formula rate plan rider. In July 2021 the APSC granted Entergy Arkansas’s petition and approved the acquisition of the resource and cost recovery through the formula rate plan rider. In addition, the APSC directed Entergy Arkansas to file a report within 180 days detailing its efforts to obtain a tax equity partnership. In January 2022, Entergy Arkansas filed its tax equity partnership status report and will file subsequent reports until a tax equity partnership is obtained. Entergy Arkansas views the progress of the outreach to potential tax equity investors and the current status of the discussions as consistent with its expectations for the timeline for achieving a tax equity partnership. Closing was expected to occur in 2022. The counter-party has notified Entergy Arkansas that it is seeking changes to certain terms of the build-own-transfer agreement, including both cost and schedule. Negotiations are ongoing, but at this time the project is not expected to achieve commercial operation in 2022. West Memphis Solar Facility In January 2021, Entergy Arkansas filed a petition with the APSC seeking a finding that the purchase of the 180 MW West Memphis Solar Facility is in the public interest. In October 2021 the APSC granted Entergy Arkansas’s petition and approved the acquisition of the West Memphis Solar Facility and cost recovery through the formula rate plan rider. In addition, the APSC directed Entergy Arkansas to file a report within 180 days detailing its efforts to obtain a tax equity partnership. Closing is expected to occur in 2023. 17 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis 2021 Solar Certification and the Geaux Green Option In November 2021, Entergy Louisiana filed an application with the LPSC seeking certification of and approval for the addition of four new solar photovoltaic resources with a nameplate capacity of 475 megawatts (the 2021 Solar Portfolio) and the implementation of a new green tariff, the Geaux Green Option (Rider GGO). The 2021 Solar Portfolio consists of four resources that are expected to provide $242 million in net benefits to Entergy Louisiana’s customers. These resources, all of which would be constructed in Louisiana, include (i) Vacherie Solar Energy Center, a 150 megawatt resource in St. James Parish; (ii) Sunlight Road Solar, a 50 megawatt resource in Washington Parish; (iii) St. Jacques Louisiana Solar, a 150 megawatt resource in St. James; and (iv) Elizabeth Solar Facility, a 125 megawatt resource in Allen Parish. St. Jacques Louisiana Solar would be acquired through a build-own-transfer agreement; the remaining resources involve power purchase agreements. The filing proposes to recover the costs of the power purchase agreements through the fuel adjustment clause and the acquisition costs through the formula rate plan. The proposed Rider GGO is a voluntary rate schedule that would enhance Entergy Louisiana’s ability to help customers meet their sustainability goals by allowing customers to align some or all of their electricity requirements with renewable energy from the resources. Because subscription fees from Rider GGO participants would help to offset the cost of the resources, the design of Rider GGO also preserves the benefits of the 2021 Solar Portfolio for non-participants by providing them with the reliability and capacity benefits of locally-sited solar generation at a discounted price. The LPSC has established a procedural schedule that is expected to result in an LPSC decision by the end of 2022. Discovery is currently underway. Other Generation Orange County Advanced Power Station In September 2021, Entergy Texas filed an application seeking PUCT approval to amend Entergy Texas’s certificate of convenience and necessity to construct, own, and operate the Orange County Advanced Power Station, a new 1,215 MW combined-cycle combustion turbine facility to be located in Bridge City, Texas at an expected total cost of $1.2 billion inclusive of the estimated costs of the generation facilities, transmission upgrades, contingency, an allowance for funds used during construction, and necessary regulatory expenses, among others. The project includes combustion turbine technology with dual fuel capability, able to co-fire up to 30% hydrogen by volume upon commercial operation and upgradable to support 100% hydrogen operations in the future. In December 2021 the PUCT referred the proceeding to the State Office of Administrative Hearings. A hearing on the merits is scheduled for April 2022. A final order by the PUCT is expected in September 2022. Subject to receipt of required regulatory approvals and other conditions, the facility is expected to be in-service by May 2026. Dividends and Stock Repurchases 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 earnings per share from the Utility operating segment and the Parent and Other portion of the business, financial strength, and future investment opportunities. At its January 2022 meeting, the Board declared a dividend of $1.01 per share. Entergy paid $775 million in 2021, $748 million in 2020, and $712 million in 2019 in cash dividends on its common stock. In accordance with Entergy’s stock-based compensation plans, Entergy periodically grants stock options, restricted stock, performance units, and restricted stock unit awards 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 18 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis 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. In addition to the authority to fund grant exercises, the Board has authorized share repurchase programs to enable opportunistic purchases in response to market conditions. In October 2010 the Board granted authority for a $500 million share repurchase program. As of December 31, 2021, $350 million of authority remains under the $500 million share repurchase program. The amount of repurchases may vary as a result of material changes in business results or capital spending or new investment opportunities, or if limitations in the credit markets continue for a prolonged period. Sources of Capital Entergy’s sources to meet its capital requirements and to fund potential investments include: •internally generated funds; •cash on hand ($443 million as of December 31, 2021); •storm reserve escrow accounts; •debt and equity issuances in the capital markets, including debt issuances to refund or retire currently outstanding or maturing indebtedness; •bank financing under new or existing facilities or commercial paper; and •sales of assets. Circumstances such as weather patterns, fuel and purchased power price fluctuations, and unanticipated expenses, including unscheduled plant outages and storms, could affect the timing and level of internally generated funds in the future. In addition to the financings necessary to meet capital requirements and contractual obligations, the Registrant Subsidiaries expect to continue, when economically feasible, to retire higher-cost debt and replace it with lower-cost debt if market conditions permit. Provisions within the organizational documents relating to preferred stock or membership interests of certain of Entergy Corporation’s subsidiaries could restrict the payment of cash dividends or other distributions on their common and preferred equity. All debt and preferred equity issuances by the Registrant Subsidiaries require prior regulatory approval and their debt issuances are also subject to issuance tests set forth in bond indentures and other agreements. Entergy believes that the Registrant Subsidiaries have sufficient capacity under these tests to meet foreseeable capital needs for the next twelve months and beyond. The FERC has jurisdiction over securities issuances by the Utility operating companies and System Energy. The City Council has concurrent jurisdiction over Entergy New Orleans’s securities issuances with maturities longer than one year. The APSC has concurrent jurisdiction over Entergy Arkansas’s issuances of securities secured by Arkansas property, including first mortgage bond issuances. No regulatory approvals are necessary for Entergy Corporation to issue securities. The current FERC-authorized short-term borrowing limits and long-term financing authorization for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy are effective through October 2023. Entergy Arkansas has obtained first mortgage bond/secured financing authorization from the APSC that extends through December 2022. Entergy New Orleans also has obtained long-term financing authorization from the City Council that extends through December 2023. Entergy Arkansas, Entergy Louisiana, and System Energy each has obtained long-term financing authorization from the FERC that extends through October 2023 for issuances by the nuclear fuel company variable interest entities. In addition to borrowings from commercial banks, the Registrant Subsidiaries may also borrow from the Entergy System money pool and from other internal short-term borrowing arrangements. The money pool and the other internal borrowing arrangements are inter-company borrowing arrangements designed to reduce Entergy’s subsidiaries’ dependence on external short-term borrowings. Borrowings from internal and external short-term borrowings combined may not exceed the FERC-authorized limits. See Notes 4 and 5 to the financial statements for further discussion of Entergy’s borrowing limits, authorizations, and amounts outstanding. 19 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Equity Issuances and Equity Distribution Program In January 2021, Entergy entered into an equity distribution sales agreement with several counterparties establishing an at the market equity distribution program, pursuant to which Entergy may offer and sell from time to time shares of its common stock. The sales agreement provides that, in addition to the issuance and sale of shares of Entergy common stock, Entergy may also enter into forward sale agreements for the sale of its common stock. The aggregate number of shares of common stock sold under this sales agreement and under any forward sale agreement may not exceed an aggregate gross sales price of $1 billion. In 2021, Entergy utilized the at the market equity distribution program and sold nearly $500 million, approximately $300 million of which has not been settled and is subject to adjustment pursuant to the forward sale agreements. In addition to settlement of existing forward sales agreements, Entergy Corporation currently expects to issue approximately $700 million of equity through 2024. Entergy is considering various methods, including, among others, at the market distributions, block trades, and preferred equity issuances. See Note 7 to the financial statements for discussion of the forward sales agreements and common stock issuances and sales under the equity distribution program. Hurricane Laura, Hurricane Delta, Hurricane Zeta, Winter Storm Uri, and Hurricane Ida (Entergy Louisiana) In August 2020 and October 2020, Hurricane Laura, Hurricane Delta, and Hurricane Zeta caused significant damage to portions of Entergy Louisiana’s service area. The storms resulted in widespread outages, significant damage to distribution and transmission infrastructure, and the loss of sales during the outages. Additionally, as a result of Hurricane Laura’s extensive damage to the grid infrastructure serving the impacted area, large portions of the underlying transmission system required nearly a complete rebuild. In October 2020, Entergy Louisiana filed an application at the LPSC seeking approval of certain ratemaking adjustments in connection with the issuance of shorter-term mortgage bonds to provide interim financing for restoration costs associated with Hurricane Laura, Hurricane Delta, and Hurricane Zeta. Subsequently, Entergy Louisiana and the LPSC staff filed a joint motion seeking approval to exclude from the derivation of Entergy Louisiana’s capital structure and cost rate of debt for ratemaking purposes, including the allowance for funds used during construction, shorter-term debt up to $1.1 billion issued by Entergy Louisiana to fund costs associated with Hurricane Laura, Hurricane Delta, and Hurricane Zeta costs on an interim basis. In November 2020 the LPSC issued an order approving the joint motion, and Entergy Louisiana issued $1.1 billion of 0.62% Series mortgage bonds due November 2023. Also in November 2020, Entergy Louisiana withdrew $257 million from its funded storm reserves. In February 2021 two winter storms (collectively, Winter Storm Uri) brought freezing rain and ice to Louisiana. Ice accumulation sagged or downed trees, limbs and power lines, causing damage to Entergy Louisiana’s transmission and distribution systems. The additional weight of ice caused trees and limbs to fall into power lines and other electric equipment. When the ice melted, it affected vegetation and electrical equipment, causing additional outages. As discussed in the “Fuel and purchased power recovery” section of Note 2 to the financial statements, Entergy Louisiana recovered the incremental fuel costs associated with Winter Storm Uri over a five-month period from April 2021 through August 2021. In April 2021, Entergy Louisiana filed an application with the LPSC relating to Hurricane Laura, Hurricane Delta, Hurricane Zeta, and Winter Storm Uri restoration costs and in July 2021, Entergy Louisiana made a supplemental filing updating the total restoration costs. Total restoration costs for the repair and/or replacement of Entergy Louisiana’s electric facilities damaged by these storms are currently estimated to be approximately $2.06 billion, including approximately $1.68 billion in capital costs and approximately $380 million in non-capital costs. Including carrying costs through January 2022, Entergy Louisiana is seeking an LPSC determination that $2.11 billion was prudently incurred and, therefore, is eligible for recovery from customers. Additionally, Entergy Louisiana is requesting that the LPSC determine that re-establishment of a storm escrow account to the previously authorized amount of $290 million is appropriate. In July 2021, Entergy Louisiana supplemented the application 20 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis with a request regarding the financing and recovery of the recoverable storm restoration costs. Specifically, Entergy Louisiana requested approval to securitize its restoration costs pursuant to Louisiana Act 55 financing, as supplemented by Act 293 of the Louisiana Legislature’s Regular Session of 2021. As previously discussed, in August 2021, Hurricane Ida caused extensive damage to Entergy Louisiana’s distribution and, to a lesser extent, transmission systems resulting in widespread power outages. In September 2021, Entergy Louisiana supplemented the application with a request to establish and securitize a $1 billion restricted storm escrow account for Hurricane Ida related restoration costs, subject to a subsequent prudence review. In total, Entergy Louisiana requested authorization for the issuance of system restoration bonds in one or more series in an aggregate principal amount of $3.18 billion, which includes the costs of re-establishing and funding a storm damage escrow account, carrying costs and unamortized debt costs on interim financing, and issuance costs. After filing of testimony by LPSC staff and intervenors, which generally supported or did not oppose Entergy Louisiana’s requests, the parties negotiated and executed an uncontested stipulated settlement which was filed with the LPSC in February 2022. The settlement agreement contains the following key terms: $2.1 billion of restoration costs from Hurricane Laura, Hurricane Delta, Hurricane Zeta, and Winter Storm Uri were prudently incurred and are eligible for recovery; carrying costs of $51 million are recoverable; a $290 million cash storm reserve should be re-established; a $1 billion reserve should be established to partially pay for Hurricane Ida restoration costs; and Entergy Louisiana is authorized to finance $3.186 billion utilizing the securitization process authorized by Act 55, as supplemented by Act 293. The LPSC voted to approve the settlement at its February 2022 meeting. Hurricane Laura, Hurricane Delta, and Winter Storm Uri (Entergy Texas) In August 2020 and October 2020, Hurricane Laura and Hurricane Delta caused extensive damage to Entergy Texas’s service area. In February 2021, Winter Storm Uri also caused damage to Entergy Texas’s service area. The storms resulted in widespread power outages, significant damage primarily to distribution and transmission infrastructure, and the loss of sales during the power outages. In April 2021, Entergy Texas filed an application with the PUCT requesting a determination that approximately $250 million of system restoration costs associated with Hurricane Laura, Hurricane Delta, and Winter Storm Uri, including approximately $200 million in capital costs and approximately $50 million in non-capital costs, were reasonable and necessary to enable Entergy Texas to restore electric service to its customers and Entergy Texas’s electric utility infrastructure. The filing also included the projected balance of approximately $13 million of a regulatory asset containing previously approved system restoration costs related to Hurricane Harvey. In September 2021 the parties filed an unopposed settlement agreement, pursuant to which Entergy Texas removed from the amount to be securitized approximately $4.3 million that will instead be charged to its storm reserve, $5 million related to no particular issue, of which Entergy Texas would be permitted to seek recovery in a future proceeding, and approximately $300 thousand related to attestation costs. In December 2021 the PUCT issued an order approving the unopposed settlement and determining system restoration costs of $243 million related to Hurricane Laura, Hurricane Delta, and Winter Storm Uri and the $13 million projected remaining balance of the Hurricane Harvey system restoration costs were eligible for securitization. The order also determines that Entergy Texas can recover carrying costs on the system restoration costs related to Hurricane Laura, Hurricane Delta, and Winter Storm Uri. In July 2021, Entergy Texas filed with the PUCT an application for a financing order to approve the securitization of the system restoration costs that are the subject of the April 2021 application. In November 2021 the parties filed an unopposed settlement agreement supporting the issuance of a financing order consistent with Entergy Texas’s application and with minor adjustments to certain upfront and ongoing costs to be incurred to facilitate the issuance and serving of system restoration bonds. In January 2022 the PUCT issued a financing order consistent with the unopposed settlement. 21 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Cash Flow Activity As shown in Entergy’s Consolidated Statements of Cash Flows, cash flows for the years ended December 31, 2021, 2020, and 2019 were as follows: [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["","(In Millions)"],["Cash and cash equivalents at beginning of period","$1,759","","","$426","","","$481"],["Net cash provided by (used in):"],["Operating activities","2,301","","","2,690","","","2,817"],["Investing activities","(6,179)","","","(4,772)","","","(4,510)"],["Financing activities","2,562","","","3,415","","","1,638"],["Net increase (decrease) in cash and cash equivalents","(1,316)","","","1,333","","","(55)"],["Cash and cash equivalents at end of period","$443","","","$1,759","","","$426"]] [[/GREPCENT_TABLE]] 2021 Compared to 2020 Operating Activities Net cash flow provided by operating activities decreased by $389 million in 2021 primarily due to: •increased fuel costs, including those related to Winter Storm Uri. See Note 2 to the financial statements for a discussion of fuel and purchased power cost recovery; •an increase of approximately $220 million in storm spending in 2021. See Note 2 to the financial statements for discussion of recent storms; •income tax payments of $98 million in 2021 compared to income tax refunds of $31 million in 2020. Entergy had net income tax payments in 2021 related to state income taxes and federal estimated taxes, offset by federal income tax refunds received associated with the completion of the 2014-2015 IRS audit. Entergy had income tax refunds in 2020 as a result of an overpayment on a prior year state income tax return; •lower Entergy Wholesale Commodities revenues in 2021; •an increase of $65 million in severance and retention payments in 2021 as compared to 2020. See Note 13 to the financial statements for a discussion of the severance and retention payments related to Entergy Wholesale Commodities. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” above for a discussion of management’s strategy to exit the Entergy Wholesale Commodities merchant power business; •a decrease of $55 million in proceeds received from the DOE resulting from litigation regarding spent nuclear fuel storage costs that were previously expensed. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; and •an increase of $40 million in pension contributions in 2021 as compared to 2020. See “Critical Accounting Estimates” below and Note 11 to the financial statements for a discussion of qualified pension and other postretirement benefits funding. The decrease was partially offset by higher collections from Utility customers and a decrease in spending of $52 million on nuclear refueling outages in 2021 as compared to prior period. 22 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Investing Activities Net cash flow used in investing activities increased by $1,407 million in 2021 primarily due to: •an increase of $1,278 million in distribution construction expenditures primarily due to higher capital expenditures for storm restoration in 2021 and increased spending on the reliability and infrastructure of the distribution system, partially offset by lower spending in 2021 on advanced metering infrastructure; •an increase of $366 million in transmission construction expenditures primarily due to higher capital expenditures for storm restoration in 2021; •a decrease of $212 million in net receipts from storm reserve escrow accounts; and •the purchase of the Hardin County Peaking Facility by Entergy Texas in June 2021 for approximately $37 million and the purchase of the Searcy Solar facility by the Entergy Arkansas tax equity partnership in December 2021 for approximately $132 million. See Note 14 to the financial statements for discussion of the Hardin County Peaking Facility and the Searcy Solar facility purchases. The increase was partially offset by: •the purchase of Washington Parish Energy Center by Entergy Louisiana in November 2020 for approximately $222 million. See Note 14 to the financial statements for further discussion of the Washington Parish Energy Center purchase; •a decrease of $208 million in non-nuclear generation construction expenditures primarily due to higher spending in 2020 on the Montgomery County Power Station, Lake Charles Power Station, New Orleans Power Station, and New Orleans Solar Station projects, partially offset by a higher scope of work performed during outages in 2021 as compared to 2020; •a decrease of $102 million in decommissioning trust fund investment activity; •a decrease of $49 million in nuclear fuel purchases due to variations from year to year in the timing and pricing of fuel reload requirements, materials and services deliveries, and the timing of cash payments during the nuclear fuel cycle; •a decrease of $26 million in information technology construction expenditures primarily due to decreased spending on various technology projects in 2021, including advanced metering infrastructure; and •$25 million in plant upgrades for the Choctaw Generating Station in March 2020. Financing Activities Net cash flow provided by financing activities decreased by $854 million in 2021 primarily due to: •long-term debt activity providing approximately $3,481 million of cash in 2021 compared to providing approximately $4,467 million in 2020; •an increase of $107 million in net repayments of commercial paper in 2021 compared to 2020; and •a decrease of $37 million in proceeds received from treasury stock issuances in 2021 due to a larger amount of previously repurchased Entergy Corporation common stock issued in 2020 to satisfy stock option exercises. The decrease was partially offset by: •net sales proceeds of $201 million from the issuance of common stock in 2021 under the at the market equity distribution program. See Note 7 to the financial statements for discussion of the equity distribution program; •capital contributions of $51 million received in 2021 from the noncontrolling tax equity investor in AR Searcy Partnership, LLC and used by the partnership to acquire the Searcy Solar facility. See Note 14 to the financial statements for discussion of the Searcy Solar facility purchase; and 23 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis •an increase of $50 million primarily due to higher prepaid deposits related to contributions-in-aid-of-construction generation interconnection agreements in 2021 as compared to 2020. For the details of Entergy’s commercial paper program, see Note 4 to the financial statements. See Note 5 to the financial statements for details of long-term debt. 2020 Compared to 2019 See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow Activity” in Item 7 of Entergy’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 26, 2021 for discussion of operating, investing, and financing cash flow activities for 2020 compared to 2019. Rate, Cost-recovery, and Other Regulation State and Local Rate Regulation and Fuel-Cost Recovery The rates that the Utility operating companies charge for their services significantly influence Entergy’s financial position, results of operations, and liquidity. These companies are regulated and the rates charged to their customers are determined in regulatory proceedings. Governmental agencies, including the APSC, the LPSC, the MPSC, the City Council, and the PUCT, are primarily responsible for approval of the rates charged to customers. Following is a summary of the Utility operating companies’ authorized returns on common equity: [[GREPCENT_TABLE]] [["Company","","Authorized Return on Common Equity"],["Entergy Arkansas","","9.15% - 10.15%"],["Entergy Louisiana","","9.0% - 10.0% Electric; 9.3% - 10.3% Gas"],["Entergy Mississippi","","9.03% - 11.08%"],["Entergy New Orleans","","8.85% - 9.85%"],["Entergy Texas","","9.65%"]] [[/GREPCENT_TABLE]] The Utility operating companies’ base rate, fuel and purchased power cost recovery, and storm cost recovery proceedings are discussed in Note 2 to the financial statements. Federal Regulation The FERC regulates wholesale sales of electricity rates and interstate transmission of electricity, including rates for System Energy’s sales of capacity and energy from Grand Gulf to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans pursuant to the Unit Power Sales Agreement. The current return on equity and capital structure of System Energy are currently the subject of complaints filed by certain of the operating companies’ retail regulators. The current return on equity under the Unit Power Sales Agreement is 10.94%. Prior to each operating company’s termination of participation in the System Agreement (Entergy Arkansas in December 2013, Entergy Mississippi in November 2015, and Entergy Louisiana, Entergy New Orleans, and Entergy Texas, each in August 2016), the Utility operating companies engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement, which was a rate schedule approved by the FERC. Certain of the Utility operating companies’ retail regulators are pursuing litigation involving the System Agreement at the FERC and in federal courts. See Note 2 to the financial statements for discussion of the complaints filed with the FERC challenging System Energy’s return on equity and capital structure, System Energy’s treatment of uncertain tax positions and the Grand Gulf sale leaseback arrangement, rates charged under the Unit Power Sales Agreement, and the prudence of Grand Gulf’s operations and 2012 extended power uprate. 24 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Market and Credit Risk Sensitive Instruments Market risk is the risk of changes in the value of commodity and financial instruments, or in future net income or cash flows, in response to changing market conditions. Entergy holds commodity and financial instruments that are exposed to the following significant market risks. •The commodity price risk associated with the sale of electricity by the Entergy Wholesale Commodities business. •The interest rate and equity price risk associated with Entergy’s investments in pension and other postretirement benefit trust funds. See Note 11 to the financial statements for details regarding Entergy’s pension and other postretirement benefit trust funds. •The interest rate and equity price risk associated with Entergy’s investments in nuclear plant decommissioning trust funds, particularly in the Entergy Wholesale Commodities business. See Note 16 to the financial statements for details regarding Entergy’s decommissioning trust funds. •The interest rate risk associated with changes in interest rates as a result of Entergy’s outstanding indebtedness. Entergy manages its interest rate exposure by monitoring current interest rates and its debt outstanding in relation to total capitalization. See Notes 4 and 5 to the financial statements for the details of Entergy’s debt outstanding. The Utility has limited exposure to the effects of market risk because it operates primarily under cost-based rate regulation. To the extent approved by their retail regulators, the Utility operating companies use commodity and financial instruments to hedge the exposure to price volatility inherent in their purchased power, fuel, and gas purchased for resale costs that are recovered from customers. Entergy’s commodity and financial instruments are also exposed to credit risk. Credit risk is the risk of loss from nonperformance by suppliers, customers, or financial counterparties to a contract or agreement. Entergy is also exposed to a potential demand on liquidity due to credit support requirements within its supply or sales agreements. Commodity Price Risk Power Generation As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” above for a discussion of management’s strategy to shut down and sell all remaining plants in the Entergy Wholesale Commodities merchant nuclear fleet.  As of December 31, 2021, Palisades is the only remaining operating plant in the Entergy Wholesale Commodities merchant nuclear fleet. Almost all of the Palisades output is sold under a power purchase agreement that is scheduled to expire in 2022. Planned generation currently under contract from the Palisades plant is 99% for 2022, all of which is sold under normal purchase/normal sale contracts.  Total planned generation for 2022 is 2.8 TWh. 25 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Entergy Wholesale Commodities Portfolio Some of the agreements to sell the power produced by Entergy Wholesale Commodities’ power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations under the agreements. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee.  Cash and letters of credit are also acceptable forms of credit support. At December 31, 2021, based on power prices at that time, Entergy had liquidity exposure of $29 million under the guarantees in place supporting Entergy Wholesale Commodities transactions and $8 million of posted cash collateral. In the event of a decrease in Entergy Corporation’s credit rating to below investment grade, based on power prices as of December 31, 2021, Entergy would have been required to provide approximately $30 million of additional cash or letters of credit under some of the agreements. As of December 31, 2021, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by an insignificant amount for a $1 per MMBtu increase in gas prices in both the short- and long-term markets. As of December 31, 2021, substantially all of the credit exposure associated with the planned energy output under contract for the Palisades plant through 2022 is with counterparties or their guarantors that have public investment grade credit ratings. Nuclear Matters Entergy’s Utility and Entergy Wholesale Commodities businesses include the ownership and operation of nuclear generating plants and are, therefore, subject to the risks related to such ownership and operation. These include risks related to: the use, storage, and handling and disposal of high-level and low-level radioactive materials; the substantial financial requirements, both for capital investments and operational needs, including the financial requirements to address emerging issues like stress corrosion cracking of certain materials within the plant systems to position Entergy’s nuclear fleet to meet its operational goals; the performance and capacity factors of these nuclear plants; the risk of an adverse outcome to an expected challenge to the prudence of operations at Grand Gulf; the implementation of plans to exit the Entergy Wholesale Commodities merchant nuclear power business in 2022; regulatory requirements and potential future regulatory changes, including changes affecting the regulations governing nuclear plant ownership, operations, license amendments, and decommissioning; the availability of interim or permanent sites for the disposal of spent nuclear fuel and nuclear waste, including the fees charged for such disposal; the sufficiency of nuclear decommissioning trust fund assets and earnings to complete decommissioning of each site when required; and limitations on the amounts and types of insurance commercially available for losses in connection with nuclear plant operations and catastrophic events such as a nuclear accident. NRC Reactor Oversight Process The NRC’s Reactor Oversight Process is a program to collect information about plant performance, assess the information for its safety significance, and provide for appropriate licensee and NRC response. The NRC evaluates plant performance by analyzing two distinct inputs: inspection findings resulting from the NRC’s inspection program and performance indicators reported by the licensee. The evaluations result in the placement of each plant in one of the NRC’s Reactor Oversight Process Action Matrix columns: “licensee response column,” or Column 1, “regulatory response column,” or Column 2, “degraded cornerstone column,” or Column 3, and “multiple/repetitive degraded cornerstone column,” or Column 4, and “unacceptable performance,” or Column 5. Plants in Column 1 are subject to normal NRC inspection activities. Plants in Column 2, Column 3, or Column 4 are subject to progressively increasing levels of inspection by the NRC with, in general, progressively increasing levels of associated costs. Continued plant operation is not permitted for plants in Column 5. All of the nuclear generating plants owned and operated by Entergy’s Utility and Entergy Wholesale Commodities businesses are currently in Column 1. 26 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis In March 2021 the NRC placed Grand Gulf in Column 3 based on the incidence of five unplanned plant scrams during calendar year 2020, some of which were related to upgrades made to the plant’s turbine control system during the spring 2020 refueling outage. The NRC conducted a supplemental inspection of Grand Gulf in accordance with its inspection procedures for nuclear plants in Column 3 and, in October 2021, notified Entergy that all inspection objectives were met. The NRC issued its report in November 2021 and Grand Gulf was returned to Column 1. Critical Accounting Estimates The preparation of Entergy’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in these assumptions and measurements could produce estimates that would have a material effect on the presentation of Entergy’s financial position, results of operations, or cash flows. Nuclear Decommissioning Costs Entergy subsidiaries own nuclear generation facilities in both the Utility and Entergy Wholesale Commodities operating segments. Regulations require Entergy subsidiaries to decommission the nuclear power plants after each facility is taken out of service, and cash is deposited in trust funds during the facilities’ operating lives in order to provide for this obligation. Entergy conducts periodic decommissioning cost studies to estimate the costs that will be incurred to decommission the facilities. The following key assumptions have a significant effect on these estimates. •Timing - In projecting decommissioning costs, two assumptions must be made to estimate the timing of plant decommissioning. First, the date of the plant’s retirement must be estimated for those plants that do not have an announced shutdown date. The estimate may include assumptions regarding the possibility that the plant may have an operating life shorter than the operating license expiration. Second, an assumption must be made regarding whether all decommissioning activity will proceed immediately upon plant retirement, or whether the plant will be placed in SAFSTOR status. SAFSTOR is decommissioning a facility by placing it in a safe, stable condition that is maintained until it is subsequently decontaminated and dismantled to levels that permit license termination, normally within 60 years from permanent cessation of operations. A change of assumption regarding either the period of continued operation, the use of a SAFSTOR period, or whether Entergy will continue to hold the plant or the plant is held for sale can change the present value of the asset retirement obligation. •Cost Escalation Factors - Entergy’s current decommissioning cost studies include an assumption that decommissioning costs will escalate over present cost levels by factors ranging from approximately 2% to 3% annually. A 50-basis point change in this assumption could change the estimated present value of the decommissioning liabilities by approximately 6% to 18%. The timing assumption influences the significance of the effect of a change in the estimated inflation or cost escalation rate because the effect increases with the length of time assumed before decommissioning activity ends. •Spent Fuel Disposal - Federal law requires the DOE to provide for the permanent storage of spent nuclear fuel, and legislation has been passed by Congress to develop a repository at Yucca Mountain, Nevada. The DOE has not yet begun accepting spent nuclear fuel and is in non-compliance with federal law. The DOE continues to delay meeting its obligation and Entergy’s nuclear plant owners are continuing to pursue damage claims against the DOE for its failure to provide timely spent fuel storage. Until a federal site is available, however, nuclear plant operators must provide for interim spent fuel storage on the nuclear plant site, which can require the construction and maintenance of dry cask storage sites or other facilities. The costs of developing and maintaining these facilities during the decommissioning period can have a significant effect (as much as an average of 20% to 30% of total estimated decommissioning costs). 27 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Entergy’s decommissioning studies include cost estimates for spent fuel storage. These estimates could change in the future, however, based on the expected timing of when the DOE begins to fulfill its obligation to receive and store spent nuclear fuel. See Note 8 to the financial statements for further discussion of Entergy’s spent nuclear fuel litigation. •Technology and Regulation - Over the past several years, more practical experience with the actual decommissioning of nuclear facilities has been gained and that experience has been incorporated into Entergy’s current decommissioning cost estimates. Given the long duration of decommissioning projects, additional experience, including technological advancements in decommissioning, could be gained and affect current cost estimates. In addition, if regulations regarding nuclear decommissioning were to change, this could affect cost estimates. •Interest Rates - The estimated decommissioning costs that are the basis for the recorded decommissioning liability are discounted to present value using a credit-adjusted risk-free rate. When the decommissioning liability is revised, increases in cash flows are discounted using the current credit-adjusted risk-free rate. Decreases in estimated cash flows are discounted using the credit-adjusted risk-free rate used previously in estimating the decommissioning liability that is being revised. Therefore, to the extent that a revised cost study results in an increase in estimated cash flows, a change in interest rates from the time of the previous cost estimate will affect the calculation of the present value of the revised decommissioning liability. Revisions of estimated decommissioning costs that decrease the liability also result in a decrease in the asset retirement cost asset. Revisions of estimated decommissioning costs that increase the liability result in an increase in the asset retirement cost asset, which is then depreciated over the asset’s remaining economic life. See Note 14 to the financial statements for further discussion of impairment of long-lived assets and Note 9 to the financial statements for further discussion of asset retirement obligations. Utility Regulatory Accounting Entergy’s Utility operating companies and System Energy are subject to retail regulation by their respective state and local regulators and to wholesale regulation by the FERC. Because these regulatory agencies set the rates the Utility operating companies and System Energy are allowed to charge customers based on allowable costs, including a reasonable return on equity, the Utility operating companies and System Energy apply accounting standards that require the financial statements to reflect the effects of rate regulation, including the recording of regulatory assets and liabilities. Regulatory assets represent incurred costs that have been deferred because they are probable of future recovery from customers through regulated rates. Regulatory liabilities represent the excess recovery of costs that have been deferred because it is probable such amounts will be returned to customers through future regulated rates. See Note 2 to the financial statements for a discussion of rate and regulatory matters, including details of Entergy’s and the Registrant Subsidiaries’ regulatory assets and regulatory liabilities. For each regulatory jurisdiction in which they conduct business, the Utility operating companies and System Energy assess whether the regulatory assets and regulatory liabilities continue to meet the criteria for probable future recovery or settlement at each balance sheet date and when regulatory events occur. This assessment includes consideration of recent rate orders, historical regulatory treatment for similar costs, and factors such as changes in applicable regulatory and political environments. If the assessments made by the Utility operating companies and System Energy are ultimately different than actual regulatory outcomes, it could materially affect the results of operations, financial position, and cash flows of Entergy or the Registrant Subsidiaries. Impairment of Long-lived Assets Entergy has significant investments in long-lived assets in both of its operating segments, and Entergy evaluates these assets against the market economics and under the accounting rules for impairment when there are indications that the carrying amount of an asset or asset group may not be recoverable. This evaluation involves a significant degree of estimation and uncertainty. In the Entergy Wholesale Commodities business, Entergy’s 28 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis investments in merchant generation assets are subject to impairment if adverse market or regulatory conditions arise, particularly if it leads to a decision or an expectation that Entergy will operate or own a plant for a shorter period than previously expected; if there is a significant adverse change in the physical condition of a plant; or, if capital investment in a plant significantly exceeds previously-expected amounts. If an asset is considered held for use, and Entergy concludes that events and circumstances are present indicating that an impairment analysis should be performed under the accounting standards, the sum of the expected undiscounted future cash flows from the asset are compared to the asset’s carrying value. The carrying value of the asset includes any capitalized asset retirement cost associated with the decommissioning liability; therefore, changes in assumptions that affect the decommissioning liability can increase or decrease the carrying value of the asset subject to impairment for those assets for which a decommissioning liability is recorded. If the expected undiscounted future cash flows exceed the carrying value, no impairment is recorded. If the expected undiscounted future cash flows are less than the carrying value and the carrying value exceeds the fair value, Entergy is required to record an impairment charge to write the asset down to its fair value. If an asset is considered held for sale, an impairment is required to be recognized if the fair value (less costs to sell) of the asset is less than its carrying value. The expected future cash flows are based on a number of key assumptions, including: •Future power and fuel prices - Electricity and gas prices can be very volatile. This volatility increases the imprecision inherent in the long-term forecasts of commodity prices that are a key determinant of estimated future cash flows. •Market value of generation assets - Valuing assets held for sale requires estimating the current market value of generation assets. While market transactions provide evidence for this valuation, these transactions are relatively infrequent, the market for such assets is volatile, and the value of individual assets is affected by factors unique to those assets. •Future operating costs - Entergy assumes relatively minor annual increases in operating costs. Technological or regulatory changes that have a significant effect on operations could cause a significant change in these assumptions. •Timing and the life of the asset - Entergy assumes an expected life of the asset. A change in the timing assumption, whether due to management decisions regarding operation of the plant, the regulatory process, or operational or other factors, could have a significant effect on the expected future cash flows and result in a significant effect on operations. See Note 14 to the financial statements for a discussion of impairment conclusions related to the Entergy Wholesale Commodities nuclear plants. Taxation and Uncertain Tax Positions Management exercises significant judgment in evaluating the potential tax effects of Entergy’s operations, transactions, and other events. Entergy accounts for uncertain income tax positions using a recognition model under a two-step approach with a more likely-than-not recognition threshold and a measurement approach based on the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Management evaluates each tax position based on the technical merits and facts and circumstances of the position, assuming the position will be examined by a taxing authority having full knowledge of all relevant information. Significant judgment is required to determine whether available information supports the assertion that the recognition threshold has been met. Additionally, measurement of unrecognized tax benefits to be recorded in the consolidated financial statements is based on the probability of different potential outcomes. Income tax expense and tax positions recorded could be significantly affected by events such as additional transactions contemplated or consummated by Entergy as well as audits by taxing authorities of the tax positions taken in transactions. Management believes that the financial statement tax balances are accounted for and adjusted appropriately each quarter as necessary in accordance with applicable authoritative guidance; however, the ultimate outcome of tax matters could result in favorable or unfavorable effects on the consolidated financial statements. Entergy’s income 29 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis taxes, including unrecognized tax benefits, open audits, and other significant tax matters are discussed in Note 3 to the financial statements. Included in the IRS examination of Entergy’s 2015 tax returns is the tax effect of the October 2015 combination of two Entergy utility companies, Entergy Gulf States Louisiana and Entergy Louisiana. Entergy Louisiana maintained a carryover tax basis in the assets received and the tax consequences provided for an increase in tax basis as well. This resulted in recognition in 2015 of a $334 million permanent difference and income tax benefit, net of the uncertain tax position recorded on the transaction. As discussed in Note 3 to the financial statements, the IRS completed its examination of the 2014 and 2015 tax years and issued its 2014-2015 Revenue Agent Report in November 2020. Entergy Louisiana reversed the provision for uncertain tax positions with respect to the business combination. See additional discussion of the 2014 and 2015 IRS audit in Note 3 to the financial statements. In addition, as discussed in Note 3 to the financial statements, in 2015, System Energy and Entergy Louisiana adopted a new method of accounting for income tax return purposes in which nuclear decommissioning liabilities are treated as production costs of electricity includable in cost of goods sold. The new method resulted in a reduction of taxable income of $1.2 billion for System Energy and $2.2 billion for Entergy Louisiana in 2015. In the third quarter 2020 the IRS issued Notices of Proposed Adjustment concerning this uncertain tax position allowing System Energy to include $102 million of its decommissioning liability in cost of goods sold and Entergy Louisiana to include $221 million of its decommissioning liability in cost of goods sold. The Notices of Proposed Adjustment will not be appealed. As a result of System Energy being allowed to include part of its decommissioning liability in cost of goods sold, System Energy and Entergy recorded a deferred tax liability of $26 million in 2020. System Energy also recorded federal and state taxes payable of $402 million in 2020; on a consolidated basis, however, Entergy utilized tax loss carryovers to offset the federal taxable income adjustment and accordingly did not record federal taxes payable as a result of the outcome of this uncertain tax position. The state taxes due were paid in 2021. As a result of Entergy Louisiana being allowed to include part of its decommissioning liability in cost of goods sold, Entergy Louisiana and Entergy recorded a deferred tax liability of $60 million in 2020. Both Entergy Louisiana and Entergy utilized tax loss carryovers to offset the taxable income adjustment and accordingly did not record taxes payable as a result of the outcome of this uncertain tax position. The partial disallowance of the uncertain tax position to include the decommissioning liability in cost of goods sold resulted in a $1.5 billion decrease in the balance of unrecognized tax benefits related to federal and state taxes for Entergy which were recorded in 2020. Additionally, both System Energy and Entergy Louisiana, in 2020, recorded a reduction to their balances of unrecognized tax benefits for federal and state taxes of $461 million and $1.1 billion, respectively. See Note 3 to the financial statements for discussion of the effects of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Qualified Pension and Other Postretirement Benefits Entergy sponsors qualified, defined benefit pension plans, including cash balance plans and final average pay plans. Generally, plan participation is determined based on the employee’s most recent date of hire and collective bargaining agreement where applicable. Additionally, Entergy currently provides other postretirement health care and life insurance benefits for substantially all full-time employees whose most recent date of hire or rehire is before July 1, 2014 and who reach retirement age and meet certain eligibility requirements while still working for Entergy. 30 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Entergy’s reported costs of providing these benefits, as described in Note 11 to the financial statements, are affected by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate for the Utility and Entergy Wholesale Commodities segments. Assumptions Key actuarial assumptions utilized in determining qualified pension and other postretirement health care and life insurance costs include discount rates, projected healthcare cost rates, expected long-term rate of return on plan assets, rate of increase in future compensation levels, retirement rates, expected timing and form of payments, and mortality rates. Annually, Entergy reviews and, when necessary, adjusts the assumptions for the pension and other postretirement plans. Every three-to-five years, a formal actuarial assumption experience study that compares assumptions to the actual experience of the pension and other postretirement health care and life insurance plans is conducted. The interest rate environment over the past few years and volatility in the financial equity markets have affected Entergy’s funding and reported costs for these benefits. Discount rates In selecting an assumed discount rate to calculate benefit obligations, Entergy uses a yield curve based on high-quality corporate debt with cash flows matching the expected plan benefit payments. In estimating the service cost and interest cost components of net periodic benefit cost, Entergy discounts the expected cash flows by the applicable spot rates. Projected health care cost trend rates Entergy’s health care cost trend is affected by both medical cost inflation, and with respect to capped costs under the plan, the effects of general inflation. Entergy reviews actual recent cost trends and projected future trends in establishing its health care cost trend rates. Expected long-term rate of return on plan assets In determining its expected long-term rate of return on plan assets used in the calculation of benefit plan costs, Entergy reviews past performance, current and expected future asset allocations, and capital market assumptions of its investment consultant and some of its investment managers. Entergy conducts periodic asset/liability studies in order to set its target asset allocations. In 2017, Entergy confirmed its liability-driven investment strategy for its pension assets, which recommended that the target asset allocation adjust dynamically over time, based on the funded status of the plan, to an ultimate allocation of 35% equity securities and 65% fixed income securities. The ultimate asset allocation is expected to be attained when the plan is 100% funded. The target pension asset allocation for 2021 was 58% equity and 42% fixed income securities. In 2022, Entergy expects to adjust its asset allocation strategy for pension assets, which will target an overall shift to less fixed income securities and more equity securities. In 2017, Entergy implemented a new asset allocation strategy for its non-taxable and taxable other postretirement assets, based on the funded status of each sub-account within each trust. The new strategy no longer focuses on targeting an overall asset allocation for each trust, but rather a target asset allocation for each sub-account within each trust that adjusts dynamically based on the funded status. The 2021 weighted average target postretirement asset allocation is 42% equity and 58% fixed income securities. See Note 11 to the financial statements for discussion of the current asset allocations for Entergy’s pension and other postretirement assets. 31 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Costs and Sensitivities The estimated 2022 and actual 2021 qualified pension and other postretirement costs and related underlying assumptions and sensitivities are shown below: [[GREPCENT_TABLE]] [["Costs","","Estimated 2022","","2021"],["","","(In millions)"],["Qualified pension cost","","$183","","$471.8 (a)"],["Other postretirement income","","($12.6)","","($25.9)"],["Assumptions","","2022","","2021"],["Discount rates"],["Qualified pension"],["Service cost","","3.07%","","2.81%"],["Interest cost","","2.49%","","2.08%"],["Other postretirement"],["Service cost","","3.20%","","2.98%"],["Interest cost","","2.31%","","1.86%"],["Expected long-term rates of return"],["Qualified pension assets","","6.75%","","6.75%"],["Other postretirement - non-taxable assets","","5.75% - 6.75%","","6.00% - 6.75%"],["Other postretirement - taxable assets - after tax rate","","4.75%","","5.00%"],["Weighted-average rate of increase in future compensation","","3.98% - 4.40%","","3.98% - 4.40%"],["Assumed health care cost trend rates"],["Pre-65 retirees","","5.65%","","5.87%"],["Post-65 retirees","","5.90%","","6.31%"],["Ultimate rate","","4.75%","","4.75%"],["Year ultimate rate is reached and beyond"],["Pre-65 retirees","","2032","","2030"],["Post-65 retirees","","2032","","2028"]] [[/GREPCENT_TABLE]] (a)    In 2021 qualified pension cost included settlement costs of $205.9 million. Actual asset returns have an effect on Entergy’s qualified pension and other postretirement costs. In 2021, Entergy’s actual annual return on qualified pension assets was approximately 11% and for other postretirement assets was approximately 8%, as compared with the 2021 expected long-term rates of return discussed above. 32 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis The following chart reflects the sensitivity of qualified pension cost and qualified pension projected benefit obligation to changes in certain actuarial assumptions (dollars in millions): [[GREPCENT_TABLE]] [["Actuarial Assumption","","Change in Assumption","","Impact on 2022 Qualified Pension Cost","","Impact on 2021 Qualified Projected Benefit Obligation"],["","","Increase/(Decrease)"],["Discount rate","","(0.25%)","","$13","","$236"],["Rate of return on plan assets","","(0.25%)","","$15","","$\u2014"],["Rate of increase in compensation","","0.25%","","$9","","$41"]] [[/GREPCENT_TABLE]] The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in millions): [[GREPCENT_TABLE]] [["Actuarial Assumption","","Change in Assumption","","Impact on 2022 Postretirement Benefit Cost","","Impact on 2021 Accumulated Postretirement Benefit Obligation"],["","","Increase/(Decrease)"],["Discount rate","","(0.25%)","","$2","","$37"],["Health care cost trend","","0.25%","","$2","","$25"]] [[/GREPCENT_TABLE]] Each fluctuation above assumes that the other components of the calculation are held constant. Accounting Mechanisms In accordance with pension accounting standards, Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized into expense only when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. If necessary, the excess is amortized over the average remaining service period of active employees or the average remaining life expectancy of plan participants if almost all are inactive, as is the case for certain qualified pension plans in which some companies within the Entergy Wholesale Commodities segment participate. Additionally, accounting standards allow for the deferral of prior service costs/credits arising from plan amendments that attribute an increase or decrease in benefits to employee service in prior periods. Prior service costs/credits are then amortized into expense over the average future working life of active employees. Certain decisions, including workforce reductions, plan amendments, and plant shutdowns may significantly reduce the expense amortization period and result in immediate recognition of certain previously-deferred costs and gains/losses in the form of curtailment gains or losses. Similarly, payments made to settle benefit obligations, including lump sum benefit payments, can also result in accelerated recognition in the form of settlement losses or gains. Entergy calculates the expected return on pension and other postretirement benefit plan assets by multiplying the long-term expected rate of return on assets by the market-related value (MRV) of plan assets. In general, Entergy determines the MRV of its pension plan assets by calculating a value that uses a 20-quarter phase-in of the difference between actual and expected returns and for its other postretirement benefit plan assets Entergy uses fair value. Accounting standards require an employer to recognize in its balance sheet the funded status of its benefit plans. See Note 11 to the financial statements for a further discussion of Entergy’s funded status. 33 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Employer Contributions Entergy contributed $356 million to its qualified pension plans in 2021. Entergy estimates pension contributions will be approximately $200 million in 2022; although the 2022 required pension contributions will be known with more certainty when the January 1, 2022 valuations are completed, which is expected by April 1, 2022. Minimum required funding calculations as determined under Pension Protection Act guidance, as amended by the American Rescue Plan Act of 2021, are performed annually as of January 1 of each year and are based on measurements of the assets and funding liabilities as measured at that date. Any excess of the funding liability over the calculated fair market value of assets results in a funding shortfall that must be funded over a fifteen-year rolling period. The Pension Protection Act also imposes certain plan limitations if the funded percentage, which is based on calculated fair market values of assets divided by funding liabilities, does not meet certain thresholds. For funding purposes, asset gains and losses are smoothed in to the calculated fair market value of assets. The funding liability is based upon a weighted average 24-month corporate bond rate published by the U.S. Treasury which is generally subject to a corridor of the 25-year average of prior segment rates. Periodic changes in asset returns and interest rates can affect funding shortfalls and future cash contributions. Entergy contributed $32.8 million to its postretirement plans in 2021 and plans to contribute $42.8 million in 2022. Other Contingencies As a company with multi-state utility operations, Entergy is subject to a number of federal and state laws and regulations and other factors and conditions in the areas in which it operates, which potentially subjects it to environmental, litigation, and other risks. Entergy periodically evaluates its exposure for such risks and records a provision for those matters which are considered probable and estimable in accordance with generally accepted accounting principles. Environmental Entergy must comply with environmental laws and regulations applicable to air emissions, water discharges, solid waste (including coal combustion residuals), hazardous waste, toxic substances, protected species, and other environmental matters. Under these various laws and regulations, Entergy could incur substantial costs to comply or address any impacts to the environment. Entergy conducts studies to determine the extent of any required remediation and has recorded liabilities based upon its evaluation of the likelihood of loss and expected dollar amount for each issue. Additional sites or issues could be identified which require environmental remediation or corrective action for which Entergy could be liable. The amounts of environmental liabilities recorded can be significantly affected by the following external events or conditions. •Changes to existing federal, state, or local regulation by governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. •The identification of additional impacts, sites, issues, or the filing of other complaints in which Entergy may be asserted to be a potentially responsible party. •The resolution or progression of existing matters through the court system or resolution by the EPA or relevant state or local authority. 34 Table of Contents Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Litigation Entergy is regularly named as a defendant in a number of lawsuits involving employment, customers, and injuries and damages issues, among other matters. Entergy periodically reviews the cases in which it has been named as defendant and assesses the likelihood of loss in each case as probable, reasonably possible, or remote and records liabilities for cases that have a probable likelihood of loss and the loss can be estimated. Given the environment in which Entergy operates, and the unpredictable nature of many of the cases in which Entergy is named as a defendant, the ultimate outcome of the litigation to which Entergy is exposed has the potential to materially affect the results of operations, financial position, and cash flows of Entergy or the Registrant Subsidiaries. New Accounting Pronouncements See Note 1 to the financial statements for discussion of new accounting pronouncements. 35 Table of Contents ENTERGY CORPORATION AND SUBSIDIARIES