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    ENTERGY CORPORATION AND SUBSIDIARIES 2016 ANNUAL REPORT


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    Entergy Corporation and Subsidiaries 2016 Entergy Corporation (NYSE: ETR) is an integrated energy company engaged primarily in electric power production and retail distribution operations. Entergy owns and operates power plants with approximately 30,000 megawatts of electric generating capacity, including nearly 10,000 megawatts of nuclear power. Entergy delivers electricity to 2.9 million utility customers in Arkansas, Louisiana, Mississippi and Texas. Entergy has annual revenues of approximately $10.8 billion and more than 13,000 employees. In addition to our Annual Report to Shareholders, Entergy produces an Integrated Report, highlighting our economic, environmental and social performance. Producing an integrated report reinforces our belief that our stakeholders – owners, customers, employees and communities – are linked and that we must deliver sustainable value to all stakeholders in order to succeed. We encourage you to visit our 2016 Integrated Report at integratedreport.entergy.com. Contents 2 Letter To Our Stakeholders 5 Forward-Looking Information and Regulation G Compliance 8 Five-Year Summary of Selected Financial and Operating Data 9 Comparison of Five-Year Cumulative Return 10 Definitions 13 Management’s Financial Discussion and Analysis 61 Report of Management 62 Report of Independent Registered Public Accounting Firm 64 Consolidated Statements of Operations 65 Consolidated Statements of Comprehensive Income (Loss) 66 Consolidated Statements of Cash Flows 68 Consolidated Balance Sheets 70 Consolidated Statements of Changes in Equity 71 Notes to Financial Statements 196 Board of Directors 197 Executive Officers 198 Investor Information


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    To Our Stakeholders What if our customers never had to experience a power outage – even in the most severe weather? What if our customers could monitor energy usage in real time and choose the best time to purchase power and save money? “What if?” – it’s a question that unleashes imaginations to envision possibilities that in the past were not even dreamed of. With technology, people are gaining greater choice and control in virtually every aspect of their lives, and energy usage is no different. At Entergy we are exploring the possibilities. Across our company, we are executing today to deliver a smarter energy future – an integrated energy network that leverages advanced technologies to meet our customers’ evolving expectations. We view the integrated energy network of the future as a dynamic, interactive power delivery system that includes centralized generation and distributed energy resources, such as solar, battery storage and electric vehicles, connected by an intelligent, resilient, multi-directional network. The network will enable enhanced products and services beyond basic power delivery that are environmentally friendly, and give our customers more control and greater reliability. Our Role in an Integrated Energy Network Entergy has a critical role to play in developing, managing and optimizing this future network. The current utility model within which we operate provides universal access, affordability, reliability and sustainability. Leveraging this model to integrate future supply and demand resources will ultimately result in the most accessible, affordable, reliable and sustainable energy mix for the future. While many utilities are working to achieve the promise of the integrated energy network, we believe Entergy is uniquely positioned to lead the way. Because we are a vertically integrated utility, we have the ability to invest across the spectrum of operations and better optimize solutions for our customers. As we design and construct our resource mix, we can add technologies when they are proven and economic, and provide seamless integration, interoperability and security. Our rate advantage gives us time to evaluate nontraditional technologies, formulate the right strategies and make the right investments while maintaining some of the lowest rates in the country. Moving now on advanced metering infrastructure, for example, enables us to learn from earlier deployments and adopt the latest technology. Entergy is the natural provider of capital for energy resources, distributed or otherwise, and the natural integrator of these new technologies into a grid that continues to provide accessible, affordable, reliable and sustainable power to our customers. And as Entergy delivers value to customers, our owners have an opportunity to earn returns on productive programs and investments. Entergy employees will learn to work with new technologies that provide career development and growth opportunities, and our communities gain greater economic development, improved resiliency and enhanced quality of life. We have a track record of successfully executing ambitious plans, adapting to change and delivering value for our stakeholders, and we are ready to lead. 2


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    2016: A Pivotal Year We delivered on our commitment to grow our core utility business in 2016 and we completed our plan to exit our merchant power business and transition to a pure-play utility. Our accomplishments today are the outcome of the Completed Our Plan disciplined execution of our strategy for the past few years and have to Exit Merchant positioned us well to deliver on the promise of the integrated energy network Operations of tomorrow. In 2016, we completed our We continue to transform our generation portfolio with investments in cleaner, plan to exit the merchant more efficient generation to improve the reliability of our system, increase power business and environmental efficiency and reduce costs for customers. These investments transition to a pure-play include new-build generating units that represent nearly 4,000 MW of highly utility. We announced the efficient, low-emission capacity. In 2016, we placed more than $1 billion in sale or closure of each of transmission capital projects into service. These projects connect new our remaining merchant generation units that support economic development and enhance system nuclear assets and the sale reliability, efficiency and resiliency. We also filed in four jurisdictions to of our wind assets. We implement advanced metering and expect to file in Texas in 2017. Advanced have pursued a multiyear meters will enable operating efficiencies and faster outage response while process to cease our providing customers with better information and control of their energy use. merchant operations in a Ahead of meter deployment, which we anticipate will begin in 2019, we are deliberate, planned and constructing and implementing back office systems, new distribution and orderly way. The process outage management systems and new communications infrastructure. In began with the shutdown of addition to advanced meters, we are pursuing several pilot programs to Vermont Yankee Nuclear further lay the foundation for the integrated energy network: installing Power Station at the end of chargers for electric vehicles in each jurisdiction and our corporate 2014, followed by the sale headquarters to gain experience with EV resource integration, developing of the Rhode Island State plans for expanded operations and integration of our utility solar and battery Energy Center CCGT in storage facility in New Orleans and completing smart thermostat installations 2015. In 2016, we to help low-income customers in New Orleans save on their energy announced the sale of consumption. As we work today to design and construct the right resource James A. FitzPatrick mix and distribution infrastructure for our customers, we also are gaining Nuclear Power Plant to valuable experience in how to optimize and operate the grid of the future. Exelon, with the transaction scheduled to close in 2017. In our Entergy Wholesale Commodities business, we finalized plans to sell or In 2018, we expect to close shut down all remaining nuclear plants in our merchant portfolio. With Palisades Power Plant, sustained low wholesale energy prices and increased operating costs, exiting followed by Pilgrim Nuclear our merchant power business is a sound strategic decision. However, we Power Station in 2019 and recognize the impact of this decision on employees and people in our local Indian Point Energy Center communities. We are committed to treating our employees fairly and working Unit 2 in 2020 and Unit 3 in with them to identify opportunities after each plant’s planned shutdown. While 2021. we have completed our plans to sell or close each nuclear plant, we will continue to operate many of these assets over the near term. We are committed to the safe, secure and reliable operation of these assets until the completion of EWC’s deliberate and orderly wind-down. 3


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    Sustainable Value for All Stakeholders Our strong operational execution in 2016 translated into strong financial performance. We achieved 40 percent year-over-year growth in adjusted earnings in Utility, Parent & Other, our core business. For the second consecutive year, we increased our dividend, a trend we expect to continue subject to board approval. We received positive response on our financial position from the credit rating agencies. In 2016, Moody’s placed the ratings of Entergy Corporation under “review for upgrade,” and S&P revised its outlook on Entergy to “positive” from “stable.” However, while we delivered positive shareholder returns for the year, our total shareholder return of 12.5 percent ranked in the bottom quartile of our peer group. We believe our strategy to fundamentally reposition our company as a pure-play utility – with a focus on a steady, predictable earnings trajectory – has clear potential to deliver top-quartile returns for our owners. Our ability to deliver sustainable value for all stakeholders was recognized again in 2016. Entergy was named to the Dow Jones Sustainability North America Index in 2016, our 15th consecutive year to appear on the World or North America Index or both. Entergy ranked 18th and was the highest-ranking electric utility on Corporate Responsibility Magazine’s 2016 list of 100 Best Corporate Citizens. This recognition validates our approach to achieving our mission, which is to create sustainable value for our owners, customers, employees and communities. I want to thank Entergy employees for living by our values, working safely and acting with integrity to achieve our mission. Their ideas and can-do spirit make Entergy a better company. I also want to thank EWC President Bill Mohl, who retired in early 2017 after more than 35 years in the energy business. We will miss his trusted counsel and friendship, and we wish him the best in the next chapter of his life. A Smarter Energy Future Asking “What if?” represents a new way of thinking at Entergy. Our employees are asking “What if?” more and more in all aspects of our business, innovating and opening the door to new possibilities. We are focused on what’s next and that promises to be some of the most exciting work we will ever do. It has taken several years of hard work and discipline to get to where we are today at Entergy. Our operating and financial positions are strong, and our strategic direction is clear. We are a pure-play utility that is connected to the future – a future that promises transformative change and once-in-a-lifetime opportunity. Now is the time to build a smarter energy future for our stakeholders and at Entergy we are well positioned, inspired and eager to lead the way. Leo P. Denault Chairman of the Board and Chief Executive Officer March 21, 2017 4


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    Forward-Looking Information and Regulation G Compliance Forward-Looking Information In this report and from time to time, Entergy Corporation makes statements as a registrant concerning its expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. Such statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “intend,” “expect,” “estimate,” “continue,” “potential,” “plan,” “predict,” “forecast,” and other similar words or expressions are intended to identify forward-looking statements but are not the only means to identify these statements. Although Entergy believes that these forward-looking statements and the underlying assumptions are reasonable, it cannot provide assurance that they will prove correct. Any forward-looking statement is based on information current as of the date of this report and speaks only as of the date on which such statement is made. Except to the extent required by the federal securities laws, Entergy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements involve a number of risks and uncertainties. There are factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, including (a) those factors discussed or incorporated by reference in Item 1A. Risk Factors contained in the Form 10-K for the year ended Dec. 31, 2016, (b) those factors discussed or incorporated by reference in Management’s Financial Discussion and Analysis contained in the Form 10-K for the year ended Dec. 31, 2016 and (c) the following factors (in addition to others described elsewhere in this report and in subsequent securities filings): • resolution of pending and future rate cases and negotiations, including various performance- based rate discussions, Entergy’s utility supply plan, and recovery of fuel and purchased power costs; • long-term risks and uncertainties associated with the termination of the System Agreement in 2016, including the potential absence of federal authority to resolve certain issues among the Utility operating companies and their retail regulators; • regulatory and operating challenges and uncertainties and economic risks associated with the Utility operating companies’ participation in MISO, including the effect of current or projected MISO market rules and market and system conditions in the MISO markets, the allocation of MISO system transmission upgrade costs, and the effect of planning decisions that MISO makes with respect to future transmission investments by the Utility operating companies; • changes in utility regulation, including the beginning or end of retail and wholesale competition, the ability to recover net utility assets and other potential stranded costs, and the application of more stringent transmission reliability requirements or market power criteria by the FERC or the U.S. Department of Justice; • changes in the regulation or regulatory oversight of Entergy’s nuclear generating facilities and nuclear materials and fuel, including with respect to the planned potential or actual shutdown of nuclear generating facilities owned or operated by Entergy Wholesale Commodities, and the effects of new or existing safety or environmental concerns regarding nuclear power plants and nuclear fuel; • resolution of pending or future applications, and related regulatory proceedings and litigation, for license renewals or modifications or other authorizations required of nuclear generating facilities and the effect of public and political opposition on these applications, regulatory proceedings and litigation; • the performance of and deliverability of power from Entergy’s generation resources, including the capacity factors at its nuclear generating facilities; 5


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    • the operation and maintenance of Entergy’s nuclear generating facilities require the commitment of substantial human and capital resources that can result in increased costs and capital expenditures; • Entergy’s ability to develop and execute on a point of view regarding future prices of electricity, natural gas, and other energy-related commodities; • prices for power generated by Entergy’s merchant generating facilities and the ability to hedge, meet credit support requirements for hedges, sell power forward or otherwise reduce the market price risk associated with those facilities, including the Entergy Wholesale Commodities nuclear plants; • the prices and availability of fuel and power Entergy must purchase for its Utility customers, and Entergy’s ability to meet credit support requirements for fuel and power supply contracts; • volatility and changes in markets for electricity, natural gas, uranium, emissions allowances, and other energy-related commodities, and the effect of those changes on Entergy and its customers; • changes in law resulting from federal or state energy legislation or legislation subjecting energy derivatives used in hedging and risk management transactions to governmental regulation; • changes in environmental laws and regulations or associated litigation, including requirements for reduced emissions of sulfur dioxide, nitrogen oxide, greenhouse gases, mercury, particulate matter, heat, and other regulated air and water emissions, and changes in costs of compliance with environmental laws and regulations; • the effects of changes in federal, state or local laws and regulations, and other governmental actions or policies, including changes in monetary, fiscal, tax, environmental, or energy policies; • uncertainty regarding the establishment of interim or permanent sites for spent nuclear fuel and nuclear waste storage and disposal and the level of spent fuel and nuclear waste disposal fees charged by the U.S. government or other providers related to such sites; • variations in weather and the occurrence of hurricanes and other storms and disasters, including uncertainties associated with efforts to remediate the effects of hurricanes, ice storms, or other weather events and the recovery of costs associated with restoration, including accessing funded storm reserves, federal and local cost recovery mechanisms, securitization, and insurance; • effects of climate change, including the potential for increases in sea levels or coastal land and wetland loss; • changes in the quality and availability of water supplies and the related regulation of water use and diversion; • Entergy’s ability to manage its capital projects and operation and maintenance costs; • Entergy’s ability to purchase and sell assets at attractive prices and on other attractive terms; • the economic climate, and particularly economic conditions in Entergy’s Utility service area and the Northeast United States and events and circumstances that could influence economic conditions in those areas, including power prices, and the risk that anticipated load growth may not materialize; • the effects of Entergy’s strategies to reduce tax payments; • changes in the financial markets and regulatory requirements for the issuance of securities, particularly as they affect access to capital and Entergy’s ability to refinance existing securities, execute share repurchase programs, and fund investments and acquisitions; • actions of rating agencies, including changes in the ratings of debt and preferred stock, changes in general corporate ratings, and changes in the rating agencies’ ratings criteria; 6


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    • changes in inflation and interest rates; • the effect of litigation and government investigations or proceedings; • changes in technology, including with respect to new, developing, or alternative sources of generation • the effects, including increased security costs, of threatened or actual terrorism, cyber-attacks or data security breaches, natural or man-made electromagnetic pulses that affect transmission or generation infrastructure, accidents, and war or a catastrophic event such as a nuclear accident or a natural gas pipeline explosion; • Entergy’s ability to attract and retain talented management and directors; • changes in accounting standards and corporate governance; • declines in the market prices of marketable securities and resulting funding requirements and the effects on benefits costs for Entergy’s defined benefit pension and other postretirement benefit plans; • future wage and employee benefit costs, including changes in discount rates and returns on benefit plan assets; • changes in decommissioning trust fund values or earnings or in the timing of, requirements for, or cost to decommission Entergy’s nuclear plant sites and the implementation of decommissioning of such sites following shutdown; • the decision to cease merchant power generation at all Entergy Wholesale Commodities nuclear power plants by as early as 2021, including the implementation of the planned shutdown of Pilgrim, Palisades, Indian Point 2, and Indian Point 3 and the planned shutdown or sale of FitzPatrick; • the effectiveness of Entergy’s risk management policies and procedures and the ability and willingness of its counterparties to satisfy their financial and performance commitments; • factors that could lead to impairment of long-lived assets; and • the ability to successfully complete strategic transactions Entergy may undertake, including mergers, acquisitions, or divestitures, regulatory or other limitations imposed as a result of any such strategic transaction, and the success of the business following any such strategic transaction. Regulation G This report includes the non-GAAP financial measure of Utility, Parent & Other adjusted earnings per share. The reconciliation of this measure to the most directly comparable GAAP measure is below. GAAP to Non-GAAP Reconciliation Utility, Parent & Other Adjusted Earnings Per Share 2016 2015 (per share in dollars) Utility, Parent & Other as-reported earnings 5.10 4.97 Less: Special items – – Weather 0.06 0.19 Utility, Parent & Other tax items, net of customer sharing 0.66 1.70 Utility, Parent & Other adjusted earnings 4.38 3.08 7


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    ENTERGY CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON 2016 2015 2014 2013 2012 (In Thousands, Except Percentages and Per Share Amounts) Operating revenues $10,845,645 $11,513,251 $12,494,921 $11,390,947 $10,302,079 Net income (loss) ($564,503) ($156,734) $960,257 $730,572 $868,363 Earnings (loss) per share: Basic ($3.26) ($0.99) $5.24 $3.99 $4.77 Diluted ($3.26) ($0.99) $5.22 $3.99 $4.76 Dividends declared per share $3.42 $3.34 $3.32 $3.32 $3.32 Return on common equity (6.73%) (1.83%) 9.58% 7.56% 9.33% Book value per share, year-end $45.12 $51.89 $55.83 $54.00 $51.72 Total assets $45,904,434 $44,647,681 $46,414,455 $43,290,290 $43,087,339 Long-term obligations (a) $14,695,422 $13,456,742 $12,627,180 $12,265,971 $12,026,207 (a) Includes long-term debt (excluding currently maturing debt), non-current capital lease obligations, and subsidiary preferred stock without sinking fund that is not presented as equity on the balance sheet. 2016 2015 2014 2013 2012 (Dollars In Millions) Utility electric operating revenues: Residential $3,288 $3,518 $3,555 $3,396 $3,022 Commercial 2,362 2,516 2,553 2,415 2,174 Industrial 2,327 2,462 2,623 2,405 2,034 Governmental 217 223 227 218 198 Total retail 8,194 8,719 8,958 8,434 7,428 Sales for resale 236 249 330 210 179 Other 437 341 304 298 264 Total $8,867 $9,309 $9,592 $8,942 $7,871 Utility billed electric energy sales (GWh): Residential 35,112 36,068 35,932 35,169 34,664 Commercial 29,197 29,348 28,827 28,547 28,724 Industrial 45,739 44,382 43,723 41,653 41,181 Governmental 2,547 2,514 2,428 2,412 2,435 Total retail 112,595 112,312 110,910 107,781 107,004 Sales for resale 11,054 9,274 9,462 3,020 3,200 Total 123,649 121,586 120,372 110,801 110,204 Entergy Wholesale Commodities: Operating revenues $1,850 $2,062 $2,719 $2,313 $2,326 Billed electric energy sales (GWh) 35,881 39,745 44,424 45,127 46,178 8


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    Comparison of Five-Year Cumulative Return The following graph compares the performance of the common stock of Entergy Corporation with the Philadelphia Utility Index and the S&P 500 Index (each of which includes Entergy Corporation) for the last five years ended December 31. Assumes $100 invested at the closing price on Dec. 31, 2011, in Entergy Corporation common stock, the Philadelphia Utility Index and the S&P 500 Index, and reinvestment of all dividends. Source: Bloomberg 9


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    DEFINITIONS Certain abbreviations or acronyms used in the text and notes are defined below: Abbreviation or Acronym Term AFUDC Allowance for Funds Used During Construction ALJ Administrative Law Judge ANO 1 and 2 Units 1 and 2 of Arkansas Nuclear One (nuclear), owned by Entergy Arkansas APSC Arkansas Public Service Commission ASLB Atomic Safety and Licensing Board, the board within the NRC that conducts hearings and performs other regulatory functions that the NRC authorizes ASU Accounting Standards Update issued by the FASB Board Board of Directors of Entergy Corporation Cajun Cajun Electric Power Cooperative, Inc. capacity factor Actual plant output divided by maximum potential plant output for the period City Council Council of the City of New Orleans, Louisiana D. C. Circuit U.S. Court of Appeals for the District of Columbia Circuit DOE United States Department of Energy Entergy Entergy Corporation and its direct and indirect subsidiaries Entergy Corporation Entergy Corporation, a Delaware corporation Entergy Gulf States, Inc. Predecessor company for financial reporting purposes to Entergy Gulf States Louisiana that included the assets and business operations of both Entergy Gulf States Louisiana and Entergy Texas Entergy Gulf States Entergy Gulf States Louisiana, L.L.C., a Louisiana limited liability company formally Louisiana created as part of the jurisdictional separation of Entergy Gulf States, Inc. and the successor company to Entergy Gulf States, Inc. for financial reporting purposes. The term is also used to refer to the Louisiana jurisdictional business of Entergy Gulf States, Inc., as the context requires. Effective October 1, 2015, the business of Entergy Gulf States Louisiana was combined with Entergy Louisiana. Entergy Louisiana Entergy Louisiana, LLC, a Texas limited liability company formally created as part of the combination of Entergy Gulf States Louisiana and the company formerly known as Entergy Louisiana, LLC (Old Entergy Louisiana) into a single public utility company and the successor to Old Entergy Louisiana for financial reporting purposes. Entergy Texas Entergy Texas, Inc., a Texas corporation formally created as part of the jurisdictional separation of Entergy Gulf States, Inc. The term is also used to refer to the Texas jurisdictional business of Entergy Gulf States, Inc., as the context requires. Entergy Wholesale Entergy’s non-utility business segment primarily comprised of the ownership, Commodities operation, and decommissioning of nuclear power plants, the ownership of interests in non-nuclear power plants, and the sale of the electric power produced by its operating power plants to wholesale customers EPA United States Environmental Protection Agency ERCOT Electric Reliability Council of Texas FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission FitzPatrick James A. FitzPatrick Nuclear Power Plant (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment Grand Gulf Unit No. 1 of Grand Gulf Nuclear Station (nuclear), 90% owned or leased by System Energy 10


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    DEFINITIONS (Continued) Abbreviation or Acronym Term GWh Gigawatt-hour(s), which equals one million kilowatt-hours Independence Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power, LLC Indian Point 2 Unit 2 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment Indian Point 3 Unit 3 of Indian Point Energy Center (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment IRS Internal Revenue Service ISO Independent System Operator kV Kilovolt kW Kilowatt, which equals one thousand watts kWh Kilowatt-hour(s) LDEQ Louisiana Department of Environmental Quality LPSC Louisiana Public Service Commission Mcf 1,000 cubic feet of gas MISO Midcontinent Independent System Operator, Inc., a regional transmission organization MMBtu One million British Thermal Units MPSC Mississippi Public Service Commission MW Megawatt(s), which equals one thousand kilowatts MWh Megawatt-hour(s) Nelson Unit 6 Unit No. 6 (coal) of the Nelson Steam Electric Generating Station, 70% of which is co-owned by Entergy Louisiana (57.5%) and Entergy Texas (42.5%) and 10.9% of which is owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment Net debt to net capital ratio Gross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents Net MW in operation Installed capacity owned and operated NRC Nuclear Regulatory Commission NYPA New York Power Authority Palisades Palisades Nuclear Plant (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment Parent & Other The portions of Entergy not included in the Utility or Entergy Wholesale Commodities segments, primarily consisting of the activities of the parent company, Entergy Corporation Pilgrim Pilgrim Nuclear Power Station (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment PPA Purchased power agreement or power purchase agreement PRP Potentially responsible party (a person or entity that may be responsible for remediation of environmental contamination) PUCT Public Utility Commission of Texas Registrant Subsidiaries Entergy Arkansas, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., Entergy Texas, Inc., and System Energy Resources, Inc. 11


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    DEFINITIONS (Concluded) Abbreviation or Acronym Term River Bend River Bend Station (nuclear), owned by Entergy Louisiana RTO Regional transmission organization SEC Securities and Exchange Commission System Agreement Agreement, effective January 1, 1983, as modified, among the Utility operating companies relating to the sharing of generating capacity and other power resources. The agreement terminated effective August 2016. System Energy System Energy Resources, Inc. TWh Terawatt-hour(s), which equals one billion kilowatt-hours Unit Power Sales Agreement Agreement, dated as of June 10, 1982, as amended and approved by FERC, among Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, relating to the sale of capacity and energy from System Energy’s share of Grand Gulf Utility Entergy’s business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution Utility operating companies Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas Vermont Yankee Vermont Yankee Nuclear Power Station (nuclear), owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which ceased power production in December 2014 Waterford 3 Unit No. 3 (nuclear) of the Waterford Steam Electric Station, 100% owned or leased by Entergy Louisiana weather-adjusted usage Electric usage excluding the effects of deviations from normal weather White Bluff White Bluff Steam Electric Generating Station, 57% owned by Entergy Arkansas 12


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    ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS Entergy operates primarily through two business segments: Utility and Entergy Wholesale Commodities. The Utility business segment includes the generation, transmission, distribution, and sale of electric power in portions of Arkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and operation of a small natural gas distribution business. The Entergy Wholesale Commodities business segment includes the ownership, operation, and decommissioning of nuclear power plants located in the northern United States and the sale of the electric power produced by its operating plants to wholesale customers. Entergy Wholesale Commodities also provides services to other nuclear power plant owners and owns interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. See “Entergy Wholesale Commodities Exit from the Merchant Power Business” below for discussion of the operation and planned shutdown or sale of each of the Entergy Wholesale Commodities nuclear power plants. Following are the percentages of Entergy’s consolidated revenues and net income generated by its operating segments and the percentage of total assets held by them. % of Revenue % of Net Income (Loss) % of Total Assets Segment 2016 2015 2014 2016 2015 2014 2016 2015 2014 Utility 83 82 78 204 711 88 89 86 82 Entergy Wholesale Commodities 17 18 22 (265) (680) 31 15 18 22 Parent & Other — — — (39) (131) (19) (4) (4) (4) See Note 13 to the financial statements for further financial information regarding Entergy’s business segments. Net income (loss) for 2016 includes $2,836 million ($1,829 million net-of-tax) of impairment and related charges primarily to write down the carrying values of the Entergy Wholesale Commodities’ Palisades, Indian Point 2, and Indian Point 3 plants and related assets to their fair values. Net income (loss) for 2015 includes $2,036 million ($1,317 million net-of-tax) of impairment and related charges primarily to write down the carrying values of the Entergy Wholesale Commodities’ FitzPatrick, Pilgrim, and Palisades plants and related assets to their fair values. See Note 14 to the financial statements for further discussion of the impairment and related charges. 13


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Results of Operations 2016 Compared to 2015 Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing 2016 to 2015 showing how much the line item increased or (decreased) in comparison to the prior period. Entergy Wholesale Parent & Utility Commodities Other (a) Entergy (In Thousands) 2015 Consolidated Net Income (Loss) $1,114,516 ($1,065,657) ($205,593) ($156,734) Net revenue (operating revenue less fuel expense, purchased power, and other regulatory charges/ credits) 350,528 (123,791) (33) 226,704 Other operation and maintenance (83,265) 15,269 9,726 (58,270) Asset write-offs, impairments, and related charges (68,672) 799,403 — 730,731 Taxes other than income taxes (10,229) (16,259) (432) (26,920) Depreciation and amortization 49,600 (39,180) (509) 9,911 Gain on sale of asset — (154,037) — (154,037) Other income 15,153 8,666 4,281 28,100 Interest expense 14,414 (3,930) 12,417 22,901 Other expenses 19,589 (15,074) — 4,515 Income taxes 407,627 (581,924) (35) (174,332) 2016 Consolidated Net Income (Loss) $1,151,133 ($1,493,124) ($222,512) ($564,503) (a) Parent & Other includes eliminations, which are primarily intersegment activity. Refer to “SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON OF ENTERGY CORPORATION AND SUBSIDIARIES” which accompanies Entergy Corporation’s financial statements in this report for further information with respect to operating statistics. Results of operations for 2016 include $2,836 million ($1,829 million net-of-tax) of impairment and related charges primarily to write down the carrying values of the Entergy Wholesale Commodities’ Palisades, Indian Point 2, and Indian Point 3 plants and related assets to their fair values. See Note 14 to the financial statements for further discussion of the impairment and related charges. Results of operations for 2016 also include a reduction of income tax expense, net of unrecognized tax benefits, of $238 million as a result of a tax election to treat a subsidiary that owns one of the Entergy Wholesale Commodities nuclear power plants as a corporation for federal income tax purposes; income tax benefits as a result of the settlement of the 2010-2011 IRS audit, including a $75 million tax benefit recognized by Entergy Louisiana related to the treatment of the Vidalia purchased power agreement and a $54 million net benefit recognized by Entergy Louisiana related to the treatment of proceeds received in 2010 for the financing of Hurricane Gustav and Hurricane Ike storm costs pursuant to Louisiana Act 55; and a reduction in expenses of $100 million ($64 million net-of-tax) due to the effects of recording in 2016 the final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. See Note 3 to the financial statements for additional discussion of the income tax items. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation. Results of operations for 2015 include $2,036 million ($1,317 million net-of-tax) of impairment and related charges primarily to write down the carrying values of the Entergy Wholesale Commodities’ FitzPatrick, Pilgrim, and 14


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Palisades plants and related assets to their fair values. See Note 14 to the financial statements for further discussion of the impairment and related charges. As a result of the Entergy Louisiana and Entergy Gulf States Louisiana business combination, results of operations for 2015 also include two items that occurred in October 2015: 1) a deferred tax asset and resulting net increase in tax basis of approximately $334 million and 2) a regulatory liability of $107 million ($66 million net-of-tax) as a result of customer credits to be realized by electric customers of Entergy Louisiana, consistent with the terms of the stipulated settlement in the business combination proceeding. See Note 2 to the financial statements for further discussion of the business combination and customer credits. Results of operations for 2015 also include the sale in December 2015 of the 583 MW Rhode Island State Energy Center for a realized gain of $154 million ($100 million net-of-tax) on the sale and the $77 million ($47 million net-of-tax) write-off and regulatory charges to recognize that a portion of the assets associated with the Waterford 3 replacement steam generator project is no longer probable of recovery. See Note 14 to the financial statements for further discussion of the Rhode Island State Energy Center sale. See Note 2 to the financial statements for further discussion of the Waterford 3 write-off. Net Revenue Utility Following is an analysis of the change in net revenue comparing 2016 to 2015. Amount (In Millions) 2015 net revenue $5,829 Retail electric price 289 Louisiana business combination customer credits 107 Volume/weather 14 Louisiana Act 55 financing savings obligation (17) Other (43) 2016 net revenue $6,179 The retail electric price variance is primarily due to: an increase in base rates at Entergy Arkansas, as approved by the APSC. The new rates were effective February 24, 2016 and began billing with the first billing cycle of April 2016. The increase includes an interim base rate adjustment surcharge, effective with the first billing cycle of April 2016, to recover the incremental revenue requirement for the period February 24, 2016 through March 31, 2016. A significant portion of the increase is related to the purchase of Power Block 2 of the Union Power Station; an increase in the purchased power and capacity acquisition cost recovery rider for Entergy New Orleans, as approved by the City Council, effective with the first billing cycle of March 2016, primarily related to the purchase of Power Block 1 of the Union Power Station; an increase in formula rate plan revenues for Entergy Louisiana, implemented with the first billing cycle of March 2016, to collect the estimated first-year revenue requirement related to the purchase of Power Blocks 3 and 4 of the Union Power Station; and an increase in revenues at Entergy Mississippi, as approved by the MPSC, effective with the first billing cycle of July 2016, and an increase in revenues collected through the storm damage rider. See Note 2 to the financial statements for further discussion of the rate proceedings. See Note 14 to the financial statements for discussion of the Union Power Station purchase. The Louisiana business combination customer credits variance is due to a regulatory liability of $107 million recorded by Entergy in October 2015 as a result of the Entergy Gulf States Louisiana and Entergy Louisiana business 15


  • Page 18

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis combination. Consistent with the terms of the stipulated settlement in the business combination proceeding, electric customers of Entergy Louisiana will realize customer credits associated with the business combination; accordingly, in October 2015, Entergy recorded a regulatory liability of $107 million ($66 million net-of-tax). These costs are being amortized over a nine-year period beginning December 2015. See Note 2 to the financial statements for further discussion of the business combination and customer credits. The volume/weather variance is primarily due to the effect of more favorable weather during the unbilled period and an increase in industrial usage, partially offset by the effect of less favorable weather on residential sales. The increase in industrial usage is primarily due to expansion projects, primarily in the chemicals industry, and increased demand from new customers, primarily in the industrial gases industry. The Louisiana Act 55 financing savings obligation variance results from a regulatory charge for tax savings to be shared with customers per an agreement approved by the LPSC. The tax savings results from the 2010-2011 IRS audit settlement on the treatment of the Louisiana Act 55 financing of storm costs for Hurricane Gustav and Hurricane Ike. See Note 3 to the financial statements for additional discussion of the settlement and benefit sharing. Included in Other is a provision of $23 million recorded in 2016 related to the settlement of the Waterford 3 replacement steam generator prudence review proceeding, offset by a provision of $32 million recorded in 2015 related to the uncertainty at that time associated with the resolution of the Waterford 3 replacement steam generator prudence review proceeding. See Note 2 to the financial statements for a discussion of the Waterford 3 replacement steam generator prudence review proceeding. Entergy Wholesale Commodities Following is an analysis of the change in net revenue comparing 2016 to 2015. Amount (In Millions) 2015 net revenue $1,666 Nuclear realized price changes (149) Rhode Island State Energy Center (44) Nuclear volume (36) FitzPatrick reimbursement agreement 41 Nuclear fuel expenses 68 Other (4) 2016 net revenue $1,542 As shown in the table above, net revenue for Entergy Wholesale Commodities decreased by approximately $124 million in 2016 primarily due to: lower realized wholesale energy prices and lower capacity prices, although the average revenue per MWh shown in the table below for the nuclear fleet is slightly higher because it includes revenues from the FitzPatrick reimbursement agreement with Exelon, the amortization of the Palisades below-market PPA, and Vermont Yankee capacity revenue. The effect of the amortization of the Palisades below-market PPA and Vermont Yankee capacity revenue on the net revenue variance from 2015 to 2016 is minimal; the sale of the Rhode Island State Energy Center in December 2015. See Note 14 to the financial statements for further discussion of the Rhode Island State Energy Center sale; and lower volume in the Entergy Wholesale Commodities nuclear fleet resulting from more refueling outage days in 2016 as compared to 2015 and larger exercise of resupply options in 2016 as compared to 2015. See “Nuclear 16


  • Page 19

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Matters - Indian Point 2 Outage” below for discussion of the extended Indian Point 2 outage in the second quarter 2016. The decrease was partially offset by: an increase resulting from the reimbursement agreement with Exelon pursuant to which Exelon is reimbursing Entergy for specified out-of-pocket costs associated with preparing for the refueling and operation of FitzPatrick that otherwise would have been avoided had Entergy shut down FitzPatrick in January 2017. Revenues received from Exelon under the reimbursement agreement are offset in nuclear fuel expenses and other operation and maintenance expenses and have no material effect on net income. See “Entergy Wholesale Commodities Exit from the Merchant Power Business - Planned Sale of FitzPatrick” below for further discussion of the reimbursement agreement; and a decrease in nuclear fuel expenses primarily related to the impairments of the FitzPatrick, Pilgrim, and Palisades plants and related assets. See Note 14 to the financial statements for discussion of the impairments. Following are key performance measures for Entergy Wholesale Commodities for 2016 and 2015. 2016 2015 Owned capacity (MW) (a) 4,800 4,880 GWh billed 35,881 39,745 Average revenue per MWh $51.55 $51.88 Entergy Wholesale Commodities Nuclear Fleet Capacity factor 87% 91% GWh billed 33,551 35,859 Average revenue per MWh $51.90 $51.49 Refueling Outage Days: FitzPatrick — — Indian Point 2 102 — Indian Point 3 — 23 Palisades — 32 Pilgrim — 34 (a) The reduction in owned capacity is due to Entergy’s sale of its 50% membership interest in Top Deer Wind Ventures, LLC in November 2016. See Note 14 to the financial statements for discussion of the sale. Other Income Statement Items Utility Other operation and maintenance expenses decreased from $2,443 million for 2015 to $2,360 million for 2016 primarily due to: a decrease of $78 million in compensation and benefits costs primarily due to a decrease in net periodic pension and other postretirement benefits costs as a result of an increase in the discount rate used to value the benefit liabilities and a refinement in the approach used to estimate the service cost and interest cost components of pension and other postretirement costs. See “Critical Accounting Estimates” below and Note 11 to the financial statements for further discussion of pension and other postretirement benefit costs; the effects of recording final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $19 million of spent nuclear 17


  • Page 20

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis fuel storage costs previously recorded as other operation and maintenance expense. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; the deferral in 2016 of $8 million of previously-incurred costs related to ANO post-Fukushima compliance and $10 million of previously-incurred costs related to ANO flood barrier compliance, as approved by the APSC in February 2016 as part of the Entergy Arkansas 2015 rate case settlement. These costs are being amortized over a ten-year period beginning March 2016. See Note 2 to the financial statements for further discussion of the rate case settlement; and a decrease of $13 million in energy efficiency costs, including the effects of true-ups to energy efficiency filings for fixed costs to be collected from customers and incentives recognized as a result of participation in energy efficiency programs. The decrease was partially offset by an increase of $61 million in nuclear generation expenses primarily due to higher nuclear labor costs, including contract labor, and an overall higher scope of work done during plant outages in 2016 as compared to prior year. The asset write-offs, impairments, and related charges variance is due to the following activity: the $45 million ($28 million net-of-tax) write-off in 2015 to recognize that a portion of the assets associated with the Waterford 3 replacement steam generator project was no longer probable of recovery; and the $23.5 million ($15.3 million net-of-tax) write-off in 2015 of the regulatory asset associated with the Spindletop gas storage facility as a result of the approval of the System Agreement termination settlement agreement. See Note 2 to the financial statements for further discussion of the asset write-offs. Depreciation and amortization expenses increased primarily due to additions to plant in service, including the Union Power Station purchased in March 2016, partially offset by the effects of recording the final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $11 million in 2016 of spent nuclear fuel storage costs previously recorded as depreciation. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation. Other expenses increased primarily due to an increase in nuclear refueling outage expenses as a result of amortization of higher costs associated with refueling outages and increases in decommissioning expenses in 2016 primarily due to revised decommissioning cost studies in 2015 for Grand Gulf and Waterford 3. See Note 9 to the financial statements for further discussion of the revised decommissioning cost studies. Entergy Wholesale Commodities Other operation and maintenance expenses increased from $899 million for 2015 to $915 million for 2016 primarily due to: an increase of $60 million in severance and retention costs related to the planned shutdown or sale of the Pilgrim and FitzPatrick plants. See “Entergy Wholesale Commodities Exit From the Merchant Power Business” below and Note 14 to the financial statements for discussion of the decisions to cease operations of the plants; $41 million associated with preparing to refuel FitzPatrick in January 2017. Exelon reimbursed Entergy for these costs in accordance with the reimbursement agreement discussed in “Entergy Wholesale Commodities Exit From the Merchant Power Business - Planned Sale of FitzPatrick” below; and an increase of $26 million in costs related to Pilgrim’s response to a planned NRC enhanced inspection as a result of the NRC placing Pilgrim in its “multiple/repetitive degraded cornerstone column” (Column 4) of its Reactor Oversight Process Action Matrix in September 2015. See Note 8 to the financial statements for further discussion of the NRC’s decision and Pilgrim’s response. 18


  • Page 21

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis The increase was partially offset by: the effects of recording the final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $60 million in 2016 compared to the reimbursement of approximately $2 million in 2015 of spent nuclear fuel storage costs previously recorded as other operation and maintenance expenses. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; a decrease of $32 million as a result of the sale of the Rhode Island State Energy Center in December 2015. See Note 14 to the financial statements for further discussion of the Rhode Island State Energy Center sale; and a decrease of $21 million in compensation and benefits costs primarily due to a decrease in net periodic pension and other postretirement benefits costs as a result of an increase in the discount rate used to value the benefit liabilities and a refinement in the approach used to estimate the service cost and interest cost components of pension and other postretirement costs. See “Critical Accounting Estimates” below and Note 11 to the financial statements for further discussion of pension and other postretirement benefit costs. The asset write-offs, impairments, and related charges variance is due to $2,836 million ($1,829 million net- of-tax) in 2016 of impairment and related charges primarily to write down the carrying values of the Entergy Wholesale Commodities’ Palisades, Indian Point 2, and Indian Point 3 plants and related assets to their fair values, partially offset by $2,036 million ($1,317 million net-of-tax) in 2015 of impairment and related charges primarily to write down the carrying values of the Entergy Wholesale Commodities’ FitzPatrick, Pilgrim, and Palisades plants and related assets to their fair values. See Note 14 to the financial statements for further discussion of these charges. Depreciation and amortization expenses decreased primarily due to: decreases in depreciable asset balances as a result of the impairments of the FitzPatrick, Pilgrim, and Palisades plants. See Note 14 to the financial statements for further discussion of the impairments; the effects of recording the final court decisions in several lawsuits against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $15 million in 2016 compared to the reimbursement of approximately $4 million in 2015 of spent nuclear fuel storage costs previously recorded as depreciation. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; and a decrease in depreciable asset balances as a result of the sale of the Rhode Island State Energy Center in December 2015. See Note 14 to the financial statements for further discussion of the Rhode Island State Energy Center sale. The gain on sale of asset resulted from the sale in December 2015 of the 583 MW Rhode Island State Energy Center in Johnston, Rhode Island, a business wholly-owned by Entergy in the Entergy Wholesale Commodities segment. Entergy sold Rhode Island State Energy Center for approximately $490 million and realized a pre-tax gain of $154 million on the sale. See Note 14 to the financial statements for further discussion of the Rhode Island State Energy Center sale. Other expenses decreased primarily due to the reduction in deferred refueling outage amortization costs related to the impairments of the FitzPatrick, Pilgrim, and Palisades plants and related assets, partially offset by increases in decommissioning expenses primarily as a result of a trust transfer agreement Entergy entered into with NYPA in August 2016 to transfer the decommissioning trusts and decommissioning liabilities for the Indian Point 3 and FitzPatrick plants to Entergy and a revision to the estimated decommissioning cost liability for the Entergy Wholesale Commodities’ Pilgrim plant as a result of a revised decommissioning cost study in 2015. See Note 14 to the financial statements for further discussion of the impairments and related charges and Note 9 to the financial statements for further discussion of nuclear decommissioning costs. 19


  • Page 22

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Income Taxes See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 35% to the effective income tax rates, and for additional discussion regarding income taxes. The effective income tax rate for 2016 was 59.1%. The difference in the effective income tax rate versus the statutory rate of 35% for 2016 was primarily due to a tax election to treat a subsidiary that owns one of the Entergy Wholesale Commodities nuclear power plants as a corporation for federal income tax purposes and the reversal of a portion of the provision for uncertain tax positions as a result of the settlement of the 2010-2011 IRS audit, partially offset by state income taxes and certain book and tax differences related to utility plant items. See Note 3 to the financial statements for additional discussion of the tax election, the tax settlement, and a reconciliation of the federal statutory rate of 35% to the effective income tax rate. The effective income tax rate for 2015 was 80.4%. The difference in the effective income tax rate versus the statutory rate of 35% for 2015 was primarily due to the tax effects of the Louisiana business combination. See Note 3 to the financial statements for further discussion of the tax effects of the Louisiana business combination and a reconciliation of the federal statutory rate of 35% to the effective income tax rate. 2015 Compared to 2014 Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing 2015 to 2014 showing how much the line item increased or (decreased) in comparison to the prior period. Entergy Wholesale Parent & Utility Commodities Other Entergy (In Thousands) 2014 Consolidated Net Income (Loss) $846,496 $294,521 ($180,760) $960,257 Net revenue (operating revenue less fuel expense, purchased power, and other regulatory charges/ credits) 94,195 (558,060) (1,885) (465,750) Other operation and maintenance 166,812 (123,645) 1,278 44,445 Asset write-offs, impairments, and related charges (3,553) 1,928,707 — 1,925,154 Taxes other than income taxes 35,010 (20,196) 2 14,816 Depreciation and amortization 57,076 (36,892) (1,546) 18,638 Gain on sale of asset — 154,037 — 154,037 Other income (3,993) (4,899) (18,607) (27,499) Interest expense 11,403 10,142 (5,583) 15,962 Other expenses 10,821 (19,533) — (8,712) Income taxes (455,387) (787,327) 10,190 (1,232,524) 2015 Consolidated Net Income (Loss) $1,114,516 ($1,065,657) ($205,593) ($156,734) Refer to “SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON OF ENTERGY CORPORATION AND SUBSIDIARIES” which accompanies Entergy Corporation’s financial statements in this report for further information with respect to operating statistics. Results of operations for 2015 include $2,036 million ($1,317 million net-of-tax) of impairment and related charges to write down the carrying values of certain Entergy Wholesale Commodities’ plants and related assets to their fair values. See Note 14 to the financial statements for further discussion of the impairment and related charges. As 20


  • Page 23

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis a result of the Entergy Louisiana and Entergy Gulf States Louisiana business combination, results of operations for 2015 also include two items that occurred in October 2015: 1) a deferred tax asset and resulting net increase in tax basis of approximately $334 million and 2) a regulatory liability of $107 million ($66 million net-of-tax) as a result of customer credits to be realized by electric customers of Entergy Louisiana, consistent with the terms of the stipulated settlement in the business combination proceeding. See Note 2 to the financial statements for further discussion of the business combination and customer credits. Results of operations for 2015 also include the sale in December 2015 of the 583 MW Rhode Island State Energy Center for a realized gain of $154 million ($100 million net-of-tax) on the sale and the $77 million ($47 million net-of-tax) write-off and regulatory charges to recognize that a portion of the assets associated with the Waterford 3 replacement steam generator project is no longer probable of recovery. See Note 14 to the financial statements for further discussion of the Rhode Island State Energy Center sale. See Note 2 to the financial statements for further discussion of the Waterford 3 write-off. Results of operations for 2014 include $154 million ($100 million net-of-tax) of charges related to Vermont Yankee primarily resulting from the effects of an updated decommissioning cost study completed in the third quarter 2014 along with reassessment of the assumptions regarding the timing of decommissioning cash flows and severance and employee retention costs. See Note 14 to the financial statements for further discussion of the charges. Results of operations for 2014 also include the $56.2 million ($36.7 million net-of-tax) write-off in 2014 of Entergy Mississippi’s regulatory asset associated with new nuclear generation development costs as a result of a joint stipulation entered into with the Mississippi Public Utilities Staff, subsequently approved by the MPSC, in which Entergy Mississippi agreed not to pursue recovery of the costs deferred by an MPSC order in the new nuclear generation docket. See Note 2 to the financial statements for further discussion of the new nuclear generation development costs and the joint stipulation. Net Revenue Utility Following is an analysis of the change in net revenue comparing 2015 to 2014. Amount (In Millions) 2014 net revenue $5,735 Retail electric price 187 Volume/weather 95 Waterford 3 replacement steam generator provision (32) MISO deferral (35) Louisiana business combination customer credits (107) Other (14) 2015 net revenue $5,829 The retail electric price variance is primarily due to: formula rate plan increases at Entergy Louisiana, as approved by the LPSC, effective December 2014 and January 2015; an increase in energy efficiency rider revenue primarily due to increases in the energy efficiency rider at Entergy Arkansas, as approved by the APSC, effective July 2015 and July 2014, and new energy efficiency riders at Entergy Louisiana and Entergy Mississippi that began in the fourth quarter 2014; and an annual net rate increase at Entergy Mississippi of $16 million, effective February 2015, as a result of the MPSC order in the June 2014 rate case. See Note 2 to the financial statements for a discussion of rate and regulatory proceedings. 21


  • Page 24

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis The volume/weather variance is primarily due to an increase of 1,402 GWh, or 1%, in billed electricity usage, including an increase in industrial usage and the effect of more favorable weather. The increase in industrial sales was primarily due to expansion in the chemicals industry and the addition of new customers, partially offset by decreased demand primarily due to extended maintenance outages for existing chemicals customers. The Waterford 3 replacement steam generator provision is due to a regulatory charge of approximately $32 million recorded in 2015 related to the uncertainty associated with the resolution of the Waterford 3 replacement steam generator project. See Note 2 to the financial statements for a discussion of the Waterford 3 replacement steam generator prudence review proceeding. The MISO deferral variance is primarily due to the deferral in 2014 of non-fuel MISO-related charges, as approved by the LPSC and the MPSC. The deferral of non-fuel MISO-related charges is partially offset in other operation and maintenance expenses. See Note 2 to the financial statements for further discussion of the recovery of non-fuel MISO-related charges. The Louisiana business combination customer credits variance is due to a regulatory liability of $107 million recorded by Entergy in October 2015 as a result of the Entergy Gulf States Louisiana and Entergy Louisiana business combination. Consistent with the terms of the stipulated settlement in the business combination proceeding, electric customers of Entergy Louisiana will realize customer credits associated with the business combination; accordingly, in October 2015, Entergy recorded a regulatory liability of $107 million ($66 million net-of-tax). See Note 2 to the financial statements for further discussion of the business combination and customer credits. Entergy Wholesale Commodities Following is an analysis of the change in net revenue comparing 2015 to 2014. Amount (In Millions) 2014 net revenue $2,224 Nuclear realized price changes (310) Vermont Yankee shutdown in December 2014 (305) Nuclear volume, excluding Vermont Yankee effect 20 Other 37 2015 net revenue $1,666 As shown in the table above, net revenue for Entergy Wholesale Commodities decreased by approximately $558 million in 2016 primarily due to: lower realized wholesale energy prices, primarily due to significantly higher Northeast market power prices in 2014, and lower capacity prices in 2015; and a decrease in net revenue as a result of Vermont Yankee ceasing power production in December 2014. The decrease was partially offset by higher volume in the Entergy Wholesale Commodities nuclear fleet, excluding Vermont Yankee, resulting from fewer refueling outage days in 2015 as compared to 2014, partially offset by more unplanned outage days in 2015 as compared to 2014. 22


  • Page 25

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Following are key performance measures for Entergy Wholesale Commodities for 2015 and 2014. 2015 2014 Owned capacity (MW) (a) 4,880 6,068 GWh billed 39,745 44,424 Average revenue per MWh $51.88 $60.84 Entergy Wholesale Commodities Nuclear Fleet Capacity factor 91% 91% GWh billed 35,859 40,253 Average revenue per MWh $51.49 $60.35 Refueling Outage Days: FitzPatrick — 44 Indian Point 2 — 24 Indian Point 3 23 — Palisades 32 56 Pilgrim 34 — (a) The reduction in owned capacity is due to the retirement of the 605 MW Vermont Yankee plant in December 2014 and the sale of the 583 MW Rhode Island State Energy Center in December 2015. Other Income Statement Items Utility Other operation and maintenance expenses increased from $2,276 million for 2014 to $2,443 million for 2015 primarily due to: an increase of $59 million in nuclear generation expenses primarily due to an increase in regulatory compliance costs, higher labor costs, and an overall higher scope of work done in 2015. The increase in regulatory compliance costs is primarily related to additional NRC inspection activities in 2015 as a result of the NRC’s March 2015 decision to move ANO into the “multiple/repetitive degraded cornerstone column” of the NRC’s reactor oversight process action matrix. See “ANO Damage, Outage, and NRC Reviews” below for a discussion of the ANO stator incident and subsequent NRC reviews; an increase of $28 million in compensation and benefits costs primarily due to an increase in net periodic pension and other postretirement benefit costs as a result of lower discount rates and changes in retirement and mortality assumptions, partially offset by a decrease in the accrual for incentive-based compensation. 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 $27 million in energy efficiency costs, including the effects of true-ups to energy efficiency filings for fixed costs to be collected from customers; an increase of $26 million in distribution expenses primarily due to higher vegetation maintenance and higher labor costs in 2015 as compared to 2014; and an increase of $24 million in transmission expenses primarily due to an increase in 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 increase was partially offset by a decrease of $23 million in storm damage provisions primarily at Entergy Mississippi. See Note 2 to the financial statements for a discussion of storm cost recovery. 23


  • Page 26

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis The asset write-offs, impairments, and related charges variance is due to the following activity: the $45 million ($28 million net-of-tax) write-off in 2015 to recognize that a portion of the assets associated with the Waterford 3 replacement steam generator project was no longer probable of recovery and the $16 million ($11 million net-of-tax) write-off in 2014 due to the uncertainty at the time associated with the resolution of the Waterford 3 replacement steam generator project prudence review; the $23.5 million ($15.3 million net-of-tax) write-off in 2015 of the regulatory asset associated with the Spindletop gas storage facility as a result of the approval of the System Agreement termination settlement agreement; and the $56 million ($37 million net-of-tax) write-off in 2014 of Entergy Mississippi’s regulatory asset associated with new nuclear generation development costs. See Note 2 to the financial statements for further discussion of the asset write-offs. Taxes other than income taxes increased primarily due to increases in ad valorem taxes, payroll taxes, and franchise taxes. Depreciation and amortization expenses increased primarily due to additions to plant in service, including the Ninemile Unit 6 project, which was placed in service in December 2014, and higher depreciation rates at Entergy Mississippi effective February 2015, as approved by the MPSC. Interest expense increased primarily due to net debt issuances in the fourth quarter 2014 by certain Utility operating companies including the issuance by Entergy Louisiana in November 2014 of $250 million of 4.95% Series first mortgage bonds due January 2045 and the issuance by Entergy Arkansas in December 2014 of $250 million of 4.95% Series first mortgage bonds due December 2044. Other expenses increased primarily due to increases in decommissioning expenses in 2015 as a result of revised decommissioning cost studies in 2014 for Grand Gulf, ANO 1, ANO 2, and Waterford 3. See Note 9 to the financial statements for further discussion of the revised decommissioning cost studies. Entergy Wholesale Commodities Other operation and maintenance expenses decreased from $1,023 million for 2014 to $899 million for 2015 primarily due to the shutdown of Vermont Yankee, which ceased power production in December 2014. The decrease was partially offset by an increase of $12 million in compensation and benefits costs primarily due to an increase in net periodic pension and other postretirement benefit costs as a result of lower discount rates and changes in retirement and mortality assumptions, partially offset by a decrease in the accrual for incentive-based compensation. See “Critical Accounting Estimates” below and Note 11 to the financial statements for further discussion of pension and other postretirement benefit costs. The asset write-offs, impairments, and related charges variance is primarily due to $2,036 million ($1,317 million net-of-tax) in 2015 of impairment and related charges to write down the carrying values of certain Entergy Wholesale Commodities’ plants and related assets to their fair values, partially offset by $107 million ($69 million net- of-tax) in 2014 of impairment charges related to Vermont Yankee primarily resulting from the effects of an updated decommissioning cost study completed in the third quarter 2014. See Note 14 to the financial statements for further discussion of these charges. Taxes other than income taxes decreased primarily due to the shutdown of Vermont Yankee, which ceased power production in December 2014. 24


  • Page 27

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Depreciation and amortization expenses decreased primarily due to decreases in depreciable asset balances as a result of the shutdown of Vermont Yankee, which ceased power production in December 2014. See Note 14 to the financial statements for further discussion of impairment of long-lived assets. The gain on sale of asset resulted from the sale in December 2015 of the 583 MW Rhode Island State Energy Center in Johnston, Rhode Island, a business wholly-owned by Entergy in the Entergy Wholesale Commodities segment. Entergy sold Rhode Island State Energy Center for approximately $490 million and realized a pre-tax gain of $154 million on the sale. See Note 14 to the financial statements for further discussion of the Rhode Island State Energy Center sale. Other income decreased primarily due to $37 million ($24 million net-of-tax) in 2015 of impairment and related charges resulting from the write-down of the carrying values of the generating assets of Entergy’s equity method investee Top Deer Wind Ventures, LLC to their fair values, partially offset by higher realized gains on decommissioning trust fund investments in 2015 as compared to 2014, including portfolio reallocations for the Vermont Yankee nuclear decommissioning trust funds. Other expenses decreased primarily due to a decrease in nuclear refueling outage costs that are being amortized over the estimated period to the next outage as a result of the impairments and related charges in 2015 to write down the carrying values of the FitzPatrick and Pilgrim plants and related assets and the shutdown of Vermont Yankee, which ceased power production in December 2014. See Note 14 to the financial statements for further discussion of the impairment and related charges. Income Taxes See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 35% to the effective income tax rates, and for additional discussion regarding income taxes. The effective income tax rate for 2015 was 80.4%. The difference in the effective income tax rate versus the statutory rate of 35% for 2015 was primarily due to the tax effects of the Louisiana business combination. See Note 3 to the financial statements for further discussion of the tax effects of the Louisiana business combination and a reconciliation of the federal statutory rate of 35% to the effective income tax rate. The effective income tax rate for 2014 was 38%. The difference in the effective income tax rate versus the statutory rate of 35% for 2014 was primarily due to state income taxes, certain book and tax differences related to utility plant items, and the provision for uncertain tax positions, partially offset by a deferred state income tax reduction related to a New York tax law change and book and tax differences related to the allowance for equity funds used during construction. ANO Damage, Outage, and NRC Reviews In March 2013, during a scheduled refueling outage at ANO 1, a contractor-owned and operated heavy-lifting apparatus collapsed while moving the generator stator out of the turbine building. The collapse resulted in the death of an ironworker and injuries to several other contract workers, caused ANO 2 to shut down, and damaged the ANO turbine building. The total cost of assessment, restoration of off-site power, site restoration, debris removal, and replacement of damaged property and equipment was approximately $95 million. Entergy Arkansas is pursuing its options for recovering damages that resulted from the stator drop, including its insurance coverage and legal action. During 2014, Entergy Arkansas collected $50 million from Nuclear Electric Insurance Limited (NEIL), a mutual insurance company that provides property damage coverage to the members’ nuclear generating plants. Litigation remains pending. In addition, Entergy Arkansas incurred replacement power costs for ANO 2 power during its outage and incurred incremental replacement power costs for ANO 1 power because the outage extended beyond the originally-planned 25


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis duration of the refueling outage. In February 2014 the APSC approved Entergy Arkansas’s request to exclude from the calculation of its revised energy cost rate $65.9 million of deferred fuel and purchased energy costs incurred in 2013 as a result of the ANO stator incident. The APSC authorized Entergy Arkansas to retain the $65.9 million in its deferred fuel balance with recovery to be reviewed in a later period after more information regarding various claims associated with the ANO stator incident is available. Shortly after the stator incident, the NRC deployed an augmented inspection team to review the plant’s response. In July 2013 a second team of NRC inspectors visited ANO to evaluate certain items that were identified as requiring follow-up inspection to determine whether performance deficiencies existed. In March 2014 the NRC issued an inspection report on the follow-up inspection that discussed two preliminary findings, one that was preliminarily determined to be “red with high safety significance” for Unit 1 and one that was preliminarily determined to be “yellow with substantial safety significance” for Unit 2, with the NRC indicating further that these preliminary findings may warrant additional regulatory oversight. This report also noted that one additional item related to flood barrier effectiveness was still under review. In March 2015, after several NRC inspections and regulatory conferences, the NRC issued a letter notifying Entergy of its decision to move ANO into the “multiple/repetitive degraded cornerstone column,” or Column 4, of the NRC’s Reactor Oversight Process Action Matrix. Placement into Column 4 requires significant additional NRC inspection activities at the ANO site, including a review of the site’s root cause evaluation associated with flood barrier effectiveness and stator issues, an assessment of the effectiveness of the site’s corrective action program, an additional design basis inspection, a safety culture assessment, and possibly other inspection activities consistent with the NRC’s Inspection Procedure. Entergy Arkansas incurred incremental costs of approximately $53 million in 2015 to prepare for the NRC inspection that began in early 2016. Excluding remediation and response costs that may result from the additional NRC inspection activities, Entergy Arkansas also incurred approximately $44 million in 2016 in support of NRC inspection activities and to implement Entergy Arkansas’s performance improvement initiatives developed in 2015. A lesser amount of incremental expense is expected to be ongoing annually after 2016, until ANO transitions out of Column 4. The NRC completed the supplemental inspection required for ANO’s Column 4 designation in February 2016, and published its inspection report in June 2016. In its inspection report, the NRC concluded that the ANO site is being operated safely and that Entergy understands the depth and breadth of performance concerns associated with ANO’s performance decline. Also in June 2016, the NRC issued a confirmatory action letter to confirm the actions Entergy Arkansas has taken and will continue to take to improve performance at ANO. The NRC will verify the completion of those actions through quarterly follow-up inspections, the results of which will determine when ANO should transition out of Column 4. Entergy Wholesale Commodities Exit from the Merchant Power Business Entergy management has undertaken a strategy to manage and reduce the risk of the Entergy Wholesale Commodities business, which includes taking actions to reduce the size of the merchant fleet. 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. Management continues to look for ways to mitigate the operational and decommissioning risks associated with the merchant power business. Assumptions regarding the operating life of the plants and the decommissioning timeline and process continue to be evaluated. Changes to current assumptions could result in revisions to the asset retirement obligations and affect compliance with certain NRC minimum financial assurance requirements for meeting obligations to decommission the plants. Increases in the asset retirement obligations could result in an increase in operating expense in the period of a revision. Assumptions regarding the possibility that a plant may have an operating life shorter than previously assumed will likely result in the need for additional contributions to decommissioning trust funds, or the posting of parent guarantees, letters of credit, or other surety mechanisms. 26


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Entergy Wholesale Commodities includes the ownership of the following nuclear reactors: Location Market Capacity Planned Transaction Vermont Yankee Vernon, VT ISO-NE 605 MW Planned sale of shutdown plant in 2018 FitzPatrick Oswego, NY NYISO 838 MW Planned sale in 2017 Palisades Covert, MI MISO 811 MW Planned shutdown in 2018 Pilgrim Plymouth, MA ISO-NE 688 MW Planned shutdown in 2019 Indian Point 2 Buchanan, NY NYISO 1,028 MW Planned shutdown in 2020 Indian Point 3 Buchanan, NY NYISO 1,041 MW Planned shutdown in 2021 Entergy Wholesale Commodities also includes the ownership of two non-operating nuclear facilities, Big Rock Point in Michigan and Indian Point 1 in New York that were acquired when Entergy purchased the Palisades and Indian Point 2 nuclear plants, respectively. These facilities are in various stages of the decommissioning process. In addition, Entergy Wholesale Commodities provides operations and management services, including decommissioning services, to nuclear power plants owned by other utilities in the United States. A relatively minor portion of the Entergy Wholesale Commodities business is the ownership of interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. Shutdown and Planned Sale 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 sell 100% of the membership interests in Entergy Nuclear Vermont Yankee, LLC to a subsidiary of NorthStar. Entergy Nuclear Vermont Yankee is the owner of the Vermont Yankee plant and is in the Entergy Wholesale Commodities segment. The sale of Entergy Nuclear Vermont Yankee to NorthStar will include the transfer of the nuclear decommissioning trust fund and the asset retirement obligation for the spent fuel management and decommissioning of the plant. Entergy Nuclear Vermont Yankee has an outstanding credit facility with borrowing capacity of $100 million to pay for dry fuel storage costs. This credit facility is guaranteed by Entergy Corporation. At or before closing, a subsidiary of Entergy will assume the obligations under the existing credit facility or enter into a new credit facility, and Entergy will guarantee the credit facility. At the closing of the sale transaction, NorthStar will pay $1,000 for the membership interests in Entergy Nuclear Vermont Yankee, and NorthStar will cause Entergy Nuclear Vermont Yankee to issue a promissory note to the Entergy entity selling the membership interests in Entergy Nuclear Vermont Yankee. The amount of the promissory note issued will be equal to the amount drawn under the credit facility or the amount drawn under the new credit facility, plus borrowing fees and costs incurred by Entergy in connection with such facility. The principal amount drawn under the outstanding credit facility was $45 million as of December 31, 2016, and the net book value of Entergy Nuclear Vermont Yankee, including unrealized gains on the decommissioning trust fund, as of December 31, 2016, was approximately $88 million. Entergy plans to transfer all spent nuclear fuel to dry cask storage by the end of 2018, subject to obtaining necessary regulatory approvals, in advance of the planned transaction close. Under the sale agreement and related agreements to be entered into at the closing, NorthStar will commit to initiate decommissioning and site restoration by 2021 and complete those activities by 2030. The original completion date, as outlined in Entergy’s Post Shutdown Decommissioning Activities Report filed with the NRC, was 2075. Entergy Nuclear Vermont Yankee, under NorthStar ownership, will be required to repay the promissory note issued to Entergy with certain of the proceeds from the recovery of damages under its claims against the DOE related to spent nuclear fuel disposal, with any balance remaining due at partial site restoration, subject to extension not to exceed two years from partial site restoration. The transaction is subject to certain closing conditions, including approval by the NRC; approval by the State of Vermont Public Service Board, including approval of site restoration standards that will be proposed as part of the 27


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis transaction; the transfer of all spent nuclear fuel to dry fuel storage on the independent spent fuel storage installation; and that the market value of the fund assets held in the decommissioning trust fund for the Vermont Yankee Nuclear Power Station, less the hypothetical income tax on the aggregate unrealized net gain of such fund assets at closing, is equal to or exceeds $451.95 million, subject to adjustments. The transaction is expected to close by the end of 2018, subject to certain conditions, including the condition that Entergy contribute to the decommissioning trust fund if the value is less than provided for in the agreement with NorthStar. Sale of Rhode Island State Energy Center In December 2015, Entergy sold the Rhode Island State Energy Center, a 583 MW natural gas-fired combined- cycle generating plant owned by Entergy in the Entergy Wholesale Commodities segment. Entergy sold Rhode Island State Energy Center for approximately $490 million and realized a pre-tax gain of $154 million on the sale. Sale of Top Deer Investment In November 2016, Entergy sold its 50% membership interest in Top Deer Wind Ventures, LLC, a wind- powered electric generation joint venture owned by Entergy in the Entergy Wholesale Commodities segment and accounted for as an equity method investment. Entergy sold its 50% membership interest in Top Deer for approximately $0.5 million and realized a pre-tax loss of $0.2 million on the sale. Planned Sale of FitzPatrick In October 2015, Entergy determined that it would close the FitzPatrick plant. The original expectation was to shut down the FitzPatrick plant at the end of its fuel cycle in January 2017. See Note 14 to the financial statements for discussion of the impairment charges associated with the decision to cease operations earlier than expected. In August 2016, Entergy entered into a trust transfer agreement with NYPA to transfer the decommissioning trust funds and decommissioning liabilities for the Indian Point 3 and FitzPatrick plants to Entergy. When Entergy purchased Indian Point 3 and FitzPatrick in 2000 from NYPA, NYPA retained the decommissioning trust funds and the decommissioning liabilities. NYPA and Entergy subsidiaries executed decommissioning agreements, which specified their decommissioning obligations. NYPA had the right to require the Entergy subsidiaries to assume each of the decommissioning liabilities provided that it assigned the corresponding decommissioning trust, up to a specified level, to the Entergy subsidiaries. Under the original agreements, if the decommissioning liabilities were retained by NYPA, the Entergy subsidiaries would perform the decommissioning of the plants at a price equal to the lesser of a pre-specified level or the amount in the decommissioning trust funds. At the time of the acquisition of the plants Entergy recorded a contract asset that represented an estimate of the present value of the difference between the stipulated contract amount for decommissioning the plants less the decommissioning costs estimated in independent decommissioning cost studies. The asset was increased by monthly accretion based on the applicable discount rate necessary to ultimately provide for the estimated future value of the decommissioning contract. The monthly accretion was recorded as interest income. As a result of the agreement with NYPA, in the third quarter 2016, Entergy removed the contract asset from its balance sheet, and recorded receivables for the beneficial interests in the decommissioning trust funds and asset retirement obligations for the decommissioning liabilities. The asset retirement obligations are accreted monthly through a charge to decommissioning expense. The transaction was contingent upon receiving approval from the NRC, which was received in January 2017. The decommissioning trust funds for the Indian Point 3 and FitzPatrick plants were transferred to Entergy by NYPA in January 2017. See Note 9 to the financial statements for further discussion of Indian Point 3 and FitzPatrick’s decommissioning liabilities and see Note 16 to the financial statements for further discussion of the receivables for the beneficial interests in Indian Point 3 and FitzPatrick’s decommissioning trust funds. In August 2016, Entergy entered into an agreement to sell the FitzPatrick plant to Exelon. The transaction is expected to close in the first half of 2017. The purchase price is $100 million and the assumption by Exelon of certain liabilities related to the FitzPatrick plant, with an additional $10 million non-refundable signing fee, which was paid 28


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis upon the signing of the agreement. The transaction is contingent upon, among other things, the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the receipt of necessary regulatory approvals from the FERC, the NRC, and the Public Service Commission of the State of New York (NYPSC), and the receipt of a private letter ruling from the IRS. NRC approval has not yet been received, but all other necessary regulatory approvals have been received. Because certain specified conditions were satisfied in November 2016, including the continued effectiveness of the Clean Energy Standards/Zero Emissions Credit program (CES/ZEC), the establishment of certain long-term agreements on acceptable terms with the Energy Research and Development Authority of the State of New York in connection with the CES/ZEC program, and NYPSC approval of the transaction on acceptable terms, Entergy refueled the FitzPatrick plant in January and February 2017. Entergy expects to operate the FitzPatrick plant until the asset purchase agreement closing date. Entergy entered into a reimbursement agreement with Exelon pursuant to which Exelon will reimburse Entergy for specified out-of-pocket costs associated with the refueling and operation of FitzPatrick that otherwise would have been avoided had Entergy shut down FitzPatrick in January 2017. Pursuant to the reimbursement agreement, as of December 31, 2016 Exelon reimbursed Entergy $56 million for nuclear fuel expenses and $41 million for other operation and maintenance expenses associated with preparing to refuel FitzPatrick in 2017. In addition, Entergy entered into a transfer agreement whereby Exelon will be entitled to all revenues from FitzPatrick’s electricity and capacity sales for the period that commenced upon completion of the refueling outage through the asset purchase agreement closing date. If the asset purchase agreement is terminated, a termination fee of up to $30 million will be payable to Entergy under certain circumstances. If it is consummated, the transaction could result in a gain or loss because of fluctuations in the decommissioning trust fund earnings and asset retirement obligation accretion. Upon the closing of the sale, the FitzPatrick decommissioning trust along with the decommissioning obligation for that plant will be transfered to Exelon. As a result of the agreement and the status of the necessary regulatory approvals, the assets and liabilities associated with the sale of FitzPatrick to Exelon are classified as held for sale on Entergy Corporation and Subsidiaries’ Consolidated Balance Sheet. As of December 31, 2016, the $785 million receivable for the beneficial interest in the decommissioning trust fund within other deferred debits and the $714 million asset retirement obligation within other non-current liabilities are classified as held for sale. The transaction also includes property, plant, and equipment with a net book value of zero. Planned Shutdown of Palisades Most of the Palisades output is sold under a power purchase agreement (PPA) with Consumers Energy, entered into when the plant was acquired in 2007, that is currently scheduled to expire in 2022. The PPA prices currently exceed market prices and escalate each year, up to $61.50/MWh in 2022. In December 2016, Entergy reached an agreement with Consumers Energy to terminate the PPA for the Palisades plant on May 31, 2018. Pursuant to the PPA termination agreement, Consumers Energy will pay Entergy $172 million for the early termination of the PPA. The PPA termination agreement is subject to regulatory approvals. Separately, and assuming regulatory approvals are obtained for the PPA termination agreement, Entergy intends 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. Entergy expects to enter into a new PPA with Consumers Energy under which the plant would continue to operate through October 1, 2018. See Note 14 to the financial statements for discussion of the impairment charges associated with the PPA termination agreement and the decision to cease operations earlier than expected. Planned Shutdown of Pilgrim In October 2015, Entergy determined that it would close the Pilgrim plant. The decision came after management’s extensive analysis of the economics and operating life of the plant following the NRC’s decision in September 2015 to place the plant in its “multiple/repetitive degraded cornerstone column” (Column 4) of its Reactor Oversight Process Action Matrix. The Pilgrim plant is expected to cease operations on May 31, 2019, after refueling in the spring of 2017 and operating through the end of that fuel cycle. See Note 14 to the financial statements for 29


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis discussion of the impairment charges associated with the decision to cease operations earlier than expected and see Note 8 for further discussion on the placement of Pilgrim in Column 4. Planned Shutdown of Indian Point 2 and Indian Point 3 Indian Point 2 and Indian Point 3 have been involved, and have faced opposition, in extensive licensing proceedings. In January 2017, Entergy announced that it reached a settlement with New York State to shut down Indian Point 2 by April 30, 2020 and Indian Point 3 by April 30, 2021. See further discussion of the licensing proceedings and the settlement reached with New York State in “Entergy Wholesale Commodities Authorizations to Operate Its Nuclear Power Plants” below. As discussed above, in August 2016, Entergy entered into a trust transfer agreement with NYPA to transfer the decommissioning trust fund and decommissioning liability for the Indian Point 3 plant to Entergy. The decommissioning trust fund for the Indian Point 3 plant was transferred to Entergy by NYPA in January 2017. See Note 14 to the financial statements for further discussion of the impairment charges associated with management’s evaluation of alternatives to the continued operation of the Indian Point plants. Costs Associated with Entergy Wholesale Commodities Strategic Transactions Entergy incurred approximately $95 million in costs in 2016 associated with these strategic decisions and transactions to exit the 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 expenses of approximately $100 million in 2017, and approximately $235 million from 2018 through the end of 2021 associated with these strategic transactions. See Note 13 to the financial statements for further discussion of these costs. Entergy Wholesale Commodities Authorizations to Operate Its Nuclear Power Plants The NRC operating license for Palisades expires in 2031, for Pilgrim expires in 2032, and for FitzPatrick expires in 2034. See Note 14 to the financial statements for additional discussion regarding the planned sales of the Vermont Yankee and FitzPatrick plants and the planned shutdowns and associated impairment and related charges for the Palisades and Pilgrim plants. Indian Point NRC/ASLB Proceedings 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 will 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. See “Overview of Settlement” below for further discussion on the settlement with New York State. 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. The original expiration dates of the NRC operating licenses for Indian Point 2 and Indian Point 3 were in September 2013 and December 2015, respectively. Authorization to operate Indian Point 2 and Indian Point 3 rests on Entergy’s having timely filed a license renewal application that remains pending before the NRC. Each of Indian Point 2 and Indian Point 3 has now entered its “period of extended operation” after expiration of the plant’s initial license term under “timely renewal,” which is a federal statutory rule of general applicability providing for extension of a license for which a renewal application has been timely filed with the licensing agency. The license renewal application for Indian Point 2 and Indian Point 3 qualifies for timely renewal protection because it met NRC regulatory standards for timely filing. 30


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis The scope of NRC license renewal applications is focused primarily on whether the licensee has in place aging management programs (detailed diagnostic analyses performed when and as prescribed) to ensure that passive systems, structures, and components (such as pipes and concrete and metal structures) can continue to perform their intended safety functions. Other aspects of nuclear plant operations (maintenance of active components like pumps and control systems, security, and emergency preparedness) are regulated by the NRC on an ongoing basis and, as such, are outside the scope of license renewal proceedings. The NRC also determines whether there are any environmental impacts that would affect license renewal. Every application for renewal of a reactor operating license undergoes comprehensive NRC staff review to ensure the adequacy of the application and the aging management programs detailed in it. NRC staff’s conclusions following such review are set forth in a Final Safety Evaluation Report (FSER). Issuance of a renewed operating license is a “major federal action” under the National Environmental Policy Act, so NRC staff also are required to prepare an Environmental Impact Statement (EIS) regarding the proposed licensing action. The NRC has elected to address certain EIS issues on a generic basis via the rulemaking process. As a result, the EIS for a particular license renewal proceeding has two components: the Generic Environmental Impact Statement and a Final Supplemental Environmental Impact Statement (FSEIS) addressing site-specific EIS issues. Both the FSER and the FSEIS are subject to updating by NRC staff in an individual license renewal proceeding. Where, as in the case of Indian Point, one or more intervenors proposes for admission contentions alleging errors and omissions in the applicant’s license renewal application or the NRC staff’s review of related safety and environmental issues, the NRC appoints an ASLB to determine whether the contentions satisfy threshold standards and, if so, to adjudicate such “admitted” contentions. Safety-related contentions address issues that will be or have been described in the FSER and environmental-related contentions address issues that will be or have been described in the FSEIS. Contentions may be proposed at any time before license issuance based on new and material information, subject to timeliness and admissibility standards. Final ASLB orders on admissibility or resolving contentions, whether after hearing or on summary disposition, are appealable to the NRC. Various governmental and private intervenors sought and obtained party status to express opposition to renewal of the Indian Point 2 and Indian Point 3 licenses. The ASLB has admitted 16 consolidated contentions based on 21 contentions originally proposed by the State of New York or other parties. Thirteen “Track 1” contentions have been resolved in favor of Entergy, whether by the ASLB or by the NRC on appeal from an ASLB decision. Hearings on the three remaining contentions, which are designated “Track 2,” were conducted by the ASLB in November 2015. The ASLB scheduled the filing of post-hearing submissions through late-March 2016, but extended that schedule several times to allow the submission of supplemental testimony addressing the results of the 2016 reactor vessel internal inspection at Unit 2. That inspection led to the replacement of a substantial number of baffle former bolts, as described further in “Nuclear Matters” below. In January 2017 the ASLB issued an order suspending the schedule for completion of Track 2 filings following notification of the settlement with New York State. Independent of the ASLB process, the NRC staff has performed its technical and environmental reviews of the Indian Point 2 and Indian Point 3 license renewal application. The NRC staff issued an FSER in August 2009, a supplement to the FSER in August 2011, an FSEIS in December 2010, a supplement to the FSEIS in June 2013, and a further supplement to the FSER in November 2014. In November 2014 the NRC staff advised of its proposed schedule for issuance of a further FSEIS supplement to address new information received by NRC staff since preparation and publication of the previous FSEIS supplement in June 2013. The NRC staff issued a draft of the new FSEIS supplement in December 2015. The target date for issuance of a final FSEIS supplement has not been announced. In addition, NRC staff has not formally announced whether it plans to issue a further FSEIS supplement addressing sensitivity analyses of severe accident mitigation alternatives that the NRC directed staff to perform as part of an order resolving appeal of one Track 1 contention in favor of NRC staff and Entergy. Entergy will continue to work with the NRC staff as it completes its technical and environmental reviews of the Indian Point 2 and Indian Point 3 license renewal applications. 31


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Indian Point NYSDEC Water Quality Certification Proceedings The New York State Department of Environmental Conservation (NYSDEC) has taken the position that Indian Point must obtain a new state-issued Clean Water Act Section 401 water quality certification as part of the license renewal process. Entergy submitted its application for a water quality certification to NYSDEC in April 2009, with a reservation of rights regarding the applicability of Section 401 in this case. Subsequently, Entergy submitted certain additional information in response to NYSDEC requests for additional information. In February 2010 the NYSDEC staff determined that Entergy’s water quality certification application was complete. In April 2010 the NYSDEC staff issued a proposed notice of denial of Entergy’s water quality certification application (the Notice). NYSDEC staff’s Notice triggered an administrative adjudicatory hearing before NYSDEC ALJs on the proposed Notice. Between 2011 and 2016, the ALJs conducted more than 50 days of trial on issues identified by NYSDEC staff as bases for denying Indian Point’s proposed water quality certificate, and those issues were briefed by the parties. Entergy also submitted information and analysis to the NRC indicating that a water quality certificate was not legally required for license renewal; NYSDEC disputed Entergy’s position. At the time the Indian Point settlement with New York State was reached, the ALJs had not issued a recommended decision to the Commissioner. Under the Indian Point settlement, in January 2017, the NYSDEC Commissioner approved the NYSDEC staff’s earlier issuance of the water quality certification and water discharge permit, and the ALJs terminated the proceedings. The settlement agreement provides for issuance of a supplemental environmental analysis in May 2017 reflecting early shutdown. Indian Point Coastal Zone Management Act Proceedings In addition, before the NRC may issue renewed operating licenses it must resolve its obligation to address the requirements of the Coastal Zone Management Act (CZMA). Most commonly, those requirements are met by the applicant’s demonstration that the activity authorized by the federal permit being sought is consistent with the host state’s federally-approved coastal management policies. Entergy has undertaken three independent initiatives to resolve CZMA issues: “grandfathering;” “previous review;” and a “consistency certification.” First, Entergy filed with the New York State Department of State (NYSDOS) in November 2012 a petition for declaratory order that Indian Point is grandfathered under either of two criteria prescribed by the New York Coastal Management Program, which sets forth the state coastal policies applied in a CZMA consistency review. NYSDOS denied the motion by order dated January 2013. Entergy appealed NYSDOS’s decision to the New York State courts. In November 2016 the New York Court of Appeals held that Indian Point was not grandfathered, and therefore subject to CZMA review by NYSDOS in conjunction with NRC license renewal. Second, in July 2012, Entergy filed a supplement to the Indian Point license renewal applications currently pending before the NRC. Following a series of filings with the NRC, the NRC staff advised the ASLB in February 2015 that it was reviewing the information it had received regarding previous review and would provide further information when available. Third, in December 2012, Entergy filed with NYSDOS a consistency determination explaining why Indian Point satisfies all applicable New York Coastal Management Program policies while noting that Entergy did not concede NYSDOS’s right to conduct a new CZMA review for Indian Point. In November 2014, Entergy filed with the NRC and with NYSDOS a notice withdrawing the consistency certification. NYSDOS disputed the effectiveness of Entergy’s November 2014 notice withdrawing the consistency certification. In December 2014, Entergy and NYSDOS executed an agreement intended to preserve the parties’ respective positions on withdrawal which was extended several times; upon expiration of the last extension, NYSDOS issued an objection in November 2015. Entergy then filed with the National Oceanographic and Atmospheric Administration (NOAA), the agency within the U.S. Department of Commerce that has been delegated authority to act on CZMA appeals, a motion requesting a determination that Entergy’s November 2014 withdrawal notice was 32


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis effective or, alternatively, an extension of the deadline for Entergy to file a notice of appeal and the consolidated record of proceedings which by law must be assembled by the federal licensing agency, here the NRC. In November 2015, after receiving papers in opposition from NYSDOS, NOAA issued a letter (1) deferring until after the New York Court of Appeals ruled on grandfathering the determination whether Entergy’s withdrawal notice was effective, and (2) extending until that time Entergy’s deadline for filing a notice of appeal and the consolidated record. In January 2016, Entergy filed suit in the U.S. District Court for the Northern District of New York challenging the New York State Department of Environmental Conservation’s objection to Entergy’s withdrawn Coastal Zone Management Act consistency certification on federal preemption grounds. Entergy’s complaint requested a determination that the objection, which cites nuclear safety concerns, is preempted and thus invalid. The NYSDOS filed a motion to dismiss Entergy’s lawsuit in March 2016, and Entergy filed its response in May 2016. Overview of Settlement The Indian Point settlement requires New York State agencies to issue environmental certifications needed for license renewal and a renewed water discharge permit based on current plant configuration. It also requires the New York State Attorney General and Riverkeeper to withdraw their Track 2 contentions pending before the ASLB. In exchange, Entergy commits to cease commercial operation of Indian Point 2 by April 30, 2020 and Indian Point 3 by April 30, 2021. Operations may be extended up to four years for each unit by mutual agreement of Entergy and New York State based on an exigent reliability need for Indian Point generation. See Note 14 to the financial statements for a discussion of the impairment and related charges associated with the settlement with New York State. The settlement establishes a detailed timeline for implementation of steps necessary to allow Indian Point to receive renewed licenses and to implement Entergy’s commitment to shorten the life of the facility. Under that timeline, Indian Point expects to receive by the end of the first quarter 2017 a water quality certification and water discharge permit from NYSDEC and a concurrence from NYSDOS with a new CZMA consistency certification to be filed by Entergy. The settlement provides for issuance of a supplemental environmental analysis in May 2017 reflecting early shutdown. Consistent with the settlement, in January 2017 the NYSDEC Commissioner issued an order affirming the NYSDEC staff’s issuance of a final water quality certification and a final water discharge permit, and on the same day the ALJs terminated proceedings before them. Each of the water quality certification and CZMA concurrence will be filed with the NRC. In February 2017 the New York State Attorney General and Riverkeeper filed with the ASLB a motion to withdraw their pending Track 2 contentions. There is no schedule for the ASLB to act, but based on past practice the ASLB is expected to act by mid-2017. The NRC is not expected to be in a position to issue renewed licenses earlier than mid-2018, as its staff must first issue one, and potentially two, FSEIS. In addition to contractually agreeing to cease commercial operations early, in February 2017 Entergy filed with the NRC an amendment to its license renewal application changing the term of the requested licenses to coincide with the latest possible extension by mutual agreement based on exigent reliability needs: April 30, 2024 for Indian Point 2 and April 30, 2025 for Indian Point 3. If Entergy reasonably determines that the NRC will treat the amendment other than as a routine amendment, Entergy may withdraw the amendment. Other provisions of the settlement include termination of all investigations of Indian Point by the agencies signing the agreement, which include NYSDEC, NYSDOS, the New York State Department of Public Service, the New York State Department of Health, and the New York State Attorney General. The settlement recognizes the right of New York State agencies to pursue new investigations and enforcement actions with respect to new circumstances or existing conditions that become materially exacerbated. Another provision of the settlement obligates Entergy to establish a $15 million fund for environmental projects and community support. Apportionment and allocation of funds to beneficiaries are to be determined by mutual agreement of New York State and Entergy. The settlement recognizes New York State’s right to perform an annual inspection of Indian Point, with scope and timing to be determined by mutual agreement. 33


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis 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 capitalization is balanced between equity and debt, as shown in the following table. The increase in the debt to capital ratio for Entergy as of December 31, 2016 is primarily due to the issuance of long-term debt in 2016 and a decrease in retained earnings. See Entergy’s Consolidated Statements of Changes in Equity for details of the decrease in retained earnings. 2016 2015 Debt to capital 64.8% 59.1% Effect of excluding securitization bonds (1.0%) (1.4%) Debt to capital, excluding securitization bonds (a) 63.8% 57.7% Effect of subtracting cash (2.0%) (2.7%) Net debt to net capital, excluding securitization bonds (a) 61.8% 55.0% (a) Calculation excludes the Arkansas, Louisiana, New Orleans and Texas securitization bonds, which are non- recourse to Entergy Arkansas, Entergy Louisiana, Entergy New Orleans, and Entergy Texas, respectively. Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable and commercial paper, capital 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. 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, 2016. To estimate future interest payments for variable rate debt, Entergy used the rate as of December 31, 2016. The amounts below include payments on the Entergy Louisiana’s Waterford 3 lease obligation and System Energy’s Grand Gulf sale-leaseback transaction, which are included in long-term debt on the balance sheet. Long-term debt maturities and estimated interest payments 2017 2018 2019 2020-2021 after 2021 (In Millions) Utility $1,021 $1,390 $1,219 $2,299 $14,758 Entergy Wholesale Commodities — 45 — — — Parent and Other 87 87 87 1,287 1,518 Total $1,108 $1,522 $1,306 $3,586 $16,276 Note 5 to the financial statements provides more detail concerning long-term debt outstanding. 34


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in August 2021. Entergy Corporation also has the ability to issue letters of credit against 50% 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, 2016 was 2.23% on the drawn portion of the facility. As of December 31, 2016, amounts outstanding and capacity available under the $3.5 billion credit facility are: Letters of Capacity Capacity Borrowings Credit Available (In Millions) $3,500 $700 $6 $2,794 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 $1.5 billion. At December 31, 2016, Entergy Corporation had $344 million of commercial paper outstanding. The weighted-average interest rate for the year ended December 31, 2016 was 1.13%. Capital lease obligations are a minimal part of Entergy’s overall capital structure. Following are Entergy’s payment obligations under those leases. 2017 2018 2019 2020-2021 after 2021 (In Millions) Capital lease payments $5 $4 $3 $6 $22 The capital 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, 2016 as follows: Amount Drawn Letters of Credit Expiration Amount of Interest as of December Outstanding as of Company Date Facility Rate (a) 31, 2016 December 31, 2016 Entergy Arkansas April 2017 $20 million (b) 2.02% — — Entergy Arkansas August 2021 $150 million (c) 2.02% — — Entergy Louisiana August 2021 $350 million (d) 2.02% — $6.4 million Entergy Mississippi May 2017 $10 million (e) 2.27% — — Entergy Mississippi May 2017 $20 million (e) 2.27% — — Entergy Mississippi May 2017 $35 million (e) 2.27% — — Entergy Mississippi May 2017 $37.5 million (e) 2.27% — — Entergy New Orleans November 2018 $25 million (f) 2.52% — $0.8 million Entergy Texas August 2021 $150 million (g) 2.27% — $4.7 million 35


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis (a) The interest rate is the rate as of December 31, 2016 that would be 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 allows Entergy Arkansas to issue letters of credit against 50% of the borrowing capacity of the facility. (d) The credit facility allows Entergy Louisiana to issue letters of credit against 50% of the borrowing capacity of the facility. (e) Borrowings under the Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable at Entergy Mississippi’s option. (f) The credit facility allows Entergy New Orleans to issue letters of credit against $10 million of the borrowing capacity of the facility. (g) The credit facility allows Entergy Texas to issue letters of credit against 50% of the borrowing capacity of the facility. 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. In addition, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas each entered into one or more uncommitted standby letter of credit facilities as a means to post collateral to support its obligations related to MISO. Following is a summary of the uncommitted standby letter of credit facilities as of December 31, 2016: Letters of Credit Amount of Issued as of Uncommitted Letter of December 31, 2016 Company Facility Credit Fee (a) Entergy Arkansas $25 million 0.70% $1.0 million Entergy Louisiana $125 million 0.70% $5.7 million Entergy Mississippi $40 million 0.70% $7.1 million Entergy New Orleans $15 million 1.00% $6.2 million Entergy Texas $50 million 0.70% $14.7 million (a) As of December 31, 2016, letters of credit posted with MISO covered FTR exposure of $0.3 million for Entergy Arkansas and $0.1 million for Entergy Mississippi. See Note 15 to the financial statements for discussion of FTRs. Entergy Nuclear Vermont Yankee has a credit facility guaranteed by Entergy Corporation with a borrowing capacity of $100 million which expires in January 2018. As of December 31, 2016, $45 million in cash borrowings were outstanding under the credit facility. Entergy Nuclear Vermont Yankee also has an uncommitted credit facility guaranteed by Entergy Corporation with a borrowing capacity of $85 million which expires in January 2018. As of December 31, 2016, there were no cash borrowings outstanding under the uncommitted credit facility. See Note 4 to the financial statements for additional discussion of the Vermont Yankee facilities. 36


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis 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, 2016 on non-cancelable operating leases with a term over one year: 2017 2018 2019 2020-2021 after 2021 (In Millions) Operating lease payments $76 $70 $67 $93 $91 The operating leases are discussed in Note 10 to the financial statements. Summary of Contractual Obligations of Consolidated Entities Contractual Obligations 2017 2018-2019 2020-2021 after 2021 Total (In Millions) Long-term debt (a) $1,108 $2,828 $3,586 $16,276 $23,798 Capital lease payments (b) $5 $7 $6 $22 $40 Operating leases (b) (c) $76 $137 $93 $91 $397 Purchase obligations (d) $1,435 $1,868 $1,392 $3,127 $7,822 (a) Includes estimated interest payments. Long-term debt is discussed in Note 5 to the financial statements. (b) Lease obligations are discussed in Note 10 to the financial statements. (c) Does not include power purchase agreements that are accounted for as leases that are included in purchase obligations. (d) Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. Almost all of the total are fuel and purchased power obligations. In addition to the contractual obligations stated above, Entergy currently expects to contribute approximately $409 million to its pension plans and approximately $53 million to other postretirement plans in 2017, although the 2017 required pension contributions will be known with more certainty when the January 1, 2017 valuations are completed, which is expected by April 1, 2017. See “Critical Accounting Estimates - Qualified Pension and Other Postretirement Benefits” below for a discussion of qualified pension and other postretirement benefits funding. Also in addition to the contractual obligations, Entergy has $978 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. Capital Funds Agreement Pursuant to an agreement with certain creditors, Entergy Corporation has agreed to supply System Energy with sufficient capital to: maintain System Energy’s equity capital at a minimum of 35% of its total capitalization (excluding short-term debt); permit the continued commercial operation of Grand Gulf; pay in full all System Energy indebtedness for borrowed money when due; and enable System Energy to make payments on specific System Energy debt, under supplements to the agreement assigning System Energy’s rights in the agreement as security for the specific debt. 37


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    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 2017 through 2019. Planned construction and capital investments 2017 2018 2019 (In Millions) Utility: Generation $1,390 $1,520 $1,465 Transmission 845 860 820 Distribution 755 800 805 Other 530 360 255 Total 3,520 3,540 3,345 Entergy Wholesale Commodities 230 130 60 Total $3,750 $3,670 $3,405 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, and includes spending for the nuclear and non-nuclear plants at Entergy Wholesale Commodities. 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, including the St. Charles Power Station, Lake Charles Power Station, New Orleans Power Station, and Montgomery County Power Station, discussed below, and potential construction of additional generation. Entergy Wholesale Commodities investments associated with specific investments such as component replacements, software and security, and dry cask storage. Investments in Entergy’s nuclear fleet. See “Nuclear Matters” below for discussion of this initiative. Transmission spending to enhance reliability, reduce congestion, and enable economic growth. Distribution spending to enhance reliability and improve service to customers, including initial investment to support advanced metering. 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. St. Charles Power Station In August 2015, Entergy Louisiana filed with the LPSC an application seeking certification that the public necessity and convenience would be served by the construction of the St. Charles Power Station, a nominal 980 megawatt combined-cycle generating unit, on land adjacent to the existing Little Gypsy plant in St. Charles Parish, Louisiana. It is currently estimated to cost $869 million to construct, including transmission interconnection and other related costs. Testimony was filed by LPSC staff and intervenors, with LPSC staff concluding that the construction of the project serves the public convenience and necessity. Three intervenors contended that Entergy Louisiana had not established that construction of the project is in the public interest, claiming that the request for proposal excluded consideration of certain resources that could be more cost effective, that the request for proposal provided undue 38


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis preference to the self-build option, and that a 30-year capacity commitment was not warranted by current supply conditions. The request for proposal independent monitor also filed testimony and a report affirming that the St. Charles Power Station was selected through an objective and fair request for proposal that showed no undue preference to any proposal. An evidentiary hearing was held in April 2016, and in July 2016 an ALJ issued a final recommendation that the LPSC certify that the construction of St. Charles Power Station is in the public interest. The LPSC issued its order approving certification of St. Charles Power Station in December 2016. Construction is in progress and commercial operation is estimated to occur by mid-2019. Lake Charles Power Station In November 2016, Entergy Louisiana filed an application with the LPSC seeking certification that the public convenience and necessity would be served by the construction of the Lake Charles Power Station, a nominal 994 megawatt combined-cycle generating unit in Westlake, Louisiana, on land adjacent to the existing Nelson plant in Calcasieu Parish. The current estimated cost of the Lake Charles Power Station is $872 million, including estimated costs of transmission interconnection and other related costs. A procedural schedule has been issued, with an evidentiary hearing scheduled for May and June 2017. Subject to timely approval by the LPSC and receipt of other permits and approvals, commercial operation is estimated to occur by mid-2020. New Orleans Power Station In June 2016, Entergy New Orleans filed an application with the City Council seeking a public interest determination and authorization to construct the New Orleans Power Station, a 226 megawatt advanced combustion turbine in New Orleans, Louisiana, at the site of the existing Michoud generating facility, which facility was deactivated effective May 31, 2016. The current estimated cost of the New Orleans Power Station is $216 million. A procedural schedule has been established with a decision expected no later than April 2017. Subject to timely approval by the City Council and receipt of other permits and approvals, commercial operation is estimated to occur by late-2019. In January 2017 several intervenors filed testimony opposing the construction of the New Orleans Power Station on various grounds. In February 2017, Entergy New Orleans filed a motion to temporarily suspend the procedural schedule to allow for further analysis regarding its proposal, and that motion was granted. A status conference is scheduled in March 2017. Montgomery County Power Station In October 2016, Entergy Texas filed an application with the PUCT seeking certification that the public convenience and necessity would be served by the construction of the Montgomery County Power Station, a nominal 993 megawatt combined-cycle generating unit in Montgomery County, Texas on land adjacent to the existing Lewis Creek plant. The current estimated cost of the Montgomery County Power Station is $937 million, including estimated costs of transmission interconnection and network upgrades and other related costs. The independent monitor, who oversaw the request for proposal process, filed testimony and a report affirming that the Montgomery County Power Station was selected through an objective and fair request for proposal that showed no undue preference to any proposal. Discovery has commenced and a procedural schedule has been established for this proceeding, including an evidentiary hearing in May 2017. A PUCT decision regarding the application is expected by October 2017, pursuant to a Texas statute requiring the PUCT to issue an order regarding a certificate of convenience and necessity within 366 days of the filing. Subject to timely approval by the PUCT and receipt of other permits and approvals, commercial operation is estimated to occur by mid-2021. 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 39


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis opportunities. At its January 2017 meeting, the Board declared a dividend of $0.87 per share. Entergy paid $612 million in 2016, $599 million in 2015, and $596 million in 2014 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 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, 2016, $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 ($1,188 million as of December 31, 2016); securities issuances; 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. Provisions within the articles of incorporation relating to preferred stock of certain of Entergy Corporation’s subsidiaries could restrict the payment of cash dividends or other distributions on their common and preferred stock. All debt and common and preferred equity issuances by the Registrant Subsidiaries require prior regulatory approval and their preferred equity and debt issuances are also subject to issuance tests set forth in corporate charters, bond indentures, and other agreements. Entergy believes that the Registrant Subsidiaries have sufficient capacity under these tests to meet foreseeable capital needs. The FERC has jurisdiction over securities issuances by the Utility operating companies and System Energy, except securities with maturities longer than one year issued by Entergy Arkansas and Entergy New Orleans, which are subject to the jurisdiction of the APSC and the City Council, respectively. No regulatory approvals are necessary for Entergy Corporation to issue securities. The current FERC-authorized short-term borrowing limits are effective through October 2017. Entergy Louisiana, Entergy Mississippi, Entergy Texas, and System Energy have obtained long-term financing authorizations from the FERC that extend through October 2017. Entergy Arkansas has obtained long-term financing authorization from the APSC that extends through December 2018. Entergy New Orleans has obtained long-term financing authorization from the City Council that extends through June 2018. Entergy Arkansas, Entergy Louisiana, and System Energy each have obtained long-term financing authorizations from the FERC that extend through October 2017 for issuances by its respective nuclear fuel company variable interest entity. In addition to borrowings from commercial banks, the Registrant Subsidiaries may also borrow from the Entergy System money pool. The money pool is an intercompany borrowing arrangement designed to reduce Entergy’s subsidiaries’ dependence on external short-term borrowings. Borrowings from the money pool and external short-term borrowings combined may not exceed the FERC-authorized short-term borrowing limits. See Notes 4 and 5 to the financial statements for further discussion of Entergy’s borrowing limits, authorizations, and amounts outstanding. 40


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Hurricane Isaac In June 2014 the LPSC voted to approve a series of orders which (i) quantified $290.8 million of Hurricane Isaac system restoration costs as prudently incurred; (ii) determined $290 million as the level of storm reserves to be re-established; (iii) authorized Entergy Louisiana to utilize Louisiana Act 55 financing for Hurricane Isaac system restoration costs; and (iv) granted other requested relief associated with storm reserves and Act 55 financing of Hurricane Isaac system restoration costs. Entergy Louisiana committed to pass on to customers a minimum of $30.8 million of customer benefits through annual customer credits of approximately $6.2 million for five years. Approvals for the Act 55 financings were obtained from the Louisiana Utilities Restoration Corporation and the Louisiana State Bond Commission. See Note 2 to the financial statements for a discussion of the August 2014 issuance of bonds under Act 55 of the Louisiana Legislature. In May 2015, the City Council issued a financing order authorizing the issuance of securitization bonds to recover Entergy New Orleans’s Hurricane Isaac storm restoration costs of $31.8 million, including carrying costs, the costs of funding and replenishing the storm recovery reserve in the amount of $63.9 million, and approximately $3 million for estimated up-front financing costs associated with the securitization. See Note 5 to the financial statements for a discussion of the July 2015 issuance of the securitization bonds. Cash Flow Activity As shown in Entergy’s Consolidated Statements of Cash Flows, cash flows for the years ended December 31, 2016, 2015, and 2014 were as follows: 2016 2015 2014 (In Millions) Cash and cash equivalents at beginning of period $1,351 $1,422 $739 Net cash provided by (used in): Operating activities 2,999 3,291 3,890 Investing activities (3,850) (2,609) (2,955) Financing activities 688 (753) (252) Net increase (decrease) in cash and cash equivalents (163) (71) 683 Cash and cash equivalents at end of period $1,188 $1,351 $1,422 Operating Activities 2016 Compared to 2015 Net cash provided by operating activities decreased by $292 million in 2016 primarily due to: a decrease due to the timing of recovery of fuel and purchased power costs in 2016 as compared to 2015. See Note 2 to the financial statements for a discussion of fuel and purchased power cost recovery; lower Entergy Wholesale Commodities net revenue in 2016 as compared to 2015, as discussed previously; and an increase of $83 million in interest paid in 2016 as compared to 2015 primarily due to an interest payment of $60 million made in March 2016 related to the purchase of a beneficial interest in the Waterford 3 leased assets and an increase in interest expense primarily due to 2016 net debt issuances by various Utility operating companies, partially offset by a decrease in interest paid in 2016 on the Grand Gulf sale-leaseback obligation. See Note 10 to the financial statements for a discussion of Entergy Louisiana’s purchase of a beneficial interest 41


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in the Waterford 3 leased assets and for details of the Grand Gulf lease obligation. See Note 5 to the financial statements for a discussion of long-term debt. The decrease was partially offset by: higher Utility net revenues in 2016 as compared to 2015, as discussed above; proceeds of $102 million received in 2016 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; a decrease of $46 million in spending on nuclear refueling outages in 2016 as compared to 2015; and a decrease of $19 million in spending related to the shutdown of Vermont Yankee, which ceased power production in December 2014. 2015 Compared to 2014 Net cash provided by operating activities decreased by $599 million in 2015 primarily due to: lower Entergy Wholesale Commodities net revenues in 2015 as compared to 2014, as discussed previously; proceeds of $310 million received from the Louisiana Utilities Restoration Corporation in August 2014 as a result of the Louisiana Act 55 storm cost financing. See Note 2 to the financial statements and “Hurricane Isaac” above for a discussion of the Act 55 storm cost financing; spending of $78 million in 2015 on activities related to the decommissioning of Vermont Yankee, which ceased power production in December 2014; an increase of $52 million in interest paid in 2015 primarily due to an increase in interest paid on the Grand Gulf sale-leaseback obligation. See Note 10 to the financial statements for details of the Grand Gulf lease obligation; an increase in spending of $48 million in 2015 related to Vermont Yankee, including the severance and retention payments accrued in 2014 and defueling activities that took place after the plant ceased power production in December 2014; and an increase in income tax payments of $26 million primarily due to payments made in 2015 for the final settlement of amounts outstanding associated with the 2006-2007 IRS audit. See Note 3 to the financial statements for a discussion of the finalized tax and interest computations for the 2006-2007 IRS audit. The decrease was partially offset by: an increase due to the timing of recovery of fuel and purchased power costs in 2015; higher Utility net revenues in 2015 as compared to 2014, as discussed above; and a decrease of $46 million in storm spending in 2015 as compared to 2014. Investing Activities 2016 Compared to 2015 Net cash flow used in investing activities increased by $1,241 million in 2016 primarily due to: the purchase of the Union Power Station for approximately $949 million in March 2016. See Note 14 to the financial statements for discussion of the Union Power Station purchase; proceeds of approximately $490 million from the sale in December 2015 of Rhode Island State Energy Center. See Note 14 to the financial statements for further discussion of the sale; and an increase of $279 million in construction expenditures, primarily in the Utility business. The increase in construction expenditures in the Utility business is primarily due to an increase of $114 million in transmission construction expenditures primarily due to an overall higher scope of work performed on transmission projects 42


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis in 2016 as compared to 2015, an increase of $106 million in nuclear construction expenditures primarily due to a higher scope of work on various nuclear projects in 2016 as compared to 2015, an increase of $95 million in fossil-fueled generation construction expenditures primarily due to spending on the St. Charles Power Station project in 2016, an increase of $79 million in distribution construction expenditures primarily due to a higher scope of non-storm related work performed in 2016 as compared to the same period in 2015 and higher storm restoration spending in 2016, and an increase of $65 million in information technology construction expenditures due to various information technology projects and upgrades in 2016. The increase was partially offset by a decrease of $148 million in spending related to compliance with NRC post-Fukushima requirements in the Utility and Entergy Wholesale Commodities businesses. The increase was partially offset by: a decrease of $179 million in nuclear fuel purchases due to variations from year to year in the timing and pricing of fuel reload requirements, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle; an increase of $151 million in proceeds received from the DOE in 2016 as compared to the prior year resulting from litigation regarding spent nuclear fuel storage costs that were previously capitalized. See Note 8 to the financial statements for discussion of the spent nuclear fuel litigation; a $71 million NYPA value sharing payment in 2015. See Note 14 to the financial statements for further discussion of Entergy’s NYPA value sharing agreements; and the deposit of $64 million into Entergy New Orleans’s storm reserve escrow accounts in 2015. 2015 Compared to 2014 Net cash flow used in investing activities decreased by $346 million in 2015 primarily due to: proceeds of approximately $490 million from the sale in December 2015 of Rhode Island State Energy Center. See Note 14 to the financial statements for further discussion of the sale; the deposit of a total of $64 million into Entergy New Orleans’s storm reserve escrow accounts in 2015 compared to the deposit of a total of $268 million into Entergy Louisiana’s storm reserve escrow accounts in 2014; $58 million in disbursements from the Vermont Yankee decommissioning trust funds to Entergy in 2015; and a decrease in nuclear fuel purchases due to variations from year to year in the timing and pricing of fuel reload requirements, material and services deliveries, and the timing of cash payments during the nuclear fuel cycle. The decrease was partially offset by: an increase in construction expenditures primarily due to an overall higher scope of work on various projects in 2015 as compared to 2014 and compliance with NRC post-Fukushima requirements, partially offset by a decrease in storm restoration spending and a decrease in spending on the Ninemile Unit 6 project; a change in collateral deposit activity, reflected in the “Decrease (increase) in other investments” line on the Consolidated Statements of Cash Flows, as Entergy received net deposits of $47 million in 2014. Entergy Wholesale Commodities’ forward sales contracts are discussed in the “Market and Credit Risk Sensitive Instruments” section below; and a decrease of $16 million in insurance proceeds primarily due to $13 million received in 2015 related to the unplanned outage event that occurred at the Baxter Wilson (Unit 1) power plant in September 2013; and $12 million received in 2015 for property damages related to the generator stator incident at ANO compared to $37 million received in 2014 for property damages related to the generator stator incident at ANO. See Note 8 to the financial statements for a discussion of the ANO stator incident. 43


  • Page 46

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Financing Activities 2016 Compared to 2015 Entergy’s financing activities provided $688 million of cash for 2016 compared to using $753 million of cash for 2015 primarily due to the following activity: long-term debt activity providing approximately $1,489 million of cash in 2016 compared to providing $41 million of cash in 2015. Included in the long-term debt activity is net repayments of borrowings of $135 million in 2016 compared to net borrowings of $140 million in 2015 on the Entergy Corporation long-term credit facility; the issuance of $110 million of preferred stock in 2015. See Note 6 to the financial statements for further discussion; $100 million of common stock repurchased in 2015, as discussed above; a net increase of $41 million in 2016 in short-term borrowings by the nuclear fuel company variable interest entities; and an increase of $21 million in the repurchase or redemption of preferred stock. In September 2015, Entergy Louisiana redeemed its $100 million 6.95% Series preferred membership interests, of which $16 million was owned by Entergy Louisiana Holdings, an Entergy subsidiary, and Entergy Gulf States Louisiana repurchased its $10 million Series A 8.25% preferred membership interests as part of a multi-step process to effectuate the Entergy Louisiana and Entergy Gulf States Louisiana business combination. See Note 2 to the financial statements for a discussion of the combination. In 2016, Entergy Arkansas redeemed its $75 million of 6.45% Series preferred stock and its $10 million of 6.08% Series preferred stock and Entergy Mississippi redeemed its $30 million of 6.25% Series preferred stock. 2015 Compared to 2014 Net cash flow used in financing activities increased $501 million in 2015 primarily due to: long-term debt activity providing approximately $41 million of cash in 2015 compared to providing $777 million of cash in 2014. Included in the long-term debt activity is $140 million in 2015 and $440 million in 2014 for the repayment of borrowings on the Entergy Corporation long-term credit facility; a decrease of $171 million in treasury stock issuances in 2015 primarily due to a larger amount of previously repurchased Entergy Corporation stock issued in 2014 to satisfy stock option exercises; a net decrease of $154 million in 2015 in short-term borrowings by the nuclear fuel company variable interest entities; and the repurchase or redemption of $94 million of preferred membership interests in 2015. Entergy Louisiana redeemed its $100 million 6.95% Series preferred membership interests, of which $16 million was owned by Entergy Louisiana Holdings, an Entergy subsidiary, and repurchased its $10 million Series A 8.25% preferred membership interests as part of a multi-step process to effectuate the Entergy Louisiana and Entergy Gulf States Louisiana business combination. See Note 2 to the financial statements for a discussion of the business combination. The increase was partially offset by: net repayments of $62 million of commercial paper in 2015 compared to net repayments of $561 million of commercial paper in 2014; the issuance of $110 million of preferred stock in 2015. See Note 6 to the financial statements for further discussion of preferred stock issuances; and a decrease of $83 million of common stock repurchased in 2015 as compared to 2014, as discussed above. 44


  • Page 47

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis For the details of Entergy’s commercial paper program and the nuclear fuel company variable interest entities’ short- term borrowings, see Note 4 to the financial statements. See Note 5 to the financial statements for details of long-term debt. Rate, Cost-recovery, and Other Regulation State and Local Rate Regulation and Fuel-Cost Recovery The rates that the Utility operating companies and System Energy 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 City Council, the LPSC, the MPSC, the PUCT, and the FERC, 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: Company Authorized Return on Common Equity Entergy Arkansas 9.25% - 10.25% Entergy Louisiana 9.15% - 10.75% Electric; 9.45% - 10.45% Gas Entergy Mississippi 9.89% - 11.97% Entergy New Orleans 10.7% - 11.5% Electric; 10.25% - 11.25% Gas Entergy Texas 9.8% 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 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 System Agreement proceedings and a complaint filed with the FERC challenging System Energy’s return on equity. 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. 45


  • Page 48

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis 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. Entergy Wholesale Commodities enters into forward contracts with its customers and also sells energy in the day ahead or spot markets. In addition to selling the energy produced by its plants, Entergy Wholesale Commodities sells unforced capacity, which allows load-serving entities to meet specified reserve and related requirements placed on them by the ISOs in their respective areas. Entergy Wholesale Commodities’ forward physical power contracts consist of contracts to sell energy only, contracts to sell capacity only, and bundled contracts in which it sells both capacity and energy. While the terminology and payment mechanics vary in these contracts, each of these types of contracts requires Entergy Wholesale Commodities to deliver MWh of energy, make capacity available, or both. In addition to its forward physical power contracts, Entergy Wholesale Commodities also uses a combination of financial contracts, including swaps, collars, and options, to manage forward commodity price risk. Certain hedge volumes have price downside and upside relative to market price movement. The contracted minimum, expected value, and sensitivities are provided in the table below to show potential variations. The sensitivities may not reflect the total maximum upside potential from higher market prices. The information contained in the following table represents projections at a point in time and will vary over time based on numerous factors, such as future market prices, contracting activities, and generation. Following is a summary of Entergy Wholesale Commodities’ current forward capacity and generation contracts as well as total revenue projections based on market prices as of December 31, 2016. 46


  • Page 49

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Entergy Wholesale Commodities Nuclear Portfolio 2017 2018 2019 2020 2021 Energy Percent of planned generation under contract (a): Unit-contingent (b) 87% 66% 5% —% —% Firm LD (c) 10% —% —% —% —% Offsetting positions (d) (10%) (10%) —% —% —% Total 87% 56% 5% —% —% Planned generation (TWh) (e) (f) 27.3 26.7 18.8 11.7 2.9 Average revenue per MWh on contracted volumes: Minimum $43.7 $36.4 $53.2 $— $— Expected based on market prices as of December 31, 2016 $44.0 $36.4 $53.2 $— $— Sensitivity: -/+ $10 per MWh market price change $43.8- $34.9- $53.2 $— $— $44.5 $37.8 Capacity Percent of capacity sold forward (g): Bundled capacity and energy contracts (h) 22% 10% —% —% —% Capacity contracts (i) 31% 23% 12% —% —% Total 53% 33% 12% —% —% Planned net MW in operation (average) (f) 3,568 3,365 2,356 1,384 347 Average revenue under contract per kW per month (applies to $4.9 $9.4 $11.1 $— $— capacity contracts only) Total Nuclear Energy and Capacity Revenues (j) Expected sold and market total revenue per MWh $50.6 $44.6 $44.4 $43.6 $48.1 Sensitivity: -/+ $10 per MWh market price change $49.5- $39.3- $34.9- $33.6- $38.1- $52.0 $49.9 $53.9 $53.6 $58.1 (a) Percent of planned generation output sold or purchased forward under contracts, forward physical contracts, forward financial contracts, or options that mitigate price uncertainty that may require regulatory approval or approval of transmission rights. Positions that are not classified as hedges are netted in the planned generation under contract. (b) Transaction under which power is supplied from a specific generation asset; if the asset is not operating, the seller is generally not liable to buyer for any damages. Certain unit-contingent sales include a guarantee of availability. Availability guarantees provide for the payment to the power purchaser of contract damages, if incurred, in the event the seller fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold. All of Entergy’s outstanding guarantees of availability provide for dollar limits on Entergy’s maximum liability under such guarantees. (c) Transaction that requires receipt or delivery of energy at a specified delivery point (usually at a market hub not associated with a specific asset) or settles financially on notional quantities; if a party fails to deliver or receive energy, defaulting party must compensate the other party as specified in the contract, a portion of which may be capped through the use of risk management products. This also includes option transactions that may expire without being exercised. (d) Transactions for the purchase of energy, generally to offset a Firm LD transaction. 47


  • Page 50

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis (e) Amount of output expected to be generated by Entergy Wholesale Commodities resources considering plant operating characteristics, outage schedules, and expected market conditions that affect dispatch. (f) Assumes the sale of FitzPatrick to Exelon in the second quarter 2017, planned shutdown of Palisades on October 1, 2018, planned shutdown of Pilgrim on May 31, 2019, planned shutdown of Indian Point 2 on April 30, 2020, and planned shutdown of Indian Point 3 on April 30, 2021. Assumes NRC license renewals for two units, as follows (with current license expirations in parentheses): Indian Point 2 (September 2013 and now operating under its period of extended operations while its application is pending) and Indian Point 3 (December 2015 and now operating under its period of extended operations while its application is pending). For a discussion regarding the planned sale of the FitzPatrick plant and planned shutdown of the Palisades, Pilgrim, Indian Point 2, and Indian Point 3 plants, see “Entergy Wholesale Commodities Exit from the Merchant Power Business” above. For a discussion regarding the license renewals for Indian Point 2 and Indian Point 3, see “Entergy Wholesale Commodities Authorizations to Operate Its Nuclear Power Plants” above. (g) Percent of planned qualified capacity sold to mitigate price uncertainty under physical or financial transactions. (h) A contract for the sale of installed capacity and related energy, priced per megawatt-hour sold. (i) A contract for the sale of an installed capacity product in a regional market. (j) Includes assumptions on converting a portion of the portfolio to contracted with fixed price cost or discount and excludes non-cash revenue from the amortization of the Palisades below-market purchased power agreement, mark-to-market activity, and service revenues. Entergy estimates that a positive $10 per MWh change in the annual average energy price in the markets in which the Entergy Wholesale Commodities nuclear business sells power, based on the respective year-end market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax income of $37 million in 2017 and would have had a corresponding effect on pre-tax income of $99 million in 2016. A negative $10 per MWh change in the annual average energy price in the markets based on the respective year-end market conditions, planned generation volumes, and hedged positions, would have a corresponding effect on pre-tax income of ($31) million in 2017 and would have had a corresponding effect on pre-tax income of ($74) million in 2016. Entergy’s purchase of the FitzPatrick and Indian Point 3 plants from NYPA included value sharing agreements with NYPA. In October 2007, NYPA and the subsidiaries that own the FitzPatrick and Indian Point 3 plants amended and restated the value sharing agreements to clarify and amend certain provisions of the original terms. Under the amended value sharing agreements, the Entergy subsidiaries agreed to make annual payments to NYPA based on the generation output of the Indian Point 3 and FitzPatrick plants from January 2007 through December 2014. Entergy subsidiaries paid NYPA $6.59 per MWh for power sold from Indian Point 3, up to an annual cap of $48 million, and $3.91 per MWh for power sold from FitzPatrick, up to an annual cap of $24 million. The annual payment for each year’s output was due by January 15 of the following year. Entergy recorded the liability for payments to NYPA as power is generated and sold by Indian Point 3 and FitzPatrick. In 2014, Entergy Wholesale Commodities recorded a liability of approximately $72 million for generation during that year. An amount equal to the liability was recorded each year to the plant asset account as contingent purchase price consideration for the plants. 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 Entergy subsidiary is required to provide credit support based upon the difference between the current market prices and contracted power prices in the regions where Entergy Wholesale Commodities sells power. The primary form of credit support to satisfy these requirements is an Entergy Corporation guaranty. Cash and letters of credit are also acceptable forms of credit support. At December 31, 2016, based on power prices at that time, Entergy had liquidity exposure of $128 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, 2016, Entergy would have been required to provide approximately $57 million of additional cash or letters of credit under some of the agreements. As of December 31, 2016, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by $238 million for a $1 per MMBtu increase in gas prices in both the short-and long-term markets. 48

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