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    ENTERGY CORPORATION AND SUBSIDIARIES 2019 ANNUAL REPORT


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    Entergy Corporation and Subsidiaries 2019 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 9,000 megawatts of nuclear power. Entergy delivers electricity to 2.9 million utility customers in Arkansas, Louisiana, Mississippi and Texas. Entergy has annual revenues of $11 billion and approximately 13,600 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 – customers, employees, communities and owners – are linked and that we must deliver sustainable value to all stakeholders in order to succeed. We encourage you to visit our 2019 Integrated Report at integratedreport.entergy.com. Contents 1 Letter To Our Stakeholders 4 Forward-Looking Information 7 Selected Financial Data – Five-Year Comparison 8 Comparison of Five-Year Cumulative Return 9 Definitions 13 Management’s Financial Discussion and Analysis 48 Report of Management 49 Report of Independent Registered Public Accounting Firm 54 Consolidated Income Statements 55 Consolidated Statements of Comprehensive Income 56 Consolidated Statements of Cash Flows 58 Consolidated Balance Sheets 60 Consolidated Statements of Changes in Equity 61 Notes to Financial Statements 190 Board of Directors 191 Executive Officers 192 Investor Information


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    To Our Stakeholders What does it take to be the best — to be the premier utility? It takes a powerful purpose with a bright vision, a clear strategy, and an engaged and resilient workforce. It requires a genuine dedication to sustainability and a strong desire always to be better in a rapidly changing world. Years ago, Entergy set out on a path to grow a world-class energy business that creates sustainable value for our four key stakeholders — customers, employees, communities, and owners. Our mission supports our vision — We Power Life — which is the driving force that advances both our short- and long-term strategic plans and aspirations. We have a clear strategy — to strengthen and grow the utility while managing the risks to our business — and we have successfully executed on that strategy. Through years of hard work, discipline, and innovation, combined with difficult and necessary decisions, we have made significant progress. With a robust customer-centric investment plan, we have grown our business while maintaining electricity rates that are among the lowest in the country, benefiting our customers and contributing to strong economic development and industrial growth across our region. The growth of our business is supported by a visible, executable utility investment plan, and we see no shortage of investment opportunities to benefit our customers and support our growth. We’ve managed business risks through (1) the planned and orderly exit from our merchant business, (2) the creation of a world-class capital project management organization that delivers our projects on time and on budget, and (3) building constructive relationships with our regulators that have enabled the development of progressive regulatory mechanisms. Ninety percent of our capital plan over the next three years requires no further regulatory approval to execute and 90 percent is expected to be recovered through timely, progressive regulatory mechanisms. Our strong financial results and returns to our owners have validated the choices we have made. We realized top-decile total shareholder return of 44 percent in 2019 as compared to our peer companies in the Philadelphia Utility Index. Over the three-year period 2017 through 2019, we delivered top-quartile total shareholder returns of 85 percent. Our leadership in sustainability and environmental stewardship has been a hallmark of who we are for nearly two decades. In 2002, our board of directors adopted a visionary statement committing us to “develop and conduct our business in a responsible manner that is environmentally, socially, and economically sustainable.” While Entergy already operates one of the cleanest large-scale power generation fleets in the country, in 2019 we further intensified our efforts to address climate risks by setting a new commitment to reduce our carbon emission rate to 50 percent below year-2000 levels by 2030. Our leadership was nationally recognized in 2019 by the Dow Jones Sustainability Index for the 18th consecutive year, by The Civic 50 for being among the top 50 community-minded companies in the U.S. for the fourth consecutive year, and by the U.S. Chamber of Commerce Foundation Corporate Citizenship Center’s Corporate Citizenship Hall of Fame. 1


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    Today, we are a simpler and stronger company for the benefit of all our stakeholders. Our operating and financial positions are strong, and our track record is consistent. We are delivering sustainable value for our stakeholders, and as we continue to build the premier utility, we have an unprecedented opportunity to do even better. The emergence of new technologies and data analytics is bringing promising change and new growth opportunities beyond traditional generating equipment, substations, poles and wires, vehicles, and tools. Our customers expect far more from us than keeping their lights on. In fact, reliable power at the flip of a switch is just the beginning of our relationship with customers. In the past, utilities were expected to keep the grid running. Today, we want to go beyond that by helping customers achieve their aspirations. Instead of simply providing an input — electricity or gas service — to a customer’s home or business, we’re working to understand the outcomes they need and desire in their personal lives, in their manufacturing plants, and in their retail businesses: a warm house on a cold day, efficient industrial processes, environmentally sustainable energy, and more. Engaging with customers on a new level requires a new mindset. By building on our interactions and understanding the outcomes customers want from their power consumption, we can develop new customer solutions that match those outcomes — and make their lives better. To help us realize this customer-centric growth opportunity, we launched KeyString Labs, an innovation center that focuses on three key functions: engaging with our stakeholders, including our most impoverished customers, to understand their expectations; evaluating new technologies and devices that enable distributed energy resources like residential and utility-scale solar, battery storage, backup generators, microgrids, and electric vehicle infrastructure; and developing scalable and innovative customer solutions that we can pilot and ultimately deploy across our service area. These include: · Customer-sited generation available to the customer during power outages, and available to the utility in other times of need, · Beneficial electrification / shore power services that extend the grid to marine vessels in port, · Shared solar power solutions that make clean energy participation easy for customers, · Targeted microgrids through application of modular alternative technologies, and · Centralized solutions for demand-side management. Furthermore, we’re on a continuous journey to optimize our business. With no shortage of customer- centric investment opportunities, we’re actively identifying ways to create headroom to make more investments while managing the impact on customers’ bills. We are working smarter and more efficiently by improving processes, products, and services and using advanced technologies such as automation to improve our business. These efforts will benefit customers through additional investments that will result in higher levels of service and reliability without significantly affecting their bills. That’s our objective, to allow our customers to achieve their most ambitious dreams at the lowest possible cost. Finally, as we continue to build the premier utility, we’re focused on strengthening our employee culture in the areas of diversity, inclusion, and belonging. We are committed to developing and retaining a workforce that reflects the rich diversity of the communities we have the privilege to serve. The diversity of employee ideas, backgrounds, perspectives, abilities, skills, and knowledge enables us to more effectively create innovative business and customer solutions. To ensure that we fully realize the potential 2


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    of our diverse workforce, we are also focused on creating and nurturing a culture of belonging, with the goal of assuring that all employees feel valued, heard, and respected. A powerful and dynamic culture retains top talent, provides an environment for more engaged employees, and empowers our workforce to enthusiastically deliver on customer-centric opportunities and continuous improvement efforts expected of the premier utility, creating additional sustainable value for all our stakeholders. At Entergy, every day is a new opportunity to do even better than we did the day before. It’s a way of doing business that has driven us to continuously raise the bar on performance and unleash our imaginations to dream bigger. It’s an outlook that has positioned Entergy as a forward-thinking company that has decisively embraced a broader role in our efforts to maximize value for our stakeholders while contributing to the greater good. We Power Life when we bring our whole selves to work each day and ensure safe, reliable energy is delivered to our customers. We Power Life when we partner with communities to make them stronger and more resilient. We Power Life for current and future generations when we lead in sustainability and environmental stewardship. Entergy is well positioned for continued value creation that benefits our stakeholders without leaving any of them behind. With a successful transition from a hybrid to a pure-play utility largely behind us, we are taking the business to the next level by identifying customer-focused investment opportunities, investing in people and culture, and maximizing prospective growth through continuous improvement and innovation. We are well on our way to being the best — the premier utility. Thank you for your continued commitment and engagement with us on this journey. Leo P. Denault Chairman of the Board and Chief Executive Officer March 27, 2020 3


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    FORWARD-LOOKING INFORMATION Forward-Looking Information In this combined report and from time to time, Entergy Corporation and the Registrant Subsidiaries each 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 each of these registrants 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 combined report and speaks only as of the date on which such statement is made. Except to the extent required by the federal securities laws, these registrants undertake 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, 2019, (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, 2019, and (c) the following factors (in addition to others described elsewhere in this combined report and in subsequent securities filings): • resolution of pending and future rate cases, formula rate proceedings and related negotiations, including various performance-based rate discussions, Entergy’s utility supply plan, and recovery of fuel and purchased power costs; • continuing 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 benefits of continued MISO participation, 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, the MISO-wide base rate of return on equity allowed or any MISO-related charges and credits required by the FERC, 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 with respect to retail and wholesale competition, the ability to recover net utility assets and other potential stranded costs, and the application of more stringent return on equity criteria, 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 or actual shutdown and sale of each of the 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 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 Entergy’s nuclear generating facilities; 4


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    FORWARD-LOOKING INFORMATION (Continued) • increases in costs and capital expenditures that could result from changing regulatory requirements, emerging operating and industry issues, and the commitment of substantial human and capital resources required for the safe and reliable operation and maintenance of Entergy’s nuclear generating facilities; • 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, especially in light of the planned shutdown and sale of each of these 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 and prices for electricity, natural gas, oil, 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, agency positions or associated litigation, including requirements for reduced emissions of sulfur dioxide, nitrogen oxide, greenhouse gases, mercury, particulate matter and other regulated air emissions, heat and other regulated discharges to water, requirements for waste management and disposal and for the remediation of contaminated sites, wetlands protection and permitting, and changes in costs of compliance with environmental laws and regulations; • changes in laws and regulations, agency positions, or associated litigation related to protected species and associated critical habitat designations; • 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, trade/tariff, domestic purchase requirements, or energy policies; • the effects of full or partial shutdowns of the federal government or delays in obtaining government or regulatory actions or decisions; • 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, as well as any related unplanned outages; • the risk that an incident at any nuclear generation facility in the U.S. could lead to the assessment of significant retrospective assessments and/or retrospective insurance premiums as a result of Entergy’s participation in a secondary financial protection system, a utility industry mutual insurance company, and industry self- insurance programs; • effects of climate change, including the potential for increases in extreme weather events and 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, including completion of projects timely and within budget and to obtain the anticipated performance or other benefits, and its operation and maintenance costs; • Entergy’s ability to purchase and sell assets at attractive prices and on other attractive terms; 5


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    FORWARD-LOOKING INFORMATION (Concluded) • the economic climate, and particularly economic conditions in Entergy’s Utility service area and the northern United States and events and circumstances that could influence economic conditions in those areas, including power prices, oil and gas prices, and the risk that anticipated load growth may not materialize; • federal income tax reform, including the Tax Cuts and Jobs Act and its intended and unintended consequences on financial results and future cash flows; • the effects of Entergy’s strategies to reduce tax payments, especially in light of federal income tax reform; • 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; • changes in inflation and interest rates; • the effects of litigation and government investigations or proceedings; • changes in technology, including (i) Entergy’s ability to implement new or emerging technologies, (ii) the impact of changes relating to new, developing, or alternative sources of generation such as distributed energy and energy storage, renewable energy, energy efficiency, demand side management and other measures that reduce load and government policies incentivizing development of the foregoing, and (iii) competition from other companies offering products and services to Entergy’s customers based on new or emerging technologies or alternative sources of generation; • the effects of threatened or actual terrorism, cyber-attacks or data security breaches, natural or man- made electromagnetic pulses that affect transmission or generation infrastructure, accidents, such as a nuclear accident or a natural gas pipeline explosion, and war or a catastrophic event, such as the COVID-19 or other pandemic, including economic and societal disruptions, increased costs, impacts on residential, commercial or industrial customers and supply chain delays or disruptions; • Entergy’s ability to attract and retain talented management, directors, and employees with specialized skills; • Entergy’s ability to attract, retain and manage an appropriately qualified workforce; • 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 mid-2022, including the implementation of the planned shutdowns and sales of Indian Point 2, Indian Point 3, and Palisades; • 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; • the potential for the factors listed herein to lead to the impairment of long-lived assets; and • Entergy and its subsidiaries’ ability to successfully execute on their business strategies, including their ability to complete strategic transactions that Entergy may undertake. 6


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    ENTERGY CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON 2019 2018 2017 2016 2015 (In Thousands, Except Percentages and Per Share Amounts) Operating revenues $10,878,673 $11,009,452 $11,074,481 $10,845,645 $11,513,251 Net income (loss) $1,258,244 $862,555 $425,353 ($564,503) ($156,734) Earnings (loss) per share: Basic $6.36 $4.68 $2.29 ($3.26) ($0.99) Diluted $6.30 $4.63 $2.28 ($3.26) ($0.99) Dividends declared per share $3.66 $3.58 $3.50 $3.42 $3.34 Return on common equity 13.02% 10.08% 5.12% (6.73%) (1.83%) Book value per share, year-end $51.34 $46.78 $44.28 $45.12 $51.89 Total assets $51,723,912 $48,275,066 $46,707,149 $45,904,434 $44,647,681 Long-term obligations (a) $17,351,449 $15,758,083 $14,535,077 $14,695,422 $13,456,742 (a) Includes long-term debt (excluding currently maturing debt), non-current finance lease obligations, and subsidiary preferred stock without sinking fund that is not presented as equity on the balance sheet. 2019 2018 2017 2016 2015 (Dollars In Millions) Utility electric operating revenues: Residential $3,532 $3,566 $3,355 $3,288 $3,518 Commercial 2,476 2,426 2,480 2,362 2,516 Industrial 2,541 2,499 2,584 2,327 2,462 Governmental 228 226 231 217 223 Total billed retail 8,777 8,717 8,650 8,194 8,719 Sales for resale 286 300 253 236 249 Other 367 367 376 437 341 Total $9,430 $9,384 $9,279 $8,867 $9,309 Utility billed electric energy sales (GWh): Residential 36,094 37,107 33,834 35,112 36,068 Commercial 28,755 29,426 28,745 29,197 29,348 Industrial 48,483 48,384 47,769 45,739 44,382 Governmental 2,579 2,581 2,511 2,547 2,514 Total retail 115,911 117,498 112,859 112,595 112,312 Sales for resale 13,210 11,715 11,550 11,054 9,274 Total 129,121 129,213 124,409 123,649 121,586 Entergy Wholesale Commodities: Operating revenues $1,295 $1,469 $1,657 $1,850 $2,062 Billed electric energy sales (GWh) 28,088 29,875 30,501 35,881 39,745 7


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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. $200.00 $175.00 $150.00 ENTERGY CORPORATION $125.00 PHILADELPHIA UTILITY INDEX $100.00 S&P 500 INDEX $75.00 $50.00 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 ENTERGY CORPORATION $100.00 $81.83 $92.08 $106.71 $118.02 $170.34 PHILADELPHIA UTILITY INDEX $100.00 $93.75 $110.05 $124.16 $128.53 $163.00 S&P 500 INDEX $100.00 $101.37 $113.49 $138.26 $132.19 $173.80 Assumes $100 invested at the closing price on Dec. 31, 2014, in Entergy Corporation common stock, the Philadelphia Utility Index and the S&P 500 Index, and reinvestment of all dividends. Source: Bloomberg 8


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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 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), previously owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which was sold in March 2017 Grand Gulf Unit No. 1 of Grand Gulf Nuclear Station (nuclear), 90% owned or leased by System Energy 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 9


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    DEFINITIONS (Continued) Abbreviation or Acronym Term 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), previously owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which ceased power production in May 2019 and was sold in August 2019 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, LLC, Entergy Louisiana, LLC, Entergy Mississippi, LLC, Entergy New Orleans, LLC, Entergy Texas, Inc., and System Energy Resources, Inc. River Bend River Bend Station (nuclear), owned by Entergy Louisiana RTO Regional transmission organization SEC Securities and Exchange Commission 10


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    DEFINITIONS (Concluded) Abbreviation or Acronym Term 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 the 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), previously owned by an Entergy subsidiary in the Entergy Wholesale Commodities business segment, which ceased power production in December 2014 and was disposed of in January 2019 Waterford 3 Unit No. 3 (nuclear) of the Waterford Steam Electric Station, owned 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 11


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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 and sale of each of the Entergy Wholesale Commodities nuclear power plants. Following are the percentages of Entergy’s consolidated revenues generated by its operating segments and the percentage of total assets held by them. Net income or loss generated by the operating segments is discussed in the sections that follow. % of Revenue % of Total Assets Segment 2019 2018 2017 2019 2018 2017 Utility 88 87 85 96 93 92 Entergy Wholesale Commodities 12 13 15 8 11 12 Parent & Other (a) — — — (4) (4) (4) See Note 13 to the financial statements for further financial information regarding Entergy’s business segments. (a) Parent & Other includes eliminations, which are primarily intersegment activity. 13


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Results of Operations 2019 Compared to 2018 Following are income statement variances for Utility, Entergy Wholesale Commodities, Parent & Other, and Entergy comparing 2019 to 2018 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) 2018 Consolidated Net Income (Loss) $1,495,061 ($340,641) ($291,865) $862,555 Operating revenues 43,315 (174,186) 92 (130,779) Fuel, fuel-related expenses, and gas purchased for resale (139,200) 20,974 71 (118,155) Purchased power (409,276) (56,596) (67) (465,939) Other regulatory charges (credits) (327,269) — — (327,269) Other operation and maintenance 61,199 (130,054) (5,161) (74,016) Asset write-offs, impairments, and related charges — (242,294) — (242,294) Taxes other than income taxes 20,826 (17,870) (1,163) 1,793 Depreciation and amortization 110,580 (1,676) 1,670 110,574 Other income 13,488 382,359 (19,212) 376,635 Interest expense 36,476 (4,244) 2,845 35,077 Other expenses 20,703 42,692 — 63,395 Income taxes 752,182 107,730 7,089 867,001 2019 Consolidated Net Income (Loss) $1,425,643 $148,870 ($316,269) $1,258,244 (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 2019 include: 1) a loss of $190 million ($156 million net-of-tax) as a result of the sale of the Pilgrim plant in August 2019; 2) a $156 million reduction in income tax expense recognized by Entergy Wholesale Commodities as a result of an internal restructuring; and 3) impairment charges of $100 million ($79 million net-of-tax) due to costs being charged directly to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business. See Note 3 to the financial statements for further discussion of the internal restructuring. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below for discussion of management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet and see Note 14 to the financial statements for further discussion of the impairment and related charges and the sale of the Pilgrim plant. Results of operations for 2018 include: 1) impairment charges of $532 million ($421 million net-of-tax) due to costs being charged directly to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives 14


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis associated with management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business; 2) a $170 million reduction of income tax expense and a regulatory liability of $40 million ($30 million net-of-tax) as a result of customer credits recognized by Utility, as a result of an internal restructuring; 3) a $107 million reduction of income tax expense, recognized by Entergy Wholesale Commodities, as a result of a restructuring of the investment holdings in one of its nuclear plant decommissioning trust funds; 4) a $52 million income tax benefit, recognized by Entergy Louisiana, as a result of the settlement of the 2012-2013 IRS audit, associated with the Hurricane Katrina and Hurricane Rita contingent sharing obligation associated with the Louisiana Act 55 financing; and 5) a $23 million reduction of income tax expense, recognized by Entergy Wholesale Commodities, as a result of a state income tax audit. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below for a discussion of management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet and see Note 14 to the financial statements for further discussion of the impairment and related charges. See Notes 2 and 3 to the financial statements for further discussion of the internal restructuring and customer credits. See Note 3 to the financial statements for further discussion of the restructuring of the decommissioning trust fund investment holdings, the IRS audit settlement, and the state income tax audit. Operating Revenues Utility Following is an analysis of the change in operating revenues comparing 2019 to 2018: Amount (In Millions) 2018 operating revenues $9,541 Fuel, rider, and other revenues that do not significantly affect net income (523) Return of unprotected excess accumulated deferred income taxes to customers 379 Retail electric price 260 Volume/weather (73) 2019 operating revenues $9,584 The Utility operating companies’ results include revenues from rate mechanisms designed to recover fuel, purchased power, and other costs such that the revenues and expenses associated with these items generally offset and do not affect net income. “Fuel, rider, and other revenues that do not significantly affect net income” includes the revenue variance associated with these items. The return of unprotected excess accumulated deferred income taxes to customers resulted from activity at the Utility operating companies in response to the enactment of the Tax Cuts and Jobs Act. The return of unprotected excess accumulated deferred income taxes began in second quarter 2018. In 2019, $262 million was returned to customers through reductions in operating revenues as compared to $641 million in 2018. There is no effect on net income as the reductions in operating revenues were offset by reductions in income tax expense. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act. The retail electric price variance is primarily due to: an increase in formula rate plan revenues effective September 2018 and an interim increase in formula rate plan revenues effective June 2019 due to the inclusion of the first-year revenue requirement for the St. Charles Power Station, each at Entergy Louisiana, as approved by the LPSC; an increase in formula rate plan rates effective with the first billing cycle of January 2019 at Entergy Arkansas, as approved by the APSC; 15


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis a base rate increase effective October 2018 at Entergy Texas, as approved by the PUCT; and an increase in formula rate plan revenues effective with the first billing cycle of July 2019 and an accrual in the fourth quarter 2019 for the interim capacity rate adjustment to the formula rate plan to recover non-fuel related costs of acquiring the Choctaw Generating Station, each at Entergy Mississippi, as approved by the MPSC. See Note 2 to the financial statements for further discussion of the regulatory proceedings discussed above. The volume/weather variance is primarily due to a decrease of 1,587 GWh, or 1%, in billed electricity usage, including the effect of less favorable weather on residential and commercial sales. Entergy Wholesale Commodities Operating revenues for Entergy Wholesale Commodities decreased from $1,469 million for 2018 to $1,295 million for 2019 primarily due to the shutdown of Pilgrim in May 2019 and lower capacity prices, partially offset by higher volume in the remaining Entergy Wholesale Commodities merchant nuclear fleet resulting from fewer outage days. Following are key performance measures for Entergy Wholesale Commodities for 2019 and 2018: 2019 2018 Owned capacity (MW) (a) 3,274 3,962 GWh billed 28,088 29,875 Entergy Wholesale Commodities Nuclear Fleet Capacity factor 93% 84% GWh billed 25,928 27,617 Average energy price ($/MWh) $39.10 $37.34 Average capacity price ($/kW-month) $4.25 $6.80 Refueling outage days: Indian Point 2 — 33 Indian Point 3 29 — Palisades — 61 (a) The reduction in owned capacity is due to the shutdown of the 688 MW Pilgrim plant in May 2019. Other Income Statement Items Utility Other operation and maintenance expenses increased from $2,501 million for 2018 to $2,563 million for 2019 primarily due to: an increase of $34 million in information technology costs primarily due to higher costs related to applications and infrastructure support, enhanced cyber security, and upgrades and maintenance; an increase of $32 million in spending on initiatives to explore new customer products and services; an increase of $21 million in compensation and benefits costs primarily due to higher incentive-based compensation accruals in 2019 as compared to prior year; a $15 million gain in 2018 from the sale of Entergy Louisiana’s Willow Glen Power Station. See Note 14 to the financial statements for discussion of the sale of Willow Glen; an increase of $12 million in distribution operations and asset management costs primarily due to higher advanced metering customer education costs and higher contract costs for meter reading services; and 16


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis an $11 million write-off in 2019 of specific costs related to the potential construction of scrubbers at the White Bluff plant at Entergy Arkansas. The increase was partially offset by: a decrease of $30 million in nuclear generation expenses primarily due to a lower scope of work performed in 2019 as compared to 2018; the effects of recording in 2019 final judgments to resolve claims in the ANO damages case and the River Bend damages case both against the DOE related to spent nuclear fuel storage costs. The damages awarded include the reimbursement of approximately $17 million of spent nuclear 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; a decrease of $11 million in energy efficiency costs due to the timing of recovery from customers; and a decrease of $9 million as a result of the deferral in 2019 by Entergy New Orleans of 2018 costs related to its rate case and a system conversion for Algiers customers as a result of the 2018 combined rate case resolution approved by the City Council. See Note 2 to the financial statements for further discussion of the rate case resolution. Depreciation and amortization expenses increased primarily due to: additions to plant in service, including the St. Charles Power Station; a reduction of approximately $26 million in depreciation expense recorded in the third quarter 2018 as part of a settlement approved by the FERC in the Unit Power Sales Agreement proceeding; and new depreciation rates at Entergy Mississippi, as approved by the MPSC, and at Entergy Texas, as approved by the PUCT. The increase was partially offset by updated depreciation rates used in calculating Grand Gulf plant depreciation and amortization expenses under the Unit Power Sales Agreement, as approved by the FERC. See Note 2 to the financial statements for further discussion of the Unit Power Sales Agreement proceeding. Other regulatory charges (credits) include the following significant activity: a regulatory charge recorded in second quarter 2018 to reflect the return of unprotected excess accumulated deferred income taxes per an agreement approved by the MPSC in June 2018 that resulted in a reduction in net utility plant of $127 million. There was no effect on net income as the regulatory charge was offset by a reduction in income tax expense in 2018; regulatory charges of $73 million recorded in 2018 to reflect the effects of regulatory agreements to return the benefits of the lower income tax rate in 2018 to Entergy Louisiana customers; and regulatory charges of $25 million recorded in 2018 to reflect the effects of a provision in the settlement reached in the 2018 rate case proceeding to return the benefits of the lower federal income tax rate in 2018 to Entergy Texas customers. See Note 2 to the financial statements for further discussion of regulatory activity regarding the Tax Cuts and Jobs Act. Interest expense increased primarily due to the issuance in March 2019 of $525 million of 4.20% Series mortgage bonds by Entergy Louisiana and the issuance in March 2019 of $350 million of 4.20% Series mortgage bonds by Entergy Arkansas. See Note 5 to the financial statements for a discussion of long-term debt. Entergy Wholesale Commodities Fuel and purchased power expenses decreased from $192 million for 2018 to $157 million for 2019 primarily due to a larger exercise of resupply options in 2018 provided for in purchase power agreements where Entergy Wholesale 17


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Commodities may elect to supply power from another source when plants are not running. Other operation and maintenance expenses decreased from $808 million for 2018 to $678 million for 2019 primarily due to: a decrease of $75 million in nuclear generation expenditures primarily due to the absence of other operation and maintenance expenses from the Pilgrim plant, after it was shut down in May 2019 and subsequently sold. See Note 14 to the financial statements for further discussion of the sale of the Pilgrim plant; and a decrease of $44 million in severance and retention expenses. Severance and retention expenses were incurred in 2019 and 2018 due to management’s strategy to exit the Entergy Wholesale Commodities merchant power business. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below for a discussion of management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet. See Note 13 to the financial statements for further discussion of severance and retention expenses resulting from management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet. Asset write-offs, impairments, and related charges for 2019 include a loss of $190 million ($156 million net- of-tax) as a result of the sale of the Pilgrim plant in August 2019 and impairment charges of $100 million ($79 million net-of-tax) primarily related to nuclear refueling outage spending and expenditures for capital assets. Asset write-offs, impairments, and related charges for 2018 include impairment charges of $532 million ($421 million net-of-tax) related to asset retirement obligation revisions, nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets. These costs were charged to expense as incurred as a result of the impaired fair value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” below for a discussion of management’s strategy to shut down and sell all of the remaining plants in Entergy Wholesale Commodities’ merchant nuclear fleet. See Note 9 to the financial statements for a discussion of asset retirement obligations. See Note 14 to the financial statements for a discussion of the impairment of long-lived assets and the sale of the Pilgrim plant. Other income increased primarily due to higher gains on decommissioning trust fund investments. See Notes 15 and 16 to the financial statements for a discussion of decommissioning trust fund investments. Other expenses increased primarily due to an increase in nuclear refueling outage expenses as a result of the amortization in 2019 of costs associated with a refueling outage at Palisades. Income Taxes See Note 3 to the financial statements for a reconciliation of the federal statutory rate of 21% to the effective income tax rates, and for additional discussion regarding income taxes. The effective income tax rate for 2019 was (15.6%). The difference in the effective income tax rate versus the federal statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes, certain book and tax differences related to utility plant items, tax differences related to the allowance for equity funds used during construction, recognition of a deferred tax asset associated with a previously unrecognized net operating loss carryover, a charitable tax deduction, and the effects of restructuring transactions within Entergy Wholesale Commodities, partially offset by state income taxes and valuation allowances recorded against deferred tax assets associated with the disposition of Vermont Yankee and the carryover of business interest expense. See Notes 2 and 3 to the financial statements for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 3 to the financial statements for a discussion of the internal restructuring at Entergy Wholesale Commodities. See Note 14 to the financial statements for a discussion of the tax effects of the Vermont Yankee disposition. 18


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis The effective income tax rate for 2018 was 595%. The difference in the effective income tax rate versus the statutory rate of 21% was primarily due to amortization of excess accumulated deferred income taxes, the tax effects of a restructuring within the Utility, and a restructuring of the investment holdings in one of the Entergy Wholesale Commodities’ nuclear plant decommissioning trusts for which additional tax basis is now recoverable. See Notes 2 and 3 to the financial statements for a discussion of the effects and regulatory activity regarding the Tax Cuts and Jobs Act. See Note 3 to the financial statements for a discussion of the restructuring. 2018 Compared to 2017 See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Results of Operations” in Entergy’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of results of operations for 2018 compared to 2017. Income Tax Legislation On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the Act). As a result of the Act, Entergy and the Registrant Subsidiaries re-measured their deferred tax assets and liabilities in December 2017 to reflect the reduction in the federal corporate income tax rate from 35% to 21% that was effective January 1, 2018. Note 3 to the financial statements contains additional discussion of the effect of the Act on 2017, 2018, and 2019 results of operations and financial position, the provisions of the Act, and the uncertainties associated with accounting for the Act, and Note 2 to the financial statements discusses the regulatory proceedings that have considered the effects of the Act. Entergy’s operating cash flows have been and will be reduced by the Act, most significantly over the time that the Registrant Subsidiaries are returning unprotected excess deferred income taxes to customers. Rate base is expected to increase over time as a consequence of the Act as the excess deferred income taxes are returned to customers. Entergy financed its incremental cash requirements as a consequence of the Act through a combination of Registrant Subsidiary debt and Entergy Corporation debt and equity. In June 2018, Entergy Corporation marketed an equity offering of 15.3 million shares of common stock. In lieu of issuing equity at the time of the offering, Entergy entered into forward sale agreements with several counterparties. In December 2018, Entergy physically settled a portion of its obligations under the forward sale agreements by delivering 6.8 million shares of its common stock in exchange for cash proceeds of $500 million. In May 2019, Entergy physically settled its remaining obligations under the forward sale agreements by delivering 8.5 million shares of common stock in exchange for cash proceeds of $608 million. See Note 7 to the financial statements for further discussion of the forward sale agreements. Entergy Wholesale Commodities Exit from the Merchant Power Business Entergy Wholesale Commodities includes the ownership of the following nuclear reactors as of December 31, 2019: Location Market Capacity Status 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 Palisades Covert, MI MISO 811 MW Planned shutdown in 2022 As discussed below, Entergy sold its FitzPatrick plant to Exelon in March 2017, transferred its Vermont Yankee plant to NorthStar in January 2019, and sold its Pilgrim plant to Holtec in August 2019. The Palisades and Indian Point plants are under contract to be sold, subject to certain conditions, after they are shut down. Entergy also sold the Rhode Island State Energy Center, a natural gas-fired combined cycle generating plant, in December 2015. 19


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis These plant sales and contracts to sell are the result of a strategy that Entergy has undertaken to manage and reduce the risk of the Entergy Wholesale Commodities business, which includes taking actions to exit the merchant power business. Management evaluated the challenges for each of the plants based on a variety of factors such as their market for both energy and capacity, their size, their contracted positions, and the amount of investment required to continue to operate and maintain the safety and integrity of the plants, including the estimated asset retirement costs. Changes to current assumptions regarding the operating life of a plant, the decommissioning timeline and process, or the length of time that Entergy will continue to own a plant 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 are likely to result in an increase in operating expense in the period of a revision. The possibility that a plant may have an operating life shorter than previously assumed could result in the need for additional contributions to decommissioning trust funds, or the posting of parent guarantees, letters of credit, or other surety mechanisms. 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. Big Rock Point is under contract to be sold with the Palisades plant and Indian Point 1 is under contract to be sold with the Indian Point 2 and Indian Point 3 plants. In addition, Entergy Wholesale Commodities provides operations and management services, including decommissioning-related services, to nuclear power plants owned by non-affiliated entities in the United States. A relatively minor portion of the Entergy Wholesale Commodities business is the ownership of interests in non-nuclear power plants that sell the electric power produced by those plants to wholesale customers. Shutdown and Disposition of Vermont Yankee On December 29, 2014, the Vermont Yankee plant ceased power production and entered its decommissioning phase. In November 2016, Entergy entered into an agreement to transfer 100% of the membership interests in Entergy Nuclear Vermont Yankee, LLC to a subsidiary of NorthStar. Entergy Nuclear Vermont Yankee was the owner of the Vermont Yankee plant. The transaction included the transfer of the nuclear decommissioning trust fund and the asset retirement obligation for the spent fuel management and decommissioning of the plant. In March 2018, Entergy and NorthStar entered into a settlement agreement and a Memorandum of Understanding with State of Vermont agencies and other interested parties that set forth the terms on which the agencies and parties supported the Vermont Public Utility Commission’s approval of the transaction. The agreements provided additional financial assurance for decommissioning, spent fuel management and site restoration, and detailed the site restoration standards. In October 2018 the NRC issued an order approving the application to transfer Vermont Yankee’s license to NorthStar for decommissioning. In December 2018 the Vermont Public Utility Commission issued an order approving the transaction consistent with the Memorandum of Understanding’s terms. On January 11, 2019, Entergy and NorthStar closed the transaction. Entergy Nuclear Vermont Yankee had an outstanding credit facility that was used to pay for dry fuel storage costs. This credit facility was guaranteed by Entergy Corporation. A subsidiary of Entergy assumed the obligations under the credit facility. At the closing of the sale transaction, NorthStar caused Entergy Nuclear Vermont Yankee, renamed NorthStar Vermont Yankee, to issue a $139 million promissory note to the Entergy subsidiary that assumed the credit facility obligations. The amount of the note includes the balance outstanding on the credit facility, as well as borrowing fees and costs incurred by Entergy in connection with the credit facility. With the receipt of the NRC and Vermont Public Utility Commission approvals and the resolution among the parties of the significant conditions of the sale, Entergy concluded that as of December 31, 2018 Vermont Yankee was in held for sale status. Entergy accordingly evaluated Vermont Yankee’s asset retirement obligation in light of the terms of the transaction and evaluated the remaining values of the Vermont Yankee assets. These evaluations resulted in an increase in the asset retirement obligation and $173 million of related asset impairment and other charges in the 20


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis fourth quarter 2018. See Note 9 to the financial statements for additional discussion of the asset retirement obligation. See Note 14 to the financial statements for discussion of the closing of the Vermont Yankee transaction. 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. 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 decommissioning trust funds for the Indian Point 3 and FitzPatrick plants were transferred to Entergy by NYPA in January 2017. In August 2016, Entergy entered into an agreement to sell the FitzPatrick plant to Exelon. NRC approval of the sale was received in March 2017. The transaction closed in March 2017 for a purchase price of $110 million, which included a $10 million non-refundable signing fee paid in August 2016, in addition to the assumption by Exelon of certain liabilities related to the FitzPatrick plant, resulting in a pre-tax gain on the sale of $16 million. At the transaction close, Exelon paid an additional $8 million for the proration of certain expenses prepaid by Entergy. See Note 14 to the financial statements for further discussion of the sale of FitzPatrick. As discussed in Note 3 to the financial statements, as a result of the sale of FitzPatrick, Entergy re-determined the plant’s tax basis, resulting in a $44 million income tax benefit in the first quarter 2017. Shutdown and Sale 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. In January 2019 the NRC found that the Pilgrim plant had completed the corrective actions required to address the concerns that led to the plant’s placement in Column 4 and had demonstrated sustained improvement. Pilgrim ceased operations in May 2019. See Note 14 to the financial statements for discussion of the impairment charges associated with the decision to cease operations earlier than expected. On July 30, 2018, Entergy entered into a purchase and sale agreement with Holtec International to sell to a Holtec subsidiary 100% of the equity interests in Entergy Nuclear Generation Company, LLC, the owner of Pilgrim, for $1,000 (subject to adjustments for net liabilities and other amounts). On August 22, 2019 the NRC approved the transfer of Pilgrim’s facility licenses to Holtec. At that time, hearing requests filed by the Commonwealth of Massachusetts and Pilgrim Watch challenging Holtec’s financial qualifications and the sufficiency of the NRC’s review of the associated environmental impacts of the license transfer were pending with the NRC Commissioners. The NRC approval order included a condition acknowledging the NRC’s longstanding authority to modify, condition, or rescind 21


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis the license transfer order as a result of any hearing that may be conducted. On August 26, 2019, as permitted by the August 22 order, Entergy and Holtec closed the transaction. On September 3 and 4, 2019, Pilgrim Watch and Massachusetts each filed with the NRC motions to stay the effectiveness of the August 22 order pending the resolution of the NRC hearing process. On December 17, 2019, the NRC denied the Pilgrim Watch and Massachusetts stay motions. The NRC has not yet ruled on the Pilgrim Watch and Massachusetts hearing requests. In addition, on September 25, 2019, Massachusetts filed a petition with the U.S. Court of Appeals for the District of Columbia Circuit, asking the court to vacate the NRC’s August 22 license transfer approval order and related approvals. On November 6, 2019, the court granted Entergy and Holtec intervenor status in the U.S. Court of Appeals proceeding. On November 22, 2019, Entergy and Holtec filed a motion to dismiss Massachusetts’ petition; the NRC also filed a motion to dismiss on the same date. On January 17, 2020, the States of New York, Connecticut, Illinois, Iowa, Maryland, Michigan, Minnesota, New Jersey, New Mexico, Oregon, Pennsylvania, and Vermont filed a brief as amici curiae in support of Massachusetts’s petition. The court of appeals has not yet ruled on Massachusetts’ initial petition or on the NRC or Entergy/Holtec motions to dismiss. On January 22, 2020, Massachusetts filed a second petition with the D.C. Circuit asking the court to review the NRC’s December 17 order denying its stay motion. On February 12, 2020, the court granted Entergy and Holtec intervenor status in the proceeding on the second petition and consolidated the proceedings for Massachusetts’ two petitions. The sale of Entergy Nuclear Generation Company, LLC to Holtec included the transfer of the nuclear decommissioning trust and obligation for spent fuel management and plant decommissioning. The transaction resulted in a loss of $190 million ($156 million net-of-tax) in 2019. See Note 14 to the financial statements for discussion of the closing of the Pilgrim transaction. Planned Shutdown and Sale of Indian Point 2 and Indian Point 3 In April 2007, Entergy submitted to the NRC a joint application to renew the operating licenses for Indian Point 2 and Indian Point 3 for an additional 20 years. In January 2017, Entergy reached a settlement with New York State, several State agencies, and Riverkeeper, Inc., under which Indian Point 2 and Indian Point 3 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. Operations may be extended up to four additional years for each unit by mutual agreement of Entergy and New York State based on an exigent reliability need for Indian Point generation. In September 2018 the NRC issued renewed operating licenses for Indian Point 2 through April 2024 and for Indian Point 3 through April 2025. See Note 14 to the financial statements for discussion of the impairment charges associated with the decision to shut down the Indian Point plants. Other provisions of the settlement include termination of all then-existing investigations of Indian Point by the parties to the agreement, which include the New York State Department of Environmental Conservation, the New York State Department of State, 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. In April 2019, Entergy entered into an agreement to sell, directly or indirectly, 100% of the equity interests in the subsidiaries that own Indian Point 1, Indian Point 2, and Indian Point 3, after Indian Point 3 has been shut down and defueled, to a Holtec International subsidiary for decommissioning. The sale includes the transfer of the licenses, spent fuel, decommissioning liabilities, and nuclear decommissioning trusts for the three units. 22


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis The transaction is subject to closing conditions, including approval from the NRC. In November 2019, Entergy and Holtec submitted a license transfer application to the NRC. In January 2020 the NRC indicated that the application contained sufficient information for it to conduct its technical review and anticipated that it would complete its review in January 2021. Entergy and Holtec also submitted a petition to the New York State Public Service Commission in November 2019 seeking an order from the New York Public Service Commission disclaiming jurisdiction or abstaining from review of the transaction or, alternatively, approving the transaction. Closing is also conditioned on obtaining from the New York State Department of Environmental Conservation an agreement related to Holtec’s decommissioning plan as being consistent with applicable standards. The transaction closing is targeted for May 2021, following the defueling of Indian Point 3. As consideration for the transfer to Holtec of its interest in Indian Point, Entergy will receive nominal cash consideration. The Indian Point transaction is expected to result in a loss based on the difference between Entergy’s adjusted net investment in the subsidiaries at closing and the sale price net of any agreed adjustments. As of December 31, 2019, Entergy’s adjusted net investment in the Indian Point units was $240 million. The primary variables in the ultimate loss that Entergy will incur are the values of the nuclear decommissioning trusts and the asset retirement obligations at closing, the financial results from plant operations until the closing, and the level of any unrealized deferred tax balances at closing. The terms of the transaction include limitations on withdrawals from the nuclear decommissioning trusts to fund decommissioning activities and controls on how Entergy manages the investment of nuclear decommissioning trust assets between signing and closing; however, the agreement does not require a minimum level of funding in the nuclear decommissioning trusts as a condition to closing. Planned Shutdown and Sale 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 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 amend the existing PPA to terminate early, on May 31, 2018. Pursuant to the agreement to amend the PPA, Consumers Energy would pay Entergy $172 million for the early termination of the PPA. The PPA amendment agreement was subject to regulatory approvals, including approval by the Michigan Public Service Commission. Separately, Entergy intended to shut down the Palisades nuclear power plant permanently on October 1, 2018, after refueling in the spring of 2017 and operating through the end of that fuel cycle. In September 2017 the Michigan Public Service Commission issued an order conditionally approving the PPA amendment transaction, but only granting Consumers Energy recovery of $136.6 million of the $172 million requested early termination payment. As a result, Entergy and Consumers Energy agreed to terminate the PPA amendment agreement. Entergy continues to operate Palisades under the current PPA with Consumers Energy, instead of shutting down in the fall of 2018 as previously planned. Entergy intends to shut down the Palisades nuclear power plant permanently no later than May 31, 2022. As a result of the increase in the expected operating life of the plant, the expected probability-weighted undiscounted net cash flows as of September 30, 2017 exceeded the carrying value of the plant and related assets. Accordingly, nuclear fuel spending, nuclear refueling outage spending, and expenditures for capital assets incurred at Palisades after September 30, 2017 are no longer charged to expense as incurred, but recorded as assets and depreciated or amortized, subject to the typical periodic impairment reviews prescribed in the accounting rules. See Note 9 to the financial statements for discussion of the associated asset retirement obligation revision, see Note 14 to the financial statements for discussion of the impairment charges associated with the decision to cease operations at Palisades, and see Note 19 to the financial statements for discussion of the updated calculation of the PPA liability amortization. On July 30, 2018, Entergy entered into a purchase and sale agreement with Holtec International to sell to a Holtec subsidiary 100% of the equity interests in Entergy Nuclear Palisades, LLC, the owner of Palisades and the Big Rock Point Site. The sale of Entergy Nuclear Palisades will include the transfer of the nuclear decommissioning trust and obligation for spent fuel management and plant decommissioning. At the closing of the sale transaction, the Holtec 23


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis subsidiary will pay $1,000 (subject to adjustment for net liabilities and other amounts) for the equity interests in Entergy Nuclear Palisades. The Palisades transaction is subject to certain closing conditions, including: the permanent shutdown of Palisades and the transfer of all nuclear fuel from the reactor vessel to the spent nuclear fuel pool; NRC regulatory approval for the transfer of the Palisades and Big Rock Point operating and independent spent fuel storage installation licenses; receipt of a favorable private letter ruling from the IRS; the market value of the nuclear decommissioning trust for Palisades, less the hypothetical income tax on the aggregate unrealized gain of such fund assets at closing, equaling or exceeding a specified minimum amount; and, the Pilgrim transaction having closed. Subject to the above conditions, the Palisades transaction is expected to close by the end of 2022. As of December 31, 2019, Entergy’s adjusted net investment in Palisades was $60 million. The primary variables in the ultimate loss or gain that Entergy will incur on the transaction are the values of the nuclear decommissioning trust and the asset retirement obligations at closing, the financial results from plant operations until the closing, and the level of any unrealized deferred tax balances at closing. Costs Associated with Exit of the Entergy Wholesale Commodities Business Entergy incurred approximately $91 million in costs in 2019, $139 million in costs in 2018, and $113 million in costs in 2017 associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business, primarily employee retention and severance expenses and other benefits-related costs, and contracted economic development contributions. Entergy expects to incur employee retention and severance expenses of approximately $75 million in 2020, and a total of approximately $55 million from 2021 through 2022 associated with the exit from the merchant power business. See Note 13 to the financial statements for further discussion of these costs. Entergy Wholesale Commodities incurred $100 million in 2019, $532 million in 2018, and $538 million in 2017 of impairment charges related to nuclear fuel spending, nuclear refueling outage spending, expenditures for capital assets, and asset retirement obligation revisions. These costs were charged to expense as incurred as a result of the impaired value of the Entergy Wholesale Commodities nuclear plants’ long-lived assets due to the significantly reduced remaining estimated operating lives associated with management’s strategy to exit the Entergy Wholesale Commodities merchant power business. Entergy expects to continue to incur costs associated with nuclear fuel-related spending and expenditures for capital assets and, except for Palisades, expects to continue to charge these costs to expense as incurred because Entergy expects the value of the plants to continue to be impaired. See Note 14 to the financial statements for further discussion of these impairment charges. Liquidity and Capital Resources This section discusses Entergy’s capital structure, capital spending plans and other uses of capital, sources of capital, and the cash flow activity presented in the cash flow statement. Capital Structure Entergy’s debt to capital ratio is shown in the following table. The decrease in the debt to capital ratio is primarily due to the settlement of equity forwards in 2019, partially offset by the issuance of long-term debt in 2019. See Note 7 to the financial statements for a discussion of the equity forward sale agreements and Note 5 to the financial statements for a discussion of long-term debt. 24


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis December 31, December 31, 2019 2018 Debt to capital 65.5% 66.7% Effect of excluding securitization bonds (0.4%) (0.6%) Debt to capital, excluding securitization bonds (a) 65.1% 66.1% Effect of subtracting cash (0.5%) (0.6%) Net debt to net capital, excluding securitization bonds (a) 64.6% 65.5% (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, finance lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt, common shareholders’ equity, and subsidiaries’ preferred stock without sinking fund. Net capital consists of capital less cash and cash equivalents. Entergy uses the debt to capital ratios excluding securitization bonds in analyzing its financial condition and believes they provide useful information to its investors and creditors in evaluating Entergy’s financial condition because the securitization bonds are non-recourse to Entergy, as more fully described in Note 5 to the financial statements. Entergy also uses the net debt to net capital ratio excluding securitization bonds in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy’s financial condition because net debt indicates Entergy’s outstanding debt position that could not be readily satisfied by cash and cash equivalents on hand. 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, 2019. To estimate future interest payments for variable rate debt, Entergy used the rate as of December 31, 2019. The amounts below include payments on System Energy’s Grand Gulf sale-leaseback transaction, which are included in long-term debt on the balance sheet. Long-term debt maturities and estimated interest payments 2020 2021 2022 2023-2024 after 2024 (In Millions) Utility $1,100 $1,889 $1,034 $3,451 $18,836 Entergy Wholesale Commodities 5 144 — — — Parent and Other 531 65 703 511 788 Total $1,636 $2,098 $1,737 $3,962 $19,624 Note 5 to the financial statements provides more detail concerning long-term debt outstanding. Entergy Corporation has in place a credit facility that has a borrowing capacity of $3.5 billion and expires in September 2024. The facility includes fronting commitments for the issuance of letters of credit against $20 million of the total borrowing capacity of the credit facility. The commitment fee is currently 0.225% of the undrawn commitment amount. Commitment fees and interest rates on loans under the credit facility can fluctuate depending on the senior unsecured debt ratings of Entergy Corporation. The weighted average interest rate for the year ended December 31, 2019 was 3.77% on the drawn portion of the facility. 25


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis As of December 31, 2019, amounts outstanding and capacity available under the $3.5 billion credit facility are: Letters of Capacity Capacity Borrowings Credit Available (In Millions) $3,500 $440 $6 $3,054 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. One such difference is that it excludes the effects, among other things, of certain impairments related to the Entergy Wholesale Commodities nuclear generation assets. Entergy is currently in compliance with the covenant and expects to remain in compliance with this covenant. If Entergy fails to meet this ratio, or if Entergy or one of the Utility operating companies (except Entergy New Orleans) defaults on other indebtedness or is in bankruptcy or insolvency proceedings, an acceleration of the Entergy Corporation credit facility’s maturity date may occur. Entergy Corporation has a commercial paper program with a Board-approved program limit of up to $2 billion. As of December 31, 2019, Entergy Corporation had $1.947 billion of commercial paper outstanding. The weighted- average interest rate for the year ended December 31, 2019 was 2.71%. Finance lease obligations are a minimal part of Entergy’s overall capital structure. Following are Entergy’s payment obligations under those leases. 2020 2021 2022 2023-2024 after 2024 (In Millions) Finance lease payments $14 $12 $11 $19 $20 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, 2019 as follows: Interest Amount Drawn Letters of Credit Expiration Amount of Rate as of Outstanding as of Company Date Facility (a) December 31, 2019 December 31, 2019 Entergy Arkansas April 2020 $20 million (b) 2.92% — — Entergy Arkansas September 2024 $150 million (c) 2.92% — — Entergy Louisiana September 2024 $350 million (c) 2.92% — — Entergy Mississippi May 2020 $10 million (d) 3.30% — — Entergy Mississippi May 2020 $35 million (d) 3.30% — — Entergy Mississippi May 2020 $37.5 million (d) 3.30% — — Entergy New Orleans November 2021 $25 million (c) 2.92% $20 million $0.8 million Entergy Texas September 2024 $150 million (c) 3.30% — $1.3 million (a) The interest rate is the estimated interest rate as of December 31, 2019 that would have been applied to outstanding borrowings under the facility. (b) Borrowings under this Entergy Arkansas credit facility may be secured by a security interest in its accounts receivable at Entergy Arkansas’s option. 26


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis (c) The credit facility includes fronting commitments for the issuance of letters of credit against a portion of the borrowing capacity of the facility as follows: $5 million for Entergy Arkansas; $15 million for Entergy Louisiana; $10 million for Entergy New Orleans; and $30 million for Entergy Texas. (d) Borrowings under the Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable at Entergy Mississippi’s option. Each of the credit facilities requires the Registrant Subsidiary borrower to maintain a debt ratio, as defined, of 65% or less of its total capitalization. Each Registrant Subsidiary is in compliance with this covenant. 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 to MISO. Following is a summary of the uncommitted standby letter of credit facilities as of December 31, 2019: Amount of Uncommitted Letter of Letters of Credit Issued as Company Facility Credit Fee of December 31, 2019 Entergy Arkansas $25 million 0.70% $1 million Entergy Louisiana $125 million 0.70% $12.3 million Entergy Mississippi $64 million 0.70% $1.8 million (a) Entergy New Orleans $15 million 1.00% $5.6 million Entergy Texas $50 million 0.70% $12.1 million (a) As of December 31, 2019, letters of credit posted with MISO covered financial transmission right exposure of $0.2 million for Entergy Mississippi. See Note 15 to the financial statements for discussion of financial transmission rights. In January 2019, Entergy Nuclear Vermont Yankee was transferred to NorthStar and its credit facility was assumed by Vermont Yankee Asset Retirement Management, LLC, Entergy Nuclear Vermont Yankee’s parent company that remains an Entergy subsidiary after the transfer. The credit facility has a borrowing capacity of $139 million and expires in December 2021. As of December 31, 2019, $139 million in cash borrowings were outstanding under the credit facility. The weighted average interest rate for the year ended December 31, 2019 was 3.93% on the drawn portion of the facility. See Note 14 to the financial statements for discussion of the transfer of Entergy Nuclear Vermont Yankee to NorthStar. 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, 2019 on non-cancelable operating leases with a term over one year: 2020 2021 2022 2023-2024 after 2024 (In Millions) Operating lease payments $62 $56 $48 $68 $29 Leases are discussed in Note 10 to the financial statements. 27


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Summary of Contractual Obligations of Consolidated Entities Contractual Obligations 2020 2021-2022 2023-2024 after 2024 Total (In Millions) Long-term debt (a) $1,636 $3,835 $3,962 $19,624 $29,057 Finance lease payments (b) $14 $23 $19 $20 $76 Operating leases (b) (c) $62 $104 $68 $29 $263 Purchase obligations (d) $1,371 $2,228 $1,863 $4,326 $9,788 (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 $216.3 million to its pension plans and approximately $49.1 million to other postretirement plans in 2020, although the 2020 required pension contributions will be known with more certainty when the January 1, 2020 valuations are completed, which is expected by April 1, 2020. 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 $1,542 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 Expenditure Plans and Other Uses of Capital Following are the amounts of Entergy’s planned construction and other capital investments by operating segment for 2020 through 2022. Planned construction and capital investments 2020 2021 2022 (In Millions) Utility: Generation $1,410 $1,475 $1,355 Transmission 955 820 630 Distribution 880 690 620 Utility Support 865 925 1,025 Total 4,110 3,910 3,630 Entergy Wholesale Commodities 35 10 5 Total $4,145 $3,920 $3,635 Planned construction and capital investments refer to amounts Entergy plans to spend on routine capital projects that are necessary to support reliability of its service, equipment, or systems and to support normal customer growth. In addition to routine capital projects, they also refer to amounts Entergy plans to spend on non-routine capital investments for which Entergy is either contractually obligated, has Board approval, or otherwise expects to make to satisfy regulatory or legal requirements. Amounts include the following types of construction and capital investments: Investments, including the Lake Charles Power Station, Washington Parish Energy Center, Sunflower Solar 28


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Facility, New Orleans Power Station, Montgomery County Power Station, and Searcy Solar Facility, each discussed below, and potential construction of additional generation. Investments in Entergy’s Utility nuclear fleet. Transmission spending to enhance reliability, reduce congestion, and enable economic growth. Distribution spending to enhance reliability and improve service to customers, including investment to support advanced metering. Entergy Wholesale Commodities investments such as component replacements, software and security, and dry cask storage. 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. 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. In May 2017 the parties to the proceeding agreed to an uncontested stipulation finding that construction of the Lake Charles Power Station is in the public interest and authorizing an in-service rate recovery plan. In July 2017 the LPSC issued an order unanimously approving the stipulation and approved certification of the unit. Construction is in progress and commercial operation is expected to occur by mid-2020. Washington Parish Energy Center In April 2017, Entergy Louisiana signed an agreement with a subsidiary of Calpine Corporation for the construction and purchase of a peaking plant. Calpine will construct the plant, which will consist of two natural gas- fired combustion turbine units with a total nominal capacity of approximately 361 MW. The plant, named the Washington Parish Energy Center, will be located in Bogalusa, Louisiana. Subject to regulatory approvals, Entergy Louisiana will purchase the plant once it is complete for an estimated total investment of approximately $261 million, including transmission and other related costs. In May 2017, Entergy Louisiana filed an application with the LPSC seeking certification of the plant. In April 2018 the parties reached a settlement recommending certification and cost recovery through the additional capacity mechanism of the formula rate plan, consistent with prior LPSC precedent with respect to the certification and recovery of plants previously acquired by Entergy Louisiana. The LPSC issued an order approving the settlement in May 2018. Construction is in progress and commercial operation is expected to occur by the end of 2020. Sunflower Solar Facility In November 2018, Entergy Mississippi announced that it signed an agreement for the purchase of an approximately 100 MW to-be-constructed solar photovoltaic facility that will be sited on approximately 1,000 acres in Sunflower County, Mississippi. The estimated base purchase price is approximately $138.4 million. The estimated total investment, including the base purchase price and other related costs, for Entergy Mississippi to acquire the Sunflower Solar Facility is approximately $153.2 million. The purchase is contingent upon, among other things, obtaining necessary approvals, including full cost recovery, from applicable federal and state regulatory and permitting 29


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis agencies. The project will be built by Sunflower County Solar Project, LLC, a sub-subsidiary of Recurrent Energy, LLC. Entergy Mississippi will purchase the facility upon mechanical completion and after the other purchase contingencies have been met. In December 2018, Entergy Mississippi filed a joint petition with Sunflower Solar Project at the MPSC for Sunflower Solar Project to construct and for Entergy Mississippi to acquire and thereafter own, operate, improve, and maintain the solar facility. Entergy Mississippi proposed revisions to its formula rate plan that would provide for a mechanism, the interim capacity rate adjustment mechanism, in the formula rate plan to recover the non- fuel related costs of additional owned capacity acquired by Entergy Mississippi, including the annual ownership costs of the Sunflower Solar Facility. In December 2019 the MPSC approved Entergy Mississippi’s proposed revisions to its formula rate plan to provide for an interim capacity rate adjustment mechanism. The MPSC must approve recovery through the interim capacity rate adjustment for each new resource. In August 2019 consultants retained by the Mississippi Public Utilities Staff filed a report expressing concerns regarding the project economics and recommended that, should the MPSC wish to approve the project, Entergy Mississippi should be required to guarantee the energy output of the unit. Entergy Mississippi and the Staff are engaged in settlement discussions to address these concerns. A hearing before the MPSC is targeted to occur by the second quarter of 2020. Closing is expected to occur by the end of 2021. New Orleans Power Station In March 2018 the City Council adopted a resolution approving construction of the New Orleans Power Station, a 128 MW unit composed of natural gas-fired reciprocating engines, and a related cost recovery plan. The cost estimate for the plant, which will be located at the site of the Michoud generating facility that was retired in May 2016, is $210 million. Entergy New Orleans had previously filed an application with the City Council seeking a public interest determination and authorization to construct a 226 MW advanced combustion turbine power station. In January 2017 several intervenors filed testimony opposing the construction of the New Orleans Power Station on various grounds. In July 2017, Entergy New Orleans submitted a supplemental and amending application to the City Council seeking approval to construct either the originally proposed 226 MW advanced combustion turbine power station, or alternatively, the 128 MW power station. In addition, the application renewed the commitment to pursue up to 100 MW of renewable resources to serve New Orleans. In April 2018 intervenors opposing the construction of the New Orleans Power Station filed with the City Council a request for rehearing, which was subsequently denied, and a petition for judicial review of the City Council’s decision, and also filed a lawsuit challenging the City Council’s approval based on Louisiana’s open meeting law. In May 2018 the City Council announced that it would initiate an investigation into allegations that Entergy New Orleans, Entergy, or some other entity paid or participated in paying certain attendees and speakers in support of the New Orleans Power Station to attend or speak at certain meetings organized by the City Council. In October 2018 investigators for the City Council released their report, concluding that individuals were paid to attend or speak in support of the New Orleans Power Station and that Entergy New Orleans “knew or should have known that such conduct occurred or reasonably might occur.” The City Council issued a resolution requiring Entergy New Orleans to show cause why it should not be fined $5 million as a result of the findings in the report. In November 2018, Entergy New Orleans submitted its response to the show cause resolution, disagreeing with certain characterizations and omissions of fact in the report and asserting that the City Council could not legally impose the proposed fine. Simultaneous with the filing of its response to the show cause resolution, Entergy New Orleans sent a letter to the City Council re-asserting that the City Council’s imposition of the proposed fine would be unlawful, but acknowledging that the actions of a subcontractor, which was retained by an Entergy New Orleans contractor without the knowledge or contractually- required consent of Entergy New Orleans, were contrary to Entergy’s values. In that letter, Entergy New Orleans offered to donate $5 million to the City Council to resolve the show cause proceeding. In January 2019, Entergy New Orleans submitted a new settlement proposal to the City Council. The proposal retains the components of the first offer but adds to it a commitment to make reasonable efforts to limit the costs of the project to the $210 million cost estimate with advanced notification of anticipated cost overruns, additional reporting requirements for cost and environmental items, and a commitment regarding reliability investment and to work with the New Orleans Sewerage and Water Board to provide a reliable source of power. In February 2019 the City Council approved a resolution approving the settlement proposal and allowing the construction of the New Orleans Power Station to commence. 30


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Also in February 2019 certain intervenors in the City Council proceeding on the New Orleans Power Station filed suit in Louisiana state court challenging the Louisiana Department of Environmental Quality’s issuance of the New Orleans Power Station’s air permit. Entergy New Orleans intervened in that lawsuit and, along with the Louisiana Department of Environmental Quality, filed exceptions seeking dismissal of the lawsuit. In June 2019 the state court judge sustained the exceptions and dismissed the plaintiffs’ petition with prejudice. Also in June 2019, a state court judge in New Orleans affirmed the City Council’s approval of the New Orleans Power Station and dismissed the petition for judicial review that had been filed in April 2018. The petitioners have filed an appeal of that ruling. Also in June 2019, with regard to the lawsuit challenging the City Council’s decision on the basis of a violation of the open meetings law, the same state court judge in New Orleans ruled that there was a violation of the open meetings law at the February 2018 meeting of the City Council’s Utility Committee at which that Committee considered the New Orleans Power Station approval, and further ruled that, although there was no violation of the open meetings law at the March 2018 full City Council meeting at which the New Orleans Power Station was approved, both the approval of the Utility Committee and the approval of the full City Council were void. The City Council and Entergy New Orleans each filed a suspensive appeal of the open meetings law ruling. A suspensive appeal suspends the effect of the judgment in the open meetings law proceeding while the appeal is being taken. The petitioners sought in the state appellate court, and then at the Louisiana Supreme Court, to terminate the suspension of the effect of the judgment, but both courts declined to do so. Appellate briefing on the merits both in the open meetings law appeal and in the judicial review appeal occurred in November and December 2019 and oral argument in both cases was heard in January 2020. In February 2020 the state appellate court reversed the lower court’s ruling that the City Council’s approval of the New Orleans Power Station was void due to a violation of the open meetings law at the City Council’s Utility Committee meeting in February 2018. The state appellate court ruled that there was no violation of the open meetings law at the full City Council meeting in March 2018 and that the lower court erred in voiding the City Council resolution approving the New Orleans Power Station. The appellate court’s decision on the appeal of the judicial review decision that affirmed the City Council’s approval of the New Orleans Power Station as in the public interest is still pending. Construction of the plant is on schedule, with commercial operation expected in mid-2020. 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 MW combined-cycle generating unit in Willis, Texas, on land adjacent to the existing Lewis Creek plant. The current estimated cost of the Montgomery County Power Station is $937 million, including approximately $111 million 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 process that showed no undue preference to any proposal. In June 2017 parties to the proceeding filed an unopposed stipulation and settlement agreement. The stipulation contemplates that Entergy Texas’s level of cost-recovery for generation construction costs for Montgomery County Power Station is capped at $831 million, subject to certain exclusions such as force majeure events. Transmission interconnection and network upgrades and other related costs are not subject to the $831 million cap. In July 2017 the PUCT approved the stipulation. Subject to the timely receipt of other permits and approvals, commercial operation is estimated to occur by mid-2021. Searcy Solar Facility In March 2019, Entergy Arkansas announced that it signed an agreement for the purchase of an approximately 100 MW to-be-constructed solar energy facility that will be sited on approximately 800 acres in White County near Searcy, Arkansas. The purchase is contingent upon, among other things, obtaining necessary approvals from applicable federal and state regulatory and permitting agencies. The project will be constructed by a subsidiary of NextEra Energy Resources. Entergy Arkansas will purchase the facility upon mechanical completion and after the other purchase contingencies have been met. Closing is expected to occur by the end of 2021. In May 2019, Entergy Arkansas filed 31


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis a petition with the APSC seeking a finding that the transaction is in the public interest and requesting all necessary approvals. In September 2019 other parties filed testimony largely supporting the resource acquisition but disputing Entergy Arkansas’s proposed method of cost recovery. Entergy Arkansas filed its rebuttal testimony in October 2019. In February 2020, Entergy Arkansas, the Attorney General, and the APSC general staff filed a partial settlement agreement asking the APSC to approve, based on the record in the proceeding, all issues except certain issues that are submitted to the APSC for determination. Dividends and Stock Repurchases Declarations of dividends on Entergy’s common stock are made at the discretion of the Board. Among other things, the Board evaluates the level of Entergy’s common stock dividends based upon earnings per share from the Utility operating segment and the Parent and Other portion of the business, financial strength, and future investment opportunities. At its January 2020 meeting, the Board declared a dividend of $0.93 per share. Entergy paid $712 million in 2019, $648 million in 2018, and $629 million in 2017 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, 2019, $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 ($426 million as of December 31, 2019); debt and equity issuances in the capital markets; 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. Entergy Corporation expects to finance up to 10% of the amount of the Utility’s capital expenditure plans through equity issuances in the capital markets. Provisions within the organizational documents relating to preferred stock or membership interests of certain of Entergy Corporation’s subsidiaries could restrict the payment of cash dividends or other distributions on their common and preferred equity. All debt and preferred equity issuances by the Registrant Subsidiaries require prior regulatory approval and their debt issuances are also subject to issuance tests set forth in bond indentures and other agreements. Entergy believes that the Registrant Subsidiaries have sufficient capacity under these tests to meet foreseeable capital needs. The FERC has jurisdiction over securities issuances by the Utility operating companies and System Energy. The City Council has concurrent jurisdiction over Entergy New Orleans’s securities issuances with maturities longer 32


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis than one year. The APSC has concurrent jurisdiction over Entergy Arkansas’s issuances of securities secured by Arkansas property, including first mortgage bond issuances. No regulatory approvals are necessary for Entergy Corporation to issue securities. The current FERC-authorized short-term borrowing limits and long-term borrowing limits for Entergy New Orleans are effective through October 2021. The current FERC-authorized short-term borrowing limits and long-term financing authorization for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy Texas, and System Energy are effective through November 2020. Entergy Arkansas has obtained first mortgage bond/ secured financing authorization from the APSC that extends through December 2020. Entergy New Orleans also has obtained long-term financing authorization from the City Council that extends through October 2021. Entergy Arkansas, Entergy Louisiana, and System Energy each have obtained long-term financing authorization from the FERC that extends through November 2020 for issuances by the nuclear fuel company variable interest entities. In addition to borrowings from commercial banks, the Registrant Subsidiaries may also borrow from the Entergy System money pool and from other internal short-term borrowing arrangements. The money pool and the other internal borrowing arrangements are inter-company borrowing arrangements designed to reduce Entergy’s subsidiaries’ dependence on external short-term borrowings. Borrowings from internal and external short-term borrowings combined may not exceed the FERC-authorized limits. See Notes 4 and 5 to the financial statements for further discussion of Entergy’s borrowing limits, authorizations, and amounts outstanding. Cash Flow Activity As shown in Entergy’s Consolidated Statements of Cash Flows, cash flows for the years ended December 31, 2019, 2018, and 2017 were as follows: 2019 2018 2017 (In Millions) Cash and cash equivalents at beginning of period $481 $781 $1,188 Net cash provided by (used in): Operating activities 2,817 2,385 2,624 Investing activities (4,510) (4,106) (3,841) Financing activities 1,638 1,421 810 Net decrease in cash and cash equivalents (55) (300) (407) Cash and cash equivalents at end of period $426 $481 $781 2019 Compared to 2018 Operating Activities Net cash flow provided by operating activities increased by $432 million in 2019 primarily due to: the decrease in the return of unprotected excess accumulated deferred income taxes to Utility customers. See Note 2 to the financial statements for a discussion of the regulatory activity regarding the Tax Cuts and Jobs Act; an increase due to the timing of recovery of fuel and purchased power costs in 2019 as compared to the prior year. See Note 2 to the financial statements for a discussion of fuel and purchased power cost recovery; an increase of $109 million due to Vermont Yankee decommissioning spending in 2018, partially offset by Pilgrim decommissioning spending in 2019; and a decrease of $87 million in spending on nuclear refueling outages in 2019 as compared to the prior year. 33


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis The increase was partially offset by: an increase of $98 million in severance and retention payments in 2019 as compared to prior year. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Entergy Wholesale Commodities Exit from the Merchant Power Business” above for a discussion of management’s strategy to exit the Entergy Wholesale Commodities’ merchant power business; and lower Entergy Wholesale Commodities revenues in 2019. Investing Activities Net cash flow used in investing activities increased by $404 million in 2019 primarily due to: an increase of $334 million in construction expenditures in the Utility business, as discussed below; the purchase of the Choctaw Generating Station in October 2019 for approximately $305 million. See Note 14 to the financial statements for further discussion of the Choctaw Generating Station purchase; and a decrease of $57 million in proceeds received from the DOE in 2019 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. The increase was partially offset by: a decrease of $174 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; and a decrease of $85 million primarily due to changes in collateral posted to provide credit support to secure its obligations under agreements to sell power produced by Entergy Wholesale Commodities’ power plants. The increase in construction expenditures in the Utility business is primarily due to: an increase of $211 million in transmission construction expenditures due to a higher scope of work performed in 2019 on various projects; an increase of $188 million primarily due to investment in the infrastructure of the distribution system, including increased spending on advanced metering infrastructure; and an increase of $91 million in storm spending in 2019. The increase in construction expenditures in the Utility business was partially offset by: a decrease of $62 million in fossil-fueled generation construction expenditures primarily due to lower spending in 2019 on self-build projects in the Utility business and a lower scope of work performed in 2019 on various projects; a decrease of $39 million in nuclear construction expenditures primarily due to lower spending in 2019 on various nuclear projects; and a decrease of $33 million in information technology capital expenditures primarily due to lower spending in 2019 on critical infrastructure protection. Financing Activities Net cash flow provided by financing activities increased by $217 million in 2019 primarily due to: long-term debt activity providing approximately $1,685 million of cash in 2019 compared to providing approximately $1,070 million in 2018; 34


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis net repayments of short-term borrowings of $111 million in 2018 by the nuclear fuel company variable interest entities; and an increase of $108 million in proceeds from the issuance of common stock as a result of the settlement of equity forwards in 2019 and 2018. See Note 7 to the financial statements for discussion of the equity forward sale agreements. The increase was partially offset by: a decrease of $471 million in net issuances of commercial paper in 2019 compared to 2018; an increase of $64 million in common stock dividends paid as a result of an increase in the shares outstanding and an increase in the dividend paid in 2019 compared to 2018; and the issuance of $35 million aggregate liquidation value 5.375% Series A preferred stock in 2019 by Entergy Texas compared to the issuance of $73 million aggregate liquidation value 6.75% Series C preferred membership interests in 2018 by Entergy Utility Holding Company. 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. 2018 Compared to 2017 See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Liquidity and Capital Resources - Cash Flow Activity” in Entergy’s Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of operating, investing, and financing cash flow activities for 2018 compared to 2017. 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 LPSC, the MPSC, the City Council, 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 9.2% - 10.4% Electric; 9.45% - 10.45% Gas Entergy Mississippi 9.33% - 11.35% Entergy New Orleans 8.85% - 9.85% Entergy Texas 9.65% 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, 35


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Entergy Mississippi, and Entergy New Orleans pursuant to the Unit Power Sales Agreement. The current return on equity and capital structure of System Energy are currently the subject of complaints filed by certain of the operating companies’ retail regulators. The current return on equity under the Unit Power Sales Agreement is 10.94%. Prior to each operating company’s termination of participation in the System Agreement (Entergy Arkansas in December 2013, Entergy Mississippi in November 2015, and Entergy Louisiana, Entergy New Orleans, and Entergy Texas each in August 2016), the Utility operating companies engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement, which was a rate schedule approved by the FERC. Certain of the Utility operating companies’ retail regulators are pursuing litigation involving the System Agreement at the FERC and in federal courts. See Note 2 to the financial statements for discussion of the System Agreement proceedings, the complaints filed with the FERC challenging System Energy’s return on equity, and the amendments to the Unit Power Sales Agreement approved by the FERC in 2018. Market and Credit Risk Sensitive Instruments Market risk is the risk of changes in the value of commodity and financial instruments, or in future net income or cash flows, in response to changing market conditions. Entergy holds commodity and financial instruments that are exposed to the following significant market risks. The commodity price risk associated with the sale of electricity by the Entergy Wholesale Commodities business. The interest rate and equity price risk associated with Entergy’s investments in pension and other postretirement benefit trust funds. See Note 11 to the financial statements for details regarding Entergy’s pension and other postretirement benefit trust funds. The interest rate and equity price risk associated with Entergy’s investments in nuclear plant decommissioning trust funds, particularly in the Entergy Wholesale Commodities business. See Note 16 to the financial statements for details regarding Entergy’s decommissioning trust funds. The interest rate risk associated with changes in interest rates as a result of Entergy’s outstanding indebtedness. Entergy manages its interest rate exposure by monitoring current interest rates and its debt outstanding in relation to total capitalization. See Notes 4 and 5 to the financial statements for the details of Entergy’s debt outstanding. The Utility has limited exposure to the effects of market risk because it operates primarily under cost-based rate regulation. To the extent approved by their retail regulators, the Utility operating companies use commodity and financial instruments to hedge the exposure to price volatility inherent in their purchased power, fuel, and gas purchased for resale costs that are recovered from customers. Entergy’s commodity and financial instruments are also exposed to credit risk. Credit risk is the risk of loss from nonperformance by suppliers, customers, or financial counterparties to a contract or agreement. Entergy is also exposed to a potential demand on liquidity due to credit support requirements within its supply or sales agreements. Commodity Price Risk Power Generation As a wholesale generator, Entergy Wholesale Commodities’ core business is selling energy, measured in MWh, to its customers. Entergy Wholesale Commodities enters into forward contracts with its customers and also sells energy in the day ahead or spot markets. Entergy Wholesale Commodities also 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 36


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis contracts, Entergy Wholesale Commodities may also use a combination of financial contracts, including swaps, collars, and options, to manage forward commodity price risk. 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, 2019. Entergy Wholesale Commodities Nuclear Portfolio 2020 2021 2022 Energy Percent of planned generation under contract (a): Unit-contingent (b) 97% 92% 66% Planned generation (TWh) (c) (d) 17.8 9.6 2.8 Average revenue per MWh on contracted volumes: Expected based on market prices as of December 31, 2019 $41.3 $56.6 $58.8 Capacity Percent of capacity sold forward (e): Bundled capacity and energy contracts (f) 37% 68% 97% Capacity contracts (g) 32% —% —% Total 69% 68% 97% Planned net MW in operation (average) (d) 2,195 1,158 338 Average revenue under contract per kW per month (applies to $2.8 $— $— capacity contracts only) Total Energy and Capacity Revenues (h) Expected sold and market total revenue per MWh $44.3 $54.3 $46.6 Sensitivity: -/+ $10 per MWh market price change $44.1 - $53.5 - $43.2 - $44.5 $55.1 $50.1 (a) Percent of planned generation output sold or purchased forward under contracts, forward physical contracts, forward financial contracts, or options that mitigate price uncertainty. 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 the 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) Amount of output expected to be generated by Entergy Wholesale Commodities nuclear resources considering plant operating characteristics and outage schedules. (d) Assumes the planned shutdown of Indian Point 2 on April 30, 2020, planned shutdown of Indian Point 3 on April 30, 2021, and planned shutdown of Palisades on May 31, 2022. For a discussion regarding the planned shutdown of the Indian Point 2, Indian Point 3, and Palisades plants, see “Entergy Wholesale Commodities Exit from the Merchant Power Business” above. (e) Percent of planned qualified capacity sold to mitigate price uncertainty under physical or financial transactions. (f) A contract for the sale of installed capacity and related energy, priced per megawatt-hour sold. (g) A contract for the sale of an installed capacity product in a regional market. 37


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis (h) Includes assumptions on converting a portion of the portfolio to contracted with fixed price 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 $4 million in 2020 and would have had a corresponding effect on pre-tax income of $6 million in 2019. 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 ($4) million in 2020 and would have had a corresponding effect on pre-tax income of ($6) million in 2019. 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 guarantee. Cash and letters of credit are also acceptable forms of credit support. At December 31, 2019, based on power prices at that time, Entergy had liquidity exposure of $78 million under the guarantees in place supporting Entergy Wholesale Commodities transactions and $19 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, 2019, Entergy would have been required to provide approximately $30 million of additional cash or letters of credit under some of the agreements. As of December 31, 2019, the liquidity exposure associated with Entergy Wholesale Commodities assurance requirements, including return of previously posted collateral from counterparties, would increase by $90 million for a $1 per MMBtu increase in gas prices in both the short- and long-term markets. As of December 31, 2019, substantially all of the credit exposure associated with the planned energy output under contract for Entergy Wholesale Commodities nuclear plants through 2022 is with counterparties or their guarantors that have public investment grade credit ratings. Nuclear Matters Entergy’s Utility and Entergy Wholesale Commodities businesses include the ownership and operation of nuclear generating plants and are, therefore, subject to the risks related to such ownership and operation. These include risks related to: the use, storage, and handling and disposal of high-level and low-level radioactive materials; the substantial financial requirements, both for capital investments and operational needs, to position Entergy’s nuclear fleet to meet its operational goals, including the financial requirements to address emerging issues like stress corrosion cracking of certain materials within the plant systems and the Fukushima event; the implementation of plans to exit the Entergy Wholesale Commodities merchant power business by 2022 and the post-shutdown decommissioning of these plants; regulatory requirements and potential future regulatory changes, including changes affecting the regulations governing nuclear plant ownership, operations, license renewal and amendments, and decommissioning; the performance and capacity factors of these nuclear plants; the availability of interim or permanent sites for the disposal of spent nuclear fuel and nuclear waste, including the fees charged for such disposal; the sufficiency of nuclear decommissioning trust fund assets and earnings to complete decommissioning of each site when required; and limitations on the amounts and types of insurance commercially available for losses in connection with nuclear plant operations and catastrophic events such as a nuclear accident. NRC Reactor Oversight Process The NRC’s Reactor Oversight Process is a program to collect information about plant performance, assess the information for its safety significance, and provide for appropriate licensee and NRC response. The NRC evaluates plant performance by analyzing two distinct inputs: inspection findings resulting from the NRC’s inspection program 38


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis and performance indicators reported by the licensee. The evaluations result in the placement of each plant in one of the NRC’s Reactor Oversight Process Action Matrix columns: “licensee response column,” or Column 1, “regulatory response column,” or Column 2, “degraded cornerstone column,” or Column 3, and “multiple/repetitive degraded cornerstone column,” or Column 4. Plants in Column 1 are subject to normal NRC inspection activities. Plants in Column 2, Column 3, or Column 4 are subject to progressively increasing levels of inspection by the NRC with, in general, progressively increasing levels of associated costs. Nuclear generating plants owned and operated by Entergy’s Utility and Entergy Wholesale Commodities businesses are currently in Column 1. Critical Accounting Estimates The preparation of Entergy’s financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in these assumptions and measurements could produce estimates that would have a material effect on the presentation of Entergy’s financial position, results of operations, or cash flows. Nuclear Decommissioning Costs Entergy subsidiaries own nuclear generation facilities in both the Utility and Entergy Wholesale Commodities operating segments. Regulations require Entergy subsidiaries to decommission the nuclear power plants after each facility is taken out of service, and cash is deposited in trust funds during the facilities’ operating lives in order to provide for this obligation. Entergy conducts periodic decommissioning cost studies to estimate the costs that will be incurred to decommission the facilities. The following key assumptions have a significant effect on these estimates. Timing - In projecting decommissioning costs, two assumptions must be made to estimate the timing of plant decommissioning. First, the date of the plant’s retirement must be estimated for those plants that do not have an announced shutdown date. The estimate may include assumptions regarding the possibility that the plant may have an operating life shorter than the operating license expiration. Second, an assumption must be made regarding whether all decommissioning activity will proceed immediately upon plant retirement, or whether the plant will be placed in SAFSTOR status. SAFSTOR is decommissioning a facility by placing it in a safe, stable condition that is maintained until it is subsequently decontaminated and dismantled to levels that permit license termination, normally within 60 years from permanent cessation of operations. A change of assumption regarding either the period of continued operation, the use of a SAFSTOR period, or whether Entergy will continue to hold the plant or the plant is held for sale can change the present value of the asset retirement obligation. Cost Escalation Factors - Entergy’s current decommissioning cost studies include an assumption that decommissioning costs will escalate over present cost levels by factors ranging from approximately 2% to 3% annually. A 50-basis point change in this assumption could change the estimated present value of the decommissioning liabilities by approximately 6% to 18%. The timing assumption influences the significance of the effect of a change in the estimated inflation or cost escalation rate because the effect increases with the length of time assumed before decommissioning activity ends. Spent Fuel Disposal - Federal law requires the DOE to provide for the permanent storage of spent nuclear fuel, and legislation has been passed by Congress to develop a repository at Yucca Mountain, Nevada. The DOE has not yet begun accepting spent nuclear fuel and is in non-compliance with federal law. The DOE continues to delay meeting its obligation and Entergy’s nuclear plant owners are continuing to pursue damage claims against the DOE for its failure to provide timely spent fuel storage. Until a federal site is available, however, nuclear plant operators must provide for interim spent fuel storage on the nuclear plant site, which can require the construction and maintenance of dry cask storage sites or other facilities. The costs of developing and maintaining these facilities during the decommissioning period can have a significant effect (as much as an average of 20% to 30% of total estimated decommissioning costs). Entergy’s decommissioning studies include 39


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis cost estimates for spent fuel storage. These estimates could change in the future, however, based on the expected timing of when the DOE begins to fulfill its obligation to receive and store spent nuclear fuel. See Note 8 to the financial statements for further discussion of Entergy’s spent nuclear fuel litigation. Technology and Regulation - Over the past several years, more practical experience with the actual decommissioning of nuclear facilities has been gained and that experience has been incorporated into Entergy’s current decommissioning cost estimates. Given the long duration of decommissioning projects, additional experience, including technological advancements in decommissioning, could be gained and affect current cost estimates. In addition, if regulations regarding nuclear decommissioning were to change, this could affect cost estimates. Interest Rates - The estimated decommissioning costs that are the basis for the recorded decommissioning liability are discounted to present value using a credit-adjusted risk-free rate. When the decommissioning liability is revised, increases in cash flows are discounted using the current credit-adjusted risk-free rate. Decreases in estimated cash flows are discounted using the credit-adjusted risk-free rate used previously in estimating the decommissioning liability that is being revised. Therefore, to the extent that a revised cost study results in an increase in estimated cash flows, a change in interest rates from the time of the previous cost estimate will affect the calculation of the present value of the revised decommissioning liability. Revisions of estimated decommissioning costs that decrease the liability also result in a decrease in the asset retirement cost asset. For the non-rate-regulated portions of Entergy’s business for which the plant’s value is impaired, these reductions will immediately reduce operating expenses in the period of the revision if the reduction of the liability exceeds the amount of the undepreciated plant asset at the date of the revision. Revisions of estimated decommissioning costs that increase the liability result in an increase in the asset retirement cost asset, which is then depreciated over the asset’s remaining economic life. For a plant in the non-rate-regulated portions of Entergy’s business for which the plant’s value is impaired, however, including a plant that is shutdown, or is nearing its shutdown date, the increase in the liability is likely to immediately increase operating expense in the period of the revision and not increase the asset retirement cost asset. See Note 14 to the financial statements for further discussion of impairment of long-lived assets and Note 9 to the financial statements for further discussion of asset retirement obligations. Utility Regulatory Accounting Entergy’s Utility operating companies and System Energy are subject to retail regulation by their respective state and local regulators and to wholesale regulation by the FERC. Because these regulatory agencies set the rates the Utility operating companies and System Energy are allowed to charge customers based on allowable costs, including a reasonable return on equity, the Utility operating companies and System Energy apply accounting standards that require the financial statements to reflect the effects of rate regulation, including the recording of regulatory assets and liabilities. Regulatory assets represent incurred costs that have been deferred because they are probable of future recovery from customers through regulated rates. Regulatory liabilities represent the excess recovery of costs that have been deferred because it is probable such amounts will be returned to customers through future regulated rates. See Note 2 to the financial statements for a discussion of rate and regulatory matters, including details of Entergy’s and the Registrant Subsidiaries’ regulatory assets and regulatory liabilities. For each regulatory jurisdiction in which they conduct business, the Utility operating companies and System Energy assess whether the regulatory assets and regulatory liabilities continue to meet the criteria for probable future recovery or settlement at each balance sheet date and when regulatory events occur. This assessment includes consideration of recent rate orders, historical regulatory treatment for similar costs, and factors such as changes in applicable regulatory and political environments. If the assessments made by the Utility operating companies and System Energy are ultimately different than actual regulatory outcomes, it could materially affect the results of operations, financial position, and cash flows of Entergy or the Registrant Subsidiaries. Impairment of Long-lived Assets and Trust Fund Investments Entergy has significant investments in long-lived assets in both of its operating segments, and Entergy evaluates 40


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis these assets against the market economics and under the accounting rules for impairment when there are indications that an impairment may exist. This evaluation involves a significant degree of estimation and uncertainty. In the Entergy Wholesale Commodities business, Entergy’s investments in merchant generation assets are subject to impairment if adverse market or regulatory conditions arise, particularly if it leads to a decision or an expectation that Entergy will operate or own a plant for a shorter period than previously expected; if there is a significant adverse change in the physical condition of a plant; or, if capital investment in a plant significantly exceeds previously-expected amounts. If an asset is considered held for use, and Entergy concludes that events and circumstances are present indicating that an impairment analysis should be performed under the accounting standards, the sum of the expected undiscounted future cash flows from the asset are compared to the asset’s carrying value. The carrying value of the asset includes any capitalized asset retirement cost associated with the decommissioning liability; therefore, changes in assumptions that affect the decommissioning liability can increase or decrease the carrying value of the asset subject to impairment. If the expected undiscounted future cash flows exceed the carrying value, no impairment is recorded. If the expected undiscounted future cash flows are less than the carrying value and the carrying value exceeds the fair value, Entergy is required to record an impairment charge to write the asset down to its fair value. If an asset is considered held for sale, an impairment is required to be recognized if the fair value (less costs to sell) of the asset is less than its carrying value. The expected future cash flows are based on a number of key assumptions, including: Future power and fuel prices - Electricity and gas prices can be very volatile. This volatility increases the imprecision inherent in the long-term forecasts of commodity prices that are a key determinant of estimated future cash flows. Market value of generation assets - Valuing assets held for sale requires estimating the current market value of generation assets. While market transactions provide evidence for this valuation, these transactions are relatively infrequent, the market for such assets is volatile, and the value of individual assets is affected by factors unique to those assets. Future operating costs - Entergy assumes relatively minor annual increases in operating costs. Technological or regulatory changes that have a significant effect on operations could cause a significant change in these assumptions. Timing and the life of the asset - Entergy assumes an expected life of the asset. A change in the timing assumption, whether due to management decisions regarding operation of the plant, the regulatory process, or operational or other factors, could have a significant effect on the expected future cash flows and result in a significant effect on operations. See Note 14 to the financial statements for a discussion of impairment conclusions related to the Entergy Wholesale Commodities nuclear plants. Entergy evaluates the available-for-sale debt securities in the Entergy Wholesale Commodities’ nuclear decommissioning trust funds with unrealized losses at the end of each period to determine whether an other-than- temporary impairment has occurred. The assessment of whether an investment in a debt security has suffered an other- than-temporary impairment is based on whether Entergy has the intent to sell or more likely than not will be required to sell the debt security before recovery of its amortized costs. Further, if Entergy does not expect to recover the entire amortized cost basis of the debt security, an other-than-temporary-impairment is considered to have occurred and it is measured by the present value of cash flows expected to be collected less the amortized cost basis (credit loss). Entergy’s trusts are managed by third parties who operate in accordance with agreements that define investment guidelines and place restrictions on the purchases and sales of investments. Effective January 1, 2018 with the adoption of ASU 2016-01, unrealized losses and gains on investments in equity securities held by Entergy Wholesale Commodities’ nuclear decommissioning trust funds are recorded in earnings as they occur. See Note 16 to the financial statements for details on the decommissioning trust funds. 41


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    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Taxation and Uncertain Tax Positions Management exercises significant judgment in evaluating the potential tax effects of Entergy’s operations, transactions, and other events. Entergy accounts for uncertain income tax positions using a recognition model under a two-step approach with a more likely-than-not recognition threshold and a measurement approach based on the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Management evaluates each tax position based on the technical merits and facts and circumstances of the position, assuming the position will be examined by a taxing authority having full knowledge of all relevant information. Significant judgment is required to determine whether available information supports the assertion that the recognition threshold has been met. Additionally, measurement of unrecognized tax benefits to be recorded in the consolidated financial statements is based on the probability of different potential outcomes. Income tax expense and tax positions recorded could be significantly affected by events such as additional transactions contemplated or consummated by Entergy as well as audits by taxing authorities of the tax positions taken in transactions. Management believes that the financial statement tax balances are accounted for and adjusted appropriately each quarter as necessary in accordance with applicable authoritative guidance; however, the ultimate outcome of tax matters could result in favorable or unfavorable effects on the consolidated financial statements. Entergy’s income taxes, including unrecognized tax benefits, open audits, and other significant tax matters are discussed in Note 3 to the financial statements. See “MANAGEMENT’S FINANCIAL DISCUSSION AND ANALYSIS - Income Tax Legislation” above and Note 3 to the financial statements for discussion of the effects of the Tax Cuts and Jobs Act, the federal income tax legislation enacted in December 2017. Qualified Pension and Other Postretirement Benefits Entergy sponsors qualified, defined benefit pension plans that cover substantially all employees, including cash balance plans and final average pay plans. Additionally, Entergy currently provides other postretirement health care and life insurance benefits for substantially all full-time employees whose most recent date of hire or rehire is before July 1, 2014 and who reach retirement age and meet certain eligibility requirements while still working for Entergy. Entergy’s reported costs of providing these benefits, as described in Note 11 to the financial statements, are affected by numerous factors including the provisions of the plans, changing employee demographics, and various actuarial calculations, assumptions, and accounting mechanisms. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy’s estimate of these costs is a critical accounting estimate for the Utility and Entergy Wholesale Commodities segments. Assumptions Key actuarial assumptions utilized in determining qualified pension and other postretirement health care and life insurance costs include discount rates, projected healthcare cost rates, expected long-term rate of return on plan assets, rate of increase in future compensation levels, retirement rates, expected timing and form of payments, and mortality rates. Annually, Entergy reviews and, when necessary, adjusts the assumptions for the pension and other postretirement plans. Every three-to-five years, a formal actuarial assumption experience study that compares assumptions to the actual experience of the pension and other postretirement health care and life insurance plans is conducted. The interest rate environment over the past few years and volatility in the financial equity markets have affected Entergy’s funding and reported costs for these benefits. 42


  • Page 45

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Discount rates In selecting an assumed discount rate to calculate benefit obligations, Entergy uses a yield curve based on high-quality corporate debt with cash flows matching the expected plan benefit payments. In estimating the service cost and interest cost components of net periodic benefit cost, Entergy discounts the expected cash flows by the applicable spot rates. Projected health care cost trend rates Entergy’s health care cost trend is affected by both medical cost inflation, and with respect to capped costs under the plan, the effects of general inflation. Entergy reviews actual recent cost trends and projected future trends in establishing its health care cost trend rates. Expected long-term rate of return on plan assets In determining its expected long-term rate of return on plan assets used in the calculation of benefit plan costs, Entergy reviews past performance, current and expected future asset allocations, and capital market assumptions of its investment consultant and some of its investment managers. Entergy conducts periodic asset/liability studies in order to set its target asset allocations. In 2017, Entergy confirmed its liability-driven investment strategy for its pension assets, which recommended that the target asset allocation adjust dynamically over time, based on the funded status of the plan, to an ultimate allocation of 35% equity securities and 65% fixed income securities. The ultimate asset allocation is expected to be attained when the plan is 100% funded. The target pension asset allocation for 2019 was 58% equity and 42% fixed income securities. In 2017, Entergy implemented a new asset allocation strategy for its non-taxable and taxable other postretirement assets, based on the funded status of each sub-account within each trust. The new strategy no longer focuses on targeting an overall asset allocation for each trust, but rather a target asset allocation for each sub-account within each trust that adjusts dynamically based on the funded status. The 2019 weighted average target postretirement asset allocation is 45% equity and 55% fixed income securities. See Note 11 to the financial statements for discussion of the current asset allocations for Entergy’s pension and other postretirement assets. 43


  • Page 46

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Costs and Sensitivities The estimated 2020 and actual 2019 qualified pension and other postretirement costs and related underlying assumptions and sensitivities are shown below: Estimated Costs 2020 2019 (In millions) Qualified pension cost $339.5 $277.0 (a) Other postretirement income ($2.2) ($5.6) Assumptions 2020 2019 Discount rates Qualified pension Service cost 3.42% 4.57% Interest cost 2.99% 4.15% Other postretirement Service cost 3.48% 4.62% Interest cost 2.79% 4.01% Expected long-term rates of return Qualified pension assets 7.00% 7.25% Other postretirement - non-taxable assets 6.25% - 7.00% 6.50% - 7.25% Other postretirement - taxable assets - after tax rate 5.25% 5.50% Weighted-average rate of increase in future compensation 3.98% - 4.40% 3.98% Assumed health care cost trend rates Pre-65 retirees 6.13% 6.59% Post-65 retirees 6.25% 7.15% Ultimate rate 4.75% 4.75% Year ultimate rate is reached and beyond Pre-65 retirees 2027 2027 Post-65 retirees 2027 2026 (a) In 2019, qualified pension cost included settlement charges of $23.5 million. Actual asset returns have an effect on Entergy’s qualified pension and other postretirement costs. In 2019, Entergy’s actual average annual return on qualified pension assets was approximately 21% and for other postretirement assets was approximately 17%, as compared with the 2019 expected long-term rates of return discussed above. 44


  • Page 47

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis The following chart reflects the sensitivity of qualified pension cost and qualified pension projected benefit obligation to changes in certain actuarial assumptions (dollars in millions): Impact on 2020 Impact on 2019 Change in Qualified Pension Qualified Projected Actuarial Assumption Assumption Cost Benefit Obligation Increase/(Decrease) Discount rate (0.25%) $23 $237 Rate of return on plan assets (0.25%) $15 $— Rate of increase in compensation 0.25% $8 $41 The following chart reflects the sensitivity of postretirement benefit cost and accumulated postretirement benefit obligation to changes in certain actuarial assumptions (dollars in millions): Impact on 2019 Impact on 2020 Accumulated Change in Postretirement Postretirement Actuarial Assumption Assumption Benefit Cost Benefit Obligation Increase/(Decrease) Discount rate (0.25%) $2 $37 Health care cost trend 0.25% $3 $26 Each fluctuation above assumes that the other components of the calculation are held constant. Accounting Mechanisms In accordance with pension accounting standards, Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized into expense only when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. If necessary, the excess is amortized over the average remaining service period of active employees. Additionally, accounting standards allow for the deferral of prior service costs/credits arising from plan amendments that attribute an increase or decrease in benefits to employee service in prior periods. Prior service costs/credits are then amortized into expense over the average future working life of active employees. Certain decisions, including workforce reductions, plan amendments, and plant shutdowns may significantly reduce the expense amortization period and result in immediate recognition of certain previously- deferred costs and gains/losses in the form of curtailment gains or losses. Similarly, payments made to settle benefit obligations, including lump sum benefit payments, can also result in accelerated recognition in the form of settlement losses or gains. Entergy calculates the expected return on pension and other postretirement benefit plan assets by multiplying the long-term expected rate of return on assets by the market-related value (MRV) of plan assets. In general, Entergy determines the MRV of its pension plan assets by calculating a value that uses a 20-quarter phase-in of the difference between actual and expected returns and for its other postretirement benefit plan assets Entergy uses fair value. Accounting standards require an employer to recognize in its balance sheet the funded status of its benefit plans. See Note 11 to the financial statements for a further discussion of Entergy’s funded status. Employer Contributions Entergy contributed $399.4 million to its qualified pension plans in 2019. Entergy estimates pension contributions will be approximately $216.3 million in 2020; although the 2020 required pension contributions will be known with more certainty when the January 1, 2020 valuations are completed, which is expected by April 1, 2020. 45


  • Page 48

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis Minimum required funding calculations as determined under Pension Protection Act guidance are performed annually as of January 1 of each year and are based on measurements of the assets and funding liabilities as measured at that date. Any excess of the funding liability over the calculated fair market value of assets results in a funding shortfall that, under the Pension Protection Act, must be funded over a seven-year rolling period. The Pension Protection Act also imposes certain plan limitations if the funded percentage, which is based on calculated fair market values of assets divided by funding liabilities, does not meet certain thresholds. For funding purposes, asset gains and losses are smoothed in to the calculated fair market value of assets. The funding liability is based upon a weighted average 24-month corporate bond rate published by the U.S. Treasury which is generally subject to a corridor of the 25-year average of prior segment rates. Periodic changes in asset returns and interest rates can affect funding shortfalls and future cash contributions. Entergy contributed $46.6 million to its postretirement plans in 2019 and plans to contribute $49.1 million in 2020. Other Contingencies As a company with multi-state utility operations, Entergy is subject to a number of federal and state laws and regulations and other factors and conditions in the areas in which it operates, which potentially subjects it to environmental, litigation, and other risks. Entergy periodically evaluates its exposure for such risks and records a provision for those matters which are considered probable and estimable in accordance with generally accepted accounting principles. Environmental Entergy must comply with environmental laws and regulations applicable to air emissions, water discharges, solid waste (including coal combustion residuals), hazardous waste, toxic substances, protected species, and other environmental matters. Under these various laws and regulations, Entergy could incur substantial costs to comply or address any impacts to the environment. Entergy conducts studies to determine the extent of any required remediation and has recorded liabilities based upon its evaluation of the likelihood of loss and expected dollar amount for each issue. Additional sites or issues could be identified which require environmental remediation or corrective action for which Entergy could be liable. The amounts of environmental liabilities recorded can be significantly affected by the following external events or conditions. Changes to existing federal, state, or local regulation by governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other environmental matters. The identification of additional impacts, sites, issues, or the filing of other complaints in which Entergy may be asserted to be a potentially responsible party. The resolution or progression of existing matters through the court system or resolution by the EPA or relevant state or local authority. Litigation Entergy is regularly named as a defendant in a number of lawsuits involving employment, customers, and injuries and damages issues, among other matters. Entergy periodically reviews the cases in which it has been named as defendant and assesses the likelihood of loss in each case as probable, reasonably possible, or remote and records liabilities for cases that have a probable likelihood of loss and the loss can be estimated. Given the environment in which Entergy operates, and the unpredictable nature of many of the cases in which Entergy is named as a defendant, the ultimate outcome of the litigation to which Entergy is exposed has the potential to materially affect the results of operations, financial position, and cash flows of Entergy or the Registrant Subsidiaries. 46


  • Page 49

    Entergy Corporation and Subsidiaries Management’s Financial Discussion and Analysis New Accounting Pronouncements See Note 1 to the financial statements for discussion of new accounting pronouncements. 47


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    ENTERGY CORPORATION AND SUBSIDIARIES REPORT OF MANAGEMENT Management of Entergy Corporation and its subsidiaries has prepared and is responsible for the financial statements and related financial information included in this document. To meet this responsibility, management establishes and maintains a system of internal controls over financial reporting designed to provide reasonable assurance regarding the preparation and fair presentation of financial statements in accordance with generally accepted accounting principles. This system includes communication through written policies and procedures, an employee Code of Entegrity, and an organizational structure that provides for appropriate division of responsibility and training of personnel. This system is also tested by a comprehensive internal audit program. Entergy management assesses the design and effectiveness of Entergy’s internal control over financial reporting on an annual basis. In making this assessment, management uses the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. The 2013 COSO Framework was utilized for management’s assessment. Management acknowledges, however, that all internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable assurance with respect to financial statement preparation and presentation. Entergy Corporation’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the effectiveness of Entergy Corporation’s internal control over financial reporting as of December 31, 2019. In addition, the Audit Committee of the Board of Directors, composed solely of independent Directors, meets with the independent auditors, internal auditors, management, and internal accountants periodically to discuss internal controls, and auditing and financial reporting matters. The Audit Committee appoints the independent auditors annually, seeks shareholder ratification of the appointment, and reviews with the independent auditors the scope and results of the audit effort. The Audit Committee also meets periodically with the independent auditors and the chief internal auditor without management present, providing free access to the Audit Committee. Based on management’s assessment of internal controls using the 2013 COSO criteria, management believes that Entergy maintained effective internal control over financial reporting as of December 31, 2019. Management further believes that this assessment, combined with the policies and procedures noted above, provides reasonable assurance that Entergy’s financial statements are fairly and accurately presented in accordance with generally accepted accounting principles. LEO P. DENAULT ANDREW S. MARSH Chairman of the Board and Chief Executive Officer of Executive Vice President and Chief Financial Officer of Entergy Corporation Entergy Corporation 48

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