Item 7.01. Regulation FD Disclosure
As a result of the black box Settlement discussed in Item 8.01 below, System Energy Resources, Inc. (“System Energy”) will refund $235 million to Entergy Mississippi, LLC (“Entergy Mississippi”). Entergy Mississippi will provide the benefit of this Settlement to its customers primarily as an offset to unrecovered fuel costs incurred in the production of electricity.
Entergy Corporation’s (“Entergy”) Operating Companies’ allocations of System Energy’s sales (including MSS-4 Replacement Tariff re-sales of the output of Grand Gulf) are as follows: Entergy Arkansas, LLC (“Entergy Arkansas”) 24.19%, Entergy Louisiana, LLC (“Entergy Louisiana”) 16.13%, Entergy Mississippi 39.95%, and Entergy New Orleans, LLC (“Entergy New Orleans”) 19.74%. Should the retail regulators for Entergy Arkansas, Entergy Louisiana, and Entergy New Orleans elect to join the Settlement, it is estimated that the total amount that System Energy would refund would be $588 million (including Entergy Mississippi’s portion).
System Energy has previously recorded a provision and associated liability of $38M for elements of the applicable litigation. In June 2022, System Energy will record a pre-tax regulatory charge of approximately $551 million (approximately $413 million after tax), increasing the regulatory liability to $588 million, which consists of $235 million for the settlement with the Mississippi Public Service Commission and $353 million for potential future refunds to Entergy Arkansas, Entergy New Orleans and Entergy Louisiana. This regulatory charge will be considered an adjustment to GAAP net income, and therefore will not affect Entergy’s adjusted earnings per share (non-GAAP).
Entergy’s forward-looking adjusted earnings per share expectations take into account the impacts of a potential total settlement of $588 million and potential changes in System Energy’s future return on equity and capital structure. Entergy affirms its previously disclosed adjusted earnings per share guidance range of $6.15 to $6.45 for 2022 and outlook ranges of $6.55 to $6.85 for 2023, $7.05 to $7.35 for 2024, $7.50 to $7.90 for 2025, and $8.05 to $8.45 for 2026.
A $588 million total System Energy settlement would temporarily negatively affect Entergy’s cash flow to debt credit metrics. The timing and magnitude of the impact to cash flow would depend on the details of the total settlement. The long-term impact of debt financing of a $588 million System Energy settlement would not be expected to move Entergy’s cash flow to debt metrics outside of targeted ranges.
Cautionary Note Regarding Forward-Looking Statements
In this current report on Form 8-K, and from time to time, Entergy and System Energy make certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, among other things, statements regarding Entergy’s 2022 earnings guidance; current financial and operational outlooks; financing plans; expected impacts to credit metrics and ratings; and other statements of Entergy’s or System Energy’s plans, beliefs, or expectations included in this report. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this report. Except to the extent required by the federal securities laws, neither Entergy nor System Energy undertakes any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Forward-looking statements are subject to a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in such forward-looking statements, including (a) those factors discussed elsewhere in this report and in Entergy’s and System Energy’s most recent Annual Report on Form 10-K, any subsequent Quarterly Reports on Form 10-Q, and Entergy’s other reports and filings made under the Securities Exchange Act of 1934; (b) uncertainties associated with (1) rate proceedings, formula rate plans, and other cost recovery mechanisms, including
the risk that costs may not be recoverable to the extent or on the timeline anticipated by the utilities and (2) implementation of the ratemaking effects of changes in law; (c) uncertainties associated with (1) realizing the benefits of its resilience plan, including impacts of the frequency and intensity of future storms and storm paths, as well as the pace of project completion and (2) efforts to remediate the effects of major storms and recover related restoration costs; (d) risks associated with operating nuclear facilities, including plant relicensing, operating, and regulatory costs and risks; (e) changes in decommissioning trust fund values or earnings or in the timing or cost of decommissioning Entergy’s nuclear plant sites; (f) legislative and regulatory actions and risks and uncertainties associated with claims or litigation by or against Entergy and its subsidiaries; (g) risks and uncertainties associated with executing on business strategies, including strategic transactions that Entergy or its subsidiaries may undertake and the risk that any such transaction may not be completed as and when expected and the risk that the anticipated benefits of the transaction may not be realized; (h) impacts from a terrorist attack, cybersecurity threats, data security breaches, or other attempts to disrupt Entergy’s business or operations, and/or other catastrophic events; (i) the direct and indirect impacts of the COVID-19 pandemic on Entergy and its customers; and (j) effects on Entergy or its customers of (1) changes in federal, state, or local laws and regulations and other governmental actions or policies, including changes in monetary, fiscal, tax, environmental, or energy policies; (2) the effects of changes in commodity markets, capital markets, or economic conditions; and (3) the effects of technological change, including the costs, pace of development, and commercialization of new and emerging technologies.