Federal Energy Regulatory Commission issues key orders regarding System Energy Resources, Inc.
Entergy affirms adjusted EPS guidance and outlooks; commits to continue to work with regulators on behalf of customers
NEW ORLEANS, Dec. 26, 2022 /PRNewswire/ -- On Dec. 23, 2022, the Federal Energy Regulatory Commission issued two orders in ongoing proceedings involving the customer rate impacts of the Grand Gulf Nuclear Station. SERI operates Grand Gulf and owns or leases 90% of the station.
“We believe Friday’s FERC orders are a positive step toward resolving a number of long-standing issues raised by our retail regulators. While we disagree with some elements of FERC’s findings, in particular its ruling on the sale leaseback claim, we are pleased that FERC’s remedy results in no additional refunds due to customers beyond those already provided in 2021 on the uncertain tax positions taken by SERI,” said Drew Marsh, Entergy’s chief executive officer. “SERI has consistently maintained that its tax strategy was in the best interest of customers and ultimately provided them with millions of dollars in savings. We are committed to working with our regulators to resolve outstanding FERC issues for the benefit of our customers.”
Regarding the uncertain tax position issue, FERC’s orders address a series of decommissioning uncertain tax positions that SERI took in order to benefit customers. SERI assumed the risk of Internal Revenue Service penalties and interest that could have resulted from unsuccessful portions of these positions. The IRS ultimately allowed over $100 million of an uncertain tax position SERI took in 2015. The remedy in FERC’s order directed SERI to compute a refund based on the accumulated deferred income tax, or ADIT, amounts resulting from the IRS’s partial allowance of SERI’s 2015 decommissioning uncertain tax position. Consistent with FERC’s order, upon resolution with the IRS of the 2015 uncertain tax position, SERI began to provide an ongoing rate base credit for the ADIT associated with the successful portion of the uncertain tax position, which is estimated to result in a benefit of $69 million to customers over the remaining expected life of Grand Gulf. Additionally, in 2021, SERI provided a one-time credit of $25 million inclusive of interest for the ADIT created by the 2015 decommissioning uncertain tax position, which is consistent with the directives of FERC’s order. Therefore, SERI’s position is that it has already satisfied the remedy required in FERC’s order.
FERC’s order also specified that the remedy must not “reestablish” ADIT balances for tax positions that were denied by the IRS, as SERI received no tax benefits from tax positions that were not successful. Beyond the partial acceptance of the 2015 tax position, the IRS did not allow any portion of SERI’s other decommissioning uncertain tax positions. Under the remedy specified by FERC, for uncertain tax positions that the IRS fully disallowed, and for which SERI received no tax benefits, no refunds are due. We therefore calculate the remaining refund for the uncertain tax positions issue to be $0. SERI intends to file a compliance refund report reflecting that calculation as required by the order, which FERC will review and address in a future order.
On the sale leaseback case, the order calls for SERI to refund approximately $149 million, including interest, resulting from the disallowance of $17 million in annual lease payments from 2015 through 2022. Taking into account SERI’s previous settlement with the Mississippi Public Service Commission, the total sale leaseback refund amount is $89 million. The order also states that SERI can no longer collect $17 million in annual lease payments on a prospective basis. Net of the Entergy Mississippi settlement, the prospective exclusion would be approximately $10 million annually (pre-tax). SERI disagrees with this ruling and will seek rehearing. This sale leaseback renewal was entered into to lower costs to customers, which is a benefit that FERC previously recognized. Customers also continue to receive the power produced by the leased portion of the plant.
Regarding the financial impacts of these FERC orders, assuming there are no changes to either order upon rehearing, Entergy affirms its adjusted EPS guidance for 2022 and adjusted EPS outlooks for 2023-2025.
Grand Gulf is the principal asset owned by SERI, and it is the largest single-unit nuclear reactor in the United States, employing 675 site workers and providing power to Entergy operating company customers in Arkansas, Louisiana and Mississippi.
“The dedicated men and women who work at Grand Gulf have not been distracted by these ongoing proceedings. Their primary focus has been, and continues to be, the safe and reliable operations of the facility. Grand Gulf is a critical component of Entergy’s overall generation fleet and provides clean, affordable, carbon-free energy for our customers,” said Marsh. “I appreciate the team’s continued focus on ensuring that Grand Gulf continues to deliver clean, affordable, and reliable power to our customers.”
Entergy (NYSE: ETR), a Fortune 500 company headquartered in New Orleans, powers life for 3 million customers through its operating companies across Arkansas, Louisiana, Mississippi and Texas. Entergy is creating a cleaner, more resilient energy future for everyone with our diverse power generation portfolio, including increasingly carbon-free energy sources. With roots in the Gulf South region for more than a century, Entergy is a recognized leader in corporate citizenship, delivering more than $100 million in economic benefits to local communities through philanthropy and advocacy efforts annually over the last several years. Our approximately 12,500 employees are dedicated to powering life today and for future generations. Learn more at entergy.com and follow @Entergy on social media. #WePowerLife
Cautionary note regarding forward-looking statements
In this news release, and from time to time, Entergy Corporation makes 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 outlooks; and other statements of Entergy’s plans, beliefs, or expectations included in this news release. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this news release. Except to the extent required by the federal securities laws, Entergy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Forward-looking statements 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 news release and in Entergy’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, including without limitation the litigation that is the subject of this news release; (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 terrorist attacks, geopolitical conflicts, 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.
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