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Risk Management And Fair Values | 3 Months Ended
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Mar. 31, 2014
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy) Market Risk In the normal course of business, Entergy is exposed to a number of market risks. Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular commodity or instrument. All financial and commodity-related instruments, including derivatives, are subject to market risk including commodity price risk, equity price, and interest rate risk. Entergy uses derivatives primarily to mitigate commodity price risk, particularly power price and fuel price risk. 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 derivative 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. 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 and capacity in the day ahead or spot markets. In addition to its forward physical power contracts, Entergy Wholesale Commodities also uses a combination of financial contracts, including swaps, collars, and options, to mitigate commodity price risk. When the market price falls, the combination of instruments is expected to settle in gains that offset lower revenue from generation, which results in a more predictable cash flow. Entergy’s exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity. For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option’s contractual strike or exercise price also affects the level of market risk. A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk. Hedging instruments and volumes are chosen based on ability to mitigate risk associated with future energy and capacity prices; however, other considerations are factored into hedge product and volume decisions including corporate liquidity, corporate credit ratings, counterparty credit risk, hedging costs, firm settlement risk, and product availability in the marketplace. Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy’s risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods. These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy’s objectives. Derivatives Some derivative instruments are classified as cash flow hedges due to their financial settlement provisions while others are classified as normal purchase/normal sale transactions due to their physical settlement provisions. Normal purchase/normal sale risk management tools include power purchase and sales agreements, fuel purchase agreements, capacity contracts, and tolling agreements. Financially-settled cash flow hedges can include natural gas and electricity swaps and options and interest rate swaps. Entergy may enter into financially-settled swap and option contracts to manage market risk that may or may not be designated as hedging instruments. Entergy enters into derivatives only to manage natural risks inherent in its physical or financial assets or liabilities. The maximum length of time over which Entergy is currently hedging the variability in future cash flows with derivatives for forecasted power transactions at March 31, 2014 is approximately 2.75 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 75% for the remainder of 2014, of which approximately 45% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2014 is 30 TWh. Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Gulf States Louisiana, Entergy Louisiana, and Entergy New Orleans) and Entergy Mississippi through the purchase of short-term natural gas swaps that financially settle against NYMEX futures. These swaps are marked-to-market through fuel expense with offsetting regulatory assets or liabilities. All benefits or costs of the program are recorded in fuel costs. The notional volumes of these swaps are based on a portion of projected annual exposure to gas for electric generation and projected winter purchases for gas distribution at Entergy Gulf States Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2014 is 42,490,000 MMBtu for Entergy, 16,070,000 MMBtu for Entergy Gulf States Louisiana, 19,180,000 MMBtu for Entergy Louisiana, and 7,240,000 MMBtu for Entergy Mississippi. Credit support for these natural gas swaps is covered by master agreements that do not require collateralization based on mark-to-market value, but do carry adequate assurance language that may lead to collateralization requests. In connection with joining MISO, Entergy received a direct allocation of FTRs in November 2013. FTRs are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records FTRs at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on FTRs held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on FTRs. The total volume of FTRs outstanding as of March 31, 2014 is 15,554 GWh for Entergy, including 3,540 GWh for Entergy Arkansas, 2,613 GWh for Entergy Gulf States Louisiana, 3,998 GWh for Entergy Louisiana, 2,319 GWh for Entergy Mississippi, 523 GWh for Entergy New Orleans, and 2,423 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash or letters of credit issued by each Utility operating company as required by MISO. Credit support for FTRs held by Entergy Wholesale Commodities is covered by cash. As of March 31, 2014, Entergy Arkansas posted $1 million in cash collateral. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2014 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $107 |  | ($102) |  | $5 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $7 |  | ($2) |  | $5 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $178 |  | ($125) |  | $53 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $23 |  | ($3) |  | $20 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $100 |  | ($86) |  | $14 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $8 |  | $— |  | $8 |  | Utility
FTRs |  | Prepayments and other |  | $26 |  | ($1) |  | $25 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $100 |  | ($63) |  | $37 |  | Entergy Wholesale Commodities
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2013 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $118 |  | ($99) |  | $19 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($17) |  | $— |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $197 |  | ($131) |  | $66 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $46 |  | ($17) |  | $29 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $177 |  | ($122) |  | $55 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $6 |  | $— |  | $6 |  | Utility
FTRs |  | Prepayments and other |  | $36 |  | ($2) |  | $34 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $201 |  | ($89) |  | $112 |  | Entergy Wholesale Commodities
(a) | Represents the gross amounts of recognized assets/liabilities
(b) | Represents the netting of fair value balances with the same counterparty
(c) | Represents the net amounts of assets /liabilities presented on the Entergy Consolidated Balance Sheets
(d) | Excludes cash collateral in the amounts of $65 million posted as of March 31, 2014 and $47 million posted and $4 million held as of December 31, 2013
The effect of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Amount of loss recognized in other comprehensive income |  | Income Statement location |  | Amount of loss reclassified from AOCI into income
|  | (In Millions) |  |  |  | (In Millions)
2014 |  |  |  |  |  |
Electricity swaps and options |  | ($174) |  | Competitive businesses operating revenues |  | ($195)
2013 |  |  |  |  |  |
Electricity swaps and options |  | ($120) |  | Competitive businesses operating revenues |  | ($2)
Electricity over-the-counter instruments that financially settle against day-ahead power pool prices are used to manage price exposure for Entergy Wholesale Commodities generation. Unrealized gains or losses recorded in other comprehensive income result from hedging power output at the Entergy Wholesale Commodities power plants. The related gains or losses from hedging power are included in operating revenues when realized. Gains (losses) totaling approximately ($195) million and ($2) million were realized on the maturity of cash flow hedges, before taxes (benefit) of ($68) million and ($1) million, for the three months ended March 31, 2014 and 2013, respectively. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2014 and 2013 was $1 million and ($1.3) million, respectively. The ineffective portion of cash flow hedges is recorded in competitive businesses operating revenues. Based on market prices as of March 31, 2014, unrealized losses recorded in AOCI on cash flow hedges relating to power sales totaled $98 million of net unrealized losses. Approximately $74 million is expected to be reclassified from AOCI to operating revenues in the next twelve months. The actual amount reclassified from AOCI, however, could vary due to future changes in market prices. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations when the current market prices exceed the contracted power prices. The primary form of collateral to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2014, derivative contracts with nine counterparties were in a liability position (approximately $98 million total) and, in addition to the corporate guarantee, $64 million in cash collateral was required to be posted. As of March 31, 2013, derivative contracts with six counterparties were in a liability position (approximately $25 million total), but were significantly below the amount of the guarantee provided under the contract and no cash collateral was required. If the Entergy Corporation credit rating falls below investment grade, the effect of the corporate guarantee is typically ignored and Entergy would have to post collateral equal to the estimated outstanding liability under the contract at the applicable date. Entergy may effectively liquidate a cash flow hedge instrument by entering into a contract offsetting the original hedge, and then de-designating the original hedge in this situation. Gains or losses accumulated in other comprehensive income prior to de-designation continue to be deferred in other comprehensive income until they are included in income as the original hedged transaction occurs. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract are recorded as assets or liabilities on the balance sheet and offset as they flow through to earnings.
The effect of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2014 and 2013 is as follows:
Instrument |  | Amount of gain recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
2014 |  | (In Millions) |  |  |  | (In Millions)
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $17
FTRs |  | — |  | Purchased power expense |  | $46
Electricity swaps and options de-designated as hedged items |  | $22 |  | Competitive business operating revenues |  | $21
2013 |  |  |  |  |  |
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($20)
Electricity swaps and options de-designated as hedged items |  | $1 |  | Competitive business operating revenues |  | ($1)
Due to regulatory treatment, the natural gas swaps are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps are settled are recovered or refunded through fuel cost recovery mechanisms. Due to regulatory treatment, the changes in the estimated fair value of FTRs are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as purchased power expense when the FTRs are settled are recovered or refunded through fuel cost recovery mechanisms. The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of March 31, 2014 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $3.0 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $3.7 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $1.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $5.4 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $3.0 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $4.8 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $7.4 |  | Entergy Texas
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2013 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $2.2 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $2.9 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $0.7 |  | Entergy Mississippi
Natural gas swaps |  | Prepayments and other |  | $0.1 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $6.7 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $5.7 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $18.4 |  | Entergy Texas
(a) | Excludes cash collateral in the amount of $1 million posted by Entergy Arkansas as of March 31, 2014. As of December 31, 2013, no cash collateral was required to be posted.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
2014 |  |  |  | (In Millions) |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $6.8 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $8.0 |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $1.6 |  | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $0.7 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $5.1 |  | Entergy Arkansas
FTRs |  | Purchased power expense |  | $9.1 |  | Entergy Gulf States Louisiana
FTRs |  | Purchased power expense |  | $8.0 |  | Entergy Louisiana
FTRs |  | Purchased power expense |  | $7.8 |  | Entergy Mississippi
FTRs |  | Purchased power expense |  | $2.9 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $12.8 |  | Entergy Texas
2013 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($6.2) |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($8.3) |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($5.4) |  | Entergy Mississippi
Fair Values The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling. Considerable judgment is required in developing the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. Gains or losses realized on financial instruments other than those instruments held by the Entergy Wholesale Commodities business are reflected in future rates and therefore do not affect net income. Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments. Accounting standards define fair value as an exit price, or the price that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between knowledgeable market participants at the date of measurement. Entergy and the Registrant Subsidiaries use assumptions or market input data that market participants would use in pricing assets or liabilities at fair value. The inputs can be readily observable, corroborated by market data, or generally unobservable. Entergy and the Registrant Subsidiaries endeavor to use the best available information to determine fair value. Accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy establishes the highest priority for unadjusted market quotes in an active market for the identical asset or liability and the lowest priority for unobservable inputs. The three levels of the fair value hierarchy are:
• | Level 1 - Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of individually owned common stocks, cash equivalents (temporary cash investments, securitization recovery trust account, and escrow accounts), debt instruments, and gas hedge contracts. Cash equivalents includes all unrestricted highly liquid debt instruments with an original or remaining maturity of three months or less at the date of purchase.
• | Level 2 - Level 2 inputs are inputs other than quoted prices included in Level 1 that are, either directly or indirectly, observable for the asset or liability at the measurement date. Assets are valued based on prices derived by independent third parties that use inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Prices are reviewed and can be challenged with the independent parties and/or overridden by Entergy if it is believed such would be more reflective of fair value. Level 2 inputs include the following:
- quoted prices for similar assets or liabilities in active markets; - quoted prices for identical assets or liabilities in inactive markets; - inputs other than quoted prices that are observable for the asset or liability; or - inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 2 consists primarily of individually-owned debt instruments or shares in common trusts. Common trust funds are stated at estimated fair value based on the fair market value of the underlying investments.
• | Level 3 - Level 3 inputs are pricing inputs that are generally less observable or unobservable from objective sources. These inputs are used with internally developed methodologies to produce management’s best estimate of fair value for the asset or liability. Level 3 consists primarily of FTRs and derivative power contracts used as cash flow hedges of power sales at merchant power plants.
The values for power contract assets or liabilities are based on both observable inputs including public market prices and interest rates, and unobservable inputs such as implied volatilities, unit contingent discounts, expected basis differences, and credit adjusted counterparty interest rates. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group and the Entergy Wholesale Commodities Accounting Policy and External Reporting group. The primary functions of the Entergy Wholesale Commodities Risk Control Group include: gathering, validating and reporting market data, providing market risk analyses and valuations in support of Entergy Wholesale Commodities’ commercial transactions, developing and administering protocols for the management of market risks, and implementing and maintaining controls around changes to market data in the energy trading and risk management system. The Risk Control group is also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis. The Entergy Wholesale Commodities Accounting Policy and External Reporting group performs functions related to market and counterparty settlements, revenue reporting and analysis and financial accounting. The Entergy Wholesale Commodities Risk Control Group reports to the Vice President, Treasury while the Entergy Wholesale Commodities Accounting Policy and External Reporting group reports to the Vice President, Accounting Policy and External Reporting. The amounts reflected as the fair value of electricity swaps are based on the estimated amount that the contracts are in-the-money at the balance sheet date (treated as an asset) or out-of-the-money at the balance sheet date (treated as a liability) and would equal the estimated amount receivable to or payable by Entergy if the contracts were settled at that date. These derivative contracts include cash flow hedges that swap fixed for floating cash flows for sales of the output from the Entergy Wholesale Commodities business. The fair values are based on the mark-to-market comparison between the fixed contract prices and the floating prices determined each period from quoted forward power market prices. The differences between the fixed price in the swap contract and these market-related prices multiplied by the volume specified in the contract and discounted at the counterparties’ credit adjusted risk free rate are recorded as derivative contract assets or liabilities. For contracts that have unit contingent terms, a further discount is applied based on the historical relationship between contract and market prices for similar contract terms. The amounts reflected as the fair values of electricity options are valued based on a Black Scholes model, and are calculated at the end of each month for accounting purposes. Inputs to the valuation include end of day forward market prices for the period when the transactions will settle, implied volatilities based on market volatilities provided by a third party data aggregator, and US Treasury rates for a risk-free return rate. As described further below, prices and implied volatilities are reviewed and can be adjusted if it is determined that there is a better representation of fair value. On a daily basis, Entergy Wholesale Commodities Risk Control Group calculated the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control Group also validated forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences were analyzed and potentially adjusted based on these other sources of forward market prices or settlement prices of actual market transactions. Implied volatilities used to value options were also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and used multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirmed the mark-to-market calculations and prepared price scenarios and credit downgrade scenario analysis. The scenario analysis was communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis was completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’s portfolio. In particular, the credit, liquidity, and financial metrics impacts were calculated for this analysis. This analysis was communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of future congestion costs in MISO between applicable sink and source pricing nodes based on prices published by MISO. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group for the unregulated business and by the System Planning and Operations Risk Control Group for the Utility operating companies. Entergy’s Accounting Policy group reviews these valuations for reasonableness, with the assistance of others within the organization with knowledge of the various inputs and assumptions used in the valuation. The System Planning and Operations Risk Control Group reports to the Vice President, Treasury. The Accounting Policy group reports to the Vice President, Accounting Policy and External Reporting. The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $800 |  |  |  | $— |  |  |  | $— |  |  |  | $800 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 417 |  |  | 2,644 |  | (b) | — |  |  | 3,061 |
Debt securities |  | 763 |  |  | 1,167 |  |  | — |  |  | 1,930 |
Power contracts |  | — |  |  | — |  |  | 24 |  |  | 24 |
Securitization recovery trust account |  | 48 |  |  | — |  |  | — |  |  | 48 |
Escrow accounts |  | 117 |  |  | — |  |  | — |  |  | 117 |
Gas hedge contracts |  | 8 |  |  | — |  |  | — |  |  | 8 |
FTRs |  | — |  |  | — |  |  | 25 |  |  | 25 |
|  |  | $2,153 |  |  |  | $3,811 |  |  |  | $49 |  |  |  | $6,013 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $110 |  |  |  | $110 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $609 |  |  |  | $— |  |  |  | $— |  |  |  | $609 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 472 |  |  | 2,601 |  | (b) | — |  |  | 3,073 |
Debt securities |  | 783 |  |  | 1,047 |  |  | — |  |  | 1,830 |
Power contracts |  | — |  |  | — |  |  | 74 |  |  | 74 |
Securitization recovery trust account |  | 46 |  |  | — |  |  | — |  |  | 46 |
Escrow accounts |  | 115 |  |  | — |  |  | — |  |  | 115 |
Gas hedge contracts |  | 6 |  |  | — |  |  | — |  |  | 6 |
FTRs |  | — |  |  | — |  |  | 34 |  |  | 34 |
|  |  | $2,031 |  |  |  | $3,648 |  |  |  | $108 |  |  |  | $5,787 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $207 |  |  |  | $207 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
(b) | Commingled equity funds may be redeemed bi-monthly.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014 and 2013:
| 2014 |  | 2013
| (In Millions)
Balance as of January 1, |  | ($98 | ) |  |  | $178 |
Realized losses included in earnings | (31 | ) |  | (14 | )
Unrealized gains included in earnings | 53 |  |  | 5 |
Unrealized losses included in OCI | (222 | ) |  | (119 | )
Unrealized gains included as a regulatory asset/liability | 37 |  |  | — |
Purchases | 5 |  |  | — |
Settlements | 195 |  |  | 2 |
Balance as of March 31, |  | ($61 | ) |  |  | $52 |
The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy and significant unobservable inputs to each which cause that classification, as of March 31, 2014:
Transaction Type |  | Fair Value as of March 31, 2014 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Electricity swaps |  | ($96) |  | Unit contingent discount |  | +/- | 3% |  | ($3)
Electricity options |  | $10 |  | Implied volatility |  | +/- | 53% |  | $35
The following table sets forth an analysis of each of the types of unobservable inputs impacting the fair value of items classified as Level 3 within the fair value hierarchy, and the sensitivity to changes to those inputs:
Significant Unobservable Input |  | Transaction Type |  | Position |  | Change to Input |  | Effect on Fair Value
Unit contingent discount |  | Electricity swaps |  | Sell |  | Increase (Decrease) |  | Decrease (Increase)
Implied volatility |  | Electricity options |  | Sell |  | Increase (Decrease) |  | Increase (Decrease)
Implied volatility |  | Electricity options |  | Buy |  | Increase (Decrease) |  | Increase (Decrease)
The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels. Entergy Arkansas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $216.1 |  |  |  | $— |  |  |  | $— |  |  |  | $216.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 3.7 |  |  | 457.1 |  |  | — |  |  | 460.8 |
Debt securities |  | 50.8 |  |  | 209.9 |  |  | — |  |  | 260.7 |
Securitization recovery trust account |  | 8.1 |  |  | — |  |  | — |  |  | 8.1 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
FTRs |  | — |  |  | — |  |  | 2.7 |  |  | 2.7 |
|  |  | $304.7 |  |  |  | $667.0 |  |  |  | $2.7 |  |  |  | $974.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $122.8 |  |  |  | $— |  |  |  | $— |  |  |  | $122.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 13.6 |  |  | 449.7 |  |  | — |  |  | 463.3 |
Debt securities |  | 58.6 |  |  | 189.0 |  |  | — |  |  | 247.6 |
Securitization recovery trust account |  | 3.8 |  |  | — |  |  | — |  |  | 3.8 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
|  |  | $224.8 |  |  |  | $638.7 |  |  |  | $— |  |  |  | $863.5 |
Entergy Gulf States Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $15.0 |  |  |  | $— |  |  |  | $— |  |  |  | $15.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.0 |  |  | 348.9 |  |  | — |  |  | 359.9 |
Debt securities |  | 73.1 |  |  | 153.2 |  |  | — |  |  | 226.3 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 3.0 |  |  | — |  |  | — |  |  | 3.0 |
FTRs |  | — |  |  | — |  |  | 5.4 |  |  | 5.4 |
|  |  | $123.6 |  |  |  | $502.1 |  |  |  | $5.4 |  |  |  | $631.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.8 |  |  |  | $— |  |  |  | $— |  |  |  | $13.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 27.6 |  |  | 343.2 |  |  | — |  |  | 370.8 |
Debt securities |  | 71.7 |  |  | 131.2 |  |  | — |  |  | 202.9 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 2.2 |  |  | — |  |  | — |  |  | 2.2 |
FTRs |  | — |  |  | — |  |  | 6.7 |  |  | 6.7 |
|  |  | $136.8 |  |  |  | $474.4 |  |  |  | $6.7 |  |  |  | $617.9 |
Entergy Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $72.0 |  |  |  | $— |  |  |  | $— |  |  |  | $72.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.1 |  |  | 213.9 |  |  | — |  |  | 225.0 |
Debt securities |  | 60.3 |  |  | 68.3 |  |  | — |  |  | 128.6 |
Securitization recovery trust account |  | 10.2 |  |  | — |  |  | — |  |  | 10.2 |
Gas hedge contracts |  | 3.7 |  |  | — |  |  | — |  |  | 3.7 |
FTRs |  | — |  |  | — |  |  | 3.0 |  |  | 3.0 |
|  |  | $157.3 |  |  |  | $282.2 |  |  |  | $3.0 |  |  |  | $442.5 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $123.6 |  |  |  | $— |  |  |  | $— |  |  |  | $123.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 13.5 |  |  | 210.7 |  |  | — |  |  | 224.2 |
Debt securities |  | 61.7 |  |  | 61.4 |  |  | — |  |  | 123.1 |
Securitization recovery trust account |  | 4.5 |  |  | — |  |  | — |  |  | 4.5 |
Gas hedge contacts |  | 2.9 |  |  | — |  |  | — |  |  | 2.9 |
FTRs |  | — |  |  | — |  |  | 5.7 |  |  | 5.7 |
|  |  | $206.2 |  |  |  | $272.1 |  |  |  | $5.7 |  |  |  | $484.0 |
Entergy Mississippi
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $70.3 |  |  |  | $— |  |  |  | $— |  |  |  | $70.3 |
Escrow accounts |  | 51.8 |  |  | — |  |  | — |  |  | 51.8 |
Gas hedge contracts |  | 1.4 |  |  | — |  |  | — |  |  | 1.4 |
FTRs |  | — |  |  | — |  |  | 4.8 |  |  | 4.8 |
|  |  | $123.5 |  |  |  | $— |  |  |  | $4.8 |  |  |  | $128.3 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Escrow accounts |  |  | $51.8 |  |  |  | $— |  |  |  | $— |  |  |  | $51.8 |
Gas hedge contracts |  | 0.7 |  |  | — |  |  | — |  |  | 0.7 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $52.5 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $53.5 |
Entergy New Orleans
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $24.7 |  |  |  | $— |  |  |  | $— |  |  |  | $24.7 |
Escrow accounts |  | 12.4 |  |  | — |  |  | — |  |  | 12.4 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $37.1 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $38.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $33.2 |  |  |  | $— |  |  |  | $— |  |  |  | $33.2 |
Escrow accounts |  | 10.5 |  |  | — |  |  | — |  |  | 10.5 |
Gas hedge contracts |  | 0.1 |  |  | — |  |  | — |  |  | 0.1 |
FTRs |  | — |  |  | — |  |  | 2.0 |  |  | 2.0 |
|  |  | $43.8 |  |  |  | $— |  |  |  | $2.0 |  |  |  | $45.8 |
Entergy Texas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $29.7 |  |  |  | $— |  |  |  | $— |  |  |  | $29.7 |
FTRs |  | — |  |  | — |  |  | 7.4 |  |  | 7.4 |
|  |  | $29.7 |  |  |  | $— |  |  |  | $7.4 |  |  |  | $37.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $44.1 |  |  |  | $— |  |  |  | $— |  |  |  | $44.1 |
Securitization recovery trust account |  | 37.5 |  |  | — |  |  | — |  |  | 37.5 |
FTRs |  | — |  |  | — |  |  | 18.4 |  |  | 18.4 |
|  |  | $81.6 |  |  |  | $— |  |  |  | $18.4 |  |  |  | $100.0 |
System Energy
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $83.1 |  |  |  | $— |  |  |  | $— |  |  |  | $83.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.2 |  |  | 384.7 |  |  | — |  |  | 385.9 |
Debt securities |  | 155.1 |  |  | 78.3 |  |  | — |  |  | 233.4 |
|  |  | $239.4 |  |  |  | $463.0 |  |  |  | $— |  |  |  | $702.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.6 |  |  |  | $— |  |  |  | $— |  |  |  | $64.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.2 |  |  | 377.8 |  |  | — |  |  | 380.0 |
Debt securities |  | 152.9 |  |  | 71.0 |  |  | — |  |  | 223.9 |
|  |  | $219.7 |  |  |  | $448.8 |  |  |  | $— |  |  |  | $668.5 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014.
| Entergy Arkansas |  | Entergy Gulf States Louisiana |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
|  |  | (In Millions)
Balance as of January 1, |  | $— |  |  |  | $6.7 |  |  |  | $5.7 |  |  |  | $1.0 |  |  |  | $2.0 |  |  |  | $18.4 |
Unrealized gains included as a regulatory liability/asset | 7.8 |  |  | 7.7 |  |  | 5.3 |  |  | 11.6 |  |  | 2.0 |  |  | 1.8 |
Settlements | (5.1 | ) |  | (9.0 | ) |  | (8.0 | ) |  | (7.8 | ) |  | (3.0 | ) |  | (12.8 | )
Balance as of March 31, |  | $2.7 |  |  |  | $5.4 |  |  |  | $3.0 |  |  |  | $4.8 |  |  |  | $1.0 |  |  |  | $7.4 |
Entergy Arkansas [Member] |
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy) Market Risk In the normal course of business, Entergy is exposed to a number of market risks. Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular commodity or instrument. All financial and commodity-related instruments, including derivatives, are subject to market risk including commodity price risk, equity price, and interest rate risk. Entergy uses derivatives primarily to mitigate commodity price risk, particularly power price and fuel price risk. 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 derivative 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. 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 and capacity in the day ahead or spot markets. In addition to its forward physical power contracts, Entergy Wholesale Commodities also uses a combination of financial contracts, including swaps, collars, and options, to mitigate commodity price risk. When the market price falls, the combination of instruments is expected to settle in gains that offset lower revenue from generation, which results in a more predictable cash flow. Entergy’s exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity. For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option’s contractual strike or exercise price also affects the level of market risk. A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk. Hedging instruments and volumes are chosen based on ability to mitigate risk associated with future energy and capacity prices; however, other considerations are factored into hedge product and volume decisions including corporate liquidity, corporate credit ratings, counterparty credit risk, hedging costs, firm settlement risk, and product availability in the marketplace. Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy’s risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods. These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy’s objectives. Derivatives Some derivative instruments are classified as cash flow hedges due to their financial settlement provisions while others are classified as normal purchase/normal sale transactions due to their physical settlement provisions. Normal purchase/normal sale risk management tools include power purchase and sales agreements, fuel purchase agreements, capacity contracts, and tolling agreements. Financially-settled cash flow hedges can include natural gas and electricity swaps and options and interest rate swaps. Entergy may enter into financially-settled swap and option contracts to manage market risk that may or may not be designated as hedging instruments. Entergy enters into derivatives only to manage natural risks inherent in its physical or financial assets or liabilities. The maximum length of time over which Entergy is currently hedging the variability in future cash flows with derivatives for forecasted power transactions at March 31, 2014 is approximately 2.75 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 75% for the remainder of 2014, of which approximately 45% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2014 is 30 TWh. Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Gulf States Louisiana, Entergy Louisiana, and Entergy New Orleans) and Entergy Mississippi through the purchase of short-term natural gas swaps that financially settle against NYMEX futures. These swaps are marked-to-market through fuel expense with offsetting regulatory assets or liabilities. All benefits or costs of the program are recorded in fuel costs. The notional volumes of these swaps are based on a portion of projected annual exposure to gas for electric generation and projected winter purchases for gas distribution at Entergy Gulf States Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2014 is 42,490,000 MMBtu for Entergy, 16,070,000 MMBtu for Entergy Gulf States Louisiana, 19,180,000 MMBtu for Entergy Louisiana, and 7,240,000 MMBtu for Entergy Mississippi. Credit support for these natural gas swaps is covered by master agreements that do not require collateralization based on mark-to-market value, but do carry adequate assurance language that may lead to collateralization requests. In connection with joining MISO, Entergy received a direct allocation of FTRs in November 2013. FTRs are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records FTRs at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on FTRs held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on FTRs. The total volume of FTRs outstanding as of March 31, 2014 is 15,554 GWh for Entergy, including 3,540 GWh for Entergy Arkansas, 2,613 GWh for Entergy Gulf States Louisiana, 3,998 GWh for Entergy Louisiana, 2,319 GWh for Entergy Mississippi, 523 GWh for Entergy New Orleans, and 2,423 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash or letters of credit issued by each Utility operating company as required by MISO. Credit support for FTRs held by Entergy Wholesale Commodities is covered by cash. As of March 31, 2014, Entergy Arkansas posted $1 million in cash collateral. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2014 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $107 |  | ($102) |  | $5 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $7 |  | ($2) |  | $5 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $178 |  | ($125) |  | $53 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $23 |  | ($3) |  | $20 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $100 |  | ($86) |  | $14 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $8 |  | $— |  | $8 |  | Utility
FTRs |  | Prepayments and other |  | $26 |  | ($1) |  | $25 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $100 |  | ($63) |  | $37 |  | Entergy Wholesale Commodities
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2013 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $118 |  | ($99) |  | $19 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($17) |  | $— |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $197 |  | ($131) |  | $66 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $46 |  | ($17) |  | $29 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $177 |  | ($122) |  | $55 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $6 |  | $— |  | $6 |  | Utility
FTRs |  | Prepayments and other |  | $36 |  | ($2) |  | $34 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $201 |  | ($89) |  | $112 |  | Entergy Wholesale Commodities
(a) | Represents the gross amounts of recognized assets/liabilities
(b) | Represents the netting of fair value balances with the same counterparty
(c) | Represents the net amounts of assets /liabilities presented on the Entergy Consolidated Balance Sheets
(d) | Excludes cash collateral in the amounts of $65 million posted as of March 31, 2014 and $47 million posted and $4 million held as of December 31, 2013
The effect of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Amount of loss recognized in other comprehensive income |  | Income Statement location |  | Amount of loss reclassified from AOCI into income
|  | (In Millions) |  |  |  | (In Millions)
2014 |  |  |  |  |  |
Electricity swaps and options |  | ($174) |  | Competitive businesses operating revenues |  | ($195)
2013 |  |  |  |  |  |
Electricity swaps and options |  | ($120) |  | Competitive businesses operating revenues |  | ($2)
Electricity over-the-counter instruments that financially settle against day-ahead power pool prices are used to manage price exposure for Entergy Wholesale Commodities generation. Unrealized gains or losses recorded in other comprehensive income result from hedging power output at the Entergy Wholesale Commodities power plants. The related gains or losses from hedging power are included in operating revenues when realized. Gains (losses) totaling approximately ($195) million and ($2) million were realized on the maturity of cash flow hedges, before taxes (benefit) of ($68) million and ($1) million, for the three months ended March 31, 2014 and 2013, respectively. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2014 and 2013 was $1 million and ($1.3) million, respectively. The ineffective portion of cash flow hedges is recorded in competitive businesses operating revenues. Based on market prices as of March 31, 2014, unrealized losses recorded in AOCI on cash flow hedges relating to power sales totaled $98 million of net unrealized losses. Approximately $74 million is expected to be reclassified from AOCI to operating revenues in the next twelve months. The actual amount reclassified from AOCI, however, could vary due to future changes in market prices. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations when the current market prices exceed the contracted power prices. The primary form of collateral to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2014, derivative contracts with nine counterparties were in a liability position (approximately $98 million total) and, in addition to the corporate guarantee, $64 million in cash collateral was required to be posted. As of March 31, 2013, derivative contracts with six counterparties were in a liability position (approximately $25 million total), but were significantly below the amount of the guarantee provided under the contract and no cash collateral was required. If the Entergy Corporation credit rating falls below investment grade, the effect of the corporate guarantee is typically ignored and Entergy would have to post collateral equal to the estimated outstanding liability under the contract at the applicable date. Entergy may effectively liquidate a cash flow hedge instrument by entering into a contract offsetting the original hedge, and then de-designating the original hedge in this situation. Gains or losses accumulated in other comprehensive income prior to de-designation continue to be deferred in other comprehensive income until they are included in income as the original hedged transaction occurs. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract are recorded as assets or liabilities on the balance sheet and offset as they flow through to earnings.
The effect of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2014 and 2013 is as follows:
Instrument |  | Amount of gain recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
2014 |  | (In Millions) |  |  |  | (In Millions)
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $17
FTRs |  | — |  | Purchased power expense |  | $46
Electricity swaps and options de-designated as hedged items |  | $22 |  | Competitive business operating revenues |  | $21
2013 |  |  |  |  |  |
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($20)
Electricity swaps and options de-designated as hedged items |  | $1 |  | Competitive business operating revenues |  | ($1)
Due to regulatory treatment, the natural gas swaps are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps are settled are recovered or refunded through fuel cost recovery mechanisms. Due to regulatory treatment, the changes in the estimated fair value of FTRs are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as purchased power expense when the FTRs are settled are recovered or refunded through fuel cost recovery mechanisms. The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of March 31, 2014 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $3.0 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $3.7 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $1.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $5.4 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $3.0 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $4.8 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $7.4 |  | Entergy Texas
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2013 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $2.2 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $2.9 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $0.7 |  | Entergy Mississippi
Natural gas swaps |  | Prepayments and other |  | $0.1 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $6.7 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $5.7 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $18.4 |  | Entergy Texas
(a) | Excludes cash collateral in the amount of $1 million posted by Entergy Arkansas as of March 31, 2014. As of December 31, 2013, no cash collateral was required to be posted.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
2014 |  |  |  | (In Millions) |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $6.8 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $8.0 |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $1.6 |  | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $0.7 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $5.1 |  | Entergy Arkansas
FTRs |  | Purchased power expense |  | $9.1 |  | Entergy Gulf States Louisiana
FTRs |  | Purchased power expense |  | $8.0 |  | Entergy Louisiana
FTRs |  | Purchased power expense |  | $7.8 |  | Entergy Mississippi
FTRs |  | Purchased power expense |  | $2.9 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $12.8 |  | Entergy Texas
2013 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($6.2) |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($8.3) |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($5.4) |  | Entergy Mississippi
Fair Values The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling. Considerable judgment is required in developing the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. Gains or losses realized on financial instruments other than those instruments held by the Entergy Wholesale Commodities business are reflected in future rates and therefore do not affect net income. Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments. Accounting standards define fair value as an exit price, or the price that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between knowledgeable market participants at the date of measurement. Entergy and the Registrant Subsidiaries use assumptions or market input data that market participants would use in pricing assets or liabilities at fair value. The inputs can be readily observable, corroborated by market data, or generally unobservable. Entergy and the Registrant Subsidiaries endeavor to use the best available information to determine fair value. Accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy establishes the highest priority for unadjusted market quotes in an active market for the identical asset or liability and the lowest priority for unobservable inputs. The three levels of the fair value hierarchy are:
• | Level 1 - Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of individually owned common stocks, cash equivalents (temporary cash investments, securitization recovery trust account, and escrow accounts), debt instruments, and gas hedge contracts. Cash equivalents includes all unrestricted highly liquid debt instruments with an original or remaining maturity of three months or less at the date of purchase.
• | Level 2 - Level 2 inputs are inputs other than quoted prices included in Level 1 that are, either directly or indirectly, observable for the asset or liability at the measurement date. Assets are valued based on prices derived by independent third parties that use inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Prices are reviewed and can be challenged with the independent parties and/or overridden by Entergy if it is believed such would be more reflective of fair value. Level 2 inputs include the following:
- quoted prices for similar assets or liabilities in active markets; - quoted prices for identical assets or liabilities in inactive markets; - inputs other than quoted prices that are observable for the asset or liability; or - inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 2 consists primarily of individually-owned debt instruments or shares in common trusts. Common trust funds are stated at estimated fair value based on the fair market value of the underlying investments.
• | Level 3 - Level 3 inputs are pricing inputs that are generally less observable or unobservable from objective sources. These inputs are used with internally developed methodologies to produce management’s best estimate of fair value for the asset or liability. Level 3 consists primarily of FTRs and derivative power contracts used as cash flow hedges of power sales at merchant power plants.
The values for power contract assets or liabilities are based on both observable inputs including public market prices and interest rates, and unobservable inputs such as implied volatilities, unit contingent discounts, expected basis differences, and credit adjusted counterparty interest rates. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group and the Entergy Wholesale Commodities Accounting Policy and External Reporting group. The primary functions of the Entergy Wholesale Commodities Risk Control Group include: gathering, validating and reporting market data, providing market risk analyses and valuations in support of Entergy Wholesale Commodities’ commercial transactions, developing and administering protocols for the management of market risks, and implementing and maintaining controls around changes to market data in the energy trading and risk management system. The Risk Control group is also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis. The Entergy Wholesale Commodities Accounting Policy and External Reporting group performs functions related to market and counterparty settlements, revenue reporting and analysis and financial accounting. The Entergy Wholesale Commodities Risk Control Group reports to the Vice President, Treasury while the Entergy Wholesale Commodities Accounting Policy and External Reporting group reports to the Vice President, Accounting Policy and External Reporting. The amounts reflected as the fair value of electricity swaps are based on the estimated amount that the contracts are in-the-money at the balance sheet date (treated as an asset) or out-of-the-money at the balance sheet date (treated as a liability) and would equal the estimated amount receivable to or payable by Entergy if the contracts were settled at that date. These derivative contracts include cash flow hedges that swap fixed for floating cash flows for sales of the output from the Entergy Wholesale Commodities business. The fair values are based on the mark-to-market comparison between the fixed contract prices and the floating prices determined each period from quoted forward power market prices. The differences between the fixed price in the swap contract and these market-related prices multiplied by the volume specified in the contract and discounted at the counterparties’ credit adjusted risk free rate are recorded as derivative contract assets or liabilities. For contracts that have unit contingent terms, a further discount is applied based on the historical relationship between contract and market prices for similar contract terms. The amounts reflected as the fair values of electricity options are valued based on a Black Scholes model, and are calculated at the end of each month for accounting purposes. Inputs to the valuation include end of day forward market prices for the period when the transactions will settle, implied volatilities based on market volatilities provided by a third party data aggregator, and US Treasury rates for a risk-free return rate. As described further below, prices and implied volatilities are reviewed and can be adjusted if it is determined that there is a better representation of fair value. On a daily basis, Entergy Wholesale Commodities Risk Control Group calculated the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control Group also validated forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences were analyzed and potentially adjusted based on these other sources of forward market prices or settlement prices of actual market transactions. Implied volatilities used to value options were also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and used multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirmed the mark-to-market calculations and prepared price scenarios and credit downgrade scenario analysis. The scenario analysis was communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis was completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’s portfolio. In particular, the credit, liquidity, and financial metrics impacts were calculated for this analysis. This analysis was communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of future congestion costs in MISO between applicable sink and source pricing nodes based on prices published by MISO. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group for the unregulated business and by the System Planning and Operations Risk Control Group for the Utility operating companies. Entergy’s Accounting Policy group reviews these valuations for reasonableness, with the assistance of others within the organization with knowledge of the various inputs and assumptions used in the valuation. The System Planning and Operations Risk Control Group reports to the Vice President, Treasury. The Accounting Policy group reports to the Vice President, Accounting Policy and External Reporting. The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $800 |  |  |  | $— |  |  |  | $— |  |  |  | $800 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 417 |  |  | 2,644 |  | (b) | — |  |  | 3,061 |
Debt securities |  | 763 |  |  | 1,167 |  |  | — |  |  | 1,930 |
Power contracts |  | — |  |  | — |  |  | 24 |  |  | 24 |
Securitization recovery trust account |  | 48 |  |  | — |  |  | — |  |  | 48 |
Escrow accounts |  | 117 |  |  | — |  |  | — |  |  | 117 |
Gas hedge contracts |  | 8 |  |  | — |  |  | — |  |  | 8 |
FTRs |  | — |  |  | — |  |  | 25 |  |  | 25 |
|  |  | $2,153 |  |  |  | $3,811 |  |  |  | $49 |  |  |  | $6,013 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $110 |  |  |  | $110 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $609 |  |  |  | $— |  |  |  | $— |  |  |  | $609 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 472 |  |  | 2,601 |  | (b) | — |  |  | 3,073 |
Debt securities |  | 783 |  |  | 1,047 |  |  | — |  |  | 1,830 |
Power contracts |  | — |  |  | — |  |  | 74 |  |  | 74 |
Securitization recovery trust account |  | 46 |  |  | — |  |  | — |  |  | 46 |
Escrow accounts |  | 115 |  |  | — |  |  | — |  |  | 115 |
Gas hedge contracts |  | 6 |  |  | — |  |  | — |  |  | 6 |
FTRs |  | — |  |  | — |  |  | 34 |  |  | 34 |
|  |  | $2,031 |  |  |  | $3,648 |  |  |  | $108 |  |  |  | $5,787 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $207 |  |  |  | $207 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
(b) | Commingled equity funds may be redeemed bi-monthly.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014 and 2013:
| 2014 |  | 2013
| (In Millions)
Balance as of January 1, |  | ($98 | ) |  |  | $178 |
Realized losses included in earnings | (31 | ) |  | (14 | )
Unrealized gains included in earnings | 53 |  |  | 5 |
Unrealized losses included in OCI | (222 | ) |  | (119 | )
Unrealized gains included as a regulatory asset/liability | 37 |  |  | — |
Purchases | 5 |  |  | — |
Settlements | 195 |  |  | 2 |
Balance as of March 31, |  | ($61 | ) |  |  | $52 |
The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy and significant unobservable inputs to each which cause that classification, as of March 31, 2014:
Transaction Type |  | Fair Value as of March 31, 2014 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Electricity swaps |  | ($96) |  | Unit contingent discount |  | +/- | 3% |  | ($3)
Electricity options |  | $10 |  | Implied volatility |  | +/- | 53% |  | $35
The following table sets forth an analysis of each of the types of unobservable inputs impacting the fair value of items classified as Level 3 within the fair value hierarchy, and the sensitivity to changes to those inputs:
Significant Unobservable Input |  | Transaction Type |  | Position |  | Change to Input |  | Effect on Fair Value
Unit contingent discount |  | Electricity swaps |  | Sell |  | Increase (Decrease) |  | Decrease (Increase)
Implied volatility |  | Electricity options |  | Sell |  | Increase (Decrease) |  | Increase (Decrease)
Implied volatility |  | Electricity options |  | Buy |  | Increase (Decrease) |  | Increase (Decrease)
The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels. Entergy Arkansas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $216.1 |  |  |  | $— |  |  |  | $— |  |  |  | $216.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 3.7 |  |  | 457.1 |  |  | — |  |  | 460.8 |
Debt securities |  | 50.8 |  |  | 209.9 |  |  | — |  |  | 260.7 |
Securitization recovery trust account |  | 8.1 |  |  | — |  |  | — |  |  | 8.1 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
FTRs |  | — |  |  | — |  |  | 2.7 |  |  | 2.7 |
|  |  | $304.7 |  |  |  | $667.0 |  |  |  | $2.7 |  |  |  | $974.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $122.8 |  |  |  | $— |  |  |  | $— |  |  |  | $122.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 13.6 |  |  | 449.7 |  |  | — |  |  | 463.3 |
Debt securities |  | 58.6 |  |  | 189.0 |  |  | — |  |  | 247.6 |
Securitization recovery trust account |  | 3.8 |  |  | — |  |  | — |  |  | 3.8 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
|  |  | $224.8 |  |  |  | $638.7 |  |  |  | $— |  |  |  | $863.5 |
Entergy Gulf States Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $15.0 |  |  |  | $— |  |  |  | $— |  |  |  | $15.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.0 |  |  | 348.9 |  |  | — |  |  | 359.9 |
Debt securities |  | 73.1 |  |  | 153.2 |  |  | — |  |  | 226.3 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 3.0 |  |  | — |  |  | — |  |  | 3.0 |
FTRs |  | — |  |  | — |  |  | 5.4 |  |  | 5.4 |
|  |  | $123.6 |  |  |  | $502.1 |  |  |  | $5.4 |  |  |  | $631.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.8 |  |  |  | $— |  |  |  | $— |  |  |  | $13.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 27.6 |  |  | 343.2 |  |  | — |  |  | 370.8 |
Debt securities |  | 71.7 |  |  | 131.2 |  |  | — |  |  | 202.9 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 2.2 |  |  | — |  |  | — |  |  | 2.2 |
FTRs |  | — |  |  | — |  |  | 6.7 |  |  | 6.7 |
|  |  | $136.8 |  |  |  | $474.4 |  |  |  | $6.7 |  |  |  | $617.9 |
Entergy Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $72.0 |  |  |  | $— |  |  |  | $— |  |  |  | $72.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.1 |  |  | 213.9 |  |  | — |  |  | 225.0 |
Debt securities |  | 60.3 |  |  | 68.3 |  |  | — |  |  | 128.6 |
Securitization recovery trust account |  | 10.2 |  |  | — |  |  | — |  |  | 10.2 |
Gas hedge contracts |  | 3.7 |  |  | — |  |  | — |  |  | 3.7 |
FTRs |  | — |  |  | — |  |  | 3.0 |  |  | 3.0 |
|  |  | $157.3 |  |  |  | $282.2 |  |  |  | $3.0 |  |  |  | $442.5 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $123.6 |  |  |  | $— |  |  |  | $— |  |  |  | $123.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 13.5 |  |  | 210.7 |  |  | — |  |  | 224.2 |
Debt securities |  | 61.7 |  |  | 61.4 |  |  | — |  |  | 123.1 |
Securitization recovery trust account |  | 4.5 |  |  | — |  |  | — |  |  | 4.5 |
Gas hedge contacts |  | 2.9 |  |  | — |  |  | — |  |  | 2.9 |
FTRs |  | — |  |  | — |  |  | 5.7 |  |  | 5.7 |
|  |  | $206.2 |  |  |  | $272.1 |  |  |  | $5.7 |  |  |  | $484.0 |
Entergy Mississippi
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $70.3 |  |  |  | $— |  |  |  | $— |  |  |  | $70.3 |
Escrow accounts |  | 51.8 |  |  | — |  |  | — |  |  | 51.8 |
Gas hedge contracts |  | 1.4 |  |  | — |  |  | — |  |  | 1.4 |
FTRs |  | — |  |  | — |  |  | 4.8 |  |  | 4.8 |
|  |  | $123.5 |  |  |  | $— |  |  |  | $4.8 |  |  |  | $128.3 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Escrow accounts |  |  | $51.8 |  |  |  | $— |  |  |  | $— |  |  |  | $51.8 |
Gas hedge contracts |  | 0.7 |  |  | — |  |  | — |  |  | 0.7 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $52.5 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $53.5 |
Entergy New Orleans
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $24.7 |  |  |  | $— |  |  |  | $— |  |  |  | $24.7 |
Escrow accounts |  | 12.4 |  |  | — |  |  | — |  |  | 12.4 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $37.1 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $38.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $33.2 |  |  |  | $— |  |  |  | $— |  |  |  | $33.2 |
Escrow accounts |  | 10.5 |  |  | — |  |  | — |  |  | 10.5 |
Gas hedge contracts |  | 0.1 |  |  | — |  |  | — |  |  | 0.1 |
FTRs |  | — |  |  | — |  |  | 2.0 |  |  | 2.0 |
|  |  | $43.8 |  |  |  | $— |  |  |  | $2.0 |  |  |  | $45.8 |
Entergy Texas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $29.7 |  |  |  | $— |  |  |  | $— |  |  |  | $29.7 |
FTRs |  | — |  |  | — |  |  | 7.4 |  |  | 7.4 |
|  |  | $29.7 |  |  |  | $— |  |  |  | $7.4 |  |  |  | $37.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $44.1 |  |  |  | $— |  |  |  | $— |  |  |  | $44.1 |
Securitization recovery trust account |  | 37.5 |  |  | — |  |  | — |  |  | 37.5 |
FTRs |  | — |  |  | — |  |  | 18.4 |  |  | 18.4 |
|  |  | $81.6 |  |  |  | $— |  |  |  | $18.4 |  |  |  | $100.0 |
System Energy
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $83.1 |  |  |  | $— |  |  |  | $— |  |  |  | $83.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.2 |  |  | 384.7 |  |  | — |  |  | 385.9 |
Debt securities |  | 155.1 |  |  | 78.3 |  |  | — |  |  | 233.4 |
|  |  | $239.4 |  |  |  | $463.0 |  |  |  | $— |  |  |  | $702.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.6 |  |  |  | $— |  |  |  | $— |  |  |  | $64.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.2 |  |  | 377.8 |  |  | — |  |  | 380.0 |
Debt securities |  | 152.9 |  |  | 71.0 |  |  | — |  |  | 223.9 |
|  |  | $219.7 |  |  |  | $448.8 |  |  |  | $— |  |  |  | $668.5 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014.
| Entergy Arkansas |  | Entergy Gulf States Louisiana |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
|  |  | (In Millions)
Balance as of January 1, |  | $— |  |  |  | $6.7 |  |  |  | $5.7 |  |  |  | $1.0 |  |  |  | $2.0 |  |  |  | $18.4 |
Unrealized gains included as a regulatory liability/asset | 7.8 |  |  | 7.7 |  |  | 5.3 |  |  | 11.6 |  |  | 2.0 |  |  | 1.8 |
Settlements | (5.1 | ) |  | (9.0 | ) |  | (8.0 | ) |  | (7.8 | ) |  | (3.0 | ) |  | (12.8 | )
Balance as of March 31, |  | $2.7 |  |  |  | $5.4 |  |  |  | $3.0 |  |  |  | $4.8 |  |  |  | $1.0 |  |  |  | $7.4 |
Entergy Gulf States Louisiana [Member] |
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy) Market Risk In the normal course of business, Entergy is exposed to a number of market risks. Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular commodity or instrument. All financial and commodity-related instruments, including derivatives, are subject to market risk including commodity price risk, equity price, and interest rate risk. Entergy uses derivatives primarily to mitigate commodity price risk, particularly power price and fuel price risk. 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 derivative 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. 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 and capacity in the day ahead or spot markets. In addition to its forward physical power contracts, Entergy Wholesale Commodities also uses a combination of financial contracts, including swaps, collars, and options, to mitigate commodity price risk. When the market price falls, the combination of instruments is expected to settle in gains that offset lower revenue from generation, which results in a more predictable cash flow. Entergy’s exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity. For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option’s contractual strike or exercise price also affects the level of market risk. A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk. Hedging instruments and volumes are chosen based on ability to mitigate risk associated with future energy and capacity prices; however, other considerations are factored into hedge product and volume decisions including corporate liquidity, corporate credit ratings, counterparty credit risk, hedging costs, firm settlement risk, and product availability in the marketplace. Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy’s risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods. These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy’s objectives. Derivatives Some derivative instruments are classified as cash flow hedges due to their financial settlement provisions while others are classified as normal purchase/normal sale transactions due to their physical settlement provisions. Normal purchase/normal sale risk management tools include power purchase and sales agreements, fuel purchase agreements, capacity contracts, and tolling agreements. Financially-settled cash flow hedges can include natural gas and electricity swaps and options and interest rate swaps. Entergy may enter into financially-settled swap and option contracts to manage market risk that may or may not be designated as hedging instruments. Entergy enters into derivatives only to manage natural risks inherent in its physical or financial assets or liabilities. The maximum length of time over which Entergy is currently hedging the variability in future cash flows with derivatives for forecasted power transactions at March 31, 2014 is approximately 2.75 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 75% for the remainder of 2014, of which approximately 45% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2014 is 30 TWh. Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Gulf States Louisiana, Entergy Louisiana, and Entergy New Orleans) and Entergy Mississippi through the purchase of short-term natural gas swaps that financially settle against NYMEX futures. These swaps are marked-to-market through fuel expense with offsetting regulatory assets or liabilities. All benefits or costs of the program are recorded in fuel costs. The notional volumes of these swaps are based on a portion of projected annual exposure to gas for electric generation and projected winter purchases for gas distribution at Entergy Gulf States Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2014 is 42,490,000 MMBtu for Entergy, 16,070,000 MMBtu for Entergy Gulf States Louisiana, 19,180,000 MMBtu for Entergy Louisiana, and 7,240,000 MMBtu for Entergy Mississippi. Credit support for these natural gas swaps is covered by master agreements that do not require collateralization based on mark-to-market value, but do carry adequate assurance language that may lead to collateralization requests. In connection with joining MISO, Entergy received a direct allocation of FTRs in November 2013. FTRs are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records FTRs at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on FTRs held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on FTRs. The total volume of FTRs outstanding as of March 31, 2014 is 15,554 GWh for Entergy, including 3,540 GWh for Entergy Arkansas, 2,613 GWh for Entergy Gulf States Louisiana, 3,998 GWh for Entergy Louisiana, 2,319 GWh for Entergy Mississippi, 523 GWh for Entergy New Orleans, and 2,423 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash or letters of credit issued by each Utility operating company as required by MISO. Credit support for FTRs held by Entergy Wholesale Commodities is covered by cash. As of March 31, 2014, Entergy Arkansas posted $1 million in cash collateral. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2014 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $107 |  | ($102) |  | $5 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $7 |  | ($2) |  | $5 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $178 |  | ($125) |  | $53 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $23 |  | ($3) |  | $20 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $100 |  | ($86) |  | $14 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $8 |  | $— |  | $8 |  | Utility
FTRs |  | Prepayments and other |  | $26 |  | ($1) |  | $25 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $100 |  | ($63) |  | $37 |  | Entergy Wholesale Commodities
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2013 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $118 |  | ($99) |  | $19 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($17) |  | $— |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $197 |  | ($131) |  | $66 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $46 |  | ($17) |  | $29 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $177 |  | ($122) |  | $55 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $6 |  | $— |  | $6 |  | Utility
FTRs |  | Prepayments and other |  | $36 |  | ($2) |  | $34 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $201 |  | ($89) |  | $112 |  | Entergy Wholesale Commodities
(a) | Represents the gross amounts of recognized assets/liabilities
(b) | Represents the netting of fair value balances with the same counterparty
(c) | Represents the net amounts of assets /liabilities presented on the Entergy Consolidated Balance Sheets
(d) | Excludes cash collateral in the amounts of $65 million posted as of March 31, 2014 and $47 million posted and $4 million held as of December 31, 2013
The effect of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Amount of loss recognized in other comprehensive income |  | Income Statement location |  | Amount of loss reclassified from AOCI into income
|  | (In Millions) |  |  |  | (In Millions)
2014 |  |  |  |  |  |
Electricity swaps and options |  | ($174) |  | Competitive businesses operating revenues |  | ($195)
2013 |  |  |  |  |  |
Electricity swaps and options |  | ($120) |  | Competitive businesses operating revenues |  | ($2)
Electricity over-the-counter instruments that financially settle against day-ahead power pool prices are used to manage price exposure for Entergy Wholesale Commodities generation. Unrealized gains or losses recorded in other comprehensive income result from hedging power output at the Entergy Wholesale Commodities power plants. The related gains or losses from hedging power are included in operating revenues when realized. Gains (losses) totaling approximately ($195) million and ($2) million were realized on the maturity of cash flow hedges, before taxes (benefit) of ($68) million and ($1) million, for the three months ended March 31, 2014 and 2013, respectively. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2014 and 2013 was $1 million and ($1.3) million, respectively. The ineffective portion of cash flow hedges is recorded in competitive businesses operating revenues. Based on market prices as of March 31, 2014, unrealized losses recorded in AOCI on cash flow hedges relating to power sales totaled $98 million of net unrealized losses. Approximately $74 million is expected to be reclassified from AOCI to operating revenues in the next twelve months. The actual amount reclassified from AOCI, however, could vary due to future changes in market prices. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations when the current market prices exceed the contracted power prices. The primary form of collateral to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2014, derivative contracts with nine counterparties were in a liability position (approximately $98 million total) and, in addition to the corporate guarantee, $64 million in cash collateral was required to be posted. As of March 31, 2013, derivative contracts with six counterparties were in a liability position (approximately $25 million total), but were significantly below the amount of the guarantee provided under the contract and no cash collateral was required. If the Entergy Corporation credit rating falls below investment grade, the effect of the corporate guarantee is typically ignored and Entergy would have to post collateral equal to the estimated outstanding liability under the contract at the applicable date. Entergy may effectively liquidate a cash flow hedge instrument by entering into a contract offsetting the original hedge, and then de-designating the original hedge in this situation. Gains or losses accumulated in other comprehensive income prior to de-designation continue to be deferred in other comprehensive income until they are included in income as the original hedged transaction occurs. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract are recorded as assets or liabilities on the balance sheet and offset as they flow through to earnings.
The effect of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2014 and 2013 is as follows:
Instrument |  | Amount of gain recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
2014 |  | (In Millions) |  |  |  | (In Millions)
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $17
FTRs |  | — |  | Purchased power expense |  | $46
Electricity swaps and options de-designated as hedged items |  | $22 |  | Competitive business operating revenues |  | $21
2013 |  |  |  |  |  |
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($20)
Electricity swaps and options de-designated as hedged items |  | $1 |  | Competitive business operating revenues |  | ($1)
Due to regulatory treatment, the natural gas swaps are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps are settled are recovered or refunded through fuel cost recovery mechanisms. Due to regulatory treatment, the changes in the estimated fair value of FTRs are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as purchased power expense when the FTRs are settled are recovered or refunded through fuel cost recovery mechanisms. The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of March 31, 2014 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $3.0 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $3.7 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $1.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $5.4 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $3.0 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $4.8 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $7.4 |  | Entergy Texas
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2013 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $2.2 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $2.9 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $0.7 |  | Entergy Mississippi
Natural gas swaps |  | Prepayments and other |  | $0.1 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $6.7 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $5.7 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $18.4 |  | Entergy Texas
(a) | Excludes cash collateral in the amount of $1 million posted by Entergy Arkansas as of March 31, 2014. As of December 31, 2013, no cash collateral was required to be posted.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
2014 |  |  |  | (In Millions) |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $6.8 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $8.0 |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $1.6 |  | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $0.7 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $5.1 |  | Entergy Arkansas
FTRs |  | Purchased power expense |  | $9.1 |  | Entergy Gulf States Louisiana
FTRs |  | Purchased power expense |  | $8.0 |  | Entergy Louisiana
FTRs |  | Purchased power expense |  | $7.8 |  | Entergy Mississippi
FTRs |  | Purchased power expense |  | $2.9 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $12.8 |  | Entergy Texas
2013 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($6.2) |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($8.3) |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($5.4) |  | Entergy Mississippi
Fair Values The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling. Considerable judgment is required in developing the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. Gains or losses realized on financial instruments other than those instruments held by the Entergy Wholesale Commodities business are reflected in future rates and therefore do not affect net income. Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments. Accounting standards define fair value as an exit price, or the price that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between knowledgeable market participants at the date of measurement. Entergy and the Registrant Subsidiaries use assumptions or market input data that market participants would use in pricing assets or liabilities at fair value. The inputs can be readily observable, corroborated by market data, or generally unobservable. Entergy and the Registrant Subsidiaries endeavor to use the best available information to determine fair value. Accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy establishes the highest priority for unadjusted market quotes in an active market for the identical asset or liability and the lowest priority for unobservable inputs. The three levels of the fair value hierarchy are:
• | Level 1 - Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of individually owned common stocks, cash equivalents (temporary cash investments, securitization recovery trust account, and escrow accounts), debt instruments, and gas hedge contracts. Cash equivalents includes all unrestricted highly liquid debt instruments with an original or remaining maturity of three months or less at the date of purchase.
• | Level 2 - Level 2 inputs are inputs other than quoted prices included in Level 1 that are, either directly or indirectly, observable for the asset or liability at the measurement date. Assets are valued based on prices derived by independent third parties that use inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Prices are reviewed and can be challenged with the independent parties and/or overridden by Entergy if it is believed such would be more reflective of fair value. Level 2 inputs include the following:
- quoted prices for similar assets or liabilities in active markets; - quoted prices for identical assets or liabilities in inactive markets; - inputs other than quoted prices that are observable for the asset or liability; or - inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 2 consists primarily of individually-owned debt instruments or shares in common trusts. Common trust funds are stated at estimated fair value based on the fair market value of the underlying investments.
• | Level 3 - Level 3 inputs are pricing inputs that are generally less observable or unobservable from objective sources. These inputs are used with internally developed methodologies to produce management’s best estimate of fair value for the asset or liability. Level 3 consists primarily of FTRs and derivative power contracts used as cash flow hedges of power sales at merchant power plants.
The values for power contract assets or liabilities are based on both observable inputs including public market prices and interest rates, and unobservable inputs such as implied volatilities, unit contingent discounts, expected basis differences, and credit adjusted counterparty interest rates. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group and the Entergy Wholesale Commodities Accounting Policy and External Reporting group. The primary functions of the Entergy Wholesale Commodities Risk Control Group include: gathering, validating and reporting market data, providing market risk analyses and valuations in support of Entergy Wholesale Commodities’ commercial transactions, developing and administering protocols for the management of market risks, and implementing and maintaining controls around changes to market data in the energy trading and risk management system. The Risk Control group is also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis. The Entergy Wholesale Commodities Accounting Policy and External Reporting group performs functions related to market and counterparty settlements, revenue reporting and analysis and financial accounting. The Entergy Wholesale Commodities Risk Control Group reports to the Vice President, Treasury while the Entergy Wholesale Commodities Accounting Policy and External Reporting group reports to the Vice President, Accounting Policy and External Reporting. The amounts reflected as the fair value of electricity swaps are based on the estimated amount that the contracts are in-the-money at the balance sheet date (treated as an asset) or out-of-the-money at the balance sheet date (treated as a liability) and would equal the estimated amount receivable to or payable by Entergy if the contracts were settled at that date. These derivative contracts include cash flow hedges that swap fixed for floating cash flows for sales of the output from the Entergy Wholesale Commodities business. The fair values are based on the mark-to-market comparison between the fixed contract prices and the floating prices determined each period from quoted forward power market prices. The differences between the fixed price in the swap contract and these market-related prices multiplied by the volume specified in the contract and discounted at the counterparties’ credit adjusted risk free rate are recorded as derivative contract assets or liabilities. For contracts that have unit contingent terms, a further discount is applied based on the historical relationship between contract and market prices for similar contract terms. The amounts reflected as the fair values of electricity options are valued based on a Black Scholes model, and are calculated at the end of each month for accounting purposes. Inputs to the valuation include end of day forward market prices for the period when the transactions will settle, implied volatilities based on market volatilities provided by a third party data aggregator, and US Treasury rates for a risk-free return rate. As described further below, prices and implied volatilities are reviewed and can be adjusted if it is determined that there is a better representation of fair value. On a daily basis, Entergy Wholesale Commodities Risk Control Group calculated the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control Group also validated forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences were analyzed and potentially adjusted based on these other sources of forward market prices or settlement prices of actual market transactions. Implied volatilities used to value options were also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and used multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirmed the mark-to-market calculations and prepared price scenarios and credit downgrade scenario analysis. The scenario analysis was communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis was completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’s portfolio. In particular, the credit, liquidity, and financial metrics impacts were calculated for this analysis. This analysis was communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of future congestion costs in MISO between applicable sink and source pricing nodes based on prices published by MISO. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group for the unregulated business and by the System Planning and Operations Risk Control Group for the Utility operating companies. Entergy’s Accounting Policy group reviews these valuations for reasonableness, with the assistance of others within the organization with knowledge of the various inputs and assumptions used in the valuation. The System Planning and Operations Risk Control Group reports to the Vice President, Treasury. The Accounting Policy group reports to the Vice President, Accounting Policy and External Reporting. The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $800 |  |  |  | $— |  |  |  | $— |  |  |  | $800 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 417 |  |  | 2,644 |  | (b) | — |  |  | 3,061 |
Debt securities |  | 763 |  |  | 1,167 |  |  | — |  |  | 1,930 |
Power contracts |  | — |  |  | — |  |  | 24 |  |  | 24 |
Securitization recovery trust account |  | 48 |  |  | — |  |  | — |  |  | 48 |
Escrow accounts |  | 117 |  |  | — |  |  | — |  |  | 117 |
Gas hedge contracts |  | 8 |  |  | — |  |  | — |  |  | 8 |
FTRs |  | — |  |  | — |  |  | 25 |  |  | 25 |
|  |  | $2,153 |  |  |  | $3,811 |  |  |  | $49 |  |  |  | $6,013 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $110 |  |  |  | $110 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $609 |  |  |  | $— |  |  |  | $— |  |  |  | $609 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 472 |  |  | 2,601 |  | (b) | — |  |  | 3,073 |
Debt securities |  | 783 |  |  | 1,047 |  |  | — |  |  | 1,830 |
Power contracts |  | — |  |  | — |  |  | 74 |  |  | 74 |
Securitization recovery trust account |  | 46 |  |  | — |  |  | — |  |  | 46 |
Escrow accounts |  | 115 |  |  | — |  |  | — |  |  | 115 |
Gas hedge contracts |  | 6 |  |  | — |  |  | — |  |  | 6 |
FTRs |  | — |  |  | — |  |  | 34 |  |  | 34 |
|  |  | $2,031 |  |  |  | $3,648 |  |  |  | $108 |  |  |  | $5,787 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $207 |  |  |  | $207 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
(b) | Commingled equity funds may be redeemed bi-monthly.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014 and 2013:
| 2014 |  | 2013
| (In Millions)
Balance as of January 1, |  | ($98 | ) |  |  | $178 |
Realized losses included in earnings | (31 | ) |  | (14 | )
Unrealized gains included in earnings | 53 |  |  | 5 |
Unrealized losses included in OCI | (222 | ) |  | (119 | )
Unrealized gains included as a regulatory asset/liability | 37 |  |  | — |
Purchases | 5 |  |  | — |
Settlements | 195 |  |  | 2 |
Balance as of March 31, |  | ($61 | ) |  |  | $52 |
The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy and significant unobservable inputs to each which cause that classification, as of March 31, 2014:
Transaction Type |  | Fair Value as of March 31, 2014 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Electricity swaps |  | ($96) |  | Unit contingent discount |  | +/- | 3% |  | ($3)
Electricity options |  | $10 |  | Implied volatility |  | +/- | 53% |  | $35
The following table sets forth an analysis of each of the types of unobservable inputs impacting the fair value of items classified as Level 3 within the fair value hierarchy, and the sensitivity to changes to those inputs:
Significant Unobservable Input |  | Transaction Type |  | Position |  | Change to Input |  | Effect on Fair Value
Unit contingent discount |  | Electricity swaps |  | Sell |  | Increase (Decrease) |  | Decrease (Increase)
Implied volatility |  | Electricity options |  | Sell |  | Increase (Decrease) |  | Increase (Decrease)
Implied volatility |  | Electricity options |  | Buy |  | Increase (Decrease) |  | Increase (Decrease)
The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels. Entergy Arkansas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $216.1 |  |  |  | $— |  |  |  | $— |  |  |  | $216.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 3.7 |  |  | 457.1 |  |  | — |  |  | 460.8 |
Debt securities |  | 50.8 |  |  | 209.9 |  |  | — |  |  | 260.7 |
Securitization recovery trust account |  | 8.1 |  |  | — |  |  | — |  |  | 8.1 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
FTRs |  | — |  |  | — |  |  | 2.7 |  |  | 2.7 |
|  |  | $304.7 |  |  |  | $667.0 |  |  |  | $2.7 |  |  |  | $974.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $122.8 |  |  |  | $— |  |  |  | $— |  |  |  | $122.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 13.6 |  |  | 449.7 |  |  | — |  |  | 463.3 |
Debt securities |  | 58.6 |  |  | 189.0 |  |  | — |  |  | 247.6 |
Securitization recovery trust account |  | 3.8 |  |  | — |  |  | — |  |  | 3.8 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
|  |  | $224.8 |  |  |  | $638.7 |  |  |  | $— |  |  |  | $863.5 |
Entergy Gulf States Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $15.0 |  |  |  | $— |  |  |  | $— |  |  |  | $15.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.0 |  |  | 348.9 |  |  | — |  |  | 359.9 |
Debt securities |  | 73.1 |  |  | 153.2 |  |  | — |  |  | 226.3 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 3.0 |  |  | — |  |  | — |  |  | 3.0 |
FTRs |  | — |  |  | — |  |  | 5.4 |  |  | 5.4 |
|  |  | $123.6 |  |  |  | $502.1 |  |  |  | $5.4 |  |  |  | $631.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.8 |  |  |  | $— |  |  |  | $— |  |  |  | $13.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 27.6 |  |  | 343.2 |  |  | — |  |  | 370.8 |
Debt securities |  | 71.7 |  |  | 131.2 |  |  | — |  |  | 202.9 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 2.2 |  |  | — |  |  | — |  |  | 2.2 |
FTRs |  | — |  |  | — |  |  | 6.7 |  |  | 6.7 |
|  |  | $136.8 |  |  |  | $474.4 |  |  |  | $6.7 |  |  |  | $617.9 |
Entergy Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $72.0 |  |  |  | $— |  |  |  | $— |  |  |  | $72.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.1 |  |  | 213.9 |  |  | — |  |  | 225.0 |
Debt securities |  | 60.3 |  |  | 68.3 |  |  | — |  |  | 128.6 |
Securitization recovery trust account |  | 10.2 |  |  | — |  |  | — |  |  | 10.2 |
Gas hedge contracts |  | 3.7 |  |  | — |  |  | — |  |  | 3.7 |
FTRs |  | — |  |  | — |  |  | 3.0 |  |  | 3.0 |
|  |  | $157.3 |  |  |  | $282.2 |  |  |  | $3.0 |  |  |  | $442.5 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $123.6 |  |  |  | $— |  |  |  | $— |  |  |  | $123.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 13.5 |  |  | 210.7 |  |  | — |  |  | 224.2 |
Debt securities |  | 61.7 |  |  | 61.4 |  |  | — |  |  | 123.1 |
Securitization recovery trust account |  | 4.5 |  |  | — |  |  | — |  |  | 4.5 |
Gas hedge contacts |  | 2.9 |  |  | — |  |  | — |  |  | 2.9 |
FTRs |  | — |  |  | — |  |  | 5.7 |  |  | 5.7 |
|  |  | $206.2 |  |  |  | $272.1 |  |  |  | $5.7 |  |  |  | $484.0 |
Entergy Mississippi
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $70.3 |  |  |  | $— |  |  |  | $— |  |  |  | $70.3 |
Escrow accounts |  | 51.8 |  |  | — |  |  | — |  |  | 51.8 |
Gas hedge contracts |  | 1.4 |  |  | — |  |  | — |  |  | 1.4 |
FTRs |  | — |  |  | — |  |  | 4.8 |  |  | 4.8 |
|  |  | $123.5 |  |  |  | $— |  |  |  | $4.8 |  |  |  | $128.3 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Escrow accounts |  |  | $51.8 |  |  |  | $— |  |  |  | $— |  |  |  | $51.8 |
Gas hedge contracts |  | 0.7 |  |  | — |  |  | — |  |  | 0.7 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $52.5 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $53.5 |
Entergy New Orleans
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $24.7 |  |  |  | $— |  |  |  | $— |  |  |  | $24.7 |
Escrow accounts |  | 12.4 |  |  | — |  |  | — |  |  | 12.4 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $37.1 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $38.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $33.2 |  |  |  | $— |  |  |  | $— |  |  |  | $33.2 |
Escrow accounts |  | 10.5 |  |  | — |  |  | — |  |  | 10.5 |
Gas hedge contracts |  | 0.1 |  |  | — |  |  | — |  |  | 0.1 |
FTRs |  | — |  |  | — |  |  | 2.0 |  |  | 2.0 |
|  |  | $43.8 |  |  |  | $— |  |  |  | $2.0 |  |  |  | $45.8 |
Entergy Texas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $29.7 |  |  |  | $— |  |  |  | $— |  |  |  | $29.7 |
FTRs |  | — |  |  | — |  |  | 7.4 |  |  | 7.4 |
|  |  | $29.7 |  |  |  | $— |  |  |  | $7.4 |  |  |  | $37.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $44.1 |  |  |  | $— |  |  |  | $— |  |  |  | $44.1 |
Securitization recovery trust account |  | 37.5 |  |  | — |  |  | — |  |  | 37.5 |
FTRs |  | — |  |  | — |  |  | 18.4 |  |  | 18.4 |
|  |  | $81.6 |  |  |  | $— |  |  |  | $18.4 |  |  |  | $100.0 |
System Energy
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $83.1 |  |  |  | $— |  |  |  | $— |  |  |  | $83.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.2 |  |  | 384.7 |  |  | — |  |  | 385.9 |
Debt securities |  | 155.1 |  |  | 78.3 |  |  | — |  |  | 233.4 |
|  |  | $239.4 |  |  |  | $463.0 |  |  |  | $— |  |  |  | $702.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.6 |  |  |  | $— |  |  |  | $— |  |  |  | $64.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.2 |  |  | 377.8 |  |  | — |  |  | 380.0 |
Debt securities |  | 152.9 |  |  | 71.0 |  |  | — |  |  | 223.9 |
|  |  | $219.7 |  |  |  | $448.8 |  |  |  | $— |  |  |  | $668.5 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014.
| Entergy Arkansas |  | Entergy Gulf States Louisiana |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
|  |  | (In Millions)
Balance as of January 1, |  | $— |  |  |  | $6.7 |  |  |  | $5.7 |  |  |  | $1.0 |  |  |  | $2.0 |  |  |  | $18.4 |
Unrealized gains included as a regulatory liability/asset | 7.8 |  |  | 7.7 |  |  | 5.3 |  |  | 11.6 |  |  | 2.0 |  |  | 1.8 |
Settlements | (5.1 | ) |  | (9.0 | ) |  | (8.0 | ) |  | (7.8 | ) |  | (3.0 | ) |  | (12.8 | )
Balance as of March 31, |  | $2.7 |  |  |  | $5.4 |  |  |  | $3.0 |  |  |  | $4.8 |  |  |  | $1.0 |  |  |  | $7.4 |
Entergy Louisiana [Member] |
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy) Market Risk In the normal course of business, Entergy is exposed to a number of market risks. Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular commodity or instrument. All financial and commodity-related instruments, including derivatives, are subject to market risk including commodity price risk, equity price, and interest rate risk. Entergy uses derivatives primarily to mitigate commodity price risk, particularly power price and fuel price risk. 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 derivative 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. 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 and capacity in the day ahead or spot markets. In addition to its forward physical power contracts, Entergy Wholesale Commodities also uses a combination of financial contracts, including swaps, collars, and options, to mitigate commodity price risk. When the market price falls, the combination of instruments is expected to settle in gains that offset lower revenue from generation, which results in a more predictable cash flow. Entergy’s exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity. For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option’s contractual strike or exercise price also affects the level of market risk. A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk. Hedging instruments and volumes are chosen based on ability to mitigate risk associated with future energy and capacity prices; however, other considerations are factored into hedge product and volume decisions including corporate liquidity, corporate credit ratings, counterparty credit risk, hedging costs, firm settlement risk, and product availability in the marketplace. Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy’s risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods. These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy’s objectives. Derivatives Some derivative instruments are classified as cash flow hedges due to their financial settlement provisions while others are classified as normal purchase/normal sale transactions due to their physical settlement provisions. Normal purchase/normal sale risk management tools include power purchase and sales agreements, fuel purchase agreements, capacity contracts, and tolling agreements. Financially-settled cash flow hedges can include natural gas and electricity swaps and options and interest rate swaps. Entergy may enter into financially-settled swap and option contracts to manage market risk that may or may not be designated as hedging instruments. Entergy enters into derivatives only to manage natural risks inherent in its physical or financial assets or liabilities. The maximum length of time over which Entergy is currently hedging the variability in future cash flows with derivatives for forecasted power transactions at March 31, 2014 is approximately 2.75 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 75% for the remainder of 2014, of which approximately 45% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2014 is 30 TWh. Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Gulf States Louisiana, Entergy Louisiana, and Entergy New Orleans) and Entergy Mississippi through the purchase of short-term natural gas swaps that financially settle against NYMEX futures. These swaps are marked-to-market through fuel expense with offsetting regulatory assets or liabilities. All benefits or costs of the program are recorded in fuel costs. The notional volumes of these swaps are based on a portion of projected annual exposure to gas for electric generation and projected winter purchases for gas distribution at Entergy Gulf States Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2014 is 42,490,000 MMBtu for Entergy, 16,070,000 MMBtu for Entergy Gulf States Louisiana, 19,180,000 MMBtu for Entergy Louisiana, and 7,240,000 MMBtu for Entergy Mississippi. Credit support for these natural gas swaps is covered by master agreements that do not require collateralization based on mark-to-market value, but do carry adequate assurance language that may lead to collateralization requests. In connection with joining MISO, Entergy received a direct allocation of FTRs in November 2013. FTRs are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records FTRs at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on FTRs held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on FTRs. The total volume of FTRs outstanding as of March 31, 2014 is 15,554 GWh for Entergy, including 3,540 GWh for Entergy Arkansas, 2,613 GWh for Entergy Gulf States Louisiana, 3,998 GWh for Entergy Louisiana, 2,319 GWh for Entergy Mississippi, 523 GWh for Entergy New Orleans, and 2,423 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash or letters of credit issued by each Utility operating company as required by MISO. Credit support for FTRs held by Entergy Wholesale Commodities is covered by cash. As of March 31, 2014, Entergy Arkansas posted $1 million in cash collateral. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2014 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $107 |  | ($102) |  | $5 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $7 |  | ($2) |  | $5 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $178 |  | ($125) |  | $53 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $23 |  | ($3) |  | $20 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $100 |  | ($86) |  | $14 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $8 |  | $— |  | $8 |  | Utility
FTRs |  | Prepayments and other |  | $26 |  | ($1) |  | $25 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $100 |  | ($63) |  | $37 |  | Entergy Wholesale Commodities
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2013 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $118 |  | ($99) |  | $19 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($17) |  | $— |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $197 |  | ($131) |  | $66 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $46 |  | ($17) |  | $29 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $177 |  | ($122) |  | $55 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $6 |  | $— |  | $6 |  | Utility
FTRs |  | Prepayments and other |  | $36 |  | ($2) |  | $34 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $201 |  | ($89) |  | $112 |  | Entergy Wholesale Commodities
(a) | Represents the gross amounts of recognized assets/liabilities
(b) | Represents the netting of fair value balances with the same counterparty
(c) | Represents the net amounts of assets /liabilities presented on the Entergy Consolidated Balance Sheets
(d) | Excludes cash collateral in the amounts of $65 million posted as of March 31, 2014 and $47 million posted and $4 million held as of December 31, 2013
The effect of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Amount of loss recognized in other comprehensive income |  | Income Statement location |  | Amount of loss reclassified from AOCI into income
|  | (In Millions) |  |  |  | (In Millions)
2014 |  |  |  |  |  |
Electricity swaps and options |  | ($174) |  | Competitive businesses operating revenues |  | ($195)
2013 |  |  |  |  |  |
Electricity swaps and options |  | ($120) |  | Competitive businesses operating revenues |  | ($2)
Electricity over-the-counter instruments that financially settle against day-ahead power pool prices are used to manage price exposure for Entergy Wholesale Commodities generation. Unrealized gains or losses recorded in other comprehensive income result from hedging power output at the Entergy Wholesale Commodities power plants. The related gains or losses from hedging power are included in operating revenues when realized. Gains (losses) totaling approximately ($195) million and ($2) million were realized on the maturity of cash flow hedges, before taxes (benefit) of ($68) million and ($1) million, for the three months ended March 31, 2014 and 2013, respectively. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2014 and 2013 was $1 million and ($1.3) million, respectively. The ineffective portion of cash flow hedges is recorded in competitive businesses operating revenues. Based on market prices as of March 31, 2014, unrealized losses recorded in AOCI on cash flow hedges relating to power sales totaled $98 million of net unrealized losses. Approximately $74 million is expected to be reclassified from AOCI to operating revenues in the next twelve months. The actual amount reclassified from AOCI, however, could vary due to future changes in market prices. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations when the current market prices exceed the contracted power prices. The primary form of collateral to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2014, derivative contracts with nine counterparties were in a liability position (approximately $98 million total) and, in addition to the corporate guarantee, $64 million in cash collateral was required to be posted. As of March 31, 2013, derivative contracts with six counterparties were in a liability position (approximately $25 million total), but were significantly below the amount of the guarantee provided under the contract and no cash collateral was required. If the Entergy Corporation credit rating falls below investment grade, the effect of the corporate guarantee is typically ignored and Entergy would have to post collateral equal to the estimated outstanding liability under the contract at the applicable date. Entergy may effectively liquidate a cash flow hedge instrument by entering into a contract offsetting the original hedge, and then de-designating the original hedge in this situation. Gains or losses accumulated in other comprehensive income prior to de-designation continue to be deferred in other comprehensive income until they are included in income as the original hedged transaction occurs. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract are recorded as assets or liabilities on the balance sheet and offset as they flow through to earnings.
The effect of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2014 and 2013 is as follows:
Instrument |  | Amount of gain recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
2014 |  | (In Millions) |  |  |  | (In Millions)
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $17
FTRs |  | — |  | Purchased power expense |  | $46
Electricity swaps and options de-designated as hedged items |  | $22 |  | Competitive business operating revenues |  | $21
2013 |  |  |  |  |  |
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($20)
Electricity swaps and options de-designated as hedged items |  | $1 |  | Competitive business operating revenues |  | ($1)
Due to regulatory treatment, the natural gas swaps are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps are settled are recovered or refunded through fuel cost recovery mechanisms. Due to regulatory treatment, the changes in the estimated fair value of FTRs are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as purchased power expense when the FTRs are settled are recovered or refunded through fuel cost recovery mechanisms. The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of March 31, 2014 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $3.0 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $3.7 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $1.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $5.4 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $3.0 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $4.8 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $7.4 |  | Entergy Texas
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2013 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $2.2 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $2.9 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $0.7 |  | Entergy Mississippi
Natural gas swaps |  | Prepayments and other |  | $0.1 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $6.7 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $5.7 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $18.4 |  | Entergy Texas
(a) | Excludes cash collateral in the amount of $1 million posted by Entergy Arkansas as of March 31, 2014. As of December 31, 2013, no cash collateral was required to be posted.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
2014 |  |  |  | (In Millions) |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $6.8 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $8.0 |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $1.6 |  | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $0.7 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $5.1 |  | Entergy Arkansas
FTRs |  | Purchased power expense |  | $9.1 |  | Entergy Gulf States Louisiana
FTRs |  | Purchased power expense |  | $8.0 |  | Entergy Louisiana
FTRs |  | Purchased power expense |  | $7.8 |  | Entergy Mississippi
FTRs |  | Purchased power expense |  | $2.9 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $12.8 |  | Entergy Texas
2013 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($6.2) |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($8.3) |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($5.4) |  | Entergy Mississippi
Fair Values The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling. Considerable judgment is required in developing the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. Gains or losses realized on financial instruments other than those instruments held by the Entergy Wholesale Commodities business are reflected in future rates and therefore do not affect net income. Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments. Accounting standards define fair value as an exit price, or the price that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between knowledgeable market participants at the date of measurement. Entergy and the Registrant Subsidiaries use assumptions or market input data that market participants would use in pricing assets or liabilities at fair value. The inputs can be readily observable, corroborated by market data, or generally unobservable. Entergy and the Registrant Subsidiaries endeavor to use the best available information to determine fair value. Accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy establishes the highest priority for unadjusted market quotes in an active market for the identical asset or liability and the lowest priority for unobservable inputs. The three levels of the fair value hierarchy are:
• | Level 1 - Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of individually owned common stocks, cash equivalents (temporary cash investments, securitization recovery trust account, and escrow accounts), debt instruments, and gas hedge contracts. Cash equivalents includes all unrestricted highly liquid debt instruments with an original or remaining maturity of three months or less at the date of purchase.
• | Level 2 - Level 2 inputs are inputs other than quoted prices included in Level 1 that are, either directly or indirectly, observable for the asset or liability at the measurement date. Assets are valued based on prices derived by independent third parties that use inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Prices are reviewed and can be challenged with the independent parties and/or overridden by Entergy if it is believed such would be more reflective of fair value. Level 2 inputs include the following:
- quoted prices for similar assets or liabilities in active markets; - quoted prices for identical assets or liabilities in inactive markets; - inputs other than quoted prices that are observable for the asset or liability; or - inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 2 consists primarily of individually-owned debt instruments or shares in common trusts. Common trust funds are stated at estimated fair value based on the fair market value of the underlying investments.
• | Level 3 - Level 3 inputs are pricing inputs that are generally less observable or unobservable from objective sources. These inputs are used with internally developed methodologies to produce management’s best estimate of fair value for the asset or liability. Level 3 consists primarily of FTRs and derivative power contracts used as cash flow hedges of power sales at merchant power plants.
The values for power contract assets or liabilities are based on both observable inputs including public market prices and interest rates, and unobservable inputs such as implied volatilities, unit contingent discounts, expected basis differences, and credit adjusted counterparty interest rates. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group and the Entergy Wholesale Commodities Accounting Policy and External Reporting group. The primary functions of the Entergy Wholesale Commodities Risk Control Group include: gathering, validating and reporting market data, providing market risk analyses and valuations in support of Entergy Wholesale Commodities’ commercial transactions, developing and administering protocols for the management of market risks, and implementing and maintaining controls around changes to market data in the energy trading and risk management system. The Risk Control group is also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis. The Entergy Wholesale Commodities Accounting Policy and External Reporting group performs functions related to market and counterparty settlements, revenue reporting and analysis and financial accounting. The Entergy Wholesale Commodities Risk Control Group reports to the Vice President, Treasury while the Entergy Wholesale Commodities Accounting Policy and External Reporting group reports to the Vice President, Accounting Policy and External Reporting. The amounts reflected as the fair value of electricity swaps are based on the estimated amount that the contracts are in-the-money at the balance sheet date (treated as an asset) or out-of-the-money at the balance sheet date (treated as a liability) and would equal the estimated amount receivable to or payable by Entergy if the contracts were settled at that date. These derivative contracts include cash flow hedges that swap fixed for floating cash flows for sales of the output from the Entergy Wholesale Commodities business. The fair values are based on the mark-to-market comparison between the fixed contract prices and the floating prices determined each period from quoted forward power market prices. The differences between the fixed price in the swap contract and these market-related prices multiplied by the volume specified in the contract and discounted at the counterparties’ credit adjusted risk free rate are recorded as derivative contract assets or liabilities. For contracts that have unit contingent terms, a further discount is applied based on the historical relationship between contract and market prices for similar contract terms. The amounts reflected as the fair values of electricity options are valued based on a Black Scholes model, and are calculated at the end of each month for accounting purposes. Inputs to the valuation include end of day forward market prices for the period when the transactions will settle, implied volatilities based on market volatilities provided by a third party data aggregator, and US Treasury rates for a risk-free return rate. As described further below, prices and implied volatilities are reviewed and can be adjusted if it is determined that there is a better representation of fair value. On a daily basis, Entergy Wholesale Commodities Risk Control Group calculated the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control Group also validated forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences were analyzed and potentially adjusted based on these other sources of forward market prices or settlement prices of actual market transactions. Implied volatilities used to value options were also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and used multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirmed the mark-to-market calculations and prepared price scenarios and credit downgrade scenario analysis. The scenario analysis was communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis was completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’s portfolio. In particular, the credit, liquidity, and financial metrics impacts were calculated for this analysis. This analysis was communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of future congestion costs in MISO between applicable sink and source pricing nodes based on prices published by MISO. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group for the unregulated business and by the System Planning and Operations Risk Control Group for the Utility operating companies. Entergy’s Accounting Policy group reviews these valuations for reasonableness, with the assistance of others within the organization with knowledge of the various inputs and assumptions used in the valuation. The System Planning and Operations Risk Control Group reports to the Vice President, Treasury. The Accounting Policy group reports to the Vice President, Accounting Policy and External Reporting. The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $800 |  |  |  | $— |  |  |  | $— |  |  |  | $800 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 417 |  |  | 2,644 |  | (b) | — |  |  | 3,061 |
Debt securities |  | 763 |  |  | 1,167 |  |  | — |  |  | 1,930 |
Power contracts |  | — |  |  | — |  |  | 24 |  |  | 24 |
Securitization recovery trust account |  | 48 |  |  | — |  |  | — |  |  | 48 |
Escrow accounts |  | 117 |  |  | — |  |  | — |  |  | 117 |
Gas hedge contracts |  | 8 |  |  | — |  |  | — |  |  | 8 |
FTRs |  | — |  |  | — |  |  | 25 |  |  | 25 |
|  |  | $2,153 |  |  |  | $3,811 |  |  |  | $49 |  |  |  | $6,013 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $110 |  |  |  | $110 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $609 |  |  |  | $— |  |  |  | $— |  |  |  | $609 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 472 |  |  | 2,601 |  | (b) | — |  |  | 3,073 |
Debt securities |  | 783 |  |  | 1,047 |  |  | — |  |  | 1,830 |
Power contracts |  | — |  |  | — |  |  | 74 |  |  | 74 |
Securitization recovery trust account |  | 46 |  |  | — |  |  | — |  |  | 46 |
Escrow accounts |  | 115 |  |  | — |  |  | — |  |  | 115 |
Gas hedge contracts |  | 6 |  |  | — |  |  | — |  |  | 6 |
FTRs |  | — |  |  | — |  |  | 34 |  |  | 34 |
|  |  | $2,031 |  |  |  | $3,648 |  |  |  | $108 |  |  |  | $5,787 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $207 |  |  |  | $207 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
(b) | Commingled equity funds may be redeemed bi-monthly.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014 and 2013:
| 2014 |  | 2013
| (In Millions)
Balance as of January 1, |  | ($98 | ) |  |  | $178 |
Realized losses included in earnings | (31 | ) |  | (14 | )
Unrealized gains included in earnings | 53 |  |  | 5 |
Unrealized losses included in OCI | (222 | ) |  | (119 | )
Unrealized gains included as a regulatory asset/liability | 37 |  |  | — |
Purchases | 5 |  |  | — |
Settlements | 195 |  |  | 2 |
Balance as of March 31, |  | ($61 | ) |  |  | $52 |
The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy and significant unobservable inputs to each which cause that classification, as of March 31, 2014:
Transaction Type |  | Fair Value as of March 31, 2014 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Electricity swaps |  | ($96) |  | Unit contingent discount |  | +/- | 3% |  | ($3)
Electricity options |  | $10 |  | Implied volatility |  | +/- | 53% |  | $35
The following table sets forth an analysis of each of the types of unobservable inputs impacting the fair value of items classified as Level 3 within the fair value hierarchy, and the sensitivity to changes to those inputs:
Significant Unobservable Input |  | Transaction Type |  | Position |  | Change to Input |  | Effect on Fair Value
Unit contingent discount |  | Electricity swaps |  | Sell |  | Increase (Decrease) |  | Decrease (Increase)
Implied volatility |  | Electricity options |  | Sell |  | Increase (Decrease) |  | Increase (Decrease)
Implied volatility |  | Electricity options |  | Buy |  | Increase (Decrease) |  | Increase (Decrease)
The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels. Entergy Arkansas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $216.1 |  |  |  | $— |  |  |  | $— |  |  |  | $216.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 3.7 |  |  | 457.1 |  |  | — |  |  | 460.8 |
Debt securities |  | 50.8 |  |  | 209.9 |  |  | — |  |  | 260.7 |
Securitization recovery trust account |  | 8.1 |  |  | — |  |  | — |  |  | 8.1 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
FTRs |  | — |  |  | — |  |  | 2.7 |  |  | 2.7 |
|  |  | $304.7 |  |  |  | $667.0 |  |  |  | $2.7 |  |  |  | $974.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $122.8 |  |  |  | $— |  |  |  | $— |  |  |  | $122.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 13.6 |  |  | 449.7 |  |  | — |  |  | 463.3 |
Debt securities |  | 58.6 |  |  | 189.0 |  |  | — |  |  | 247.6 |
Securitization recovery trust account |  | 3.8 |  |  | — |  |  | — |  |  | 3.8 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
|  |  | $224.8 |  |  |  | $638.7 |  |  |  | $— |  |  |  | $863.5 |
Entergy Gulf States Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $15.0 |  |  |  | $— |  |  |  | $— |  |  |  | $15.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.0 |  |  | 348.9 |  |  | — |  |  | 359.9 |
Debt securities |  | 73.1 |  |  | 153.2 |  |  | — |  |  | 226.3 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 3.0 |  |  | — |  |  | — |  |  | 3.0 |
FTRs |  | — |  |  | — |  |  | 5.4 |  |  | 5.4 |
|  |  | $123.6 |  |  |  | $502.1 |  |  |  | $5.4 |  |  |  | $631.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.8 |  |  |  | $— |  |  |  | $— |  |  |  | $13.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 27.6 |  |  | 343.2 |  |  | — |  |  | 370.8 |
Debt securities |  | 71.7 |  |  | 131.2 |  |  | — |  |  | 202.9 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 2.2 |  |  | — |  |  | — |  |  | 2.2 |
FTRs |  | — |  |  | — |  |  | 6.7 |  |  | 6.7 |
|  |  | $136.8 |  |  |  | $474.4 |  |  |  | $6.7 |  |  |  | $617.9 |
Entergy Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $72.0 |  |  |  | $— |  |  |  | $— |  |  |  | $72.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.1 |  |  | 213.9 |  |  | — |  |  | 225.0 |
Debt securities |  | 60.3 |  |  | 68.3 |  |  | — |  |  | 128.6 |
Securitization recovery trust account |  | 10.2 |  |  | — |  |  | — |  |  | 10.2 |
Gas hedge contracts |  | 3.7 |  |  | — |  |  | — |  |  | 3.7 |
FTRs |  | — |  |  | — |  |  | 3.0 |  |  | 3.0 |
|  |  | $157.3 |  |  |  | $282.2 |  |  |  | $3.0 |  |  |  | $442.5 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $123.6 |  |  |  | $— |  |  |  | $— |  |  |  | $123.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 13.5 |  |  | 210.7 |  |  | — |  |  | 224.2 |
Debt securities |  | 61.7 |  |  | 61.4 |  |  | — |  |  | 123.1 |
Securitization recovery trust account |  | 4.5 |  |  | — |  |  | — |  |  | 4.5 |
Gas hedge contacts |  | 2.9 |  |  | — |  |  | — |  |  | 2.9 |
FTRs |  | — |  |  | — |  |  | 5.7 |  |  | 5.7 |
|  |  | $206.2 |  |  |  | $272.1 |  |  |  | $5.7 |  |  |  | $484.0 |
Entergy Mississippi
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $70.3 |  |  |  | $— |  |  |  | $— |  |  |  | $70.3 |
Escrow accounts |  | 51.8 |  |  | — |  |  | — |  |  | 51.8 |
Gas hedge contracts |  | 1.4 |  |  | — |  |  | — |  |  | 1.4 |
FTRs |  | — |  |  | — |  |  | 4.8 |  |  | 4.8 |
|  |  | $123.5 |  |  |  | $— |  |  |  | $4.8 |  |  |  | $128.3 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Escrow accounts |  |  | $51.8 |  |  |  | $— |  |  |  | $— |  |  |  | $51.8 |
Gas hedge contracts |  | 0.7 |  |  | — |  |  | — |  |  | 0.7 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $52.5 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $53.5 |
Entergy New Orleans
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $24.7 |  |  |  | $— |  |  |  | $— |  |  |  | $24.7 |
Escrow accounts |  | 12.4 |  |  | — |  |  | — |  |  | 12.4 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $37.1 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $38.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $33.2 |  |  |  | $— |  |  |  | $— |  |  |  | $33.2 |
Escrow accounts |  | 10.5 |  |  | — |  |  | — |  |  | 10.5 |
Gas hedge contracts |  | 0.1 |  |  | — |  |  | — |  |  | 0.1 |
FTRs |  | — |  |  | — |  |  | 2.0 |  |  | 2.0 |
|  |  | $43.8 |  |  |  | $— |  |  |  | $2.0 |  |  |  | $45.8 |
Entergy Texas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $29.7 |  |  |  | $— |  |  |  | $— |  |  |  | $29.7 |
FTRs |  | — |  |  | — |  |  | 7.4 |  |  | 7.4 |
|  |  | $29.7 |  |  |  | $— |  |  |  | $7.4 |  |  |  | $37.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $44.1 |  |  |  | $— |  |  |  | $— |  |  |  | $44.1 |
Securitization recovery trust account |  | 37.5 |  |  | — |  |  | — |  |  | 37.5 |
FTRs |  | — |  |  | — |  |  | 18.4 |  |  | 18.4 |
|  |  | $81.6 |  |  |  | $— |  |  |  | $18.4 |  |  |  | $100.0 |
System Energy
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $83.1 |  |  |  | $— |  |  |  | $— |  |  |  | $83.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.2 |  |  | 384.7 |  |  | — |  |  | 385.9 |
Debt securities |  | 155.1 |  |  | 78.3 |  |  | — |  |  | 233.4 |
|  |  | $239.4 |  |  |  | $463.0 |  |  |  | $— |  |  |  | $702.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.6 |  |  |  | $— |  |  |  | $— |  |  |  | $64.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.2 |  |  | 377.8 |  |  | — |  |  | 380.0 |
Debt securities |  | 152.9 |  |  | 71.0 |  |  | — |  |  | 223.9 |
|  |  | $219.7 |  |  |  | $448.8 |  |  |  | $— |  |  |  | $668.5 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014.
| Entergy Arkansas |  | Entergy Gulf States Louisiana |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
|  |  | (In Millions)
Balance as of January 1, |  | $— |  |  |  | $6.7 |  |  |  | $5.7 |  |  |  | $1.0 |  |  |  | $2.0 |  |  |  | $18.4 |
Unrealized gains included as a regulatory liability/asset | 7.8 |  |  | 7.7 |  |  | 5.3 |  |  | 11.6 |  |  | 2.0 |  |  | 1.8 |
Settlements | (5.1 | ) |  | (9.0 | ) |  | (8.0 | ) |  | (7.8 | ) |  | (3.0 | ) |  | (12.8 | )
Balance as of March 31, |  | $2.7 |  |  |  | $5.4 |  |  |  | $3.0 |  |  |  | $4.8 |  |  |  | $1.0 |  |  |  | $7.4 |
Entergy Mississippi [Member] |
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy) Market Risk In the normal course of business, Entergy is exposed to a number of market risks. Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular commodity or instrument. All financial and commodity-related instruments, including derivatives, are subject to market risk including commodity price risk, equity price, and interest rate risk. Entergy uses derivatives primarily to mitigate commodity price risk, particularly power price and fuel price risk. 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 derivative 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. 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 and capacity in the day ahead or spot markets. In addition to its forward physical power contracts, Entergy Wholesale Commodities also uses a combination of financial contracts, including swaps, collars, and options, to mitigate commodity price risk. When the market price falls, the combination of instruments is expected to settle in gains that offset lower revenue from generation, which results in a more predictable cash flow. Entergy’s exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity. For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option’s contractual strike or exercise price also affects the level of market risk. A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk. Hedging instruments and volumes are chosen based on ability to mitigate risk associated with future energy and capacity prices; however, other considerations are factored into hedge product and volume decisions including corporate liquidity, corporate credit ratings, counterparty credit risk, hedging costs, firm settlement risk, and product availability in the marketplace. Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy’s risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods. These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy’s objectives. Derivatives Some derivative instruments are classified as cash flow hedges due to their financial settlement provisions while others are classified as normal purchase/normal sale transactions due to their physical settlement provisions. Normal purchase/normal sale risk management tools include power purchase and sales agreements, fuel purchase agreements, capacity contracts, and tolling agreements. Financially-settled cash flow hedges can include natural gas and electricity swaps and options and interest rate swaps. Entergy may enter into financially-settled swap and option contracts to manage market risk that may or may not be designated as hedging instruments. Entergy enters into derivatives only to manage natural risks inherent in its physical or financial assets or liabilities. The maximum length of time over which Entergy is currently hedging the variability in future cash flows with derivatives for forecasted power transactions at March 31, 2014 is approximately 2.75 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 75% for the remainder of 2014, of which approximately 45% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2014 is 30 TWh. Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Gulf States Louisiana, Entergy Louisiana, and Entergy New Orleans) and Entergy Mississippi through the purchase of short-term natural gas swaps that financially settle against NYMEX futures. These swaps are marked-to-market through fuel expense with offsetting regulatory assets or liabilities. All benefits or costs of the program are recorded in fuel costs. The notional volumes of these swaps are based on a portion of projected annual exposure to gas for electric generation and projected winter purchases for gas distribution at Entergy Gulf States Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2014 is 42,490,000 MMBtu for Entergy, 16,070,000 MMBtu for Entergy Gulf States Louisiana, 19,180,000 MMBtu for Entergy Louisiana, and 7,240,000 MMBtu for Entergy Mississippi. Credit support for these natural gas swaps is covered by master agreements that do not require collateralization based on mark-to-market value, but do carry adequate assurance language that may lead to collateralization requests. In connection with joining MISO, Entergy received a direct allocation of FTRs in November 2013. FTRs are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records FTRs at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on FTRs held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on FTRs. The total volume of FTRs outstanding as of March 31, 2014 is 15,554 GWh for Entergy, including 3,540 GWh for Entergy Arkansas, 2,613 GWh for Entergy Gulf States Louisiana, 3,998 GWh for Entergy Louisiana, 2,319 GWh for Entergy Mississippi, 523 GWh for Entergy New Orleans, and 2,423 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash or letters of credit issued by each Utility operating company as required by MISO. Credit support for FTRs held by Entergy Wholesale Commodities is covered by cash. As of March 31, 2014, Entergy Arkansas posted $1 million in cash collateral. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2014 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $107 |  | ($102) |  | $5 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $7 |  | ($2) |  | $5 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $178 |  | ($125) |  | $53 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $23 |  | ($3) |  | $20 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $100 |  | ($86) |  | $14 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $8 |  | $— |  | $8 |  | Utility
FTRs |  | Prepayments and other |  | $26 |  | ($1) |  | $25 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $100 |  | ($63) |  | $37 |  | Entergy Wholesale Commodities
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2013 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $118 |  | ($99) |  | $19 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($17) |  | $— |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $197 |  | ($131) |  | $66 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $46 |  | ($17) |  | $29 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $177 |  | ($122) |  | $55 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $6 |  | $— |  | $6 |  | Utility
FTRs |  | Prepayments and other |  | $36 |  | ($2) |  | $34 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $201 |  | ($89) |  | $112 |  | Entergy Wholesale Commodities
(a) | Represents the gross amounts of recognized assets/liabilities
(b) | Represents the netting of fair value balances with the same counterparty
(c) | Represents the net amounts of assets /liabilities presented on the Entergy Consolidated Balance Sheets
(d) | Excludes cash collateral in the amounts of $65 million posted as of March 31, 2014 and $47 million posted and $4 million held as of December 31, 2013
The effect of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Amount of loss recognized in other comprehensive income |  | Income Statement location |  | Amount of loss reclassified from AOCI into income
|  | (In Millions) |  |  |  | (In Millions)
2014 |  |  |  |  |  |
Electricity swaps and options |  | ($174) |  | Competitive businesses operating revenues |  | ($195)
2013 |  |  |  |  |  |
Electricity swaps and options |  | ($120) |  | Competitive businesses operating revenues |  | ($2)
Electricity over-the-counter instruments that financially settle against day-ahead power pool prices are used to manage price exposure for Entergy Wholesale Commodities generation. Unrealized gains or losses recorded in other comprehensive income result from hedging power output at the Entergy Wholesale Commodities power plants. The related gains or losses from hedging power are included in operating revenues when realized. Gains (losses) totaling approximately ($195) million and ($2) million were realized on the maturity of cash flow hedges, before taxes (benefit) of ($68) million and ($1) million, for the three months ended March 31, 2014 and 2013, respectively. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2014 and 2013 was $1 million and ($1.3) million, respectively. The ineffective portion of cash flow hedges is recorded in competitive businesses operating revenues. Based on market prices as of March 31, 2014, unrealized losses recorded in AOCI on cash flow hedges relating to power sales totaled $98 million of net unrealized losses. Approximately $74 million is expected to be reclassified from AOCI to operating revenues in the next twelve months. The actual amount reclassified from AOCI, however, could vary due to future changes in market prices. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations when the current market prices exceed the contracted power prices. The primary form of collateral to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2014, derivative contracts with nine counterparties were in a liability position (approximately $98 million total) and, in addition to the corporate guarantee, $64 million in cash collateral was required to be posted. As of March 31, 2013, derivative contracts with six counterparties were in a liability position (approximately $25 million total), but were significantly below the amount of the guarantee provided under the contract and no cash collateral was required. If the Entergy Corporation credit rating falls below investment grade, the effect of the corporate guarantee is typically ignored and Entergy would have to post collateral equal to the estimated outstanding liability under the contract at the applicable date. Entergy may effectively liquidate a cash flow hedge instrument by entering into a contract offsetting the original hedge, and then de-designating the original hedge in this situation. Gains or losses accumulated in other comprehensive income prior to de-designation continue to be deferred in other comprehensive income until they are included in income as the original hedged transaction occurs. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract are recorded as assets or liabilities on the balance sheet and offset as they flow through to earnings.
The effect of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2014 and 2013 is as follows:
Instrument |  | Amount of gain recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
2014 |  | (In Millions) |  |  |  | (In Millions)
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $17
FTRs |  | — |  | Purchased power expense |  | $46
Electricity swaps and options de-designated as hedged items |  | $22 |  | Competitive business operating revenues |  | $21
2013 |  |  |  |  |  |
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($20)
Electricity swaps and options de-designated as hedged items |  | $1 |  | Competitive business operating revenues |  | ($1)
Due to regulatory treatment, the natural gas swaps are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps are settled are recovered or refunded through fuel cost recovery mechanisms. Due to regulatory treatment, the changes in the estimated fair value of FTRs are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as purchased power expense when the FTRs are settled are recovered or refunded through fuel cost recovery mechanisms. The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of March 31, 2014 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $3.0 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $3.7 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $1.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $5.4 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $3.0 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $4.8 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $7.4 |  | Entergy Texas
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2013 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $2.2 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $2.9 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $0.7 |  | Entergy Mississippi
Natural gas swaps |  | Prepayments and other |  | $0.1 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $6.7 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $5.7 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $18.4 |  | Entergy Texas
(a) | Excludes cash collateral in the amount of $1 million posted by Entergy Arkansas as of March 31, 2014. As of December 31, 2013, no cash collateral was required to be posted.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
2014 |  |  |  | (In Millions) |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $6.8 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $8.0 |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $1.6 |  | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $0.7 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $5.1 |  | Entergy Arkansas
FTRs |  | Purchased power expense |  | $9.1 |  | Entergy Gulf States Louisiana
FTRs |  | Purchased power expense |  | $8.0 |  | Entergy Louisiana
FTRs |  | Purchased power expense |  | $7.8 |  | Entergy Mississippi
FTRs |  | Purchased power expense |  | $2.9 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $12.8 |  | Entergy Texas
2013 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($6.2) |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($8.3) |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($5.4) |  | Entergy Mississippi
Fair Values The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling. Considerable judgment is required in developing the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. Gains or losses realized on financial instruments other than those instruments held by the Entergy Wholesale Commodities business are reflected in future rates and therefore do not affect net income. Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments. Accounting standards define fair value as an exit price, or the price that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between knowledgeable market participants at the date of measurement. Entergy and the Registrant Subsidiaries use assumptions or market input data that market participants would use in pricing assets or liabilities at fair value. The inputs can be readily observable, corroborated by market data, or generally unobservable. Entergy and the Registrant Subsidiaries endeavor to use the best available information to determine fair value. Accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy establishes the highest priority for unadjusted market quotes in an active market for the identical asset or liability and the lowest priority for unobservable inputs. The three levels of the fair value hierarchy are:
• | Level 1 - Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of individually owned common stocks, cash equivalents (temporary cash investments, securitization recovery trust account, and escrow accounts), debt instruments, and gas hedge contracts. Cash equivalents includes all unrestricted highly liquid debt instruments with an original or remaining maturity of three months or less at the date of purchase.
• | Level 2 - Level 2 inputs are inputs other than quoted prices included in Level 1 that are, either directly or indirectly, observable for the asset or liability at the measurement date. Assets are valued based on prices derived by independent third parties that use inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Prices are reviewed and can be challenged with the independent parties and/or overridden by Entergy if it is believed such would be more reflective of fair value. Level 2 inputs include the following:
- quoted prices for similar assets or liabilities in active markets; - quoted prices for identical assets or liabilities in inactive markets; - inputs other than quoted prices that are observable for the asset or liability; or - inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 2 consists primarily of individually-owned debt instruments or shares in common trusts. Common trust funds are stated at estimated fair value based on the fair market value of the underlying investments.
• | Level 3 - Level 3 inputs are pricing inputs that are generally less observable or unobservable from objective sources. These inputs are used with internally developed methodologies to produce management’s best estimate of fair value for the asset or liability. Level 3 consists primarily of FTRs and derivative power contracts used as cash flow hedges of power sales at merchant power plants.
The values for power contract assets or liabilities are based on both observable inputs including public market prices and interest rates, and unobservable inputs such as implied volatilities, unit contingent discounts, expected basis differences, and credit adjusted counterparty interest rates. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group and the Entergy Wholesale Commodities Accounting Policy and External Reporting group. The primary functions of the Entergy Wholesale Commodities Risk Control Group include: gathering, validating and reporting market data, providing market risk analyses and valuations in support of Entergy Wholesale Commodities’ commercial transactions, developing and administering protocols for the management of market risks, and implementing and maintaining controls around changes to market data in the energy trading and risk management system. The Risk Control group is also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis. The Entergy Wholesale Commodities Accounting Policy and External Reporting group performs functions related to market and counterparty settlements, revenue reporting and analysis and financial accounting. The Entergy Wholesale Commodities Risk Control Group reports to the Vice President, Treasury while the Entergy Wholesale Commodities Accounting Policy and External Reporting group reports to the Vice President, Accounting Policy and External Reporting. The amounts reflected as the fair value of electricity swaps are based on the estimated amount that the contracts are in-the-money at the balance sheet date (treated as an asset) or out-of-the-money at the balance sheet date (treated as a liability) and would equal the estimated amount receivable to or payable by Entergy if the contracts were settled at that date. These derivative contracts include cash flow hedges that swap fixed for floating cash flows for sales of the output from the Entergy Wholesale Commodities business. The fair values are based on the mark-to-market comparison between the fixed contract prices and the floating prices determined each period from quoted forward power market prices. The differences between the fixed price in the swap contract and these market-related prices multiplied by the volume specified in the contract and discounted at the counterparties’ credit adjusted risk free rate are recorded as derivative contract assets or liabilities. For contracts that have unit contingent terms, a further discount is applied based on the historical relationship between contract and market prices for similar contract terms. The amounts reflected as the fair values of electricity options are valued based on a Black Scholes model, and are calculated at the end of each month for accounting purposes. Inputs to the valuation include end of day forward market prices for the period when the transactions will settle, implied volatilities based on market volatilities provided by a third party data aggregator, and US Treasury rates for a risk-free return rate. As described further below, prices and implied volatilities are reviewed and can be adjusted if it is determined that there is a better representation of fair value. On a daily basis, Entergy Wholesale Commodities Risk Control Group calculated the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control Group also validated forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences were analyzed and potentially adjusted based on these other sources of forward market prices or settlement prices of actual market transactions. Implied volatilities used to value options were also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and used multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirmed the mark-to-market calculations and prepared price scenarios and credit downgrade scenario analysis. The scenario analysis was communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis was completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’s portfolio. In particular, the credit, liquidity, and financial metrics impacts were calculated for this analysis. This analysis was communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of future congestion costs in MISO between applicable sink and source pricing nodes based on prices published by MISO. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group for the unregulated business and by the System Planning and Operations Risk Control Group for the Utility operating companies. Entergy’s Accounting Policy group reviews these valuations for reasonableness, with the assistance of others within the organization with knowledge of the various inputs and assumptions used in the valuation. The System Planning and Operations Risk Control Group reports to the Vice President, Treasury. The Accounting Policy group reports to the Vice President, Accounting Policy and External Reporting. The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $800 |  |  |  | $— |  |  |  | $— |  |  |  | $800 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 417 |  |  | 2,644 |  | (b) | — |  |  | 3,061 |
Debt securities |  | 763 |  |  | 1,167 |  |  | — |  |  | 1,930 |
Power contracts |  | — |  |  | — |  |  | 24 |  |  | 24 |
Securitization recovery trust account |  | 48 |  |  | — |  |  | — |  |  | 48 |
Escrow accounts |  | 117 |  |  | — |  |  | — |  |  | 117 |
Gas hedge contracts |  | 8 |  |  | — |  |  | — |  |  | 8 |
FTRs |  | — |  |  | — |  |  | 25 |  |  | 25 |
|  |  | $2,153 |  |  |  | $3,811 |  |  |  | $49 |  |  |  | $6,013 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $110 |  |  |  | $110 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $609 |  |  |  | $— |  |  |  | $— |  |  |  | $609 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 472 |  |  | 2,601 |  | (b) | — |  |  | 3,073 |
Debt securities |  | 783 |  |  | 1,047 |  |  | — |  |  | 1,830 |
Power contracts |  | — |  |  | — |  |  | 74 |  |  | 74 |
Securitization recovery trust account |  | 46 |  |  | — |  |  | — |  |  | 46 |
Escrow accounts |  | 115 |  |  | — |  |  | — |  |  | 115 |
Gas hedge contracts |  | 6 |  |  | — |  |  | — |  |  | 6 |
FTRs |  | — |  |  | — |  |  | 34 |  |  | 34 |
|  |  | $2,031 |  |  |  | $3,648 |  |  |  | $108 |  |  |  | $5,787 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $207 |  |  |  | $207 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
(b) | Commingled equity funds may be redeemed bi-monthly.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014 and 2013:
| 2014 |  | 2013
| (In Millions)
Balance as of January 1, |  | ($98 | ) |  |  | $178 |
Realized losses included in earnings | (31 | ) |  | (14 | )
Unrealized gains included in earnings | 53 |  |  | 5 |
Unrealized losses included in OCI | (222 | ) |  | (119 | )
Unrealized gains included as a regulatory asset/liability | 37 |  |  | — |
Purchases | 5 |  |  | — |
Settlements | 195 |  |  | 2 |
Balance as of March 31, |  | ($61 | ) |  |  | $52 |
The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy and significant unobservable inputs to each which cause that classification, as of March 31, 2014:
Transaction Type |  | Fair Value as of March 31, 2014 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Electricity swaps |  | ($96) |  | Unit contingent discount |  | +/- | 3% |  | ($3)
Electricity options |  | $10 |  | Implied volatility |  | +/- | 53% |  | $35
The following table sets forth an analysis of each of the types of unobservable inputs impacting the fair value of items classified as Level 3 within the fair value hierarchy, and the sensitivity to changes to those inputs:
Significant Unobservable Input |  | Transaction Type |  | Position |  | Change to Input |  | Effect on Fair Value
Unit contingent discount |  | Electricity swaps |  | Sell |  | Increase (Decrease) |  | Decrease (Increase)
Implied volatility |  | Electricity options |  | Sell |  | Increase (Decrease) |  | Increase (Decrease)
Implied volatility |  | Electricity options |  | Buy |  | Increase (Decrease) |  | Increase (Decrease)
The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels. Entergy Arkansas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $216.1 |  |  |  | $— |  |  |  | $— |  |  |  | $216.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 3.7 |  |  | 457.1 |  |  | — |  |  | 460.8 |
Debt securities |  | 50.8 |  |  | 209.9 |  |  | — |  |  | 260.7 |
Securitization recovery trust account |  | 8.1 |  |  | — |  |  | — |  |  | 8.1 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
FTRs |  | — |  |  | — |  |  | 2.7 |  |  | 2.7 |
|  |  | $304.7 |  |  |  | $667.0 |  |  |  | $2.7 |  |  |  | $974.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $122.8 |  |  |  | $— |  |  |  | $— |  |  |  | $122.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 13.6 |  |  | 449.7 |  |  | — |  |  | 463.3 |
Debt securities |  | 58.6 |  |  | 189.0 |  |  | — |  |  | 247.6 |
Securitization recovery trust account |  | 3.8 |  |  | — |  |  | — |  |  | 3.8 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
|  |  | $224.8 |  |  |  | $638.7 |  |  |  | $— |  |  |  | $863.5 |
Entergy Gulf States Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $15.0 |  |  |  | $— |  |  |  | $— |  |  |  | $15.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.0 |  |  | 348.9 |  |  | — |  |  | 359.9 |
Debt securities |  | 73.1 |  |  | 153.2 |  |  | — |  |  | 226.3 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 3.0 |  |  | — |  |  | — |  |  | 3.0 |
FTRs |  | — |  |  | — |  |  | 5.4 |  |  | 5.4 |
|  |  | $123.6 |  |  |  | $502.1 |  |  |  | $5.4 |  |  |  | $631.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.8 |  |  |  | $— |  |  |  | $— |  |  |  | $13.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 27.6 |  |  | 343.2 |  |  | — |  |  | 370.8 |
Debt securities |  | 71.7 |  |  | 131.2 |  |  | — |  |  | 202.9 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 2.2 |  |  | — |  |  | — |  |  | 2.2 |
FTRs |  | — |  |  | — |  |  | 6.7 |  |  | 6.7 |
|  |  | $136.8 |  |  |  | $474.4 |  |  |  | $6.7 |  |  |  | $617.9 |
Entergy Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $72.0 |  |  |  | $— |  |  |  | $— |  |  |  | $72.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.1 |  |  | 213.9 |  |  | — |  |  | 225.0 |
Debt securities |  | 60.3 |  |  | 68.3 |  |  | — |  |  | 128.6 |
Securitization recovery trust account |  | 10.2 |  |  | — |  |  | — |  |  | 10.2 |
Gas hedge contracts |  | 3.7 |  |  | — |  |  | — |  |  | 3.7 |
FTRs |  | — |  |  | — |  |  | 3.0 |  |  | 3.0 |
|  |  | $157.3 |  |  |  | $282.2 |  |  |  | $3.0 |  |  |  | $442.5 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $123.6 |  |  |  | $— |  |  |  | $— |  |  |  | $123.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 13.5 |  |  | 210.7 |  |  | — |  |  | 224.2 |
Debt securities |  | 61.7 |  |  | 61.4 |  |  | — |  |  | 123.1 |
Securitization recovery trust account |  | 4.5 |  |  | — |  |  | — |  |  | 4.5 |
Gas hedge contacts |  | 2.9 |  |  | — |  |  | — |  |  | 2.9 |
FTRs |  | — |  |  | — |  |  | 5.7 |  |  | 5.7 |
|  |  | $206.2 |  |  |  | $272.1 |  |  |  | $5.7 |  |  |  | $484.0 |
Entergy Mississippi
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $70.3 |  |  |  | $— |  |  |  | $— |  |  |  | $70.3 |
Escrow accounts |  | 51.8 |  |  | — |  |  | — |  |  | 51.8 |
Gas hedge contracts |  | 1.4 |  |  | — |  |  | — |  |  | 1.4 |
FTRs |  | — |  |  | — |  |  | 4.8 |  |  | 4.8 |
|  |  | $123.5 |  |  |  | $— |  |  |  | $4.8 |  |  |  | $128.3 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Escrow accounts |  |  | $51.8 |  |  |  | $— |  |  |  | $— |  |  |  | $51.8 |
Gas hedge contracts |  | 0.7 |  |  | — |  |  | — |  |  | 0.7 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $52.5 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $53.5 |
Entergy New Orleans
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $24.7 |  |  |  | $— |  |  |  | $— |  |  |  | $24.7 |
Escrow accounts |  | 12.4 |  |  | — |  |  | — |  |  | 12.4 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $37.1 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $38.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $33.2 |  |  |  | $— |  |  |  | $— |  |  |  | $33.2 |
Escrow accounts |  | 10.5 |  |  | — |  |  | — |  |  | 10.5 |
Gas hedge contracts |  | 0.1 |  |  | — |  |  | — |  |  | 0.1 |
FTRs |  | — |  |  | — |  |  | 2.0 |  |  | 2.0 |
|  |  | $43.8 |  |  |  | $— |  |  |  | $2.0 |  |  |  | $45.8 |
Entergy Texas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $29.7 |  |  |  | $— |  |  |  | $— |  |  |  | $29.7 |
FTRs |  | — |  |  | — |  |  | 7.4 |  |  | 7.4 |
|  |  | $29.7 |  |  |  | $— |  |  |  | $7.4 |  |  |  | $37.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $44.1 |  |  |  | $— |  |  |  | $— |  |  |  | $44.1 |
Securitization recovery trust account |  | 37.5 |  |  | — |  |  | — |  |  | 37.5 |
FTRs |  | — |  |  | — |  |  | 18.4 |  |  | 18.4 |
|  |  | $81.6 |  |  |  | $— |  |  |  | $18.4 |  |  |  | $100.0 |
System Energy
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $83.1 |  |  |  | $— |  |  |  | $— |  |  |  | $83.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.2 |  |  | 384.7 |  |  | — |  |  | 385.9 |
Debt securities |  | 155.1 |  |  | 78.3 |  |  | — |  |  | 233.4 |
|  |  | $239.4 |  |  |  | $463.0 |  |  |  | $— |  |  |  | $702.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.6 |  |  |  | $— |  |  |  | $— |  |  |  | $64.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.2 |  |  | 377.8 |  |  | — |  |  | 380.0 |
Debt securities |  | 152.9 |  |  | 71.0 |  |  | — |  |  | 223.9 |
|  |  | $219.7 |  |  |  | $448.8 |  |  |  | $— |  |  |  | $668.5 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014.
| Entergy Arkansas |  | Entergy Gulf States Louisiana |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
|  |  | (In Millions)
Balance as of January 1, |  | $— |  |  |  | $6.7 |  |  |  | $5.7 |  |  |  | $1.0 |  |  |  | $2.0 |  |  |  | $18.4 |
Unrealized gains included as a regulatory liability/asset | 7.8 |  |  | 7.7 |  |  | 5.3 |  |  | 11.6 |  |  | 2.0 |  |  | 1.8 |
Settlements | (5.1 | ) |  | (9.0 | ) |  | (8.0 | ) |  | (7.8 | ) |  | (3.0 | ) |  | (12.8 | )
Balance as of March 31, |  | $2.7 |  |  |  | $5.4 |  |  |  | $3.0 |  |  |  | $4.8 |  |  |  | $1.0 |  |  |  | $7.4 |
Entergy New Orleans [Member] |
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy) Market Risk In the normal course of business, Entergy is exposed to a number of market risks. Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular commodity or instrument. All financial and commodity-related instruments, including derivatives, are subject to market risk including commodity price risk, equity price, and interest rate risk. Entergy uses derivatives primarily to mitigate commodity price risk, particularly power price and fuel price risk. 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 derivative 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. 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 and capacity in the day ahead or spot markets. In addition to its forward physical power contracts, Entergy Wholesale Commodities also uses a combination of financial contracts, including swaps, collars, and options, to mitigate commodity price risk. When the market price falls, the combination of instruments is expected to settle in gains that offset lower revenue from generation, which results in a more predictable cash flow. Entergy’s exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity. For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option’s contractual strike or exercise price also affects the level of market risk. A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk. Hedging instruments and volumes are chosen based on ability to mitigate risk associated with future energy and capacity prices; however, other considerations are factored into hedge product and volume decisions including corporate liquidity, corporate credit ratings, counterparty credit risk, hedging costs, firm settlement risk, and product availability in the marketplace. Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy’s risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods. These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy’s objectives. Derivatives Some derivative instruments are classified as cash flow hedges due to their financial settlement provisions while others are classified as normal purchase/normal sale transactions due to their physical settlement provisions. Normal purchase/normal sale risk management tools include power purchase and sales agreements, fuel purchase agreements, capacity contracts, and tolling agreements. Financially-settled cash flow hedges can include natural gas and electricity swaps and options and interest rate swaps. Entergy may enter into financially-settled swap and option contracts to manage market risk that may or may not be designated as hedging instruments. Entergy enters into derivatives only to manage natural risks inherent in its physical or financial assets or liabilities. The maximum length of time over which Entergy is currently hedging the variability in future cash flows with derivatives for forecasted power transactions at March 31, 2014 is approximately 2.75 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 75% for the remainder of 2014, of which approximately 45% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2014 is 30 TWh. Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Gulf States Louisiana, Entergy Louisiana, and Entergy New Orleans) and Entergy Mississippi through the purchase of short-term natural gas swaps that financially settle against NYMEX futures. These swaps are marked-to-market through fuel expense with offsetting regulatory assets or liabilities. All benefits or costs of the program are recorded in fuel costs. The notional volumes of these swaps are based on a portion of projected annual exposure to gas for electric generation and projected winter purchases for gas distribution at Entergy Gulf States Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2014 is 42,490,000 MMBtu for Entergy, 16,070,000 MMBtu for Entergy Gulf States Louisiana, 19,180,000 MMBtu for Entergy Louisiana, and 7,240,000 MMBtu for Entergy Mississippi. Credit support for these natural gas swaps is covered by master agreements that do not require collateralization based on mark-to-market value, but do carry adequate assurance language that may lead to collateralization requests. In connection with joining MISO, Entergy received a direct allocation of FTRs in November 2013. FTRs are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records FTRs at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on FTRs held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on FTRs. The total volume of FTRs outstanding as of March 31, 2014 is 15,554 GWh for Entergy, including 3,540 GWh for Entergy Arkansas, 2,613 GWh for Entergy Gulf States Louisiana, 3,998 GWh for Entergy Louisiana, 2,319 GWh for Entergy Mississippi, 523 GWh for Entergy New Orleans, and 2,423 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash or letters of credit issued by each Utility operating company as required by MISO. Credit support for FTRs held by Entergy Wholesale Commodities is covered by cash. As of March 31, 2014, Entergy Arkansas posted $1 million in cash collateral. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2014 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $107 |  | ($102) |  | $5 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $7 |  | ($2) |  | $5 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $178 |  | ($125) |  | $53 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $23 |  | ($3) |  | $20 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $100 |  | ($86) |  | $14 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $8 |  | $— |  | $8 |  | Utility
FTRs |  | Prepayments and other |  | $26 |  | ($1) |  | $25 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $100 |  | ($63) |  | $37 |  | Entergy Wholesale Commodities
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2013 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $118 |  | ($99) |  | $19 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($17) |  | $— |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $197 |  | ($131) |  | $66 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $46 |  | ($17) |  | $29 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $177 |  | ($122) |  | $55 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $6 |  | $— |  | $6 |  | Utility
FTRs |  | Prepayments and other |  | $36 |  | ($2) |  | $34 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $201 |  | ($89) |  | $112 |  | Entergy Wholesale Commodities
(a) | Represents the gross amounts of recognized assets/liabilities
(b) | Represents the netting of fair value balances with the same counterparty
(c) | Represents the net amounts of assets /liabilities presented on the Entergy Consolidated Balance Sheets
(d) | Excludes cash collateral in the amounts of $65 million posted as of March 31, 2014 and $47 million posted and $4 million held as of December 31, 2013
The effect of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Amount of loss recognized in other comprehensive income |  | Income Statement location |  | Amount of loss reclassified from AOCI into income
|  | (In Millions) |  |  |  | (In Millions)
2014 |  |  |  |  |  |
Electricity swaps and options |  | ($174) |  | Competitive businesses operating revenues |  | ($195)
2013 |  |  |  |  |  |
Electricity swaps and options |  | ($120) |  | Competitive businesses operating revenues |  | ($2)
Electricity over-the-counter instruments that financially settle against day-ahead power pool prices are used to manage price exposure for Entergy Wholesale Commodities generation. Unrealized gains or losses recorded in other comprehensive income result from hedging power output at the Entergy Wholesale Commodities power plants. The related gains or losses from hedging power are included in operating revenues when realized. Gains (losses) totaling approximately ($195) million and ($2) million were realized on the maturity of cash flow hedges, before taxes (benefit) of ($68) million and ($1) million, for the three months ended March 31, 2014 and 2013, respectively. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2014 and 2013 was $1 million and ($1.3) million, respectively. The ineffective portion of cash flow hedges is recorded in competitive businesses operating revenues. Based on market prices as of March 31, 2014, unrealized losses recorded in AOCI on cash flow hedges relating to power sales totaled $98 million of net unrealized losses. Approximately $74 million is expected to be reclassified from AOCI to operating revenues in the next twelve months. The actual amount reclassified from AOCI, however, could vary due to future changes in market prices. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations when the current market prices exceed the contracted power prices. The primary form of collateral to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2014, derivative contracts with nine counterparties were in a liability position (approximately $98 million total) and, in addition to the corporate guarantee, $64 million in cash collateral was required to be posted. As of March 31, 2013, derivative contracts with six counterparties were in a liability position (approximately $25 million total), but were significantly below the amount of the guarantee provided under the contract and no cash collateral was required. If the Entergy Corporation credit rating falls below investment grade, the effect of the corporate guarantee is typically ignored and Entergy would have to post collateral equal to the estimated outstanding liability under the contract at the applicable date. Entergy may effectively liquidate a cash flow hedge instrument by entering into a contract offsetting the original hedge, and then de-designating the original hedge in this situation. Gains or losses accumulated in other comprehensive income prior to de-designation continue to be deferred in other comprehensive income until they are included in income as the original hedged transaction occurs. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract are recorded as assets or liabilities on the balance sheet and offset as they flow through to earnings.
The effect of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2014 and 2013 is as follows:
Instrument |  | Amount of gain recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
2014 |  | (In Millions) |  |  |  | (In Millions)
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $17
FTRs |  | — |  | Purchased power expense |  | $46
Electricity swaps and options de-designated as hedged items |  | $22 |  | Competitive business operating revenues |  | $21
2013 |  |  |  |  |  |
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($20)
Electricity swaps and options de-designated as hedged items |  | $1 |  | Competitive business operating revenues |  | ($1)
Due to regulatory treatment, the natural gas swaps are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps are settled are recovered or refunded through fuel cost recovery mechanisms. Due to regulatory treatment, the changes in the estimated fair value of FTRs are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as purchased power expense when the FTRs are settled are recovered or refunded through fuel cost recovery mechanisms. The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of March 31, 2014 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $3.0 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $3.7 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $1.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $5.4 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $3.0 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $4.8 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $7.4 |  | Entergy Texas
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2013 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $2.2 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $2.9 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $0.7 |  | Entergy Mississippi
Natural gas swaps |  | Prepayments and other |  | $0.1 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $6.7 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $5.7 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $18.4 |  | Entergy Texas
(a) | Excludes cash collateral in the amount of $1 million posted by Entergy Arkansas as of March 31, 2014. As of December 31, 2013, no cash collateral was required to be posted.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
2014 |  |  |  | (In Millions) |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $6.8 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $8.0 |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $1.6 |  | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $0.7 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $5.1 |  | Entergy Arkansas
FTRs |  | Purchased power expense |  | $9.1 |  | Entergy Gulf States Louisiana
FTRs |  | Purchased power expense |  | $8.0 |  | Entergy Louisiana
FTRs |  | Purchased power expense |  | $7.8 |  | Entergy Mississippi
FTRs |  | Purchased power expense |  | $2.9 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $12.8 |  | Entergy Texas
2013 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($6.2) |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($8.3) |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($5.4) |  | Entergy Mississippi
Fair Values The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling. Considerable judgment is required in developing the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. Gains or losses realized on financial instruments other than those instruments held by the Entergy Wholesale Commodities business are reflected in future rates and therefore do not affect net income. Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments. Accounting standards define fair value as an exit price, or the price that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between knowledgeable market participants at the date of measurement. Entergy and the Registrant Subsidiaries use assumptions or market input data that market participants would use in pricing assets or liabilities at fair value. The inputs can be readily observable, corroborated by market data, or generally unobservable. Entergy and the Registrant Subsidiaries endeavor to use the best available information to determine fair value. Accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy establishes the highest priority for unadjusted market quotes in an active market for the identical asset or liability and the lowest priority for unobservable inputs. The three levels of the fair value hierarchy are:
• | Level 1 - Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of individually owned common stocks, cash equivalents (temporary cash investments, securitization recovery trust account, and escrow accounts), debt instruments, and gas hedge contracts. Cash equivalents includes all unrestricted highly liquid debt instruments with an original or remaining maturity of three months or less at the date of purchase.
• | Level 2 - Level 2 inputs are inputs other than quoted prices included in Level 1 that are, either directly or indirectly, observable for the asset or liability at the measurement date. Assets are valued based on prices derived by independent third parties that use inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Prices are reviewed and can be challenged with the independent parties and/or overridden by Entergy if it is believed such would be more reflective of fair value. Level 2 inputs include the following:
- quoted prices for similar assets or liabilities in active markets; - quoted prices for identical assets or liabilities in inactive markets; - inputs other than quoted prices that are observable for the asset or liability; or - inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 2 consists primarily of individually-owned debt instruments or shares in common trusts. Common trust funds are stated at estimated fair value based on the fair market value of the underlying investments.
• | Level 3 - Level 3 inputs are pricing inputs that are generally less observable or unobservable from objective sources. These inputs are used with internally developed methodologies to produce management’s best estimate of fair value for the asset or liability. Level 3 consists primarily of FTRs and derivative power contracts used as cash flow hedges of power sales at merchant power plants.
The values for power contract assets or liabilities are based on both observable inputs including public market prices and interest rates, and unobservable inputs such as implied volatilities, unit contingent discounts, expected basis differences, and credit adjusted counterparty interest rates. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group and the Entergy Wholesale Commodities Accounting Policy and External Reporting group. The primary functions of the Entergy Wholesale Commodities Risk Control Group include: gathering, validating and reporting market data, providing market risk analyses and valuations in support of Entergy Wholesale Commodities’ commercial transactions, developing and administering protocols for the management of market risks, and implementing and maintaining controls around changes to market data in the energy trading and risk management system. The Risk Control group is also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis. The Entergy Wholesale Commodities Accounting Policy and External Reporting group performs functions related to market and counterparty settlements, revenue reporting and analysis and financial accounting. The Entergy Wholesale Commodities Risk Control Group reports to the Vice President, Treasury while the Entergy Wholesale Commodities Accounting Policy and External Reporting group reports to the Vice President, Accounting Policy and External Reporting. The amounts reflected as the fair value of electricity swaps are based on the estimated amount that the contracts are in-the-money at the balance sheet date (treated as an asset) or out-of-the-money at the balance sheet date (treated as a liability) and would equal the estimated amount receivable to or payable by Entergy if the contracts were settled at that date. These derivative contracts include cash flow hedges that swap fixed for floating cash flows for sales of the output from the Entergy Wholesale Commodities business. The fair values are based on the mark-to-market comparison between the fixed contract prices and the floating prices determined each period from quoted forward power market prices. The differences between the fixed price in the swap contract and these market-related prices multiplied by the volume specified in the contract and discounted at the counterparties’ credit adjusted risk free rate are recorded as derivative contract assets or liabilities. For contracts that have unit contingent terms, a further discount is applied based on the historical relationship between contract and market prices for similar contract terms. The amounts reflected as the fair values of electricity options are valued based on a Black Scholes model, and are calculated at the end of each month for accounting purposes. Inputs to the valuation include end of day forward market prices for the period when the transactions will settle, implied volatilities based on market volatilities provided by a third party data aggregator, and US Treasury rates for a risk-free return rate. As described further below, prices and implied volatilities are reviewed and can be adjusted if it is determined that there is a better representation of fair value. On a daily basis, Entergy Wholesale Commodities Risk Control Group calculated the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control Group also validated forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences were analyzed and potentially adjusted based on these other sources of forward market prices or settlement prices of actual market transactions. Implied volatilities used to value options were also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and used multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirmed the mark-to-market calculations and prepared price scenarios and credit downgrade scenario analysis. The scenario analysis was communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis was completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’s portfolio. In particular, the credit, liquidity, and financial metrics impacts were calculated for this analysis. This analysis was communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of future congestion costs in MISO between applicable sink and source pricing nodes based on prices published by MISO. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group for the unregulated business and by the System Planning and Operations Risk Control Group for the Utility operating companies. Entergy’s Accounting Policy group reviews these valuations for reasonableness, with the assistance of others within the organization with knowledge of the various inputs and assumptions used in the valuation. The System Planning and Operations Risk Control Group reports to the Vice President, Treasury. The Accounting Policy group reports to the Vice President, Accounting Policy and External Reporting. The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $800 |  |  |  | $— |  |  |  | $— |  |  |  | $800 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 417 |  |  | 2,644 |  | (b) | — |  |  | 3,061 |
Debt securities |  | 763 |  |  | 1,167 |  |  | — |  |  | 1,930 |
Power contracts |  | — |  |  | — |  |  | 24 |  |  | 24 |
Securitization recovery trust account |  | 48 |  |  | — |  |  | — |  |  | 48 |
Escrow accounts |  | 117 |  |  | — |  |  | — |  |  | 117 |
Gas hedge contracts |  | 8 |  |  | — |  |  | — |  |  | 8 |
FTRs |  | — |  |  | — |  |  | 25 |  |  | 25 |
|  |  | $2,153 |  |  |  | $3,811 |  |  |  | $49 |  |  |  | $6,013 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $110 |  |  |  | $110 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $609 |  |  |  | $— |  |  |  | $— |  |  |  | $609 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 472 |  |  | 2,601 |  | (b) | — |  |  | 3,073 |
Debt securities |  | 783 |  |  | 1,047 |  |  | — |  |  | 1,830 |
Power contracts |  | — |  |  | — |  |  | 74 |  |  | 74 |
Securitization recovery trust account |  | 46 |  |  | — |  |  | — |  |  | 46 |
Escrow accounts |  | 115 |  |  | — |  |  | — |  |  | 115 |
Gas hedge contracts |  | 6 |  |  | — |  |  | — |  |  | 6 |
FTRs |  | — |  |  | — |  |  | 34 |  |  | 34 |
|  |  | $2,031 |  |  |  | $3,648 |  |  |  | $108 |  |  |  | $5,787 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $207 |  |  |  | $207 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
(b) | Commingled equity funds may be redeemed bi-monthly.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014 and 2013:
| 2014 |  | 2013
| (In Millions)
Balance as of January 1, |  | ($98 | ) |  |  | $178 |
Realized losses included in earnings | (31 | ) |  | (14 | )
Unrealized gains included in earnings | 53 |  |  | 5 |
Unrealized losses included in OCI | (222 | ) |  | (119 | )
Unrealized gains included as a regulatory asset/liability | 37 |  |  | — |
Purchases | 5 |  |  | — |
Settlements | 195 |  |  | 2 |
Balance as of March 31, |  | ($61 | ) |  |  | $52 |
The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy and significant unobservable inputs to each which cause that classification, as of March 31, 2014:
Transaction Type |  | Fair Value as of March 31, 2014 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Electricity swaps |  | ($96) |  | Unit contingent discount |  | +/- | 3% |  | ($3)
Electricity options |  | $10 |  | Implied volatility |  | +/- | 53% |  | $35
The following table sets forth an analysis of each of the types of unobservable inputs impacting the fair value of items classified as Level 3 within the fair value hierarchy, and the sensitivity to changes to those inputs:
Significant Unobservable Input |  | Transaction Type |  | Position |  | Change to Input |  | Effect on Fair Value
Unit contingent discount |  | Electricity swaps |  | Sell |  | Increase (Decrease) |  | Decrease (Increase)
Implied volatility |  | Electricity options |  | Sell |  | Increase (Decrease) |  | Increase (Decrease)
Implied volatility |  | Electricity options |  | Buy |  | Increase (Decrease) |  | Increase (Decrease)
The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels. Entergy Arkansas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $216.1 |  |  |  | $— |  |  |  | $— |  |  |  | $216.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 3.7 |  |  | 457.1 |  |  | — |  |  | 460.8 |
Debt securities |  | 50.8 |  |  | 209.9 |  |  | — |  |  | 260.7 |
Securitization recovery trust account |  | 8.1 |  |  | — |  |  | — |  |  | 8.1 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
FTRs |  | — |  |  | — |  |  | 2.7 |  |  | 2.7 |
|  |  | $304.7 |  |  |  | $667.0 |  |  |  | $2.7 |  |  |  | $974.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $122.8 |  |  |  | $— |  |  |  | $— |  |  |  | $122.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 13.6 |  |  | 449.7 |  |  | — |  |  | 463.3 |
Debt securities |  | 58.6 |  |  | 189.0 |  |  | — |  |  | 247.6 |
Securitization recovery trust account |  | 3.8 |  |  | — |  |  | — |  |  | 3.8 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
|  |  | $224.8 |  |  |  | $638.7 |  |  |  | $— |  |  |  | $863.5 |
Entergy Gulf States Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $15.0 |  |  |  | $— |  |  |  | $— |  |  |  | $15.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.0 |  |  | 348.9 |  |  | — |  |  | 359.9 |
Debt securities |  | 73.1 |  |  | 153.2 |  |  | — |  |  | 226.3 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 3.0 |  |  | — |  |  | — |  |  | 3.0 |
FTRs |  | — |  |  | — |  |  | 5.4 |  |  | 5.4 |
|  |  | $123.6 |  |  |  | $502.1 |  |  |  | $5.4 |  |  |  | $631.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.8 |  |  |  | $— |  |  |  | $— |  |  |  | $13.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 27.6 |  |  | 343.2 |  |  | — |  |  | 370.8 |
Debt securities |  | 71.7 |  |  | 131.2 |  |  | — |  |  | 202.9 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 2.2 |  |  | — |  |  | — |  |  | 2.2 |
FTRs |  | — |  |  | — |  |  | 6.7 |  |  | 6.7 |
|  |  | $136.8 |  |  |  | $474.4 |  |  |  | $6.7 |  |  |  | $617.9 |
Entergy Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $72.0 |  |  |  | $— |  |  |  | $— |  |  |  | $72.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.1 |  |  | 213.9 |  |  | — |  |  | 225.0 |
Debt securities |  | 60.3 |  |  | 68.3 |  |  | — |  |  | 128.6 |
Securitization recovery trust account |  | 10.2 |  |  | — |  |  | — |  |  | 10.2 |
Gas hedge contracts |  | 3.7 |  |  | — |  |  | — |  |  | 3.7 |
FTRs |  | — |  |  | — |  |  | 3.0 |  |  | 3.0 |
|  |  | $157.3 |  |  |  | $282.2 |  |  |  | $3.0 |  |  |  | $442.5 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $123.6 |  |  |  | $— |  |  |  | $— |  |  |  | $123.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 13.5 |  |  | 210.7 |  |  | — |  |  | 224.2 |
Debt securities |  | 61.7 |  |  | 61.4 |  |  | — |  |  | 123.1 |
Securitization recovery trust account |  | 4.5 |  |  | — |  |  | — |  |  | 4.5 |
Gas hedge contacts |  | 2.9 |  |  | — |  |  | — |  |  | 2.9 |
FTRs |  | — |  |  | — |  |  | 5.7 |  |  | 5.7 |
|  |  | $206.2 |  |  |  | $272.1 |  |  |  | $5.7 |  |  |  | $484.0 |
Entergy Mississippi
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $70.3 |  |  |  | $— |  |  |  | $— |  |  |  | $70.3 |
Escrow accounts |  | 51.8 |  |  | — |  |  | — |  |  | 51.8 |
Gas hedge contracts |  | 1.4 |  |  | — |  |  | — |  |  | 1.4 |
FTRs |  | — |  |  | — |  |  | 4.8 |  |  | 4.8 |
|  |  | $123.5 |  |  |  | $— |  |  |  | $4.8 |  |  |  | $128.3 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Escrow accounts |  |  | $51.8 |  |  |  | $— |  |  |  | $— |  |  |  | $51.8 |
Gas hedge contracts |  | 0.7 |  |  | — |  |  | — |  |  | 0.7 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $52.5 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $53.5 |
Entergy New Orleans
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $24.7 |  |  |  | $— |  |  |  | $— |  |  |  | $24.7 |
Escrow accounts |  | 12.4 |  |  | — |  |  | — |  |  | 12.4 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $37.1 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $38.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $33.2 |  |  |  | $— |  |  |  | $— |  |  |  | $33.2 |
Escrow accounts |  | 10.5 |  |  | — |  |  | — |  |  | 10.5 |
Gas hedge contracts |  | 0.1 |  |  | — |  |  | — |  |  | 0.1 |
FTRs |  | — |  |  | — |  |  | 2.0 |  |  | 2.0 |
|  |  | $43.8 |  |  |  | $— |  |  |  | $2.0 |  |  |  | $45.8 |
Entergy Texas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $29.7 |  |  |  | $— |  |  |  | $— |  |  |  | $29.7 |
FTRs |  | — |  |  | — |  |  | 7.4 |  |  | 7.4 |
|  |  | $29.7 |  |  |  | $— |  |  |  | $7.4 |  |  |  | $37.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $44.1 |  |  |  | $— |  |  |  | $— |  |  |  | $44.1 |
Securitization recovery trust account |  | 37.5 |  |  | — |  |  | — |  |  | 37.5 |
FTRs |  | — |  |  | — |  |  | 18.4 |  |  | 18.4 |
|  |  | $81.6 |  |  |  | $— |  |  |  | $18.4 |  |  |  | $100.0 |
System Energy
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $83.1 |  |  |  | $— |  |  |  | $— |  |  |  | $83.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.2 |  |  | 384.7 |  |  | — |  |  | 385.9 |
Debt securities |  | 155.1 |  |  | 78.3 |  |  | — |  |  | 233.4 |
|  |  | $239.4 |  |  |  | $463.0 |  |  |  | $— |  |  |  | $702.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.6 |  |  |  | $— |  |  |  | $— |  |  |  | $64.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.2 |  |  | 377.8 |  |  | — |  |  | 380.0 |
Debt securities |  | 152.9 |  |  | 71.0 |  |  | — |  |  | 223.9 |
|  |  | $219.7 |  |  |  | $448.8 |  |  |  | $— |  |  |  | $668.5 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014.
| Entergy Arkansas |  | Entergy Gulf States Louisiana |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
|  |  | (In Millions)
Balance as of January 1, |  | $— |  |  |  | $6.7 |  |  |  | $5.7 |  |  |  | $1.0 |  |  |  | $2.0 |  |  |  | $18.4 |
Unrealized gains included as a regulatory liability/asset | 7.8 |  |  | 7.7 |  |  | 5.3 |  |  | 11.6 |  |  | 2.0 |  |  | 1.8 |
Settlements | (5.1 | ) |  | (9.0 | ) |  | (8.0 | ) |  | (7.8 | ) |  | (3.0 | ) |  | (12.8 | )
Balance as of March 31, |  | $2.7 |  |  |  | $5.4 |  |  |  | $3.0 |  |  |  | $4.8 |  |  |  | $1.0 |  |  |  | $7.4 |
Entergy Texas [Member] |
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy) Market Risk In the normal course of business, Entergy is exposed to a number of market risks. Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular commodity or instrument. All financial and commodity-related instruments, including derivatives, are subject to market risk including commodity price risk, equity price, and interest rate risk. Entergy uses derivatives primarily to mitigate commodity price risk, particularly power price and fuel price risk. 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 derivative 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. 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 and capacity in the day ahead or spot markets. In addition to its forward physical power contracts, Entergy Wholesale Commodities also uses a combination of financial contracts, including swaps, collars, and options, to mitigate commodity price risk. When the market price falls, the combination of instruments is expected to settle in gains that offset lower revenue from generation, which results in a more predictable cash flow. Entergy’s exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity. For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option’s contractual strike or exercise price also affects the level of market risk. A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk. Hedging instruments and volumes are chosen based on ability to mitigate risk associated with future energy and capacity prices; however, other considerations are factored into hedge product and volume decisions including corporate liquidity, corporate credit ratings, counterparty credit risk, hedging costs, firm settlement risk, and product availability in the marketplace. Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy’s risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods. These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy’s objectives. Derivatives Some derivative instruments are classified as cash flow hedges due to their financial settlement provisions while others are classified as normal purchase/normal sale transactions due to their physical settlement provisions. Normal purchase/normal sale risk management tools include power purchase and sales agreements, fuel purchase agreements, capacity contracts, and tolling agreements. Financially-settled cash flow hedges can include natural gas and electricity swaps and options and interest rate swaps. Entergy may enter into financially-settled swap and option contracts to manage market risk that may or may not be designated as hedging instruments. Entergy enters into derivatives only to manage natural risks inherent in its physical or financial assets or liabilities. The maximum length of time over which Entergy is currently hedging the variability in future cash flows with derivatives for forecasted power transactions at March 31, 2014 is approximately 2.75 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 75% for the remainder of 2014, of which approximately 45% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2014 is 30 TWh. Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Gulf States Louisiana, Entergy Louisiana, and Entergy New Orleans) and Entergy Mississippi through the purchase of short-term natural gas swaps that financially settle against NYMEX futures. These swaps are marked-to-market through fuel expense with offsetting regulatory assets or liabilities. All benefits or costs of the program are recorded in fuel costs. The notional volumes of these swaps are based on a portion of projected annual exposure to gas for electric generation and projected winter purchases for gas distribution at Entergy Gulf States Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2014 is 42,490,000 MMBtu for Entergy, 16,070,000 MMBtu for Entergy Gulf States Louisiana, 19,180,000 MMBtu for Entergy Louisiana, and 7,240,000 MMBtu for Entergy Mississippi. Credit support for these natural gas swaps is covered by master agreements that do not require collateralization based on mark-to-market value, but do carry adequate assurance language that may lead to collateralization requests. In connection with joining MISO, Entergy received a direct allocation of FTRs in November 2013. FTRs are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records FTRs at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on FTRs held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on FTRs. The total volume of FTRs outstanding as of March 31, 2014 is 15,554 GWh for Entergy, including 3,540 GWh for Entergy Arkansas, 2,613 GWh for Entergy Gulf States Louisiana, 3,998 GWh for Entergy Louisiana, 2,319 GWh for Entergy Mississippi, 523 GWh for Entergy New Orleans, and 2,423 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash or letters of credit issued by each Utility operating company as required by MISO. Credit support for FTRs held by Entergy Wholesale Commodities is covered by cash. As of March 31, 2014, Entergy Arkansas posted $1 million in cash collateral. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2014 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $107 |  | ($102) |  | $5 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $7 |  | ($2) |  | $5 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $178 |  | ($125) |  | $53 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $23 |  | ($3) |  | $20 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $100 |  | ($86) |  | $14 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $8 |  | $— |  | $8 |  | Utility
FTRs |  | Prepayments and other |  | $26 |  | ($1) |  | $25 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $100 |  | ($63) |  | $37 |  | Entergy Wholesale Commodities
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2013 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $118 |  | ($99) |  | $19 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($17) |  | $— |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $197 |  | ($131) |  | $66 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $46 |  | ($17) |  | $29 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $177 |  | ($122) |  | $55 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $6 |  | $— |  | $6 |  | Utility
FTRs |  | Prepayments and other |  | $36 |  | ($2) |  | $34 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $201 |  | ($89) |  | $112 |  | Entergy Wholesale Commodities
(a) | Represents the gross amounts of recognized assets/liabilities
(b) | Represents the netting of fair value balances with the same counterparty
(c) | Represents the net amounts of assets /liabilities presented on the Entergy Consolidated Balance Sheets
(d) | Excludes cash collateral in the amounts of $65 million posted as of March 31, 2014 and $47 million posted and $4 million held as of December 31, 2013
The effect of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Amount of loss recognized in other comprehensive income |  | Income Statement location |  | Amount of loss reclassified from AOCI into income
|  | (In Millions) |  |  |  | (In Millions)
2014 |  |  |  |  |  |
Electricity swaps and options |  | ($174) |  | Competitive businesses operating revenues |  | ($195)
2013 |  |  |  |  |  |
Electricity swaps and options |  | ($120) |  | Competitive businesses operating revenues |  | ($2)
Electricity over-the-counter instruments that financially settle against day-ahead power pool prices are used to manage price exposure for Entergy Wholesale Commodities generation. Unrealized gains or losses recorded in other comprehensive income result from hedging power output at the Entergy Wholesale Commodities power plants. The related gains or losses from hedging power are included in operating revenues when realized. Gains (losses) totaling approximately ($195) million and ($2) million were realized on the maturity of cash flow hedges, before taxes (benefit) of ($68) million and ($1) million, for the three months ended March 31, 2014 and 2013, respectively. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2014 and 2013 was $1 million and ($1.3) million, respectively. The ineffective portion of cash flow hedges is recorded in competitive businesses operating revenues. Based on market prices as of March 31, 2014, unrealized losses recorded in AOCI on cash flow hedges relating to power sales totaled $98 million of net unrealized losses. Approximately $74 million is expected to be reclassified from AOCI to operating revenues in the next twelve months. The actual amount reclassified from AOCI, however, could vary due to future changes in market prices. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations when the current market prices exceed the contracted power prices. The primary form of collateral to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2014, derivative contracts with nine counterparties were in a liability position (approximately $98 million total) and, in addition to the corporate guarantee, $64 million in cash collateral was required to be posted. As of March 31, 2013, derivative contracts with six counterparties were in a liability position (approximately $25 million total), but were significantly below the amount of the guarantee provided under the contract and no cash collateral was required. If the Entergy Corporation credit rating falls below investment grade, the effect of the corporate guarantee is typically ignored and Entergy would have to post collateral equal to the estimated outstanding liability under the contract at the applicable date. Entergy may effectively liquidate a cash flow hedge instrument by entering into a contract offsetting the original hedge, and then de-designating the original hedge in this situation. Gains or losses accumulated in other comprehensive income prior to de-designation continue to be deferred in other comprehensive income until they are included in income as the original hedged transaction occurs. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract are recorded as assets or liabilities on the balance sheet and offset as they flow through to earnings.
The effect of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2014 and 2013 is as follows:
Instrument |  | Amount of gain recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
2014 |  | (In Millions) |  |  |  | (In Millions)
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $17
FTRs |  | — |  | Purchased power expense |  | $46
Electricity swaps and options de-designated as hedged items |  | $22 |  | Competitive business operating revenues |  | $21
2013 |  |  |  |  |  |
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($20)
Electricity swaps and options de-designated as hedged items |  | $1 |  | Competitive business operating revenues |  | ($1)
Due to regulatory treatment, the natural gas swaps are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps are settled are recovered or refunded through fuel cost recovery mechanisms. Due to regulatory treatment, the changes in the estimated fair value of FTRs are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as purchased power expense when the FTRs are settled are recovered or refunded through fuel cost recovery mechanisms. The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of March 31, 2014 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $3.0 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $3.7 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $1.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $5.4 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $3.0 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $4.8 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $7.4 |  | Entergy Texas
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2013 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $2.2 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $2.9 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $0.7 |  | Entergy Mississippi
Natural gas swaps |  | Prepayments and other |  | $0.1 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $6.7 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $5.7 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $18.4 |  | Entergy Texas
(a) | Excludes cash collateral in the amount of $1 million posted by Entergy Arkansas as of March 31, 2014. As of December 31, 2013, no cash collateral was required to be posted.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
2014 |  |  |  | (In Millions) |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $6.8 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $8.0 |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $1.6 |  | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $0.7 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $5.1 |  | Entergy Arkansas
FTRs |  | Purchased power expense |  | $9.1 |  | Entergy Gulf States Louisiana
FTRs |  | Purchased power expense |  | $8.0 |  | Entergy Louisiana
FTRs |  | Purchased power expense |  | $7.8 |  | Entergy Mississippi
FTRs |  | Purchased power expense |  | $2.9 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $12.8 |  | Entergy Texas
2013 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($6.2) |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($8.3) |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($5.4) |  | Entergy Mississippi
Fair Values The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling. Considerable judgment is required in developing the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. Gains or losses realized on financial instruments other than those instruments held by the Entergy Wholesale Commodities business are reflected in future rates and therefore do not affect net income. Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments. Accounting standards define fair value as an exit price, or the price that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between knowledgeable market participants at the date of measurement. Entergy and the Registrant Subsidiaries use assumptions or market input data that market participants would use in pricing assets or liabilities at fair value. The inputs can be readily observable, corroborated by market data, or generally unobservable. Entergy and the Registrant Subsidiaries endeavor to use the best available information to determine fair value. Accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy establishes the highest priority for unadjusted market quotes in an active market for the identical asset or liability and the lowest priority for unobservable inputs. The three levels of the fair value hierarchy are:
• | Level 1 - Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of individually owned common stocks, cash equivalents (temporary cash investments, securitization recovery trust account, and escrow accounts), debt instruments, and gas hedge contracts. Cash equivalents includes all unrestricted highly liquid debt instruments with an original or remaining maturity of three months or less at the date of purchase.
• | Level 2 - Level 2 inputs are inputs other than quoted prices included in Level 1 that are, either directly or indirectly, observable for the asset or liability at the measurement date. Assets are valued based on prices derived by independent third parties that use inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Prices are reviewed and can be challenged with the independent parties and/or overridden by Entergy if it is believed such would be more reflective of fair value. Level 2 inputs include the following:
- quoted prices for similar assets or liabilities in active markets; - quoted prices for identical assets or liabilities in inactive markets; - inputs other than quoted prices that are observable for the asset or liability; or - inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 2 consists primarily of individually-owned debt instruments or shares in common trusts. Common trust funds are stated at estimated fair value based on the fair market value of the underlying investments.
• | Level 3 - Level 3 inputs are pricing inputs that are generally less observable or unobservable from objective sources. These inputs are used with internally developed methodologies to produce management’s best estimate of fair value for the asset or liability. Level 3 consists primarily of FTRs and derivative power contracts used as cash flow hedges of power sales at merchant power plants.
The values for power contract assets or liabilities are based on both observable inputs including public market prices and interest rates, and unobservable inputs such as implied volatilities, unit contingent discounts, expected basis differences, and credit adjusted counterparty interest rates. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group and the Entergy Wholesale Commodities Accounting Policy and External Reporting group. The primary functions of the Entergy Wholesale Commodities Risk Control Group include: gathering, validating and reporting market data, providing market risk analyses and valuations in support of Entergy Wholesale Commodities’ commercial transactions, developing and administering protocols for the management of market risks, and implementing and maintaining controls around changes to market data in the energy trading and risk management system. The Risk Control group is also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis. The Entergy Wholesale Commodities Accounting Policy and External Reporting group performs functions related to market and counterparty settlements, revenue reporting and analysis and financial accounting. The Entergy Wholesale Commodities Risk Control Group reports to the Vice President, Treasury while the Entergy Wholesale Commodities Accounting Policy and External Reporting group reports to the Vice President, Accounting Policy and External Reporting. The amounts reflected as the fair value of electricity swaps are based on the estimated amount that the contracts are in-the-money at the balance sheet date (treated as an asset) or out-of-the-money at the balance sheet date (treated as a liability) and would equal the estimated amount receivable to or payable by Entergy if the contracts were settled at that date. These derivative contracts include cash flow hedges that swap fixed for floating cash flows for sales of the output from the Entergy Wholesale Commodities business. The fair values are based on the mark-to-market comparison between the fixed contract prices and the floating prices determined each period from quoted forward power market prices. The differences between the fixed price in the swap contract and these market-related prices multiplied by the volume specified in the contract and discounted at the counterparties’ credit adjusted risk free rate are recorded as derivative contract assets or liabilities. For contracts that have unit contingent terms, a further discount is applied based on the historical relationship between contract and market prices for similar contract terms. The amounts reflected as the fair values of electricity options are valued based on a Black Scholes model, and are calculated at the end of each month for accounting purposes. Inputs to the valuation include end of day forward market prices for the period when the transactions will settle, implied volatilities based on market volatilities provided by a third party data aggregator, and US Treasury rates for a risk-free return rate. As described further below, prices and implied volatilities are reviewed and can be adjusted if it is determined that there is a better representation of fair value. On a daily basis, Entergy Wholesale Commodities Risk Control Group calculated the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control Group also validated forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences were analyzed and potentially adjusted based on these other sources of forward market prices or settlement prices of actual market transactions. Implied volatilities used to value options were also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and used multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirmed the mark-to-market calculations and prepared price scenarios and credit downgrade scenario analysis. The scenario analysis was communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis was completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’s portfolio. In particular, the credit, liquidity, and financial metrics impacts were calculated for this analysis. This analysis was communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of future congestion costs in MISO between applicable sink and source pricing nodes based on prices published by MISO. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group for the unregulated business and by the System Planning and Operations Risk Control Group for the Utility operating companies. Entergy’s Accounting Policy group reviews these valuations for reasonableness, with the assistance of others within the organization with knowledge of the various inputs and assumptions used in the valuation. The System Planning and Operations Risk Control Group reports to the Vice President, Treasury. The Accounting Policy group reports to the Vice President, Accounting Policy and External Reporting. The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $800 |  |  |  | $— |  |  |  | $— |  |  |  | $800 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 417 |  |  | 2,644 |  | (b) | — |  |  | 3,061 |
Debt securities |  | 763 |  |  | 1,167 |  |  | — |  |  | 1,930 |
Power contracts |  | — |  |  | — |  |  | 24 |  |  | 24 |
Securitization recovery trust account |  | 48 |  |  | — |  |  | — |  |  | 48 |
Escrow accounts |  | 117 |  |  | — |  |  | — |  |  | 117 |
Gas hedge contracts |  | 8 |  |  | — |  |  | — |  |  | 8 |
FTRs |  | — |  |  | — |  |  | 25 |  |  | 25 |
|  |  | $2,153 |  |  |  | $3,811 |  |  |  | $49 |  |  |  | $6,013 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $110 |  |  |  | $110 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $609 |  |  |  | $— |  |  |  | $— |  |  |  | $609 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 472 |  |  | 2,601 |  | (b) | — |  |  | 3,073 |
Debt securities |  | 783 |  |  | 1,047 |  |  | — |  |  | 1,830 |
Power contracts |  | — |  |  | — |  |  | 74 |  |  | 74 |
Securitization recovery trust account |  | 46 |  |  | — |  |  | — |  |  | 46 |
Escrow accounts |  | 115 |  |  | — |  |  | — |  |  | 115 |
Gas hedge contracts |  | 6 |  |  | — |  |  | — |  |  | 6 |
FTRs |  | — |  |  | — |  |  | 34 |  |  | 34 |
|  |  | $2,031 |  |  |  | $3,648 |  |  |  | $108 |  |  |  | $5,787 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $207 |  |  |  | $207 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
(b) | Commingled equity funds may be redeemed bi-monthly.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014 and 2013:
| 2014 |  | 2013
| (In Millions)
Balance as of January 1, |  | ($98 | ) |  |  | $178 |
Realized losses included in earnings | (31 | ) |  | (14 | )
Unrealized gains included in earnings | 53 |  |  | 5 |
Unrealized losses included in OCI | (222 | ) |  | (119 | )
Unrealized gains included as a regulatory asset/liability | 37 |  |  | — |
Purchases | 5 |  |  | — |
Settlements | 195 |  |  | 2 |
Balance as of March 31, |  | ($61 | ) |  |  | $52 |
The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy and significant unobservable inputs to each which cause that classification, as of March 31, 2014:
Transaction Type |  | Fair Value as of March 31, 2014 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Electricity swaps |  | ($96) |  | Unit contingent discount |  | +/- | 3% |  | ($3)
Electricity options |  | $10 |  | Implied volatility |  | +/- | 53% |  | $35
The following table sets forth an analysis of each of the types of unobservable inputs impacting the fair value of items classified as Level 3 within the fair value hierarchy, and the sensitivity to changes to those inputs:
Significant Unobservable Input |  | Transaction Type |  | Position |  | Change to Input |  | Effect on Fair Value
Unit contingent discount |  | Electricity swaps |  | Sell |  | Increase (Decrease) |  | Decrease (Increase)
Implied volatility |  | Electricity options |  | Sell |  | Increase (Decrease) |  | Increase (Decrease)
Implied volatility |  | Electricity options |  | Buy |  | Increase (Decrease) |  | Increase (Decrease)
The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels. Entergy Arkansas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $216.1 |  |  |  | $— |  |  |  | $— |  |  |  | $216.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 3.7 |  |  | 457.1 |  |  | — |  |  | 460.8 |
Debt securities |  | 50.8 |  |  | 209.9 |  |  | — |  |  | 260.7 |
Securitization recovery trust account |  | 8.1 |  |  | — |  |  | — |  |  | 8.1 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
FTRs |  | — |  |  | — |  |  | 2.7 |  |  | 2.7 |
|  |  | $304.7 |  |  |  | $667.0 |  |  |  | $2.7 |  |  |  | $974.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $122.8 |  |  |  | $— |  |  |  | $— |  |  |  | $122.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 13.6 |  |  | 449.7 |  |  | — |  |  | 463.3 |
Debt securities |  | 58.6 |  |  | 189.0 |  |  | — |  |  | 247.6 |
Securitization recovery trust account |  | 3.8 |  |  | — |  |  | — |  |  | 3.8 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
|  |  | $224.8 |  |  |  | $638.7 |  |  |  | $— |  |  |  | $863.5 |
Entergy Gulf States Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $15.0 |  |  |  | $— |  |  |  | $— |  |  |  | $15.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.0 |  |  | 348.9 |  |  | — |  |  | 359.9 |
Debt securities |  | 73.1 |  |  | 153.2 |  |  | — |  |  | 226.3 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 3.0 |  |  | — |  |  | — |  |  | 3.0 |
FTRs |  | — |  |  | — |  |  | 5.4 |  |  | 5.4 |
|  |  | $123.6 |  |  |  | $502.1 |  |  |  | $5.4 |  |  |  | $631.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.8 |  |  |  | $— |  |  |  | $— |  |  |  | $13.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 27.6 |  |  | 343.2 |  |  | — |  |  | 370.8 |
Debt securities |  | 71.7 |  |  | 131.2 |  |  | — |  |  | 202.9 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 2.2 |  |  | — |  |  | — |  |  | 2.2 |
FTRs |  | — |  |  | — |  |  | 6.7 |  |  | 6.7 |
|  |  | $136.8 |  |  |  | $474.4 |  |  |  | $6.7 |  |  |  | $617.9 |
Entergy Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $72.0 |  |  |  | $— |  |  |  | $— |  |  |  | $72.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.1 |  |  | 213.9 |  |  | — |  |  | 225.0 |
Debt securities |  | 60.3 |  |  | 68.3 |  |  | — |  |  | 128.6 |
Securitization recovery trust account |  | 10.2 |  |  | — |  |  | — |  |  | 10.2 |
Gas hedge contracts |  | 3.7 |  |  | — |  |  | — |  |  | 3.7 |
FTRs |  | — |  |  | — |  |  | 3.0 |  |  | 3.0 |
|  |  | $157.3 |  |  |  | $282.2 |  |  |  | $3.0 |  |  |  | $442.5 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $123.6 |  |  |  | $— |  |  |  | $— |  |  |  | $123.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 13.5 |  |  | 210.7 |  |  | — |  |  | 224.2 |
Debt securities |  | 61.7 |  |  | 61.4 |  |  | — |  |  | 123.1 |
Securitization recovery trust account |  | 4.5 |  |  | — |  |  | — |  |  | 4.5 |
Gas hedge contacts |  | 2.9 |  |  | — |  |  | — |  |  | 2.9 |
FTRs |  | — |  |  | — |  |  | 5.7 |  |  | 5.7 |
|  |  | $206.2 |  |  |  | $272.1 |  |  |  | $5.7 |  |  |  | $484.0 |
Entergy Mississippi
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $70.3 |  |  |  | $— |  |  |  | $— |  |  |  | $70.3 |
Escrow accounts |  | 51.8 |  |  | — |  |  | — |  |  | 51.8 |
Gas hedge contracts |  | 1.4 |  |  | — |  |  | — |  |  | 1.4 |
FTRs |  | — |  |  | — |  |  | 4.8 |  |  | 4.8 |
|  |  | $123.5 |  |  |  | $— |  |  |  | $4.8 |  |  |  | $128.3 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Escrow accounts |  |  | $51.8 |  |  |  | $— |  |  |  | $— |  |  |  | $51.8 |
Gas hedge contracts |  | 0.7 |  |  | — |  |  | — |  |  | 0.7 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $52.5 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $53.5 |
Entergy New Orleans
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $24.7 |  |  |  | $— |  |  |  | $— |  |  |  | $24.7 |
Escrow accounts |  | 12.4 |  |  | — |  |  | — |  |  | 12.4 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $37.1 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $38.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $33.2 |  |  |  | $— |  |  |  | $— |  |  |  | $33.2 |
Escrow accounts |  | 10.5 |  |  | — |  |  | — |  |  | 10.5 |
Gas hedge contracts |  | 0.1 |  |  | — |  |  | — |  |  | 0.1 |
FTRs |  | — |  |  | — |  |  | 2.0 |  |  | 2.0 |
|  |  | $43.8 |  |  |  | $— |  |  |  | $2.0 |  |  |  | $45.8 |
Entergy Texas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $29.7 |  |  |  | $— |  |  |  | $— |  |  |  | $29.7 |
FTRs |  | — |  |  | — |  |  | 7.4 |  |  | 7.4 |
|  |  | $29.7 |  |  |  | $— |  |  |  | $7.4 |  |  |  | $37.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $44.1 |  |  |  | $— |  |  |  | $— |  |  |  | $44.1 |
Securitization recovery trust account |  | 37.5 |  |  | — |  |  | — |  |  | 37.5 |
FTRs |  | — |  |  | — |  |  | 18.4 |  |  | 18.4 |
|  |  | $81.6 |  |  |  | $— |  |  |  | $18.4 |  |  |  | $100.0 |
System Energy
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $83.1 |  |  |  | $— |  |  |  | $— |  |  |  | $83.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.2 |  |  | 384.7 |  |  | — |  |  | 385.9 |
Debt securities |  | 155.1 |  |  | 78.3 |  |  | — |  |  | 233.4 |
|  |  | $239.4 |  |  |  | $463.0 |  |  |  | $— |  |  |  | $702.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.6 |  |  |  | $— |  |  |  | $— |  |  |  | $64.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.2 |  |  | 377.8 |  |  | — |  |  | 380.0 |
Debt securities |  | 152.9 |  |  | 71.0 |  |  | — |  |  | 223.9 |
|  |  | $219.7 |  |  |  | $448.8 |  |  |  | $— |  |  |  | $668.5 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014.
| Entergy Arkansas |  | Entergy Gulf States Louisiana |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
|  |  | (In Millions)
Balance as of January 1, |  | $— |  |  |  | $6.7 |  |  |  | $5.7 |  |  |  | $1.0 |  |  |  | $2.0 |  |  |  | $18.4 |
Unrealized gains included as a regulatory liability/asset | 7.8 |  |  | 7.7 |  |  | 5.3 |  |  | 11.6 |  |  | 2.0 |  |  | 1.8 |
Settlements | (5.1 | ) |  | (9.0 | ) |  | (8.0 | ) |  | (7.8 | ) |  | (3.0 | ) |  | (12.8 | )
Balance as of March 31, |  | $2.7 |  |  |  | $5.4 |  |  |  | $3.0 |  |  |  | $4.8 |  |  |  | $1.0 |  |  |  | $7.4 |
System Energy [Member] |
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy Texas, and System Energy) Market Risk In the normal course of business, Entergy is exposed to a number of market risks. Market risk is the potential loss that Entergy may incur as a result of changes in the market or fair value of a particular commodity or instrument. All financial and commodity-related instruments, including derivatives, are subject to market risk including commodity price risk, equity price, and interest rate risk. Entergy uses derivatives primarily to mitigate commodity price risk, particularly power price and fuel price risk. 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 derivative 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. 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 and capacity in the day ahead or spot markets. In addition to its forward physical power contracts, Entergy Wholesale Commodities also uses a combination of financial contracts, including swaps, collars, and options, to mitigate commodity price risk. When the market price falls, the combination of instruments is expected to settle in gains that offset lower revenue from generation, which results in a more predictable cash flow. Entergy’s exposure to market risk is determined by a number of factors, including the size, term, composition, and diversification of positions held, as well as market volatility and liquidity. For instruments such as options, the time period during which the option may be exercised and the relationship between the current market price of the underlying instrument and the option’s contractual strike or exercise price also affects the level of market risk. A significant factor influencing the overall level of market risk to which Entergy is exposed is its use of hedging techniques to mitigate such risk. Hedging instruments and volumes are chosen based on ability to mitigate risk associated with future energy and capacity prices; however, other considerations are factored into hedge product and volume decisions including corporate liquidity, corporate credit ratings, counterparty credit risk, hedging costs, firm settlement risk, and product availability in the marketplace. Entergy manages market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy’s risk management policies limit the amount of total net exposure and rolling net exposure during the stated periods. These policies, including related risk limits, are regularly assessed to ensure their appropriateness given Entergy’s objectives. Derivatives Some derivative instruments are classified as cash flow hedges due to their financial settlement provisions while others are classified as normal purchase/normal sale transactions due to their physical settlement provisions. Normal purchase/normal sale risk management tools include power purchase and sales agreements, fuel purchase agreements, capacity contracts, and tolling agreements. Financially-settled cash flow hedges can include natural gas and electricity swaps and options and interest rate swaps. Entergy may enter into financially-settled swap and option contracts to manage market risk that may or may not be designated as hedging instruments. Entergy enters into derivatives only to manage natural risks inherent in its physical or financial assets or liabilities. The maximum length of time over which Entergy is currently hedging the variability in future cash flows with derivatives for forecasted power transactions at March 31, 2014 is approximately 2.75 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 75% for the remainder of 2014, of which approximately 45% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2014 is 30 TWh. Entergy manages fuel price volatility for its Louisiana jurisdictions (Entergy Gulf States Louisiana, Entergy Louisiana, and Entergy New Orleans) and Entergy Mississippi through the purchase of short-term natural gas swaps that financially settle against NYMEX futures. These swaps are marked-to-market through fuel expense with offsetting regulatory assets or liabilities. All benefits or costs of the program are recorded in fuel costs. The notional volumes of these swaps are based on a portion of projected annual exposure to gas for electric generation and projected winter purchases for gas distribution at Entergy Gulf States Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2014 is 42,490,000 MMBtu for Entergy, 16,070,000 MMBtu for Entergy Gulf States Louisiana, 19,180,000 MMBtu for Entergy Louisiana, and 7,240,000 MMBtu for Entergy Mississippi. Credit support for these natural gas swaps is covered by master agreements that do not require collateralization based on mark-to-market value, but do carry adequate assurance language that may lead to collateralization requests. In connection with joining MISO, Entergy received a direct allocation of FTRs in November 2013. FTRs are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving Entergy’s customer load. They are not designated as hedging instruments. Entergy initially records FTRs at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period prior to settlement. Unrealized gains or losses on FTRs held by Entergy Wholesale Commodities are included in operating revenues. The Utility operating companies recognize regulatory liabilities or assets for unrealized gains or losses on FTRs. The total volume of FTRs outstanding as of March 31, 2014 is 15,554 GWh for Entergy, including 3,540 GWh for Entergy Arkansas, 2,613 GWh for Entergy Gulf States Louisiana, 3,998 GWh for Entergy Louisiana, 2,319 GWh for Entergy Mississippi, 523 GWh for Entergy New Orleans, and 2,423 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash or letters of credit issued by each Utility operating company as required by MISO. Credit support for FTRs held by Entergy Wholesale Commodities is covered by cash. As of March 31, 2014, Entergy Arkansas posted $1 million in cash collateral. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2014 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $107 |  | ($102) |  | $5 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $7 |  | ($2) |  | $5 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $178 |  | ($125) |  | $53 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $23 |  | ($3) |  | $20 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $100 |  | ($86) |  | $14 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $8 |  | $— |  | $8 |  | Utility
FTRs |  | Prepayments and other |  | $26 |  | ($1) |  | $25 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $100 |  | ($63) |  | $37 |  | Entergy Wholesale Commodities
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2013 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting arrangements and are presented in the balance sheet on a net basis in accordance with accounting guidance for derivatives and hedging.
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Offset (b) |  | Net (c) (d) |  | Business
|  |  |  | (In Millions) |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $118 |  | ($99) |  | $19 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($17) |  | $— |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $197 |  | ($131) |  | $66 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $46 |  | ($17) |  | $29 |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $177 |  | ($122) |  | $55 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Prepayments and other |  | $6 |  | $— |  | $6 |  | Utility
FTRs |  | Prepayments and other |  | $36 |  | ($2) |  | $34 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $201 |  | ($89) |  | $112 |  | Entergy Wholesale Commodities
(a) | Represents the gross amounts of recognized assets/liabilities
(b) | Represents the netting of fair value balances with the same counterparty
(c) | Represents the net amounts of assets /liabilities presented on the Entergy Consolidated Balance Sheets
(d) | Excludes cash collateral in the amounts of $65 million posted as of March 31, 2014 and $47 million posted and $4 million held as of December 31, 2013
The effect of Entergy’s derivative instruments designated as cash flow hedges on the consolidated income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Amount of loss recognized in other comprehensive income |  | Income Statement location |  | Amount of loss reclassified from AOCI into income
|  | (In Millions) |  |  |  | (In Millions)
2014 |  |  |  |  |  |
Electricity swaps and options |  | ($174) |  | Competitive businesses operating revenues |  | ($195)
2013 |  |  |  |  |  |
Electricity swaps and options |  | ($120) |  | Competitive businesses operating revenues |  | ($2)
Electricity over-the-counter instruments that financially settle against day-ahead power pool prices are used to manage price exposure for Entergy Wholesale Commodities generation. Unrealized gains or losses recorded in other comprehensive income result from hedging power output at the Entergy Wholesale Commodities power plants. The related gains or losses from hedging power are included in operating revenues when realized. Gains (losses) totaling approximately ($195) million and ($2) million were realized on the maturity of cash flow hedges, before taxes (benefit) of ($68) million and ($1) million, for the three months ended March 31, 2014 and 2013, respectively. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2014 and 2013 was $1 million and ($1.3) million, respectively. The ineffective portion of cash flow hedges is recorded in competitive businesses operating revenues. Based on market prices as of March 31, 2014, unrealized losses recorded in AOCI on cash flow hedges relating to power sales totaled $98 million of net unrealized losses. Approximately $74 million is expected to be reclassified from AOCI to operating revenues in the next twelve months. The actual amount reclassified from AOCI, however, could vary due to future changes in market prices. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations when the current market prices exceed the contracted power prices. The primary form of collateral to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2014, derivative contracts with nine counterparties were in a liability position (approximately $98 million total) and, in addition to the corporate guarantee, $64 million in cash collateral was required to be posted. As of March 31, 2013, derivative contracts with six counterparties were in a liability position (approximately $25 million total), but were significantly below the amount of the guarantee provided under the contract and no cash collateral was required. If the Entergy Corporation credit rating falls below investment grade, the effect of the corporate guarantee is typically ignored and Entergy would have to post collateral equal to the estimated outstanding liability under the contract at the applicable date. Entergy may effectively liquidate a cash flow hedge instrument by entering into a contract offsetting the original hedge, and then de-designating the original hedge in this situation. Gains or losses accumulated in other comprehensive income prior to de-designation continue to be deferred in other comprehensive income until they are included in income as the original hedged transaction occurs. From the point of de-designation, the gains or losses on the original hedge and the offsetting contract are recorded as assets or liabilities on the balance sheet and offset as they flow through to earnings.
The effect of Entergy’s derivative instruments not designated as hedging instruments on the consolidated income statements for the three months ended March 31, 2014 and 2013 is as follows:
Instrument |  | Amount of gain recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
2014 |  | (In Millions) |  |  |  | (In Millions)
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $17
FTRs |  | — |  | Purchased power expense |  | $46
Electricity swaps and options de-designated as hedged items |  | $22 |  | Competitive business operating revenues |  | $21
2013 |  |  |  |  |  |
Natural gas swaps |  | — |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($20)
Electricity swaps and options de-designated as hedged items |  | $1 |  | Competitive business operating revenues |  | ($1)
Due to regulatory treatment, the natural gas swaps are marked-to-market through fuel, fuel-related expenses, and gas purchased for resale and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as fuel expenses when the swaps are settled are recovered or refunded through fuel cost recovery mechanisms. Due to regulatory treatment, the changes in the estimated fair value of FTRs are recorded through purchased power expense and then such amounts are simultaneously reversed and recorded as an offsetting regulatory asset or liability. The gains or losses recorded as purchased power expense when the FTRs are settled are recovered or refunded through fuel cost recovery mechanisms. The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of March 31, 2014 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $3.0 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $3.7 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $1.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $5.4 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $3.0 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $4.8 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $7.4 |  | Entergy Texas
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2013 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
Natural gas swaps |  | Gas hedge contracts |  | $2.2 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Gas hedge contracts |  | $2.9 |  | Entergy Louisiana
Natural gas swaps |  | Prepayments and other |  | $0.7 |  | Entergy Mississippi
Natural gas swaps |  | Prepayments and other |  | $0.1 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $6.7 |  | Entergy Gulf States Louisiana
FTRs |  | Prepayments and other |  | $5.7 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $1.0 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $2.0 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $18.4 |  | Entergy Texas
(a) | Excludes cash collateral in the amount of $1 million posted by Entergy Arkansas as of March 31, 2014. As of December 31, 2013, no cash collateral was required to be posted.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2014 and 2013 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
2014 |  |  |  | (In Millions) |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $6.8 |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $8.0 |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $1.6 |  | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | $0.7 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $5.1 |  | Entergy Arkansas
FTRs |  | Purchased power expense |  | $9.1 |  | Entergy Gulf States Louisiana
FTRs |  | Purchased power expense |  | $8.0 |  | Entergy Louisiana
FTRs |  | Purchased power expense |  | $7.8 |  | Entergy Mississippi
FTRs |  | Purchased power expense |  | $2.9 |  | Entergy New Orleans
FTRs |  | Purchased power expense |  | $12.8 |  | Entergy Texas
2013 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($6.2) |  | Entergy Gulf States Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($8.3) |  | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($5.4) |  | Entergy Mississippi
Fair Values The estimated fair values of Entergy’s financial instruments and derivatives are determined using historical prices, bid prices, market quotes, and financial modeling. Considerable judgment is required in developing the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. Gains or losses realized on financial instruments other than those instruments held by the Entergy Wholesale Commodities business are reflected in future rates and therefore do not affect net income. Entergy considers the carrying amounts of most financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments. Accounting standards define fair value as an exit price, or the price that would be received to sell an asset or the amount that would be paid to transfer a liability in an orderly transaction between knowledgeable market participants at the date of measurement. Entergy and the Registrant Subsidiaries use assumptions or market input data that market participants would use in pricing assets or liabilities at fair value. The inputs can be readily observable, corroborated by market data, or generally unobservable. Entergy and the Registrant Subsidiaries endeavor to use the best available information to determine fair value. Accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy establishes the highest priority for unadjusted market quotes in an active market for the identical asset or liability and the lowest priority for unobservable inputs. The three levels of the fair value hierarchy are:
• | Level 1 - Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of individually owned common stocks, cash equivalents (temporary cash investments, securitization recovery trust account, and escrow accounts), debt instruments, and gas hedge contracts. Cash equivalents includes all unrestricted highly liquid debt instruments with an original or remaining maturity of three months or less at the date of purchase.
• | Level 2 - Level 2 inputs are inputs other than quoted prices included in Level 1 that are, either directly or indirectly, observable for the asset or liability at the measurement date. Assets are valued based on prices derived by independent third parties that use inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Prices are reviewed and can be challenged with the independent parties and/or overridden by Entergy if it is believed such would be more reflective of fair value. Level 2 inputs include the following:
- quoted prices for similar assets or liabilities in active markets; - quoted prices for identical assets or liabilities in inactive markets; - inputs other than quoted prices that are observable for the asset or liability; or - inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 2 consists primarily of individually-owned debt instruments or shares in common trusts. Common trust funds are stated at estimated fair value based on the fair market value of the underlying investments.
• | Level 3 - Level 3 inputs are pricing inputs that are generally less observable or unobservable from objective sources. These inputs are used with internally developed methodologies to produce management’s best estimate of fair value for the asset or liability. Level 3 consists primarily of FTRs and derivative power contracts used as cash flow hedges of power sales at merchant power plants.
The values for power contract assets or liabilities are based on both observable inputs including public market prices and interest rates, and unobservable inputs such as implied volatilities, unit contingent discounts, expected basis differences, and credit adjusted counterparty interest rates. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group and the Entergy Wholesale Commodities Accounting Policy and External Reporting group. The primary functions of the Entergy Wholesale Commodities Risk Control Group include: gathering, validating and reporting market data, providing market risk analyses and valuations in support of Entergy Wholesale Commodities’ commercial transactions, developing and administering protocols for the management of market risks, and implementing and maintaining controls around changes to market data in the energy trading and risk management system. The Risk Control group is also responsible for managing the energy trading and risk management system, forecasting revenues, forward positions and analysis. The Entergy Wholesale Commodities Accounting Policy and External Reporting group performs functions related to market and counterparty settlements, revenue reporting and analysis and financial accounting. The Entergy Wholesale Commodities Risk Control Group reports to the Vice President, Treasury while the Entergy Wholesale Commodities Accounting Policy and External Reporting group reports to the Vice President, Accounting Policy and External Reporting. The amounts reflected as the fair value of electricity swaps are based on the estimated amount that the contracts are in-the-money at the balance sheet date (treated as an asset) or out-of-the-money at the balance sheet date (treated as a liability) and would equal the estimated amount receivable to or payable by Entergy if the contracts were settled at that date. These derivative contracts include cash flow hedges that swap fixed for floating cash flows for sales of the output from the Entergy Wholesale Commodities business. The fair values are based on the mark-to-market comparison between the fixed contract prices and the floating prices determined each period from quoted forward power market prices. The differences between the fixed price in the swap contract and these market-related prices multiplied by the volume specified in the contract and discounted at the counterparties’ credit adjusted risk free rate are recorded as derivative contract assets or liabilities. For contracts that have unit contingent terms, a further discount is applied based on the historical relationship between contract and market prices for similar contract terms. The amounts reflected as the fair values of electricity options are valued based on a Black Scholes model, and are calculated at the end of each month for accounting purposes. Inputs to the valuation include end of day forward market prices for the period when the transactions will settle, implied volatilities based on market volatilities provided by a third party data aggregator, and US Treasury rates for a risk-free return rate. As described further below, prices and implied volatilities are reviewed and can be adjusted if it is determined that there is a better representation of fair value. On a daily basis, Entergy Wholesale Commodities Risk Control Group calculated the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control Group also validated forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences were analyzed and potentially adjusted based on these other sources of forward market prices or settlement prices of actual market transactions. Implied volatilities used to value options were also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and used multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirmed the mark-to-market calculations and prepared price scenarios and credit downgrade scenario analysis. The scenario analysis was communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis was completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’s portfolio. In particular, the credit, liquidity, and financial metrics impacts were calculated for this analysis. This analysis was communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of future congestion costs in MISO between applicable sink and source pricing nodes based on prices published by MISO. They are classified as Level 3 assets and liabilities. The valuations of these assets and liabilities are performed by the Entergy Wholesale Commodities Risk Control Group for the unregulated business and by the System Planning and Operations Risk Control Group for the Utility operating companies. Entergy’s Accounting Policy group reviews these valuations for reasonableness, with the assistance of others within the organization with knowledge of the various inputs and assumptions used in the valuation. The System Planning and Operations Risk Control Group reports to the Vice President, Treasury. The Accounting Policy group reports to the Vice President, Accounting Policy and External Reporting. The following tables set forth, by level within the fair value hierarchy, Entergy’s assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $800 |  |  |  | $— |  |  |  | $— |  |  |  | $800 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 417 |  |  | 2,644 |  | (b) | — |  |  | 3,061 |
Debt securities |  | 763 |  |  | 1,167 |  |  | — |  |  | 1,930 |
Power contracts |  | — |  |  | — |  |  | 24 |  |  | 24 |
Securitization recovery trust account |  | 48 |  |  | — |  |  | — |  |  | 48 |
Escrow accounts |  | 117 |  |  | — |  |  | — |  |  | 117 |
Gas hedge contracts |  | 8 |  |  | — |  |  | — |  |  | 8 |
FTRs |  | — |  |  | — |  |  | 25 |  |  | 25 |
|  |  | $2,153 |  |  |  | $3,811 |  |  |  | $49 |  |  |  | $6,013 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $110 |  |  |  | $110 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $609 |  |  |  | $— |  |  |  | $— |  |  |  | $609 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 472 |  |  | 2,601 |  | (b) | — |  |  | 3,073 |
Debt securities |  | 783 |  |  | 1,047 |  |  | — |  |  | 1,830 |
Power contracts |  | — |  |  | — |  |  | 74 |  |  | 74 |
Securitization recovery trust account |  | 46 |  |  | — |  |  | — |  |  | 46 |
Escrow accounts |  | 115 |  |  | — |  |  | — |  |  | 115 |
Gas hedge contracts |  | 6 |  |  | — |  |  | — |  |  | 6 |
FTRs |  | — |  |  | — |  |  | 34 |  |  | 34 |
|  |  | $2,031 |  |  |  | $3,648 |  |  |  | $108 |  |  |  | $5,787 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $207 |  |  |  | $207 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
(b) | Commingled equity funds may be redeemed bi-monthly.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014 and 2013:
| 2014 |  | 2013
| (In Millions)
Balance as of January 1, |  | ($98 | ) |  |  | $178 |
Realized losses included in earnings | (31 | ) |  | (14 | )
Unrealized gains included in earnings | 53 |  |  | 5 |
Unrealized losses included in OCI | (222 | ) |  | (119 | )
Unrealized gains included as a regulatory asset/liability | 37 |  |  | — |
Purchases | 5 |  |  | — |
Settlements | 195 |  |  | 2 |
Balance as of March 31, |  | ($61 | ) |  |  | $52 |
The following table sets forth a description of the types of transactions classified as Level 3 in the fair value hierarchy and significant unobservable inputs to each which cause that classification, as of March 31, 2014:
Transaction Type |  | Fair Value as of March 31, 2014 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Electricity swaps |  | ($96) |  | Unit contingent discount |  | +/- | 3% |  | ($3)
Electricity options |  | $10 |  | Implied volatility |  | +/- | 53% |  | $35
The following table sets forth an analysis of each of the types of unobservable inputs impacting the fair value of items classified as Level 3 within the fair value hierarchy, and the sensitivity to changes to those inputs:
Significant Unobservable Input |  | Transaction Type |  | Position |  | Change to Input |  | Effect on Fair Value
Unit contingent discount |  | Electricity swaps |  | Sell |  | Increase (Decrease) |  | Decrease (Increase)
Implied volatility |  | Electricity options |  | Sell |  | Increase (Decrease) |  | Increase (Decrease)
Implied volatility |  | Electricity options |  | Buy |  | Increase (Decrease) |  | Increase (Decrease)
The following table sets forth, by level within the fair value hierarchy, the Registrant Subsidiaries’ assets that are accounted for at fair value on a recurring basis as of March 31, 2014 and December 31, 2013. The assessment of the significance of a particular input to a fair value measurement requires judgment and may affect its placement within the fair value hierarchy levels. Entergy Arkansas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $216.1 |  |  |  | $— |  |  |  | $— |  |  |  | $216.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 3.7 |  |  | 457.1 |  |  | — |  |  | 460.8 |
Debt securities |  | 50.8 |  |  | 209.9 |  |  | — |  |  | 260.7 |
Securitization recovery trust account |  | 8.1 |  |  | — |  |  | — |  |  | 8.1 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
FTRs |  | — |  |  | — |  |  | 2.7 |  |  | 2.7 |
|  |  | $304.7 |  |  |  | $667.0 |  |  |  | $2.7 |  |  |  | $974.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $122.8 |  |  |  | $— |  |  |  | $— |  |  |  | $122.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 13.6 |  |  | 449.7 |  |  | — |  |  | 463.3 |
Debt securities |  | 58.6 |  |  | 189.0 |  |  | — |  |  | 247.6 |
Securitization recovery trust account |  | 3.8 |  |  | — |  |  | — |  |  | 3.8 |
Escrow accounts |  | 26.0 |  |  | — |  |  | — |  |  | 26.0 |
|  |  | $224.8 |  |  |  | $638.7 |  |  |  | $— |  |  |  | $863.5 |
Entergy Gulf States Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $15.0 |  |  |  | $— |  |  |  | $— |  |  |  | $15.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.0 |  |  | 348.9 |  |  | — |  |  | 359.9 |
Debt securities |  | 73.1 |  |  | 153.2 |  |  | — |  |  | 226.3 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 3.0 |  |  | — |  |  | — |  |  | 3.0 |
FTRs |  | — |  |  | — |  |  | 5.4 |  |  | 5.4 |
|  |  | $123.6 |  |  |  | $502.1 |  |  |  | $5.4 |  |  |  | $631.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.8 |  |  |  | $— |  |  |  | $— |  |  |  | $13.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 27.6 |  |  | 343.2 |  |  | — |  |  | 370.8 |
Debt securities |  | 71.7 |  |  | 131.2 |  |  | — |  |  | 202.9 |
Escrow accounts |  | 21.5 |  |  | — |  |  | — |  |  | 21.5 |
Gas hedge contracts |  | 2.2 |  |  | — |  |  | — |  |  | 2.2 |
FTRs |  | — |  |  | — |  |  | 6.7 |  |  | 6.7 |
|  |  | $136.8 |  |  |  | $474.4 |  |  |  | $6.7 |  |  |  | $617.9 |
Entergy Louisiana
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $72.0 |  |  |  | $— |  |  |  | $— |  |  |  | $72.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 11.1 |  |  | 213.9 |  |  | — |  |  | 225.0 |
Debt securities |  | 60.3 |  |  | 68.3 |  |  | — |  |  | 128.6 |
Securitization recovery trust account |  | 10.2 |  |  | — |  |  | — |  |  | 10.2 |
Gas hedge contracts |  | 3.7 |  |  | — |  |  | — |  |  | 3.7 |
FTRs |  | — |  |  | — |  |  | 3.0 |  |  | 3.0 |
|  |  | $157.3 |  |  |  | $282.2 |  |  |  | $3.0 |  |  |  | $442.5 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $123.6 |  |  |  | $— |  |  |  | $— |  |  |  | $123.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 13.5 |  |  | 210.7 |  |  | — |  |  | 224.2 |
Debt securities |  | 61.7 |  |  | 61.4 |  |  | — |  |  | 123.1 |
Securitization recovery trust account |  | 4.5 |  |  | — |  |  | — |  |  | 4.5 |
Gas hedge contacts |  | 2.9 |  |  | — |  |  | — |  |  | 2.9 |
FTRs |  | — |  |  | — |  |  | 5.7 |  |  | 5.7 |
|  |  | $206.2 |  |  |  | $272.1 |  |  |  | $5.7 |  |  |  | $484.0 |
Entergy Mississippi
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $70.3 |  |  |  | $— |  |  |  | $— |  |  |  | $70.3 |
Escrow accounts |  | 51.8 |  |  | — |  |  | — |  |  | 51.8 |
Gas hedge contracts |  | 1.4 |  |  | — |  |  | — |  |  | 1.4 |
FTRs |  | — |  |  | — |  |  | 4.8 |  |  | 4.8 |
|  |  | $123.5 |  |  |  | $— |  |  |  | $4.8 |  |  |  | $128.3 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Escrow accounts |  |  | $51.8 |  |  |  | $— |  |  |  | $— |  |  |  | $51.8 |
Gas hedge contracts |  | 0.7 |  |  | — |  |  | — |  |  | 0.7 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $52.5 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $53.5 |
Entergy New Orleans
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $24.7 |  |  |  | $— |  |  |  | $— |  |  |  | $24.7 |
Escrow accounts |  | 12.4 |  |  | — |  |  | — |  |  | 12.4 |
FTRs |  | — |  |  | — |  |  | 1.0 |  |  | 1.0 |
|  |  | $37.1 |  |  |  | $— |  |  |  | $1.0 |  |  |  | $38.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $33.2 |  |  |  | $— |  |  |  | $— |  |  |  | $33.2 |
Escrow accounts |  | 10.5 |  |  | — |  |  | — |  |  | 10.5 |
Gas hedge contracts |  | 0.1 |  |  | — |  |  | — |  |  | 0.1 |
FTRs |  | — |  |  | — |  |  | 2.0 |  |  | 2.0 |
|  |  | $43.8 |  |  |  | $— |  |  |  | $2.0 |  |  |  | $45.8 |
Entergy Texas
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $29.7 |  |  |  | $— |  |  |  | $— |  |  |  | $29.7 |
FTRs |  | — |  |  | — |  |  | 7.4 |  |  | 7.4 |
|  |  | $29.7 |  |  |  | $— |  |  |  | $7.4 |  |  |  | $37.1 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $44.1 |  |  |  | $— |  |  |  | $— |  |  |  | $44.1 |
Securitization recovery trust account |  | 37.5 |  |  | — |  |  | — |  |  | 37.5 |
FTRs |  | — |  |  | — |  |  | 18.4 |  |  | 18.4 |
|  |  | $81.6 |  |  |  | $— |  |  |  | $18.4 |  |  |  | $100.0 |
System Energy
2014 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $83.1 |  |  |  | $— |  |  |  | $— |  |  |  | $83.1 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.2 |  |  | 384.7 |  |  | — |  |  | 385.9 |
Debt securities |  | 155.1 |  |  | 78.3 |  |  | — |  |  | 233.4 |
|  |  | $239.4 |  |  |  | $463.0 |  |  |  | $— |  |  |  | $702.4 |
2013 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.6 |  |  |  | $— |  |  |  | $— |  |  |  | $64.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.2 |  |  | 377.8 |  |  | — |  |  | 380.0 |
Debt securities |  | 152.9 |  |  | 71.0 |  |  | — |  |  | 223.9 |
|  |  | $219.7 |  |  |  | $448.8 |  |  |  | $— |  |  |  | $668.5 |
(a) | The decommissioning trust funds hold equity and fixed income securities. Equity securities are invested to approximate the returns of major market indices. Fixed income securities are held in various governmental and corporate securities. See Note 9 to the financial statements herein for additional information on the investment portfolios.
The following table sets forth a reconciliation of changes in the net assets (liabilities) for the fair value of derivatives classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2014.
| Entergy Arkansas |  | Entergy Gulf States Louisiana |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
|  |  | (In Millions)
Balance as of January 1, |  | $— |  |  |  | $6.7 |  |  |  | $5.7 |  |  |  | $1.0 |  |  |  | $2.0 |  |  |  | $18.4 |
Unrealized gains included as a regulatory liability/asset | 7.8 |  |  | 7.7 |  |  | 5.3 |  |  | 11.6 |  |  | 2.0 |  |  | 1.8 |
Settlements | (5.1 | ) |  | (9.0 | ) |  | (8.0 | ) |  | (7.8 | ) |  | (3.0 | ) |  | (12.8 | )
Balance as of March 31, |  | $2.7 |  |  |  | $5.4 |  |  |  | $3.0 |  |  |  | $4.8 |  |  |  | $1.0 |  |  |  | $7.4 |

X
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