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Risk Management And Fair Values | 3 Months Ended
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Mar. 31, 2016
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, 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 and gas 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 to manage natural risks inherent in its physical or financial assets or liabilities. 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. 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, 2016 is approximately 2 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 88% for the remainder of 2016, of which approximately 60% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2016 is 25 TWh. Entergy may use standardized master netting agreements to help mitigate the credit risk of derivative instruments. These master agreements facilitate the netting of cash flows associated with a single counterparty and may include collateral requirements. Cash, letters of credit, and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk. The collateral agreements require a counterparty to post cash or letters of credit in the event an exposure exceeds an established threshold. The threshold represents an unsecured credit limit, which may be supported by a parental/affiliate guaranty, as determined in accordance with Entergy’s credit policy. In addition, collateral agreements allow for termination and liquidation of all positions in the event of a failure or inability to post collateral. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations when the current market prices exceed the contracted power prices. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2016, there were no derivative contracts with counterparties in a liability position. Letters of credit in the amount of $66 million were required to be posted by its counterparties to the Entergy subsidiary as of March 31, 2016. As of December 31, 2015, derivative contracts with two counterparties were in a liability position (approximately $2 million total). In addition to the corporate guarantee, $9 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $68 million was required to be posted by its counterparties to the Entergy subsidiary. 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 manages fuel price volatility for its Louisiana jurisdictions (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 at Entergy Louisiana and Entergy Mississippi and projected winter purchases for gas distribution at Entergy Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2016 is 57,500,000 MMBtu for Entergy, including 46,330,000 MMBtu for Entergy Louisiana and 11,170,000 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. During the second quarter 2015, Entergy participated in the annual FTR auction process for the MISO planning year of June 1, 2015 through May 31, 2016. 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, 2016 is 18,305 GWh for Entergy, including 3,894 GWh for Entergy Arkansas, 8,385 GWh for Entergy Louisiana, 2,436 GWh for Entergy Mississippi, 1,398 GWh for Entergy New Orleans, and 2,086 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash and/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, 2016, letters of credit posted with MISO covered the FTR exposure for Entergy Mississippi. No cash collateral was required to be posted for FTR exposure for the Utility operating companies or Entergy Wholesale Commodities. As of December 31, 2015, no cash or letters of credit were required to be posted for FTR exposure for the Utility operating companies or Entergy Wholesale Commodities, respectively. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2016 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements 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) |  | $120 |  | ($26) |  | $94 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $20 |  | ($1) |  | $19 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $94 |  | ($24) |  | $70 |  | Entergy Wholesale Commodities
FTRs |  | Prepayments and other |  | $9 |  | $— |  | $9 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $49 |  | ($49) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Other current liabilities |  | $9 |  | $— |  | $9 |  | Utility
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2015 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements 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) |  | $173 |  | ($34) |  | $139 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($2) |  | $15 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $14 |  | ($14) |  | $— |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $2 |  | ($2) |  | $— |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $54 |  | ($13) |  | $41 |  | Entergy Wholesale Commodities
FTRs |  | Prepayments and other |  | $24 |  | ($1) |  | $23 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $38 |  | ($32) |  | $6 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Other current liabilities |  | $9 |  | $— |  | $9 |  | Utility
(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 amount of $9 million posted and $68 million held as of December 31, 2015. There was no cash collateral required to be posted as of March 31, 2016. Also excludes letters of credit in the amount of $0.4 million posted and $66 million held as of March 31, 2016.
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated statements of operations for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Amount of gain (loss) recognized in other comprehensive income |  | Income Statement location |  | Amount of gain (loss) reclassified from AOCI into income (a)
|  | (In Millions) |  |  |  | (In Millions)
2016 |  |  |  |  |  |
Electricity swaps and options |  | $139 |  | Competitive businesses operating revenues |  | $154
2015 |  |  |  |  |  |
Electricity swaps and options |  | ($32) |  | Competitive businesses operating revenues |  | $14
(a) | Before taxes of $54 million and $5 million for the three months ended March 31, 2016 and 2015, respectively
At each reporting period, Entergy measures its hedges for ineffectiveness. Any ineffectiveness is recognized in earnings during the period. The ineffective portion of cash flow hedges is recorded in competitive business operating revenues. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2016 and 2015 was ($1) million and ($1) million, respectively. Based on market prices as of March 31, 2016, net unrealized gains recorded in AOCI on cash flow hedges relating to power sales totaled $152 million. Approximately $134 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. 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 effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated statements of operations for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Amount of gain (loss) recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
|  | (In Millions) |  |  |  | (In Millions)
2016 |  |  |  |  |  |
Natural gas swaps |  | $— |  | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($24)
FTRs |  | $— |  | Purchased power expense | (b) | $21
Electricity swaps and options de-designated as hedged items |  | $25 |  | Competitive business operating revenues |  | $—
2015 |  |  |  |  |  |
Natural gas swaps |  | $— |  | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($19)
FTRs |  | $— |  | Purchased power expense | (b) | $33
Electricity swaps and options de-designated as hedged items |  | $4 |  | Competitive business operating revenues |  | ($34)
(a) | 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.
(b) | Due to regulatory treatment, the changes in the estimated fair value of FTRs for the Utility operating companies 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 for the Utility operating companies 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, 2016 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
FTRs |  | Prepayments and other |  | $3.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $3.3 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $0.9 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $0.6 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $0.9 |  | Entergy Texas
Liabilities: |  |  |  |  |  |
Natural gas swaps |  | Other current liabilities |  | $7.6 |  | Entergy Louisiana
Natural gas swaps |  | Other current liabilities |  | $1.8 |  | Entergy Mississippi
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2015 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
FTRs |  | Prepayments and other |  | $7.9 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $8.5 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $2.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.5 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $2.2 |  | Entergy Texas
Liabilities: |  |  |  |  |  |
Natural gas swaps |  | Other current liabilities |  | $7.0 |  | Entergy Louisiana
Natural gas swaps |  | Other current liabilities |  | $1.3 |  | Entergy Mississippi
Natural gas swaps |  | Other current liabilities |  | $0.5 |  | Entergy New Orleans
(a) | Excludes letters of credit in the amount of $0.4 million posted by Entergy Mississippi as of March 31, 2016. No cash collateral was required to be posted as of March 31, 2016 and December 31, 2015, respectively.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
|  |  |  | (In Millions) |  |
2016 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($19.3) | (a) | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($4.1) | (a) | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($0.5) | (a) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $7.8 | (b) | Entergy Arkansas
FTRs |  | Purchased power expense |  | $10.5 | (b) | Entergy Louisiana
FTRs |  | Purchased power expense |  | $0.8 | (b) | Entergy Mississippi
FTRs |  | Purchased power expense |  | $0.5 | (b) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $1.5 | (b) | Entergy Texas
2015 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($16.0) | (a) | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($3.0) | (a) | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($0.5) | (a) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $15.1 | (b) | Entergy Arkansas
FTRs |  | Purchased power expense |  | $14.5 | (b) | Entergy Louisiana
FTRs |  | Purchased power expense |  | $3.3 | (b) | Entergy Mississippi
FTRs |  | Purchased power expense |  | $1.6 | (b) | Entergy New Orleans
FTRs |  | Purchased power expense |  | ($1.4) | (b) | Entergy Texas
(a) | 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.
(b) | Due to regulatory treatment, the changes in the estimated fair value of FTRs for the Utility operating companies 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 for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms.
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. Effective first quarter 2016, Entergy retrospectively adopted ASU 2015-07, which simplifies the disclosure for fair value investments by removing the requirement to categorize within the fair value hierarchy investment for which fair value is measured using the net asset value per share as a practical expedient. For all periods presented the common trust funds have not been assigned a level and are presented within the fair value tables only as a reconciling item to the total fair value of investments. 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.
• | 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 Accounting Policy and Entergy Wholesale Commodities Accounting 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 Accounting Policy and Entergy Wholesale Commodities Accounting 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 and Treasurer while the Accounting Policy and Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer. 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 U.S. 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 calculates the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control group also validates forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences are 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 are also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and uses multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirms the mark-to-market calculations and prepares price scenarios and credit downgrade scenario analysis. The scenario analysis is communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis is completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’ portfolio. In particular, the credit and liquidity effects are calculated for this analysis. This analysis is communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of congestion costs in MISO between applicable generation and load pricing nodes based on the 50th percentile of historical prices. 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. The values are calculated internally and verified against the data published by MISO. 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 Risk Control groups report to the Vice President and Treasurer. The Accounting Policy group reports to the Chief Accounting Officer. 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, 2016 and December 31, 2015. 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.
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $1,010 |  |  |  | $— |  |  |  | $— |  |  |  | $1,010 |
Funds held on deposit |  | 197 |  |  | — |  |  | — |  |  | 197 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 446 |  |  | — |  |  | — |  |  | 446 |
Debt securities |  | 1,060 |  |  | 1,189 |  |  | — |  |  | 2,249 |
Common trusts (b) |  |  |  |  |  |  |  | 2,757 |
Power contracts |  | — |  |  | — |  |  | 183 |  |  | 183 |
Securitization recovery trust account |  | 52 |  |  | — |  |  | — |  |  | 52 |
Escrow accounts |  | 454 |  |  | — |  |  | — |  |  | 454 |
FTRs |  | — |  |  | — |  |  | 9 |  |  | 9 |
|  |  | $3,219 |  |  |  | $1,189 |  |  |  | $192 |  |  |  | $7,357 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $9 |  |  |  | $— |  |  |  | $— |  |  |  | $9 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $1,287 |  |  |  | $— |  |  |  | $— |  |  |  | $1,287 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 468 |  |  | — |  |  | — |  |  | 468 |
Debt securities |  | 1,061 |  |  | 1,094 |  |  | — |  |  | 2,155 |
Common trusts (b) |  |  |  |  |  |  |  | 2,727 |
Power contracts |  | — |  |  | — |  |  | 195 |  |  | 195 |
Securitization recovery trust account |  | 50 |  |  | — |  |  | — |  |  | 50 |
Escrow accounts |  | 425 |  |  | — |  |  | — |  |  | 425 |
FTRs |  | — |  |  | — |  |  | 23 |  |  | 23 |
|  |  | $3,291 |  |  |  | $1,094 |  |  |  | $218 |  |  |  | $7,330 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $6 |  |  |  | $6 |
Gas hedge contracts |  | 9 |  |  | — |  |  | — |  |  | 9 |
|  |  | $9 |  |  |  | $— |  |  |  | $6 |  |  |  | $15 |
(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 for additional information on the investment portfolios.
(b) | Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value (NAV) as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the NAV and trades settle at a later date.
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, 2016 and 2015:
| 2016 |  | 2015
| Power Contracts |  | FTRs |  | Power Contracts |  | FTRs
| (In Millions)
Balance as of January 1, |  | $189 |  |  |  | $23 |  |  |  | $215 |  |  |  | $47 |
Total gains (losses) for the period (a) |  |  |  |  |  |  |
Included in earnings | — |  |  | — |  |  | (35 | ) |  | — |
Included in OCI | 139 |  |  | — |  |  | (26 | ) |  | — |
Included as a regulatory liability/asset | — |  |  | 7 |  |  | — |  |  | 1 |
Purchases | — |  |  | — |  |  | 10 |  |  | — |
Settlements | (145 | ) |  | (21 | ) |  | (19 | ) |  | (33 | )
Balance as of March 31, |  | $183 |  |  |  | $9 |  |  |  | $145 |  |  |  | $15 |
(a) | Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period is $6 million for the three months ended March 31, 2016 and ($87) million for the three months ended March 31, 2015.
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, 2016:
Transaction Type |  | Fair Value as of March 31, 2016 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Power contracts - electricity swaps |  | $149 |  | Unit contingent discount |  | +/- | 3% |  | $7
Power contracts - electricity options |  | $34 |  | Implied volatility |  | +/- | 30% |  | $10
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, 2016 and December 31, 2015. 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
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.4 |  |  |  | $— |  |  |  | $— |  |  |  | $13.4 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 5.2 |  |  | — |  |  | — |  |  | 5.2 |
Debt securities |  | 102.3 |  |  | 208.9 |  |  | — |  |  | 311.2 |
Common trusts (b) |  |  |  |  |  |  |  | 469.1 |
Securitization recovery trust account |  | 7.6 |  |  | — |  |  | — |  |  | 7.6 |
Escrow accounts |  | 19.3 |  |  | — |  |  | — |  |  | 19.3 |
FTRs |  | — |  |  | — |  |  | 3.7 |  |  | 3.7 |
|  |  | $147.8 |  |  |  | $208.9 |  |  |  | $3.7 |  |  |  | $829.5 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  |  | $3.0 |  |  |  | $— |  |  |  | $— |  |  |  | $3.0 |
Debt securities |  | 110.5 |  |  | 193.4 |  |  | — |  |  | 303.9 |
Common trusts (b) |  |  |  |  |  |  |  | 464.4 |
Securitization recovery trust account |  | 4.2 |  |  | — |  |  | — |  |  | 4.2 |
Escrow accounts |  | 12.2 |  |  | — |  |  | — |  |  | 12.2 |
FTRs |  | — |  |  | — |  |  | 7.9 |  |  | 7.9 |
|  |  | $129.9 |  |  |  | $193.4 |  |  |  | $7.9 |  |  |  | $795.6 |
Entergy Louisiana
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $100.0 |  |  |  | $— |  |  |  | $— |  |  |  | $100.0 |
Funds held on deposit |  | 196.6 |  |  | — |  |  | — |  |  | 196.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 8.5 |  |  | — |  |  | — |  |  | 8.5 |
Debt securities |  | 154.5 |  |  | 267.7 |  |  | — |  |  | 422.2 |
Common trusts (b) |  |  |  |  |  |  |  | 634.5 |
Escrow accounts |  | 304.9 |  |  | — |  |  | — |  |  | 304.9 |
Securitization recovery trust account |  | 8.7 |  |  | — |  |  | — |  |  | 8.7 |
FTRs |  | — |  |  | — |  |  | 3.3 |  |  | 3.3 |
|  |  | $773.2 |  |  |  | $267.7 |  |  |  | $3.3 |  |  |  | $1,678.7 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $7.6 |  |  |  | $— |  |  |  | $— |  |  |  | $7.6 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $34.8 |  |  |  | $— |  |  |  | $— |  |  |  | $34.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 7.1 |  |  | — |  |  | — |  |  | 7.1 |
Debt securities |  | 161.1 |  |  | 248.8 |  |  | — |  |  | 409.9 |
Common trusts (b) |  |  |  |  |  |  |  | 625.3 |
Escrow accounts |  | 290.4 |  |  | — |  |  | — |  |  | 290.4 |
Securitization recovery trust account |  | 3.2 |  |  | — |  |  | — |  |  | 3.2 |
FTRs |  | — |  |  | — |  |  | 8.5 |  |  | 8.5 |
|  |  | $496.6 |  |  |  | $248.8 |  |  |  | $8.5 |  |  |  | $1,379.2 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $7.0 |  |  |  | $— |  |  |  | $— |  |  |  | $7.0 |
Entergy Mississippi
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $112.7 |  |  |  | $— |  |  |  | $— |  |  |  | $112.7 |
Escrow accounts |  | 41.8 |  |  | — |  |  | — |  |  | 41.8 |
FTRs |  | — |  |  | — |  |  | 0.9 |  |  | 0.9 |
|  |  | $154.5 |  |  |  | $— |  |  |  | $0.9 |  |  |  | $155.4 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $1.8 |  |  |  | $— |  |  |  | $— |  |  |  | $1.8 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $144.2 |  |  |  | $— |  |  |  | $— |  |  |  | $144.2 |
Escrow accounts |  | 41.7 |  |  | — |  |  | — |  |  | 41.7 |
FTRs |  | — |  |  | — |  |  | 2.4 |  |  | 2.4 |
|  |  | $185.9 |  |  |  | $— |  |  |  | $2.4 |  |  |  | $188.3 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $1.3 |  |  |  | $— |  |  |  | $— |  |  |  | $1.3 |
Entergy New Orleans
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $5.3 |  |  |  | $— |  |  |  | $— |  |  |  | $5.3 |
Securitization recovery trust account |  | 7.4 |  |  | — |  |  | — |  |  | 7.4 |
Escrow accounts |  | 88.2 |  |  | — |  |  | — |  |  | 88.2 |
FTRs |  | — |  |  | — |  |  | 0.6 |  |  | 0.6 |
|  |  | $100.9 |  |  |  | $— |  |  |  | $0.6 |  |  |  | $101.5 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $87.8 |  |  |  | $— |  |  |  | $— |  |  |  | $87.8 |
Securitization recovery trust account |  | 4.6 |  |  | — |  |  | — |  |  | 4.6 |
Escrow accounts |  | 81.0 |  |  | — |  |  | — |  |  | 81.0 |
FTRs |  | — |  |  | — |  |  | 1.5 |  |  | 1.5 |
|  |  | $173.4 |  |  |  | $— |  |  |  | $1.5 |  |  |  | $174.9 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $0.5 |  |  |  | $— |  |  |  | $— |  |  |  | $0.5 |
Entergy Texas
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.8 |  |  |  | $— |  |  |  | $— |  |  |  | $64.8 |
Securitization recovery trust account |  | 27.9 |  |  | — |  |  | — |  |  | 27.9 |
FTRs |  | — |  |  | — |  |  | 0.9 |  |  | 0.9 |
|  |  | $92.7 |  |  |  | $— |  |  |  | $0.9 |  |  |  | $93.6 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $38.2 |  |  |  | $— |  |  |  | $— |  |  |  | $38.2 |
FTRs |  | — |  |  | — |  |  | 2.2 |  |  | 2.2 |
|  |  | $38.2 |  |  |  | $— |  |  |  | $2.2 |  |  |  | $40.4 |
System Energy
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $255.0 |  |  |  | $— |  |  |  | $— |  |  |  | $255.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.1 |  |  | — |  |  | — |  |  | 2.1 |
Debt securities |  | 232.6 |  |  | 58.8 |  |  | — |  |  | 291.4 |
Common trusts (b) |  |  |  |  |  |  |  | 426.3 |
|  |  | $489.7 |  |  |  | $58.8 |  |  |  | $— |  |  |  | $974.8 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $222.0 |  |  |  | $— |  |  |  | $— |  |  |  | $222.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.8 |  |  | — |  |  | — |  |  | 1.8 |
Debt securities |  | 218.6 |  |  | 59.2 |  |  | — |  |  | 277.8 |
Common trusts (b) |  |  |  |  |  |  |  | 421.9 |
|  |  | $442.4 |  |  |  | $59.2 |  |  |  | $— |  |  |  | $923.5 |
(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 for additional information on the investment portfolios.
(b) | Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value (NAV) as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the NAV and trades settle at a later date.
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, 2016.
| Entergy Arkansas |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
| (In Millions)
Balance as of January 1, |  | $7.9 |  |  |  | $8.5 |  |  |  | $2.4 |  |  |  | $1.5 |  |  |  | $2.2 |
Gains (losses) included as a regulatory liability/asset | 3.6 |  |  | 5.3 |  |  | (0.7 | ) |  | (0.4 | ) |  | 0.2 |
Settlements | (7.8 | ) |  | (10.5 | ) |  | (0.8 | ) |  | (0.5 | ) |  | (1.5 | )
Balance as of March 31, |  | $3.7 |  |  |  | $3.3 |  |  |  | $0.9 |  |  |  | $0.6 |  |  |  | $0.9 |
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, 2015.
| Entergy Arkansas |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
| (In Millions)
Balance as of January 1, |  | $0.7 |  |  |  | $25.5 |  |  |  | $3.4 |  |  |  | $4.1 |  |  |  | $12.3 |
Gains (losses) included as a regulatory liability/asset | 15.0 |  |  | (2.2 | ) |  | 0.8 |  |  | (1.1 | ) |  | (10.3 | )
Settlements | (15.1 | ) |  | (14.5 | ) |  | (3.3 | ) |  | (1.6 | ) |  | 1.4 |
Balance as of March 31, |  | $0.6 |  |  |  | $8.8 |  |  |  | $0.9 |  |  |  | $1.4 |  |  |  | $3.4 |
Entergy Arkansas [Member] |
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, 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 and gas 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 to manage natural risks inherent in its physical or financial assets or liabilities. 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. 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, 2016 is approximately 2 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 88% for the remainder of 2016, of which approximately 60% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2016 is 25 TWh. Entergy may use standardized master netting agreements to help mitigate the credit risk of derivative instruments. These master agreements facilitate the netting of cash flows associated with a single counterparty and may include collateral requirements. Cash, letters of credit, and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk. The collateral agreements require a counterparty to post cash or letters of credit in the event an exposure exceeds an established threshold. The threshold represents an unsecured credit limit, which may be supported by a parental/affiliate guaranty, as determined in accordance with Entergy’s credit policy. In addition, collateral agreements allow for termination and liquidation of all positions in the event of a failure or inability to post collateral. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations when the current market prices exceed the contracted power prices. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2016, there were no derivative contracts with counterparties in a liability position. Letters of credit in the amount of $66 million were required to be posted by its counterparties to the Entergy subsidiary as of March 31, 2016. As of December 31, 2015, derivative contracts with two counterparties were in a liability position (approximately $2 million total). In addition to the corporate guarantee, $9 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $68 million was required to be posted by its counterparties to the Entergy subsidiary. 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 manages fuel price volatility for its Louisiana jurisdictions (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 at Entergy Louisiana and Entergy Mississippi and projected winter purchases for gas distribution at Entergy Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2016 is 57,500,000 MMBtu for Entergy, including 46,330,000 MMBtu for Entergy Louisiana and 11,170,000 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. During the second quarter 2015, Entergy participated in the annual FTR auction process for the MISO planning year of June 1, 2015 through May 31, 2016. 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, 2016 is 18,305 GWh for Entergy, including 3,894 GWh for Entergy Arkansas, 8,385 GWh for Entergy Louisiana, 2,436 GWh for Entergy Mississippi, 1,398 GWh for Entergy New Orleans, and 2,086 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash and/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, 2016, letters of credit posted with MISO covered the FTR exposure for Entergy Mississippi. No cash collateral was required to be posted for FTR exposure for the Utility operating companies or Entergy Wholesale Commodities. As of December 31, 2015, no cash or letters of credit were required to be posted for FTR exposure for the Utility operating companies or Entergy Wholesale Commodities, respectively. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2016 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements 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) |  | $120 |  | ($26) |  | $94 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $20 |  | ($1) |  | $19 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $94 |  | ($24) |  | $70 |  | Entergy Wholesale Commodities
FTRs |  | Prepayments and other |  | $9 |  | $— |  | $9 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $49 |  | ($49) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Other current liabilities |  | $9 |  | $— |  | $9 |  | Utility
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2015 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements 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) |  | $173 |  | ($34) |  | $139 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($2) |  | $15 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $14 |  | ($14) |  | $— |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $2 |  | ($2) |  | $— |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $54 |  | ($13) |  | $41 |  | Entergy Wholesale Commodities
FTRs |  | Prepayments and other |  | $24 |  | ($1) |  | $23 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $38 |  | ($32) |  | $6 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Other current liabilities |  | $9 |  | $— |  | $9 |  | Utility
(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 amount of $9 million posted and $68 million held as of December 31, 2015. There was no cash collateral required to be posted as of March 31, 2016. Also excludes letters of credit in the amount of $0.4 million posted and $66 million held as of March 31, 2016.
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated statements of operations for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Amount of gain (loss) recognized in other comprehensive income |  | Income Statement location |  | Amount of gain (loss) reclassified from AOCI into income (a)
|  | (In Millions) |  |  |  | (In Millions)
2016 |  |  |  |  |  |
Electricity swaps and options |  | $139 |  | Competitive businesses operating revenues |  | $154
2015 |  |  |  |  |  |
Electricity swaps and options |  | ($32) |  | Competitive businesses operating revenues |  | $14
(a) | Before taxes of $54 million and $5 million for the three months ended March 31, 2016 and 2015, respectively
At each reporting period, Entergy measures its hedges for ineffectiveness. Any ineffectiveness is recognized in earnings during the period. The ineffective portion of cash flow hedges is recorded in competitive business operating revenues. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2016 and 2015 was ($1) million and ($1) million, respectively. Based on market prices as of March 31, 2016, net unrealized gains recorded in AOCI on cash flow hedges relating to power sales totaled $152 million. Approximately $134 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. 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 effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated statements of operations for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Amount of gain (loss) recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
|  | (In Millions) |  |  |  | (In Millions)
2016 |  |  |  |  |  |
Natural gas swaps |  | $— |  | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($24)
FTRs |  | $— |  | Purchased power expense | (b) | $21
Electricity swaps and options de-designated as hedged items |  | $25 |  | Competitive business operating revenues |  | $—
2015 |  |  |  |  |  |
Natural gas swaps |  | $— |  | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($19)
FTRs |  | $— |  | Purchased power expense | (b) | $33
Electricity swaps and options de-designated as hedged items |  | $4 |  | Competitive business operating revenues |  | ($34)
(a) | 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.
(b) | Due to regulatory treatment, the changes in the estimated fair value of FTRs for the Utility operating companies 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 for the Utility operating companies 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, 2016 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
FTRs |  | Prepayments and other |  | $3.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $3.3 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $0.9 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $0.6 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $0.9 |  | Entergy Texas
Liabilities: |  |  |  |  |  |
Natural gas swaps |  | Other current liabilities |  | $7.6 |  | Entergy Louisiana
Natural gas swaps |  | Other current liabilities |  | $1.8 |  | Entergy Mississippi
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2015 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
FTRs |  | Prepayments and other |  | $7.9 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $8.5 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $2.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.5 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $2.2 |  | Entergy Texas
Liabilities: |  |  |  |  |  |
Natural gas swaps |  | Other current liabilities |  | $7.0 |  | Entergy Louisiana
Natural gas swaps |  | Other current liabilities |  | $1.3 |  | Entergy Mississippi
Natural gas swaps |  | Other current liabilities |  | $0.5 |  | Entergy New Orleans
(a) | Excludes letters of credit in the amount of $0.4 million posted by Entergy Mississippi as of March 31, 2016. No cash collateral was required to be posted as of March 31, 2016 and December 31, 2015, respectively.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
|  |  |  | (In Millions) |  |
2016 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($19.3) | (a) | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($4.1) | (a) | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($0.5) | (a) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $7.8 | (b) | Entergy Arkansas
FTRs |  | Purchased power expense |  | $10.5 | (b) | Entergy Louisiana
FTRs |  | Purchased power expense |  | $0.8 | (b) | Entergy Mississippi
FTRs |  | Purchased power expense |  | $0.5 | (b) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $1.5 | (b) | Entergy Texas
2015 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($16.0) | (a) | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($3.0) | (a) | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($0.5) | (a) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $15.1 | (b) | Entergy Arkansas
FTRs |  | Purchased power expense |  | $14.5 | (b) | Entergy Louisiana
FTRs |  | Purchased power expense |  | $3.3 | (b) | Entergy Mississippi
FTRs |  | Purchased power expense |  | $1.6 | (b) | Entergy New Orleans
FTRs |  | Purchased power expense |  | ($1.4) | (b) | Entergy Texas
(a) | 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.
(b) | Due to regulatory treatment, the changes in the estimated fair value of FTRs for the Utility operating companies 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 for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms.
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. Effective first quarter 2016, Entergy retrospectively adopted ASU 2015-07, which simplifies the disclosure for fair value investments by removing the requirement to categorize within the fair value hierarchy investment for which fair value is measured using the net asset value per share as a practical expedient. For all periods presented the common trust funds have not been assigned a level and are presented within the fair value tables only as a reconciling item to the total fair value of investments. 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.
• | 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 Accounting Policy and Entergy Wholesale Commodities Accounting 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 Accounting Policy and Entergy Wholesale Commodities Accounting 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 and Treasurer while the Accounting Policy and Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer. 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 U.S. 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 calculates the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control group also validates forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences are 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 are also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and uses multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirms the mark-to-market calculations and prepares price scenarios and credit downgrade scenario analysis. The scenario analysis is communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis is completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’ portfolio. In particular, the credit and liquidity effects are calculated for this analysis. This analysis is communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of congestion costs in MISO between applicable generation and load pricing nodes based on the 50th percentile of historical prices. 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. The values are calculated internally and verified against the data published by MISO. 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 Risk Control groups report to the Vice President and Treasurer. The Accounting Policy group reports to the Chief Accounting Officer. 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, 2016 and December 31, 2015. 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.
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $1,010 |  |  |  | $— |  |  |  | $— |  |  |  | $1,010 |
Funds held on deposit |  | 197 |  |  | — |  |  | — |  |  | 197 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 446 |  |  | — |  |  | — |  |  | 446 |
Debt securities |  | 1,060 |  |  | 1,189 |  |  | — |  |  | 2,249 |
Common trusts (b) |  |  |  |  |  |  |  | 2,757 |
Power contracts |  | — |  |  | — |  |  | 183 |  |  | 183 |
Securitization recovery trust account |  | 52 |  |  | — |  |  | — |  |  | 52 |
Escrow accounts |  | 454 |  |  | — |  |  | — |  |  | 454 |
FTRs |  | — |  |  | — |  |  | 9 |  |  | 9 |
|  |  | $3,219 |  |  |  | $1,189 |  |  |  | $192 |  |  |  | $7,357 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $9 |  |  |  | $— |  |  |  | $— |  |  |  | $9 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $1,287 |  |  |  | $— |  |  |  | $— |  |  |  | $1,287 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 468 |  |  | — |  |  | — |  |  | 468 |
Debt securities |  | 1,061 |  |  | 1,094 |  |  | — |  |  | 2,155 |
Common trusts (b) |  |  |  |  |  |  |  | 2,727 |
Power contracts |  | — |  |  | — |  |  | 195 |  |  | 195 |
Securitization recovery trust account |  | 50 |  |  | — |  |  | — |  |  | 50 |
Escrow accounts |  | 425 |  |  | — |  |  | — |  |  | 425 |
FTRs |  | — |  |  | — |  |  | 23 |  |  | 23 |
|  |  | $3,291 |  |  |  | $1,094 |  |  |  | $218 |  |  |  | $7,330 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $6 |  |  |  | $6 |
Gas hedge contracts |  | 9 |  |  | — |  |  | — |  |  | 9 |
|  |  | $9 |  |  |  | $— |  |  |  | $6 |  |  |  | $15 |
(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 for additional information on the investment portfolios.
(b) | Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value (NAV) as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the NAV and trades settle at a later date.
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, 2016 and 2015:
| 2016 |  | 2015
| Power Contracts |  | FTRs |  | Power Contracts |  | FTRs
| (In Millions)
Balance as of January 1, |  | $189 |  |  |  | $23 |  |  |  | $215 |  |  |  | $47 |
Total gains (losses) for the period (a) |  |  |  |  |  |  |
Included in earnings | — |  |  | — |  |  | (35 | ) |  | — |
Included in OCI | 139 |  |  | — |  |  | (26 | ) |  | — |
Included as a regulatory liability/asset | — |  |  | 7 |  |  | — |  |  | 1 |
Purchases | — |  |  | — |  |  | 10 |  |  | — |
Settlements | (145 | ) |  | (21 | ) |  | (19 | ) |  | (33 | )
Balance as of March 31, |  | $183 |  |  |  | $9 |  |  |  | $145 |  |  |  | $15 |
(a) | Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period is $6 million for the three months ended March 31, 2016 and ($87) million for the three months ended March 31, 2015.
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, 2016:
Transaction Type |  | Fair Value as of March 31, 2016 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Power contracts - electricity swaps |  | $149 |  | Unit contingent discount |  | +/- | 3% |  | $7
Power contracts - electricity options |  | $34 |  | Implied volatility |  | +/- | 30% |  | $10
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, 2016 and December 31, 2015. 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
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.4 |  |  |  | $— |  |  |  | $— |  |  |  | $13.4 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 5.2 |  |  | — |  |  | — |  |  | 5.2 |
Debt securities |  | 102.3 |  |  | 208.9 |  |  | — |  |  | 311.2 |
Common trusts (b) |  |  |  |  |  |  |  | 469.1 |
Securitization recovery trust account |  | 7.6 |  |  | — |  |  | — |  |  | 7.6 |
Escrow accounts |  | 19.3 |  |  | — |  |  | — |  |  | 19.3 |
FTRs |  | — |  |  | — |  |  | 3.7 |  |  | 3.7 |
|  |  | $147.8 |  |  |  | $208.9 |  |  |  | $3.7 |  |  |  | $829.5 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  |  | $3.0 |  |  |  | $— |  |  |  | $— |  |  |  | $3.0 |
Debt securities |  | 110.5 |  |  | 193.4 |  |  | — |  |  | 303.9 |
Common trusts (b) |  |  |  |  |  |  |  | 464.4 |
Securitization recovery trust account |  | 4.2 |  |  | — |  |  | — |  |  | 4.2 |
Escrow accounts |  | 12.2 |  |  | — |  |  | — |  |  | 12.2 |
FTRs |  | — |  |  | — |  |  | 7.9 |  |  | 7.9 |
|  |  | $129.9 |  |  |  | $193.4 |  |  |  | $7.9 |  |  |  | $795.6 |
Entergy Louisiana
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $100.0 |  |  |  | $— |  |  |  | $— |  |  |  | $100.0 |
Funds held on deposit |  | 196.6 |  |  | — |  |  | — |  |  | 196.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 8.5 |  |  | — |  |  | — |  |  | 8.5 |
Debt securities |  | 154.5 |  |  | 267.7 |  |  | — |  |  | 422.2 |
Common trusts (b) |  |  |  |  |  |  |  | 634.5 |
Escrow accounts |  | 304.9 |  |  | — |  |  | — |  |  | 304.9 |
Securitization recovery trust account |  | 8.7 |  |  | — |  |  | — |  |  | 8.7 |
FTRs |  | — |  |  | — |  |  | 3.3 |  |  | 3.3 |
|  |  | $773.2 |  |  |  | $267.7 |  |  |  | $3.3 |  |  |  | $1,678.7 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $7.6 |  |  |  | $— |  |  |  | $— |  |  |  | $7.6 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $34.8 |  |  |  | $— |  |  |  | $— |  |  |  | $34.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 7.1 |  |  | — |  |  | — |  |  | 7.1 |
Debt securities |  | 161.1 |  |  | 248.8 |  |  | — |  |  | 409.9 |
Common trusts (b) |  |  |  |  |  |  |  | 625.3 |
Escrow accounts |  | 290.4 |  |  | — |  |  | — |  |  | 290.4 |
Securitization recovery trust account |  | 3.2 |  |  | — |  |  | — |  |  | 3.2 |
FTRs |  | — |  |  | — |  |  | 8.5 |  |  | 8.5 |
|  |  | $496.6 |  |  |  | $248.8 |  |  |  | $8.5 |  |  |  | $1,379.2 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $7.0 |  |  |  | $— |  |  |  | $— |  |  |  | $7.0 |
Entergy Mississippi
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $112.7 |  |  |  | $— |  |  |  | $— |  |  |  | $112.7 |
Escrow accounts |  | 41.8 |  |  | — |  |  | — |  |  | 41.8 |
FTRs |  | — |  |  | — |  |  | 0.9 |  |  | 0.9 |
|  |  | $154.5 |  |  |  | $— |  |  |  | $0.9 |  |  |  | $155.4 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $1.8 |  |  |  | $— |  |  |  | $— |  |  |  | $1.8 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $144.2 |  |  |  | $— |  |  |  | $— |  |  |  | $144.2 |
Escrow accounts |  | 41.7 |  |  | — |  |  | — |  |  | 41.7 |
FTRs |  | — |  |  | — |  |  | 2.4 |  |  | 2.4 |
|  |  | $185.9 |  |  |  | $— |  |  |  | $2.4 |  |  |  | $188.3 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $1.3 |  |  |  | $— |  |  |  | $— |  |  |  | $1.3 |
Entergy New Orleans
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $5.3 |  |  |  | $— |  |  |  | $— |  |  |  | $5.3 |
Securitization recovery trust account |  | 7.4 |  |  | — |  |  | — |  |  | 7.4 |
Escrow accounts |  | 88.2 |  |  | — |  |  | — |  |  | 88.2 |
FTRs |  | — |  |  | — |  |  | 0.6 |  |  | 0.6 |
|  |  | $100.9 |  |  |  | $— |  |  |  | $0.6 |  |  |  | $101.5 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $87.8 |  |  |  | $— |  |  |  | $— |  |  |  | $87.8 |
Securitization recovery trust account |  | 4.6 |  |  | — |  |  | — |  |  | 4.6 |
Escrow accounts |  | 81.0 |  |  | — |  |  | — |  |  | 81.0 |
FTRs |  | — |  |  | — |  |  | 1.5 |  |  | 1.5 |
|  |  | $173.4 |  |  |  | $— |  |  |  | $1.5 |  |  |  | $174.9 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $0.5 |  |  |  | $— |  |  |  | $— |  |  |  | $0.5 |
Entergy Texas
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.8 |  |  |  | $— |  |  |  | $— |  |  |  | $64.8 |
Securitization recovery trust account |  | 27.9 |  |  | — |  |  | — |  |  | 27.9 |
FTRs |  | — |  |  | — |  |  | 0.9 |  |  | 0.9 |
|  |  | $92.7 |  |  |  | $— |  |  |  | $0.9 |  |  |  | $93.6 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $38.2 |  |  |  | $— |  |  |  | $— |  |  |  | $38.2 |
FTRs |  | — |  |  | — |  |  | 2.2 |  |  | 2.2 |
|  |  | $38.2 |  |  |  | $— |  |  |  | $2.2 |  |  |  | $40.4 |
System Energy
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $255.0 |  |  |  | $— |  |  |  | $— |  |  |  | $255.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.1 |  |  | — |  |  | — |  |  | 2.1 |
Debt securities |  | 232.6 |  |  | 58.8 |  |  | — |  |  | 291.4 |
Common trusts (b) |  |  |  |  |  |  |  | 426.3 |
|  |  | $489.7 |  |  |  | $58.8 |  |  |  | $— |  |  |  | $974.8 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $222.0 |  |  |  | $— |  |  |  | $— |  |  |  | $222.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.8 |  |  | — |  |  | — |  |  | 1.8 |
Debt securities |  | 218.6 |  |  | 59.2 |  |  | — |  |  | 277.8 |
Common trusts (b) |  |  |  |  |  |  |  | 421.9 |
|  |  | $442.4 |  |  |  | $59.2 |  |  |  | $— |  |  |  | $923.5 |
(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 for additional information on the investment portfolios.
(b) | Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value (NAV) as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the NAV and trades settle at a later date.
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, 2016.
| Entergy Arkansas |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
| (In Millions)
Balance as of January 1, |  | $7.9 |  |  |  | $8.5 |  |  |  | $2.4 |  |  |  | $1.5 |  |  |  | $2.2 |
Gains (losses) included as a regulatory liability/asset | 3.6 |  |  | 5.3 |  |  | (0.7 | ) |  | (0.4 | ) |  | 0.2 |
Settlements | (7.8 | ) |  | (10.5 | ) |  | (0.8 | ) |  | (0.5 | ) |  | (1.5 | )
Balance as of March 31, |  | $3.7 |  |  |  | $3.3 |  |  |  | $0.9 |  |  |  | $0.6 |  |  |  | $0.9 |
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, 2015.
| Entergy Arkansas |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
| (In Millions)
Balance as of January 1, |  | $0.7 |  |  |  | $25.5 |  |  |  | $3.4 |  |  |  | $4.1 |  |  |  | $12.3 |
Gains (losses) included as a regulatory liability/asset | 15.0 |  |  | (2.2 | ) |  | 0.8 |  |  | (1.1 | ) |  | (10.3 | )
Settlements | (15.1 | ) |  | (14.5 | ) |  | (3.3 | ) |  | (1.6 | ) |  | 1.4 |
Balance as of March 31, |  | $0.6 |  |  |  | $8.8 |  |  |  | $0.9 |  |  |  | $1.4 |  |  |  | $3.4 |
Entergy Louisiana [Member] |
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, 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 and gas 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 to manage natural risks inherent in its physical or financial assets or liabilities. 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. 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, 2016 is approximately 2 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 88% for the remainder of 2016, of which approximately 60% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2016 is 25 TWh. Entergy may use standardized master netting agreements to help mitigate the credit risk of derivative instruments. These master agreements facilitate the netting of cash flows associated with a single counterparty and may include collateral requirements. Cash, letters of credit, and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk. The collateral agreements require a counterparty to post cash or letters of credit in the event an exposure exceeds an established threshold. The threshold represents an unsecured credit limit, which may be supported by a parental/affiliate guaranty, as determined in accordance with Entergy’s credit policy. In addition, collateral agreements allow for termination and liquidation of all positions in the event of a failure or inability to post collateral. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations when the current market prices exceed the contracted power prices. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2016, there were no derivative contracts with counterparties in a liability position. Letters of credit in the amount of $66 million were required to be posted by its counterparties to the Entergy subsidiary as of March 31, 2016. As of December 31, 2015, derivative contracts with two counterparties were in a liability position (approximately $2 million total). In addition to the corporate guarantee, $9 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $68 million was required to be posted by its counterparties to the Entergy subsidiary. 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 manages fuel price volatility for its Louisiana jurisdictions (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 at Entergy Louisiana and Entergy Mississippi and projected winter purchases for gas distribution at Entergy Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2016 is 57,500,000 MMBtu for Entergy, including 46,330,000 MMBtu for Entergy Louisiana and 11,170,000 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. During the second quarter 2015, Entergy participated in the annual FTR auction process for the MISO planning year of June 1, 2015 through May 31, 2016. 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, 2016 is 18,305 GWh for Entergy, including 3,894 GWh for Entergy Arkansas, 8,385 GWh for Entergy Louisiana, 2,436 GWh for Entergy Mississippi, 1,398 GWh for Entergy New Orleans, and 2,086 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash and/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, 2016, letters of credit posted with MISO covered the FTR exposure for Entergy Mississippi. No cash collateral was required to be posted for FTR exposure for the Utility operating companies or Entergy Wholesale Commodities. As of December 31, 2015, no cash or letters of credit were required to be posted for FTR exposure for the Utility operating companies or Entergy Wholesale Commodities, respectively. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2016 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements 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) |  | $120 |  | ($26) |  | $94 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $20 |  | ($1) |  | $19 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $94 |  | ($24) |  | $70 |  | Entergy Wholesale Commodities
FTRs |  | Prepayments and other |  | $9 |  | $— |  | $9 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $49 |  | ($49) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Other current liabilities |  | $9 |  | $— |  | $9 |  | Utility
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2015 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements 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) |  | $173 |  | ($34) |  | $139 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($2) |  | $15 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $14 |  | ($14) |  | $— |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $2 |  | ($2) |  | $— |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $54 |  | ($13) |  | $41 |  | Entergy Wholesale Commodities
FTRs |  | Prepayments and other |  | $24 |  | ($1) |  | $23 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $38 |  | ($32) |  | $6 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Other current liabilities |  | $9 |  | $— |  | $9 |  | Utility
(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 amount of $9 million posted and $68 million held as of December 31, 2015. There was no cash collateral required to be posted as of March 31, 2016. Also excludes letters of credit in the amount of $0.4 million posted and $66 million held as of March 31, 2016.
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated statements of operations for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Amount of gain (loss) recognized in other comprehensive income |  | Income Statement location |  | Amount of gain (loss) reclassified from AOCI into income (a)
|  | (In Millions) |  |  |  | (In Millions)
2016 |  |  |  |  |  |
Electricity swaps and options |  | $139 |  | Competitive businesses operating revenues |  | $154
2015 |  |  |  |  |  |
Electricity swaps and options |  | ($32) |  | Competitive businesses operating revenues |  | $14
(a) | Before taxes of $54 million and $5 million for the three months ended March 31, 2016 and 2015, respectively
At each reporting period, Entergy measures its hedges for ineffectiveness. Any ineffectiveness is recognized in earnings during the period. The ineffective portion of cash flow hedges is recorded in competitive business operating revenues. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2016 and 2015 was ($1) million and ($1) million, respectively. Based on market prices as of March 31, 2016, net unrealized gains recorded in AOCI on cash flow hedges relating to power sales totaled $152 million. Approximately $134 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. 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 effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated statements of operations for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Amount of gain (loss) recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
|  | (In Millions) |  |  |  | (In Millions)
2016 |  |  |  |  |  |
Natural gas swaps |  | $— |  | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($24)
FTRs |  | $— |  | Purchased power expense | (b) | $21
Electricity swaps and options de-designated as hedged items |  | $25 |  | Competitive business operating revenues |  | $—
2015 |  |  |  |  |  |
Natural gas swaps |  | $— |  | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($19)
FTRs |  | $— |  | Purchased power expense | (b) | $33
Electricity swaps and options de-designated as hedged items |  | $4 |  | Competitive business operating revenues |  | ($34)
(a) | 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.
(b) | Due to regulatory treatment, the changes in the estimated fair value of FTRs for the Utility operating companies 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 for the Utility operating companies 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, 2016 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
FTRs |  | Prepayments and other |  | $3.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $3.3 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $0.9 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $0.6 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $0.9 |  | Entergy Texas
Liabilities: |  |  |  |  |  |
Natural gas swaps |  | Other current liabilities |  | $7.6 |  | Entergy Louisiana
Natural gas swaps |  | Other current liabilities |  | $1.8 |  | Entergy Mississippi
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2015 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
FTRs |  | Prepayments and other |  | $7.9 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $8.5 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $2.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.5 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $2.2 |  | Entergy Texas
Liabilities: |  |  |  |  |  |
Natural gas swaps |  | Other current liabilities |  | $7.0 |  | Entergy Louisiana
Natural gas swaps |  | Other current liabilities |  | $1.3 |  | Entergy Mississippi
Natural gas swaps |  | Other current liabilities |  | $0.5 |  | Entergy New Orleans
(a) | Excludes letters of credit in the amount of $0.4 million posted by Entergy Mississippi as of March 31, 2016. No cash collateral was required to be posted as of March 31, 2016 and December 31, 2015, respectively.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
|  |  |  | (In Millions) |  |
2016 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($19.3) | (a) | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($4.1) | (a) | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($0.5) | (a) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $7.8 | (b) | Entergy Arkansas
FTRs |  | Purchased power expense |  | $10.5 | (b) | Entergy Louisiana
FTRs |  | Purchased power expense |  | $0.8 | (b) | Entergy Mississippi
FTRs |  | Purchased power expense |  | $0.5 | (b) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $1.5 | (b) | Entergy Texas
2015 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($16.0) | (a) | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($3.0) | (a) | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($0.5) | (a) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $15.1 | (b) | Entergy Arkansas
FTRs |  | Purchased power expense |  | $14.5 | (b) | Entergy Louisiana
FTRs |  | Purchased power expense |  | $3.3 | (b) | Entergy Mississippi
FTRs |  | Purchased power expense |  | $1.6 | (b) | Entergy New Orleans
FTRs |  | Purchased power expense |  | ($1.4) | (b) | Entergy Texas
(a) | 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.
(b) | Due to regulatory treatment, the changes in the estimated fair value of FTRs for the Utility operating companies 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 for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms.
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. Effective first quarter 2016, Entergy retrospectively adopted ASU 2015-07, which simplifies the disclosure for fair value investments by removing the requirement to categorize within the fair value hierarchy investment for which fair value is measured using the net asset value per share as a practical expedient. For all periods presented the common trust funds have not been assigned a level and are presented within the fair value tables only as a reconciling item to the total fair value of investments. 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.
• | 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 Accounting Policy and Entergy Wholesale Commodities Accounting 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 Accounting Policy and Entergy Wholesale Commodities Accounting 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 and Treasurer while the Accounting Policy and Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer. 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 U.S. 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 calculates the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control group also validates forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences are 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 are also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and uses multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirms the mark-to-market calculations and prepares price scenarios and credit downgrade scenario analysis. The scenario analysis is communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis is completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’ portfolio. In particular, the credit and liquidity effects are calculated for this analysis. This analysis is communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of congestion costs in MISO between applicable generation and load pricing nodes based on the 50th percentile of historical prices. 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. The values are calculated internally and verified against the data published by MISO. 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 Risk Control groups report to the Vice President and Treasurer. The Accounting Policy group reports to the Chief Accounting Officer. 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, 2016 and December 31, 2015. 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.
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $1,010 |  |  |  | $— |  |  |  | $— |  |  |  | $1,010 |
Funds held on deposit |  | 197 |  |  | — |  |  | — |  |  | 197 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 446 |  |  | — |  |  | — |  |  | 446 |
Debt securities |  | 1,060 |  |  | 1,189 |  |  | — |  |  | 2,249 |
Common trusts (b) |  |  |  |  |  |  |  | 2,757 |
Power contracts |  | — |  |  | — |  |  | 183 |  |  | 183 |
Securitization recovery trust account |  | 52 |  |  | — |  |  | — |  |  | 52 |
Escrow accounts |  | 454 |  |  | — |  |  | — |  |  | 454 |
FTRs |  | — |  |  | — |  |  | 9 |  |  | 9 |
|  |  | $3,219 |  |  |  | $1,189 |  |  |  | $192 |  |  |  | $7,357 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $9 |  |  |  | $— |  |  |  | $— |  |  |  | $9 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $1,287 |  |  |  | $— |  |  |  | $— |  |  |  | $1,287 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 468 |  |  | — |  |  | — |  |  | 468 |
Debt securities |  | 1,061 |  |  | 1,094 |  |  | — |  |  | 2,155 |
Common trusts (b) |  |  |  |  |  |  |  | 2,727 |
Power contracts |  | — |  |  | — |  |  | 195 |  |  | 195 |
Securitization recovery trust account |  | 50 |  |  | — |  |  | — |  |  | 50 |
Escrow accounts |  | 425 |  |  | — |  |  | — |  |  | 425 |
FTRs |  | — |  |  | — |  |  | 23 |  |  | 23 |
|  |  | $3,291 |  |  |  | $1,094 |  |  |  | $218 |  |  |  | $7,330 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $6 |  |  |  | $6 |
Gas hedge contracts |  | 9 |  |  | — |  |  | — |  |  | 9 |
|  |  | $9 |  |  |  | $— |  |  |  | $6 |  |  |  | $15 |
(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 for additional information on the investment portfolios.
(b) | Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value (NAV) as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the NAV and trades settle at a later date.
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, 2016 and 2015:
| 2016 |  | 2015
| Power Contracts |  | FTRs |  | Power Contracts |  | FTRs
| (In Millions)
Balance as of January 1, |  | $189 |  |  |  | $23 |  |  |  | $215 |  |  |  | $47 |
Total gains (losses) for the period (a) |  |  |  |  |  |  |
Included in earnings | — |  |  | — |  |  | (35 | ) |  | — |
Included in OCI | 139 |  |  | — |  |  | (26 | ) |  | — |
Included as a regulatory liability/asset | — |  |  | 7 |  |  | — |  |  | 1 |
Purchases | — |  |  | — |  |  | 10 |  |  | — |
Settlements | (145 | ) |  | (21 | ) |  | (19 | ) |  | (33 | )
Balance as of March 31, |  | $183 |  |  |  | $9 |  |  |  | $145 |  |  |  | $15 |
(a) | Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period is $6 million for the three months ended March 31, 2016 and ($87) million for the three months ended March 31, 2015.
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, 2016:
Transaction Type |  | Fair Value as of March 31, 2016 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Power contracts - electricity swaps |  | $149 |  | Unit contingent discount |  | +/- | 3% |  | $7
Power contracts - electricity options |  | $34 |  | Implied volatility |  | +/- | 30% |  | $10
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, 2016 and December 31, 2015. 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
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.4 |  |  |  | $— |  |  |  | $— |  |  |  | $13.4 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 5.2 |  |  | — |  |  | — |  |  | 5.2 |
Debt securities |  | 102.3 |  |  | 208.9 |  |  | — |  |  | 311.2 |
Common trusts (b) |  |  |  |  |  |  |  | 469.1 |
Securitization recovery trust account |  | 7.6 |  |  | — |  |  | — |  |  | 7.6 |
Escrow accounts |  | 19.3 |  |  | — |  |  | — |  |  | 19.3 |
FTRs |  | — |  |  | — |  |  | 3.7 |  |  | 3.7 |
|  |  | $147.8 |  |  |  | $208.9 |  |  |  | $3.7 |  |  |  | $829.5 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  |  | $3.0 |  |  |  | $— |  |  |  | $— |  |  |  | $3.0 |
Debt securities |  | 110.5 |  |  | 193.4 |  |  | — |  |  | 303.9 |
Common trusts (b) |  |  |  |  |  |  |  | 464.4 |
Securitization recovery trust account |  | 4.2 |  |  | — |  |  | — |  |  | 4.2 |
Escrow accounts |  | 12.2 |  |  | — |  |  | — |  |  | 12.2 |
FTRs |  | — |  |  | — |  |  | 7.9 |  |  | 7.9 |
|  |  | $129.9 |  |  |  | $193.4 |  |  |  | $7.9 |  |  |  | $795.6 |
Entergy Louisiana
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $100.0 |  |  |  | $— |  |  |  | $— |  |  |  | $100.0 |
Funds held on deposit |  | 196.6 |  |  | — |  |  | — |  |  | 196.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 8.5 |  |  | — |  |  | — |  |  | 8.5 |
Debt securities |  | 154.5 |  |  | 267.7 |  |  | — |  |  | 422.2 |
Common trusts (b) |  |  |  |  |  |  |  | 634.5 |
Escrow accounts |  | 304.9 |  |  | — |  |  | — |  |  | 304.9 |
Securitization recovery trust account |  | 8.7 |  |  | — |  |  | — |  |  | 8.7 |
FTRs |  | — |  |  | — |  |  | 3.3 |  |  | 3.3 |
|  |  | $773.2 |  |  |  | $267.7 |  |  |  | $3.3 |  |  |  | $1,678.7 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $7.6 |  |  |  | $— |  |  |  | $— |  |  |  | $7.6 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $34.8 |  |  |  | $— |  |  |  | $— |  |  |  | $34.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 7.1 |  |  | — |  |  | — |  |  | 7.1 |
Debt securities |  | 161.1 |  |  | 248.8 |  |  | — |  |  | 409.9 |
Common trusts (b) |  |  |  |  |  |  |  | 625.3 |
Escrow accounts |  | 290.4 |  |  | — |  |  | — |  |  | 290.4 |
Securitization recovery trust account |  | 3.2 |  |  | — |  |  | — |  |  | 3.2 |
FTRs |  | — |  |  | — |  |  | 8.5 |  |  | 8.5 |
|  |  | $496.6 |  |  |  | $248.8 |  |  |  | $8.5 |  |  |  | $1,379.2 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $7.0 |  |  |  | $— |  |  |  | $— |  |  |  | $7.0 |
Entergy Mississippi
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $112.7 |  |  |  | $— |  |  |  | $— |  |  |  | $112.7 |
Escrow accounts |  | 41.8 |  |  | — |  |  | — |  |  | 41.8 |
FTRs |  | — |  |  | — |  |  | 0.9 |  |  | 0.9 |
|  |  | $154.5 |  |  |  | $— |  |  |  | $0.9 |  |  |  | $155.4 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $1.8 |  |  |  | $— |  |  |  | $— |  |  |  | $1.8 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $144.2 |  |  |  | $— |  |  |  | $— |  |  |  | $144.2 |
Escrow accounts |  | 41.7 |  |  | — |  |  | — |  |  | 41.7 |
FTRs |  | — |  |  | — |  |  | 2.4 |  |  | 2.4 |
|  |  | $185.9 |  |  |  | $— |  |  |  | $2.4 |  |  |  | $188.3 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $1.3 |  |  |  | $— |  |  |  | $— |  |  |  | $1.3 |
Entergy New Orleans
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $5.3 |  |  |  | $— |  |  |  | $— |  |  |  | $5.3 |
Securitization recovery trust account |  | 7.4 |  |  | — |  |  | — |  |  | 7.4 |
Escrow accounts |  | 88.2 |  |  | — |  |  | — |  |  | 88.2 |
FTRs |  | — |  |  | — |  |  | 0.6 |  |  | 0.6 |
|  |  | $100.9 |  |  |  | $— |  |  |  | $0.6 |  |  |  | $101.5 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $87.8 |  |  |  | $— |  |  |  | $— |  |  |  | $87.8 |
Securitization recovery trust account |  | 4.6 |  |  | — |  |  | — |  |  | 4.6 |
Escrow accounts |  | 81.0 |  |  | — |  |  | — |  |  | 81.0 |
FTRs |  | — |  |  | — |  |  | 1.5 |  |  | 1.5 |
|  |  | $173.4 |  |  |  | $— |  |  |  | $1.5 |  |  |  | $174.9 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $0.5 |  |  |  | $— |  |  |  | $— |  |  |  | $0.5 |
Entergy Texas
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.8 |  |  |  | $— |  |  |  | $— |  |  |  | $64.8 |
Securitization recovery trust account |  | 27.9 |  |  | — |  |  | — |  |  | 27.9 |
FTRs |  | — |  |  | — |  |  | 0.9 |  |  | 0.9 |
|  |  | $92.7 |  |  |  | $— |  |  |  | $0.9 |  |  |  | $93.6 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $38.2 |  |  |  | $— |  |  |  | $— |  |  |  | $38.2 |
FTRs |  | — |  |  | — |  |  | 2.2 |  |  | 2.2 |
|  |  | $38.2 |  |  |  | $— |  |  |  | $2.2 |  |  |  | $40.4 |
System Energy
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $255.0 |  |  |  | $— |  |  |  | $— |  |  |  | $255.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.1 |  |  | — |  |  | — |  |  | 2.1 |
Debt securities |  | 232.6 |  |  | 58.8 |  |  | — |  |  | 291.4 |
Common trusts (b) |  |  |  |  |  |  |  | 426.3 |
|  |  | $489.7 |  |  |  | $58.8 |  |  |  | $— |  |  |  | $974.8 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $222.0 |  |  |  | $— |  |  |  | $— |  |  |  | $222.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.8 |  |  | — |  |  | — |  |  | 1.8 |
Debt securities |  | 218.6 |  |  | 59.2 |  |  | — |  |  | 277.8 |
Common trusts (b) |  |  |  |  |  |  |  | 421.9 |
|  |  | $442.4 |  |  |  | $59.2 |  |  |  | $— |  |  |  | $923.5 |
(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 for additional information on the investment portfolios.
(b) | Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value (NAV) as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the NAV and trades settle at a later date.
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, 2016.
| Entergy Arkansas |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
| (In Millions)
Balance as of January 1, |  | $7.9 |  |  |  | $8.5 |  |  |  | $2.4 |  |  |  | $1.5 |  |  |  | $2.2 |
Gains (losses) included as a regulatory liability/asset | 3.6 |  |  | 5.3 |  |  | (0.7 | ) |  | (0.4 | ) |  | 0.2 |
Settlements | (7.8 | ) |  | (10.5 | ) |  | (0.8 | ) |  | (0.5 | ) |  | (1.5 | )
Balance as of March 31, |  | $3.7 |  |  |  | $3.3 |  |  |  | $0.9 |  |  |  | $0.6 |  |  |  | $0.9 |
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, 2015.
| Entergy Arkansas |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
| (In Millions)
Balance as of January 1, |  | $0.7 |  |  |  | $25.5 |  |  |  | $3.4 |  |  |  | $4.1 |  |  |  | $12.3 |
Gains (losses) included as a regulatory liability/asset | 15.0 |  |  | (2.2 | ) |  | 0.8 |  |  | (1.1 | ) |  | (10.3 | )
Settlements | (15.1 | ) |  | (14.5 | ) |  | (3.3 | ) |  | (1.6 | ) |  | 1.4 |
Balance as of March 31, |  | $0.6 |  |  |  | $8.8 |  |  |  | $0.9 |  |  |  | $1.4 |  |  |  | $3.4 |
Entergy Mississippi [Member] |
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, 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 and gas 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 to manage natural risks inherent in its physical or financial assets or liabilities. 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. 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, 2016 is approximately 2 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 88% for the remainder of 2016, of which approximately 60% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2016 is 25 TWh. Entergy may use standardized master netting agreements to help mitigate the credit risk of derivative instruments. These master agreements facilitate the netting of cash flows associated with a single counterparty and may include collateral requirements. Cash, letters of credit, and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk. The collateral agreements require a counterparty to post cash or letters of credit in the event an exposure exceeds an established threshold. The threshold represents an unsecured credit limit, which may be supported by a parental/affiliate guaranty, as determined in accordance with Entergy’s credit policy. In addition, collateral agreements allow for termination and liquidation of all positions in the event of a failure or inability to post collateral. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations when the current market prices exceed the contracted power prices. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2016, there were no derivative contracts with counterparties in a liability position. Letters of credit in the amount of $66 million were required to be posted by its counterparties to the Entergy subsidiary as of March 31, 2016. As of December 31, 2015, derivative contracts with two counterparties were in a liability position (approximately $2 million total). In addition to the corporate guarantee, $9 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $68 million was required to be posted by its counterparties to the Entergy subsidiary. 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 manages fuel price volatility for its Louisiana jurisdictions (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 at Entergy Louisiana and Entergy Mississippi and projected winter purchases for gas distribution at Entergy Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2016 is 57,500,000 MMBtu for Entergy, including 46,330,000 MMBtu for Entergy Louisiana and 11,170,000 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. During the second quarter 2015, Entergy participated in the annual FTR auction process for the MISO planning year of June 1, 2015 through May 31, 2016. 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, 2016 is 18,305 GWh for Entergy, including 3,894 GWh for Entergy Arkansas, 8,385 GWh for Entergy Louisiana, 2,436 GWh for Entergy Mississippi, 1,398 GWh for Entergy New Orleans, and 2,086 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash and/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, 2016, letters of credit posted with MISO covered the FTR exposure for Entergy Mississippi. No cash collateral was required to be posted for FTR exposure for the Utility operating companies or Entergy Wholesale Commodities. As of December 31, 2015, no cash or letters of credit were required to be posted for FTR exposure for the Utility operating companies or Entergy Wholesale Commodities, respectively. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2016 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements 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) |  | $120 |  | ($26) |  | $94 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $20 |  | ($1) |  | $19 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $94 |  | ($24) |  | $70 |  | Entergy Wholesale Commodities
FTRs |  | Prepayments and other |  | $9 |  | $— |  | $9 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $49 |  | ($49) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Other current liabilities |  | $9 |  | $— |  | $9 |  | Utility
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2015 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements 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) |  | $173 |  | ($34) |  | $139 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($2) |  | $15 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $14 |  | ($14) |  | $— |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $2 |  | ($2) |  | $— |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $54 |  | ($13) |  | $41 |  | Entergy Wholesale Commodities
FTRs |  | Prepayments and other |  | $24 |  | ($1) |  | $23 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $38 |  | ($32) |  | $6 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Other current liabilities |  | $9 |  | $— |  | $9 |  | Utility
(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 amount of $9 million posted and $68 million held as of December 31, 2015. There was no cash collateral required to be posted as of March 31, 2016. Also excludes letters of credit in the amount of $0.4 million posted and $66 million held as of March 31, 2016.
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated statements of operations for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Amount of gain (loss) recognized in other comprehensive income |  | Income Statement location |  | Amount of gain (loss) reclassified from AOCI into income (a)
|  | (In Millions) |  |  |  | (In Millions)
2016 |  |  |  |  |  |
Electricity swaps and options |  | $139 |  | Competitive businesses operating revenues |  | $154
2015 |  |  |  |  |  |
Electricity swaps and options |  | ($32) |  | Competitive businesses operating revenues |  | $14
(a) | Before taxes of $54 million and $5 million for the three months ended March 31, 2016 and 2015, respectively
At each reporting period, Entergy measures its hedges for ineffectiveness. Any ineffectiveness is recognized in earnings during the period. The ineffective portion of cash flow hedges is recorded in competitive business operating revenues. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2016 and 2015 was ($1) million and ($1) million, respectively. Based on market prices as of March 31, 2016, net unrealized gains recorded in AOCI on cash flow hedges relating to power sales totaled $152 million. Approximately $134 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. 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 effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated statements of operations for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Amount of gain (loss) recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
|  | (In Millions) |  |  |  | (In Millions)
2016 |  |  |  |  |  |
Natural gas swaps |  | $— |  | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($24)
FTRs |  | $— |  | Purchased power expense | (b) | $21
Electricity swaps and options de-designated as hedged items |  | $25 |  | Competitive business operating revenues |  | $—
2015 |  |  |  |  |  |
Natural gas swaps |  | $— |  | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($19)
FTRs |  | $— |  | Purchased power expense | (b) | $33
Electricity swaps and options de-designated as hedged items |  | $4 |  | Competitive business operating revenues |  | ($34)
(a) | 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.
(b) | Due to regulatory treatment, the changes in the estimated fair value of FTRs for the Utility operating companies 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 for the Utility operating companies 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, 2016 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
FTRs |  | Prepayments and other |  | $3.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $3.3 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $0.9 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $0.6 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $0.9 |  | Entergy Texas
Liabilities: |  |  |  |  |  |
Natural gas swaps |  | Other current liabilities |  | $7.6 |  | Entergy Louisiana
Natural gas swaps |  | Other current liabilities |  | $1.8 |  | Entergy Mississippi
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2015 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
FTRs |  | Prepayments and other |  | $7.9 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $8.5 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $2.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.5 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $2.2 |  | Entergy Texas
Liabilities: |  |  |  |  |  |
Natural gas swaps |  | Other current liabilities |  | $7.0 |  | Entergy Louisiana
Natural gas swaps |  | Other current liabilities |  | $1.3 |  | Entergy Mississippi
Natural gas swaps |  | Other current liabilities |  | $0.5 |  | Entergy New Orleans
(a) | Excludes letters of credit in the amount of $0.4 million posted by Entergy Mississippi as of March 31, 2016. No cash collateral was required to be posted as of March 31, 2016 and December 31, 2015, respectively.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
|  |  |  | (In Millions) |  |
2016 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($19.3) | (a) | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($4.1) | (a) | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($0.5) | (a) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $7.8 | (b) | Entergy Arkansas
FTRs |  | Purchased power expense |  | $10.5 | (b) | Entergy Louisiana
FTRs |  | Purchased power expense |  | $0.8 | (b) | Entergy Mississippi
FTRs |  | Purchased power expense |  | $0.5 | (b) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $1.5 | (b) | Entergy Texas
2015 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($16.0) | (a) | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($3.0) | (a) | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($0.5) | (a) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $15.1 | (b) | Entergy Arkansas
FTRs |  | Purchased power expense |  | $14.5 | (b) | Entergy Louisiana
FTRs |  | Purchased power expense |  | $3.3 | (b) | Entergy Mississippi
FTRs |  | Purchased power expense |  | $1.6 | (b) | Entergy New Orleans
FTRs |  | Purchased power expense |  | ($1.4) | (b) | Entergy Texas
(a) | 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.
(b) | Due to regulatory treatment, the changes in the estimated fair value of FTRs for the Utility operating companies 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 for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms.
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. Effective first quarter 2016, Entergy retrospectively adopted ASU 2015-07, which simplifies the disclosure for fair value investments by removing the requirement to categorize within the fair value hierarchy investment for which fair value is measured using the net asset value per share as a practical expedient. For all periods presented the common trust funds have not been assigned a level and are presented within the fair value tables only as a reconciling item to the total fair value of investments. 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.
• | 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 Accounting Policy and Entergy Wholesale Commodities Accounting 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 Accounting Policy and Entergy Wholesale Commodities Accounting 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 and Treasurer while the Accounting Policy and Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer. 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 U.S. 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 calculates the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control group also validates forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences are 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 are also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and uses multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirms the mark-to-market calculations and prepares price scenarios and credit downgrade scenario analysis. The scenario analysis is communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis is completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’ portfolio. In particular, the credit and liquidity effects are calculated for this analysis. This analysis is communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of congestion costs in MISO between applicable generation and load pricing nodes based on the 50th percentile of historical prices. 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. The values are calculated internally and verified against the data published by MISO. 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 Risk Control groups report to the Vice President and Treasurer. The Accounting Policy group reports to the Chief Accounting Officer. 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, 2016 and December 31, 2015. 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.
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $1,010 |  |  |  | $— |  |  |  | $— |  |  |  | $1,010 |
Funds held on deposit |  | 197 |  |  | — |  |  | — |  |  | 197 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 446 |  |  | — |  |  | — |  |  | 446 |
Debt securities |  | 1,060 |  |  | 1,189 |  |  | — |  |  | 2,249 |
Common trusts (b) |  |  |  |  |  |  |  | 2,757 |
Power contracts |  | — |  |  | — |  |  | 183 |  |  | 183 |
Securitization recovery trust account |  | 52 |  |  | — |  |  | — |  |  | 52 |
Escrow accounts |  | 454 |  |  | — |  |  | — |  |  | 454 |
FTRs |  | — |  |  | — |  |  | 9 |  |  | 9 |
|  |  | $3,219 |  |  |  | $1,189 |  |  |  | $192 |  |  |  | $7,357 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $9 |  |  |  | $— |  |  |  | $— |  |  |  | $9 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $1,287 |  |  |  | $— |  |  |  | $— |  |  |  | $1,287 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 468 |  |  | — |  |  | — |  |  | 468 |
Debt securities |  | 1,061 |  |  | 1,094 |  |  | — |  |  | 2,155 |
Common trusts (b) |  |  |  |  |  |  |  | 2,727 |
Power contracts |  | — |  |  | — |  |  | 195 |  |  | 195 |
Securitization recovery trust account |  | 50 |  |  | — |  |  | — |  |  | 50 |
Escrow accounts |  | 425 |  |  | — |  |  | — |  |  | 425 |
FTRs |  | — |  |  | — |  |  | 23 |  |  | 23 |
|  |  | $3,291 |  |  |  | $1,094 |  |  |  | $218 |  |  |  | $7,330 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $6 |  |  |  | $6 |
Gas hedge contracts |  | 9 |  |  | — |  |  | — |  |  | 9 |
|  |  | $9 |  |  |  | $— |  |  |  | $6 |  |  |  | $15 |
(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 for additional information on the investment portfolios.
(b) | Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value (NAV) as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the NAV and trades settle at a later date.
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, 2016 and 2015:
| 2016 |  | 2015
| Power Contracts |  | FTRs |  | Power Contracts |  | FTRs
| (In Millions)
Balance as of January 1, |  | $189 |  |  |  | $23 |  |  |  | $215 |  |  |  | $47 |
Total gains (losses) for the period (a) |  |  |  |  |  |  |
Included in earnings | — |  |  | — |  |  | (35 | ) |  | — |
Included in OCI | 139 |  |  | — |  |  | (26 | ) |  | — |
Included as a regulatory liability/asset | — |  |  | 7 |  |  | — |  |  | 1 |
Purchases | — |  |  | — |  |  | 10 |  |  | — |
Settlements | (145 | ) |  | (21 | ) |  | (19 | ) |  | (33 | )
Balance as of March 31, |  | $183 |  |  |  | $9 |  |  |  | $145 |  |  |  | $15 |
(a) | Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period is $6 million for the three months ended March 31, 2016 and ($87) million for the three months ended March 31, 2015.
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, 2016:
Transaction Type |  | Fair Value as of March 31, 2016 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Power contracts - electricity swaps |  | $149 |  | Unit contingent discount |  | +/- | 3% |  | $7
Power contracts - electricity options |  | $34 |  | Implied volatility |  | +/- | 30% |  | $10
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, 2016 and December 31, 2015. 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
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.4 |  |  |  | $— |  |  |  | $— |  |  |  | $13.4 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 5.2 |  |  | — |  |  | — |  |  | 5.2 |
Debt securities |  | 102.3 |  |  | 208.9 |  |  | — |  |  | 311.2 |
Common trusts (b) |  |  |  |  |  |  |  | 469.1 |
Securitization recovery trust account |  | 7.6 |  |  | — |  |  | — |  |  | 7.6 |
Escrow accounts |  | 19.3 |  |  | — |  |  | — |  |  | 19.3 |
FTRs |  | — |  |  | — |  |  | 3.7 |  |  | 3.7 |
|  |  | $147.8 |  |  |  | $208.9 |  |  |  | $3.7 |  |  |  | $829.5 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  |  | $3.0 |  |  |  | $— |  |  |  | $— |  |  |  | $3.0 |
Debt securities |  | 110.5 |  |  | 193.4 |  |  | — |  |  | 303.9 |
Common trusts (b) |  |  |  |  |  |  |  | 464.4 |
Securitization recovery trust account |  | 4.2 |  |  | — |  |  | — |  |  | 4.2 |
Escrow accounts |  | 12.2 |  |  | — |  |  | — |  |  | 12.2 |
FTRs |  | — |  |  | — |  |  | 7.9 |  |  | 7.9 |
|  |  | $129.9 |  |  |  | $193.4 |  |  |  | $7.9 |  |  |  | $795.6 |
Entergy Louisiana
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $100.0 |  |  |  | $— |  |  |  | $— |  |  |  | $100.0 |
Funds held on deposit |  | 196.6 |  |  | — |  |  | — |  |  | 196.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 8.5 |  |  | — |  |  | — |  |  | 8.5 |
Debt securities |  | 154.5 |  |  | 267.7 |  |  | — |  |  | 422.2 |
Common trusts (b) |  |  |  |  |  |  |  | 634.5 |
Escrow accounts |  | 304.9 |  |  | — |  |  | — |  |  | 304.9 |
Securitization recovery trust account |  | 8.7 |  |  | — |  |  | — |  |  | 8.7 |
FTRs |  | — |  |  | — |  |  | 3.3 |  |  | 3.3 |
|  |  | $773.2 |  |  |  | $267.7 |  |  |  | $3.3 |  |  |  | $1,678.7 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $7.6 |  |  |  | $— |  |  |  | $— |  |  |  | $7.6 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $34.8 |  |  |  | $— |  |  |  | $— |  |  |  | $34.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 7.1 |  |  | — |  |  | — |  |  | 7.1 |
Debt securities |  | 161.1 |  |  | 248.8 |  |  | — |  |  | 409.9 |
Common trusts (b) |  |  |  |  |  |  |  | 625.3 |
Escrow accounts |  | 290.4 |  |  | — |  |  | — |  |  | 290.4 |
Securitization recovery trust account |  | 3.2 |  |  | — |  |  | — |  |  | 3.2 |
FTRs |  | — |  |  | — |  |  | 8.5 |  |  | 8.5 |
|  |  | $496.6 |  |  |  | $248.8 |  |  |  | $8.5 |  |  |  | $1,379.2 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $7.0 |  |  |  | $— |  |  |  | $— |  |  |  | $7.0 |
Entergy Mississippi
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $112.7 |  |  |  | $— |  |  |  | $— |  |  |  | $112.7 |
Escrow accounts |  | 41.8 |  |  | — |  |  | — |  |  | 41.8 |
FTRs |  | — |  |  | — |  |  | 0.9 |  |  | 0.9 |
|  |  | $154.5 |  |  |  | $— |  |  |  | $0.9 |  |  |  | $155.4 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $1.8 |  |  |  | $— |  |  |  | $— |  |  |  | $1.8 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $144.2 |  |  |  | $— |  |  |  | $— |  |  |  | $144.2 |
Escrow accounts |  | 41.7 |  |  | — |  |  | — |  |  | 41.7 |
FTRs |  | — |  |  | — |  |  | 2.4 |  |  | 2.4 |
|  |  | $185.9 |  |  |  | $— |  |  |  | $2.4 |  |  |  | $188.3 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $1.3 |  |  |  | $— |  |  |  | $— |  |  |  | $1.3 |
Entergy New Orleans
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $5.3 |  |  |  | $— |  |  |  | $— |  |  |  | $5.3 |
Securitization recovery trust account |  | 7.4 |  |  | — |  |  | — |  |  | 7.4 |
Escrow accounts |  | 88.2 |  |  | — |  |  | — |  |  | 88.2 |
FTRs |  | — |  |  | — |  |  | 0.6 |  |  | 0.6 |
|  |  | $100.9 |  |  |  | $— |  |  |  | $0.6 |  |  |  | $101.5 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $87.8 |  |  |  | $— |  |  |  | $— |  |  |  | $87.8 |
Securitization recovery trust account |  | 4.6 |  |  | — |  |  | — |  |  | 4.6 |
Escrow accounts |  | 81.0 |  |  | — |  |  | — |  |  | 81.0 |
FTRs |  | — |  |  | — |  |  | 1.5 |  |  | 1.5 |
|  |  | $173.4 |  |  |  | $— |  |  |  | $1.5 |  |  |  | $174.9 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $0.5 |  |  |  | $— |  |  |  | $— |  |  |  | $0.5 |
Entergy Texas
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.8 |  |  |  | $— |  |  |  | $— |  |  |  | $64.8 |
Securitization recovery trust account |  | 27.9 |  |  | — |  |  | — |  |  | 27.9 |
FTRs |  | — |  |  | — |  |  | 0.9 |  |  | 0.9 |
|  |  | $92.7 |  |  |  | $— |  |  |  | $0.9 |  |  |  | $93.6 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $38.2 |  |  |  | $— |  |  |  | $— |  |  |  | $38.2 |
FTRs |  | — |  |  | — |  |  | 2.2 |  |  | 2.2 |
|  |  | $38.2 |  |  |  | $— |  |  |  | $2.2 |  |  |  | $40.4 |
System Energy
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $255.0 |  |  |  | $— |  |  |  | $— |  |  |  | $255.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.1 |  |  | — |  |  | — |  |  | 2.1 |
Debt securities |  | 232.6 |  |  | 58.8 |  |  | — |  |  | 291.4 |
Common trusts (b) |  |  |  |  |  |  |  | 426.3 |
|  |  | $489.7 |  |  |  | $58.8 |  |  |  | $— |  |  |  | $974.8 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $222.0 |  |  |  | $— |  |  |  | $— |  |  |  | $222.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.8 |  |  | — |  |  | — |  |  | 1.8 |
Debt securities |  | 218.6 |  |  | 59.2 |  |  | — |  |  | 277.8 |
Common trusts (b) |  |  |  |  |  |  |  | 421.9 |
|  |  | $442.4 |  |  |  | $59.2 |  |  |  | $— |  |  |  | $923.5 |
(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 for additional information on the investment portfolios.
(b) | Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value (NAV) as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the NAV and trades settle at a later date.
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, 2016.
| Entergy Arkansas |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
| (In Millions)
Balance as of January 1, |  | $7.9 |  |  |  | $8.5 |  |  |  | $2.4 |  |  |  | $1.5 |  |  |  | $2.2 |
Gains (losses) included as a regulatory liability/asset | 3.6 |  |  | 5.3 |  |  | (0.7 | ) |  | (0.4 | ) |  | 0.2 |
Settlements | (7.8 | ) |  | (10.5 | ) |  | (0.8 | ) |  | (0.5 | ) |  | (1.5 | )
Balance as of March 31, |  | $3.7 |  |  |  | $3.3 |  |  |  | $0.9 |  |  |  | $0.6 |  |  |  | $0.9 |
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, 2015.
| Entergy Arkansas |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
| (In Millions)
Balance as of January 1, |  | $0.7 |  |  |  | $25.5 |  |  |  | $3.4 |  |  |  | $4.1 |  |  |  | $12.3 |
Gains (losses) included as a regulatory liability/asset | 15.0 |  |  | (2.2 | ) |  | 0.8 |  |  | (1.1 | ) |  | (10.3 | )
Settlements | (15.1 | ) |  | (14.5 | ) |  | (3.3 | ) |  | (1.6 | ) |  | 1.4 |
Balance as of March 31, |  | $0.6 |  |  |  | $8.8 |  |  |  | $0.9 |  |  |  | $1.4 |  |  |  | $3.4 |
Entergy New Orleans [Member] |
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, 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 and gas 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 to manage natural risks inherent in its physical or financial assets or liabilities. 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. 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, 2016 is approximately 2 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 88% for the remainder of 2016, of which approximately 60% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2016 is 25 TWh. Entergy may use standardized master netting agreements to help mitigate the credit risk of derivative instruments. These master agreements facilitate the netting of cash flows associated with a single counterparty and may include collateral requirements. Cash, letters of credit, and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk. The collateral agreements require a counterparty to post cash or letters of credit in the event an exposure exceeds an established threshold. The threshold represents an unsecured credit limit, which may be supported by a parental/affiliate guaranty, as determined in accordance with Entergy’s credit policy. In addition, collateral agreements allow for termination and liquidation of all positions in the event of a failure or inability to post collateral. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations when the current market prices exceed the contracted power prices. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2016, there were no derivative contracts with counterparties in a liability position. Letters of credit in the amount of $66 million were required to be posted by its counterparties to the Entergy subsidiary as of March 31, 2016. As of December 31, 2015, derivative contracts with two counterparties were in a liability position (approximately $2 million total). In addition to the corporate guarantee, $9 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $68 million was required to be posted by its counterparties to the Entergy subsidiary. 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 manages fuel price volatility for its Louisiana jurisdictions (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 at Entergy Louisiana and Entergy Mississippi and projected winter purchases for gas distribution at Entergy Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2016 is 57,500,000 MMBtu for Entergy, including 46,330,000 MMBtu for Entergy Louisiana and 11,170,000 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. During the second quarter 2015, Entergy participated in the annual FTR auction process for the MISO planning year of June 1, 2015 through May 31, 2016. 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, 2016 is 18,305 GWh for Entergy, including 3,894 GWh for Entergy Arkansas, 8,385 GWh for Entergy Louisiana, 2,436 GWh for Entergy Mississippi, 1,398 GWh for Entergy New Orleans, and 2,086 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash and/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, 2016, letters of credit posted with MISO covered the FTR exposure for Entergy Mississippi. No cash collateral was required to be posted for FTR exposure for the Utility operating companies or Entergy Wholesale Commodities. As of December 31, 2015, no cash or letters of credit were required to be posted for FTR exposure for the Utility operating companies or Entergy Wholesale Commodities, respectively. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2016 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements 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) |  | $120 |  | ($26) |  | $94 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $20 |  | ($1) |  | $19 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $94 |  | ($24) |  | $70 |  | Entergy Wholesale Commodities
FTRs |  | Prepayments and other |  | $9 |  | $— |  | $9 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $49 |  | ($49) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Other current liabilities |  | $9 |  | $— |  | $9 |  | Utility
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2015 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements 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) |  | $173 |  | ($34) |  | $139 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($2) |  | $15 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $14 |  | ($14) |  | $— |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $2 |  | ($2) |  | $— |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $54 |  | ($13) |  | $41 |  | Entergy Wholesale Commodities
FTRs |  | Prepayments and other |  | $24 |  | ($1) |  | $23 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $38 |  | ($32) |  | $6 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Other current liabilities |  | $9 |  | $— |  | $9 |  | Utility
(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 amount of $9 million posted and $68 million held as of December 31, 2015. There was no cash collateral required to be posted as of March 31, 2016. Also excludes letters of credit in the amount of $0.4 million posted and $66 million held as of March 31, 2016.
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated statements of operations for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Amount of gain (loss) recognized in other comprehensive income |  | Income Statement location |  | Amount of gain (loss) reclassified from AOCI into income (a)
|  | (In Millions) |  |  |  | (In Millions)
2016 |  |  |  |  |  |
Electricity swaps and options |  | $139 |  | Competitive businesses operating revenues |  | $154
2015 |  |  |  |  |  |
Electricity swaps and options |  | ($32) |  | Competitive businesses operating revenues |  | $14
(a) | Before taxes of $54 million and $5 million for the three months ended March 31, 2016 and 2015, respectively
At each reporting period, Entergy measures its hedges for ineffectiveness. Any ineffectiveness is recognized in earnings during the period. The ineffective portion of cash flow hedges is recorded in competitive business operating revenues. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2016 and 2015 was ($1) million and ($1) million, respectively. Based on market prices as of March 31, 2016, net unrealized gains recorded in AOCI on cash flow hedges relating to power sales totaled $152 million. Approximately $134 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. 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 effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated statements of operations for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Amount of gain (loss) recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
|  | (In Millions) |  |  |  | (In Millions)
2016 |  |  |  |  |  |
Natural gas swaps |  | $— |  | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($24)
FTRs |  | $— |  | Purchased power expense | (b) | $21
Electricity swaps and options de-designated as hedged items |  | $25 |  | Competitive business operating revenues |  | $—
2015 |  |  |  |  |  |
Natural gas swaps |  | $— |  | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($19)
FTRs |  | $— |  | Purchased power expense | (b) | $33
Electricity swaps and options de-designated as hedged items |  | $4 |  | Competitive business operating revenues |  | ($34)
(a) | 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.
(b) | Due to regulatory treatment, the changes in the estimated fair value of FTRs for the Utility operating companies 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 for the Utility operating companies 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, 2016 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
FTRs |  | Prepayments and other |  | $3.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $3.3 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $0.9 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $0.6 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $0.9 |  | Entergy Texas
Liabilities: |  |  |  |  |  |
Natural gas swaps |  | Other current liabilities |  | $7.6 |  | Entergy Louisiana
Natural gas swaps |  | Other current liabilities |  | $1.8 |  | Entergy Mississippi
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2015 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
FTRs |  | Prepayments and other |  | $7.9 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $8.5 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $2.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.5 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $2.2 |  | Entergy Texas
Liabilities: |  |  |  |  |  |
Natural gas swaps |  | Other current liabilities |  | $7.0 |  | Entergy Louisiana
Natural gas swaps |  | Other current liabilities |  | $1.3 |  | Entergy Mississippi
Natural gas swaps |  | Other current liabilities |  | $0.5 |  | Entergy New Orleans
(a) | Excludes letters of credit in the amount of $0.4 million posted by Entergy Mississippi as of March 31, 2016. No cash collateral was required to be posted as of March 31, 2016 and December 31, 2015, respectively.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
|  |  |  | (In Millions) |  |
2016 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($19.3) | (a) | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($4.1) | (a) | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($0.5) | (a) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $7.8 | (b) | Entergy Arkansas
FTRs |  | Purchased power expense |  | $10.5 | (b) | Entergy Louisiana
FTRs |  | Purchased power expense |  | $0.8 | (b) | Entergy Mississippi
FTRs |  | Purchased power expense |  | $0.5 | (b) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $1.5 | (b) | Entergy Texas
2015 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($16.0) | (a) | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($3.0) | (a) | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($0.5) | (a) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $15.1 | (b) | Entergy Arkansas
FTRs |  | Purchased power expense |  | $14.5 | (b) | Entergy Louisiana
FTRs |  | Purchased power expense |  | $3.3 | (b) | Entergy Mississippi
FTRs |  | Purchased power expense |  | $1.6 | (b) | Entergy New Orleans
FTRs |  | Purchased power expense |  | ($1.4) | (b) | Entergy Texas
(a) | 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.
(b) | Due to regulatory treatment, the changes in the estimated fair value of FTRs for the Utility operating companies 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 for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms.
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. Effective first quarter 2016, Entergy retrospectively adopted ASU 2015-07, which simplifies the disclosure for fair value investments by removing the requirement to categorize within the fair value hierarchy investment for which fair value is measured using the net asset value per share as a practical expedient. For all periods presented the common trust funds have not been assigned a level and are presented within the fair value tables only as a reconciling item to the total fair value of investments. 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.
• | 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 Accounting Policy and Entergy Wholesale Commodities Accounting 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 Accounting Policy and Entergy Wholesale Commodities Accounting 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 and Treasurer while the Accounting Policy and Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer. 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 U.S. 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 calculates the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control group also validates forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences are 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 are also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and uses multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirms the mark-to-market calculations and prepares price scenarios and credit downgrade scenario analysis. The scenario analysis is communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis is completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’ portfolio. In particular, the credit and liquidity effects are calculated for this analysis. This analysis is communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of congestion costs in MISO between applicable generation and load pricing nodes based on the 50th percentile of historical prices. 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. The values are calculated internally and verified against the data published by MISO. 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 Risk Control groups report to the Vice President and Treasurer. The Accounting Policy group reports to the Chief Accounting Officer. 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, 2016 and December 31, 2015. 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.
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $1,010 |  |  |  | $— |  |  |  | $— |  |  |  | $1,010 |
Funds held on deposit |  | 197 |  |  | — |  |  | — |  |  | 197 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 446 |  |  | — |  |  | — |  |  | 446 |
Debt securities |  | 1,060 |  |  | 1,189 |  |  | — |  |  | 2,249 |
Common trusts (b) |  |  |  |  |  |  |  | 2,757 |
Power contracts |  | — |  |  | — |  |  | 183 |  |  | 183 |
Securitization recovery trust account |  | 52 |  |  | — |  |  | — |  |  | 52 |
Escrow accounts |  | 454 |  |  | — |  |  | — |  |  | 454 |
FTRs |  | — |  |  | — |  |  | 9 |  |  | 9 |
|  |  | $3,219 |  |  |  | $1,189 |  |  |  | $192 |  |  |  | $7,357 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $9 |  |  |  | $— |  |  |  | $— |  |  |  | $9 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $1,287 |  |  |  | $— |  |  |  | $— |  |  |  | $1,287 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 468 |  |  | — |  |  | — |  |  | 468 |
Debt securities |  | 1,061 |  |  | 1,094 |  |  | — |  |  | 2,155 |
Common trusts (b) |  |  |  |  |  |  |  | 2,727 |
Power contracts |  | — |  |  | — |  |  | 195 |  |  | 195 |
Securitization recovery trust account |  | 50 |  |  | — |  |  | — |  |  | 50 |
Escrow accounts |  | 425 |  |  | — |  |  | — |  |  | 425 |
FTRs |  | — |  |  | — |  |  | 23 |  |  | 23 |
|  |  | $3,291 |  |  |  | $1,094 |  |  |  | $218 |  |  |  | $7,330 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $6 |  |  |  | $6 |
Gas hedge contracts |  | 9 |  |  | — |  |  | — |  |  | 9 |
|  |  | $9 |  |  |  | $— |  |  |  | $6 |  |  |  | $15 |
(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 for additional information on the investment portfolios.
(b) | Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value (NAV) as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the NAV and trades settle at a later date.
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, 2016 and 2015:
| 2016 |  | 2015
| Power Contracts |  | FTRs |  | Power Contracts |  | FTRs
| (In Millions)
Balance as of January 1, |  | $189 |  |  |  | $23 |  |  |  | $215 |  |  |  | $47 |
Total gains (losses) for the period (a) |  |  |  |  |  |  |
Included in earnings | — |  |  | — |  |  | (35 | ) |  | — |
Included in OCI | 139 |  |  | — |  |  | (26 | ) |  | — |
Included as a regulatory liability/asset | — |  |  | 7 |  |  | — |  |  | 1 |
Purchases | — |  |  | — |  |  | 10 |  |  | — |
Settlements | (145 | ) |  | (21 | ) |  | (19 | ) |  | (33 | )
Balance as of March 31, |  | $183 |  |  |  | $9 |  |  |  | $145 |  |  |  | $15 |
(a) | Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period is $6 million for the three months ended March 31, 2016 and ($87) million for the three months ended March 31, 2015.
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, 2016:
Transaction Type |  | Fair Value as of March 31, 2016 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Power contracts - electricity swaps |  | $149 |  | Unit contingent discount |  | +/- | 3% |  | $7
Power contracts - electricity options |  | $34 |  | Implied volatility |  | +/- | 30% |  | $10
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, 2016 and December 31, 2015. 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
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.4 |  |  |  | $— |  |  |  | $— |  |  |  | $13.4 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 5.2 |  |  | — |  |  | — |  |  | 5.2 |
Debt securities |  | 102.3 |  |  | 208.9 |  |  | — |  |  | 311.2 |
Common trusts (b) |  |  |  |  |  |  |  | 469.1 |
Securitization recovery trust account |  | 7.6 |  |  | — |  |  | — |  |  | 7.6 |
Escrow accounts |  | 19.3 |  |  | — |  |  | — |  |  | 19.3 |
FTRs |  | — |  |  | — |  |  | 3.7 |  |  | 3.7 |
|  |  | $147.8 |  |  |  | $208.9 |  |  |  | $3.7 |  |  |  | $829.5 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  |  | $3.0 |  |  |  | $— |  |  |  | $— |  |  |  | $3.0 |
Debt securities |  | 110.5 |  |  | 193.4 |  |  | — |  |  | 303.9 |
Common trusts (b) |  |  |  |  |  |  |  | 464.4 |
Securitization recovery trust account |  | 4.2 |  |  | — |  |  | — |  |  | 4.2 |
Escrow accounts |  | 12.2 |  |  | — |  |  | — |  |  | 12.2 |
FTRs |  | — |  |  | — |  |  | 7.9 |  |  | 7.9 |
|  |  | $129.9 |  |  |  | $193.4 |  |  |  | $7.9 |  |  |  | $795.6 |
Entergy Louisiana
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $100.0 |  |  |  | $— |  |  |  | $— |  |  |  | $100.0 |
Funds held on deposit |  | 196.6 |  |  | — |  |  | — |  |  | 196.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 8.5 |  |  | — |  |  | — |  |  | 8.5 |
Debt securities |  | 154.5 |  |  | 267.7 |  |  | — |  |  | 422.2 |
Common trusts (b) |  |  |  |  |  |  |  | 634.5 |
Escrow accounts |  | 304.9 |  |  | — |  |  | — |  |  | 304.9 |
Securitization recovery trust account |  | 8.7 |  |  | — |  |  | — |  |  | 8.7 |
FTRs |  | — |  |  | — |  |  | 3.3 |  |  | 3.3 |
|  |  | $773.2 |  |  |  | $267.7 |  |  |  | $3.3 |  |  |  | $1,678.7 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $7.6 |  |  |  | $— |  |  |  | $— |  |  |  | $7.6 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $34.8 |  |  |  | $— |  |  |  | $— |  |  |  | $34.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 7.1 |  |  | — |  |  | — |  |  | 7.1 |
Debt securities |  | 161.1 |  |  | 248.8 |  |  | — |  |  | 409.9 |
Common trusts (b) |  |  |  |  |  |  |  | 625.3 |
Escrow accounts |  | 290.4 |  |  | — |  |  | — |  |  | 290.4 |
Securitization recovery trust account |  | 3.2 |  |  | — |  |  | — |  |  | 3.2 |
FTRs |  | — |  |  | — |  |  | 8.5 |  |  | 8.5 |
|  |  | $496.6 |  |  |  | $248.8 |  |  |  | $8.5 |  |  |  | $1,379.2 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $7.0 |  |  |  | $— |  |  |  | $— |  |  |  | $7.0 |
Entergy Mississippi
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $112.7 |  |  |  | $— |  |  |  | $— |  |  |  | $112.7 |
Escrow accounts |  | 41.8 |  |  | — |  |  | — |  |  | 41.8 |
FTRs |  | — |  |  | — |  |  | 0.9 |  |  | 0.9 |
|  |  | $154.5 |  |  |  | $— |  |  |  | $0.9 |  |  |  | $155.4 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $1.8 |  |  |  | $— |  |  |  | $— |  |  |  | $1.8 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $144.2 |  |  |  | $— |  |  |  | $— |  |  |  | $144.2 |
Escrow accounts |  | 41.7 |  |  | — |  |  | — |  |  | 41.7 |
FTRs |  | — |  |  | — |  |  | 2.4 |  |  | 2.4 |
|  |  | $185.9 |  |  |  | $— |  |  |  | $2.4 |  |  |  | $188.3 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $1.3 |  |  |  | $— |  |  |  | $— |  |  |  | $1.3 |
Entergy New Orleans
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $5.3 |  |  |  | $— |  |  |  | $— |  |  |  | $5.3 |
Securitization recovery trust account |  | 7.4 |  |  | — |  |  | — |  |  | 7.4 |
Escrow accounts |  | 88.2 |  |  | — |  |  | — |  |  | 88.2 |
FTRs |  | — |  |  | — |  |  | 0.6 |  |  | 0.6 |
|  |  | $100.9 |  |  |  | $— |  |  |  | $0.6 |  |  |  | $101.5 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $87.8 |  |  |  | $— |  |  |  | $— |  |  |  | $87.8 |
Securitization recovery trust account |  | 4.6 |  |  | — |  |  | — |  |  | 4.6 |
Escrow accounts |  | 81.0 |  |  | — |  |  | — |  |  | 81.0 |
FTRs |  | — |  |  | — |  |  | 1.5 |  |  | 1.5 |
|  |  | $173.4 |  |  |  | $— |  |  |  | $1.5 |  |  |  | $174.9 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $0.5 |  |  |  | $— |  |  |  | $— |  |  |  | $0.5 |
Entergy Texas
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.8 |  |  |  | $— |  |  |  | $— |  |  |  | $64.8 |
Securitization recovery trust account |  | 27.9 |  |  | — |  |  | — |  |  | 27.9 |
FTRs |  | — |  |  | — |  |  | 0.9 |  |  | 0.9 |
|  |  | $92.7 |  |  |  | $— |  |  |  | $0.9 |  |  |  | $93.6 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $38.2 |  |  |  | $— |  |  |  | $— |  |  |  | $38.2 |
FTRs |  | — |  |  | — |  |  | 2.2 |  |  | 2.2 |
|  |  | $38.2 |  |  |  | $— |  |  |  | $2.2 |  |  |  | $40.4 |
System Energy
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $255.0 |  |  |  | $— |  |  |  | $— |  |  |  | $255.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.1 |  |  | — |  |  | — |  |  | 2.1 |
Debt securities |  | 232.6 |  |  | 58.8 |  |  | — |  |  | 291.4 |
Common trusts (b) |  |  |  |  |  |  |  | 426.3 |
|  |  | $489.7 |  |  |  | $58.8 |  |  |  | $— |  |  |  | $974.8 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $222.0 |  |  |  | $— |  |  |  | $— |  |  |  | $222.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.8 |  |  | — |  |  | — |  |  | 1.8 |
Debt securities |  | 218.6 |  |  | 59.2 |  |  | — |  |  | 277.8 |
Common trusts (b) |  |  |  |  |  |  |  | 421.9 |
|  |  | $442.4 |  |  |  | $59.2 |  |  |  | $— |  |  |  | $923.5 |
(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 for additional information on the investment portfolios.
(b) | Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value (NAV) as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the NAV and trades settle at a later date.
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, 2016.
| Entergy Arkansas |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
| (In Millions)
Balance as of January 1, |  | $7.9 |  |  |  | $8.5 |  |  |  | $2.4 |  |  |  | $1.5 |  |  |  | $2.2 |
Gains (losses) included as a regulatory liability/asset | 3.6 |  |  | 5.3 |  |  | (0.7 | ) |  | (0.4 | ) |  | 0.2 |
Settlements | (7.8 | ) |  | (10.5 | ) |  | (0.8 | ) |  | (0.5 | ) |  | (1.5 | )
Balance as of March 31, |  | $3.7 |  |  |  | $3.3 |  |  |  | $0.9 |  |  |  | $0.6 |  |  |  | $0.9 |
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, 2015.
| Entergy Arkansas |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
| (In Millions)
Balance as of January 1, |  | $0.7 |  |  |  | $25.5 |  |  |  | $3.4 |  |  |  | $4.1 |  |  |  | $12.3 |
Gains (losses) included as a regulatory liability/asset | 15.0 |  |  | (2.2 | ) |  | 0.8 |  |  | (1.1 | ) |  | (10.3 | )
Settlements | (15.1 | ) |  | (14.5 | ) |  | (3.3 | ) |  | (1.6 | ) |  | 1.4 |
Balance as of March 31, |  | $0.6 |  |  |  | $8.8 |  |  |  | $0.9 |  |  |  | $1.4 |  |  |  | $3.4 |
Entergy Texas [Member] |
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, 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 and gas 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 to manage natural risks inherent in its physical or financial assets or liabilities. 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. 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, 2016 is approximately 2 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 88% for the remainder of 2016, of which approximately 60% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2016 is 25 TWh. Entergy may use standardized master netting agreements to help mitigate the credit risk of derivative instruments. These master agreements facilitate the netting of cash flows associated with a single counterparty and may include collateral requirements. Cash, letters of credit, and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk. The collateral agreements require a counterparty to post cash or letters of credit in the event an exposure exceeds an established threshold. The threshold represents an unsecured credit limit, which may be supported by a parental/affiliate guaranty, as determined in accordance with Entergy’s credit policy. In addition, collateral agreements allow for termination and liquidation of all positions in the event of a failure or inability to post collateral. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations when the current market prices exceed the contracted power prices. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2016, there were no derivative contracts with counterparties in a liability position. Letters of credit in the amount of $66 million were required to be posted by its counterparties to the Entergy subsidiary as of March 31, 2016. As of December 31, 2015, derivative contracts with two counterparties were in a liability position (approximately $2 million total). In addition to the corporate guarantee, $9 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $68 million was required to be posted by its counterparties to the Entergy subsidiary. 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 manages fuel price volatility for its Louisiana jurisdictions (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 at Entergy Louisiana and Entergy Mississippi and projected winter purchases for gas distribution at Entergy Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2016 is 57,500,000 MMBtu for Entergy, including 46,330,000 MMBtu for Entergy Louisiana and 11,170,000 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. During the second quarter 2015, Entergy participated in the annual FTR auction process for the MISO planning year of June 1, 2015 through May 31, 2016. 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, 2016 is 18,305 GWh for Entergy, including 3,894 GWh for Entergy Arkansas, 8,385 GWh for Entergy Louisiana, 2,436 GWh for Entergy Mississippi, 1,398 GWh for Entergy New Orleans, and 2,086 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash and/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, 2016, letters of credit posted with MISO covered the FTR exposure for Entergy Mississippi. No cash collateral was required to be posted for FTR exposure for the Utility operating companies or Entergy Wholesale Commodities. As of December 31, 2015, no cash or letters of credit were required to be posted for FTR exposure for the Utility operating companies or Entergy Wholesale Commodities, respectively. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2016 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements 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) |  | $120 |  | ($26) |  | $94 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $20 |  | ($1) |  | $19 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $94 |  | ($24) |  | $70 |  | Entergy Wholesale Commodities
FTRs |  | Prepayments and other |  | $9 |  | $— |  | $9 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $49 |  | ($49) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Other current liabilities |  | $9 |  | $— |  | $9 |  | Utility
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2015 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements 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) |  | $173 |  | ($34) |  | $139 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($2) |  | $15 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $14 |  | ($14) |  | $— |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $2 |  | ($2) |  | $— |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $54 |  | ($13) |  | $41 |  | Entergy Wholesale Commodities
FTRs |  | Prepayments and other |  | $24 |  | ($1) |  | $23 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $38 |  | ($32) |  | $6 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Other current liabilities |  | $9 |  | $— |  | $9 |  | Utility
(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 amount of $9 million posted and $68 million held as of December 31, 2015. There was no cash collateral required to be posted as of March 31, 2016. Also excludes letters of credit in the amount of $0.4 million posted and $66 million held as of March 31, 2016.
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated statements of operations for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Amount of gain (loss) recognized in other comprehensive income |  | Income Statement location |  | Amount of gain (loss) reclassified from AOCI into income (a)
|  | (In Millions) |  |  |  | (In Millions)
2016 |  |  |  |  |  |
Electricity swaps and options |  | $139 |  | Competitive businesses operating revenues |  | $154
2015 |  |  |  |  |  |
Electricity swaps and options |  | ($32) |  | Competitive businesses operating revenues |  | $14
(a) | Before taxes of $54 million and $5 million for the three months ended March 31, 2016 and 2015, respectively
At each reporting period, Entergy measures its hedges for ineffectiveness. Any ineffectiveness is recognized in earnings during the period. The ineffective portion of cash flow hedges is recorded in competitive business operating revenues. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2016 and 2015 was ($1) million and ($1) million, respectively. Based on market prices as of March 31, 2016, net unrealized gains recorded in AOCI on cash flow hedges relating to power sales totaled $152 million. Approximately $134 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. 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 effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated statements of operations for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Amount of gain (loss) recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
|  | (In Millions) |  |  |  | (In Millions)
2016 |  |  |  |  |  |
Natural gas swaps |  | $— |  | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($24)
FTRs |  | $— |  | Purchased power expense | (b) | $21
Electricity swaps and options de-designated as hedged items |  | $25 |  | Competitive business operating revenues |  | $—
2015 |  |  |  |  |  |
Natural gas swaps |  | $— |  | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($19)
FTRs |  | $— |  | Purchased power expense | (b) | $33
Electricity swaps and options de-designated as hedged items |  | $4 |  | Competitive business operating revenues |  | ($34)
(a) | 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.
(b) | Due to regulatory treatment, the changes in the estimated fair value of FTRs for the Utility operating companies 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 for the Utility operating companies 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, 2016 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
FTRs |  | Prepayments and other |  | $3.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $3.3 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $0.9 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $0.6 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $0.9 |  | Entergy Texas
Liabilities: |  |  |  |  |  |
Natural gas swaps |  | Other current liabilities |  | $7.6 |  | Entergy Louisiana
Natural gas swaps |  | Other current liabilities |  | $1.8 |  | Entergy Mississippi
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2015 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
FTRs |  | Prepayments and other |  | $7.9 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $8.5 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $2.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.5 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $2.2 |  | Entergy Texas
Liabilities: |  |  |  |  |  |
Natural gas swaps |  | Other current liabilities |  | $7.0 |  | Entergy Louisiana
Natural gas swaps |  | Other current liabilities |  | $1.3 |  | Entergy Mississippi
Natural gas swaps |  | Other current liabilities |  | $0.5 |  | Entergy New Orleans
(a) | Excludes letters of credit in the amount of $0.4 million posted by Entergy Mississippi as of March 31, 2016. No cash collateral was required to be posted as of March 31, 2016 and December 31, 2015, respectively.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
|  |  |  | (In Millions) |  |
2016 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($19.3) | (a) | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($4.1) | (a) | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($0.5) | (a) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $7.8 | (b) | Entergy Arkansas
FTRs |  | Purchased power expense |  | $10.5 | (b) | Entergy Louisiana
FTRs |  | Purchased power expense |  | $0.8 | (b) | Entergy Mississippi
FTRs |  | Purchased power expense |  | $0.5 | (b) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $1.5 | (b) | Entergy Texas
2015 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($16.0) | (a) | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($3.0) | (a) | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($0.5) | (a) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $15.1 | (b) | Entergy Arkansas
FTRs |  | Purchased power expense |  | $14.5 | (b) | Entergy Louisiana
FTRs |  | Purchased power expense |  | $3.3 | (b) | Entergy Mississippi
FTRs |  | Purchased power expense |  | $1.6 | (b) | Entergy New Orleans
FTRs |  | Purchased power expense |  | ($1.4) | (b) | Entergy Texas
(a) | 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.
(b) | Due to regulatory treatment, the changes in the estimated fair value of FTRs for the Utility operating companies 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 for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms.
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. Effective first quarter 2016, Entergy retrospectively adopted ASU 2015-07, which simplifies the disclosure for fair value investments by removing the requirement to categorize within the fair value hierarchy investment for which fair value is measured using the net asset value per share as a practical expedient. For all periods presented the common trust funds have not been assigned a level and are presented within the fair value tables only as a reconciling item to the total fair value of investments. 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.
• | 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 Accounting Policy and Entergy Wholesale Commodities Accounting 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 Accounting Policy and Entergy Wholesale Commodities Accounting 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 and Treasurer while the Accounting Policy and Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer. 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 U.S. 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 calculates the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control group also validates forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences are 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 are also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and uses multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirms the mark-to-market calculations and prepares price scenarios and credit downgrade scenario analysis. The scenario analysis is communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis is completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’ portfolio. In particular, the credit and liquidity effects are calculated for this analysis. This analysis is communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of congestion costs in MISO between applicable generation and load pricing nodes based on the 50th percentile of historical prices. 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. The values are calculated internally and verified against the data published by MISO. 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 Risk Control groups report to the Vice President and Treasurer. The Accounting Policy group reports to the Chief Accounting Officer. 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, 2016 and December 31, 2015. 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.
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $1,010 |  |  |  | $— |  |  |  | $— |  |  |  | $1,010 |
Funds held on deposit |  | 197 |  |  | — |  |  | — |  |  | 197 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 446 |  |  | — |  |  | — |  |  | 446 |
Debt securities |  | 1,060 |  |  | 1,189 |  |  | — |  |  | 2,249 |
Common trusts (b) |  |  |  |  |  |  |  | 2,757 |
Power contracts |  | — |  |  | — |  |  | 183 |  |  | 183 |
Securitization recovery trust account |  | 52 |  |  | — |  |  | — |  |  | 52 |
Escrow accounts |  | 454 |  |  | — |  |  | — |  |  | 454 |
FTRs |  | — |  |  | — |  |  | 9 |  |  | 9 |
|  |  | $3,219 |  |  |  | $1,189 |  |  |  | $192 |  |  |  | $7,357 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $9 |  |  |  | $— |  |  |  | $— |  |  |  | $9 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $1,287 |  |  |  | $— |  |  |  | $— |  |  |  | $1,287 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 468 |  |  | — |  |  | — |  |  | 468 |
Debt securities |  | 1,061 |  |  | 1,094 |  |  | — |  |  | 2,155 |
Common trusts (b) |  |  |  |  |  |  |  | 2,727 |
Power contracts |  | — |  |  | — |  |  | 195 |  |  | 195 |
Securitization recovery trust account |  | 50 |  |  | — |  |  | — |  |  | 50 |
Escrow accounts |  | 425 |  |  | — |  |  | — |  |  | 425 |
FTRs |  | — |  |  | — |  |  | 23 |  |  | 23 |
|  |  | $3,291 |  |  |  | $1,094 |  |  |  | $218 |  |  |  | $7,330 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $6 |  |  |  | $6 |
Gas hedge contracts |  | 9 |  |  | — |  |  | — |  |  | 9 |
|  |  | $9 |  |  |  | $— |  |  |  | $6 |  |  |  | $15 |
(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 for additional information on the investment portfolios.
(b) | Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value (NAV) as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the NAV and trades settle at a later date.
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, 2016 and 2015:
| 2016 |  | 2015
| Power Contracts |  | FTRs |  | Power Contracts |  | FTRs
| (In Millions)
Balance as of January 1, |  | $189 |  |  |  | $23 |  |  |  | $215 |  |  |  | $47 |
Total gains (losses) for the period (a) |  |  |  |  |  |  |
Included in earnings | — |  |  | — |  |  | (35 | ) |  | — |
Included in OCI | 139 |  |  | — |  |  | (26 | ) |  | — |
Included as a regulatory liability/asset | — |  |  | 7 |  |  | — |  |  | 1 |
Purchases | — |  |  | — |  |  | 10 |  |  | — |
Settlements | (145 | ) |  | (21 | ) |  | (19 | ) |  | (33 | )
Balance as of March 31, |  | $183 |  |  |  | $9 |  |  |  | $145 |  |  |  | $15 |
(a) | Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period is $6 million for the three months ended March 31, 2016 and ($87) million for the three months ended March 31, 2015.
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, 2016:
Transaction Type |  | Fair Value as of March 31, 2016 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Power contracts - electricity swaps |  | $149 |  | Unit contingent discount |  | +/- | 3% |  | $7
Power contracts - electricity options |  | $34 |  | Implied volatility |  | +/- | 30% |  | $10
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, 2016 and December 31, 2015. 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
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.4 |  |  |  | $— |  |  |  | $— |  |  |  | $13.4 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 5.2 |  |  | — |  |  | — |  |  | 5.2 |
Debt securities |  | 102.3 |  |  | 208.9 |  |  | — |  |  | 311.2 |
Common trusts (b) |  |  |  |  |  |  |  | 469.1 |
Securitization recovery trust account |  | 7.6 |  |  | — |  |  | — |  |  | 7.6 |
Escrow accounts |  | 19.3 |  |  | — |  |  | — |  |  | 19.3 |
FTRs |  | — |  |  | — |  |  | 3.7 |  |  | 3.7 |
|  |  | $147.8 |  |  |  | $208.9 |  |  |  | $3.7 |  |  |  | $829.5 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  |  | $3.0 |  |  |  | $— |  |  |  | $— |  |  |  | $3.0 |
Debt securities |  | 110.5 |  |  | 193.4 |  |  | — |  |  | 303.9 |
Common trusts (b) |  |  |  |  |  |  |  | 464.4 |
Securitization recovery trust account |  | 4.2 |  |  | — |  |  | — |  |  | 4.2 |
Escrow accounts |  | 12.2 |  |  | — |  |  | — |  |  | 12.2 |
FTRs |  | — |  |  | — |  |  | 7.9 |  |  | 7.9 |
|  |  | $129.9 |  |  |  | $193.4 |  |  |  | $7.9 |  |  |  | $795.6 |
Entergy Louisiana
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $100.0 |  |  |  | $— |  |  |  | $— |  |  |  | $100.0 |
Funds held on deposit |  | 196.6 |  |  | — |  |  | — |  |  | 196.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 8.5 |  |  | — |  |  | — |  |  | 8.5 |
Debt securities |  | 154.5 |  |  | 267.7 |  |  | — |  |  | 422.2 |
Common trusts (b) |  |  |  |  |  |  |  | 634.5 |
Escrow accounts |  | 304.9 |  |  | — |  |  | — |  |  | 304.9 |
Securitization recovery trust account |  | 8.7 |  |  | — |  |  | — |  |  | 8.7 |
FTRs |  | — |  |  | — |  |  | 3.3 |  |  | 3.3 |
|  |  | $773.2 |  |  |  | $267.7 |  |  |  | $3.3 |  |  |  | $1,678.7 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $7.6 |  |  |  | $— |  |  |  | $— |  |  |  | $7.6 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $34.8 |  |  |  | $— |  |  |  | $— |  |  |  | $34.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 7.1 |  |  | — |  |  | — |  |  | 7.1 |
Debt securities |  | 161.1 |  |  | 248.8 |  |  | — |  |  | 409.9 |
Common trusts (b) |  |  |  |  |  |  |  | 625.3 |
Escrow accounts |  | 290.4 |  |  | — |  |  | — |  |  | 290.4 |
Securitization recovery trust account |  | 3.2 |  |  | — |  |  | — |  |  | 3.2 |
FTRs |  | — |  |  | — |  |  | 8.5 |  |  | 8.5 |
|  |  | $496.6 |  |  |  | $248.8 |  |  |  | $8.5 |  |  |  | $1,379.2 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $7.0 |  |  |  | $— |  |  |  | $— |  |  |  | $7.0 |
Entergy Mississippi
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $112.7 |  |  |  | $— |  |  |  | $— |  |  |  | $112.7 |
Escrow accounts |  | 41.8 |  |  | — |  |  | — |  |  | 41.8 |
FTRs |  | — |  |  | — |  |  | 0.9 |  |  | 0.9 |
|  |  | $154.5 |  |  |  | $— |  |  |  | $0.9 |  |  |  | $155.4 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $1.8 |  |  |  | $— |  |  |  | $— |  |  |  | $1.8 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $144.2 |  |  |  | $— |  |  |  | $— |  |  |  | $144.2 |
Escrow accounts |  | 41.7 |  |  | — |  |  | — |  |  | 41.7 |
FTRs |  | — |  |  | — |  |  | 2.4 |  |  | 2.4 |
|  |  | $185.9 |  |  |  | $— |  |  |  | $2.4 |  |  |  | $188.3 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $1.3 |  |  |  | $— |  |  |  | $— |  |  |  | $1.3 |
Entergy New Orleans
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $5.3 |  |  |  | $— |  |  |  | $— |  |  |  | $5.3 |
Securitization recovery trust account |  | 7.4 |  |  | — |  |  | — |  |  | 7.4 |
Escrow accounts |  | 88.2 |  |  | — |  |  | — |  |  | 88.2 |
FTRs |  | — |  |  | — |  |  | 0.6 |  |  | 0.6 |
|  |  | $100.9 |  |  |  | $— |  |  |  | $0.6 |  |  |  | $101.5 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $87.8 |  |  |  | $— |  |  |  | $— |  |  |  | $87.8 |
Securitization recovery trust account |  | 4.6 |  |  | — |  |  | — |  |  | 4.6 |
Escrow accounts |  | 81.0 |  |  | — |  |  | — |  |  | 81.0 |
FTRs |  | — |  |  | — |  |  | 1.5 |  |  | 1.5 |
|  |  | $173.4 |  |  |  | $— |  |  |  | $1.5 |  |  |  | $174.9 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $0.5 |  |  |  | $— |  |  |  | $— |  |  |  | $0.5 |
Entergy Texas
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.8 |  |  |  | $— |  |  |  | $— |  |  |  | $64.8 |
Securitization recovery trust account |  | 27.9 |  |  | — |  |  | — |  |  | 27.9 |
FTRs |  | — |  |  | — |  |  | 0.9 |  |  | 0.9 |
|  |  | $92.7 |  |  |  | $— |  |  |  | $0.9 |  |  |  | $93.6 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $38.2 |  |  |  | $— |  |  |  | $— |  |  |  | $38.2 |
FTRs |  | — |  |  | — |  |  | 2.2 |  |  | 2.2 |
|  |  | $38.2 |  |  |  | $— |  |  |  | $2.2 |  |  |  | $40.4 |
System Energy
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $255.0 |  |  |  | $— |  |  |  | $— |  |  |  | $255.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.1 |  |  | — |  |  | — |  |  | 2.1 |
Debt securities |  | 232.6 |  |  | 58.8 |  |  | — |  |  | 291.4 |
Common trusts (b) |  |  |  |  |  |  |  | 426.3 |
|  |  | $489.7 |  |  |  | $58.8 |  |  |  | $— |  |  |  | $974.8 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $222.0 |  |  |  | $— |  |  |  | $— |  |  |  | $222.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.8 |  |  | — |  |  | — |  |  | 1.8 |
Debt securities |  | 218.6 |  |  | 59.2 |  |  | — |  |  | 277.8 |
Common trusts (b) |  |  |  |  |  |  |  | 421.9 |
|  |  | $442.4 |  |  |  | $59.2 |  |  |  | $— |  |  |  | $923.5 |
(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 for additional information on the investment portfolios.
(b) | Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value (NAV) as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the NAV and trades settle at a later date.
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, 2016.
| Entergy Arkansas |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
| (In Millions)
Balance as of January 1, |  | $7.9 |  |  |  | $8.5 |  |  |  | $2.4 |  |  |  | $1.5 |  |  |  | $2.2 |
Gains (losses) included as a regulatory liability/asset | 3.6 |  |  | 5.3 |  |  | (0.7 | ) |  | (0.4 | ) |  | 0.2 |
Settlements | (7.8 | ) |  | (10.5 | ) |  | (0.8 | ) |  | (0.5 | ) |  | (1.5 | )
Balance as of March 31, |  | $3.7 |  |  |  | $3.3 |  |  |  | $0.9 |  |  |  | $0.6 |  |  |  | $0.9 |
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, 2015.
| Entergy Arkansas |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
| (In Millions)
Balance as of January 1, |  | $0.7 |  |  |  | $25.5 |  |  |  | $3.4 |  |  |  | $4.1 |  |  |  | $12.3 |
Gains (losses) included as a regulatory liability/asset | 15.0 |  |  | (2.2 | ) |  | 0.8 |  |  | (1.1 | ) |  | (10.3 | )
Settlements | (15.1 | ) |  | (14.5 | ) |  | (3.3 | ) |  | (1.6 | ) |  | 1.4 |
Balance as of March 31, |  | $0.6 |  |  |  | $8.8 |  |  |  | $0.9 |  |  |  | $1.4 |  |  |  | $3.4 |
System Energy [Member] |
Risk Management And Fair Values | RISK MANAGEMENT AND FAIR VALUES (Entergy Corporation, Entergy Arkansas, 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 and gas 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 to manage natural risks inherent in its physical or financial assets or liabilities. 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. 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, 2016 is approximately 2 years. Planned generation currently under contract from Entergy Wholesale Commodities nuclear power plants is 88% for the remainder of 2016, of which approximately 60% is sold under financial derivatives and the remainder under normal purchase/normal sale contracts. Total planned generation for the remainder of 2016 is 25 TWh. Entergy may use standardized master netting agreements to help mitigate the credit risk of derivative instruments. These master agreements facilitate the netting of cash flows associated with a single counterparty and may include collateral requirements. Cash, letters of credit, and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk. The collateral agreements require a counterparty to post cash or letters of credit in the event an exposure exceeds an established threshold. The threshold represents an unsecured credit limit, which may be supported by a parental/affiliate guaranty, as determined in accordance with Entergy’s credit policy. In addition, collateral agreements allow for termination and liquidation of all positions in the event of a failure or inability to post collateral. Certain of the agreements to sell the power produced by Entergy Wholesale Commodities power plants contain provisions that require an Entergy subsidiary to provide credit support to secure its obligations when the current market prices exceed the contracted power prices. The primary form of credit support to satisfy these requirements is an Entergy Corporation guarantee. As of March 31, 2016, there were no derivative contracts with counterparties in a liability position. Letters of credit in the amount of $66 million were required to be posted by its counterparties to the Entergy subsidiary as of March 31, 2016. As of December 31, 2015, derivative contracts with two counterparties were in a liability position (approximately $2 million total). In addition to the corporate guarantee, $9 million in cash collateral was required to be posted by the Entergy subsidiary to its counterparties and $68 million was required to be posted by its counterparties to the Entergy subsidiary. 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 manages fuel price volatility for its Louisiana jurisdictions (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 at Entergy Louisiana and Entergy Mississippi and projected winter purchases for gas distribution at Entergy Louisiana and Entergy New Orleans. The total volume of natural gas swaps outstanding as of March 31, 2016 is 57,500,000 MMBtu for Entergy, including 46,330,000 MMBtu for Entergy Louisiana and 11,170,000 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. During the second quarter 2015, Entergy participated in the annual FTR auction process for the MISO planning year of June 1, 2015 through May 31, 2016. 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, 2016 is 18,305 GWh for Entergy, including 3,894 GWh for Entergy Arkansas, 8,385 GWh for Entergy Louisiana, 2,436 GWh for Entergy Mississippi, 1,398 GWh for Entergy New Orleans, and 2,086 GWh for Entergy Texas. Credit support for FTRs held by the Utility operating companies is covered by cash and/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, 2016, letters of credit posted with MISO covered the FTR exposure for Entergy Mississippi. No cash collateral was required to be posted for FTR exposure for the Utility operating companies or Entergy Wholesale Commodities. As of December 31, 2015, no cash or letters of credit were required to be posted for FTR exposure for the Utility operating companies or Entergy Wholesale Commodities, respectively. The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of March 31, 2016 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements 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) |  | $120 |  | ($26) |  | $94 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $20 |  | ($1) |  | $19 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $1 |  | ($1) |  | $— |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $94 |  | ($24) |  | $70 |  | Entergy Wholesale Commodities
FTRs |  | Prepayments and other |  | $9 |  | $— |  | $9 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities(current portion) |  | $49 |  | ($49) |  | $— |  | Entergy Wholesale Commodities
Natural gas swaps |  | Other current liabilities |  | $9 |  | $— |  | $9 |  | Utility
The fair values of Entergy’s derivative instruments in the consolidated balance sheet as of December 31, 2015 are shown in the table below. Certain investments, including those not designated as hedging instruments, are subject to master netting agreements 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) |  | $173 |  | ($34) |  | $139 |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other deferred debits and other assets (non-current portion) |  | $17 |  | ($2) |  | $15 |  | Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $14 |  | ($14) |  | $— |  | Entergy Wholesale Commodities
Electricity swaps and options |  | Other non-current liabilities (non-current portion) |  | $2 |  | ($2) |  | $— |  | Entergy Wholesale Commodities
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Prepayments and other (current portion) |  | $54 |  | ($13) |  | $41 |  | Entergy Wholesale Commodities
FTRs |  | Prepayments and other |  | $24 |  | ($1) |  | $23 |  | Utility and Entergy Wholesale Commodities
Liabilities: |  |  |  |  |  |  |  |  |  |
Electricity swaps and options |  | Other current liabilities (current portion) |  | $38 |  | ($32) |  | $6 |  | Entergy Wholesale Commodities
Natural gas swaps |  | Other current liabilities |  | $9 |  | $— |  | $9 |  | Utility
(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 amount of $9 million posted and $68 million held as of December 31, 2015. There was no cash collateral required to be posted as of March 31, 2016. Also excludes letters of credit in the amount of $0.4 million posted and $66 million held as of March 31, 2016.
The effects of Entergy’s derivative instruments designated as cash flow hedges on the consolidated statements of operations for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Amount of gain (loss) recognized in other comprehensive income |  | Income Statement location |  | Amount of gain (loss) reclassified from AOCI into income (a)
|  | (In Millions) |  |  |  | (In Millions)
2016 |  |  |  |  |  |
Electricity swaps and options |  | $139 |  | Competitive businesses operating revenues |  | $154
2015 |  |  |  |  |  |
Electricity swaps and options |  | ($32) |  | Competitive businesses operating revenues |  | $14
(a) | Before taxes of $54 million and $5 million for the three months ended March 31, 2016 and 2015, respectively
At each reporting period, Entergy measures its hedges for ineffectiveness. Any ineffectiveness is recognized in earnings during the period. The ineffective portion of cash flow hedges is recorded in competitive business operating revenues. The change in fair value of Entergy’s cash flow hedges due to ineffectiveness during the three months ended March 31, 2016 and 2015 was ($1) million and ($1) million, respectively. Based on market prices as of March 31, 2016, net unrealized gains recorded in AOCI on cash flow hedges relating to power sales totaled $152 million. Approximately $134 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. 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 effects of Entergy’s derivative instruments not designated as hedging instruments on the consolidated statements of operations for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Amount of gain (loss) recognized in AOCI |  | Income Statement location |  | Amount of gain (loss) recorded in the income statement
|  | (In Millions) |  |  |  | (In Millions)
2016 |  |  |  |  |  |
Natural gas swaps |  | $— |  | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($24)
FTRs |  | $— |  | Purchased power expense | (b) | $21
Electricity swaps and options de-designated as hedged items |  | $25 |  | Competitive business operating revenues |  | $—
2015 |  |  |  |  |  |
Natural gas swaps |  | $— |  | Fuel, fuel-related expenses, and gas purchased for resale | (a) | ($19)
FTRs |  | $— |  | Purchased power expense | (b) | $33
Electricity swaps and options de-designated as hedged items |  | $4 |  | Competitive business operating revenues |  | ($34)
(a) | 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.
(b) | Due to regulatory treatment, the changes in the estimated fair value of FTRs for the Utility operating companies 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 for the Utility operating companies 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, 2016 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
FTRs |  | Prepayments and other |  | $3.7 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $3.3 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $0.9 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $0.6 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $0.9 |  | Entergy Texas
Liabilities: |  |  |  |  |  |
Natural gas swaps |  | Other current liabilities |  | $7.6 |  | Entergy Louisiana
Natural gas swaps |  | Other current liabilities |  | $1.8 |  | Entergy Mississippi
The fair values of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their balance sheets as of December 31, 2015 are as follows:
Instrument |  | Balance Sheet Location |  | Fair Value (a) |  | Registrant
|  |  |  | (In Millions) |  |
Assets: |  |  |  |  |  |
FTRs |  | Prepayments and other |  | $7.9 |  | Entergy Arkansas
FTRs |  | Prepayments and other |  | $8.5 |  | Entergy Louisiana
FTRs |  | Prepayments and other |  | $2.4 |  | Entergy Mississippi
FTRs |  | Prepayments and other |  | $1.5 |  | Entergy New Orleans
FTRs |  | Prepayments and other |  | $2.2 |  | Entergy Texas
Liabilities: |  |  |  |  |  |
Natural gas swaps |  | Other current liabilities |  | $7.0 |  | Entergy Louisiana
Natural gas swaps |  | Other current liabilities |  | $1.3 |  | Entergy Mississippi
Natural gas swaps |  | Other current liabilities |  | $0.5 |  | Entergy New Orleans
(a) | Excludes letters of credit in the amount of $0.4 million posted by Entergy Mississippi as of March 31, 2016. No cash collateral was required to be posted as of March 31, 2016 and December 31, 2015, respectively.
The effects of the Registrant Subsidiaries’ derivative instruments not designated as hedging instruments on their income statements for the three months ended March 31, 2016 and 2015 are as follows:
Instrument |  | Income Statement Location |  | Amount of gain (loss) recorded in the income statement |  | Registrant
|  |  |  | (In Millions) |  |
2016 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($19.3) | (a) | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($4.1) | (a) | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($0.5) | (a) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $7.8 | (b) | Entergy Arkansas
FTRs |  | Purchased power expense |  | $10.5 | (b) | Entergy Louisiana
FTRs |  | Purchased power expense |  | $0.8 | (b) | Entergy Mississippi
FTRs |  | Purchased power expense |  | $0.5 | (b) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $1.5 | (b) | Entergy Texas
2015 |  |  |  |  |  |
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($16.0) | (a) | Entergy Louisiana
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($3.0) | (a) | Entergy Mississippi
Natural gas swaps |  | Fuel, fuel-related expenses, and gas purchased for resale |  | ($0.5) | (a) | Entergy New Orleans
FTRs |  | Purchased power expense |  | $15.1 | (b) | Entergy Arkansas
FTRs |  | Purchased power expense |  | $14.5 | (b) | Entergy Louisiana
FTRs |  | Purchased power expense |  | $3.3 | (b) | Entergy Mississippi
FTRs |  | Purchased power expense |  | $1.6 | (b) | Entergy New Orleans
FTRs |  | Purchased power expense |  | ($1.4) | (b) | Entergy Texas
(a) | 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.
(b) | Due to regulatory treatment, the changes in the estimated fair value of FTRs for the Utility operating companies 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 for the Utility operating companies are settled are recovered or refunded through fuel cost recovery mechanisms.
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. Effective first quarter 2016, Entergy retrospectively adopted ASU 2015-07, which simplifies the disclosure for fair value investments by removing the requirement to categorize within the fair value hierarchy investment for which fair value is measured using the net asset value per share as a practical expedient. For all periods presented the common trust funds have not been assigned a level and are presented within the fair value tables only as a reconciling item to the total fair value of investments. 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.
• | 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 Accounting Policy and Entergy Wholesale Commodities Accounting 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 Accounting Policy and Entergy Wholesale Commodities Accounting 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 and Treasurer while the Accounting Policy and Entergy Wholesale Commodities Accounting group reports to the Chief Accounting Officer. 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 U.S. 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 calculates the mark-to-market for electricity swaps and options. Entergy Wholesale Commodities Risk Control group also validates forward market prices by comparing them to other sources of forward market prices or to settlement prices of actual market transactions. Significant differences are 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 are also validated using actual counterparty quotes for Entergy Wholesale Commodities transactions when available, and uses multiple sources of market implied volatilities. Moreover, on at least a monthly basis, the Office of Corporate Risk Oversight confirms the mark-to-market calculations and prepares price scenarios and credit downgrade scenario analysis. The scenario analysis is communicated to senior management within Entergy and within Entergy Wholesale Commodities. Finally, for all proposed derivative transactions, an analysis is completed to assess the risk of adding the proposed derivative to Entergy Wholesale Commodities’ portfolio. In particular, the credit and liquidity effects are calculated for this analysis. This analysis is communicated to senior management within Entergy and Entergy Wholesale Commodities. The values of FTRs are based on unobservable inputs, including estimates of congestion costs in MISO between applicable generation and load pricing nodes based on the 50th percentile of historical prices. 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. The values are calculated internally and verified against the data published by MISO. 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 Risk Control groups report to the Vice President and Treasurer. The Accounting Policy group reports to the Chief Accounting Officer. 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, 2016 and December 31, 2015. 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.
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $1,010 |  |  |  | $— |  |  |  | $— |  |  |  | $1,010 |
Funds held on deposit |  | 197 |  |  | — |  |  | — |  |  | 197 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 446 |  |  | — |  |  | — |  |  | 446 |
Debt securities |  | 1,060 |  |  | 1,189 |  |  | — |  |  | 2,249 |
Common trusts (b) |  |  |  |  |  |  |  | 2,757 |
Power contracts |  | — |  |  | — |  |  | 183 |  |  | 183 |
Securitization recovery trust account |  | 52 |  |  | — |  |  | — |  |  | 52 |
Escrow accounts |  | 454 |  |  | — |  |  | — |  |  | 454 |
FTRs |  | — |  |  | — |  |  | 9 |  |  | 9 |
|  |  | $3,219 |  |  |  | $1,189 |  |  |  | $192 |  |  |  | $7,357 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $9 |  |  |  | $— |  |  |  | $— |  |  |  | $9 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $1,287 |  |  |  | $— |  |  |  | $— |  |  |  | $1,287 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 468 |  |  | — |  |  | — |  |  | 468 |
Debt securities |  | 1,061 |  |  | 1,094 |  |  | — |  |  | 2,155 |
Common trusts (b) |  |  |  |  |  |  |  | 2,727 |
Power contracts |  | — |  |  | — |  |  | 195 |  |  | 195 |
Securitization recovery trust account |  | 50 |  |  | — |  |  | — |  |  | 50 |
Escrow accounts |  | 425 |  |  | — |  |  | — |  |  | 425 |
FTRs |  | — |  |  | — |  |  | 23 |  |  | 23 |
|  |  | $3,291 |  |  |  | $1,094 |  |  |  | $218 |  |  |  | $7,330 |
Liabilities: |  |  |  |  |  |  |  |
Power contracts |  |  | $— |  |  |  | $— |  |  |  | $6 |  |  |  | $6 |
Gas hedge contracts |  | 9 |  |  | — |  |  | — |  |  | 9 |
|  |  | $9 |  |  |  | $— |  |  |  | $6 |  |  |  | $15 |
(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 for additional information on the investment portfolios.
(b) | Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value (NAV) as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the NAV and trades settle at a later date.
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, 2016 and 2015:
| 2016 |  | 2015
| Power Contracts |  | FTRs |  | Power Contracts |  | FTRs
| (In Millions)
Balance as of January 1, |  | $189 |  |  |  | $23 |  |  |  | $215 |  |  |  | $47 |
Total gains (losses) for the period (a) |  |  |  |  |  |  |
Included in earnings | — |  |  | — |  |  | (35 | ) |  | — |
Included in OCI | 139 |  |  | — |  |  | (26 | ) |  | — |
Included as a regulatory liability/asset | — |  |  | 7 |  |  | — |  |  | 1 |
Purchases | — |  |  | — |  |  | 10 |  |  | — |
Settlements | (145 | ) |  | (21 | ) |  | (19 | ) |  | (33 | )
Balance as of March 31, |  | $183 |  |  |  | $9 |  |  |  | $145 |  |  |  | $15 |
(a) | Change in unrealized gains or losses for the period included in earnings for derivatives held at the end of the reporting period is $6 million for the three months ended March 31, 2016 and ($87) million for the three months ended March 31, 2015.
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, 2016:
Transaction Type |  | Fair Value as of March 31, 2016 |  | Significant Unobservable Inputs |  | Range from Average % |  | Effect on Fair Value
|  | (In Millions) |  |  |  |  |  |  | (In Millions)
Power contracts - electricity swaps |  | $149 |  | Unit contingent discount |  | +/- | 3% |  | $7
Power contracts - electricity options |  | $34 |  | Implied volatility |  | +/- | 30% |  | $10
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, 2016 and December 31, 2015. 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
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $13.4 |  |  |  | $— |  |  |  | $— |  |  |  | $13.4 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 5.2 |  |  | — |  |  | — |  |  | 5.2 |
Debt securities |  | 102.3 |  |  | 208.9 |  |  | — |  |  | 311.2 |
Common trusts (b) |  |  |  |  |  |  |  | 469.1 |
Securitization recovery trust account |  | 7.6 |  |  | — |  |  | — |  |  | 7.6 |
Escrow accounts |  | 19.3 |  |  | — |  |  | — |  |  | 19.3 |
FTRs |  | — |  |  | — |  |  | 3.7 |  |  | 3.7 |
|  |  | $147.8 |  |  |  | $208.9 |  |  |  | $3.7 |  |  |  | $829.5 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  |  | $3.0 |  |  |  | $— |  |  |  | $— |  |  |  | $3.0 |
Debt securities |  | 110.5 |  |  | 193.4 |  |  | — |  |  | 303.9 |
Common trusts (b) |  |  |  |  |  |  |  | 464.4 |
Securitization recovery trust account |  | 4.2 |  |  | — |  |  | — |  |  | 4.2 |
Escrow accounts |  | 12.2 |  |  | — |  |  | — |  |  | 12.2 |
FTRs |  | — |  |  | — |  |  | 7.9 |  |  | 7.9 |
|  |  | $129.9 |  |  |  | $193.4 |  |  |  | $7.9 |  |  |  | $795.6 |
Entergy Louisiana
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $100.0 |  |  |  | $— |  |  |  | $— |  |  |  | $100.0 |
Funds held on deposit |  | 196.6 |  |  | — |  |  | — |  |  | 196.6 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 8.5 |  |  | — |  |  | — |  |  | 8.5 |
Debt securities |  | 154.5 |  |  | 267.7 |  |  | — |  |  | 422.2 |
Common trusts (b) |  |  |  |  |  |  |  | 634.5 |
Escrow accounts |  | 304.9 |  |  | — |  |  | — |  |  | 304.9 |
Securitization recovery trust account |  | 8.7 |  |  | — |  |  | — |  |  | 8.7 |
FTRs |  | — |  |  | — |  |  | 3.3 |  |  | 3.3 |
|  |  | $773.2 |  |  |  | $267.7 |  |  |  | $3.3 |  |  |  | $1,678.7 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $7.6 |  |  |  | $— |  |  |  | $— |  |  |  | $7.6 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $34.8 |  |  |  | $— |  |  |  | $— |  |  |  | $34.8 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | 7.1 |  |  | — |  |  | — |  |  | 7.1 |
Debt securities |  | 161.1 |  |  | 248.8 |  |  | — |  |  | 409.9 |
Common trusts (b) |  |  |  |  |  |  |  | 625.3 |
Escrow accounts |  | 290.4 |  |  | — |  |  | — |  |  | 290.4 |
Securitization recovery trust account |  | 3.2 |  |  | — |  |  | — |  |  | 3.2 |
FTRs |  | — |  |  | — |  |  | 8.5 |  |  | 8.5 |
|  |  | $496.6 |  |  |  | $248.8 |  |  |  | $8.5 |  |  |  | $1,379.2 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $7.0 |  |  |  | $— |  |  |  | $— |  |  |  | $7.0 |
Entergy Mississippi
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $112.7 |  |  |  | $— |  |  |  | $— |  |  |  | $112.7 |
Escrow accounts |  | 41.8 |  |  | — |  |  | — |  |  | 41.8 |
FTRs |  | — |  |  | — |  |  | 0.9 |  |  | 0.9 |
|  |  | $154.5 |  |  |  | $— |  |  |  | $0.9 |  |  |  | $155.4 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $1.8 |  |  |  | $— |  |  |  | $— |  |  |  | $1.8 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $144.2 |  |  |  | $— |  |  |  | $— |  |  |  | $144.2 |
Escrow accounts |  | 41.7 |  |  | — |  |  | — |  |  | 41.7 |
FTRs |  | — |  |  | — |  |  | 2.4 |  |  | 2.4 |
|  |  | $185.9 |  |  |  | $— |  |  |  | $2.4 |  |  |  | $188.3 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $1.3 |  |  |  | $— |  |  |  | $— |  |  |  | $1.3 |
Entergy New Orleans
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $5.3 |  |  |  | $— |  |  |  | $— |  |  |  | $5.3 |
Securitization recovery trust account |  | 7.4 |  |  | — |  |  | — |  |  | 7.4 |
Escrow accounts |  | 88.2 |  |  | — |  |  | — |  |  | 88.2 |
FTRs |  | — |  |  | — |  |  | 0.6 |  |  | 0.6 |
|  |  | $100.9 |  |  |  | $— |  |  |  | $0.6 |  |  |  | $101.5 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $87.8 |  |  |  | $— |  |  |  | $— |  |  |  | $87.8 |
Securitization recovery trust account |  | 4.6 |  |  | — |  |  | — |  |  | 4.6 |
Escrow accounts |  | 81.0 |  |  | — |  |  | — |  |  | 81.0 |
FTRs |  | — |  |  | — |  |  | 1.5 |  |  | 1.5 |
|  |  | $173.4 |  |  |  | $— |  |  |  | $1.5 |  |  |  | $174.9 |
Liabilities: |  |  |  |  |  |  |  |
Gas hedge contracts |  |  | $0.5 |  |  |  | $— |  |  |  | $— |  |  |  | $0.5 |
Entergy Texas
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $64.8 |  |  |  | $— |  |  |  | $— |  |  |  | $64.8 |
Securitization recovery trust account |  | 27.9 |  |  | — |  |  | — |  |  | 27.9 |
FTRs |  | — |  |  | — |  |  | 0.9 |  |  | 0.9 |
|  |  | $92.7 |  |  |  | $— |  |  |  | $0.9 |  |  |  | $93.6 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Securitization recovery trust account |  |  | $38.2 |  |  |  | $— |  |  |  | $— |  |  |  | $38.2 |
FTRs |  | — |  |  | — |  |  | 2.2 |  |  | 2.2 |
|  |  | $38.2 |  |  |  | $— |  |  |  | $2.2 |  |  |  | $40.4 |
System Energy
2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $255.0 |  |  |  | $— |  |  |  | $— |  |  |  | $255.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 2.1 |  |  | — |  |  | — |  |  | 2.1 |
Debt securities |  | 232.6 |  |  | 58.8 |  |  | — |  |  | 291.4 |
Common trusts (b) |  |  |  |  |  |  |  | 426.3 |
|  |  | $489.7 |  |  |  | $58.8 |  |  |  | $— |  |  |  | $974.8 |
2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
|  | (In Millions)
Assets: |  |  |  |  |  |  |  |
Temporary cash investments |  |  | $222.0 |  |  |  | $— |  |  |  | $— |  |  |  | $222.0 |
Decommissioning trust funds (a): |  |  |  |  |  |  |  |
Equity securities |  | 1.8 |  |  | — |  |  | — |  |  | 1.8 |
Debt securities |  | 218.6 |  |  | 59.2 |  |  | — |  |  | 277.8 |
Common trusts (b) |  |  |  |  |  |  |  | 421.9 |
|  |  | $442.4 |  |  |  | $59.2 |  |  |  | $— |  |  |  | $923.5 |
(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 for additional information on the investment portfolios.
(b) | Common trust funds are not publicly quoted, and are valued by the fund administrators using net asset value (NAV) as a practical expedient. Accordingly, these funds are not assigned a level in the fair value table. The fund administrator of these investments allows daily trading at the NAV and trades settle at a later date.
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, 2016.
| Entergy Arkansas |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
| (In Millions)
Balance as of January 1, |  | $7.9 |  |  |  | $8.5 |  |  |  | $2.4 |  |  |  | $1.5 |  |  |  | $2.2 |
Gains (losses) included as a regulatory liability/asset | 3.6 |  |  | 5.3 |  |  | (0.7 | ) |  | (0.4 | ) |  | 0.2 |
Settlements | (7.8 | ) |  | (10.5 | ) |  | (0.8 | ) |  | (0.5 | ) |  | (1.5 | )
Balance as of March 31, |  | $3.7 |  |  |  | $3.3 |  |  |  | $0.9 |  |  |  | $0.6 |  |  |  | $0.9 |
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, 2015.
| Entergy Arkansas |  | Entergy Louisiana |  | Entergy Mississippi |  | Entergy New Orleans |  | Entergy Texas
| (In Millions)
Balance as of January 1, |  | $0.7 |  |  |  | $25.5 |  |  |  | $3.4 |  |  |  | $4.1 |  |  |  | $12.3 |
Gains (losses) included as a regulatory liability/asset | 15.0 |  |  | (2.2 | ) |  | 0.8 |  |  | (1.1 | ) |  | (10.3 | )
Settlements | (15.1 | ) |  | (14.5 | ) |  | (3.3 | ) |  | (1.6 | ) |  | 1.4 |
Balance as of March 31, |  | $0.6 |  |  |  | $8.8 |  |  |  | $0.9 |  |  |  | $1.4 |  |  |  | $3.4 |

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