BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION

Transcription

1 APSC FILED Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION IN THE MATTER OF AN APPLICATION OF ENTERGY ARKANSAS, INC., MID SOUTH TRANSCO LLC, ITC MIDSOUTH LLC, TRANSMISSION COMPANY ARKANSAS, LLC, AND ITC HOLDINGS CORP. TO ENTER TRANSACTIONS RESULTING IN A CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY FOR A NEW ARKANSAS UTILITY TO OWN EAI S ELECTRIC TRANSMISSION FACILITIES DOCKET NO U DIRECT TESTIMONY OF KIMBERLY A. FONTAN CONTROLLER, UTILITY OPERATIONS ENTERGY SERVICES, INC. ON BEHALF OF ENTERGY ARKANSAS, INC. SEPTEMBER 28, 202

2 Entergy Arkansas, APSC FILED Inc. Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Direct Testimony of Kimberly A Fontan I. BACKGROUND AND INTRODUCTION Q. PLEASE STATE YOUR NAME AND CURRENT BUSINESS ADDRESS. A. My name is Kimberly A. Fontan. My business address is 639 Loyola Avenue, New Orleans, Louisiana Q. BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY? A. Through November 3, 20, I was employed by Entergy Services, Inc. ( ESI, as Jurisdictional Finance Director for Entergy Louisiana, LLC ( ELL and for Entergy Gulf States Louisiana, L.L.C. ( EGSL. In that capacity, I was responsible for financial management, financial planning and monitoring, and assisting in regulatory matters involving ELL and EGSL. Effective November 4, 20, I became Controller, Utility Operations for ESI. In addition to my responsibilities as Controller, as my testimony later explains, I have responsibilities in connection with the Project Management Office ( PMO that has been established to oversee preparations for, and the implementation of, the Entergy Operating Companies proposal to transfer their transmission assets to a separate holding company and then merge that company ESI is a subsidiary of Entergy Corporation that provides technical and administrative services to all the Operating Companies. The Entergy Operating Companies include EAI; Entergy Gulf States Louisiana, L.L.C.; Entergy Louisiana, LLC; Entergy Mississippi, Inc.; Entergy New Orleans, Inc.; and Entergy Texas, Inc

3 Entergy Arkansas, APSC FILED Inc. Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Direct Testimony of Kimberly A Fontan 2 into a subsidiary of ITC Holdings Corp. ( ITC (hereinafter referred to as the ITC Transaction Q. ON WHOSE BEHALF ARE YOU FILING THIS DIRECT TESTIMONY? A. I am filing this direct testimony on behalf of Entergy Arkansas, Inc. ( EAI Q. PLEASE DESCRIBE YOUR EDUCATION AND EXPERIENCE. A. I have a Bachelor of Science degree in Business Administration with a major in Accounting from the University of Southern Mississippi and a Master of Business Administration degree from Loyola University. I am a Certified Public Accountant. I began working for ESI as an accountant in 996. In 2000, I was promoted to Manager, External Reporting. In 2003, I became Manager, Fuel Accounting. In 2004, my responsibilities increased, and I was named Manager, Utility Operations Accounting. In this position, I managed a staff of fifteen 7 accountants. I was responsible for fuel accounting, revenue accounting, and co-owner accounting and provided regulatory support. I held this position until January 2006, when I briefly left ESI. In June 2006, I rejoined ESI and was named Director, Financial Issues Management. In that position, I led accounting activities in support of the recovery of storm restoration costs for the Texas-jurisdictional - 3 -

4 Entergy Arkansas, APSC FILED Inc. Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Direct Testimony of Kimberly A Fontan operations of Entergy Gulf States, Inc. 2 and for ENO. In May 2007, I was promoted to Jurisdictional Finance Director for ELL and EGSL. In November 20, I assumed my current position as Controller, Utility Operations Q. HAVE YOU PREVIOUSLY PROVIDED TESTIMONY BEFORE ANY REGULATORY BODY? A. Yes. Attached to my testimony is EAI Exhibit KAF-, which provides a list of proceedings in which I have previously testified. 0 II. PURPOSE OF TESTIMONY Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY? A. The purpose of my testimony is to support the Joint Application of EAI and ITC for approval of the ITC Transaction. My testimony addresses three primary areas. First, I describe my role in the PMO that has been established to oversee preparation for and the implementation of the ITC Transaction. As EAI witness Theodore Bunting explains, Entergy Corporation announced plans in December 20 to transfer the transmission assets currently held by the Entergy Operating Companies into separate transmission companies (Wires Subs, and 2 Effective December 3, 2007, Entergy Gulf States, Inc. completed a jurisdictional separation into two vertically integrated utility companies, one (EGSL operating under the sole retail jurisdiction of the Louisiana Public Service Commission ( LPSC, and the other (ETI operating under the sole retail jurisdiction of the Public Utility Commission of Texas

5 Entergy Arkansas, APSC FILED Inc. Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Direct Testimony of Kimberly A Fontan to transfer such Wires Subs to a new intermediate holding company (Mid South TransCo LLC. Entergy Corporation will then spin off Mid South TransCo LLC to its shareholders, and Mid South TransCo LLC will merge with and into a subsidiary of ITC. Second, I provide a description of how the transmission assets will be identified from an examination of the accounting books and records of EAI. Finally, I explain the accounting treatment required to accomplish both the separation of the transmission assets and the transfer/merger of the identified assets, as well as how that accounting treatment will be captured and reflected on the financial statements of the various affected Entergy Corporation entities. 2 3 III. PROJECT MANAGEMENT OFFICE ROLE Q. PLEASE DESCRIBE THE PMO THAT HAS BEEN ESTABLISHED BY THE ENTERGY OPERATING COMPANIES AND ITC IN CONNECTION WITH THIS PROPOSED TRANSACTION. A. The Joint Implementation PMO was established to manage activities and resources needed to consummate the proposed ITC Transaction. As more completely described by Mr. Bunting, the PMO consists of the following five Implementation and Transaction Teams, comprised of personnel of Entergy Operating Companies, ESI, and ITC:. Regulatory Implementation Team; 2. Joint ITC/Entergy Implementation Team; - 5 -

6 Entergy Arkansas, APSC FILED Inc. Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Direct Testimony of Kimberly A Fontan Transaction Finance Team; 4. Transaction Legal Team; and 5. Consents Committee. I am a member of the Transaction Finance Team Q. PLEASE DESCRIBE THE ROLE OF THE TRANSACTION FINANCE TEAM. A. The focus of the Transaction Finance Team is on identifying the transmission assets that will be transferred by each of the operating companies to a wholly-owned Wires Sub which is described more fully in Mr. Bunting s testimony; 2 preparing necessary financial documents and incorporated financial statements required to support the ITC Transaction and the required regulatory filings at the Federal Energy Regulatory Commission ( FERC, the Securities and Exchange Commission ( SEC, and various state and local regulatory agencies; 3 executing the financing activities required to ensure a successful closing of the ITC Transaction; and 4 overall management and coordination of the financial and regulatory filing requirements timeline Q. WHAT IS YOUR ROLE ON THE TRANSACTION FINANCE TEAM? A. I have been charged with ( providing support for the examination of the Entergy Operating Companies trial balances to determine what portion of each FERC account will be attributed or allocated to each - 6 -

7 Entergy Arkansas, APSC FILED Inc. Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Direct Testimony of Kimberly A Fontan Wires Sub; (2 determining and implementing the appropriate accounting entries to reflect the proposed ITC Transaction properly on the books and records of the Operating Companies, and (3 preparing each Operating Company s financial statements in accordance with Generally Accepted Accounting Principles ( GAAP and the FERC Uniform System of Accounts ( USoA. 7 8 IV. TRANSMISSION FINANCIAL INFORMATION Q. HAS EAI DETERMINED YET WHICH TRANSMISSION ASSETS WILL BE SUBJECT TO TRANSFER? A. Yes. The types of assets subject to transfer are identified as part of the ITC Transaction documents, specifically in Section 3.05 of the Separation Agreement attached as an exhibit to Mr. Bunting s testimony. The detailed list of assets to be transferred has not yet been finalized. The Transaction Finance Team has implemented a process for identifying the transmission assets that are subject to transfer, but that process is expected to continue for several months. Generally, the transmission assets that will be subject to transfer include those transmission lines that are rated at 69 kv and above and related equipment, transmission substation facilities, transmission land rights, transmission control facilities, transmission/distribution common use facilities, and other equipment, tools, vehicles, and machinery used in the operation of the transmission business. As I will be - 7 -

8 Entergy Arkansas, APSC FILED Inc. Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Direct Testimony of Kimberly A Fontan describing in greater detail below, and as provided for in the Separation Agreement, certain limited transmission and transmissionrelated assets (such as step-up transformers and fiber optic cable will remain with each Operating Company after closing Q. WHEN WILL THE FINAL IDENTIFICATION OF THE TRANSMISSION ASSETS SUBJECT TO TRANSFER BE COMPLETED? A. The detailed list of assets will not be final until closer to the closing date, and even then, there may be subsequent adjustments to the assets transferred. The Merger Agreement provides a process to accomplish these post-closing transfers. In the meantime, however, the Operating Companies are expected to make a filing at FERC in the fourth quarter of this year that will include financial statements for the Wires Subs created as part of the ITC Transaction that is described in Mr. Bunting s direct testimony. The financial statements included as part of the FERC filings will reflect the historical book value of the assets that will be subject to transfer to the Wires Subs. These values will provide estimates of the financial effects of the transfer of the 3 A preliminary identification of the transmission line and transformer facilities subject to the proposed transfer of ownership is attached as Exhibit A to the Application in this proceeding. This list was previously provided in EAI s MISO change of control case before this Commission. The list is not exhaustive at this time or fully representative of the assets that will be transferred. The list will be modified when the final identification of the transmission assets is complete. As reported in the Form 0k of Entergy Corporation and its Subsidiaries for the fiscal year ending 2/3/, net transmission plant in service, which does not include transmission-related construction work in progress or general or intangible plant, for EAI was $0.94 billion

9 Entergy Arkansas, APSC FILED Inc. Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Direct Testimony of Kimberly A Fontan 2 3 transmission assets. Once these regulatory filings at FERC are made, EAI will supplement the joint filing in this proceeding to provide the various financial statements for the Wires Sub of EAI Q. YOU MENTIONED THAT ONE OF YOUR RESPONSIBILITIES IS SUPPORTING THE SEPARATION OF THE OPERATING COMPANIES TRIAL BALANCES. WHAT ARE TRIAL BALANCES? A. A trial balance is a listing of all the general ledger accounts contained in a business accounting records, including balances as of a specified date Q. PLEASE EXPLAIN WHAT THE EXAMINATION OF THE TRIAL BALANCES ENTAILS. A. Each FERC account reflected on each Operating Company s separate trial balance ledger must be examined to determine to what extent the amounts reflected in the account are applicable to the transmission business and subject to transfer. The examination of certain accounts, such as those plant-level FERC accounts identified as transmission accounts in plant in service accounts (e.g., accounts 0 and 06, are fairly straightforward. These accounts reflect the type of asset (e.g., transmission lines rated 4 Those financial statements will contain notes that will explain the methodology used in the creation of the statements

10 Entergy Arkansas, APSC FILED Inc. Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Direct Testimony of Kimberly A Fontan at 69 kv and above that are designated in the Separation Agreement as subject to transfer. Other accounts are not as straightforward. For example, amounts in plant-level general and intangible accounts within FERC major accounts 0, 06, and 07 require additional detailed analysis to determine which assets should be attributed to the Wires Sub. Other plant in service accounts include common use facilities that must be attributed to the transmission or distribution functions based on additional analysis. The financial statements that will be included in the FERC filing that is expected to be made in the fourth quarter of this year will be representative of the assets expected to transfer, although they will be an estimate because the asset balances will undoubtedly change by the actual transfer date and because the process of specifically identifying the actual assets subject to transfer is not yet complete Q. WHAT IS THE SIGNIFICANCE OF THE TRANSMISSION-ONLY TRIAL BALANCE ANALYSIS THAT YOU DESCRIBED? A. The significance of the transmission-only trial balance is that it serves as the basis for the financial information that is included in the regulatory filings made with FERC and is intended to be reasonably representative of the assets to be transferred at closing

11 Entergy Arkansas, APSC FILED Inc. Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Direct Testimony of Kimberly A Fontan Q. HAVE YOU INCLUDED THE FINANCIAL STATEMENT INFORMATION IN THIS FILING? A. No. That information is not yet complete. As explained above, the regulatory filing at FERC with the financial statement information for the wires subs is expected to be made in the fourth quarter of this year. Once that filing is made, the financial statement information for the wires sub of EAI, including specific descriptions of the applicable attribution and allocation methodologies, will be provided in a supplemental filing in this proceeding Q. WILL THE AMOUNTS PROVIDED IN THE FERC FILING AND LATER SUPPLEMENTED IN THIS PROCEEDING PROVIDE THE BASIS FOR RATEMAKING? A. No. As I stated previously, the amounts provided in the FERC filing will reflect historical information. Therefore, it is expected that there would need to be further refinement to the financial amounts provided in the FERC filing to arrive at information that could then be used for retail ratemaking purposes. EAI witness Jay Lewis addresses the subject of retail ratemaking in his testimony Q. CAN YOU PROVIDE SOME EXAMPLES OF AREAS IN WHICH FURTHER REFINEMENT MIGHT BE REQUIRED TO THE - -

12 Entergy Arkansas, APSC FILED Inc. Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Direct Testimony of Kimberly A Fontan FINANCIAL INFORMATION YOU DESCRIBE IN ORDER TO ACCOMMODATE RETAIL RATEMAKING? A. Yes. Certain assets may remain with the Entergy Operating Companies based on agreement with ITC even though they may be related to the transmission business. For example, transmissionrelated assets that are expected to remain with the Entergy Operating Companies include fiber optics, step-up transformers at the generators, and certain land associated with joint use substations (i.e., 9 substations used by both transmission and distribution. 5 Further, although storm-related securitization assets and liabilities will be transferred to ITC, the related securitization charges will remain with the Entergy Operating Companies. Mr. Lewis addresses the retail ratemaking implications of these and other similar items in his direct testimony V. REQUIRED ACCOUNTING TREATMENT FOR TRANSACTION CLOSING Q. WHAT AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS GOVERN THE ACCOUNTING EAI WILL USE TO REFLECT THE 5 The step-up transformers are included in FERC s USoA Transmission Plant accounts. The other transmission-related assets referenced are included in FERC s USoA General Plant accounts

13 Entergy Arkansas, APSC FILED Inc. Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Direct Testimony of Kimberly A Fontan CONSUMMATION OF THE PROPOSED ITC TRANSACTION ON ITS FINANCIAL BOOKS AND RECORDS? A. GAAP, as promulgated by the Financial Accounting Standards Board, and the FERC USoA govern the accounting EAI will use to reflect the proposed ITC Transaction on its financial books and records. The specific GAAP guidance applicable to the ITC Transaction is ASC 805 (for business combinations and ASC (for spin-offs Q. IN GENERAL TERMS, HOW WILL EAI ACCOUNT FOR THE PROPOSED TRANSACTION? A. In general terms, EAI and the other Operating Companies will exchange their transmission assets for proceeds raised by debt issuances by the Wires Subs that will then be used to retire outstanding debt in proportion to each Operating Company s transmission assets. EAI s apportioned debt proceeds will be used to retire debt and preferred shares so that EAI s current debt to total capital ratio will be approximately the same after the transaction with ITC is complete. In addition, as explained by Mr. Bunting, the Operating Companies will retire all of their outstanding preferred shares either though redemptions, market purchases or tender offers. For EAI, those preferred share amounts will be replaced with common equity in a manner that results in maintaining a 54 percent debt/46 percent equity capital structure. From an accounting perspective, this - 3 -

14 Entergy Arkansas, APSC FILED Inc. Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Direct Testimony of Kimberly A Fontan means that EAI will be reducing both its assets and its corresponding debt burdens by amounts consistent with the ratio of those items pre- ITC Transaction. The proposed journal entries required to accomplish the individual steps of the proposed ITC Transaction described in Mr. Bunting s testimony are provided in EAI Exhibit KAF Q. DOES THIS CONCLUDE YOUR DIRECT TESTIMONY? A. Yes

15 APSC FILED Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 CERTIFICATE OF SERVICE I, Steven K. Strickland, do hereby certify that a copy of the foregoing has been served upon all parties of record by forwarding the same by electronic mail and/or first class mail, postage prepaid, this 28 th day of September 202. /s/ Steven K. Strickland Steven K. Strickland

16 APSC FILED Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION IN THE MATTER OF AN APPLICATION OF ENTERGY ARKANSAS, INC., MID SOUTH TRANSCO LLC, ITC MIDSOUTH LLC, TRANSMISSION COMPANY ARKANSAS, LLC, AND ITC HOLDINGS CORP. TO ENTER TRANSACTIONS RESULTING IN A CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY FOR A NEW ARKANSAS UTILITY TO OWN EAI S ELECTRIC TRANSMISSION FACILITIES DOCKET NO U EAI EXHIBIT KAF- PRIOR TESTIMONY

17 EAI Exhibit KAF- APSC FILED Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. Docket No U Page of Listing of Previous Testimony Filed by Kimberly A. Fontan (Submitted as of July 202 JURISDICTION DOCKET NO. DATE FERC EL Dec 2008 March 2009 FERC ER Jan 200 March 200 FERC ER0-676 June 200 LPSC U-2453-J March 2009 LPSC U-3092 Dec 2007 Dec 2008 Oct 200 LPSC U-3098 May 2009 LPSC U-396 Nov 2009 LPSC U-397 Jan 202 LPSC U-3248 April 202 CNO UD--0 April 202 Description CNO FERC LPSC ACRONYMS Name City of New Orleans Federal Energy Regulatory Commission Louisiana Public Service Commission

18 APSC FILED Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION IN THE MATTER OF AN APPLICATION OF ENTERGY ARKANSAS, INC., MID SOUTH TRANSCO LLC, ITC MIDSOUTH LLC, TRANSMISSION COMPANY ARKANSAS, LLC, AND ITC HOLDINGS CORP. TO ENTER TRANSACTIONS RESULTING IN A CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY FOR A NEW ARKANSAS UTILITY TO OWN EAI S ELECTRIC TRANSMISSION FACILITIES DOCKET NO U EAI EXHIBIT KAF-2 PROPOSED JOURNAL ENTRIES

19 EAI Exhibit KAF-2 APSC FILED Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Page of 3 Entergy s Narrative Explanation of Proposed Commission Accounting for the Transaction The Entergy Operating Companies ( EOCs are providing the pro forma accounting entries set forth herein for the proposed accounting of the Transaction on their books. The proposed accounting entries reflect the EOCs best present assessment of the manner in which the Transaction will ultimately be recorded for accounting purposes. The EOCs will submit proposed final accounting entries within six months of the closing of the Transaction. Such accounting entries will comply with Electric Plant Instructions No. 5 and Account 02, Electric Plant Purchased or Sold of the Uniform System of Accounts. The FERC Uniform System of Accounts and Generally Accepted Accounting Principles, as promulgated by the Financial Accounting Standards Board, govern the accounting the EOCs will use to reflect the proposed ITC Transaction on their separate financial books and records. In general terms, the EOCs will exchange their transmission assets for proceeds raised by debt issuances by the Wires Subs that will then be used to retire outstanding debt in proportion to the EOCs transmission assets so that the EOCs pre-transaction capital structures will be largely maintained. In addition, the EOCs will retire all of their outstanding preferred shares either though redemptions, market purchases or tender offers. Those preferred share amounts will be replaced with debt and/or common equity in a manner that approximates each EOC s overall weighted average cost of capital. From an accounting perspective, this means that the EOCs will be reducing both their respective assets and their corresponding debt burdens by amounts consistent with the ratio of those items pre-itc Transaction. The proposed journal entries required to accomplish the individual steps of the proposed ITC Transaction are included herein. The entries reflect the EOCs transfer of transmission assets and liabilities to the Wires Subs, the transfer of the Wires Subs to Mid South, Entergy Corporation s spin-off of Mid South to its shareholders, and Mid South s merger with a subsidiary of ITC. As part of the journal entries, the EOCs have included a description of the transaction steps.

20 EAI Exhibit KAF-2 APSC FILED Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Page 2 of 3 Entergy s Proposed Accounting for the Transaction

21 Proposed Transaction Journal Entries ($s in Thousands EAI Exhibit KAF-2 Page 3 of 3 Entergy Gulf States Entergy Gulf States Entergy Louisiana Entergy Corp Entergy Services Holdco Louisiana Holdings Louisiana Entergy Arkansas Holdings Entergy Louisiana Step(s Account Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit 23 Investment in TX Wires 23 Investment in LA Wires 23 Investment in AR Wires 23 Investment in LA 2 Wires 23 Investment in MS Wires 23 Investment in NOLA Wires 3 Cash 2 Misc. paid in capital Preferred stock 0,000 6,350 00,000 3 Cash 0,034 8,068 84,290 2 Misc. paid in capital 6, Dividends declared 34, Investment in EGSHLLC 23 Investment in EGSLLC 23 Investment in EALLC 23 Investment in ELHLLC 23 Investment in ELLLC 23 Investment in EMLLC 23 Investment in ENOLLC 23 Investment in ETLLC 3 Cash 6 2 Misc. paid in capital 4 3 Cash 569,500 8 Unamortized debt expense 5, Other long term debt 575,000 5 No Entry 6, 4, 2 23 Investment in ETLLC 54,906 29, 36, Investment in ELHLLC 4, Investment in EMLLC 2, Accum. deferred income taxes 74,276 94,33 4, Taxes accrued,932 94,33 2 Misc. paid in capital 4,709 3, Investment in ELHLLC 39,00 23 Investment in ELLLC 39,00 90 Accum. deferred income taxes 209,325 23, ,350 2 Misc. paid in capital 39,00 39, Taxes accrued 22,054 23,804 88, Deferred tax exp 4,829 7, 5, 22 3 Cash 30, 37, 44 8 Unamortized debt expense 224 Other long term debt 8, 6, 23 0 Electric plant in service 892,40,305,468,075,35 3, 38, Electric plant held for future use 9 448, Completed construction not classified 64,893 42,75 79,86 07 Construction work in progress 32,076 32,742 7, Accum provision for depr. 406,206 46,68 433,88 Accum provision for amort. 3,067 3,859 3,690 4 Electric plant acquisition adjustments 2,275 2 Non utility property Accum provision for Page of 0 H:\Journal Entries 9 2.xls Condensed Entries 9/2/202 9:23 AM

22 Proposed Transaction Journal Entries ($s in Thousands EAI Exhibit KAF-2 Page 4 of 3 Step(s Account Entergy Mississippi Entergy New Orleans Entergy Texas Mid South Transco LA Wires AR Wires LA 2 Wires MS Wires NOLA Wires TX Wires Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit 23 Investment in TX Wires 23 Investment in LA Wires 23 Investment in AR Wires 23 Investment in LA 2 Wires 23 Investment in MS Wires 23 Investment in NOLA Wires 3 Cash 2 Misc. paid in capital Preferred stock 3 Cash 2 Misc. paid in capital 238 Dividends declared 3 23 Investment in EGSHLLC 23 Investment in EGSLLC 23 Investment in EALLC 23 Investment in ELHLLC 23 Investment in ELLLC 23 Investment in EMLLC 23 Investment in ENOLLC 23 Investment in ETLLC 3 Cash 2 Misc. paid in capital 50,38 9,780 50,852 20, Cash 8 Unamortized debt expense 224 Other long term debt 5 No Entry 6, 4, 2 23 Investment in ETLLC 29, 36, Investment in ELHLLC 23 Investment in EMLLC 90 Accum. deferred income taxes 236 Taxes accrued 2 Misc. paid in capital 8,68,50 65,08 5,889,50 0,202 2,729 54,906 3, Investment in ELHLLC 23 Investment in ELLLC 90 Accum. deferred income taxes 2 Misc. paid in capital 236 Taxes accrued 40. Deferred tax exp 7, 5, 22 3 Cash 30, 37, 44 8 Unamortized debt expense 224 Other long term debt 8, 6, 23 0 Electric plant in service 3, 38, Electric plant held for future use 06 Completed construction not classified 07 Construction work in progress 08 Accum provision for depr. Accum provision for amort. 4 Electric plant acquisition adjustments 2 Non utility property 22 Accum provision for 74,9 395, ,520 76,294 8,70 96,069,98 4,503 2,680 2, ,23 76,00 400, ,200 78,300 8,800 98,300 77,62 85, , ,40,305,468,075,35 77,62 85, , , , ,766 92,785 5,660 6,260 64,893 42,75 79,86 92,785 5,660 6,260 26,684,68 8,830 32,076 32,742 7,230 26,684,68 8, ,89 6,62 279,50 406,206 46,68 433,88 268,89 6,62 279,50 2, ,87 3,067 3,859 3,690 2, ,87 2,275 2, , Page 2 of 0 H:\Journal Entries 9 2.xls Condensed Entries 9/2/202 9:23 AM

23 Entergy Gulf States Entergy Gulf States Entergy Louisiana Entergy Corp Entergy Services Holdco Louisiana Holdings Louisiana Entergy Arkansas Holdings Entergy Louisiana Step(s Account Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Depr. and amort. of nonutility property Investment in TX Wires 23 Investment in LA Wires 257,54 23 Investment in AR Wires 378, Investment in LA 2 Wires 47, Investment in MS Wires 23 Investment in NOLA Wires 3 Cash 66,57 384, , Other special deposits Plant materials and operating supplies,247 7,50 8, Stores exp. undist Prepayments 82.3 Regulatory assets 2,029 70,54 3, Misc. deferred debits Accum. deferred income taxes 6,453 9,690 55,634 2 Misc. paid in capital 29 Accum. other comprehensive income Accumulated provisions 2,484 3,005 3, Accounts payable 7,057 7,572 9, Customer deposits 5, Misc. current and accrued liabilities Other deferred credits,459 7,282 6, Other regulatory liabs. 4,447 27,33 29, Accum. deferred investment tax credits 2,785 0, Accum deferred income taxes Other prop 43, ,343 8, Accum deferred income taxes Other 4,554 27,305,926 EAI Exhibit KAF-2 Page 5 of 3 9, 7, Investment in ETLLC 88,23 32, 39, Investment in EGSHLLC 85,88 23 Investment in EGSLLC 85,88 23 Investment in EALLC 305, Investment in ELHLLC 260, Investment in ELLLC 260, Investment in EMLLC 64, Investment in ENOLLC 32,879 3 Cash 938, 85,88 305, ,980 2 Misc. paid in capital 85,88 85,88 305, , ,980 Page 3 of 0 H:\Journal Entries 9 2.xls Condensed Entries 9/2/202 9:23 AM

24 EAI Exhibit KAF-2 Page 6 of 3 Step(s Account Depr. and amort. of nonutility property 23 Investment in TX Wires 23 Investment in LA Wires 23 Investment in AR Wires 23 Investment in LA 2 Wires 23 Investment in MS Wires 23 Investment in NOLA Wires 3 Cash 34 Other special deposits 54 Plant materials and operating supplies 63 Stores exp. undist. 65 Prepayments 82.3 Regulatory assets 86 Misc. deferred debits 90 Accum. deferred income taxes 2 Misc. paid in capital 29 Accum. other comprehensive income 228 Accumulated provisions 232 Accounts payable 235 Customer deposits 242 Misc. current and accrued liabilities 253 Other deferred credits 254 Other regulatory liabs. 255 Accum. deferred investment tax credits 282 Accum deferred income taxes Other prop 283 Accum deferred income taxes Other Entergy Mississippi Entergy New Orleans Entergy Texas Mid South Transco LA Wires AR Wires LA 2 Wires MS Wires NOLA Wires TX Wires Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit ,324 34,498,368 72,035 7,575 90,60 66,57 384, ,767 72,035 7,575 90, , ,08,247 7,50 8,792 4, , , ,529 2,029 70,54 3,326 40, , , ,567 6,453 9,690 55,634 5, , ,54 378,953 47,022 34,498, , , ,484 3,005 3,729, ,288,97 2,9 7,057 7,572 9,62 5,288,97 2, , ,552,459 7,282 6, , ,972 4,447 27,33 29, ,972,276 80,200 2,785 0,887 99,276 80,200 62,482 0,064 60,572 43, ,343 8,908 62,482 0,064 60,572 4, ,97 4,554 27,305,926 4, ,97 9, 7, Investment in ETLLC 32, 39, Investment in EGSHLLC 23 Investment in EGSLLC 23 Investment in EALLC 23 Investment in ELHLLC 23 Investment in ELLLC 23 Investment in EMLLC 23 Investment in ENOLLC 3 Cash 2 Misc. paid in capital 64,387 32,879 88,23 64,387 32,879 88,23 Page 4 of 0 H:\Journal Entries 9 2.xls Condensed Entries 9/2/202 9:23 AM

25 Entergy Gulf States Entergy Gulf States Entergy Louisiana Entergy Corp Entergy Services Holdco Louisiana Holdings Louisiana Entergy Arkansas Holdings Entergy Louisiana Step(s Account Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit 0, 8, 25 3 Cash 243, , ,67 33, 40, Other long term debt 240, , ,500 8 Unamortized debt expense Unamortized loss on reacquired debt Taxes Accrued Interest accrued 3,987 7,045 4, Accum deferred income taxes Other Income Taxes Prov for Deferred Inc Tax EAI Exhibit KAF-2 Page 7 of 3, 9, Investment in TX Wires 332,325 34, 4, Investment in LA Wires 257, , Investment in AR Wires 378, , Investment in LA 2 Wires 47,023 47, Investment in MS Wires 34, Investment in NOLA Wires, Investment in ETLLC 332, Investment in EGSHLLC 257, Investment in EGSLLC 257, Investment in EALLC 378, Investment in ELHLLC 47, Investment in ELLLC 47, Investment in EMLLC 34, Investment in ENOLLC, Unnappropriated retained earnings 257, , ,954 47,023 47,023 2, 20, Investment in Holdco 2,98,223 35, 42, Investment in ETLLC 232, , Investment in EGSHLLC,4,6,4,6 23 Investment in EALLC 55,74 55,74 23 Investment in ELHLLC 888, , Investment in EMLLC 48,525 48, Investment in ENOLLC 9,549 9,549 2 Misc. paid in capital 2,98, Investment in Holdco 789, Investment in SERI 789, ,350 2 Misc. paid in capital 789,350 5, 52 Removed No Entry Investment in MidSouth Transco,87, Investment in NOLA Wires, Investment in MS Wires 34, Investment in LA 2 Wires 47, Investment in AR Wires 378, Investment in LA Wires 257, Investment in TX Wires 332,325 3 Cash 45,30 45 Notes receivable from associated companies 575,000 8 Unamortized debt expense 5,500 2 Misc. paid in capital 233 Notes payable to associated companies Page 5 of 0 H:\Journal Entries 9 2.xls Condensed Entries 9/2/202 9:23 AM

26 EAI Exhibit KAF-2 Page 8 of 3 Step(s Account 0, 8, 25 3 Cash 33, 40, Other long term debt 8 Unamortized debt expense 89 Unamortized loss on reacquired debt 236 Taxes Accrued 237 Interest accrued 283 Accum deferred income taxes Other 409. Income Taxes 40. Prov for Deferred Inc Tax Entergy Mississippi Entergy New Orleans Entergy Texas Mid South Transco LA Wires AR Wires LA 2 Wires MS Wires NOLA Wires TX Wires Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit 244,848 2,050 29, ,99 2, , , , , 9, Investment in TX Wires 34, 4, Investment in LA Wires 23 Investment in AR Wires 23 Investment in LA 2 Wires 23 Investment in MS Wires 23 Investment in NOLA Wires 23 Investment in ETLLC 23 Investment in EGSHLLC 23 Investment in EGSLLC 23 Investment in EALLC 23 Investment in ELHLLC 23 Investment in ELLLC 23 Investment in EMLLC 23 Investment in ENOLLC 26 Unnappropriated retained earnings 2, 20, Investment in Holdco 35, 42, Investment in ETLLC 23 Investment in EGSHLLC 23 Investment in EALLC 23 Investment in ELHLLC 23 Investment in EMLLC 23 Investment in ENOLLC 2 Misc. paid in capital 34,499,369 34,499, , , Investment in Holdco 23 Investment in SERI 2 Misc. paid in capital 5, 52 Removed No Entry Investment in MidSouth Transco 23 Investment in NOLA Wires 23 Investment in MS Wires 23 Investment in LA 2 Wires 23 Investment in AR Wires 23 Investment in LA Wires 23 Investment in TX Wires 3 Cash 45 Notes receivable from associated companies 8 Unamortized debt expense 2 Misc. paid in capital 233 Notes payable to associated companies,369 34,499 47, , , ,325 45,30 5,500,87, ,000 Page 6 of 0 H:\Journal Entries 9 2.xls Condensed Entries 9/2/202 9:23 AM

27 Entergy Gulf States Entergy Gulf States Entergy Louisiana Entergy Corp Entergy Services Holdco Louisiana Holdings Louisiana Entergy Arkansas Holdings Entergy Louisiana Step(s Account Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit 54 0 Electric plant in service 76, Completed construction not classified 3,45 07 Construction work in progress 3, Accum provision for depr. of electric utility plant 32, Investment in NOLA Wires 23 Investment in MS Wires 23 Investment in LA 2 Wires 23 Investment in AR Wires 23 Investment in LA Wires 23 Investment in TX Wires 28 Other special funds 5,484 3 Cash 43, Regulatory assets 3, Misc. deferred debits Accum. deferred income taxes 9,326 2 Misc. paid in capital 29 Accum. other comprehensive income, Accumulated provisions 2, Accounts payable 5, Customer deposits 6, Taxes accrued Misc. current and accrued liabilities 2, Other deferred credits,5 282 Accum deferred income taxes Other prop Accum deferred income taxes Other, Income Taxes Prov for Deferred Inc Tax 876 EAI Exhibit KAF-2 Page 9 of Unappropriated retained earnings,225, Investment in MidSouth Transco,87,342 4 Notes Receivable 575, Notes receivable from associated companies 575, Misc. deferred debits 38, Taxes accrued 5, Accum deferred income taxes Other prop 5, Income Taxes 5, Prov for Deferred Inc Tax 5, Electric plant purchased or sold 0 Electric plant in service 05 Electric plant held for future use 06 Completed construction not classified 07 Construction work in progress 08 Accum provision for depr. Accum provision for amort. 4 Electric plant acquisition adjustments 2 Non utility property 22 Accum provision for Depr. and amort. of nonutility property 23 Investment in TX Wires 23 Investment in LA Wires 23 Investment in AR Wires Page 7 of 0 H:\Journal Entries 9 2.xls Condensed Entries 9/2/202 9:23 AM

28 EAI Exhibit KAF-2 Page 0 of 3 Step(s Account 54 0 Electric plant in service 06 Completed construction not classified 07 Construction work in progress 08 Accum provision for depr. of electric utility plant 23 Investment in NOLA Wires 23 Investment in MS Wires 23 Investment in LA 2 Wires 23 Investment in AR Wires 23 Investment in LA Wires 23 Investment in TX Wires 28 Other special funds 3 Cash 82.3 Regulatory assets 86 Misc. deferred debits 90 Accum. deferred income taxes 2 Misc. paid in capital 29 Accum. other comprehensive income 228 Accumulated provisions 232 Accounts payable 235 Customer deposits 236 Taxes accrued 242 Misc. current and accrued liabilities 253 Other deferred credits 282 Accum deferred income taxes Other prop 283 Accum deferred income taxes Other 409. Income Taxes 40. Prov for Deferred Inc Tax Unappropriated retained earnings 23 Investment in MidSouth Transco 4 Notes Receivable 45 Notes receivable from associated companies 86 Misc. deferred debits 236 Taxes accrued 282 Accum deferred income taxes Other prop 409. Income Taxes 40. Prov for Deferred Inc Tax 02 Electric plant purchased or sold 0 Electric plant in service 05 Electric plant held for future use 06 Completed construction not classified 07 Construction work in progress 08 Accum provision for depr. Accum provision for amort. 4 Electric plant acquisition adjustments 2 Non utility property 22 Accum provision for Depr. and amort. of nonutility property 23 Investment in TX Wires 23 Investment in LA Wires 23 Investment in AR Wires Entergy Mississippi Entergy New Orleans Entergy Texas Mid South Transco LA Wires AR Wires LA 2 Wires MS Wires NOLA Wires TX Wires Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit 22, ,246 24,25 2,765 7,324 8, , ,784 2, , ,842 2,746 7, ,925 9,35 2,73 5,484 45, , , , ,770 7,324 3,530 2, ,05 00, , , ,40,327,935,075,98 798,408 0,092 89,00 332, ,576 40, , ,766 64,893 45,039 79,86 93,53 6,49 6,260 32,4 40,694 7,250 29,526 4,364 8, , , ,932 27,744 80,963 28,88 3,067 3,859 3,690 2, ,87 5,78 6,72 2, , Page 8 of 0 H:\Journal Entries 9 2.xls Condensed Entries 9/2/202 9:23 AM

29 Entergy Gulf States Entergy Gulf States Entergy Louisiana Entergy Corp Entergy Services Holdco Louisiana Holdings Louisiana Entergy Arkansas Holdings Entergy Louisiana Step(s Account Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit 23 Investment in LA 2 Wires 23 Investment in MS Wires 23 Investment in NOLA Wires 28 Other special funds 3 Cash 34 Other special deposits 54 Plant materials and operating supplies 63 Stores exp. undist. 65 Prepayments 8 Unamortized debt expense 82.3 Regulatory assets 86 Misc. deferred debits 90 Accum. deferred income taxes 2 Misc. paid in capital 29 Accum. other comprehensive income 224 Other long term debt 228 Accumulated provisions 232 Accounts payable 233 Notes payable to associated companies 235 Customer deposits 236 Taxes accrued 242 Misc. current and accrued liabilities 253 Other deferred credits 254 Other regulatory liabs. 255 Accum. deferred investment tax credits 282 Accum deferred income taxes Other prop 283 Accum deferred income taxes Other EAI Exhibit KAF-2 Page of 3 56 No Entry 57 No Entry Other long term debt 575,000 4 Notes Receivable 575,000 Page 9 of 0 H:\Journal Entries 9 2.xls Condensed Entries 9/2/202 9:23 AM

30 EAI Exhibit KAF-2 Page 2 of 3 Step(s Account 23 Investment in LA 2 Wires 23 Investment in MS Wires 23 Investment in NOLA Wires 28 Other special funds 3 Cash 34 Other special deposits 54 Plant materials and operating supplies 63 Stores exp. undist. 65 Prepayments 8 Unamortized debt expense 82.3 Regulatory assets 86 Misc. deferred debits 90 Accum. deferred income taxes 2 Misc. paid in capital 29 Accum. other comprehensive income 224 Other long term debt 228 Accumulated provisions 232 Accounts payable 233 Notes payable to associated companies 235 Customer deposits 236 Taxes accrued 242 Misc. current and accrued liabilities 253 Other deferred credits 254 Other regulatory liabs. 255 Accum. deferred investment tax credits 282 Accum deferred income taxes Other prop 283 Accum deferred income taxes Other Entergy Mississippi Entergy New Orleans Entergy Texas Mid South Transco LA Wires AR Wires LA 2 Wires MS Wires NOLA Wires TX Wires Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit 47, ,269 8,693 5,484 7,672,56 2,82 5,,32 6, ,247 7,50 8,792 4, , ,500,98 4,503 2,680 2, ,23 3,784 2,029 70,54 3,326 40, , ,358 6,453 9,690 55,634 5, ,567,8,58 257,576 40,87 47, ,269 8, ,356, ,00 400, ,200 78,300 8,800 98,300 2,422 2,484 3,005 3,729, ,057 7,572 9,62,006,97 2,9 575,000 5,02 2 5, ,05,459 7,282 6, ,552 4,447 27,33 29, ,972 2,785 0,887 99,276 80,200 43, ,766 8,9 65,099 0,839 60,575,24 4,554 27,305,926 4, ,97 56 No Entry 57 No Entry Other long term debt 4 Notes Receivable Page 0 of 0 H:\Journal Entries 9 2.xls Condensed Entries 9/2/202 9:23 AM

31 Proposed Transaction Journal Entry Step Descriptions Step Utility Operating Companies form the Wires Subsidiaries. The Wires Subsidiaries will not be treated as corporations for income tax purposes. Step 2 Utility Operating Companies redeem their outstand preferred stock or membership interests. Step 3 Entergy Corp. ("Entergy" forms the Utility LLCs (the "OpCos", and the Utility Holding Company LLCs. The Utility LLCs and the Utility Holding Company LLC will not be treated as corporations for income tax purposes. Step 4 Entergy issues the Exchangeable Notes. Step 5 Mid South Transco ("Transco" will elect to be treated as a corporation for income tax purposes. Steps 6, 4, 2, 29, 36, and 43 The Utility Operating Companies will merge with and into the OpCos. Steps 3 and 28 The Utility Holding Companies (Holding Companies for Entergy Gulf States Louisiana, L.L.C. and Entergy Louisiana, LLC merge with and into the Utility Holding Company LLCs. Steps 7, 5, 22, 30, 37, and 44 The Wires Subsidiaries issue debt. Steps 8, 6, 23, 3, 38, and 45 The OpCos contribute their transmission business to the Wires Subsidiaries in exchange for the proceeds from the debt issuance. Steps 9, 7, 24, 32, 39, and 46 Entergy contributes cash to the OpCos (via the Utility Holding Company LLCs in the case of Entergy Gulf States Louisiana, L.L.C. and Entergy Louisiana, LLC. Steps 0, 8, 25, 33, 40, and 47 The OpCos will use the cash from the previous steps to repay outstanding debt. Steps, 9, 26, 34, 4, and 48 The OpCos will distribute their interest in the Wires Subsidiaries to Entergy (via the Utility Holding Company LLCs in the case of Entergy Gulf States Louisiana, L.L.C. and Entergy Louisiana, LLC. Steps 2, 20, 27, 35, 42, and 49 The Opcos or Utility Holding Company LLCs will merge with and into the Utility Holding Company ("Holdco". Step 50 Holdco will form Holdco LLC. System Energy Resources, Inc. will merge with and into Holdco LLC. Thereafter, Holdco LLC will merge with and into New SERI. Step 5 Removed Step 52 Removed EAI Exhibit KAF-2 APSC FILED Time: 9/28/202 3:46:09 PM: Recvd 9/28/202 3:37:45 PM: Docket u-Doc. 9 Page 3 of 3 Step 53 Entergy will contribute its interest in the Wires Subsidiaries and cash to Transco for common stock and a note receivable. Step 54 Transco will purchase the assets and assume liabilities of Entergy Services, Inc. ("ESI" that are related to the transmission business. Step 55 Entergy will distribute its interest in Transco to shareholders in a pro rata distribution to owners ("spin off". Note: The entry shown represents a spin off of 00% of Transco. Entergy may elect to enter into an exchange offer where it would exchange a portion of its interest in Transco for Entergy shares with existing shareholders. If this election is made, the final resulting journal entries at Entergy would differ from this presentation and may include a gain recognized on the exchange of those shares. Step 56 ITC Corporation Merger Subsidiary will merge with and into Transco. Step 57 In exchange for their shares in Transco, Entergy shareholders will receive shares of ITC Corporation equaling 50.% of the outstanding shares of ITC Corporation at the time of the transaction. The Transco shares in the Trust, if any, will also be exchanged for ITC shares. Step 58 Entergy will transfer the Transco note receivable to creditors in exchange for the Exchangeable debt issued in Step 4.