ENTERGY ARKANSAS, LLC Annual Report: A Clear View for Investors

1. Business Overview

Entergy Arkansas, LLC is an essential utility that powers over 730,000 homes and businesses with reliable electricity across Arkansas. It generates power from a diverse mix of facilities, including the Independence Unit 1 nuclear plant and several non-nuclear plants like White Bluff Units 1 & 2, and portions of the Ouachita and Union facilities. As a regulated utility, Entergy Arkansas operates as a natural monopoly, facing limited direct competition for electricity delivery within its service territory.

2. Financial Performance

Entergy Arkansas delivered a year of stable financial and operational performance. Operating revenues rose to $3.2 billion, a modest 2.5% increase from last year. Approved rate adjustments and consistent customer demand primarily drove this growth. Net income increased by 4.1% to $385 million, reflecting effective cost management even with rising fuel prices.

Key financial highlights include:

• Operating Cash Flow: $550 million, providing strong internal funding for capital projects.
• Customer Growth: Approximately 1.5% increase in customer accounts, reflecting steady economic development in its service territory.
• Capital Expenditures: Invested $780 million in infrastructure upgrades and new projects, a key driver for future reliability and growth.

These figures demonstrate a financially sound year, marked by consistent revenue generation and prudent expense management—a hallmark of a well-regulated utility.

3. Risk Factors

Investors should consider these potential risks:

• Regulatory Risk: Changes in state or federal regulations, including rate-setting mechanisms, environmental mandates, or cost recovery policies, could impact profitability.
• Operational Risk: Unexpected power plant outages (especially at the nuclear facility), cybersecurity breaches, or severe weather events could disrupt service and incur significant costs.
• Economic Conditions: An economic downturn in Arkansas could reduce electricity demand and affect customer payment reliability.
• Interest Rate Fluctuations: As a capital-intensive business, rising interest rates could increase financing costs for new projects and existing debt.
• Environmental & Climate Change Risk: More frequent and intense extreme weather events, alongside evolving environmental regulations on carbon emissions, pose long-term challenges and require significant investment.

4. Management Discussion (MD&A Highlights)

Management's discussion highlights significant achievements and challenges, outlines strategic initiatives, and provides broader market context.

Major Wins:

• Successful Grid Modernization: Completed key phases of its "Smart Grid" initiative, enhancing grid resilience and reducing outage restoration times by an average of 15%.
• Regulatory Approval: Secured favorable outcomes in its latest rate review, enabling continued infrastructure investment and recovery of prudently incurred costs.
• Renewable Energy Integration: Successfully brought online 150 MW of new solar generation capacity, diversifying its energy portfolio and advancing sustainability goals.

Challenges:

• Rising Fuel Costs: Experienced significant volatility and increases in natural gas prices, impacting operational expenses. Regulatory recovery mechanisms largely mitigated these impacts.
• Supply Chain Disruptions: Faced delays and increased costs for critical equipment and materials, which required proactive inventory management.
• Extreme Weather Events: Responded to several severe weather incidents, incurring higher-than-average restoration costs and straining operational resources.

Strategic Direction: Entergy Arkansas operates under a stable, experienced leadership team focused on long-term value creation. Key strategic initiatives include:

• Grid Modernization: Continues to invest in advanced grid technologies to enhance reliability, integrate distributed energy resources, and improve operational efficiency.
• Decarbonization & Clean Energy Transition: Actively pursues opportunities to expand its renewable energy portfolio and reduce carbon emissions, aligning with Entergy Corporation's broader sustainability goals.
• Customer-Centric Services: Enhances digital tools and programs to improve customer engagement, energy efficiency, and overall service experience.
• Operational Excellence: Drives continuous improvement in safety, efficiency, and asset management across its generation and delivery systems.

Market Trends and Regulatory Changes: Entergy Arkansas navigates a dynamic energy landscape. Key trends and regulatory factors include:

• Energy Transition: The ongoing shift towards cleaner energy sources, driven by technological advancements and environmental policies, continues to shape investment decisions and the generation mix.
• Technological Innovation: Advances in smart grid technologies, energy storage, and distributed generation transform how electricity is produced, delivered, and consumed.
• Evolving Regulatory Frameworks: Regulators increasingly consider performance-based ratemaking and incentives for grid modernization and clean energy investments, impacting utility returns.
• Economic Growth in Arkansas: Arkansas's economic health directly influences electricity demand and the company's customer base.
• Federal Energy Policy: Broader federal policies on infrastructure, climate change, and energy markets can significantly impact the utility sector.

Entergy Arkansas actively navigates these trends, leveraging its regulated business model to make strategic investments that benefit both customers and shareholders.

5. Financial Health

Entergy Arkansas maintains a robust financial position, essential for a capital-intensive utility.

• Cash and Equivalents: Ended the year with $120 million in cash, supported by strong operating cash flow.
• Available Liquidity: Accesses $400 million through revolving credit facilities, ensuring ample flexibility for short-term needs.
• Total Debt: $4.5 billion, with a manageable debt-to-capitalization ratio of approximately 55%, typical for the regulated utility sector. The company successfully refinanced $500 million in long-term debt at favorable rates, optimizing its capital structure.

Regulatory Accounts: Regulatory accounts are special mechanisms where regulators allow the company to recover certain costs from customers over time (recorded as an asset) or owe money back to customers (recorded as a liability). These accounts are critical for understanding a regulated utility's long-term financial stability and obligations.

Here's how Entergy Arkansas's key regulatory accounts changed from year-end 2024 to year-end 2025:

• Future Cleanup Costs (Asset Retirement Obligations): These funds for eventual plant dismantling increased by $78.5 million (up 5.8%) to $1.43 billion. This reflects updated cost estimates and regulatory requirements, representing a significant long-term responsibility typically recoverable through customer rates.
• Other Asset Removal Costs: Increased by $5 million (up 2.5%) to $202.6 million, similar to cleanup costs for other equipment.
• Employee Benefit Costs (Pension & Post-retirement): These regulatory assets decreased by $4.6 million (down 6.4%) to $66.9 million, indicating successful recovery or reduced future obligations.
• Deferred Pension Costs: Increased by $7.2 million (up 10.9%) to $73.2 million, deferring more pension-related costs for future recovery.
• Production Tax Credits: Decreased by $0.09 million (down 1.4%) to $6.6 million, reflecting the utilization of these government incentives.

These movements demonstrate active management of long-term obligations and deferred costs within the regulatory framework, ensuring financial stability and future cost recovery.

6. Future Outlook

Looking ahead, Entergy Arkansas anticipates continued growth in its service territory, supported by ongoing economic development. The company projects approximately $850 million in capital expenditures for the coming year, primarily focusing on grid resilience, generation upgrades, and renewable energy projects. It expects to file a new rate case within the next 12-18 months to recover these investments and ensure fair returns. The company remains committed to providing reliable, affordable, and increasingly clean energy to its customers while effectively managing regulatory and market dynamics.

7. Competitive Position

As a regulated utility, Entergy Arkansas operates as a natural monopoly within its service territory, facing limited direct competition for electricity delivery. Its competitive strengths include:

• Reliability & Service Quality: Consistently invests in its transmission and distribution network to ensure high service reliability, a key differentiator for customer satisfaction.
• Cost Management: Focuses on operational efficiencies and prudent capital investments to provide electricity at competitive rates within the regulatory framework.
• Diversified Generation Portfolio: Maintains a balanced mix of nuclear, natural gas, and renewable energy sources, which provides fuel diversity and helps manage price volatility.

In summary, Entergy Arkansas, LLC presents itself as a stable, regulated utility with consistent financial performance, strategic investments in grid modernization and clean energy, and a commitment to customer service. While navigating inherent risks like regulatory changes and extreme weather, its strong financial health and clear future outlook suggest a reliable investment opportunity for those seeking steady returns in the utility sector.