UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | |
X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
For the Quarterly Period Ended June 30, | |
OR | |
TRANSITION REPORT PURSUANT TO SECTION 13 | |
For the transition period from ____________ to ____________ |
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1-11299 | ENTERGY CORPORATION | 1-31508 |
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1-10764 | ENTERGY ARKANSAS, INC. | 0-5807 |
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1-27031 | ENTERGY GULF STATES, INC. |
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1-9067 | SYSTEM ENERGY RESOURCES, INC. | |||
1-32718 |
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Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Yes | X | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, (as definedor a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Securities Exchange Act of 1934).Act.
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Entergy Corporation | Ö | ||||
Entergy Arkansas, Inc. | Ö | ||||
Entergy Gulf States, Inc. | Ö | ||||
Entergy Louisiana, | Ö | ||||
Entergy Mississippi, Inc. | Ö | ||||
Entergy New Orleans, Inc. | Ö | ||||
System Energy Resources, Inc. | Ö |
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).
Yes | No | X |
Outstanding at July | ||
Entergy Corporation | ($0.01 par value) |
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Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc.,LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. separately file this combined Quarterly Report on Form 10-Q. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company reports herein only as to itself and makes no other representations whatsoever as to any other company. This combined Quarterly Report on Form 10-Q supplements and updates the Annual Report on Form 10-K for the calendar year ended December 31, 2004,2005, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2005,2006, filed by the individual registrants with the SEC, and should be read in conjunction therewith.
ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 20052006
Page Number | |||
Definitions | 1 | ||
Entergy Corporation and Subsidiaries | |||
Management's Financial Discussion and Analysis | |||
Hurricane Katrina and Hurricane Rita | 4 | ||
Results of Operations |
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Liquidity and Capital Resources |
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Significant Factors and Known Trends |
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Critical Accounting Estimates |
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Consolidated Statements of Income |
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Consolidated Statements of Cash Flows |
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Consolidated Balance Sheets |
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Consolidated Statements of Retained Earnings, Comprehensive Income, and |
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Selected Operating Results |
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Notes to Consolidated Financial Statements |
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Entergy Arkansas, Inc. | |||
Management's Financial Discussion and Analysis | |||
Results of Operations |
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Liquidity and Capital Resources |
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Significant Factors and Known Trends |
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Critical Accounting Estimates |
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Income Statements |
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Statements of Cash Flows |
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Balance Sheets |
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Selected Operating Results |
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Entergy Gulf States, Inc. | |||
Management's Financial Discussion and Analysis | |||
Hurricane Rita and Hurricane Katrina | 55 | ||
Results of Operations |
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Liquidity and Capital Resources | 60 | ||
Significant Factors and Known Trends | 61 | ||
Critical Accounting Estimates |
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Income Statements |
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Statements of Cash Flows |
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Balance Sheets |
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Statements of Retained Earnings and Comprehensive Income |
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Selected Operating Results |
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Entergy Louisiana, | |||
Management's Financial Discussion and Analysis | |||
Hurricane Rita and Hurricane Katrina | 70 | ||
Results of Operations |
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Liquidity and Capital Resources |
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Significant Factors and Known Trends |
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Critical Accounting Estimates |
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Income Statements |
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Statements of Cash Flows |
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Balance Sheets |
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Statements of Members' Equity | 82 | ||
Selected Operating Results |
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ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2006
Page Number | |||
Entergy Mississippi, Inc. | |||
Management's Financial Discussion and Analysis | |||
Hurricane Katrina | 84 | ||
Results of Operations |
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Liquidity and Capital Resources |
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Significant Factors and Known Trends |
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Critical Accounting Estimates |
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Income Statements |
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ENTERGY CORPORATION AND SUBSIDIARIESINDEX TO QUARTERLY REPORT ON FORM 10-QJune 30, 2005
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Statements of Cash Flows |
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Balance Sheets |
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Selected Operating Results |
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Entergy New Orleans, Inc. | |||
Management's Financial Discussion and Analysis | |||
Hurricane Katrina | 97 | ||
Bankruptcy Proceedings | 97 | ||
Results of Operations |
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Liquidity and Capital Resources | 100 | ||
Significant Factors and Known Trends | 102 | ||
Critical Accounting Estimates | 103 | ||
Income Statements | 104 | ||
Statements of Cash Flows | 105 | ||
Balance Sheets | 106 | ||
Selected Operating Results | 108 | ||
System Energy Resources, Inc. | |||
Management's Financial Discussion and Analysis | |||
Results of Operations | 109 | ||
Liquidity and Capital Resources | 109 | ||
Significant Factors and Known Trends | 110 | ||
Critical Accounting Estimates |
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Income Statements |
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Statements of Cash Flows |
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Balance Sheets |
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Notes to Respective Financial Statements |
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Part I, Item 4. Controls and Procedures |
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Part II. Other Information | |||
Item 1. Legal Proceedings |
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Item 1A. Risk Factors | 132 | ||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 4. Submission of Matters to a Vote of Security Holders |
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Item 5. Other Information |
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Item 6. Exhibits |
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Signature |
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FORWARD-LOOKING INFORMATION
In this filing and from time to time, Entergy makes statements concerning its expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. Such statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Although Entergy believes that these forward-looking statements and the underlying assumptions are reasonable, it cannot provide assurance that they will prove correct. Except to the extent required by the federal securities laws, Entergy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements involve a number of risks and uncertainties, and there are factors that could cause actual results to differ materially from those expressed or implied in the statements. Some of those factors (in addition to the risk factors in the Form 10-K as well as others described elsewhere in this report and in subsequent securities filings) include:
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DEFINITIONS
Certain abbreviations or acronyms used in the text are defined below:
Abbreviation or Acronym | Term |
AFUDC | Allowance for Funds Used During Construction |
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ANO 1 and 2 | Units 1 and 2 of Arkansas Nuclear One Steam Electric Generating Station (nuclear), owned by Entergy Arkansas |
APSC | Arkansas Public Service Commission |
average contract price per MWh or per kW per month | Price at which generation output and/or capacity is expected to be sold to third parties, given existing contract or option exercise prices based on expected dispatch or capacity |
average contract revenue per MWh | Price at which the combination of generation output and capacity are expected to be sold to third parties, given existing contract or option exercise prices based on expected dispatch |
Board | Board of Directors of Entergy Corporation |
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capacity contract | For Non-Utility Nuclear, a contract for the sale of the installed capacity product in regional markets managed by ISO New England and the New York Independent System Operator; For Energy Commodity Services, a contract for the sale of capacity and related energy, in which capacity and energy are priced separately |
capacity factor | Actual plant output divided by maximum potential plant output for the period |
City Council or Council | Council of the City of New Orleans, Louisiana |
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DOE | United States Department of Energy |
domestic utility companies | Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, collectively |
EITF | FASB's Emerging Issues Task Force |
Energy Commodity Services | Entergy's business segment that includes Entergy-Koch, LP and Entergy's non-nuclear wholesale assets business |
Entergy | Entergy Corporation and its direct and indirect subsidiaries |
Entergy Corporation | Entergy Corporation, a Delaware corporation |
Entergy-Koch | Entergy-Koch, LP, a joint venture equally owned by subsidiaries of Entergy and Koch Industries, Inc. |
EPA | United States Environmental Protection Agency |
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FASB | Financial Accounting Standards Board |
FEMA | Federal Emergency Management Agency |
FERC | Federal Energy Regulatory Commission |
firm liquidated damages | Transaction that requires receipt or delivery of energy at a specified delivery point (usually at a market hub not associated with a specific asset) |
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DEFINITIONS (Continued)
Abbreviation or Acronym | Term |
FSP | FASB Staff Position |
Grand Gulf | Unit No. 1 of Grand Gulf Steam Electric Generating Station (nuclear), 90% owned or leased by System Energy |
GWh | Gigawatt-hour(s), which equals one million kilowatt-hours |
Independence | Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power |
IRS | Internal Revenue Service |
ISO | Independent System Operator |
kV | Kilovolt |
kW | Kilowatt |
kWh | Kilowatt-hour(s) |
LDEQ | Louisiana Department of Environmental Quality |
LPSC | Louisiana Public Service Commission |
Mcf | One thousand cubic feet of gas |
MMBtu | One million British Thermal Units |
MPSC | Mississippi Public Service Commission |
DEFINITIONS (Continued)
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MW | Megawatt(s), which equals one thousand kilowatt(s) |
MWh | Megawatt-hour(s) |
Nelson Unit 6 | Unit No. 6 (coal) of the Nelson Steam Electric Generating Station, owned 70% by Entergy Gulf States |
Net debt ratio | Gross debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents |
Net MW in operation | Installed capacity owned or operated |
Net revenue | Operating revenue net of fuel, fuel-related, and purchased power expenses; and other regulatory credits |
Non-Utility Nuclear | Entergy's business segment that owns and operates five nuclear power plants and sells electric power produced by those plants primarily to wholesale customers |
NRC | Nuclear Regulatory Commission |
NYPA | New York Power Authority |
OASIS | Open Access Same Time Information Systems |
percent of planned generation sold forward | Percent of planned generation output sold forward under contracts, forward physical contracts, forward financial contracts, or options that may or may not require regulatory approval |
planned net MW in operation | Amount of capacity to be available to generate power considering uprates planned to be completed within the calendar year |
planned TWh of generation | Amount of output expected to be generated by Non-Utility Nuclear for nuclear units, or by non-nuclear wholesale assets for fossil and wind units, considering plant operating characteristics, outage schedules, and expected market conditions that impact dispatch |
PPA | Purchased power agreement |
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PRP | Potentially responsible party (a person or entity that may be responsible for remediation of environmental contamination) |
PUCT | Public Utility Commission of Texas |
PUHCA 1935 | Public Utility Holding Company Act of 1935, as amended |
PUHCA 2005 | Public Utility Holding Company Act of 2005, which repealed PUHCA 1935, among other things |
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DEFINITIONS(Concluded)
Abbreviation or Acronym | Term |
PURPA | Public Utility Regulatory Policies Act of 1978 |
Ritchie Unit 2 | Unit 2 of the R.E. Ritchie Steam Electric Generating Station (gas/oil) |
River Bend | River Bend Steam Electric Generating Station (nuclear), owned by Entergy Gulf States |
SEC | Securities and Exchange Commission |
SFAS | Statement of Financial Accounting Standards as promulgated by the FASB |
SMEPA | South Mississippi Electric Power Agency, which owns a 10% interest in Grand Gulf |
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System Agreement | Agreement, effective January 1, 1983, as modified, among the domestic utility companies relating to the sharing of generating capacity and other power resources |
System Energy | System Energy Resources, Inc. |
System Fuels | System Fuels, Inc. |
TWh | Terawatt-hour(s), which equals one billion kilowatt-hours |
unit-contingent | Transaction under which power is supplied from a specific generation asset; if the |
unit-contingent with | Transaction under which power is supplied from a specific generation asset; if the |
DEFINITIONS(Concluded)
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Unit Power Sales Agreement | Agreement, dated as of June 10, 1982, as amended and approved by FERC, among Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, relating to the sale of capacity and energy from System Energy's share of Grand Gulf |
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| Entergy's business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution |
Waterford 3 | Unit No. 3 (nuclear) of the Waterford Steam Electric Generating Station, 100% owned or leased by Entergy Louisiana |
weather-adjusted usage | Electric usage excluding the estimated effects of deviations from normal weather |
White Bluff | White Bluff Steam Electric Generating Station, 57% owned by Entergy Arkansas |
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ENTERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Entergy operates primarily through two business segments: Utility and Non-Utility Nuclear.
In addition to its two primary, reportable, operating segments, Entergy also operates the Energy Commodity Services segment and the Competitive Retail Services business. Energy Commodity Services includes Entergy-Koch, LP and Entergy's non-nuclear wholesale assets business. Entergy-Koch sold its businesses in the fourth quarter of 2004 and is no longer an operating entity. In April 2006, Entergy sold the retail electric portion of the Competitive Retail Services business operating in the ERCOT region of Texas, and now reports this portion of the business as a discontinued operation. Entergy reports Energy Commodity Services and Competitive Retail Services as part of All Other in its segment disclosures.
Hurricane Katrina and Hurricane Rita
See the Form 10-K for a discussion of the effects of Hurricanes Katrina and Rita, which in August and September 2005 caused catastrophic damage to portions of the Utility's service territory in Louisiana, Mississippi, and Texas, including the effect of extensive flooding that resulted from levee breaks in and around the greater New Orleans area. Following are updates to the discussion in the Form 10-K.
Community Development Block Grants (CDBG)
As discussed in the Form 10-K, a federal hurricane aid package became law that includes funding for Community Development Block Grants (CDBG) that allows state and local leaders to fund individual recovery priorities. The law permits funding for infrastructure restoration. It is uncertain how much funding, if any, will be designated for utility reconstruction and the timing of such decisions is also uncertain. The U.S. Department of Housing and Urban Development has allocated approximately $10.4 billion for Louisiana, $5.1 billion for Mississippi, and $74 million for Texas, with an additional $1 billion approved by Congress but not yet allocated to the states. The states, in turn, will administer the grants. Entergy is currently preparing applications to seek CDBG funding. In March 2006, Entergy New Orleans, Entergy Louisiana, and Entergy Gulf States-Louisiana provided justification statements to state and local officials. The statements, which will be reviewed by the Louisiana Recovery Authority, include the estimated costs of Hurricanes Katrina and Rita damage, as well as for Entergy New Orleans a lost customer base component intended to help offset the need for storm-related rate increases. The statements include justification for requests for CDBG funding of $718 million by Entergy New Orleans, $472 million by Entergy Louisiana, and $164 million by Entergy Gulf States-Louisiana. As discussed further below, in June 2006 Entergy Mississippi filed a request with the Mississippi Development Authority for $89 million of CDBG funding for reimbursement of its Hurricane Katrina infrastructure restoration costs.
Storm Costs Recovery Filings with Retail Regulators
On July 31, 2006, Entergy Louisiana and Entergy Gulf States filed a supplemental and amending storm cost recovery application with the LPSC, in which Entergy Louisiana and Entergy Gulf States requested that the LPSC (1) review Entergy Louisiana's and Entergy Gulf States' testimony and exhibits relating to the costs associated with Hurricanes Katrina and Rita, and declare that those verified, actual storm-related costs through May 31, 2006 are $466.8 million for Entergy Louisiana and $200.3 million for Entergy Gulf States in the Louisiana jurisdiction and that
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those costs were prudently incurred; (2) declare that the annual revenue requirements associated with the recovery of those costs, based on a ten-year levelized rate are $54.4 million for Entergy Louisiana and $26.2 million for Entergy Gulf States; (3) authorize Entergy Louisiana and Entergy Gulf States to recover the costs through Storm Cost Recovery Riders (SCRRs) proposed by Entergy Louisiana and Entergy Gulf States; (4) declare that the storm costs incurred subsequent to May 31, 2006 are to be filed by Entergy Louisiana and Entergy Gulf States with the LPSC on an annual basis in connection with their annual formula rate plan (FRP) filings, and that the SCRRs be adjusted annually to reflect such costs and any insurance proceeds or CDBG funds actually received, with the adjusted amounts to be collected through the SCRRs to take effect contemporaneous with the effective date of rate changes under the FRP; (5) declare that the storm-related costs incurred by Entergy Louisiana an d Entergy Gulf States meet the conditions set forth in the FRP for exclusion from the sharing provisions in those FRPs and authorize the permanent recovery of storm costs outside of the FRPs adopted by the LPSC for Entergy Louisiana and Entergy Gulf States; and (6) authorize the funding of a storm reserve through securitization sufficient to fund a storm cost reserve of $132 million for Entergy Louisiana and $81 million for Entergy Gulf States. Hearings on the application are scheduled for the first quarter 2007.
In July 2006, Entergy Gulf States filed an application with the PUCT with respect to the $393.2 million of Hurricane Rita reconstruction costs incurred in its Texas retail jurisdiction through March 31, 2006. The filing asks the PUCT to determine that $393.2 million is the amount of reasonable and necessary hurricane reconstruction costs eligible for securitization and recovery, approve the recovery of carrying costs, and approve the manner in which Entergy Gulf States-Texas allocates those costs among its retail customer classes. If approved, Entergy Gulf States' application will ultimately affect all its retail customers in Texas. Entergy Gulf States' filing does not request recovery of costs through a specific rider on customer bills or through any other means at this time. The hearing before the PUCT on the filing is scheduled for November 2006. This is the first of two filings authorized by a law passed earlier this year in a special session of the Texas Legislature. A second filing will request securitization and recovery of the eligible costs through retail rates and tariffs. Entergy Gulf States expects to make the second filing following the conclusion of the reconstruction cost case.
As discussed in the Form 10-K, in December 2005, Entergy Mississippi filed with the MPSC a Notice of Intent to change rates by implementing a Storm Damage Rider to recover storm damage restoration costs associated with Hurricanes Katrina and Rita totaling approximately $84 million as of November 30, 2005. In February 2006, Entergy Mississippi filed an Application for an Accounting Order seeking certification by the MPSC of Entergy Mississippi's estimated $36 million of storm restoration costs not included in the December 2005 filing. In March 2006, the Governor signed a law that established a mechanism by which the MPSC may authorize and certify an electric utility financing order and the state may issue general obligation bonds to pay the costs of repairing damage caused by Hurricane Katrina to the systems of investor-owned electric utilities. Because of the passage of this law and the possibility of Entergy Mississippi obtaining CDBG funds for Hurricane Katrina stor m restoration costs, in March 2006, the MPSC issued an order approving a Joint Stipulation between Entergy Mississippi and the Mississippi Public Utilities Staff that provided for the review of Entergy Mississippi's total storm restoration costs in the Application for an Accounting Order proceeding. The Stipulation stated that the procedural schedule of the December 2005 Notice of Intent filing should be suspended until the MPSC issues a final order in the Application for an Accounting Order proceeding.
In June 2006, the MPSC issued an order certifying Entergy Mississippi's Hurricane Katrina restoration costs incurred through March 31, 2006 of $89 million, net of estimated insurance proceeds. Two days later Entergy Mississippi filed a request with the Mississippi Development Authority for $89 million of CDBG funding for reimbursement of its infrastructure restoration costs. Entergy Mississippi also filed a Petition for Financing Order with the MPSC for authorization of state general obligation bond financing of $169 million for Hurricane Katrina restoration costs and future storm costs. The $169 million amount includes Hurricane Katrina restoration costs plus $80 million to build Entergy Mississippi's storm damage reserve for the future. The amount financed through the bonds will be reduced dollar for dollar by any CDBG funds that Entergy Mississippi receives. Pursuant to the legislation, the MPSC must issue a financing order by the end of October 2006.
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See State and Local Rate Regulationbelow for a discussion of Entergy New Orleans' filings with the City Council directed at recovery of its storm costs.
Insurance Recovery
As discussed more fully in the Form 10-K, Entergy estimates that its net insurance recoveries for the losses caused by Hurricanes Katrina and Rita will be approximately $382 million. Entergy has received $15 million thus far on its insurance claims, as it continues working towards insurance payment of its covered losses.
Entergy New Orleans Bankruptcy
See the Form 10-K for a discussion of the Entergy New Orleans bankruptcy proceeding. Following is an update to the discussion in the Form 10-K. In April 2006, the bankruptcy judge extended the exclusivity period for filing a plan of reorganization by Entergy New Orleans to August 21, 2006.Entergy New Orleans has filed another motion to extend the exclusivity period for filing its plan of reorganization, requesting that the deadline be extended an additional 120 days until December 19, 2006. The court entered an order extending the August 21, 2006 date for Entergy New Orleans' exclusive right to file a plan of reorganization until the court can hear and rule on Entergy New Orleans' motion to extend, which was set for hearing on September 18, 2006. In order to file a plan of reorganization no later than December 2006, Entergy New Orleans believes that it needs resolution of its June 2006 formula rate plan and storm rider filings and commitme nt on timing and amount of CDBG funds. If the motion to extend is granted, Entergy New Orleans will have the exclusive right to file its plan of reorganization until December 19, 2006, and will have until February 15, 2007 to obtain acceptances of its plan by each class of impaired creditors.
In addition, the bankruptcy judge had set a date of April 19, 2006 by which creditors with prepetition claims against Entergy New Orleans must, with certain exceptions, file their proofs of claim in the bankruptcy case. Approximately 500 claims have been filed thus far in Entergy New Orleans' bankruptcy proceeding. Entergy New Orleans is currently analyzing the accuracy and validity of the claims filed, and has begun seeking withdrawal or modification of claims or objecting to claims with which it disagrees.
Municipalization is one potential outcome of Entergy New Orleans' recovery effort. In June 2006 Louisiana passed a law that establishes a governance structure for a public power authority, if municipalization of Entergy New Orleans' utility business is pursued.
As discussed in the Form 10-K, as a result of the Entergy New Orleans bankruptcy proceeding, Entergy deconsolidated Entergy New Orleans for financial reporting purposes retroactive to January 1, 2005. Because Entergy owns all of the common stock of Entergy New Orleans, this change will not affect the amount of net income Entergy records resulting from Entergy New Orleans' operations for any current or prior period, but will result in Entergy New Orleans' net income or loss being presented as "Equity in earnings of unconsolidated equity affiliates" rather than its results being included in each individual income statement line item, as is the case for periods prior to 2005.
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Results of Operations
Entergy's consolidated earnings applicableSecond Quarter 2006 Compared to common stockSecond Quarter 2005
Following are income statement variances for Utility, Non-Utility Nuclear, Parent & Other business segments, and Entergy comparing the second quarter and six months ended June 30, 2005 and 2004 were as follows:
Second Quarter | Six Months Ended | |||||||
Operating Segment |
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U.S. Utility |
| $211,717 |
| $194,964 | $302,216 | $310,621 | ||
Non-Utility Nuclear |
| 58,277 |
| 62,994 | 136,242 | 131,828 | ||
Parent Company & Other Business |
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Total |
| $286,150 |
| $265,182 | $458,146 | $472,343 |
Entergy's income before taxes is discussed below according2006 to the operating segments listed above. See Note 8second quarter 2005 showing how much the line item increased or (decreased) in comparison to the consolidated financial statements herein for more information concerning Entergy's operating segments and their financial results in 2005 and 2004.prior period:
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2nd Quarter 2005 Consolidated Net Income |
| $217,260 |
| $58,277 |
| $17,011 | $292,548 | |
Net revenue (operating revenue less fuel |
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Other operation and maintenance expenses |
| (1,957) | 10,196 | 6,260 | 14,499 | |||
Taxes other than income taxes |
| (2,164) | (741) | (981) | (3,886) | |||
Depreciation |
| 11,754 | 1,958 | (189) | 13,523 | |||
Other income |
| 7,721 | 4,822 | (12,672) | (129) | |||
Interest charges |
| 10,107 | (2,857) | 12,190 | 19,440 | |||
Other expenses |
| 610 | 2,504 | 17 | 3,131 | |||
Discontinued operations (net-of-tax) |
| - | - | 15,932 | 15,932 | |||
Income taxes |
| (38,317) | 6,353 | 3,016 | (28,948) | |||
2nd Quarter 2006 Consolidated Net Income |
| $206,542 |
| $63,379 |
| $19,655 | $289,576 |
Refer to "ENTERGY CORPORATION AND SUBSIDIARIES -SELECTED OPERATING RESULTS" for further information with respect to Utility operating statistics.
U.S. UTILITY
The decrease in earnings for the U.S. Utility for the six months ended June 30, 2005 compared to the six months ended June 30, 2004 from $310.6 million to $302.2 million was primarily due to higher other operation and maintenance expenses and higher depreciation and amortization expenses, partially offset by higher net revenue and lower interest expenses.
Net Revenue
Second Quarter 2005 Compared to Second Quarter 2004
Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory credits. Following is an analysis of the change in net revenue, which is Entergy's measure of gross margin, comparing the second quarter of 20052006 to the second quarter of 2004.2005.
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Price applied to unbilled electric sales |
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Base revenues/Attala cost deferral | 18.9 | |
Fuel recovery | 15.8 | |
Other |
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The price applied to unbilled sales variance resulted from an increaseis due to the exclusion in 2006 of the fuel cost component included in the calculation of the price applied to unbilled sales. The increase inEffective January 1, 2006, the fuel cost component is attributable to an increaseno longer included in the price of natural gas, the nuclear refueling outageunbilled revenue calculation at Waterford 3,Entergy Louisiana and the nuclear maintenance outagesLouisiana jurisdiction at River Bend.Entergy Gulf States, which is in accordance with regulatory treatment. Entergy expects that the effect of this factor will be less for its annual results for 2006. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K and Note 1 to the consolidated financial statements in the Form 10-K for further discussion of the accounting for unbilled revenues.herein.
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The volume/weather variance isresulted primarily duefrom more favorable weather in the second quarter of 2006 compared to the second quarter of 2005 in addition to an increase in electricityweather-adjusted usage. Billed usage totaling 161increased a total of 801 GWh in the residential and commercial sectors. Industrial sales volume declinedsectors and decreased 87 GWh in the industrial sector. The increase was partially offset by decreased usage during the unbilled period.
The base revenues variance resulted primarily from increases at Entergy Gulf States in the Louisiana jurisdiction effective October 2005 for the 2004 formula rate plan filing and the annual revenue requirement related to the purchase of power from the Perryville generating station, and increases at Entergy Gulf States in the Texas jurisdiction related to an incremental purchased capacity recovery rider that began in December 2005 and a transition to competition rider that began in March 2006. The Attala cost deferral variance resulted from deferred under-recovered Attala power plant costs at Entergy Mississippi that will be recovered through the power management rider. The net income effect of the Attala cost deferral is partially offset by Attala costs in other operation and maintenance expenses, depreciation expense, and taxes other than income taxes.
The fuel recovery variance resulted primarily from the under-recovery in 2005 of fuel costs from retail customers in addition to increased fuel cost recovery in 2006 as a result of special rate contracts.
Non-Utility Nuclear
Net revenue increased for Non-Utility Nuclear primarily due to the losshigher pricing in its contracts to cogeneration, which had been expected, of one large customer.
Gross operating revenues and fuel and purchased power expenses
Gross operating revenues increased from $2.0 billion for the second quarter 2004 to $2.2 billion for the second quarter 2005. The increase includes an increase in fuel cost recovery revenues of $81.7 million resulting primarily from increases in the market prices of natural gas and purchasedsell power. As such, this revenue increase is offset by increased fuel and purchased power expenses. The increases in the price applied to unbilled sales and volume/weather variances, discussed above, also contributedAlso contributing to the increase in gross operating revenues.
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory credits. Following is an analysis of the changewas increased generation in net revenue comparing the six months ended June 30, 2005 to the six months ended June 30, 2004.
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The price applied to unbilled sales variance resulted from an increase in the fuel cost component included in the price applied to unbilled sales. The increase in the fuel cost component is attributable to an increase in the price of natural gas, the nuclear refueling outage at Waterford 3, and the nuclear maintenance outages at River Bend. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K and Note 1 to the consolidated financial statements in the Form 10-K for further discussion of the accounting for unbilled revenues.
The deferred fuel cost revisions variance is due toa revised estimate of fuel costs filed for recovery at Entergy Arkansas in the March 2004 energy cost recovery rider, which reduced net revenue in the first quarter of 2004 by $11.5 million. The remainder of the variance is2006 due to a power uprate completed since the 2004 energy cost recovery true-up, made in the firstsecond quarter of 2005, which increased net revenue by $4.0 million.
The rate refund provisions variance is due primarily to accruals recorded in 2004 for potential rate action at Entergy New Orleans and Entergy Gulf States. Included in the current period variance are provisions recorded at Entergy Louisiana in 2005 as a result of LPSC-approved settlements in March 2005 and May 2005. The settlements are discussed in Note 2 to the consolidated financial statements.
The volume/weather variance resulted from decreased usage by residential customers and a decrease in usage during the unbilled sales period. Industrial sales volume was relatively unchanged as the loss to cogeneration, which had been expected, of one large customer waspartially offset by an increasethe effect of refueling outages on available generation output. The total number of refueling days was essentially the same in usage by other customers, primarily in the chemical industry. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K and Note 1 to the consolidated financial statements in the Form 10-K for further discussion of the accounting for unbilled revenues.
Gross operating revenues and fuel and purchased power expenses
Gross operating revenues increased from $3.8 billion for the six months ended June 30, 2004 to $4.0 billion for the six months ended June 30, 2005. The increase includes an increase in fuel cost recovery revenues of $151 million resulting primarily from increases in the market prices of natural gas and purchased power. As such, this revenue increase is offset by increased fuel and purchased power expenses. The increase in the price applied to unbilled sales, discussed above, also contributed to the increase in gross operating revenues.
Other Income Statement Variances
Second Quarter 2005 Compared to Second Quarter 2004
Other operation and maintenance expenses increased from $391.7 million for the second quarter 2004of 2006 compared to $432.6 million for the second quarter 2005 primarily due to:
Other income decreased from $30.5 million for the second quarter 2004 to $20.1 million forof 2006 was at a larger unit, Indian Point 2, while most of the outage days in the second quarter of 2005 primarily due to:
The decrease was partially offset by an increase of $6.2 million in interest and dividend income primarily due to higher interest on temporary cash investments.
Interest on long-term debt decreased from $97.6 million for the second quarter 2004 to $91.2 million for the second quarter 2005 primarily due to the net retirement of $319 million of long-term debt at the domestic utility companies in 2004. Refer to Note 5 to the consolidated financial statements in the Form 10-K and Note 4 to the consolidated financial statements herein for details of long-term debt.
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
Other operation and maintenance expenses increased from $723 million for the six months ended June 30, 2004 to $798 million for the six months ended June 30, 2005 primarily due to:
Depreciation and amortization expenses increased from $385.6 million forthe six months ended June 30,2004 to $398.4 million for the six months ended June 30, 2005 due primarily to an increase in plant in service.
Other income, which was $45.4 million for the six months ended June 30, 2005 and $45.5 million for the six months ended June 30, 2004, includes the following:
Interest on long-term debt decreased from $199.3 million for the six months ended June 30, 2004 to $184.2 million for the six months ended June 30, 2005 primarily due to the net retirement of $319 million of long-term debt at the domestic utility companies in 2004. Refer to Note 5 to the consolidated financial statements in the Form 10-K and Note 4 to the consolidated financial statements herein for details of long-term debt.
NON-UTILITY NUCLEAR
|
| Second Quarter |
| Six Months Ended | ||||
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
|
|
|
|
|
|
|
|
|
Net MW in operation at June 30 |
| 4,105 |
| 4,001 |
| 4,105 |
| 4,001 |
Generation in GWh for the period |
| 8,156 |
| 8,196 |
| 16,422 |
| 16,882 |
Capacity factor for the period |
| 90.9% |
| 93.6% |
| 92.1% |
| 96.3% |
Average realized price per MWh |
| $42.63 |
| $41.33 |
| $42.09 |
| $40.49 |
Second Quarter 2005 Compared to Second Quarter 20042005:
The decrease
|
| 2006 |
| 2005 |
|
|
|
|
|
| 4,200 |
| 4,105 | |
Average realized price per MWh |
| $43.93 |
| $42.63 |
Generation in GWh for the quarter |
| 8,249 |
| 8,156 |
Capacity factor for the quarter |
| 90% |
| 91% |
Parent & Other
Net revenue increased for Parent & Other primarily due to the $14.1 million gain ($8.6 million net-of-tax) realized on the sale of the non-nuclear wholesale asset business' remaining interest in earningsa power development project.
Other Operation and Maintenance Expenses
Other operation and maintenance expenses increased for Non-Utility Nuclear from $63.0$145 million for the second quarter of 2005 to $58.3$155 million wasfor the second quarter of 2006 primarily due to higher operation and maintenance expenses resulting primarily from increased benefits costs and the effects of lower generation associated with planned and unplanned refueling and maintenance outages. Partially offsetting the decrease was an increase in revenues due to higher contract pricing.outage expenses.
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004Interest Charges
The increase in earningsInterest charges increased for Non-Utility Nuclear from $131.8 million to $136.2 million wasthe Utility and Parent & Other primarily due to miscellaneous income of $15.8 million net-of-tax resulting from a reduction inadditional borrowing to fund the decommissioning liability for a plant, as discussed in Note 1 to the consolidated financial statements. Also contributing to the increase in earnings was higher contract pricing. The increase in earnings was partially offset by the effects of lower generationsignificant storm restoration costs associated with plannedHurricanes Katrina and unplanned refueling and maintenance outages and higher operation and maintenance expenses resulting primarily from increased benefits costs.Rita.
8
Discontinued Operations
PARENT COMPANY & OTHER BUSINESS SEGMENTS
Second Quarter 2005 Compared to Second Quarter 2004
The increase in earnings for Parent Company & Other Business SegmentsIncome from $7.2 million to $16.2 million wasdiscontinued operations increased primarily due to $14.4the $17.1 million of tax benefits in 2005 from the American Jobs Creation Act of 2004 and an increase of $5.5 million from the non-nuclear wholesale assets business primarily due to lower operation and maintenance expenses and proceeds fromgain (net-of-tax) on the sale of SO2 allowances. The increase was partially offset by a decrease of $13.9 million due to the absence of earnings from Entergy's investment in Entergy-Koch becauseretail electric portion of the sale of Entergy-Koch's energy trading and pipeline businessesCompetitive Retail Services business operating in the fourth quarterERCOT region of 2004, as discussed in the Form 10-K.Texas.
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
The decrease in earnings for Parent Company & Other Business Segments from $29.9 million to $19.7 million was primarily due to a decrease of $30.1 million due to the absence of earnings from Entergy's investment in Entergy-Koch due to the sale of Entergy-Koch's energy trading and pipeline businesses in the fourth quarter of 2004, as discussed in the Form 10-K. Also contributing to the decrease in earnings was the favorable settlement of a tax issue, which increased earnings by $11 million in the first quarter of 2004. The decrease was partially offset by $14.4 million of tax benefits in 2005 from the American Job Creations Act of 2004 and an increase of $14.1 million from the non-nuclear wholesale assets business primarily due to lower operation and maintenance expenses and proceeds from the sale of SO2 allowances.
Income Taxes
The effective income tax rates for the second quarters of 2006 and 2005 were 31.0% and 2004 were 34.8% and 38.0%, respectively. The effective income tax rates for the six months ended June 30, 2005 and 2004 were 34.8% and 36.0%33.9%, respectively. The difference in the effective income tax rate for the second quarter of 2006 versus the federal statutory rate of 35.0% is primarily due to the recognition of an income tax benefit related to ANO 1 steam generator removal cost and the six months ended June 30,favorable resolution of a tax audit issue, partially offset by state income taxes. The difference in the effective income tax rate for the second quarter of 2005 versus the federal statutory rate of 35.0% is primarily due to tax benefits from the American Jobs Creation Act of 2004 and investment tax credit amortization, partially offset by state income taxes and regulatory plantbook and tax differences on utility plant items.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Following are income statement variances for Utility, Non-Utility Nuclear, Parent & Other business segments, and Entergy comparing the six months ended June 30, 2006 to the six months ended June 30, 2005 showing how much the line item increased or (decreased) in comparison to the prior period:
|
|
| Non-Utility |
| Parent & Other |
| ||
(In Thousands) | ||||||||
2005 Consolidated Net Income |
| $313,286 |
| $136,242 |
| $21,399 | $470,927 | |
Net revenue (operating revenue less fuel |
|
|
|
|
| |||
Other operation and maintenance expenses |
| 11,147 | 17,995 | 11,147 | 40,289 | |||
Taxes other than income taxes |
| 4,643 | 4,079 | 114 | 8,836 | |||
Depreciation |
| 1,866 | 2,176 | (651) | 3,391 | |||
Other income |
| 20,475 | (14,898) | (21,492) | (15,915) | |||
Interest charges |
| 15,001 | (3,349) | 25,008 | 36,660 | |||
Other expenses |
| 1,562 | 2,316 | 31 | 3,909 | |||
Discontinued operations (net-of-tax) |
| - | - | 15,056 | 15,056 | |||
Income taxes |
| (6,869) | 8,102 | (3,593) | (2,360) | |||
2006 Consolidated Net Income |
| $333,477 |
| $144,908 |
| $12,858 | $491,243 |
Refer to "ENTERGY CORPORATION AND SUBSIDIARIES -SELECTED OPERATING RESULTS" for further information with respect to Utility operating statistics.
9
Net Revenue
Utility
Following is an analysis of the change in net revenue, which is Entergy's measure of gross margin, comparing the six months ended June 30, 2006 to the six months ended June 30, 2005.
Amount | ||
(In Millions) | ||
2005 net revenue | $1,972.9 | |
Base revenues/Attala cost deferral | 46.5 | |
Fuel recovery | 32.7 | |
Volume/weather | 18.0 | |
Transmission revenue | 11.9 | |
Storm cost recovery | 7.3 | |
Price applied to unbilled electric sales | (95.8) | |
Other | 6.5 | |
2006 net revenue | $2,000.0 |
The base revenues variance resulted primarily from increases at Entergy Gulf States in the Louisiana jurisdiction effective October 2005 for the 2004 formula rate plan filing and the annual revenue requirement related to the purchase of power from the Perryville generating station, and increases at Entergy Gulf States in the Texas jurisdiction related to an incremental purchased capacity recovery rider that began in December 2005 and a transition to competition rider that began in March 2006. The Attala cost deferral variance resulted from deferred under-recovered Attala power plant costs at Entergy Mississippi that will be recovered through the power management rider. The net income effect of the Attala cost deferral is partially offset by Attala costs in other operation and maintenance expenses, depreciation expense, and taxes other than income taxes.
The fuel recovery variance resulted primarily from adjustments of fuel clause recoveries in Entergy Gulf States' Louisiana jurisdiction, the under-recovery in 2005 of fuel costs from retail customers, and increased recovery in 2006 of fuel costs as a result of special rate contracts. The increase was partially offset by the Entergy Arkansas energy cost recovery true-up made in the first quarter of 2005.
The volume/weather variance resulted primarily from increased usage, including the effect of weather on billed sales, compared to the same period in 2006. Billed usage increased a total of 657 GWh in the residential and commercial sectors and decreased 486 GWh in the industrial sector. The increase was partially offset by decreased usage during the unbilled period.
The transmission revenue variance is primarily due to new transmission customers in 2006. Also contributing to the increase was an increase in rates effective June 2006.
The storm cost recovery variance is due to the return earned on the interim recovery of storm-related costs at Entergy Louisiana and the Louisiana jurisdiction of Entergy Gulf States as allowed by the LPSC effective March 2006.
The price applied to unbilled sales variance is due to the exclusion in 2006 of the fuel cost component in the calculation of the price applied to unbilled sales. Effective January 1, 2006, the fuel cost component is no longer included in the unbilled revenue calculation at Entergy Louisiana and the Louisiana jurisdiction at Entergy Gulf States, which is in accordance with regulatory treatment. Entergy expects that the effect of this factor will be less for its annual results for 2006. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" herein.
10
Non-Utility Nuclear
Net revenue increased for Non-Utility Nuclear primarily due to higher pricing in its contracts to sell power. Also contributing to the increase in revenues was increased generation in 2006 due to power uprates at certain plants completed in 2005 and 2006 and fewer refueling outages in 2006. Following are key performance measures for Non-Utility Nuclear for the six months ended June 30, 2006 and 2005:
|
| 2006 |
| 2005 |
|
|
|
|
|
Net MW in operation at June 30 |
| 4,200 |
| 4,105 |
Average realized price per MWh |
| $44.16 |
| $42.09 |
Generation in GWh for the period |
| 16,990 |
| 16,422 |
Capacity factor for the period |
| 94% |
| 92% |
Parent & Other
Net revenue increased for Parent & Other primarily due to the $14.1 million gain ($8.6 million net-of-tax) realized on the sale of the non-nuclear wholesale asset business' remaining interest in a power development project.
Other Operation and Maintenance Expenses
Other operation and maintenance expenses increased for the Utility from $750 million in 2005 to $761 million in 2006 primarily due to the following:
The increase was partially offset by a decrease of $10 million in benefits and payroll costs and a decrease of $10 million in distribution costs, including lower planned spending for vegetation maintenance.
Other operation and maintenance expenses increased for Non-Utility Nuclear from $288 million in 2005 to $306 million in 2006 primarily due to higher refueling outage expenses.
Other Income
Other income increased for the Utility from $59 million in 2005 to $79 million in 2006 primarily due to an increase in interest income recorded on the deferred fuel costs balance. Other income decreased for Non-Utility Nuclear from $48 million in 2005 to $33 million in 2006 primarily due to miscellaneous income of $26 million in 2005 resulting from a reduction in the decommissioning liability for a plant in conjunction with a new decommissioning cost study. The decrease for Non-Utility Nuclear was partially offset by an increase of $5 million in interest income. The decrease in other income for Parent & Other was primarily due to a decrease in interest income and the proceeds in 2005 from the sale of SO2 allowances.
Interest Charges
Interest charges increased for the Utility and Parent & Other primarily due to additional borrowing to fund the significant storm restoration costs associated with Hurricanes Katrina and Rita.
11
Discontinued Operations
Income from discontinued operations increased primarily due to the $17.1 million gain (net-of-tax) on the sale of the retail electric portion of the Competitive Retail Services business operating in the ERCOT region of Texas.
Income Taxes
The effective income tax rates for the six months ended June 30, 2006 and 2005 were 33.5% and 33.9%, respectively. The difference in the effective income tax rate for the six months ended June 30, 2006 versus the federal statutory rate of 35.0% is primarily due to the recognition of an income tax benefit related to ANO 1 steam generator removal cost and the favorable resolution of a tax audit issue, partially offset by state income taxes. The difference in the effective income tax rate for the six months ended June 30, 2005 versus the federal statutory rate of 35.0% is primarily due to tax benefits from the American Jobs Creation Act of 2004, investment tax credit amortization, and a downward revision in the estimate of federal income tax expense related to tax depreciation. The difference in the effective income tax rate for the second quarter and the six months ended June 30, 2004 versus the federal statutory rate of 35.0% is primarily due toThese factors were partially offset by state income taxes and regulatory plantbook and tax differences on utility plant items, partially offset by the favorable settlement of a tax audit issue and investment tax credit amortization.items.
Liquidity and Capital Resources
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy's capital structure, capital expenditure plans and other uses of capital, and sources of capital. Following are updates to that discussion.
TheDebtor-in-Possession Credit Facility
See the Form 10-K reportedfor a discussion of the Entergy New Orleans debtor-in-possession (DIP) credit facility between Entergy New Orleans as borrower and Entergy Corporation as lender. Following is an update to that discussion.
As discussed in the Form 10-K, the bankruptcy court issued its order in December 2005 giving final approval for the $200 million DIP credit facility, and the indenture trustee for Entergy expected to contribute $185.9 million in 2005 toNew Orleans' first mortgage bonds appealed the order. On March 29, 2006 the bankruptcy court approved a settlement among Entergy New Orleans, Entergy Corporation, and the indenture trustee, and the indenture trustee dismissed its pension plans. Entergy has elected to make additional contributions, and now expects to contribute $253.3 million to its pension plans in 2005. Entergy contributed $117.7 million to its pension plans during the six months endedappeal. As of June 30, 2005.2006, Entergy New Orleans had approximately $40 million of outstanding borrowings under the DIP credit facility.
As discussed in the Form 10-K, borrowings under the DIP credit facility are due in full, and the agreement will terminate, at the earliest of several times or events, including August 23, 2006. Entergy and Entergy New Orleans have agreed to an amendment to the DIP credit agreement that extends the August 23, 2006 maturity date to August 23, 2007, and this amendment is subject to bankruptcy court approval. Entergy New Orleans has filed a motion with the bankruptcy court to authorize Entergy New Orleans to enter into the amendment, which is set for hearing August 16, 2006.
Capital Structure
Entergy's capitalization is balanced between equity and debt, as shown in the following table. The increase in the debt to capital percentage as of June 30, 2005 is primarily the result of increased debt outstanding due to additional borrowings on Entergy Corporation's revolving credit facility along with a decrease in shareholders' equity, primarily due to repurchases of common stock, both of which are discussed below.
|
| June 30, | December 31, 2004 |
| June 30, |
| December 31, 2003 |
| June 30, |
| December 31, | |
|
|
|
|
|
|
|
|
|
|
| ||
Net debt to net capital |
| 48.7% | 45.3% |
| 45.6% |
| 45.9% |
| 50.3% |
| 51.5% | |
Effect of subtracting cash from debt |
| 1.9% | 2.1% |
| 1.8% |
| 1.6% |
| 2.1% |
| 1.6% | |
Debt to capital |
| 50.6% | 47.4% |
| 47.4% |
| 47.5% |
| 52.4% |
| 53.1% |
12
Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable, capital lease obligations, preferred stock with sinking fund, and long-term debt, including the currently maturing portion. Capital consists of debt, common shareholders' equity, and preferred stock without sinking fund. Net capital consists of capital less cash and cash equivalents. Entergy uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy's financial condition.
In May 2005,As discussed in the Form 10-K, Entergy Corporation terminated itshas in place two separate revolving credit facilities, a $500 million five-year credit facility and a $965 million three-year credit facility. At that time Entergy Corporation entered into a $2 billion,The five-year credit facility which expires in May 2010. As of June 30, 2005, $635 million2010 and the three-year facility expires in borrowings were outstanding on this facility.December 2008. Entergy also has the ability tocan issue letters of credit against the total borrowing capacity of both credit facilities. Following is a summary of the credit facility,borrowings outstanding and letters of credit totaling $83.5 million had been issued against this facility at June 30, 2005. The total unused capacity for this facilityavailable under these facilities as of June 30, 2005 was approximately $1.3 billion. The commitment fee for this facility is currently 0.13% per annum of the unused amount. Commitment fees and interest rates on loans under the credit facility can fluctuate depending on the senior debt ratings of the domestic utility companies.2006:
|
|
| Letters | Capacity | ||||
(In Millions) | ||||||||
5-Year Facility | $2,000 | $805 | $144 | $1,051 | ||||
3-Year Facility | $1,500 | $- | $- | $1,500 |
Entergy Arkansas, Entergy Louisiana,Gulf States, and Entergy Mississippi and Entergy New Orleans each have 364-day credit facilities available as of June 30, 2006 as follows:
|
|
|
| Amount of |
| Amount Drawn as of | |
|
|
|
|
|
|
| |
Entergy Arkansas |
| April |
| $85 million |
| - | |
Entergy | February 2011 |
| $ | - | |||
Entergy |
| May |
| $ |
| - | |
Entergy Mississippi | May |
|
| ||||
|
| $ | - |
(a) | The |
(b) |
|
See Note 4 to the consolidated financial statements for additional discussion of Entergy's short-term credit facilities.
Capital Expenditure Plans and Other Uses of Capital
See the table in the Form 10-K under "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Liquidity and Capital Resources - Capital Expenditure Plans and Other Uses of Capital," which sets forth the amounts of Entergy's planned construction and other capital investments by operating segment for 20052006 through 2007.2008. Following is an update to that discussion:
13
Cash Flow Activity
As shown in Entergy's Statements of Cash Flows, cash flows for the six months ended June 30, 20052006 and 20042005 were as follows:
|
|
| 2005 |
| 2004 |
|
| 2006 |
| 2005 |
|
|
| (In Millions) |
|
| (In Millions) | ||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period |
| $620 |
| $507 | Cash and cash equivalents at beginning of period |
| $583 |
| $620 |
|
|
|
|
|
| |||||
Effect of deconsolidating Entergy New Orleans in 2005 | Effect of deconsolidating Entergy New Orleans in 2005 | - | (8) | |||||||
|
|
|
|
|
| |||||
Cash flow provided by (used in): | Cash flow provided by (used in): |
|
|
|
| Cash flow provided by (used in): |
|
|
|
|
| Operating activities |
| 767 |
| 929 | Operating activities |
| 1,480 |
| 773 |
| Investing activities |
| (698) |
| (484) | Investing activities |
| (1,054) |
| (674) |
| Financing activities |
| (74) |
| (392) | Financing activities |
| (279) |
| (104) |
Effect of exchange rates on cash and cash equivalents | Effect of exchange rates on cash and cash equivalents |
| - |
| (2) | Effect of exchange rates on cash and cash equivalents | (1) | - | ||
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents |
| (5) |
| 51 | Net increase (decrease) in cash and cash equivalents |
| 146 |
| (5) |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $615 |
| $558 | Cash and cash equivalents at end of period |
| $729 |
| $607 |
Operating Activities
Entergy's cash flow provided by operating activities decreasedincreased by $162$707 million for the six months ended June 30, 20052006 compared to the six months ended June 30, 20042005 primarily due a decrease atto the U.S. Utility. The U.S. following activity:
Entergy Corporation received a $344 million income tax refund (including $71 million attributable to Entergy New Orleans) as a result of net operating loss carryback provisions contained in the Gulf Opportunity Zone Act of 2005, thanas discussed in the first halfForm 10-K. In accordance with Entergy's intercompany tax allocation agreement, $273 million of 2004.the refund was distributed to the Utility (including Entergy New Orleans) in April 2006, with the remainder distributed primarily to Non-Utility Nuclear.
Investing Activities
InvestingNet cash used in investing activities used $698increased by $380 million of cash for the six months ended June 30, 20052006 compared to using $484 million of cash for the six months ended June 30, 20042005 primarily due to the following activity:
14
The non-nuclear wholesale assets business received a return of invested capital of $34 million in 2005 from the Top Deer wind power joint venture after Top Deer obtained debt financing.
Financing Activities
Net cash used in financing activities increased by $208$175 million for the six months ended June 30, 2006 compared to the six months ended June 30, 2005. Following is a description of the significant financing activity occurring during the first six months of 2006 and 2005:
Financing Activities
Financing activities used $74 million of cash for the six months ended June 30, 20052006 compared to using $392 million of cash for the six months ended June 30, 2004 primarily due to the following activity:
See Note 4 to the consolidated financial statements for a descriptionthe details of long-term debt activity in the Entergy Corporation credit facility.six months ended June 30, 2006.
Significant Factors and Known Trends
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends" in the Form 10-K for discussions of rate regulation, federal regulation, market and credit risks, utility restructuring, and nuclear matters. Following are updates to the information provided in the Form 10-K.
State and Local Rate Regulation
See the Form 10-K for the chart summarizing material rate proceedings. Following are updates to that chart. See alsoHurricanes Katrina and Ritaabove for updates regarding storm cost recovery proceedings.
Entergy Arkansas
15
On March 31, 2006, the APSC suspended implementation of the $0.02827 per kWh energy cost rate, and ordered that the $0.01900 per kWh interim rate remain in effect pending the APSC proceedings on the energy cost recovery filings. The APSC also extended its investigation into Entergy Arkansas' interim energy cost rate to cover the costs included in Entergy Arkansas' March 2006 filing. The extended investigation does not identify new issues in addition to the four issues listed in the Form 10-K and covers the same time period. On April 7, 2006, the APSC issued a show cause order in the investigation proceeding that ordered Entergy Arkansas to file a cost of service study by June 8, 2006. The order also directed Entergy Arkansas to file testimony to support the cost of service study, to support the $0.02827 per kWh cost rate, and to address the general topic of elimination of the energy cost recovery rider.
Entergy Arkansas filed for rehearing of the APSC's orders, asking that the energy cost rate filed in March 2006 be implemented in May 2006 subject to refund, asserting that the APSC did not follow appropriate procedures in suspending the operation of the energy cost recovery rider, and asking the APSC to rescind its show cause order. On May 8, 2006 the APSC denied Entergy Arkansas' requests for rehearing. Entergy Arkansas appealed the APSC's decision, but later filed a motion to dismiss the appeal following the APSC's decision described below.
In June 2006, Entergy Arkansas once again filed a motion with the APSC seeking to implement the redetermined energy cost rate of $0.02827 per kWh. After a hearing the APSC approved Entergy Arkansas' request and the redetermined rate was implemented in July 2006, subject to refund pending the outcome of the APSC energy cost recovery investigation. Because of the delay in implementing the redetermined energy cost rate, Entergy Arkansas estimated in its motion that $46 million of energy costs would remain under-recovered at December 31, 2006.
A hearing in the APSC energy cost recovery investigation is scheduled for October 2006.
On June 7, 2006, Entergy Arkansas filed the cost of service study ordered by the APSC. On that date Entergy Arkansas also filed notice with the APSC that it intends to file for a change in base rates within 60 to 90 days of its notice. Entergy Arkansas expects to make that filing in August 2006.
See "System Agreement Litigation" herein for a discussion of Entergy's compliance filing in that proceeding. If the FERC approves the compliance tariff as filed, then payments under that tariff will be classified as energy costs, which would then be included in setting the retail energy cost rate as part of the normal working of the energy cost recovery rider. As noted above the APSC has given notice that it is considering the prospective elimination of the energy cost recovery rider. Therefore, Entergy Arkansas plans to propose an alternative to the energy cost recovery rider for recovery of the costs allocated to it as a result of the System Agreement litigation should the energy cost recovery rider be lawfully terminated by the APSC. A separate exact recovery rider, similar to the energy cost recovery rider or a production cost allocation rider, would ensure that Entergy Arkansas' customers pay only the amount allocated by the FERC.
Entergy Gulf States-Louisiana
In January 2006, Entergy Gulf States filed with the LPSC its gas rate stabilization plan. The filing showed a revenue deficiency of $4.1 million based on an ROE mid-point of 10.5%. On May 1, 2006, Entergy Gulf States implemented a $3.5 million rate increase pursuant to an uncontested agreement with the LPSC Staff.
In March 2006, the LPSC approved an uncontested stipulated settlement in Entergy Gulf States' formula rate plan filing for the 2004 test year. The settlement includes a settlement proposal to resolve various dockets covering a rangerevenue requirement increase of issues$36.8 million and calls for Entergy Gulf States and Entergy Louisiana.to apply a refund liability of $744 thousand to capacity deferrals. The settlement resulted in credits totaling $76 million for retail electricity customers in Entergy Gulf States' Louisiana service territory and credits totaling $14 million for retail electricity customers of Entergy Louisiana. The settlement dismissed Entergy Gulf States' fourth, fifth, sixth, seventh, and eighth annual earnings reviews, Entergy Gulf States' ninth post-merger earnings review and revenue requirement analysis, the continuation of a fuel review for Entergy Gulf States, dockets established to consider issues concerning power purchases for Entergy Gulf States and Entergy Louisiana for the summers of 2001, 2002, 2003, and 2004, all prudence issues associated with decisions made through May 2005 relatedrefund liability pertained to the nuclear plant uprates at issueperiods 2004-2005 as well as the interim period in these cases, and an LPSC docket concerning retail i ssues arising under the System Agreement. The settlement does not include the System Agreement case at FERC. In addition, Entergy Gulf States agreed not to seek recovery from customers of $2which a $37.8 million of excess refund amounts associated with the fourth through the eighth annual earnings reviews and Entergy Louisiana agreed to forgo recovery of $3.5 million of deferred 2003 capacity costs associated with certain power purchase agreements. The credits were issuedrevenue increase was in connection with April 2005 billings. Entergy Gulf States and Entergy Louisiana had reserved for the approximate refund amounts.
The settlement includes the establishment of a three-year formula rate plan for Entergy Gulf States that, among other provisions, establishes an ROE mid-point of 10.65% for the initial three-year term of the plan and permits Entergy Gulf States to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an allowed range of 9.9% to 11.4% will be allocated 60% to customers and 40% to Entergy Gulf States. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Gulf States. Under the settlement, there was no change to Entergy Gulf States' retail rates at that time.
In June 2005,May 2006, Entergy Gulf States made its formula rate plan filing with the LPSC for the 2005 test year ending December 31, 2004.year. The filing shows a net revenue deficiency of $2.58 million indicating that no refund liability exists.Entergy Gulf States' return on equity was within the allowed bandwidth. The filing also indicates that under the formula rate plan rider for approved capacity additions, a prospective$7.1 million rate increase of $23.8 million is required in order for Entergy Gulf States to earn the authorized ROE mid-pointrecover LPSC-approved incremental
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deferred and ongoing capacity requirements. The filing is subject to a period of 10.65%. Subject to the consideration of comments expected to be filed by the LPSC staffStaff review, and intervenors in the third quarter 2005, rate changes associated with the formula rate plan are scheduled to take effect with the first billing cycle in October 2005. Any disputed issues will be subject to further investigation by the LPSC, with any resolution of such issues being made effective October 2005.
Regarding Entergy Louisiana's January 2004 rate filing, in March 2005, the LPSC staff and Entergy Louisiana filed a proposed settlement that includes an annual base rate increase of approximately $18.3 million that was implemented, subject to refund, effective with May 2005 billings. In May 2005, the LPSC approved a modified settlement which, among other things, reduces depreciation and decommissioning expense due to assuming a life extension of Waterford 3 and results in no change in rates. Subsequently, in June 2005, Entergy Louisiana made a revised compliance filing with the LPSC supporting a revised depreciation rate for Waterford 3, which reflects the removal of interim additions, and a rate increase from the purchase of the Perryville power plant, which results in a net $0.8 million annual rate reduction. Entergy Louisiana reduced rates effective with the first billing cycle in June 2005 and expects to refund excess revenue collected during May 2005, including interest, in the third quarter of 2005.September 2006.
The May 2005 rate settlement with the LPSC includes the adoption of a three-year formula rate plan for Entergy Louisiana, the terms of which include an ROE mid-point of 10.25% for the initial three-year term of the plan and permit Entergy Louisiana to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an allowed regulatory earnings range of 9.45% to 11.05% will be allocated 60% to customers and 40% to Entergy Louisiana. The initial formula rate plan filing will be in May 2006 based on a 2005 test year with rates effective September 2006. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Louisiana.
In July 2004, Entergy Gulf States filed with the LPSC an application for a change in its rates and charges seeking an increase of $9.1 million in gas base rates in order to allow Entergy Gulf States an opportunity to earn a fair and reasonable rate of return. In June 2005, the LPSC unanimously approved Entergy Gulf States' proposed settlement that includes a $5.8 million gas base rate increase effective the first billing cycle of July 2005 and a rate stabilization plan with an ROE mid-point of 10.5%.-Texas
As discussed in Note 2 to the consolidated financial statements in the Form 10-K, in August 2005, Entergy Gulf States filed with the PUCT in July 2005 a requestan application for implementationrecovery of an incremental purchased capacity recovery rider, consistent with the recently passed Texas legislation discussed below under "Utility Restructuring." The rider requests $23.1 million annually in incremental revenues on a Texas retail basis which represents the incremental purchased capacity costs, including Entergy Gulf States' obligationits transition to purchase power from Entergy Louisiana's recently acquired Perryville plant, over what is already in Entergy Gulf States' base rates.competition costs. Entergy Gulf States has reached an agreement with parties with respectrequested recovery of $189 million in transition to the date upon which cost recovery and cost reconciliation would begin.competition costs through implementation of a 15-year rider to be effective no later than March 1, 2006. The parties have agreed that$189 million represents transition to competition costs Entergy Gulf States will implementincurred from June 1, 1999 through June 17, 2005 in preparing for competition in its service area, including attendant AFUDC, and all carrying costs projected to be incurred on the rider after approval by the PUCT which could be up to 185 days from the date of filing but will reconcile and recover incremental purchased capacity costs incurred beginn ing September 1, 2005. The September 1, 2005 agreed upon date for the beginning of the cost recovery and cost reconciliation as well as the requested amount and the processes for implementing the rider are subject to PUCT action and approval. If approved by the PUCT, the rider would be subject to semi-annual modifications and reconciliation in conjunction with Entergy Gulf States' fuel reconciliation proceedings. Also see "Utility Restructuring" below for discussion of the provisions in the Texas legislation regarding Entergy Gulf States' ability to file a general rate case and for recovery of transition to competition costs.costs through February 28, 2006. The $189 million is before any gross-up for taxes or carrying costs over the 15-year recovery period. Entergy Gulf States reached a unanimous settlement agreement on all issues with the active parties in the transition to competition cost recovery case. The agreement allows Entergy Gulf States to recover $14.5 million per year in transition to competition costs over a 15-year period. Entergy Gulf States implemented interim rates based on this revenue level on March 1, 2006. The PUCT approved the settlement agreement in June 2006.
Entergy Louisiana
In May 2005, the MPSC approved a joint stipulation entered into between the Mississippi Public Utilities Staff and2006, Entergy Mississippi regarding Entergy Mississippi's annualLouisiana made its formula rate plan filing with the LPSC for the 2005 test year. The filing shows that providesEntergy Louisiana's return on equity was within the allowed bandwidth. The filing also indicates that under the formula rate plan rider for no change in rates based onapproved capacity additions, a performance adjusted ROE mid-point$121 million rate increase is required to recover LPSC-approved incremental deferred and ongoing capacity requirements. Entergy Louisiana requested recovery of 10.50%, establishing an allowed regulatory earnings rangethe capacity deferrals over a three-year period, including carrying charges. $51 million of 9.1%the rate increase is associated with these deferrals. The remaining $70 million of the rate increase is associated with ongoing capacity costs. The filing is subject to 11.9%.a period of LPSC Staff review, and rate changes associated with the formula rate plan are scheduled to take effect with the first billing cycle of September 2006.
Entergy Mississippi
Entergy New Orleans
In June 2006, Entergy New Orleans made its annual scheduled formula rate plan filings with the City Council. The filings show various alternatives to reflect the effect of Entergy New Orleans' lost customers and decreased revenue. Entergy New Orleans' recommended alternative adjusts for lost customers and assumes that a decreasethe City Council's June 2006 decision to allow recovery of $0.2all Grand Gulf costs through the fuel adjustment clause stays in place (a portion of Grand Gulf costs was previously recovered through base rates). Under that alternative, annual increases of $6.4 million in electric base rate revenues is warranted and an(an increase of $3.94.4%) and $22.8 million in gas base rate revenues is(an increase of 160.9%) are warranted. The filings triggered the prescribed four-month period for review by the City Council's Advisors and other parties, and rate adjustments, if any, could be implemented as soon as September 2005.the first billing cycle of November 2006.
In May 2005,At the same time as it made its formula rate plan filings, Entergy New Orleans also filed with the City Council a request to implement two storm-related riders. With the first rider, Entergy New Orleans seeks to recover over a ten-year period the $114 million in electric restoration costs and the $25 million in gas restoration costs that it has actually spent through March 31, 2006. Entergy New Orleans also proposed semiannual filings to update the rider for continuationadditional restoration spending and also to consider the receipt of CDBG funds or insurance proceeds that it may
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receive. With the second rider, Entergy New Orleans seeks to establish over a ten-year period a $150 million storm reserve to provide for the risk of another storm. Entergy New Orleans requested that the City Council consider the proposed riders within the same time frame as the formula rate plan and generation performance-based rate plan for an additional three years. The filing requests a target equity componentplans, which would allow implementation as soon as the first billing cycle of the capital structure of 45%, an increase from the current target of 42%.November 2006.
Federal Regulation
System Agreement Litigation
On June 1, 2005,See the FERC issuedForm 10-K for a decision in the System Agreement litigation. The domestic utility companies historically have engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the termsdiscussion of the System Agreement which has been approved bylitigation proceedings at the FERC. In April 2006, Entergy filed with the FERC its compliance filing to implement the provisions of the FERC's decision. The filing amends the System Agreement litigation proceedings are described into provide for the Form 10-K.
The FERC decision concluded, among other things, that:
Motions to intervene without protest were filed by the City of New Orleans, the MPSC, the Louisiana Energy Users Group, and Occidental Chemical Corporation. Protests to the compliance filing were filed by the APSC, the LPSC, Arkansas Electric Energy Consumers, Inc. (AEEC), and the Arkansas Attorney General (Arkansas AG). Among other things, the LPSC urged the FERC: (1) to require any payments/receipts to commence in January 2007, rather than June 2007, and to require such payments to be made in a single lump sum payment, rather than in twelve equal monthly installments, or in the alternative to require a paying utility company to complete all payments within the calendar year following the year in which the disparity occurred; (2) to find that the bandwidth remedy is analogous to a "cost-of-service tariff with deferred billing," as opposed to a prospective remedy, so that a utility company could be required to make a payment based on a previous year's production costs even if such utilit y company has exited the System Agreement and so that interest would be due on the amount of any payment; and (3) to order interest on any payments to the extent they are not made in a single lump sum amount. In addition to the above issues, the LPSC and the other parties filing protests urged the FERC to require the bandwidth calculation to be set forth in a separate service schedule within the System Agreement, rather than the existing Service Schedule MSS-3 as proposed by Entergy. The APSC's protest urged the FERC to require that the bandwidth formula include all bandwidth payments as a production cost of the paying utility company for the year in which the payment is made, instead of excluding such costs as proposed in the compliance filing. The AEEC, among other things, urges the FERC to segregate the capacity and energy cost components of any bandwidth payments/receipts. The domestic utility companies responded to the issues raised in the protests and urged the FERC to approve the compliance filing as submitted by Entergy. The LPSC filed a reply to Entergy's response reasserting its previous positions and alleging, among other things, that Entergy was trying to delay the bandwidth payment in an effort to protect purported excess profits at Entergy Arkansas.
Separately, in July 2006 the LPSC filed with the FERC a Motion for Summary Disposition on the same issues that the LPSC had raised in its protests to the compliance filing. The domestic utility companies filed an answer urging the FERC to reject the LPSC's Motion for Summary Disposition and asking the FERC for summary disposition of several issues in favor of the domestic utility companies' positions.
The FERC's June 2005 orderdecision in the System Agreement proceeding is currently pending before the United States Court of Appeals for the D.C. Circuit. The parties to the proceeding reached agreement on a proposed briefing schedule that would result in the various parties submitting initial and reply briefs between August and November 2006. The proposed briefing schedule has been submitted to the Court of Appeals.
The FERC's decision would reallocate total production costs of the domestic utility companies whose relative total production costs expressed as a percentage of Entergy System average production costs are outside an upper or lower bandwidth. This would be accomplished by payments from domestic utility companies whose production costs are more than 11% below Entergy System average production costs to domestic utility companies whose production costs are abovemore than the Entergy System average production costs. Ancost, with payments going first to those
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domestic operating utilities whose total production costs are farthest above the Entergy System average. For purposes of the Entergy Arkansas rate filings discussed above in "State and Local Rate Regulation" that are expected to be made in mid-August 2006, an assessment of the potential effects of the FERC's June 2005 order, requires assumptions regardingas amended by its December 2005 order on rehearing, has been calculated on the future total production costbasis of each domestic utility company, which assumptions includea 2006 test year, using a 2006 gas price that consists of a non-weighted average of twelve months of gas prices calculated as follows: January through May 2006 are actual, volume-weighted monthly averages of day-ahead cash prices as reported byEnergy Intelligence Natural Gas Week; the mix of solid fuel and gas-fired generation available to each company and the costs of natural gas and purchased power. Entergy Louisiana and Entergy Gulf States are more dependent upon gas-fired generation than Entergy Arkansas, Entergy Mississippi, or Entergy New Orleans. Of these, Entergy ArkansasJune 2006 price is the l east dependent upon gas-fired generation. Therefore, increases in natural gas prices likely will increase the amount by which Entergy Arkansas' total production costs are below the average production costsFirst of the domestic utility companies. Considerable uncertainty exists regarding future gas prices. Annual averageMonth Index price as reported byPlatts Inside FERC's Gas Market Report; the July 2006 price is the 5/31/06 NYMEX Henry Hub settlement price; and August through December 2006 are 30 calendar - -day rolling averages as of May 31, 2006 of forward NYMEX Henry Hub gas contracts. For example the August 2006 price is an average of all the daily NYMEX settlement prices have varied significantly over recent years, ranging from $1.72/mmBtu to $5.85/mmBtu for the 1995-2004August 2006 contract for each trading day from the period and averaging $3.43/mmBtu during5/2/06 - - 5/31/06 inclusive. A similar calculation is made using the ten-year period 1995-2004 and $4.58/mmBtu duringdaily settlements of the five-year period 2000-2004. Recent market conditions haveSeptember 2006 through December 2006 NYMEX contracts to arrive at those monthly prices. This resulted in an average annual gas prices that have averaged $5.85/mmBtu for the twelve months ended December 2004. During the 12 month period July 1, 2004 to June 30, 2005 forward gas contracts for eachprice of the next four years based on daily NYMEX close averaged $6.68/mmBtu (2006), $6.25/mmBtu (2007), $5.88/mmBtu (2008) and $5.58/mmBtu (2009).$7.49/mmBtu. If the FERC's June 2005 order, as amended by its December 2005 order on rehearing, becomes final and if thesean annual average gas prices occurprice of $7.49/ mmBtu occurs for 2006 as assumed, the following potential annual production cost reallocationsreallocation among the domestic utility companies could result during the 2007-2010 period:result:
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If natural gas prices deviateIn calculating the production costs for this purpose under the FERC's order, output from the Vidalia hydroelectric power plant does not reflect the actual Vidalia price for the year but is priced at that year's average price paid by $1/mmBtu upEntergy Louisiana for the exchange of electric energy under Service Schedule MSS-3 of the System Agreement, thereby reducing the amount of Vidalia costs reflected in the comparison of the domestic utility companies' total production costs.
APSC Complaint at the FERC
In June 2006, the APSC filed a complaint with the FERC against Entergy Services as the representative of Entergy Corporation and the domestic utility companies, pursuant to Sections 205, 206 and 207 of the Federal Power Act. The APSC states that "The purpose of the complaint is to institute an investigation into the prudence of Entergy's practices affecting the wholesale rates that flow through its System Agreement." The complaint requests, among other things, that the FERC disallow any costs found to be imprudent, with a refund effective date to be set at the earliest possible time. Specific areas of requested investigation include:
The complaint also requests that the FERC exercise its authority under Section 207 of the FPA to investigate the adequacy of Entergy's transmission system and direct it to make all necessary upgrades to ensure that its transmission facilities provide reliable, adequate and economic service.
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On July 31, 2006, the domestic utility companies submitted their answer to the APSC complaint. In their answer, the domestic utility companies acknowledge that while the FERC is expectedthe appropriate forum to consider the issues raised in the APSC's complaint, the APSC has provided no probative evidence supporting its allegations and has not met the standards under the Federal Power Act (FPA) to have a matter set for hearing. Under the FPA standards, the APSC must create "serious doubt" as to the propriety of the challenged actions. As indicated in the domestic utility companies' answer, the APSC complaint does not raise a "serious doubt" but instead largely relies on unsupported assertions, many of which have been investigated in other proceedings. In those limited instances when the APSC complaint references "evidence" in an attempt to support its request for a hearing, the "evidence" to which it refers in fact does nothing to support its position but, rather, shows that Entergy Arkansas' annual payments will changehas acted prudently. As further indicated in the same direction by approximately $60 to $70 million.
Several parties tohave intervened in the proceeding, including the LPSC,MPSC, the APSC, the MPSC,LPSC, and the City Council,Council. The LPSC's answer and by Entergy Services, Inc., on behalf ofcomments in response to the domestic utility companies. Among other things, the LPSC's motion urgedAPSC Complaint ask the FERC to "clarify"investigate whether Entergy Arkansas' withdrawal from the System Agreement is fair, just, and reasonable.
APSC System Agreement Investigation
In 2004, the APSC commenced an investigation into whether Entergy Arkansas' continued participation in the System Agreement is in the best interests of its customers. Citing its concerns that the FERC'sbenefits of its continued participation in the current form of the System Agreement have been seriously eroded, in December 2005, Entergy Arkansas submitted its notice that it will terminate its participation in the current System Agreement effective 96 months from December 19, 2005 or such earlier date as authorized by the FERC. Entergy Arkansas indicated, however, that a properly structured replacement agreement could be a viable alternative. In June 2006 the APSC issued an order requires the payments and receipts,in its investigation requiring Entergy Arkansas President Hugh McDonald to file testimony in response to several questions involving details of what action Entergy Arkansas or Entergy has taken to insure that Entergy Arkansas' customers are protected from additional costs including those related to the extent any are required,following area s: construction of new generating plants located outside of Arkansas, costs of the Entergy New Orleans bankruptcy, and costs associated with restoration of facilities damaged by Hurricanes Katrina and Rita. Mr. McDonald was also directed to be made in 2006 based on production costs incurred in 2004 and 2005. Entergy does not believe that this request for "clarification" is consistent with the FERC order and submitted a response urgingdescribe actions taken since December 19, 2005 to encourage or persuade the FERC to reject this interpretation and instead find thatauthorize Entergy Arkansas to exit the annual remedy order by the FERC would be evaluated based on calendar year 2006 production costs, with the first potential payments/receipts, if any were required, made in 2007.
Management believes that any changes in the allocation of production costs resulting from the FERC's June 2005 order and related retail proceedings should result in similar rate changes for retail customers. The timing of recovery of these costs in rates could be the subject of additional proceedings before Entergy's retail regulators. Although the outcome and timing of the FERC and other proceedings cannot be predicted at this time, Entergy does not believe that the ultimate resolution of these proceedings will have a material effect on its financial condition or results of operations.
See the Form 10-K for discussion of the proceeding that the LPSC commenced before itself regarding the System Agreement. As noted above in "State and Local Rate Regulation," the settlement of various issues involving Entergy Gulf States and Entergy Louisiana that was approved by the LPSC has resolved the System Agreement proceeding before the LPSC, which has been dismissed without prejudice.
Transmission
See the Form 10-K forsooner than 96 months, and to describe current and future actions related to development of a discussion of the petition for declaratory order that Entergyreplacement system agreement. Responsive testimony was filed with the FERCAPSC in January 2005 regarding Entergy's July 2006. A public hearing for the purpose of cross-examination of Mr. McDonald on his testimony and for questioning by the APSC was also conducted in July 2006.
Independent Coordinator of Transmission (ICT) proposal. On March 22, 2005, the FERC issued a declaratory order concluding that: (1) because the Southwest Power Pool (SPP) was the only entity identified as potentially being selected as the ICT and because the SPP is already a "public utility" there was no need to rule on the question of whether the functions of the ICT, alone, would serve to make the ICT a "public utility;" (2) Entergy will continue to be the "transmission provider" for transmission service across its system and that "the presence of SPP as the ICT will not change the existing balance of jurisdiction between [the FERC] and Entergy's retail regulators;" and (3) the FERC "is prepared to grant Entergy's proposed transmission pricing proposal on a two-year experimental basis, subject to certain enhancement and monitoring and reporting co nditions." The enhancements referred to by the FERC involve more fully specifying the responsibilities and duties of the ICT, including defining the ICT's role in the preparation of various transmission expansion plans and the performance of studies related to the granting of transmission or interconnection service. Before Entergy's ICT proposal can be implemented, however, Entergy is required to submit further filings with the FERC regarding the modifications and clarifications to the ICT proposal.
OnIn April 8, 2005 several intervenors filed an Emergency Request for Clarification and Request for Expedited Commission Action seeking to have the FERC: (1) clarify the ICT's role in administering the Available Flowgate Capacity (AFC) methodology; (2) clarify the ICT's role in developing the transmission base plan; (3) clarify what the FERC meant when it required Entergy to provide firm transmission rights to customers that pay for supplemental transmission upgrades; and (4) clarify and confirm following Entergy's filing that the FERC will assess SPP's status as being independent of Entergy.
On April 21, 2005 Entergy filed a request for clarification or rehearing of the FERC's March 22 declaratory order requesting that the FERC clarify the respective role of Entergy and the ICT in developing the inputs or criteria used to create the base plan and in preparing certain studies regarding system expansion. The request for clarification further requests that the FERC clarify that the initial two-year period will commence with the actual start date of ICT operations. In the event that the FERC denies Entergy's request for clarification, then Entergy will seek rehearing on these issues. However, in its request, Entergy requested that FERC not rule on these issues at this time but, instead, that the FERC wait to evaluate these issues until such time as Entergy has filed the more detailed tariff sheets and protocols in its subsequent filing to implement the ICT. Separately, Entergy submitted a letter advising the FERC that it intended to submit on or about May 27, 2005 the filing t o implement the ICT proposal. A joint request for rehearing of the ICT declaratory order was also filed by the City Council, the LPSC, and the MPSC in which the retail regulators expressed their concerns that the findings reached in the declaratory order may result in an expansion of authority of the ICT "that is unnecessary to achieve the [FERC's] goals and is very likely to result in significant increases in the start-up and operational costs of the ICT." The retail regulators request that the FERC not act on their request for rehearing until Entergy has submitted its filing to implement the ICT. The intervenors filed a separate request for rehearing on April 21, 2005 urging the FERC to impose additional conditions on the approval of the ICT and also re-urging the FERC to reject the pricing proposal contained in the ICT proposal.
On May 12, 20052006 the FERC issued an order clarifying certain aspects ofapproving with modification Entergy's ICT proposal filed in May 2005. In its March 22 order. In the May 12 order, the FERC indicated thatFERC: (1) Entergy is to work with the ICT and Entergy's stakeholders to develop procedures by which the ICT will calculate AFCs; (2) Entergy must specifically define the transmission rights that a customer that pays for supplemental upgrades will receive for such payments; (3) the FERC will review the ICT's contract to ensure that the ICT can perform its functions in an independent manner even if SPP is chosen as the ICT; and (4) the initial two-year period will start once the ICT becomes operational.
On May 27, 2005, the domestic utility companies filed the enhanced ICT proposal with the FERC. Entergy believes that the filing is consistent with the FERC guidance received in both the FERC's March 22 and May 12 orders on the ICT. Among other things, the enhanced ICT filing states that the ICT will (1) grant or deny transmission service on the domestic utility companies' transmission system; (2) administer the domestic utility companies' OASIS node for purposes of processing and evaluating transmission service requests and ensuring compliance with the domestic utility companies' obligation to post transmission-related information; (3) develop a base plan for the domestic utility companies' transmission system that will result in the ICT making the determination on whether something should be rolled into the domestic utility companies' transmission rates or directly assigned to the customer requesting or causing an upgrade to be constructed; (4) serve as the reliability coordinator for t he Entergy transmission system; and (5) oversee the operation of the weekly procurement process. The enhanced ICT proposal clarifies the rights that customers receive when they fund a supplemental upgrade and also contains a detailed methodology describing the process by which the ICT will evaluate interconnection-related investments already made on the Entergy System for purposes of determining the future allocation of the uncredited portion of these investments.
On June 3, 2005 a group of generators filed with the FERC a request that the FERC schedule a technical conference on the enhanced ICT proposal in order for Entergy to provide additional information on the enhanced ICT proposal. In response, a stakeholder meeting was held in New Orleans on June 30, 2005. Interventions and comments on the filing are due by August 5, 2005.
In addition, as discussed in the Form 10-K, Entergy Louisiana and Entergy Gulf States have filed an application with the LPSC requesting that the LPSC find that the ICT proposal is a prudent and appropriate course of action. An LPSC hearing on the ICT proposal is currently scheduled for August 2005, however certain intervenors have recently requested that the hearing be delayed until mid-September 2005.
FERC's Supply Margin Assessment
See the Form 10-K for a discussion of the FERC's supply margin assessment and, in particular, the order issued by the FERC in December 2004 pursuant to Section 206 of the Federal Power Act (FPA). On June 30, 2005, the FERC issued an order addressing Entergy's delivered price test (DPT) analysis. The FERC found that material questions of fact exist that may affect the results of the DPT submitted by Entergy. These issues include, for example, whether the entire Entergy control area is the appropriate relevant geographic market or whether there exist binding transmission constraints such that it is more appropriate to define more than one geographic market within the Entergy control area. Accordingly, the FERC initiated an evidentiary hearing to address the impact of any transmission constraints on the appropriate scope of the relevant market; which information will be required prior to the FERC making a determination on whether Entergy has market power within its con trol area. On July 22, 2005, Entergy notified the FERC that it was withdrawing its request for market-based rate authority for sales within its control area. Instead, the domestic utility companies and their affiliates will transact at cost-based rates for wholesale sales within the Entergy control area. Entergy indicated that it will file the proposed cost-based rate schedules within 60 days.Additionally, Entergy reserves its right to request market-based rate authority for sales within its control area in the future. The FERC ALJ in the proceeding issued an order that cancelled a pre-hearing conference set for July 26, 2005, set a deadline of August 8, 2005 for objections to Entergy's notice of withdrawal, and stated that if no objections were filed by August 8, 2005 Entergy's withdrawal notice will have disposed of all pending issues in the proceeding. The relinquishment of market-based rates for sales within the Entergy control area is not expecte d to have a material effect on the financial results of Entergy.
Additionally, on May 5, 2005, the FERC issued an order addressing the remaining prongs in the market-based rate proceeding: transmission market power, barriers to entry/reciprocal dealing, and affiliate abuse. The FERC granted rehearing in part and instituted a proceeding under Section 206 of the FPA to investigate whether Entergy satisfies the FERC's transmission market power and affiliate abuse/reciprocal dealing standards for the granting of market-based rate authority, and established a refund effective date pursuant to the provisions of Section 206, for purposes of the additional issues set for hearing. However, the FERC decided to hold that investigation in abeyance pending the outcomes of the ICT proceeding and the affiliate purchased power agreements proceeding. The FERC declined to require a hearing on the remaining prong regarding barriers to entry. On June 6, 2005, Entergy sought rehearing of the May 5 Order and that request for rehearing is pending .
Interconnection Orders
See the Form 10-K for a discussion of the ALJ Initial Decision and FERC order directing Entergy Louisiana to refund, in the form of transmission credits, approximately $15 million in expenses and tax obligations previously paid by a generator. Entergy's request for rehearing was denied by the FERC.
Available Flowgate Capacity Proceedings
See the Form 10-K for a discussion of proceedings at the FERC involving Entergy's Available Flowgate Capacity (AFC) methodology. On March 22, 2005, the FERC issued an order contemporaneously with the ICT declaratory order discussed above that holds the AFC hearing in abeyance pending action on Entergy's upcoming ICT filing. The order holding the hearing in abeyance further indicated that it would cancel the hearing when the ICT begins to perform its functions. On April 8, 2005 several intervenors filed Emergency Motions for Interim Relief and Expedited Commission Action requesting that, during the interim period before the implementation of the ICT, the FERC (1) institute an audit process to examine and modify Entergy's current AFC process; and (2) require SPP to become involved in the AFC stakeholder process and order certain modifications to Entergy's stakeholder process. The audit process being proposed by the intervenors would not involve an independent auditor, but instead wou ld be an investigation performed by a representative from the intervenors, Entergy, and possibly SPP. On April 25, 2005, Entergy filed its response to the emergency motion urging the FERC to reject the intervenors' request for the "audit" because the type of investigation proposed by the intervenors would be neither independent nor fair and would only distract from the implementation of the ICT. Instead, Entergy has proposed that the ICT conduct an independent review of the AFC process and procedures as part of its transition to assuming the identified ICT responsibilities, including the calculation of the AFCs. Entergy further indicated that it would welcome SPP's participation in the current stakeholder process. On April 21, 2005, the intervenors filed a separate request for rehearing arguing that the FERC must allow the AFC hearing to proceed in parallel withapproved the establishment of the ICT. See "Transmission" aboveICT, with modifications; (2) approved Entergy's proposed pricing policy, with modifications; (3) approved the implementation of a weekly procurement process (WPP); and (4) ordered Entergy to submit a compliance filing and an executed contract with the Southwest Power Pool (SPP), the approved ICT, within 60 days of the order. Several parties have filed requests for further discussionrehearing of AFC.the FERC order, and those requests are still pending.
Utility Restructuring
Previous developmentsThe proposed modifications include, among other things: (1) Entergy must file with the FERC the criteria used to grant and information relateddeny transmission service, including calculating available flowgate capacity; (2) the FERC extended the initial term of the ICT from two years to electric industry restructuring are presented in Note 2four years; and Entergy is precluded from terminating the ICT prior to the consolidated financial statementsend of the four year period; (3) the
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establishment of a transmission users group that will provide input directly to the ICT on the effectiveness of the ICT Proposal and also will propose to the FERC an appropriate means by which they could be given access to inputs in the Form 10-K. The following are updatesprocess and models under the direction of the ICT; (4) with regard to any dispute between the Form 10-K.
Retail-Texas
In June 2005, a Texas law was enacted which provides that:
Entergy made its compliance filing with the FERC on May 24, 2006, including the executed ICT agreement with SPP. Entergy informed the FERC that, assuming it has received all required approvals, Entergy intends to install SPP as the retail jurisdictionICT within 30 days of FERC approval of the ICT agreement. Several parties have filed protests regarding Entergy's compliance filing, and consideration of Entergy's compliance filing is pending at the FERC.
The LPSC and one subject solelyvoted to approve the retail jurisdiction of the PUCT;
Retail-Louisiana2006.
In November 2001, the LPSC decided not to move forward with retail open access for any customers at this time. The LPSC instead directed its staff to hold collaborative group meetings concerning open access from time to time, and to have the LPSC staff monitor developments in neighboring states and to report to the LPSC regarding the progress of retail access developments in those states. In September 2004, in response to a study performed by the Louisiana State University Center for Energy Studies that evaluated a limited industrial-only retail choice program, the LPSC asked the LPSC staff to solicit comments and obtain information from utilities, customers, and other interested parties concerning the potential costs and benefits of a limited choice program, the impact of such a program on other customers, as well as issues such asstranded costs and transmission service. Comments from interested parties were filed with the LPSC in Janua ry 2005. A technical conference was held in April 2005 and in May 2005 interested parties filed reply comments to arguments made at the technical conference. Entergy stated that it believes that there is no new information or credible evidence that would justify altering the LPSC's previous conclusion that retail access is not in the public interest.
Federal Legislation
In late July 2005 the U.S. Congress passed broad new energy legislation, the Energy Policy Act of 2005. The legislation contains electricity provisions that, among other things:
The President is expected to sign the Energy Policy Act in August 2005. The Energy Power Act requires several rulemakings by the FERC and other government agencies in order to implement its provisions. Therefore, it will be some time before a full assessment of its effect on Entergy and the energy industry can be completed.
Market and Credit Risks
Commodity Price Risk
Power Generation
As discussed more fully in the Form 10-K, somethe sale of electricity from the power generation plants owned by Entergy's Non-Utility Nuclear business and Energy Commodity Services business, unless otherwise contracted, is subject to the fluctuation of market power prices. Following is an updated summary of the amount of the Non-Utility Nuclear business' output that is sold forward under physical or financial contracts (2006 represents the remaining two quarters of the year):
2006 | 2007 | 2008 | 2009 | 2010 | |||||||
Non-Utility Nuclear: | |||||||||||
Percent of planned generation sold forward: | |||||||||||
Unit-contingent | 34% | 39% | 34% | 25% | 12% | ||||||
Unit-contingent with guarantee of availability (1) | 53% | 47% | 32% | 13% | 5% | ||||||
Firm liquidated damages | 4% | 8% | 0% | 0% | 0% | ||||||
Total | 91% | 94% | 66% | 38% | 17% | ||||||
Planned generation (TWh) | 17 | 34 | 34 | 35 | 34 | ||||||
Average contracted price per MWh | $41 | $49 | $53 | $58 | $46 |
See the Form 10-K for a discussion of Non-Utility Nuclear's value sharing agreements with NYPA involving energy sales from the Fitzpatrick and Indian Point 3 power plants and a discussion of the Vermont Yankee PPA price adjustment clause.
Some of the agreements to sell the power produced by Entergy's Non-Utility Nuclear power plants and the wholesale supply agreements entered into by Entergy's Competitive Retail business contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations under the agreements. The Entergy subsidiary maywill be required to provide collateral based upon the difference between the current market and contracted power prices in the regions where the Non-Utility Nuclear and Competitive Retail businesses sellsells power. The primary form of the collateral to satisfy these requirements would be an Entergy Corporation guaranty. Cash and letters of credit are also acceptable
21
forms of collateral. At June 30, 2005,2006, based on power prices at that time, Entergy had in place as collateral $922.7$1,275 million of Entergy Corporation guarantees $81.0for wholesale transactions, including $100 million of whichguarantees that support letters of credit. The assurance requirement associated with Non-Utility Nuclear is estimated to increase by an amount up to $445 million if gas prices increase $1 per MMBtu in both the short- and long-term markets. In the event of a decrease in Entergy Corpo ration'sCorporation's credit rating to specified levels below investment grade, Entergy maywill be required to replace Entergy Corporation guarantees with cash or letters of credit under some of the agreements.
Central States Compact Claim
The Low-Level Radioactive Waste Policy ActIn addition to selling the power produced by its plants, the Non-Utility Nuclear business sells installed capacity to load-serving distribution companies in order for those companies to meet requirements placed on them by the ISO in their area. Following is a summary of 1980 holds each state responsible for disposal of low-level radioactive waste originating in that state, but allows states to participate in regional compacts to fulfill their responsibilities jointly. Arkansas and Louisiana participate in the Central Interstate Low-Level Radioactive Waste Compact (Central States Compact or Compact). Commencing in 1998, Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana made a series of contributions to the Central States Compact to fund the Central States Compact's development of a low-level radioactive waste disposal facility to be located in Boyd County, Nebraska. In December 1998, Nebraska, the host state for the proposed Central States Compact disposal facility, denied the compact's license application for the proposed disposal facility. Several parties, including the commission that governs the compact (the Compact Commission), filed a lawsuit against Nebraska seeking damages resulting from Nebraska's denial of the proposed facility's license. After a trial, the U.S. District Court concluded that Nebraska violated its good faith obligations regarding the proposed waste disposal facility and rendered a judgment against Nebraska in the amount of $151 million. In August 2004, Nebraska agreed to pay the Compact $141 million in settlement ofNon-Utility Nuclear business' installed capacity that is currently sold forward, and the judgment. In July 2005, the Compact Commission decided to distribute a substantial portion of the proceeds from the settlement to the nuclear power generators that had contributed funding for the Boyd County facility, including Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana. On August 1, 2005, Nebraska paid the fullblended amount of the settlement toNon-Utility Nuclear business' planned generation output and installed capacity that is currently sold forward (2006 represents the Compact, and the Compact distributed from the settlement proceeds $23.6 million to Entergy Arkansas, $19.9 million to Entergy Gulf States, and $18.4 million to Entergy Louisiana. Management is still analyzing the accounting treatmentremaining two quarters of the receip ts, but expects that some portion of the receipts could result in income for Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana.year):
2006 | 2007 | 2008 | 2009 | 2010 | |||||||
Non-Utility Nuclear: | |||||||||||
Percent of capacity sold forward: | |||||||||||
Bundled capacity and energy contracts | 13% | 12% | 12% | 12% | 12% | ||||||
Capacity contracts | 77% | 48% | 36% | 24% | 3% | ||||||
Total | 90% | 60% | 48% | 36% | 15% | ||||||
Planned net MW in operation | 4,200 | 4,200 | 4,200 | 4,200 | 4,200 | ||||||
Average capacity contract price per kW per month | $1.1 | $1.1 | $1.1 | $1.0 | $0.9 | ||||||
Blended Capacity and Energy (based on revenues) | |||||||||||
% of planned generation and capacity sold forward | 86% | 88% | 57% | 33% | 11% | ||||||
Average contract revenue per MWh | $42 | $50 | $53 | $59 | $46 |
Critical Accounting Estimates
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy's accounting for nuclear decommissioning costs, unbilled revenue, impairment of long-lived assets, qualified pension and other postretirement benefits, and other contingencies. The followingFollowing is an update to the information provided in the Form 10-K.that discussion.
Nuclear Decommissioning CostsUnbilled Revenue
InAs discussed in Note 10 to the consolidated financial statements, effective January 1, 2006, Entergy Louisiana and the Louisiana portion of Entergy Gulf States reclassified the fuel component of unbilled accounts receivable to deferred fuel and will no longer include the fuel component in their unbilled revenue calculations, which is in accordance with regulatory treatment.
Recently Issued Accounting Pronouncements
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for Entergy in the first quarter of 2005, Entergy's Non-Utility Nuclear business recorded2007. The FASB's objective in issuing this interpretation is to increase comparability among companies in financial reporting of income taxes. FIN 48 establishes a reduction of $26.0 million in its decommissioning cost liability in conjunction with"more-likely-than-not" recognition threshold that must be met before a new decommissioning cost study as a result of revised decommissioning costs and changes in assumptions regarding the timing of when the decommissioning of a plant will begin. The revised estimate resulted in miscellaneous income of $26.0 million ($15.8 million net-of-tax), reflecting the excess of the reductiontax benefit can be recognized in the financial statements. If a tax deduction is taken on a tax return, but does not meet the more-likely-than-not recognition threshold, an increase in income tax liability, overabove what is payable on the amount of undepreciated asset retirement cost.
In the second quarter of 2005, Entergy Louisiana recorded a revisiontax return, is required to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for Waterford 3 that reflected an expected life extension for the plant. The revised estimate resulted in a $153.6 million reduction in its decommissioning liability, along with a $49.2 million reduction in utility plant and a $104.4 million reduction in the related regulatory asset.
Recently Issued Accounting Pronouncements
In the first quarter 2005, FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143" (FIN 47). FIN 47 requires companies to recognize at fair value a liability for a conditional asset retirement obligation when incurred, which is generally upon an asset's acquisition, construction, development, or through its normal operation. A conditional asset retirement obligation is generally a legal obligation to incur costs to remove an asset or part of an asset, such as an obligation to comply with environmental regulations and requirements. The obligation is conditional because there is currently no legal requirement to retire or remove the facility that the affected asset is a part of. FIN 47 requires that uncertainty about the timing or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information becomes available. FIN 4 7 will be effective for Entergy no later than December 31, 2005.recorded. Entergy does not believeexpect that the adoption of FIN 4748 will be material tomaterially affect its financial position, or results of operations, because it estimates that any conditional asset retirement obligations required to be recognized under FIN 47 would be offset by a regulatory asset because of the expected recovery of these future costs in rates.or cash flows.
22
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ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Six Months Ended | |||||||
2006 | 2005 | 2006 | 2005 | |||||
(In Thousands, Except Share Data) | ||||||||
OPERATING REVENUES | ||||||||
Domestic electric | $2,177,710 | $2,044,666 | $4,270,646 | $3,746,683 | ||||
Natural gas | 13,612 | 12,532 | 51,027 | 39,387 | ||||
Competitive businesses | 437,180 | 388,193 | 874,864 | 769,502 | ||||
TOTAL | 2,628,502 | 2,445,391 | 5,196,537 | 4,555,572 | ||||
OPERATING EXPENSES | ||||||||
Operating and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 661,619 | 419,360 | 1,501,791 | 918,345 | ||||
Purchased power | 577,408 | 608,562 | 1,038,778 | 1,040,184 | ||||
Nuclear refueling outage expenses | 42,546 | 39,150 | 84,540 | 78,960 | ||||
Other operation and maintenance | 573,234 | 558,735 | 1,102,664 | 1,062,375 | ||||
Decommissioning | 36,258 | 36,525 | 71,854 | 73,524 | ||||
Taxes other than income taxes | 91,130 | 95,016 | 194,468 | 185,632 | ||||
Depreciation and amortization | 217,943 | 204,420 | 423,332 | 419,941 | ||||
Other regulatory credits - net | (58,929) | (31,951) | (102,946) | (49,971) | ||||
TOTAL | 2,141,209 | 1,929,817 | 4,314,481 | 3,728,990 | ||||
OPERATING INCOME | 487,293 | 515,574 | 882,056 | 826,582 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 8,908 | 10,918 | 24,367 | 23,521 | ||||
Interest and dividend income | 35,139 | 34,441 | 78,968 | 65,059 | ||||
Equity in earnings of unconsolidated equity affiliates | 8,483 | 10,291 | 12,070 | 13,593 | ||||
Miscellaneous - net | (7,965) | (10,956) | (14,170) | 14,977 | ||||
TOTAL | 44,565 | 44,694 | 101,235 | 117,150 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 122,670 | 105,781 | 243,151 | 213,048 | ||||
Other interest - net | 15,235 | 13,275 | 32,495 | 24,761 | ||||
Allowance for borrowed funds used during construction | (5,405) | (5,996) | (14,450) | (13,273) | ||||
TOTAL | 132,500 | 113,060 | 261,196 | 224,536 | ||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 399,358 | 447,208 | 722,095 | 719,196 | ||||
Income taxes | 122,901 | 151,849 | 241,732 | 244,092 | ||||
INCOME FROM CONTINUING OPERATIONS | 276,457 | 295,359 | 480,363 | 475,104 | ||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (net of income tax | ||||||||
expense (benefit) of $7,190, ($1,502), $5,986 and ($2,234) , respectively) | 13,119 | (2,811) | 10,880 | (4,177) | ||||
CONSOLIDATED NET INCOME | 289,576 | 292,548 | 491,243 | 470,927 | ||||
Preferred dividend requirements and other | 7,774 | 6,398 | 15,812 | 12,781 | ||||
EARNINGS APPLICABLE TO | ||||||||
COMMON STOCK | $281,802 | $286,150 | $475,431 | $458,146 | ||||
Basic earnings (loss) per average common share: | ||||||||
Continuing operations | $1.29 | $1.37 | $2.24 | $2.17 | ||||
Discontinued operations | $0.06 | ($0.01) | $0.05 | ($0.02) | ||||
Basic earnings per average common share | $1.35 | $1.36 | $2.29 | $2.15 | ||||
Diluted earnings (loss) per average common share: | ||||||||
Continuing operations | $1.27 | $1.34 | $2.20 | $2.13 | ||||
Discontinued operations | $0.06 | ($0.01) | $0.05 | ($0.02) | ||||
Diluted earnings per average common share | $1.33 | $1.33 | $2.25 | $2.11 | ||||
Dividends declared per common share | $0.54 | $0.54 | $1.08 | $1.08 | ||||
Basic average number of common shares outstanding | 207,982,485 | 211,134,467 | 207,858,104 | 212,622,976 | ||||
Diluted average number of common shares outstanding | 211,557,985 | 215,568,534 | 211,467,674 | 217,091,580 | ||||
See Notes to Consolidated Financial Statements. | ||||||||
23
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2006 and 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Consolidated net income | $491,243 | $470,927 | ||
Adjustments to reconcile consolidated net income to net cash flow | ||||
provided by operating activities: | ||||
Reserve for regulatory adjustments | 41,683 | (73,922) | ||
Other regulatory credits - net | (102,946) | (49,971) | ||
Depreciation, amortization, and decommissioning | 496,632 | 494,458 | ||
Deferred income taxes and investment tax credits | (84,441) | 92,579 | ||
Equity in earnings of unconsolidated equity affiliates - net of dividends | (9,896) | (11,993) | ||
Changes in working capital: | ||||
Receivables | 318,480 | (124,234) | ||
Fuel inventory | (13,650) | 9,065 | ||
Accounts payable | (285,750) | (14,685) | ||
Taxes accrued | 535,654 | 68,495 | ||
Interest accrued | (21,754) | (17,715) | ||
Deferred fuel | 272,835 | (76,262) | ||
Other working capital accounts | 103,790 | (48,972) | ||
Provision for estimated losses and reserves | 25,037 | 11,536 | ||
Changes in other regulatory assets | (165,527) | 21,298 | ||
Other | (120,847) | 22,548 | ||
Net cash flow provided by operating activities | 1,480,543 | 773,152 | ||
INVESTING ACTIVITIES | ||||
Construction/capital expenditures | (942,102) | (616,004) | ||
Allowance for equity funds used during construction | 24,367 | 23,521 | ||
Nuclear fuel purchases | (124,250) | (184,445) | ||
Proceeds from sale/leaseback of nuclear fuel | 41,109 | 125,680 | ||
Proceeds from sale of assets and businesses | 77,159 | - | ||
Payment for purchase of plant | (88,199) | (162,075) | ||
Decrease in other investments | 50,070 | 63,193 | ||
Purchases of other temporary investments | - | (1,591,025) | ||
Liquidation of other temporary investments | - | 1,778,975 | ||
Proceeds from nuclear decommissioning trust fund sales | 523,806 | 430,226 | ||
Investment in nuclear decommissioning trust funds | (573,921) | (478,753) | ||
Other regulatory investments | (42,479) | (63,800) | ||
Net cash flow used in investing activities | (1,054,440) | (674,507) | ||
See Notes to Consolidated Financial Statements. | ||||
24 | ||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2006 and 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of: | ||||
Long-term debt | 1,237,865 | 1,362,424 | ||
Preferred stock | 73,354 | 30,000 | ||
Common stock and treasury stock | 15,372 | 89,868 | ||
Retirement of long-term debt | (1,143,746) | (701,914) | ||
Repurchase of common stock | - | (639,820) | ||
Redemption of preferred stock | (181,060) | (2,250) | ||
Changes in credit line borrowings - net | (40,000) | (150) | ||
Dividends paid: | ||||
Common stock | (224,458) | (229,353) | ||
Preferred stock | (16,760) | (12,779) | ||
Net cash flow used in financing activities | (279,433) | (103,974) | ||
Effect of exchange rates on cash and cash equivalents | (556) | 129 | ||
Net increase (decrease) in cash and cash equivalents | 146,114 | (5,200) | ||
Cash and cash equivalents at beginning of period | 582,820 | 619,786 | ||
Effect of the deconsolidation of Entergy New Orleans on cash and cash equivalents | - | (7,954) | ||
Cash and cash equivalents at end of period | $728,934 | $606,632 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid (received) during the period for: | ||||
Interest - net of amount capitalized | $282,454 | $242,420 | ||
Income taxes | ($231,325) | $80,781 | ||
Noncash financing activities: | ||||
Proceeds from long-term debt issued for the purpose | ||||
of refunding other long-term debt | $54,700 | - | ||
See Notes to Consolidated Financial Statements. | ||||
25
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
ASSETS | ||||
June 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $120,273 | $221,773 | ||
Temporary cash investments - at cost, | ||||
which approximates market | 608,661 | 361,047 | ||
Total cash and cash equivalents | 728,934 | 582,820 | ||
Note receivable - Entergy New Orleans DIP loan | 39,749 | 90,000 | ||
Notes receivable | 1,135 | 3,227 | ||
Accounts receivable: | ||||
Customer | 435,254 | 629,717 | ||
Allowance for doubtful accounts | (24,591) | (30,805) | ||
Other | 531,553 | 459,152 | ||
Accrued unbilled revenues | 279,696 | 477,570 | ||
Total receivables | 1,221,912 | 1,535,634 | ||
Deferred fuel costs | 246,969 | 543,927 | ||
Fuel inventory - at average cost | 219,845 | 206,195 | ||
Materials and supplies - at average cost | 578,557 | 610,932 | ||
Deferred nuclear refueling outage costs | 131,484 | 157,764 | ||
Prepayments and other | 133,389 | 325,795 | ||
TOTAL | 3,301,974 | 4,056,294 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 307,817 | 296,784 | ||
Decommissioning trust funds | 2,637,784 | 2,606,765 | ||
Non-utility property - at cost (less accumulated depreciation) | 219,507 | 228,833 | ||
Other | 41,480 | 81,535 | ||
TOTAL | 3,206,588 | 3,213,917 | ||
PROPERTY, PLANT AND EQUIPMENT | ||||
Electric | 30,225,525 | 29,161,027 | ||
Property under capital lease | 724,290 | 727,565 | ||
Natural gas | 88,029 | 86,794 | ||
Construction work in progress | 836,016 | 1,524,085 | ||
Nuclear fuel under capital lease | 273,878 | 271,615 | ||
Nuclear fuel | 383,817 | 436,646 | ||
TOTAL PROPERTY, PLANT AND EQUIPMENT | 32,531,555 | 32,207,732 | ||
Less - accumulated depreciation and amortization | 13,223,563 | 13,010,687 | ||
PROPERTY, PLANT AND EQUIPMENT - NET | 19,307,992 | 19,197,045 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 730,503 | 735,221 | ||
Other regulatory assets | 2,394,171 | 2,133,724 | ||
Deferred fuel costs | 168,122 | 120,489 | ||
Long-term receivables | 23,640 | 25,572 | ||
Goodwill | 377,172 | 377,172 | ||
Other | 1,053,511 | 991,835 | ||
TOTAL | 4,747,119 | 4,384,013 | ||
TOTAL ASSETS | $30,563,673 | $30,851,269 | ||
See Notes to Consolidated Financial Statements. | ||||
26 | ||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
June 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Currently maturing long-term debt | $108,191 | $103,517 | ||
Notes payable | 41 | 40,041 | ||
Accounts payable | 984,941 | 1,655,787 | ||
Customer deposits | 232,607 | 222,206 | ||
Taxes accrued | 212,100 | 188,159 | ||
Accumulated deferred income taxes | 101,045 | 143,409 | ||
Nuclear refueling outage costs | 1,022 | 15,548 | ||
Interest accrued | 133,101 | 154,855 | ||
Obligations under capital leases | 136,943 | 130,882 | ||
Other | 323,413 | 473,510 | ||
TOTAL | 2,233,404 | 3,127,914 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 5,625,264 | 5,279,228 | ||
Accumulated deferred investment tax credits | 367,618 | 376,550 | ||
Obligations under capital leases | 165,324 | 175,005 | ||
Other regulatory liabilities | 409,041 | 408,667 | ||
Decommissioning and retirement cost liabilities | 1,991,617 | 1,923,971 | ||
Transition to competition | 79,098 | 79,101 | ||
Regulatory reserves | 17,397 | 18,624 | ||
Accumulated provisions | 566,796 | 556,028 | ||
Long-term debt | 8,979,735 | 8,824,493 | ||
Preferred stock with sinking fund | 11,700 | 13,950 | ||
Other | 1,562,709 | 1,879,017 | ||
TOTAL | 19,776,299 | 19,534,634 | ||
Commitments and Contingencies | ||||
Preferred stock without sinking fund | 344,893 | 445,974 | ||
SHAREHOLDERS' EQUITY | ||||
Common stock, $.01 par value, authorized 500,000,000 | ||||
shares; issued 248,174,087 shares in 2006 and in 2005 | 2,482 | 2,482 | ||
Paid-in capital | 4,817,628 | 4,817,637 | ||
Retained earnings | 5,676,094 | 5,428,407 | ||
Accumulated other comprehensive loss | (153,825) | (343,819) | ||
Less - treasury stock, at cost (40,104,825 shares in 2006 and | ||||
40,644,602 shares in 2005) | 2,133,302 | 2,161,960 | ||
TOTAL | 8,209,077 | 7,742,747 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $30,563,673 | $30,851,269 | ||
See Notes to Consolidated Financial Statements. | ||||
27 |
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Six Months Ended | |||||||
2005 | 2004 | 2005 | 2004 | |||||
(In Thousands, Except Share Data) | ||||||||
OPERATING REVENUES | ||||||||
Domestic electric | $2,124,134 | $1,952,049 | $3,868,516 | $3,653,377 | ||||
Natural gas | 43,660 | 38,146 | 130,610 | 121,962 | ||||
Competitive businesses | 541,725 | 494,902 | 1,033,806 | 961,307 | ||||
TOTAL | 2,709,519 | 2,485,097 | 5,032,932 | 4,736,646 | ||||
OPERATING EXPENSES | ||||||||
Operating and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 474,203 | 488,368 | 1,054,284 | 1,038,495 | ||||
Purchased power | 739,786 | 555,439 | 1,239,565 | 1,004,959 | ||||
Nuclear refueling outage expenses | 39,150 | 39,099 | 78,960 | 80,706 | ||||
Other operation and maintenance | 599,575 | 567,746 | 1,134,239 | 1,068,997 | ||||
Decommissioning | 36,525 | 37,098 | 73,524 | 75,446 | ||||
Taxes other than income taxes | 107,465 | 103,283 | 210,454 | 200,585 | ||||
Depreciation and amortization | 213,902 | 215,640 | 438,079 | 426,289 | ||||
Other regulatory credits - net | (30,697) | (15,888) | (47,462) | (31,977) | ||||
TOTAL | 2,179,909 | 1,990,785 | 4,181,643 | 3,863,500 | ||||
OPERATING INCOME | 529,610 | 494,312 | 851,289 | 873,146 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 11,164 | 8,016 | 24,049 | 15,479 | ||||
Interest and dividend income | 34,756 | 25,823 | 65,646 | 54,074 | ||||
Equity in earnings (loss) of unconsolidated equity affiliates | 2,158 | 20,288 | (35) | 40,107 | ||||
Miscellaneous - net | (11,333) | 13,571 | 14,469 | 18,740 | ||||
TOTAL | 36,745 | 67,698 | 104,129 | 128,400 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 109,299 | 116,211 | 220,052 | 235,672 | ||||
Other interest - net | 14,058 | 13,563 | 26,222 | 19,778 | ||||
Allowance for borrowed funds used during construction | (6,181) | (4,970) | (13,690) | (10,124) | ||||
TOTAL | 117,176 | 124,804 | 232,584 | 245,326 | ||||
INCOME BEFORE INCOME TAXES | 449,179 | 437,206 | 722,834 | 756,220 | ||||
Income taxes | 156,390 | 166,195 | 251,425 | 272,192 | ||||
CONSOLIDATED NET INCOME | 292,789 | 271,011 | 471,409 | 484,028 | ||||
Preferred dividend requirements and other | 6,639 | 5,829 | 13,263 | 11,685 | ||||
EARNINGS APPLICABLE TO | ||||||||
COMMON STOCK | $286,150 | $265,182 | $458,146 | $472,343 | ||||
Earnings per average common share: | ||||||||
Basic | $1.36 | $1.16 | $2.15 | $2.06 | ||||
Diluted | $1.33 | $1.14 | $2.11 | $2.02 | ||||
Dividends declared per common share | $0.54 | $0.45 | $1.08 | $0.90 | ||||
Average number of common shares outstanding: | ||||||||
Basic | 211,134,467 | 228,714,654 | 212,622,976 | 229,489,646 | ||||
Diluted | 215,568,534 | 232,775,049 | 217,091,580 | 234,007,635 | ||||
See Notes to Consolidated Financial Statements. | ||||||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||||
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL | ||||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | ||||||||||
(Unaudited) | ||||||||||
Three Months Ended | ||||||||||
2006 | 2005 | |||||||||
(In Thousands) | ||||||||||
RETAINED EARNINGS | ||||||||||
Retained Earnings - Beginning of period | $5,509,897 | $5,040,655 | ||||||||
Add: Earnings applicable to common stock | 281,802 | $281,802 | 286,150 | $286,150 | ||||||
Deduct: | ||||||||||
Dividends declared on common stock | 112,295 | 113,820 | ||||||||
Capital stock and other expenses | 3,310 | - | ||||||||
Total | 115,605 | 113,820 | ||||||||
Retained Earnings - End of period | $5,676,094 | $5,212,985 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE LOSS | ||||||||||
Balance at beginning of period | ||||||||||
Accumulated derivative instrument fair value changes | ($201,301) | ($161,446) | ||||||||
Other accumulated comprehensive income items | 52,295 | 44,649 | ||||||||
Total | (149,006) | (116,797) | ||||||||
Net derivative instrument fair value changes | ||||||||||
arising during the period (net of tax expense (benefit) of $11,151 and ($25,082)) | 6,672 | 6,672 | (46,621) | (46,621) | ||||||
Foreign currency translation (net of tax expense (benefit) of $206 and ($46)) | 383 | 383 | (85) | (85) | ||||||
Net unrealized investment gains (net of tax expense (benefit) of ($10,117) and $13,692) | (11,874) | (11,874) | 16,496 | 16,496 | ||||||
Balance at end of period: | ||||||||||
Accumulated derivative instrument fair value changes | ($194,629) | ($208,067) | ||||||||
Other accumulated comprehensive income items | 40,804 | 61,060 | ||||||||
Total | ($153,825) | ($147,007) | ||||||||
Comprehensive Income | $276,983 | $255,940 | ||||||||
PAID-IN CAPITAL | ||||||||||
Paid-in Capital - Beginning of period | $4,816,037 | $4,826,797 | ||||||||
Add: Common stock issuances related to stock plans | 1,591 | 18,240 | ||||||||
Paid-in Capital - End of period | $4,817,628 | $4,845,037 | ||||||||
Six Months Ended | ||||||||||
2006 | 2005 | |||||||||
(In Thousands) | ||||||||||
RETAINED EARNINGS | ||||||||||
Retained Earnings - Beginning of period | $5,428,407 | $4,984,302 | ||||||||
Add: Earnings applicable to common stock | 475,431 | $475,431 | 458,146 | $458,146 | ||||||
Deduct: | ||||||||||
Dividends declared on common stock | 224,434 | 229,448 | ||||||||
Capital stock and other expenses | 3,310 | 15 | ||||||||
Total | 227,744 | 229,463 | ||||||||
Retained Earnings - End of period | $5,676,094 | $5,212,985 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE LOSS | ||||||||||
Balance at beginning of period | ||||||||||
Accumulated derivative instrument fair value changes | ($392,614) | ($141,411) | ||||||||
Other accumulated comprehensive income items | 48,795 | 47,958 | ||||||||
Total | (343,819) | (93,453) | ||||||||
Net derivative instrument fair value changes | ||||||||||
arising during the period (net of tax expense (benefit) of $131,543 and ($37,692)) | 197,985 | 197,985 | (66,655) | (66,655) | ||||||
Foreign currency translation (net of tax expense (benefit) of $299 and ($69)) | 556 | 556 | (129) | (129) | ||||||
Minimum pension liability (net of tax benefit of ($1,344)) | - | - | (2,054) | (2,054) | ||||||
Net unrealized investment gains (net of tax expense (benefit) of ($7,802) and $9,445) | (8,547) | (8,547) | 15,284 | 15,284 | ||||||
Balance at end of period: | ||||||||||
Accumulated derivative instrument fair value changes | ($194,629) | ($208,066) | ||||||||
Other accumulated comprehensive income items | 40,804 | 61,059 | ||||||||
Total | ($153,825) | ($147,007) | ||||||||
Comprehensive Income | $665,425 | $404,592 | ||||||||
PAID-IN CAPITAL | ||||||||||
Paid-in Capital - Beginning of period | $4,817,637 | $4,835,375 | ||||||||
Add: Common stock issuances related to stock plans | (9) | 9,662 | ||||||||
Paid-in Capital - End of period | $4,817,628 | $4,845,037 | ||||||||
See Notes to Consolidated Financial Statements. | ||||||||||
28 |
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2005 and 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Consolidated net income | $471,409 | $484,028 | ||
Adjustments to reconcile consolidated net income to net cash flow | ||||
provided by operating activities: | ||||
Reserve for regulatory adjustments | (73,803) | 2,407 | ||
Other regulatory credits - net | (47,462) | (31,977) | ||
Depreciation, amortization, and decommissioning | 511,603 | 501,735 | ||
Deferred income taxes and investment tax credits | 95,985 | 138,574 | ||
Equity in earnings (loss) of unconsolidated equity affiliates - net of dividends | 35 | (13,824) | ||
Changes in working capital: | ||||
Receivables | (129,074) | (184,375) | ||
Fuel inventory | 13,246 | (22,592) | ||
Accounts payable | (25,284) | 33,120 | ||
Taxes accrued | 74,540 | 111,393 | ||
Interest accrued | (18,118) | (18,811) | ||
Deferred fuel | (97,100) | 1,911 | ||
Other working capital accounts | (54,588) | 23,352 | ||
Provision for estimated losses and reserves | 10,272 | (2,239) | ||
Changes in other regulatory assets | 25,234 | 4,217 | ||
Other | 10,176 | (97,849) | ||
Net cash flow provided by operating activities | 767,071 | 929,070 | ||
INVESTING ACTIVITIES | ||||
Construction/capital expenditures | (639,651) | (595,618) | ||
Allowance for equity funds used during construction | 24,049 | 15,479 | ||
Nuclear fuel purchases | (184,445) | (100,229) | ||
Proceeds from sale/leaseback of nuclear fuel | 125,680 | 61,694 | ||
Proceeds from sale of assets and businesses | - | 21,978 | ||
Payment for purchase of plant | (162,075) | - | ||
Investment in non-utility properties | - | (8,442) | ||
Decrease (increase) in other investments | 63,193 | (11,071) | ||
Purchases of other temporary investments | (1,591,025) | (376,100) | ||
Liquidation of other temporary investments | 1,778,975 | 583,600 | ||
Decommissioning trust contributions and realized change in trust assets | (48,527) | (44,588) | ||
Other regulatory investments | (63,800) | (30,696) | ||
Net cash flow used in investing activities | (697,626) | (483,993) | ||
See Notes to Consolidated Financial Statements. | ||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2005 and 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of: | ||||
Long-term debt | 637,215 | 272,977 | ||
Preferred stock | 30,000 | - | ||
Common stock and treasury stock | 89,868 | 107,840 | ||
Retirement of long-term debt | (531,919) | (539,779) | ||
Repurchase of common stock | (639,820) | (271,237) | ||
Redemption of preferred stock | (2,250) | (2,250) | ||
Changes in credit line borrowings - net | 584,850 | 255,000 | ||
Dividends paid: | ||||
Common stock | (229,353) | (202,349) | ||
Preferred stock | (13,261) | (11,913) | ||
Net cash flow used in financing activities | (74,670) | (391,711) | ||
Effect of exchange rates on cash and cash equivalents | 129 | (2,401) | ||
Net increase (decrease) in cash and cash equivalents | (5,096) | 50,965 | ||
Cash and cash equivalents at beginning of period | 619,786 | 507,433 | ||
Cash and cash equivalents at end of period | $614,690 | $558,398 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid during the period for: | ||||
Interest - net of amount capitalized | $250,302 | $259,674 | ||
Income taxes | $83,688 | $25,729 | ||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars in Millions) | ||||||||
Utility Electric Operating Revenues: | ||||||||
Residential | $697 | $569 | $128 | 23 | ||||
Commercial | 546 | 440 | 106 | 24 | ||||
Industrial | 620 | 551 | 69 | 13 | ||||
Governmental | 36 | 32 | 4 | 13 | ||||
Total retail | 1,899 | 1,592 | 307 | 19 | ||||
Sales for resale | 161 | 148 | 13 | 9 | ||||
Other | 118 | 305 | (187) | (61) | ||||
Total | $2,178 | $2,045 | $133 | 7 | ||||
Utility Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 7,034 | 6,558 | 476 | 7 | ||||
Commercial | 6,060 | 5,735 | 325 | 6 | ||||
Industrial | 9,561 | 9,648 | (87) | (1) | ||||
Governmental | 378 | 377 | 1 | - - | ||||
Total retail | 23,033 | 22,318 | 715 | 3 | ||||
Sales for resale | 2,816 | 2,944 | (128) | (4) | ||||
Total | 25,849 | 25,262 | 587 | 2 | ||||
Six Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars in Millions) | ||||||||
Utility Electric Operating Revenues: | ||||||||
Residential | $1,394 | $1,162 | $232 | 20 | ||||
Commercial | 1,087 | 868 | 219 | 25 | ||||
Industrial | 1,287 | 1,100 | 187 | 17 | ||||
Governmental | 76 | 64 | 12 | 19 | ||||
Total retail | 3,844 | 3,194 | 650 | 20 | ||||
Sales for resale | 336 | 287 | 49 | 17 | ||||
Other | 91 | 266 | (175) | (66) | ||||
Total | $4,271 | $3,747 | $524 | 14 | ||||
Utility Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 13,997 | 13,728 | 269 | 2 | ||||
Commercial | 11,594 | 11,206 | 388 | 3 | ||||
Industrial | 18,613 | 19,100 | (487) | (3) | ||||
Governmental | 760 | 761 | (1) | - - | ||||
Total retail | 44,964 | 44,795 | 169 | - - | ||||
Sales for resale | 5,577 | 5,627 | (50) | (1) | ||||
Total | 50,541 | 50,422 | 119 | - - | ||||
29
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
ASSETS | ||||
June 30, 2005 and December 31, 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $104,992 | $79,136 | ||
Temporary cash investments - at cost, | ||||
which approximates market | 509,698 | 540,650 | ||
Total cash and cash equivalents | 614,690 | 619,786 | ||
Other temporary investments | - | 187,950 | ||
Notes receivable | 2,051 | 3,092 | ||
Accounts receivable: | ||||
Customer | 415,382 | 435,191 | ||
Allowance for doubtful accounts | (21,979) | (23,758) | ||
Other | 368,400 | 342,289 | ||
Accrued unbilled revenues | 597,361 | 460,039 | ||
Total receivables | 1,359,164 | 1,213,761 | ||
Deferred fuel costs | 223,980 | 85,911 | ||
Accumulated deferred income taxes | 8,303 | 76,899 | ||
Fuel inventory - at average cost | 114,005 | 127,251 | ||
Materials and supplies - at average cost | 579,375 | 569,407 | ||
Deferred nuclear refueling outage costs | 159,484 | 107,782 | ||
Prepayments and other | 117,862 | 116,279 | ||
TOTAL | 3,178,914 | 3,108,118 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 168,040 | 231,779 | ||
Decommissioning trust funds | 2,543,275 | 2,453,406 | ||
Non-utility property - at cost (less accumulated depreciation) | 224,545 | 219,717 | ||
Other | 76,158 | 90,992 | ||
TOTAL | 3,012,018 | 2,995,894 | ||
PROPERTY, PLANT AND EQUIPMENT | ||||
Electric | 29,710,868 | 29,053,340 | ||
Property under capital lease | 732,583 | 738,554 | ||
Natural gas | 276,874 | 262,787 | ||
Construction work in progress | 1,082,681 | 1,197,551 | ||
Nuclear fuel under capital lease | 268,193 | 262,469 | ||
Nuclear fuel | 339,446 | 320,813 | ||
TOTAL PROPERTY, PLANT AND EQUIPMENT | 32,410,645 | 31,835,514 | ||
Less - accumulated depreciation and amortization | 13,431,269 | 13,139,883 | ||
PROPERTY, PLANT AND EQUIPMENT - NET | 18,979,376 | 18,695,631 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 737,906 | 746,413 | ||
Other regulatory assets | 1,381,259 | 1,429,261 | ||
Long-term receivables | 29,884 | 39,417 | ||
Goodwill | 377,172 | 377,172 | ||
Other | 884,622 | 918,871 | ||
TOTAL | 3,410,843 | 3,511,134 | ||
TOTAL ASSETS | $28,581,151 | $28,310,777 | ||
See Notes to Consolidated Financial Statements. | ||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
June 30, 2005 and December 31, 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Currently maturing long-term debt | $375,286 | $492,564 | ||
Notes payable | 43 | 193 | ||
Accounts payable | 871,244 | 896,528 | ||
Customer deposits | 234,223 | 222,320 | ||
Taxes accrued | 237,239 | 224,011 | ||
Nuclear refueling outage costs | 6,021 | - | ||
Interest accrued | 126,360 | 144,478 | ||
Obligations under capital leases | 135,262 | 133,847 | ||
Other | 260,706 | 218,442 | ||
TOTAL | 2,246,384 | 2,332,383 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 5,097,025 | 5,067,381 | ||
Accumulated deferred investment tax credits | 389,468 | 399,228 | ||
Obligations under capital leases | 170,322 | 146,060 | ||
Other regulatory liabilities | 378,485 | 329,767 | ||
Decommissioning and retirement cost liabilities | 1,959,346 | 2,066,277 | ||
Transition to competition | 79,101 | 79,101 | ||
Regulatory reserves | 20,174 | 103,061 | ||
Accumulated provisions | 560,478 | 549,914 | ||
Long-term debt | 7,843,705 | 7,016,831 | ||
Preferred stock with sinking fund | 15,150 | 17,400 | ||
Other | 1,475,720 | 1,541,331 | ||
TOTAL | 17,988,974 | 17,316,351 | ||
Commitments and Contingencies | ||||
Preferred stock without sinking fund | 395,683 | 365,356 | ||
SHAREHOLDERS' EQUITY | ||||
Common stock, $.01 par value, authorized 500,000,000 | ||||
shares; issued 248,174,087 shares in 2005 and in 2004 | 2,482 | 2,482 | ||
Paid-in capital | 4,845,037 | 4,835,375 | ||
Retained earnings | 5,212,985 | 4,984,302 | ||
Accumulated other comprehensive loss | (147,007) | (93,453) | ||
Less - treasury stock, at cost (38,226,127 shares in 2005 and | ||||
31,345,028 shares in 2004) | 1,963,387 | 1,432,019 | ||
TOTAL | 7,950,110 | 8,296,687 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $28,581,151 | $28,310,777 | ||
See Notes to Consolidated Financial Statements. | ||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||||
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL | ||||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||||
(Unaudited) | ||||||||||
Three Months Ended | ||||||||||
2005 | 2004 | |||||||||
(In Thousands) | ||||||||||
RETAINED EARNINGS | ||||||||||
Retained Earnings - Beginning of period | $5,040,655 | $4,605,907 | ||||||||
Add - Earnings applicable to common stock | 286,150 | $286,150 | 265,182 | $265,182 | ||||||
Deduct: | ||||||||||
Dividends declared on common stock | 113,820 | 102,458 | ||||||||
Capital stock and other expenses | - | 295 | ||||||||
Total | 113,820 | 102,753 | ||||||||
Retained Earnings - End of period | $5,212,985 | $4,768,336 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE | ||||||||||
INCOME (LOSS) (Net of Taxes): | ||||||||||
Balance at beginning of period | ||||||||||
Accumulated derivative instrument fair value changes | ($161,446) | ($41,997) | ||||||||
Other accumulated comprehensive income items | 44,649 | 48,490 | ||||||||
Total | (116,797) | 6,493 | ||||||||
Net derivative instrument fair value changes | ||||||||||
arising during the period | (46,621) | (46,621) | (77,544) | (77,544) | ||||||
Foreign currency translation adjustments | (85) | (85) | 693 | 693 | ||||||
Net unrealized investment gains (losses) | 16,496 | 16,496 | (24,843) | (24,843) | ||||||
Balance at end of period: | ||||||||||
Accumulated derivative instrument fair value changes | ($208,067) | ($119,541) | ||||||||
Other accumulated comprehensive income items | 61,060 | 24,340 | ||||||||
Total | ($147,007) | ($95,201) | ||||||||
Comprehensive Income | $255,940 | $163,488 | ||||||||
PAID-IN CAPITAL | ||||||||||
Paid-in Capital - Beginning of period | $4,826,797 | $4,792,171 | ||||||||
Add: Common stock issuances related to stock plans | 18,240 | 26,873 | ||||||||
Paid-in Capital - End of period | $4,845,037 | $4,819,044 | ||||||||
Six Months Ended | ||||||||||
2005 | 2004 | |||||||||
(In Thousands) | ||||||||||
RETAINED EARNINGS | ||||||||||
Retained Earnings - Beginning of period | $4,984,302 | $4,502,508 | ||||||||
Add - Earnings applicable to common stock | 458,146 | $458,146 | 472,343 | $472,343 | ||||||
Deduct: | ||||||||||
Dividends declared on common stock | 229,448 | 206,220 | ||||||||
Capital stock and other expenses | 15 | 295 | ||||||||
Total | 229,463 | 206,515 | ||||||||
Retained Earnings - End of period | $5,212,985 | $4,768,336 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE | ||||||||||
INCOME (LOSS) (Net of Taxes): | ||||||||||
Balance at beginning of period | ||||||||||
Accumulated derivative instrument fair value changes | ($141,411) | ($25,811) | ||||||||
Other accumulated comprehensive income items | 47,958 | 18,016 | ||||||||
Total | (93,453) | (7,795) | ||||||||
Net derivative instrument fair value changes | ||||||||||
arising during the period | (66,655) | (66,655) | (93,730) | (93,730) | ||||||
Foreign currency translation adjustments | (129) | (129) | 2,401 | 2,401 | ||||||
Minimum pension liability adjustment | (2,054) | (2,054) | - | - | ||||||
Net unrealized investment gains | 15,284 | 15,284 | 3,923 | 3,923 | ||||||
Balance at end of period: | ||||||||||
Accumulated derivative instrument fair value changes | ($208,066) | ($119,541) | ||||||||
Other accumulated comprehensive income items | 61,059 | 24,340 | ||||||||
Total | ($147,007) | ($95,201) | ||||||||
Comprehensive Income | $404,592 | $384,937 | ||||||||
PAID-IN CAPITAL | ||||||||||
Paid-in Capital - Beginning of period | $4,835,375 | $4,767,615 | ||||||||
Add: Common stock issuances related to stock plans | 9,662 | 51,429 | ||||||||
Paid-in Capital - End of period | $4,845,037 | $4,819,044 | ||||||||
See Notes to Consolidated Financial Statements. | ||||||||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2005 | 2004 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
U.S. Utility Electric Operating Revenues: | ||||||||
Residential | $607 | $603 | $4 | 1 | ||||
Commercial | 480 | 479 | 1 | - - | ||||
Industrial | 560 | 558 | 2 | - - | ||||
Governmental | 48 | 48 | - | - - | ||||
Total retail | 1,695 | 1,688 | 7 | - - | ||||
Sales for resale | 105 | 104 | 1 | 1 | ||||
Other | 324 | 160 | 164 | 103 | ||||
Total | $2,124 | $1,952 | $172 | 9 | ||||
U.S. Utility Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 7,005 | 6,911 | 94 | 1 | ||||
Commercial | 6,287 | 6,220 | 67 | 1 | ||||
Industrial | 9,810 | 9,922 | (112) | (1) | ||||
Governmental | 620 | 609 | 11 | 2 | ||||
Total retail | 23,722 | 23,662 | 60 | - - | ||||
Sales for resale | 1,938 | 2,367 | (429) | (18) | ||||
Total | 25,660 | 26,029 | (369) | (1) | ||||
Six Months Ended | Increase/ | |||||||
Description | 2005 | 2004 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
U.S. Utility Electric Operating Revenues: | ||||||||
Residential | $1,229 | $1,212 | $17 | 1 | ||||
Commercial | 942 | 914 | 28 | 3 | ||||
Industrial | 1,116 | 1,072 | 44 | 4 | ||||
Governmental | 93 | 92 | 1 | 1 | ||||
Total retail | 3,380 | 3,290 | 90 | 3 | ||||
Sales for resale | 200 | 203 | (3) | (1) | ||||
Other | 288 | 160 | 128 | 80 | ||||
Total | $3,868 | $3,653 | $215 | 6 | ||||
U.S. Utility Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 14,575 | 14,637 | (62) | - - | ||||
Commercial | 12,277 | 12,107 | 170 | 1 | ||||
Industrial | 19,406 | 19,412 | (6) | - - | ||||
Governmental | 1,229 | 1,209 | 20 | 2 | ||||
Total retail | 47,487 | 47,365 | 122 | - - | ||||
Sales for resale | 3,670 | 4,785 | (1,115) | (23) | ||||
Total | 51,157 | 52,150 | (993) | (2) | ||||
ENTERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. COMMITMENTS AND CONTINGENCIES
Entergy New Orleans Bankruptcy
See Note 9 to the consolidated financial statements for information on the Entergy New Orleans bankruptcy proceeding.
Nuclear Insurance
See Note 8 to the consolidated financial statements in the Form 10-K for information on nuclear liability and property and replacement power insurance associated with Entergy's nuclear power plants.plants
Non-Nuclear Property Insurance
See Note 8 to the consolidated financial statements in the Form 10-K for information on Entergy's non-nuclear property insurance program. Beginning in June 2006, the aggregation limit for all parties insured by Oil Insurance Limited (OIL) for any one occurrence was reduced to $500 million. Most of Entergy's non-nuclear excess property insurance coverage includes a $75 million drop-down feature in the event of an OIL aggregation loss to which an Entergy loss contributes.
Nuclear Decommissioning and Other Asset Retirement Costs
See Note 8 to the consolidated financial statements in the Form 10-K for information on nuclear decommissioning costs. In the first quarter of 2005, Entergy's Non-Utility Nuclear business recorded a reduction of $26.0 million in its decommissioning cost liability in conjunction with a new decommissioning cost study as a result of revised decommissioning costs and changes in assumptions regarding the timing of when the decommissioning of a plant will begin. The revised estimate resulted in miscellaneous income of $26.0 million ($15.8 million net-of-tax), reflecting the excess of the reduction in the liability over the amount of undepreciated assetother retirement cost.
In the second quarter of 2005, Entergy Louisiana recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for Waterford 3 that reflected an expected life extension for the plant. The revised estimate resulted in a $153.6 million reduction in its decommissioning liability, along with a $49.2 million reduction in utility plant and a $104.4 million reduction in the related regulatory asset.costs.
Income Taxes
See Note 8 to the consolidated financial statements in the Form 10-K for information regarding certain material income tax audit matters involving Entergy. Following is an update to that disclosure.
Mark to Market of Certain Power Contracts
As discussed in the Form 10-K, in 2001, Entergy Louisiana changed its method of accounting for income tax purposes related to its wholesale electric power contracts. The most significant of these is the contract to purchase power from the Vidalia hydroelectric project. On audit of Entergy Louisiana's 2001 tax return, the IRS made an adjustment reducing the amount of the deduction associated with this method change. The adjustment had no material impact on Entergy Louisiana's earnings and required no additional cash payment of 2001 income tax. The Vidalia contract method change has resulted in cumulative cash flow benefits of approximately $790 million through June 30, 2005. This benefit is expected to reverse in the years 2005 through 2031. The tax accounting election has had no effect on book income tax expense. The timing of the reversal of this benefit depends on several variables, including the price of power.
CashPoint Bankruptcy
See Note 8 to the consolidated financial statements in the Form 10-K for information regarding the bankruptcy of CashPoint, which managed a network of payment agents for the domestic utility companies.
Harrison County Plant Fire
On May 13, 2005, an explosion and fire damaged the non-nuclear wholesale assets business's Harrison County power plant. A catastrophic failure and subsequent natural gas escape from a nearby 36-inch interstate pipeline owned and operated by a third party is believed to have caused the damage. Current estimates are that the cost to clean-up the site and reconstruct the damaged portions of the plant could be at least $50 million and take until
second quarter 2006 to be completed. The plant's property insurer has acknowledged coverage, subject to a $200 thousand deductible. Entergy does not expect the damage caused to the Harrison County plant to have a material effect on its financial position or results of operations.
Employment Litigation
Entergy Corporation and certain subsidiaries are defendants in numerous lawsuits filed by former employees asserting that they were wrongfully terminated and/or discriminated against on the basis of age, race, sex, or other protected characteristics. The defendant companies deny any liability to the plaintiffs.
NOTE 2. RATE AND REGULATORY MATTERS
Storm Costs Recovery Filings with Retail Regulators
On July 31, 2006, Entergy Louisiana and Entergy Gulf States filed a supplemental and amending storm cost recovery application with the LPSC, in which Entergy Louisiana and Entergy Gulf States requested that the LPSC (1) review Entergy Louisiana's and Entergy Gulf States' testimony and exhibits relating to the costs associated with Hurricanes Katrina and Rita, and declare that those verified, actual storm-related costs through May 31, 2006 are $466.8 million for Entergy Louisiana and $200.3 million for Entergy Gulf States in the Louisiana jurisdiction and that those costs were prudently incurred; (2) declare that the annual revenue requirements associated with the recovery of those costs, based on a ten-year levelized rate are $54.4 million for Entergy Louisiana and $26.2 million for Entergy Gulf States; (3) authorize Entergy Louisiana and Entergy Gulf States to recover the costs through Storm Cost Recovery Riders (SCRRs) proposed by Entergy Louisiana and Entergy Gulf States; (4) declare that the storm costs incurred subsequent to May 31, 2006 are to be filed by Entergy Louisiana and Entergy Gulf States with the LPSC on an annual basis in connection with their annual formula rate plan (FRP) filings, and that the SCRRs be adjusted annually to reflect such costs and any insurance proceeds or CDBG funds actually received, with the adjusted amounts to be collected through the SCRRs to take effect contemporaneous with the effective date of rate changes under the FRP; (5)
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declare that the storm-related costs incurred by Entergy Louisiana and Entergy Gulf States meet the conditions set forth in the FRP for exclusion from the sharing provisions in those FRPs and authorize the permanent recovery of storm costs outside of the FRPs adopted by the LPSC for Entergy Louisiana and Entergy Gulf States; and (6) authorize the funding of a storm reserve through securitization sufficient to fund a storm cost reserve of $132 million for Entergy Louisiana and $81 million for Entergy Gulf States. Hearings on the application are scheduled for the first quarter 2007.
In July 2006, Entergy Gulf States filed an application with the PUCT with respect to the $393.2 million of Hurricane Rita reconstruction costs incurred in its Texas retail jurisdiction through March 31, 2006. The filing asks the PUCT to determine that $393.2 million is the amount of reasonable and necessary hurricane reconstruction costs eligible for securitization and recovery, approve the recovery of carrying costs, and approve the manner in which Entergy Gulf States-Texas allocates those costs among its retail customer classes. If approved, Entergy Gulf States' application will ultimately affect all its retail customers in Texas. Entergy Gulf States' filing does not request recovery of costs through a specific rider on customer bills or through any other means at this time. The hearing before the PUCT on the filing is scheduled for November 2006. This is the first of two filings authorized by a law passed earlier this year in a special session of the Texas Legislature. A second filing will request securitization and recovery of the eligible costs through retail rates and tariffs. Entergy Gulf States expects to make the second filing following the conclusion of the reconstruction cost case.
As discussed in the Form 10-K, in December 2005, Entergy Mississippi filed with the MPSC a Notice of Intent to change rates by implementing a Storm Damage Rider to recover storm damage restoration costs associated with Hurricanes Katrina and Rita totaling approximately $84 million as of November 30, 2005. In February 2006, Entergy Mississippi filed an Application for an Accounting Order seeking certification by the MPSC of Entergy Mississippi's estimated $36 million of storm restoration costs not included in the December 2005 filing. In March 2006, the Governor signed a law that established a mechanism by which the MPSC may authorize and certify an electric utility financing order and the state may issue general obligation bonds to pay the costs of repairing damage caused by Hurricane Katrina to the systems of investor-owned electric utilities. Because of the passage of this law and the possibility of Entergy Mississippi obtaining CDBG funds for H urricane Katrina storm restoration costs, in March 2006, the MPSC issued an order approving a Joint Stipulation between Entergy Mississippi and the Mississippi Public Utilities Staff that provided for the review of Entergy Mississippi's total storm restoration costs in the Application for an Accounting Order proceeding. The Stipulation stated that the procedural schedule of the December 2005 Notice of Intent filing should be suspended until the MPSC issues a final order in the Application for an Accounting Order proceeding.
In June 2006, the MPSC issued an order certifying Entergy Mississippi's Hurricane Katrina restoration costs incurred through March 31, 2006 of $89 million, net of estimated insurance proceeds. Two days later Entergy Mississippi filed a request with the Mississippi Development Authority for $89 million of CDBG funding for reimbursement of its infrastructure restoration costs. Entergy Mississippi also filed a Petition for Financing Order with the MPSC for authorization of state general obligation bond financing of $169 million for Hurricane Katrina restoration costs and future storm costs. The $169 million amount includes Hurricane Katrina restoration costs plus $80 million to build Entergy Mississippi's storm damage reserve for the future. The amount financed through the bonds will be reduced dollar for dollar by any CDBG funds that Entergy Mississippi receives. Pursuant to the legislation, the MPSC must issue a financing order by the end of October 2006.
Deferred Fuel Costs
See Note 2 to the consolidated financial statements in the Form 10-K for information regarding fuel proceedings involving the domestic utility companies.
Entergy Arkansas
In March 2006, Entergy Arkansas filed with the APSC its annual redetermination of the energy cost rate for application to the period April 2006 through March 2007. The filed energy cost rate of $0.02827 per kWh was proposed to replace the interim rate of $0.01900 per kWh that had been in place since October 2005. The interim energy cost rate is discussed in the Form
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10-K, along with the investigation that the APSC commenced concerning Entergy Arkansas' interim energy cost rate. The increase in the energy cost rate is due to increases in the cost of purchased power primarily due to the natural gas cost increase and the effect that Hurricanes Katrina and Rita had on market conditions, increased demand for purchased power during the ANO 1 refueling and steam generator replacement outage in the fall of 2005, and coal plant generation curtailments during off-peak periods due to coal delivery problems.
On March 31, 2006, the APSC suspended implementation of the $0.02827 per kWh energy cost rate, and ordered that the $0.01900 per kWh interim rate remain in effect pending the APSC proceedings on the energy cost recovery filings. The APSC also extended its investigation into Entergy Arkansas' interim energy cost rate to cover the costs included in Entergy Arkansas' March 2006 filing. The extended investigation does not identify new issues in addition to the four issues listed in the Form 10-K and covers the same time period. On April 7, 2006, the APSC issued a show cause order in the investigation proceeding that ordered Entergy Arkansas to file a cost of service study by June 8, 2006. The order also directed Entergy Arkansas to file testimony to support the cost of service study, to support the $0.02827 per kWh cost rate, and to address the general topic of elimination of the energy cost recovery rider.
Entergy Arkansas filed for rehearing of the APSC's orders, asking that the energy cost rate filed in March 2006 be implemented in May 2006 subject to refund, asserting that the APSC did not follow appropriate procedures in suspending the operation of the energy cost recovery rider, and asking the APSC to rescind its show cause order. On May 8, 2006 the APSC denied Entergy Arkansas' requests for rehearing. Entergy Arkansas appealed the APSC's decision, but later filed a motion to dismiss the appeal following the APSC's decision described below.
In June 2006, Entergy Arkansas once again filed a motion with the APSC seeking to implement the redetermined energy cost rate of $0.02827 per kWh. After a hearing the APSC approved Entergy Arkansas' request and the redetermined rate was implemented in July 2006, subject to refund pending the outcome of the APSC energy cost recovery investigation. Because of the delay in implementing the redetermined energy cost rate, Entergy Arkansas estimated in its motion that $46 million of energy costs would remain under-recovered at December 31, 2006.
A hearing in the APSC energy cost recovery investigation is scheduled for October 2006.
On June 7, 2006, Entergy Arkansas filed the cost of service study ordered by the APSC. On that date Entergy Arkansas also filed notice with the APSC that it intends to file for a change in base rates within 60 to 90 days of its notice. Entergy Arkansas expects to make that filing in August 2006.
Entergy Gulf States
On March 1, 2006, Entergy Gulf States filed with the PUCT an application to implement an interim fuel surcharge in connection with the under-recovery of $97 million including interest of eligible fuel costs for the period August 2005 through January 2006. This surcharge is in addition to an interim surcharge that went into effect in January 2006. Entergy Gulf States entered into a unanimous settlement that reduced the requested surcharge for actual over-collections from the months of February and March 2006, resulting in a surcharge of $78.8 million to be implemented over a twelve-month period beginning in June 2006. The PUCT approved the surcharge in June 2006. Amounts collected through the interim fuel surcharges are subject to final reconciliation in a future fuel reconciliation proceeding.
In May 2006, Entergy Gulf States filed with the PUCT a fuel and purchased power reconciliation case covering the period September 2003 through December 2005 for costs recoverable through the Texas fixed fuel factor rate and the incremental purchased capacity recovery rider. Entergy Gulf States is reconciling $1.6 billion of fuel and purchased power costs on a Texas retail basis. Hearings are scheduled for February 2007 and a PUCT decision is expected in July 2007.
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Entergy Gulf States and Entergy Louisiana
In November 2005, the LPSC authorized its staff to initiate an expedited proceeding to audit the fuel and power procurement activities of Entergy Louisiana and Entergy Gulf States for the period January 1, 2005 through October 31, 2005. In April 2006, the LPSC accepted the LPSC Staff's audit report finding that the prices paid for natural gas and purchased power were reasonable and that given the market conditions surrounding Hurricanes Katrina and Rita, Entergy Louisiana and Entergy Gulf States acted reasonably and prudently in response to an extremely difficult environment.
Retail Rate Proceedings
See Note 2 to the consolidated financial statements in the Form 10-K for information regarding retail rate proceedings involving the domestic utility companies. The following are updates to the Form 10-K.
Filings with the PUCT and Texas Cities
As discussed in the Form 10-K, in August 2005, Entergy Gulf States filed with the PUCT an application for recovery of its transition to competition costs. Entergy Gulf States requested recovery of $189 million in transition to competition costs through implementation of a 15-year rider to be effective no later than March 1, 2006. The $189 million represents transition to competition costs Entergy Gulf States incurred from June 1, 1999 through June 17, 2005 in preparing for competition in its service area, including attendant AFUDC, and all carrying costs projected to be incurred on the transition to competition costs through February 28, 2006. The $189 million is before any gross-up for taxes or carrying costs over the 15-year recovery period. Entergy Gulf States reached a unanimous settlement agreement on all issues with the active parties in the transition to competition cost recovery case. The agreement allows Entergy Gulf States to recover $14.5 million per year in tr ansition to competition costs over a 15-year period. Entergy Gulf States implemented interim rates based on this revenue level on March 1, 2006. The PUCT approved the settlement agreement in June 2006.
Filings with the LPSC
Global Settlement (Entergy Gulf States and Entergy Louisiana)
In March 2005, the LPSC approved a settlement proposal to resolve various dockets covering a range of issues for Entergy Gulf States and Entergy Louisiana. The settlement resulted in credits totaling $76 million for retail electricity customers in Entergy Gulf States' Louisiana service territory and credits totaling $14 million for retail electricity customers of Entergy Louisiana. The settlement dismissed Entergy Gulf States' fourth, fifth, sixth, seventh, and eighth annual earnings reviews, Entergy Gulf States' ninth post-merger earnings review and revenue requirement analysis, the continuation of a fuel review for Entergy Gulf States, dockets established to consider issues concerning power purchases for Entergy Gulf States and Entergy Louisiana for the summers of 2001, 2002, 2003, and 2004, all prudence issues associated with decisions made through May 2005 related to the nuclear plant uprates at issue in these cases, and an LPSC docket concerning retail issues arising under the S ystem Agreement. The settlement does not include the System Agreement case at FERC. In addition, Entergy Gulf States agreed not to seek recovery from customers of $2 million of excess refund amounts associated with the fourth through the eighth annual earnings reviews and Entergy Louisiana agreed to forgo recovery of $3.5 million of deferred 2003 capacity costs associated with certain power purchase agreements. The credits were issued in connection with April 2005 billings. Entergy Gulf States and Entergy Louisiana reserved for the approximate refund amounts.
The settlement includes the establishment of a three-year formula rate plan for Entergy Gulf States that, among other provisions, establishes an ROE mid-point of 10.65% for the initial three-year term of the plan and permits Entergy Gulf States to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an allowed range of 9.9% to 11.4% will be allocated 60% to customers and 40% to Entergy Gulf States. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Gulf States. Under the settlement, there was no change to Entergy Gulf States' retail rates at that time.
Retail Rates - Electric
(Entergy Louisiana)Gulf States)
See Note 2 to consolidated financial statements in the Form 10-K for discussion of Entergy Louisiana's rate filing with the LPSC requesting a base rate increase. In March 2005, the LPSC staff and Entergy Louisiana filed a proposed settlement that included an annual base rate increase of approximately $18.3 million which was implemented, subject to refund, effective with May 2005 billings. In May 2005,2006, the LPSC approved a modifiedan uncontested stipulated settlement which, among other things, reduces depreciation and decommissioning expense due to assuming a life extension of Waterford 3 and results in no change in rates. Subsequently, in June 2005, Entergy Louisiana made a revised compliance filing with the LPSC supporting a revised depreciation rate for Waterford 3, which reflects the removal of interim additions, and a rate increase from the purchase of the Perryville power plant, which results in a net $0.8 million annual rate reduction. Entergy Louisiana reduced rates effective with the first billi ng cycle in June 2005 and expects to refund excess revenue collected during May 2005, including interest, in the third quarter of 2005.
The May 2005 rate settlement includes the adoption of a three-year formula rate plan, the terms of which include an ROE mid-point of 10.25% for the initial three-year term of the plan and permit Entergy Louisiana to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an allowed regulatory earnings range of 9.45% to 11.05% will be allocated 60% to customers and 40% to Entergy Louisiana. The initialGulf States' formula rate plan filing will befor the 2004 test year. The settlement includes a revenue requirement increase of $36.8 million and calls for Entergy Gulf States to apply a refund liability of $744 thousand to capacity deferrals. The refund liability pertained to the periods 2004-2005 as well as the interim period in May 2006 based onwhich a 2005 test year with rates effective September 2006. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Louisiana.$37.8 million revenue increase was in place.
(Entergy Gulf States)
In June 2005,May 2006, Entergy Gulf States made its formula rate plan filing with the LPSC for the 2005 test year ending December 31, 2004.year. The filing shows a net revenue deficiency of $2.58 million indicating that no refund liability exists.Entergy Gulf States' return on equity was within the allowed bandwidth. The filing also indicates that under the formula rate plan rider for approved capacity additions, a prospective$7.1 million rate increase of $23.8 million is required in order for Entergy Gulf States to earn the authorized ROE mid-pointrecover LPSC-approved incremental deferred and ongoing capacity requirements. The filing is subject to a period of 10.65%. Subject to the consideration of comments expected to be filed by the LPSC staffStaff review, and intervenors in the third quarter 2005, rate changes associated with the formula rate plan are scheduled to take effect with the first billing cycle in October 2005. Any disputed issues will beof September 2006.
(Entergy Louisiana)
In May 2006, Entergy Louisiana made its formula rate plan filing with the LPSC for the 2005 test year. The filing shows that Entergy Louisiana's return on equity was within the allowed bandwidth. The filing also indicates that under the formula rate plan rider for approved capacity additions, a $121 million rate increase is required to recover LPSC-approved incremental deferred and ongoing capacity requirements. Entergy Louisiana requested recovery of the capacity deferrals over a three-year period, including carrying charges. $51 million of the rate
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increase is associated with these deferrals. The remaining $70 million of the rate increase is associated with ongoing capacity costs. The filing is subject to further investigation bya period of LPSC Staff review, and rate changes associated with the LPSC,formula rate plan are scheduled to take effect with any resolutionthe first billing cycle of such issues being made effective October 2005.September 2006.
Retail Rates - Gas (Entergy Gulf States)
In July 2004,January 2006, Entergy Gulf States filed with the LPSC an application for a change in its rates and charges seeking an increase of $9.1 million in gas base rates in order to allow Entergy Gulf States an opportunity to earn a fair and reasonable rate of return. In June 2005, the LPSC unanimously approved Entergy Gulf States' proposed settlement that includes a $5.8 million gas base rate increase effective the first billing cycle of July 2005 and a rate stabilization plan withplan. The filing showed a revenue deficiency of $4.1 million based on an ROE mid-point of 10.5%. On May 1, 2006, Entergy Gulf States implemented a $3.5 million rate increase pursuant to an uncontested agreement with the LPSC Staff.
Filings with the PUCT (Entergy Gulf States)MPSC
In March 2006, Entergy Gulf States filedMississippi made its annual scheduled formula rate plan filing with the PUCTMPSC. The filing was amended by an April 2006 filing. The amended filing showed that an increase of $3.1 million in July 2005electric revenues is warranted. The MPSC has approved a requestsettlement providing for implementation of an incremental purchased capacity recovery rider, consistent with the recently passed Texas legislation discussed below under "Electric Industry Restructuring and the Continued Application of SFAS 71." The rider requests $23.1a $1.8 million annuallyrate increase, which will be implemented in incremental revenues on a Texas retail basis which represents the incremental purchased capacity costs, including Entergy Gulf States' obligation to purchase power from Entergy Louisiana's recently acquired Perryville plant, over what is already in Entergy Gulf States' base rates. Entergy Gulf States has reached an agreement with parties with respect to the date upon which cost recovery and cost reconciliation would begin. The parties have agreed that Entergy Gulf States will implement the rider after approval by the PUCT which could be up to 185 days from the date of filing but will reconci le and recover incremental purchased capacity costs incurred beginning September 1, 2005. The September 1, 2005 agreed upon date for the beginning of the cost recovery and cost reconciliation as well as the requested amount and the processes for implementing the rider are subject to PUCT action and approval. If approved by the PUCT, the rider would be subject to semi-annual modifications and reconciliation in conjunction with Entergy Gulf States' fuel reconciliation proceedings. Also see "Electric Industry Restructuring and the Continued Application of SFAS 71" below for discussion of the provisions in the Texas legislation regarding Entergy Gulf States' ability to file a general rate case and for recovery of transition to competition costs.August 2006.
Filings with the City Council (Entergy New Orleans)
In April 2005,June 2006, Entergy New Orleans made its annual scheduled formula rate plan filings with the City Council. The filings show various alternatives to reflect the effect of Entergy New Orleans' lost customers and decreased revenue. Entergy New Orleans' recommended alternative adjusts for lost customers and assumes that a decreasethe City Council's June 2006 decision to allow recovery of $0.2all Grand Gulf costs through the fuel adjustment clause stays in place (a portion of Grand Gulf costs was previously recovered through base rates). Under that alternative, annual increases of $6.4 million in electric base rate revenues is warranted and an(an increase of $3.94.4%) and $22.8 million in gas base rate revenues is(an increase of 160.9%) are warranted. The filings triggered the prescribed four-month period for review by the City Council's Advisors and other parties, and rate adjustments, if any, could be implemented as soon as September 2005.the first billing cycle of November 2006.
In May 2005,At the same time as it made its formula rate plan filings, Entergy New Orleans also filed with the City Council a request to implement two storm-related riders. With the first rider, Entergy New Orleans seeks to recover over a ten-year period the $114 million in electric restoration costs and the $25 million in gas restoration costs that it has actually spent through March 31, 2006. Entergy New Orleans also proposed semiannual filings to update the rider for continuationadditional restoration spending and also to consider the receipt of CDBG funds or insurance proceeds that it may receive. With the second rider, Entergy New Orleans seeks to establish over a ten-year period a $150 million storm reserve to provide for the risk of another storm. Entergy New Orleans requested that the City Council consider the proposed riders within the same time frame as the formula rate plan and generation performance-based rate plan for an additional three years. The filing requests a target equity componentplans, which would allow implementation as soon as the first billing cycle of the capital structure of 45%, an increase from the current target of 42%.
Deferred Fuel CostsNovember 2006.
See Note 2 to the consolidated financial statements in the Form 10-K for information regarding fuel proceedings involving the domestic utility companies. The following are updates to the Form 10-K.
In March 2005, Entergy Arkansas filed with the APSC its energy cost recovery rider for the period April 2005 through March 2006. The filed energy cost rate, which accounts for 15 percent of a typical residential customer's bill using 1,000 kWh per month, increased 31 percent primarily attributable to a true-up adjustment for an under-recovery balance of $11.2 million and a nuclear refueling adjustment resulting from outages scheduled in 2005 at ANO 1 and 2.
In March 2004, Entergy Gulf States filed with the PUCT a fuel reconciliation case covering the period September 2000 through August 2003. Entergy Gulf States is reconciling $1.43 billion of fuel and purchased power costs on a Texas retail basis. This amount includes $8.6 million of under-recovered costs that Entergy Gulf States is asking to reconcile and roll into its fuel over/under-recovery balance to be addressed in the next appropriate fuel proceeding. This case involves imputed capacity and River Bend payment issues similar to those decided adversely in a January 2001 proceeding that is now on appeal. On January 31, 2005, the ALJ issued a Proposal for Decision that recommended disallowing $10.7 million (excluding interest) related to these two issues. In April 2005, the PUCT issued an order reversing in part the ALJ's Proposal for Decision and allowing Entergy Gulf States to recover a part of its request related to the imputed capacity and River Bend payme nt issues. The PUCT's order reduced the disallowance in the case to $8.3 million.Both Entergy Gulf States and certain cities served by Entergy Gulf States filed motions for rehearing on these issues which were denied by the PUCT. Entergy Gulf States and certain Cities filed appeals to the Travis County District Court. The appeals are pending. Any disallowance will be netted against Entergy Gulf States' under-recovered costs and will be included in its deferred fuel costs balance.
In January 2001, Entergy Gulf States filed with the PUCT a fuel reconciliation case covering the period from March 1999 through August 2000. Entergy Gulf States was reconciling approximately $583 million of fuel and purchased power costs. As part of this filing, Entergy Gulf States requested authority to collect $28 million, plus interest, of under-recovered fuel and purchased power costs. In August 2002, the PUCT reduced Entergy Gulf States' request to approximately $6.3 million, including interest through July 31, 2002. Approximately $4.7 million of the total reduction to the requested surcharge relates to nuclear fuel costs that the PUCT deferred ruling on at that time. In October 2002, Entergy Gulf States appealed the PUCT's final order in Texas District Court. In its appeal, Entergy Gulf States is challenging the PUCT's disallowance of approximately $4.2 million related to imputed capacity costs and its disallowance related to costs for energy delivered from the 30% non-regu lated share of River Bend. The case was argued before the Travis County Texas District Court in August 2003 and the Travis County District Court judge affirmed the PUCT's order. In October 2003, Entergy Gulf States appealed this decision to the Court of Appeals. Oral argument before the appellate court occurred in September 2004 and in May 2005, the appellate court affirmed the lower court's decision affirming the PUCT's disallowance. Entergy Gulf States has filed a motion for rehearing with the appellate court in this case.
In August 2000, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Louisiana pursuant to a November 1997 LPSC general order. The time period that is the subject of the audit is January 1, 2000 through December 31, 2001. In September 2003, the LPSC staff issued its audit report and recommended a disallowance with regard to one item. The issue relates to the alleged failure to uprate Waterford 3 in a timely manner, a claim that also has been raised in the summer 2001, 2002, and 2003 purchased power proceedings. The settlement approved by the LPSC in March 2005, discussed above, resolves the uprate imprudence disallowance and is no longer at issue in this proceeding. Subsequent to the issuance of the audit report, the scope of this docket was expanded to include a review of annual reports on fuel and purchased power transactions with affiliates and a prudence review of transmission planning issues. Also, in July 2005, the LP SC expanded the audit to include the years 2002 through 2004. A procedural schedule has been established and LPSC staff and intervenor testimony is due in November 2005.
In January 2003, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Gulf States and its affiliates pursuant to a November 1997 LPSC general order. The audit will include a review of the reasonableness of charges flowed by Entergy Gulf States through its fuel adjustment clause in Louisiana for the period January 1, 1995 through December 31, 2002. Discovery is underway, but a detailed procedural schedule extending beyond the discovery stage has not yet been established, and the LPSC staff has not yet issued its audit report. In June 2005, the LPSC expanded the audit to include the years through 2004.
In January 2005, the MPSC approved a change in Entergy Mississippi's energy cost recovery rider. Entergy Mississippi's fuel over-recoveries for the third quarter of 2004 of $21.3 million will be deferred from the first quarter 2005 energy cost recovery rider adjustment calculation. The deferred amount of $21.3 million plus carrying charges is being refunded through the energy cost recovery rider in the second and third quarters of 2005 at a rate of 45% and 55%, respectively.
As discussed in Note 2 to the consolidated financial statements in the Form 10-K, the City Council passed resolutions implementing a package of measures developed by Entergy New Orleans and the Council Advisors to protect customers from potential gas price spikes during the 2004 - 2005 winter heating season including the deferral of collection of up to $6.2 million of gas costs associated with a cap on the purchased gas adjustment in November and December 2004 and in the event that the average residential customer's gas bill were to exceed a threshold level. The deferrals of $1.7 million resulting from these caps will receive accelerated recovery over a seven-month period that began in April 2005.
In November 2004, the City Council directed Entergy New Orleans to confer with the City Council Advisors regarding possible modification of the current gas cost collection mechanism in order to address concerns regarding its fluctuations particularly during the winter heating season. In June 2005, Entergy New Orleans filed a new purchased gas adjustment tariff with the City Council. If approved by the City Council, the tariff would be effective in the fourth quarter of 2005.
Fuel Adjustment Clause Litigation
See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of the complaint filed by a group of ratepayers with the City Council alleging that Entergy New Orleans and certain affiliates engaged in fuel procurement and power purchasing practices and included certain costs in its fuel adjustment charges that could have resulted in its customers being overcharged by more than $100 million over a period of years. In May 2005, the Civil District Court for the Parish of Orleans affirmed the City Council resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004, finding no support for the plaintiffs' claim that the refund amount should be higher. In June 2005, the plaintiffs appealed the Civil District Court decision to the Louisiana Fourth Circuit Court of Appeal.
Electric Industry Restructuring and the Continued Application of SFAS 71
Previous developments and information related to electric industry restructuring are presented in Note 2 to the consolidated financial statements in the Form 10-K. The following are updates to the Form 10-K.
Louisiana
In November 2001, the LPSC decided not to move forward with retail open access for any customers at this time. The LPSC instead directed its staff to hold collaborative group meetings concerning open access from time to time, and to have the LPSC staff monitor developments in neighboring states and to report to the LPSC regarding the progress of retail access developments in those states. In September 2004, in response to a study performed by the Louisiana State University Center for Energy Studies that evaluated a limited industrial-only retail choice program, the LPSC asked the LPSC staff to solicit comments and obtain information from utilities, customers, and other interested parties concerning the potential costs and benefits of a limited choice program, the impact of such a program on other customers, as well as issues such asstranded costs and transmission service. Comments from interested parties were file d with the LPSC in January 2005. A technical conference was held in April 2005 and in May 2005 interested parties filed reply comments to arguments made at the technical conference. Entergy stated that it believes that there is no new information or credible evidence that would justify altering the LPSC's previous conclusion that retail access is not in the public interest.
Texas
See Note 2 to the consolidated financial statements in the Form 10-K for a discussion of the status of retail open access in Entergy Gulf States' Texas service territory and Entergy Gulf States' independent organization request.
In June 2005, a Texas law was enacted which provides that:
NOTE 3. COMMON EQUITY
Common Stock
Earnings per Share
The following tables present Entergy's basic and diluted earnings per share (EPS) calculations included on the consolidated income statement:
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| Average number of common shares |
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|
Average dilutive effect of: | Average dilutive effect of: |
|
|
|
|
|
|
| Average dilutive effect of: |
|
|
|
|
|
|
|
| |
| Stock Options |
| 4.2 |
| (0.027) | 3.6 |
| (0.018) | Stock Options |
| 3.4 |
| (0.022) |
| 4.2 |
| (0.027) | |
Equity Awards | - | - | 0.3 | (0.002) | Deferred Units |
| 0.2 |
| (0.001) |
| 0.2 |
| (0.001) | |||||
| Deferred Units |
| 0.2 |
| (0.001) | 0.2 |
| (0.001) | ||||||||||
Average number of common shares outstanding - diluted | Average number of common shares outstanding - diluted |
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| Average number of common shares |
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| For the Six Months Ended June 30, | ||||||||||||||||
|
| 2005 |
| 2004 | ||||||||||||||
|
| (In Millions, Except Per Share Data) | ||||||||||||||||
|
|
|
| $/share |
|
|
| $/share | ||||||||||
Earnings applicable to common stock |
| $458.1 |
|
|
| $472.3 |
|
| ||||||||||
|
|
|
|
|
|
|
|
| ||||||||||
Average number of common shares outstanding - basic |
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|
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| ||||||||||
Average dilutive effect of: |
|
|
|
|
|
|
|
| ||||||||||
| Stock Options |
| 4.3 |
| (0.042) |
| 4.0 |
| (0.035) | |||||||||
Equity Awards | - | - | 0.3 | (0.003) | ||||||||||||||
| Deferred Units |
| 0.2 |
| (0.002) |
| 0.2 |
| (0.002) | |||||||||
Average number of common shares outstanding - diluted |
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| ||||||||||
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| For the Six Months Ended June 30, | |||||||
|
| 2006 |
| 2005 | |||||
|
| (In Millions, Except Per Share Data) | |||||||
|
|
|
| $/share |
|
|
| $/share | |
Earnings applicable to common stock |
| $475.4 |
|
|
| $458.1 |
|
| |
|
|
|
|
|
|
|
|
| |
Average number of common shares |
|
|
|
|
|
|
|
| |
Average dilutive effect of: |
|
|
|
|
|
|
|
| |
| Stock Options |
| 3.4 |
| (0.037) |
| 4.3 |
| (0.042) |
| Deferred Units |
| 0.2 |
| (0.002) |
| 0.2 |
| (0.002) |
Average number of common shares |
|
|
|
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| |
|
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Entergy's stock option and other equity compensation plans are discussed in Note 7 to the consolidated financial statements in the Form 10-K.
Treasury Stock
ForDuring the six months ended June 30, 2005,2006, Entergy Corporation issued 2,266,901539,777 shares of its previously repurchased common stock to satisfy stock option exercises and other stock-based awards and repurchased 9,148,000 shares of common stock for a total purchase price of $639.8 million.awards.
Retained Earnings
On July 29, 2005,August 4, 2006, Entergy Corporation's Board of Directors declared a common stock dividend of $0.54 per share, payable on September 1, 2005,2006 to holders of record as of August 12, 2005.
15, 2006.
Accumulated Other Comprehensive Income
Cash flow hedges with net unrealized losses of approximately $126 million net-of-tax at June 30, 2006 are scheduled to mature during the next twelve months.
35
NOTE 4. LINES OF CREDIT, RELATED SHORT-TERM BORROWINGS, AND LONG-TERM DEBT
In May 2005, Entergy Corporation terminated itshas in place two separate revolving credit facilities, a $500 million five-year credit facility and a $965 million three-year credit facility. At that time Entergy Corporation entered into a $2 billion,The five-year credit facility, which expires in May 2010. As2010, has a borrowing capacity of $2 billion, of which $805 million was outstanding as of June 30, 2005, $635 million2006. The three-year facility, which expires in borrowings wereDecember 2008, has a borrowing capacity of $1.5 billion, none of which was outstanding on this facility.as of June 30, 2006. Entergy also has the ability tocan issue letters of credit against the total borrowing capacity of theboth credit facility,facilities, and letters of credit totaling $83.5$144 million had been issued against thisthe five-year facility at June 30, 2005.2006. The total unused capacity for this facilitythese facilities as of June 30, 20052006 was approximately $1.3$2.6 billion. The commitment fee for this facility is currently 0.13% per annum of the unused amount. Commitment fees and interest rates on loans under the credit facility can fluctuate depending on the senior debt ratings of the domestic utility companies.companie s.
The short-term borrowings of Entergy's subsidiaries are limited to amounts authorized by the SEC. The current limits authorized are effective through November 30, 2007. In addition to borrowing from commercial banks, Entergy's subsidiaries are authorized to borrow from Entergy's money pool. The money pool is an inter-company borrowing arrangement designed to reduce Entergy's subsidiaries' dependence on external short-term borrowings. Borrowings from the money pool and external borrowings combined may not exceed the SEC authorized limits. As of June 30, 2005, Entergy's subsidiaries' aggregate authorized limit was $1.6 billion and the outstanding borrowings from the money pool were $365.6 million.
Entergy Arkansas, Entergy Louisiana,Gulf States, and Entergy Mississippi, and Entergy New Orleans each have 364-day credit facilities available as of June 30, 2006 as follows:
|
|
|
| Amount of |
| Amount Drawn as of | |
|
|
|
|
|
|
| |
Entergy Arkansas |
| April |
| $85 million |
| - | |
Entergy | February 2011 |
| $ | - | |||
Entergy | May | $ | - | ||||
Entergy Mississippi |
| May |
| $ |
| - | |
|
|
|
|
(a) | The |
(b) |
|
In May 2006, Entergy Mississippi increased its $25 million credit facility to $30 million and renewed it through May 2007. Entergy Mississippi also entered into a new $20 million credit facility through May 2007.
In August 2006, Entergy Gulf States increased the capacity of its credit facility to $50 million.
The 364-day credit facilities have variable interest rates and the average commitment fee is 0.13%. The $85 million Entergy Arkansas and Entergy Louisiana credit facilities each require the respective company tofacility requires that it maintain total shareholders' equity of at least 25% of its total assets. In July 2005,
The FERC has issued an order ("FERC Short-Term Order") approving the short-term borrowing limits of the domestic utility companies (except Entergy New Orleans) and System Energy through March 31, 2008. Entergy New Orleans grantedmay rely on existing SEC PUHCA 1935 orders for its financing authority, subject to bankruptcy court approval. In addition to borrowings from commercial banks, the lender a security interest in its customer accounts receivables to secure its borrowings under its facility. UnderFERC Short-Term Order authorized the terms of the security agreement,domestic utility companies (except Entergy New Orleans haswhich is authorized by an SEC PUHCA 1935 order) and System Energy to continue as participants in the optionEntergy System money pool. The money pool is an inter-company borrowing arrangement designed to withdrawreduce Entergy's subsidiaries' dependence on external short-term borrowings. Borrowings from the security interest at any time.money pool and external short-term borrowings combined may not exceed the authorized limits. As of June 30, 2006, Entergy's subsidiaries' aggregate authorized limit was $2.0 billion and the aggregate outstanding borrowing fr om the money pool was $200.6 million.
36
Long-term Debt
The following long-term debt has been issued by Entergy in 2005:2006:
| Issue Date |
| Amount |
|
|
| (In Thousands) |
U.S. Utility |
|
|
|
Mortgage Bonds: |
|
|
|
| January |
|
|
|
|
| |
|
|
| |
|
| $100,000 | |
|
|
| |
|
|
| |
| |||
|
|
| |
Other |
|
|
|
|
|
| |
|
|
|
The following long-term debt was retired by Entergy thus far in 2005:2006:
| Retirement Date |
| Amount | |
|
|
| (In Thousands) | |
U.S. Utility |
|
|
| |
| ||||
|
|
| ||
| ||||
|
|
| ||
|
|
| ||
|
|
| ||
Other Long-term Debt: |
|
|
| |
5.95% Series due December 2023, St. Charles Parish - | June 2006 | $25,000 | ||
Grand Gulf Lease Obligation payment | N/A | $ | ||
|
|
| ||
|
July 2006 | $ | ||
|
July 2006 | $ | ||
|
|
| ||
|
|
| ||
|
|
|
Entergy Mississippi used the proceeds from the January 2006 issuance to purchase the Attala power plant from Central Mississippi Generating Company, LLC and to repay short-term indebtedness.
In
Entergy Arkansas used the proceeds from the June 2005, Entergy Louisiana purchased its $552006 issuance to redeem, prior to maturity, $45.5 million of 4.9%5.6% Series St. Charles Parishof Jefferson County bonds fromand $9.2 million of 6.3% Series of Jefferson County bonds in July 2006. The issuance is shown as a non-cash transaction on the holders, pursuant tocash flow statement since the proceeds were placed in a mandatory tender provision,trust and has not remarketed the bonds at this time.never held as cash by Entergy Arkansas.
NOTE 5. PREFERRED STOCK
In June 2005,March 2006, Entergy MississippiArkansas issued 1,200,0003,000,000 shares of $25 par value 6.25%6.45% Series Preferred Stock, all of which arewere outstanding as of June 30, 2005.2006. The dividends are cumulative and will be payable quarterly beginning NovemberJuly 1, 2005.2006. The preferred stock is redeemable on or after JulyApril 1, 2010,2011, at Entergy Mississippi'sArkansas' option, at the call price of $25 per share. TheIn April 2006, Entergy Arkansas used the proceeds from this issuance were usedto redeem the following preferred stock:
Series of Entergy Arkansas Preferred Stock | Redemption Price Per Share | |
7.32% Preferred Stock, Cumulative, $100.00 par value | $103.17 | |
7.80% Preferred Stock, Cumulative, $100.00 par value | $103.25 | |
7.40% Preferred Stock, Cumulative, $100.00 par value | $102.80 | |
7.88% Preferred Stock, Cumulative, $100.00 par value | $103.00 | |
$1.96 Preferred Stock, Cumulative, $0.01 par value | $ 25.00 |
37
In June 2006, Entergy Louisiana Holdings redeemed all of its preferred stock and amended its charter to eliminate authority to issue any future series of preferred stock. The redemption was made at the following respective redemption prices as provided in the third quarterEntergy Louisiana Holdings amended and restated articles of 2005 to redeem all $20 million of Entergy Mississippi's $100 par value 8.36% Series Preferred Stock and all $10 million of Entergy Mississippi's $100 par value 7.44% Series Preferred Stock.incorporation:
Series of Entergy Louisiana Holdings Preferred Stock | Redemption Price Per Share | |
4.96% Preferred Stock, Cumulative, $100.00 par value | $104.25 | |
4.16% Preferred Stock, Cumulative, $100.00 par value | $104.21 | |
4.44% Preferred Stock, Cumulative, $100.00 par value | $104.06 | |
5.16% Preferred Stock, Cumulative, $100.00 par value | $104.18 | |
5.40% Preferred Stock, Cumulative, $100.00 par value | $103.00 | |
6.44% Preferred Stock, Cumulative, $100.00 par value | $102.92 | |
7.84% Preferred Stock, Cumulative, $100.00 par value | $103.78 | |
7.36% Preferred Stock, Cumulative, $100.00 par value | $103.36 | |
8% Preferred Stock, Cumulative, $25.00 par value | $ 25.00 |
NOTE 6. STOCK-BASED COMPENSATION PLANS
Entergy grants stock options, which are described more fully in Note 7 to the consolidated financial statements in the Form 10-K. EffectiveEntergy adopted SFAS 123R, "Share-Based Payment" on January 1, 2003,2006. The impact of adoption of the standard did not materially affect Entergy's financial position, results of operations, or cash flows because Entergy prospectively adopted the fair value based method of accounting for stock options prescribed by SFAS 123, "Accounting for Stock-Based Compensation."Compensation" on January 1, 2003. Prior to 2003, Entergy applied the recognition and measurement principles of APB Opinion 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for those plans. Awards under Entergy's plans generally vest over three years. Therefore, the cost related to stock-based employeeStock-based compensation expense included in the determinationearnings applicable to common stock, net of net income for 2004 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS 123. There is no pro forma effectrelated tax effects, for the second quarter 20052006 and the six months ended June 30, 2005 because all non-vested awards are accounted for at fair val ue.2006 is $2.0 million and $3.7 million, respective ly. Stock-based compensation expense included in earnings applicable to common stock, net of related tax effects, for the second quarter 2005 and six months ended June 30, 2005 is $2.0 million and $3.8 million, respectively. The following table illustrates the effect on net income and earnings per share for 2004 if Entergy would have historically applied the fair value based method of accounting to stock-based employee compensation.
Three Months | Six Months | |||||
Earnings applicable to common stock | $265,182 | $472,343 | ||||
Add: Stock-based compensation expense included |
|
| ||||
Deduct: Total stock-based employee |
|
| ||||
Pro forma earnings applicable to common stock | $262,300 | $466,579 | ||||
Earnings per average common share: | ||||||
Basic | $1.16 | $2.06 | ||||
Basic - pro forma | $1.15 | $2.03 | ||||
Diluted | $1.14 | $2.02 | ||||
Diluted - pro forma | $1.13 | $1.99 |
NOTE 7. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS
Components of Net Pension Cost
Entergy's qualified pension cost, including amounts capitalized, for the second quarters of 20052006 and 2004,2005, included the following components:
|
| 2006 |
| 2005 |
|
| (In Thousands) | ||
|
|
|
|
|
Service cost - benefits earned during the period |
| $23,176 |
| $21,010 |
Interest cost on projected benefit obligation |
| 41,814 |
| 37,484 |
Expected return on assets |
| (44,482) |
| (38,781) |
Amortization of transition asset |
| - |
| (166) |
Amortization of prior service cost |
| 1,365 |
| 1,306 |
Amortization of loss |
| 10,931 |
| 7,305 |
Net pension costs |
| $32,804 |
| $28,158 |
|
| 2005 |
| 2004 |
|
| (In Thousands) | ||
|
|
|
|
|
Service cost - benefits earned during the period |
| $21,447 |
| $18,527 |
Interest cost on projected benefit obligation |
| 38,632 |
| 35,979 |
Expected return on assets |
| (39,513) |
| (38,580) |
Amortization of transition asset |
| (165) |
| (190) |
Amortization of prior service cost |
| 1,362 |
| 1,413 |
Amortization of loss |
| 7,457 |
| 4,407 |
Net pension costs |
| $29,220 |
| $21,556 |
38
Entergy's qualified pension cost, including amounts capitalized, for the six months ended June 30, 20052006 and 2004,2005, included the following components:
|
| 2006 |
| 2005 |
|
| (In Thousands) | ||
|
|
|
|
|
Service cost - benefits earned during the period |
| $46,352 |
| $42,020 |
Interest cost on projected benefit obligation |
| 83,628 |
| 74,968 |
Expected return on assets |
| (88,964) |
| (77,563) |
Amortization of transition asset |
| - |
| (332) |
Amortization of prior service cost |
| 2,730 |
| 2,611 |
Amortization of loss |
| 21,862 |
| 14,612 |
Net pension costs |
| $65,608 |
| $56,316 |
|
| 2005 |
| 2004 |
|
| (In Thousands) | ||
|
|
|
|
|
Service cost - benefits earned during the period |
| $42,894 |
| $37,262 |
Interest cost on projected benefit obligation |
| 77,264 |
| 71,994 |
Expected return on assets |
| (79,026) |
| (77,304) |
Amortization of transition asset |
| (330) |
| (382) |
Amortization of prior service cost |
| 2,724 |
| 2,826 |
Amortization of loss |
| 14,914 |
| 8,808 |
Net pension costs |
| $58,440 |
| $43,204 |
Entergy recognized $3.9 million and $4.0 million in pension cost for its non-qualified pension plans in the second quarters of 2006 and 2005, respectively. Entergy recognized $7.8 million and $8.1 million in pension cost for its non-qualified pension plans for the six months ended June 30, 2006 and 2005, respectively.
Components of Net Other Postretirement Benefit Cost
Entergy's other postretirement benefit cost, including amounts capitalized, for the second quarters of 20052006 and 2004,2005, included the following components:
|
| 2005 |
| 2004 |
| 2006 |
| 2005 |
|
| (In Thousands) |
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
Service cost - benefits earned during the period |
| $9,400 |
| $8,145 |
| $10,370 |
| $9,208 |
Interest cost on APBO |
| 14,290 |
| 13,436 |
| 14,316 |
| 13,501 |
Expected return on assets |
| (4,942) |
| (4,625) |
| (4,756) |
| (4,363) |
Amortization of transition obligation |
| 175 |
| 205 |
| 542 |
| 1,340 |
Amortization of prior service cost |
| (1,979) |
| (609) |
| (3,688) |
| (1,989) |
Amortization of loss |
| 7,083 |
| 5,474 |
| 5,698 |
| 5,271 |
Net other postretirement benefit cost |
| $24,027 |
| $22,026 |
| $22,482 |
| $22,968 |
Entergy's other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 20052006 and 2004,2005, included the following components:
|
| 2005 |
| 2004 |
| 2006 |
| 2005 |
|
| (In Thousands) |
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
Service cost - benefits earned during the period |
| $18,800 |
| $17,853 |
| $20,740 |
| $18,416 |
Interest cost on APBO |
| 28,580 |
| 27,733 |
| 28,632 |
| 27,002 |
Expected return on assets |
| (9,884) |
| (9,327) |
| (9,512) |
| (8,726) |
Amortization of transition obligation |
| 350 |
| 1,447 |
| 1,084 |
| 2,680 |
Amortization of prior service cost |
| (3,958) |
| (1,498) |
| (7,376) |
| (3,978) |
Amortization of loss |
| 14,166 |
| 11,427 |
| 11,396 |
| 10,542 |
Net other postretirement benefit cost |
| $48,054 |
| $47,635 |
| $44,964 |
| $45,936 |
Employer Contributions
Entergy previously disclosed in the Form 10-K that it expectedexpects to contribute $185.9$349 million to its qualified pension plans in 2006 (including $107 million delayed from 2005 as a result of the Katrina Emergency Tax Relief Act). As of the end of July 2006, Entergy contributed $189 million to its pension plans in 2005. Entergy has elected to make additional contributions of $67.4 million to the plan for a total of $253.3 million in 2005. As of June 30, 2005, Entergy contributed $117.7 million to its pension plans. The July 2005 contribution was $28.5 million. Therefore, Entergy presently anticipates contributing an additional $107.1$160 million to fund its pension plans in 2005.2006.
39
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act)
Based on actuarial analysis, the estimated impact of future Medicare subsidies reduced the December 31, 20042005 Accumulated Postretirement Benefit Obligation by $161$176 million, and reduced the second quarter 20052006 and 20042005 other postretirement benefit cost by $6.8$6.9 million and $4.5$6.4 million, respectively. It reduced the six months ended June 30, 20052006 and June 30, 20042005 other postretirement benefit cost by $13.6$13.9 million and $7$12.9 million, respectively. Refer to Note 10 to the consolidated financial statements in the Form 10-K for further discussion.
NOTE 8. BUSINESS SEGMENT INFORMATION
Entergy's reportable segments as of June 30, 20052006 are U.S. Utility and Non-Utility Nuclear. "All Other" includes the parent company, Entergy Corporation, and other business activity, including the Energy Commodity Services segment, the Competitive Retail Services business, and earnings on the proceeds of sales of previously-owned businesses. The Energy Commodity Services segment was presented asAs a reportable segment priorresult of the Entergy New Orleans bankruptcy filing, Entergy has discontinued the consolidation of Entergy New Orleans retroactive to January 1, 2005, but it did not meetand is reporting Entergy New Orleans results under the quantitative thresholds for a reportable segment in 2004 and, with the saleequity method of Entergy-Koch's businesses in 2004, management does not expect the Energy Commodity Services segment to meet the quantitative thresholdsaccounting in the foreseeable future. The 2004 information in the table below has been restated to include the Energy Commodity Services segment in the All Other column.Utility segment.
Entergy's segment financial information for the second quarters of 20052006 and 20042005 is as follows:
|
|
|
|
|
|
|
|
|
|
(In Thousands) | |||||||||
2005 |
|
|
|
|
|
|
|
|
|
Operating Revenues | $2,168,122 |
| $347,706 |
| $212,624 |
| ($18,933) |
| $2,709,519 |
Equity in earnings of |
|
|
|
|
|
|
|
|
|
unconsolidated equity affiliates | - |
| - |
| 2,158 |
| - |
| 2,158 |
Income Taxes (Benefit) | 138,136 |
| 34,978 |
| (16,724) |
| - |
| 156,390 |
Net Income | 217,501 |
| 58,277 |
| 16,984 |
| 27 |
| 292,789 |
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
Operating Revenues | $1,990,644 |
| $338,745 |
| $173,114 |
| ($17,406) |
| $2,485,097 |
Equity in earnings of |
|
|
|
|
|
|
|
|
|
unconsolidated equity affiliates | - |
| - |
| 20,288 |
| - |
| 20,288 |
Income Taxes | 123,852 |
| 40,638 |
| 1,705 |
| - |
| 166,195 |
Net Income | 200,793 |
| 62,994 |
| 7,224 |
| - |
| 271,011 |
|
|
|
|
|
|
|
|
|
| |
(In Thousands) | ||||||||||
2006 |
|
|
|
|
|
|
|
|
| |
Operating revenues | $2,191,891 |
| $362,363 |
| $82,785 |
| ($8,537) |
| $2,628,502 | |
Equity in earnings (loss) of |
|
|
|
|
|
|
|
|
| |
Income taxes (benefit) | 93,776 |
| 41,331 |
| (12,206) |
| - |
| 122,901 | |
Income from continuing operations | 206,542 | 63,379 | 6,619 | (83) | 276,457 | |||||
Income from discontinued |
| - | 13,119 | - | 13,119 | |||||
Net income | 206,542 |
| 63,379 |
| 19,738 |
| (83) |
| 289,576 | |
|
|
|
|
|
|
| ||||
2005 |
|
|
|
|
|
|
|
|
| |
Operating revenues | $2,057,526 |
| $347,706 |
| $59,092 |
| ($18,933) |
| $2,445,391 | |
|
|
|
|
|
|
|
|
|
| |
Equity in earnings of |
|
|
|
|
|
|
|
|
| |
Income taxes (benefit) | 132,093 |
| 34,978 |
| (15,222) |
| - |
| 151,849 | |
Income from continuing operations | 217,260 | 58,277 | 19,795 | 27 | 295,359 | |||||
Loss from discontinued operations |
|
|
|
|
| |||||
Net income | 217,260 |
| 58,277 |
| 16,984 |
| 27 |
| 292,548 |
40
Entergy's segment financial information for the six months ended June 30, 20052006 and 20042005 is as follows:
|
|
|
|
|
|
|
|
|
|
(In Thousands) | |||||||||
2005 |
|
|
|
|
|
|
|
|
|
Operating Revenues | $3,999,922 |
| $691,281 |
| $377,722 |
| ($35,993) |
| $5,032,932 |
Equity in earnings (loss) of |
|
|
|
|
|
|
|
|
|
unconsolidated equity affiliates | - |
| - |
| (35) |
| - |
| (35) |
Income Taxes (Benefit) | 187,185 |
| 86,146 |
| (21,906) |
| - |
| 251,425 |
Net Income | 313,769 |
| 136,242 |
| 21,444 |
| (46) |
| 471,409 |
Total Assets | 23,099,834 |
| 4,733,230 |
| 3,260,502 |
| (2,512,415) |
| 28,581,151 |
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
Operating Revenues | $3,776,162 |
| $683,593 |
| $309,667 |
| ($32,776) |
| $4,736,646 |
Equity in earnings of |
|
|
|
|
|
|
|
|
|
unconsolidated equity affiliates | - |
| - |
| 40,107 |
| - |
| 40,107 |
Income Taxes (Benefit) | 196,530 |
| 84,333 |
| (8,671) |
| - |
| 272,192 |
Net Income | 322,306 |
| 131,828 |
| 29,894 |
| - |
| 484,028 |
Total Assets | 22,578,669 |
| 4,402,482 |
| 3,370,325 |
| (1,481,908) |
| 28,869,568 |
|
|
|
|
|
|
|
|
|
|
(In Thousands) | |||||||||
2006 |
|
|
|
|
|
|
|
|
|
Operating revenues | $4,322,913 |
| $750,372 |
| $149,476 |
| ($26,224) |
| $5,196,537 |
Equity in earnings (loss) of |
|
|
|
|
|
|
|
|
|
Income taxes (benefit) | 170,749 |
| 94,248 |
| (23,265) |
| - |
| 241,732 |
Income from continuing operations | 333,477 | 144,908 | 2,093 | (115) | 480,363 | ||||
Income from discontinued |
|
|
|
|
| ||||
Net income | 333,477 |
| 144,908 |
| 12,973 |
| (115) |
| 491,243 |
Total assets | 24,763,451 |
| 5,138,175 |
| 3,127,773 |
| (2,465,726) |
| 30,563,673 |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
Operating revenues | $3,786,866 |
| $691,281 |
| $113,418 |
| ($35,993) |
| $4,555,572 |
Equity in earnings (loss) of |
|
|
|
|
|
|
|
|
|
Income taxes (benefit) | 177,618 |
| 86,146 |
| (19,672) |
| - |
| 244,092 |
Income from continuing operations | 313,287 | 136,242 | 25,621 | (46) | 475,104 | ||||
Loss from discontinued operations |
|
|
|
|
| ||||
Net income | 313,287 |
| 136,242 |
| 21,444 |
| (46) |
| 470,927 |
Total assets | 22,674,291 |
| 4,733,230 |
| 3,260,502 |
| (2,512,415) |
| 28,155,608 |
Businesses marked with * are sometimes referred to as the "competitive businesses," with the exception of the parent company, Entergy Corporation. Eliminations are primarily intersegment activity.
In April 2006, Entergy sold the retail electric portion of the Competitive Retail Services business operating in the ERCOT region of Texas, and now reports this portion of the business as a discontinued operation. Entergy realized a $26.3 million gain ($17.1 million net-of-tax) on the sale.
NOTE 9. OTHER TEMPORARY INVESTMENTSENTERGY NEW ORLEANS BANKRUPTCY PROCEEDING
The consolidated balance sheet as of December 31, 2004 reflects a reclassification from cash and cash equivalents to other temporary investments of $188 million of instruments used in Entergy's cash management program. A corresponding change was madeSee Note 16 to the consolidated statementfinancial statements in the Form 10-K for a discussion of cash flowsthe Entergy New Orleans bankruptcy proceeding, and a discussion of Entergy's decision to deconsolidate its investment in Entergy New Orleans and report it under the equity method of accounting. Entergy's income statement for the three and six months ended June 30, 2004 resulting in reductions of $272006 includes $67 million and $185$128 million, respectively, in operating revenues and $4 million and $11 million, respectively, in purchased power expenses from transactions with Entergy New Orleans. Entergy's income statement for the amounts presented as cashthree and cash equivalentssix months ended June 30, 2005 includes $44 million and $87 million, respectively, in operating revenues and $35 million and $81 million, respectively, in purchased power from transactions with Entergy New Orleans. Entergy's balance sheet as of June 30, 2004 and December 31, 2003. This reclassification is2006 includes $111.4 million of accounts receivable that are payable to present certain highly-liquid auction rate securities as short-term investments rather than as cash equivalents due toEntergy or its subsidiaries by Entergy New Orleans, includi ng $64.9 million of pre-petition accounts.
As discussed in the stated tenorForm 10-K, because Entergy owns all of the maturitiescommon stock of these investments. Entergy actively invests its available cash balance in financial instruments, which prior to June 2005 included auction rate securities that have stated maturitiesNew Orleans, Entergy's deconsolidation of 20 years or more. The auction rate securities provided a high degreeEntergy New Orleans does not affect the amount of liquidity through features such as 7 and 28 day auctions that allow for the redemption of the securities at their face amount plus earned interest. Becausenet income Entergy intended to sell these instruments within one year or less, typically within 28 days of the balance sheet date, they are classified as current assets. As of June 30, 2005,records resulting from Entergy no longer holds any of these auction rate securities.New Orleans' operations.
41
NOTE 10. ACCOUNTING POLICY UPDATE
Revenue and Fuel Costs
Entergy recognizes revenue from electric power and gas sales when it delivers power or gas to its customers. To the extent that deliveries have occurred but a bill has not been issued, the domestic utility companies accrue an estimate of the revenues for energy delivered since the latest billings. Entergy calculates the estimate based upon several factors including billings through the last billing cycle in a month, actual generation in the month, historical line loss factors, and prices in effect in the domestic utility companies' various jurisdictions. Each month the estimated unbilled revenue amounts are recorded as revenue and unbilled accounts receivable, and the prior month's estimate is reversed. Therefore, changes in price and volume differences resulting from factors such as weather affect the calculation of unbilled revenues from one period to the next, and may result in variability in reported revenues from one period to the next as prior estimates are so recorded and re versed.
Prior to 2006, Entergy Louisiana and the Louisiana portion of Entergy Gulf States included a component of fuel cost recovery in their unbilled revenue calculations. Effective January 1, 2006, this fuel component of unbilled accounts receivable was reclassified to deferred fuel and is no longer included in the unbilled revenue calculations for Entergy Louisiana and the Louisiana portion of Entergy Gulf States, which is in accordance with regulatory treatment.
In the opinion of the management of Entergy Corporation, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassification of previously reported amounts to conform to current classifications) necessary for a fair statement of the results for the interim periods presented. The business of the U.S. Utility segment, however, is subject to seasonal fluctuations with the peak periods occurring during the third quarter. The results for the interim periods presented should not be used as a basis for estimating results of operations for a full year.
42
ENTERGY ARKANSAS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Second Quarter 20052006 Compared to Second Quarter 20042005
Net income increased $5.0$7.4 million primarily due to higher net revenue and othera lower effective income tax rate, partially offset by lower net revenue, higher other operationdepreciation and maintenanceamortization expenses, and a higher effective income tax rate.lower other income.
Six Months Ended June 30, 20052006 Compared to Six Months Ended June 30, 20042005
Net income increased $17.7$4.4 million primarily due to higher net revenue and othera lower effective income tax rate, partially offset by higher depreciation and amortization expenses and higher other operation and maintenance expenses.
Net Revenue
Second Quarter 20052006 Compared to Second Quarter 20042005
Net revenue, which is Entergy Arkansas' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 2)3) other regulatory credits. Following is an analysis of the change in net revenue comparing the second quarter of 20052006 to the second quarter of 2004.2005.
|
| Amount |
|
| (In Millions) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2005 net revenue |
| $266.2 |
Capacity costs | (6.3) | |
Volume/weather | 4.3 | |
Other | (4.4) | |
2006 net revenue | $259.8 |
The capacity costs variance is primarily due to higher capacity-related costs including the revision of reserve equalization payments among Entergy companies due to a FERC ruling regarding the inclusion of interruptible loads in reserve equalization calculations.
The volume/weather variance is primarily due to increasedan increase in billed electricity usage, including the effect of more favorable weather during the second quarter of 2006 compared to the second quarter of 2005, partially offset by a decrease in usage during the unbilled sales period andperiod. Billed electricity usage increased a total increase of 74309 GWh in weather-adjusted usage, primarily in the residential and commercialall sectors. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -
The net wholesale revenue variance is primarily due to higher wholesale market prices and improved results related to co-owner contracts.
The late payment charges variance is primarily due to late payment charges which Entergy Arkansas began collecting from customers in July 2004.
Gross operating revenues, and fuel and purchased power expenses, and other regulatory credits
Gross operating revenues increased primarily due to an increase of $15.7$30.3 million in fuel cost recovery revenues due to an increase in the energy cost recovery rider effective April 2005. The increasesOctober 2005and an increase of $25.3 million in volume/weather,gross wholesale revenue resulting from higher wholesale prices and late payment charges, as discussed above, also contributed to the increase.volume.
Fuel and purchased power expenses increased primarily due to an increase in the market price of purchased power and increased deferred fuel expense resulting primarily from higher fuel revenuepurchased energy costs as a result of higher natural gas prices and increased power purchases. Also contributing to the increase was a slight increase in demand.
43
Other regulatory credits increased primarily due to an increase of $3.6 million resulting from the under-recovery of Grand Gulf costs due to a decrease in the energy cost recoveryGrand Gulf rider effective April 2005.
January 2006.
Six Months Ended June 30, 20052006 Compared to Six Months Ended June 30, 20042005
Net revenue, which is Entergy Arkansas' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 2)3) other regulatory credits. Following is an analysis of the change in net revenue comparing the six months ended June 30, 20052006 to the six months ended June 30, 2004.2005.
|
| Amount |
|
| (In Millions) |
|
| |
|
| $ |
Net wholesale revenue | 10.1 | |
Volume/weather | 9.9 | |
Deferred fuel cost revisions |
|
|
|
| |
|
| |
|
| |
Other |
|
|
|
| $ |
The net wholesale revenue variance is primarily due to higher wholesale prices and improved results related to co-owner contracts.
The volume/weather variance is primarily due to an increase in electricity usage, including the effect of more favorable weather during the six months ended June 30, 2006 compared to the six months ended June 30, 2005. Billed electricity usage increased a total of 471 GWh in all sectors.
The deferred fuel cost revisions variance is primarily due to a revised estimate of fuel costs filed for recovery at Entergy Arkansas in the March 2004 energy cost recovery rider, which reduced net revenue in the first quarter of 2004 by $11.5 million. The remainder of the variance is due to the 2004 energy cost recovery true-up, made in the first quarter of 2005, which increased net revenue by $4.0$4 million.
The net wholesale revenuecapacity costs variance is primarily due to higher wholesale market prices and improved results related to co-owner contracts.
The volume/weather variance is primarilycapacity-related costs including the revision of reserve equalization payments among Entergy companies due to a total increaseFERC ruling regarding the inclusion of 195 GWhinterruptible loads in weather-adjusted usage, primarily in the residential and commercial sectors, and increased usage during the unbilled sales period, partially offset by milder weather in 2005. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K and Note 1 to the domestic utility companies and System Energy financial statements in the Form 10-K for further discussion of the accounting for unbilled revenues.
The late payment charges variance is primarily due to late payment charges which Entergy Arkansas began collecting from customers in July 2004.
reserve equalization calculations.
Gross operating revenues, fuel and purchased power expenses, and other regulatory credits
Gross operating revenues increased primarily due to an increase of $23$75.2 million in fuel cost recovery revenues due to an increaseincreases in the energy cost recovery rider effective April 2005. The increases2005 and October 2005 and an increase of $62.2 million in volume/weather,gross wholesale revenue resulting from higher wholesale prices and late payment charges,volume.
Fuel and purchased power expenses increased primarily due to increased deferred fuel expense resulting primarily from higher purchased energy costs as discussed above, also contributeda result of higher natural gas prices and increased power purchases. Also contributing to the increase.increase was a slight increase in demand.
Other regulatory credits increased primarily due to an increase of $8.7 million resulting from the under-recovery of Grand Gulf costs due to a decrease in the Grand Gulf rider effective January 2006.
Other Income Statement Variances
Second Quarter 20052006 Compared to Second Quarter 20042005
Other operationDepreciation and maintenanceamortization expenses increased primarily due to higher payrollan increase in plant in service and benefits costs.a revision in 2005 of estimated depreciable lives involving certain intangible assets.
44
Other income increaseddecreased primarily due to:
Six Months Ended June 30, 20052006 Compared to Six Months Ended June 30, 2004
2005
Other operation and maintenance expenses increased primarily due to higher payroll and benefits costs.$4.1 million applied as a credit against bad debt expense in the first quarter of 2005 in accordance with a settlement agreement with the APSC.
Other incomeDepreciation and amortization expenses increased primarily due to:
Income Taxes
The effective income tax rates for the second quarters of 2006 and 2005 were 8.9% and 2004 were 37.0% and 34.4%, respectively. The difference in the effective income tax rate for the second quarter of 2006 versus the federal statutory rate of 35.0% is primarily due to the recognition of an income tax benefit related to the steam generator removal cost and the flow through of a pension item. The difference in the effective income tax rate for the second quarter of 2005 versus the federal statutory rate of 35.0% is primarily due to state income taxes and book and tax differences related to utility plant items, partially offset by the amortization of investment tax credits and book and tax differences related to the allowance for funds used during construction. The difference in the effective income tax rate for the second quarter of 2004 versus the federal statutory rate of 35.0% is primarily due to the amortization of investment tax credits and book and tax differences related to the allowance for funds used during construction, partially offset by state income taxes and book and tax differences related to utility plant items.
The effective income tax rates for the six months ended June 30, 2006 and 2005 were 25.0% and 2004 were 36.3% and 36.4%, respectively. The difference in the effective income tax rate for the six months ended June 30, 2006 versus the federal statutory rate of 35.0% is primarily due to the recognition of an income tax benefit related to the steam generator removal cost and the flow through of a pension item. The difference in the effective income tax rate for the six months ended June 30, 2005 versus the federal statutory rate of 35.0% is primarily due to state income taxes and book and tax differences related to utility plant items, partially offset by a downward revision in the estimate of federal income tax expense related to tax depreciation, the amortization of investment tax credits, and book and tax differences related to the allowance for funds used during construction. The difference in the effective income tax rate for the six months ended June 30, 2004 versus the federal statutory rate of 35.0% is primarily due to state income taxes and book and tax differences related to utility plant items, partially offset by the amortization of investment tax credits and book and tax differences related to the allowance for funds used during construction.
Liquidity and Capital Resources
Cash Flow
Cash flows for the six months ended June 30, 20052006 and 20042005 were as follows:
|
|
| 2005 |
| 2004 |
|
| 2006 |
| 2005 |
|
|
| (In Thousands) |
|
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period |
| $89,744 |
| $8,834 | Cash and cash equivalents at beginning of period |
| $9,393 |
| $89,744 |
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in): | Cash flow provided by (used in): |
|
|
|
| Cash flow provided by (used in): |
|
|
|
|
| Operating activities |
| 101,516 |
| 78,212 | Operating activities |
| 225,953 |
| 210,270 |
| Investing activities |
| (137,478) |
| (115,838) | Investing activities |
| (147,364) |
| (246,232) |
| Financing activities |
| 57,634 |
| 65,412 | Financing activities |
| (68,931) |
| 57,634 |
Net increase in cash and cash equivalents | Net increase in cash and cash equivalents |
| 21,672 |
| 27,786 | Net increase in cash and cash equivalents |
| 9,658 |
| 21,672 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $111,416 |
| $36,620 | Cash and cash equivalents at end of period |
| $19,051 |
| $111,416 |
45
Operating Activities
Cash flow from operations increased $23.3$15.7 million for the six months ended June 30, 20052006 compared to the six months ended June 30, 20042005 primarily due to increased recovery of deferred fuel costs and income tax refunds of $23.5 million in 2006 compared to income tax payments of $19.5 million in 2005. These increases were partially offset by the timing of the collection of receivables from customers and the timing of payments to vendors.
In the first quarter of 2006, Entergy Corporation received an increase in net income. The increase was partially offset by money pool activity and higher income tax payments.
Entergy Arkansas' receivables from or (payables to) the money pool wererefund as follows:
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$132,315 |
| $23,561 |
| $23,370 |
| ($69,153) |
Money pool activity used $108.8 milliona result of Entergy Arkansas'net operating cash flowsloss carryback provisions contained in the six months ended June 30,Gulf Opportunity Zone Act of 2005, and used $92.5 millionas discussed in the six months ended June 30, 2004. See Note 43 to the domestic utilityutilities companies and System Energy financial statements in the Form 10-K for a description10-K. In accordance with Entergy's intercompany tax allocation agreement, in April 2006 Entergy Corporation distributed $12 million of the money pool.
refund to Entergy Arkansas.
Investing Activities
Net cash flow used in investing activities increased $21.6decreased $98.9 million for the six months ended June 30, 20052006 compared to the six months ended June 30, 20042005 primarily due to $16.1 million used for other regulatory investments as a result of fuel cost under-recovery and increased construction expenditures of $7.8 million resulting from the steam generator and reactor vessel head replacement at ANO 1.money pool activity.
Financing Activities
NetFinancing activities used $68.9 million in cash flow provided by financing activities decreased $7.8flows for the six months ended June 30, 2006 compared to providing $57.6 million in cash flows for the six months ended June 30, 2005 compared to the six months ended June 30, 2004 primarily due to an $85 million borrowing made on Entergy Arkansas' 364-day credit facility during the six months ended June 30, 2004, which provided cash in 2004, and the payment of $15.7 million more in common stock dividends. The decrease was almost entirely offset by the net issuance of $92.9 million of long-term debt for the six months ended June 30, 2005 in 2005. addition to money pool activity.
See Note 3 to"Uses and Sources of Capital" below for the domestic utility companies and System Energy financial statements for details of Entergy Arkansas' preferred stock activity in 2006.
Capital Structure
Entergy Arkansas' capitalization is balanced between equity and debt, as shown in the following table.
|
| June 30, |
| December 31, |
|
|
|
|
|
Net debt to net capital |
| 47.9% |
| 47.4% |
Effect of subtracting cash from debt |
| 0.3% |
| 0.1% |
Debt to capital |
| 48.2% |
| 47.5% |
Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable, capital lease obligations, and long-term debt, activityincluding the currently maturing portion. Capital consists of debt and shareholders' equity. Net capital consists of capital less cash and cash equivalents. Entergy Arkansas uses the net debt to net capital ratio in 2005.analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Arkansas' financial condition.
Uses and Sources of Capital
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Liquidity and Capital Resources"in the Form 10-K for a discussion of Entergy Arkansas' uses and sources of capital. Following are updates to the information provided in the Form 10-K.
In March 2006, Entergy Arkansas issued 3,000,000 shares of $25 par value 6.45% Series Preferred Stock, all of which were outstanding as of June 30, 2006. The dividends are cumulative and payable quarterly beginning July 1, 2006. The preferred stock is redeemable on or after April 2005,1, 2011, at Entergy Arkansas' option, at the call price of $25 per share. In April 2006, Entergy Arkansas used the proceeds from this issuance to redeem the following preferred stock:
46
Series of Entergy Arkansas Preferred Stock | Redemption Price Per Share | |
7.32% Preferred Stock, Cumulative, $100.00 par value | $103.17 | |
7.80% Preferred Stock, Cumulative, $100.00 par value | $103.25 | |
7.40% Preferred Stock, Cumulative, $100.00 par value | $102.80 | |
7.88% Preferred Stock, Cumulative, $100.00 par value | $103.00 | |
$1.96 Preferred Stock, Cumulative, $0.01 par value | $ 25.00 |
In April 2006, Entergy Arkansas renewed its 364-day$85 million credit facility through April 30, 2006. In May 2005,2007. The facility is no longer subject to a combined borrowing limit with Entergy Louisiana entered into a separateLouisiana's credit facility with the same lender. Entergy Arkansas and Entergy Louisiana can each borrow up to $85 million under their respective credit facilities, but at no time can the total amount borrowed under these facilities by the two companies combined exceed $85 million.facility. There were no outstanding borrowings under eitherthe Entergy Arkansas credit facility as of June 30, 2005.2006.
In June 2006, Entergy Arkansas issued long-term debt$54.7 million of 4.60% Series of Jefferson County bonds due October 2017. The proceeds were used to redeem, prior to maturity, $45.5 million of 5.6% Series of Jefferson County bonds and $9.2 million of 6.3% Series of Jefferson County bonds in 2005July 2006. The issuance is shown as follows:
|
|
|
| |||
| ||||||
|
|
|
| |||
|
|
|
| |||
|
|
|
|
Entergy Arkansas redeemed long-term debt in 2005 as follows:
|
|
|
| |||
| ||||||
|
|
|
| |||
|
|
|
| |||
|
|
|
|
The March 2005 issuance and the April 2005 retirement are not showna non-cash transaction on the cash flow statement becausesince the proceeds from the issuance were placed in a trust and never held as cash by Entergy Arkansas.
Entergy Arkansas' receivables from or (payables to) the money pool were as follows:
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$15,567 |
| ($27,346) |
| $132,315 |
| $23,561 |
Significant Factors and Known Trends
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends" in the Form 10-K for a discussion of utility restructuring, federal regulation and proceedings, market and credit risks, state and local rate regulatory risks, nuclear matters, and environmental risks. Following are updates to the information presented in the Form 10-K.
Federal Regulation
System Agreement Litigation
On June 1, 2005, the FERC issued a decision in the System Agreement litigation. The domestic utility companies historically have engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement, which has been approved by the FERC. The System Agreement litigation proceedings are described in the Form 10-K.
The FERC decision concluded, among other things, that:
The FERC's June 2005 order would reallocate production costs of the domestic utility companies whose relative total production costs expressed as a percentage of Entergy System average production costs are outside an upper or lower bandwidth. This would be accomplished by payments from domestic utility companies whose production costs are below Entergy System average production costs to domestic utility companies whose production costs are above Entergy System average production costs. An assessment of the potential effects of the FERC's June 2005 order requires assumptions regarding the future total production cost of each domestic utility company, which assumptions include the mix of solid fuel and gas-fired generation available to each company and the costs of natural gas and purchased power. Entergy Louisiana and Entergy Gulf States are more dependent upon gas-fired generation than Entergy Arkansas Entergy Mississippi, or Entergy New Orleans. Of these, Entergy Arkansas is the l east dependent upon gas-fired generation. Therefore, increases in natural gas prices likely will increase the amount by which Entergy Arkansas' total production costs are below the average production costs of the domestic utility companies. Considerable uncertainty exists regarding future gas prices. Annual average Henry Hub gas prices have varied significantly over recent years, ranging from $1.72/mmBtu to $5.85/mmBtu for the 1995-2004 period, and averaging $3.43/mmBtu during the ten-year period 1995-2004 and $4.58/mmBtu during the five-year period 2000-2004. Recent market conditions have resulted in gas prices that have averaged $5.85/mmBtu for the twelve months ended December 2004. During the 12 month period July 1, 2004 to June 30, 2005 forward gas contracts for each of the next four years based on daily NYMEX close averaged $6.68/mmBtu (2006), $6.25/mmBtu (2007), $5.88/mmBtu (2008) and $5.58/mmBtu (2009). If the FERC's June 2005 order becomes final and if these gas prices occur as assumed, the following potential annual production cost reallocations among the domestic utility companies could result during the 2007-2010 period:
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| |||
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| |
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| |
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| |
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| |
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|
|
If natural gas prices deviate by $1/mmBtu up or down, it is expected that Entergy Arkansas' annual payments will change in the same direction by approximately $60 to $70 million.
Various pending motions for rehearing and clarification of the FERC's June 2005 order were filed by parties to the proceeding, including the LPSC, the APSC, the MPSC, and the City Council, and by Entergy Services, Inc., on behalf of the domestic utility companies. Among other things, the LPSC's motion urged the FERC to "clarify" that the FERC's order requires the payments and receipts, to the extent any are required, to be made in 2006 based on production costs incurred in 2004 and 2005. Entergy does not believe that this request for "clarification" is consistent with the FERC order and submitted a response urging the FERC to reject this interpretation and instead find that the annual remedy order by the FERC would be evaluated based on calendar year 2006 production costs, with the first potential payments/receipts, if any were required, made in 2007.
Management believes that any changes in the allocation of production costs resulting from the FERC's June 2005 order and related retail proceedings should result in similar rate changes for retail customers. The timing of recovery of these costs in rates could be the subject of additional proceedings before the APSC and Entergy's other retail regulators. Although the outcome and timing of the FERC, APSC, and other proceedings cannot be predicted at this time, Entergy Arkansas does not believe that the ultimate resolution of these proceedings will have a material effect on its financial condition or results of operations.
Transmission
See the Form 10-K for a discussion of the petition for declaratory order that Entergy filed with the FERC in January 2005 regarding Entergy's Independent Coordinator of Transmission (ICT) proposal. On March 22, 2005, the FERC issued a declaratory order concluding that: (1) because the Southwest Power Pool (SPP) was the only entity identified as potentially being selected as the ICT and because the SPP is already a "public utility" there was no need to rule on the question of whether the functionsAPSC its annual redetermination of the ICT, alone, would serve to make the ICT a "public utility;" (2) Entergy will continue to be the "transmission provider"energy cost rate for transmission service across its system and that "the presence of SPP as the ICT will not change the existing balance of jurisdiction between [the FERC] and Entergy's retail regulators;" and (3) the FERC "is prepared to grant Entergy's proposed transmission pricing proposal on a two-year experimental basis, subject to certain enhancement and monitoring and reportin g conditions." The enhancements referred to by the FERC involve more fully specifying the responsibilities and duties of the ICT, including defining the ICT's role in the preparation of various transmission expansion plans and the performance of studies relatedapplication to the grantingperiod April 2006 through March 2007. The filed energy cost rate of transmission or interconnection service. Before Entergy's ICT proposal can be implemented, however, Entergy$0.02827 per kWh was proposed to replace the interim rate of $0.01900 per kWh that had been in place since October 2005. The interim energy cost rate is required to submit further filings with the FERC regarding the modifications and clarifications to the ICT proposal.
On April 8, 2005 several intervenors filed an Emergency Request for Clarification and Request for Expedited Commission Action seeking to have the FERC: (1) clarify the ICT's role in administering the Available Flowgate Capacity (AFC) methodology; (2) clarify the ICT's role in developing the transmission base plan; (3) clarify what the FERC meant when it required Entergy to provide firm transmission rights to customers that pay for supplemental transmission upgrades; and (4) clarify and confirm following Entergy's filing that the FERC will assess SPP's status as being independent of Entergy.
On April 21, 2005 Entergy filed a request for clarification or rehearing of the FERC's March 22 declaratory order requesting that the FERC clarify the respective role of Entergy and the ICT in developing the inputs or criteria used to create the base plan and in preparing certain studies regarding system expansion. The request for clarification further requests that the FERC clarify that the initial two-year period will commence with the actual start date of ICT operations. In the event that the FERC denies Entergy's request for clarification, then Entergy will seek rehearing on these issues. However, in its request, Entergy requested that FERC not rule on these issues at this time but, instead, that the FERC wait to evaluate these issues until such time as Entergy has filed the more detailed tariff sheets and protocols in its subsequent filing to implement the ICT. Separately, Entergy submitted a letter advising the FERC that it intended to submit on or about May 27, 2005 the filing t o implement the ICT proposal. A joint request for rehearing of the ICT declaratory order was also filed by the City Council, the LPSC, and the MPSC in which the retail regulators expressed their concerns that the findings reached in the declaratory order may result in an expansion of authority of the ICT "that is unnecessary to achieve the [FERC's] goals and is very likely to result in significant increases in the start-up and operational costs of the ICT." The retail regulators request that the FERC not act on their request for rehearing until Entergy has submitted its filing to implement the ICT. The intervenors filed a separate request for rehearing on April 21, 2005 urging the FERC to impose additional conditions on the approval of the ICT and also re-urging the FERC to reject the pricing proposal contained in the ICT proposal.
On May 12, 2005 the FERC issued an order clarifying certain aspects of its March 22 order. In the May 12 order, the FERC indicated that (1) Entergy is to work with the ICT and Entergy's stakeholders to develop procedures by which the ICT will calculate AFCs; (2) Entergy must specifically define the transmission rights that a customer that pays for supplemental upgrades will receive for such payments; (3) the FERC will review the ICT's contract to ensure that the ICT can perform its functions in an independent manner even if SPP is chosen as the ICT; and (4) the initial two-year period will start once the ICT becomes operational.
On May 27, 2005, the domestic utility companies filed the enhanced ICT proposal with the FERC. Entergy believes that the filing is consistent with the FERC guidance received in both the FERC's March 22 and May 12 orders on the ICT. Among other things, the enhanced ICT filing states that the ICT will (1) grant or deny transmission service on the domestic utility companies' transmission system; (2) administer the domestic utility companies' OASIS node for purposes of processing and evaluating transmission service requests and ensuring compliance with the domestic utility companies' obligation to post transmission-related information; (3) develop a base plan for the domestic utility companies' transmission system that will result in the ICT making the determination on whether something should be rolled into the domestic utility companies' transmission rates or directly assigned to the customer requesting or causing an upgrade to be constructed; (4) serve as the reliability coordinator for t he Entergy transmission system; and (5) oversee the operation of the weekly procurement process. The enhanced ICT proposal clarifies the rights that customers receive when they fund a supplemental upgrade and also contains a detailed methodology describing the process by which the ICT will evaluate interconnection-related investments already made on the Entergy System for purposes of determining the future allocation of the uncredited portion of these investments.
On June 3, 2005 a group of generators filed with the FERC a request that the FERC schedule a technical conference on the enhanced ICT proposal in order for Entergy to provide additional information on the enhanced ICT proposal. In response, a stakeholder meeting was held in New Orleans on June 30, 2005. Interventions and comments on the filing are due by August 5, 2005.
In addition, as discussed in the Form 10-K, Entergy Louisiana and Entergy Gulf States have filed an applicationalong with the LPSC requestinginvestigation that the LPSC findAPSC commenced concerning Entergy Arkansas' interim energy cost rate. The increase in the energy cost rate is due to increases in the cost of purchased power primarily due to the natural gas cost increase and the effect that Hurricanes Katrina and Rita had on market conditions, increased demand for purchased power during the ANO 1 refueling and steam generator replacement outage in the fall of 2005, and coal plant generation curtailments during off-peak periods due to coal delivery problems.
On March 31, 2006, the APSC suspended implementation of the $0.02827 per kWh energy cost rate, and ordered that the ICT proposal is a prudent and appropriate course of action. An LPSC hearing$0.01900 per kWh interim rate remain in effect pending the APSC proceedings on the ICT proposalenergy cost recovery filings. The APSC also extended its investigation into Entergy Arkansas' interim energy cost rate to cover the costs included in Entergy Arkansas' March 2006 filing. The extended investigation does not identify new issues in addition to the four issues listed in the Form 10-K and covers the same time period. On April 7, 2006, the APSC issued a show cause order in the investigation proceeding that ordered Entergy Arkansas to file a cost of service study by June 8, 2006. The order also directed Entergy Arkansas to file testimony to support the cost of service study, to support the $0.02827 per kWh cost rate, and to address the general topic of elimination of the energy cost recovery rider.
47
Entergy Arkansas filed for rehearing of the APSC's orders, asking that the energy cost rate filed in March 2006 be implemented in May 2006 subject to refund, asserting that the APSC did not follow appropriate procedures in suspending the operation of the energy cost recovery rider, and asking the APSC to rescind its show cause order. On May 8, 2006 the APSC denied Entergy Arkansas' requests for rehearing. Entergy Arkansas appealed the APSC's decision, but later filed a motion to dismiss the appeal following the APSC's decision described below.
In June 2006, Entergy Arkansas once again filed a motion with the APSC seeking to implement the redetermined energy cost rate of $0.02827 per kWh. After a hearing the APSC approved Entergy Arkansas' request and the redetermined rate was implemented in July 2006, subject to refund pending the outcome of the APSC energy cost recovery investigation. Because of the delay in implementing the redetermined energy cost rate, Entergy Arkansas estimated in its motion that $46 million of energy costs would remain under-recovered at December 31, 2006.
A hearing in the APSC energy cost recovery investigation is currently scheduled for August 2005, however certain intervenors have recently requested that the hearing be delayed until mid-September 2005.October 2006.
Available Flowgate Capacity ProceedingOn June 7, 2006, Entergy Arkansas filed the cost of service study ordered by the APSC. On that date Entergy Arkansas also filed notice with the APSC that it intends to file for a change in base rates within 60 to 90 days of its notice. Entergy Arkansas expects to make that filing in August 2006.
See the Form 10-KEntergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -System Agreement Litigation" for a discussion of proceedings atEntergy's compliance filing in that proceeding. If the FERC involving Entergy's Available Flowgate Capacity (AFC) methodology. On March 22, 2005,approves the FERC issued an order contemporaneously withcompliance tariff as filed, then payments under that tariff will be classified as energy costs, which would then be included in setting the ICT declaratory order discussed above that holds the AFC hearing in abeyance pending action on Entergy's upcoming ICT filing. The order holding the hearing in abeyance further indicated that it would cancel the hearing when the ICT begins to perform its functions. On April 8, 2005 several intervenors filed Emergency Motions for Interim Relief and Expedited Commission Action requesting that, during the interim period before the implementation of the ICT, the FERC (1) institute an audit process to examine and modify Entergy's current AFC process; and (2) require SPP to become involved in the AFC stakeholder process and order certain modifications to Entergy's stakeholder process. The audit process being proposed by the intervenors would not involve an independent audi tor, but instead would be an investigation performed by a representative from the intervenors, Entergy, and possibly SPP. On April 25, 2005, Entergy filed its response to the emergency motion urging the FERC to reject the intervenors' request for the "audit" because the type of investigation proposed by the intervenors would be neither independent nor fair and would only distract from the implementation of the ICT. Instead, Entergy has proposed that the ICT conduct an independent review of the AFC process and proceduresretail energy cost rate as part of its transition to assuming the identified ICT responsibilities, including the calculationnormal working of the AFCs. Entergy further indicatedenergy cost recovery rider. As noted above the APSC has given notice that it would welcome SPP's participation inis considering the current stakeholder process. On April 21, 2005, the intervenors filed a separate request for rehearing arguing that the FERC must allow the AFC hearing to proceed in parallel with the establishmentprospective elimination of the ICT. See "Transmission" aboveenergy cost recovery rider. Therefore, Entergy Arkansas plans to propose an alternative to the energy cost recovery rider for further discussionrecovery of AFC.the costs allocated to it as a result of the System Agreement litigation should the energy cost recovery rider be lawfully terminated by the APSC. A separate exact recovery rider, similar to the energy cost rec overy rider or a production cost allocation rider, would ensure that Entergy Arkansas' customers pay only the amount allocated by the FERC.
Federal LegislationRegulation
System Agreement Proceedings
In late July 2005See Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -System Agreement Litigation,APSC Complaint filed with the U.S. Congress passed broad new energy legislation,FERC, andAPSC System Agreement Investigation" for updates regarding proceedings involving the Energy Policy ActSystem Agreement.
Independent Coordinator of 2005. The legislation contains electricity provisions that, among other things:
The President is expected to sign the Energy Policy Act in August 2005. The Energy Power Act requires several rulemakings by the FERC and other government agencies in order to implement its provisions. Therefore, it will be some time before a full assessment of its effect on Entergy and the energy industry can be completed.Transmission (ICT)
Central States Compact Claim
The Low-Level Radioactive Waste Policy ActSee Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -Independent Coordinator of 1980 holds each state responsible Transmission"for disposal of low-level radioactive waste originating in that state, but allows states to participate in regional compacts to fulfill their responsibilities jointly. Arkansas and Louisiana participate in the Central Interstate Low-Level Radioactive Waste Compact (Central States Compact or Compact). Commencing in 1998, Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana made a series of contributions to the Central States Compact to fund the Central States Compact's development of a low-level radioactive waste disposal facility to be located in Boyd County, Nebraska. In December 1998, Nebraska, the host state for the proposed Central States Compact disposal facility, denied the compact's license application for the proposed disposal facility. Several parties, including the commission that governs the compact (the Compact Commission), filed a lawsuit against Nebraska seeking damages resulting from Nebraska's denial of the proposed facility's license. After a trial, the U.S. District Court concluded that Nebraska violated its good faith obligationsan update regarding the proposed waste disposal facility and rendered a judgment against Nebraska in the amount of $151 million. In August 2004, Nebraska agreed to pay the Compact $141 million in settlement of the judgment. In July 2005, the Compact Commission decided to distribute a substantial portion of the proceeds from the settlement to the nuclear power generators that had contributed funding for the Boyd County facility, including Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana. On August 1, 2005, Nebraska paid the full amount of the settlement to the Compact, and the Compact distributed from the settlement proceeds $23.6 million to Entergy Arkansas, $19.9 million to Entergy Gulf States, and $18.4 million to Entergy Louisiana. Management is still analyzing the accounting treatment of the r eceipts, but expects that some portion of the receipts could result in income for Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana.
Entergy's ICT proposal.
Critical Accounting Estimates
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Arkansas' accounting for nuclear decommissioning costs, unbilled revenue, and qualified pension and other postretirement benefits.
48
Recently Issued Accounting Pronouncements
InFASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for Entergy Arkansas in the first quarter 2005, FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - anof 2007. The FASB's objective in issuing this interpretation is to increase comparability among companies in financial reporting of FASB Statement No. 143" (FIN 47).income taxes. FIN 47 requires companies to recognize at fair value48 establishes a liability for"more-likely-than-not" recognition threshold that must be met before a conditional asset retirement obligation when incurred, whichtax benefit can be recognized in the financial statements. If a tax deduction is generally upon an asset's acquisition, construction, development, or through its normal operation. A conditional asset retirement obligation is generallytaken on a legal obligation to incur costs to remove an asset or part of an asset, such as an obligation to comply with environmental regulations and requirements. The obligation is conditional because there is currently no legal requirement to retire or remove the facility that the affected asset is a part of. FIN 47 requires that uncertainty about the timing or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information becom es available. FIN 47 will be effective for Entergy no later than December 31, 2005. Entergytax return, but does not believemeet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded. Entergy Arkansas does not expect that the adoption of FIN 4748 will be material tomaterially affect its financial position, or results of operations, because it estimates that any conditional asset retirement obligations required to be recognized under FIN 47 would be offset by a regulatory asset because of the expected recovery of these future costs in rates.or cash flows.
49
ENTERGY ARKANSAS, INC. | ENTERGY ARKANSAS, INC. | ENTERGY ARKANSAS, INC. | ||||||||||||||
INCOME STATEMENTS | INCOME STATEMENTS | INCOME STATEMENTS | ||||||||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | For the Three and Six Months Ended June 30, 2006 and 2005 | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||
2005 | 2004 | 2005 | 2004 | 2006 | 2005 | 2006 | 2005 | |||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | |||||||||||||
OPERATING REVENUES | ||||||||||||||||
Domestic electric | $450,097 | $405,509 | $817,457 | $768,969 | $504,223 | $450,097 | $951,845 | $817,457 | ||||||||
OPERATING EXPENSES | ||||||||||||||||
Operation and Maintenance: | ||||||||||||||||
Fuel, fuel-related expenses, and | ||||||||||||||||
gas purchased for resale | 46,612 | 35,316 | 83,415 | 95,103 | 84,806 | 46,612 | 187,277 | 83,415 | ||||||||
Purchased power | 139,899 | 127,828 | 247,531 | 230,156 | 167,981 | 139,899 | 286,911 | 247,531 | ||||||||
Nuclear refueling outage expenses | 7,019 | 5,453 | 13,336 | 11,790 | 7,371 | 7,019 | 14,726 | 13,336 | ||||||||
Other operation and maintenance | 105,727 | 94,215 | 191,556 | 178,656 | 105,895 | 105,727 | 197,650 | 191,556 | ||||||||
Decommissioning | 8,246 | 7,725 | 16,359 | 17,069 | 7,608 | 8,246 | 15,091 | 16,359 | ||||||||
Taxes other than income taxes | 10,051 | 9,898 | 19,888 | 18,294 | 8,982 | 10,051 | 18,602 | 19,888 | ||||||||
Depreciation and amortization | 48,023 | 50,269 | 99,800 | 99,937 | 54,143 | 48,023 | 106,961 | 99,800 | ||||||||
Other regulatory credits - net | (2,589) | (5,864) | (3,384) | (11,270) | (8,359) | (2,589) | (13,886) | (3,384) | ||||||||
TOTAL | 362,988 | 324,840 | 668,501 | 639,735 | 428,427 | 362,988 | 813,332 | 668,501 | ||||||||
OPERATING INCOME | 87,109 | 80,669 | 148,956 | 129,234 | 75,796 | 87,109 | 138,513 | 148,956 | ||||||||
OTHER INCOME | ||||||||||||||||
Allowance for equity funds used during construction | 3,491 | 2,454 | 7,450 | 4,647 | 1,916 | 3,491 | 3,818 | 7,450 | ||||||||
Interest and dividend income | 5,078 | 2,989 | 9,370 | 5,011 | 3,998 | 5,078 | 11,673 | 9,370 | ||||||||
Miscellaneous - net | (47) | (497) | (679) | (1,547) | (687) | (47) | (1,572) | (679) | ||||||||
TOTAL | 8,522 | 4,946 | 16,141 | 8,111 | 5,227 | 8,522 | 13,919 | 16,141 | ||||||||
INTEREST AND OTHER CHARGES | ||||||||||||||||
Interest on long-term debt | 19,968 | 19,769 | 40,750 | 39,517 | 19,361 | 19,968 | 38,339 | 40,750 | ||||||||
Other interest - net | 798 | 1,166 | 2,224 | 2,049 | 1,328 | 798 | 2,868 | 2,224 | ||||||||
Allowance for borrowed funds used during construction | (1,725) | (1,279) | (3,736) | (2,580) | (822) | (1,725) | (1,679) | (3,736) | ||||||||
TOTAL | 19,041 | 19,656 | 39,238 | 38,986 | 19,867 | 19,041 | 39,528 | 39,238 | ||||||||
INCOME BEFORE INCOME TAXES | 76,590 | 65,959 | 125,859 | 98,359 | 61,156 | 76,590 | 112,904 | 125,859 | ||||||||
Income taxes | 28,300 | 22,682 | 45,638 | 35,807 | 5,421 | 28,300 | 28,246 | 45,638 | ||||||||
NET INCOME | 48,290 | 43,277 | 80,221 | 62,552 | 55,735 | 48,290 | 84,658 | 80,221 | ||||||||
Preferred dividend requirements and other | 1,944 | 1,944 | 3,888 | 3,888 | 2,085 | 1,944 | 4,123 | 3,888 | ||||||||
EARNINGS APPLICABLE TO | ||||||||||||||||
COMMON STOCK | $46,346 | $41,333 | $76,333 | $58,664 | $53,650 | $46,346 | $80,535 | $76,333 | ||||||||
See Notes to Respective Financial Statements. | ||||||||||||||||
50
ENTERGY ARKANSAS, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2006 and 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $84,658 | $80,221 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Reserve for regulatory adjustments | 6,789 | - - | ||
Other regulatory credits - net | (13,886) | (3,384) | ||
Depreciation, amortization, and decommissioning | 122,052 | 116,159 | ||
Deferred income taxes and investment tax credits | (44,980) | 17,049 | ||
Changes in working capital: | ||||
Receivables | (41,738) | 33,568 | ||
Fuel inventory | (1,659) | (773) | ||
Accounts payable | (44,275) | (13,773) | ||
Taxes accrued | 95,543 | 11,418 | ||
Interest accrued | (804) | 1,196 | ||
Deferred fuel costs | 85,047 | (720) | ||
Other working capital accounts | 8,588 | (10,700) | ||
Provision for estimated losses and reserves | (829) | (3,645) | ||
Changes in other regulatory assets | (15,484) | 25,435 | ||
Other | (13,069) | (41,781) | ||
Net cash flow provided by operating activities | 225,953 | 210,270 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (121,269) | (123,690) | ||
Allowance for equity funds used during construction | 3,818 | 7,450 | ||
Nuclear fuel purchases | - - | (62,307) | ||
Proceeds from sale/leaseback of nuclear fuel | - - | 62,248 | ||
Proceeds from nuclear decommissioning trust fund sales | 74,895 | 111,352 | ||
Investment in nuclear decommissioning trust funds | (79,353) | (116,437) | ||
Change in money pool receivable - net | (15,567) | (108,754) | ||
Other regulatory investments | (9,888) | (16,094) | ||
Net cash flow used in investing activities | (147,364) | (246,232) | ||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of long-term debt | - - | 272,817 | ||
Retirement of long-term debt | - - | (179,895) | ||
Proceeds from the issuance of preferred stock | 73,355 | - - | ||
Redemption of preferred stock | (75,885) | - - | ||
Change in money pool payable - net | (27,346) | - - | ||
Dividends paid: | ||||
Common stock | (34,800) | (31,400) | ||
Preferred stock | (4,255) | (3,888) | ||
Net cash flow provided by (used in) financing activities | (68,931) | 57,634 | ||
Net increase in cash and cash equivalents | 9,658 | 21,672 | ||
Cash and cash equivalents at beginning of period | 9,393 | 89,744 | ||
Cash and cash equivalents at end of period | $19,051 | $111,416 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid/(received) during the period for: | ||||
Interest - net of amount capitalized | $36,185 | $37,395 | ||
Income taxes | ($23,543) | $19,476 | ||
Noncash financing activities: | ||||
Proceeds from long-term debt issued for the purpose | ||||
of refunding other long-term debt | $54,700 | - - | ||
See Notes to Respective Financial Statements. |
51
ENTERGY ARKANSAS, INC. | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
June 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $3,014 | $9,393 | ||
Temporary cash investments - at cost, | ||||
which approximates market | 16,037 | - - | ||
Total cash and cash equivalents | 19,051 | 9,393 | ||
Accounts receivable: | ||||
Customer | 93,536 | 115,321 | ||
Allowance for doubtful accounts | (13,464) | (15,777) | ||
Associated companies | 55,602 | 30,902 | ||
Other | 104,335 | 63,702 | ||
Accrued unbilled revenues | 79,872 | 68,428 | ||
Total accounts receivable | 319,881 | 262,576 | ||
Deferred fuel costs | 129,023 | 153,136 | ||
Fuel inventory - at average cost | 14,001 | 12,342 | ||
Materials and supplies - at average cost | 94,509 | 87,875 | ||
Deferred nuclear refueling outage costs | 17,821 | 30,967 | ||
Prepayments and other | 62,204 | 9,628 | ||
TOTAL | 656,490 | 565,917 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 11,206 | 11,206 | ||
Decommissioning trust funds | 404,525 | 402,124 | ||
Non-utility property - at cost (less accumulated depreciation) | 1,448 | 1,449 | ||
Other | 2,976 | 2,976 | ||
TOTAL | 420,155 | 417,755 | ||
UTILITY PLANT | ||||
Electric | 6,435,831 | 6,344,435 | ||
Property under capital lease | 6,649 | 9,900 | ||
Construction work in progress | 150,928 | 139,208 | ||
Nuclear fuel under capital lease | 105,801 | 92,181 | ||
Nuclear fuel | 19,205 | 22,616 | ||
TOTAL UTILITY PLANT | 6,718,414 | 6,608,340 | ||
Less - accumulated depreciation and amortization | 2,928,168 | 2,843,904 | ||
UTILITY PLANT - NET | 3,790,246 | 3,764,436 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 69,884 | 61,236 | ||
Other regulatory assets | 470,283 | 461,015 | ||
Deferred fuel costs | - - | 51,046 | ||
Other | 48,102 | 46,605 | ||
TOTAL | 588,269 | 619,902 | ||
TOTAL ASSETS | $5,455,160 | $5,368,010 | ||
See Notes to Respective Financial Statements. | ||||
52 | ||||
ENTERGY ARKANSAS, INC. | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
June 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Accounts payable: | ||||
Associated companies | $76,966 | $135,357 | ||
Other | 103,694 | 120,090 | ||
Customer deposits | 47,149 | 45,432 | ||
Taxes accrued | 34,327 | - - | ||
Accumulated deferred income taxes | 22,971 | 56,186 | ||
Interest accrued | 18,403 | 19,207 | ||
Obligations under capital leases | 48,281 | 46,857 | ||
Other | 21,474 | 21,836 | ||
TOTAL | 373,265 | 444,965 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 1,166,404 | 1,105,712 | ||
Accumulated deferred investment tax credits | 61,917 | 64,001 | ||
Obligations under capital leases | 64,169 | 55,224 | ||
Other regulatory liabilities | 74,450 | 76,507 | ||
Decommissioning | 457,206 | 442,115 | ||
Accumulated provisions | 28,244 | 29,073 | ||
Long-term debt | 1,356,585 | 1,298,238 | ||
Other | 284,502 | 306,034 | ||
TOTAL | 3,493,477 | 3,376,904 | ||
Commitments and Contingencies | ||||
SHAREHOLDERS' EQUITY | ||||
Preferred stock without sinking fund | 116,350 | 116,350 | ||
Common stock, $0.01 par value, authorized 325,000,000 | ||||
shares; issued and outstanding 46,980,196 shares in 2006 | ||||
and 2005 | 470 | 470 | ||
Paid-in capital | 588,529 | 591,102 | ||
Retained earnings | 883,069 | 838,219 | ||
TOTAL | 1,588,418 | 1,546,141 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $5,455,160 | $5,368,010 | ||
See Notes to Respective Financial Statements. | ||||
53
ENTERGY ARKANSAS, INC. | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 138 | $ 124 | $ 14 | 11 | ||||
Commercial | 91 | 80 | 11 | 14 | ||||
Industrial | 95 | 84 | 11 | 13 | ||||
Governmental | 4 | 4 | - | - - | ||||
Total retail | 328 | 292 | 36 | 12 | ||||
Sales for resale | ||||||||
Associated companies | 106 | 64 | 42 | 66 | ||||
Non-associated companies | 33 | 50 | (17) | (34) | ||||
Other | 37 | 44 | (7) | (16) | ||||
Total | $ 504 | $ 450 | $ 54 | 12 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 1,591 | 1,481 | 110 | 7 | ||||
Commercial | 1,391 | 1,305 | 86 | 7 | ||||
Industrial | 1,836 | 1,720 | 116 | 7 | ||||
Governmental | 63 | 66 | (3) | (5) | ||||
Total retail | 4,881 | 4,572 | 309 | 7 | ||||
Sales for resale | ||||||||
Associated companies | 2,432 | 1,622 | 810 | 50 | ||||
Non-associated companies | 674 | 1,065 | (391) | (37) | ||||
Total | 7,987 | 7,259 | 728 | 10 | ||||
Six Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 289 | $ 259 | $ 30 | 12 | ||||
Commercial | 171 | 149 | 22 | 15 | ||||
Industrial | 183 | 156 | 27 | 17 | ||||
Governmental | 9 | 9 | - | - - | ||||
Total retail | 652 | 573 | 79 | 14 | ||||
Sales for resale | ||||||||
Associated companies | 183 | 105 | 78 | 74 | ||||
Non-associated companies | 84 | 100 | (16) | (16) | ||||
Other | 33 | 39 | (6) | (15) | ||||
Total | $ 952 | $ 817 | $ 135 | 17 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 3,501 | 3,371 | 130 | 4 | ||||
Commercial | 2,670 | 2,554 | 116 | 5 | ||||
Industrial | 3,615 | 3,384 | 231 | 7 | ||||
Governmental | 128 | 134 | (6) | (4) | ||||
Total retail | 9,914 | 9,443 | 471 | 5 | ||||
Sales for resale | ||||||||
Associated companies | 4,297 | 2,977 | 1,320 | 44 | ||||
Non-associated companies | 1,531 | 2,172 | (641) | (30) | ||||
Total | 15,742 | 14,592 | 1,150 | 8 | ||||
54
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ENTERGY ARKANSAS, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2005 and 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $80,221 | $62,552 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Other regulatory credits - net | (3,384) | (11,270) | ||
Depreciation, amortization, and decommissioning | 116,159 | 117,006 | ||
Deferred income taxes and investment tax credits | 17,049 | 54,552 | ||
Changes in working capital: | ||||
Receivables | (75,186) | (47,755) | ||
Fuel inventory | (773) | (2,586) | ||
Accounts payable | (13,773) | (64,605) | ||
Taxes accrued | 11,418 | (12,123) | ||
Interest accrued | 1,196 | (357) | ||
Deferred fuel costs | (720) | (1,794) | ||
Other working capital accounts | (10,700) | (7,342) | ||
Provision for estimated losses and reserves | (3,645) | (6,517) | ||
Changes in other regulatory assets | 25,435 | 7,634 | ||
Other | (41,781) | (9,183) | ||
Net cash flow provided by operating activities | 101,516 | 78,212 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (123,690) | (115,882) | ||
Allowance for equity funds used during construction | 7,450 | 4,647 | ||
Nuclear fuel purchases | (62,307) | (8,101) | ||
Proceeds from sale/leaseback of nuclear fuel | 62,248 | 8,101 | ||
Decommissioning trust contributions and realized | ||||
change in trust assets | (5,085) | (4,603) | ||
Other regulatory investments | (16,094) | - - | ||
Net cash flow used in investing activities | (137,478) | (115,838) | ||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of long-term debt | 272,817 | - - | ||
Retirement of long-term debt | (179,895) | - - | ||
Changes in short-term borrowings | - - | 85,000 | ||
Dividends paid: | ||||
Common stock | (31,400) | (15,700) | ||
Preferred stock | (3,888) | (3,888) | ||
Net cash flow provided by financing activities | 57,634 | 65,412 | ||
Net increase in cash and cash equivalents | 21,672 | 27,786 | ||
Cash and cash equivalents at beginning of period | 89,744 | 8,834 | ||
Cash and cash equivalents at end of period | $111,416 | $36,620 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid/(received) during the period for: | ||||
Interest - net of amount capitalized | $37,395 | $38,999 | ||
Income taxes | $19,450 | ($5,400) | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY ARKANSAS, INC. | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
June 30, 2005 and December 31, 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $1,956 | $7,133 | ||
Temporary cash investments - at cost, | ||||
which approximates market | 109,460 | 82,611 | ||
Total cash and cash equivalents | 111,416 | 89,744 | ||
Accounts receivable: | ||||
Customer | 74,227 | 87,131 | ||
Allowance for doubtful accounts | (11,225) | (11,039) | ||
Associated companies | 155,179 | 72,472 | ||
Other | 58,737 | 72,425 | ||
Accrued unbilled revenues | 90,900 | 71,643 | ||
Total accounts receivable | 367,818 | 292,632 | ||
Deferred fuel costs | 24,182 | 7,368 | ||
Accumulated deferred income taxes | 13,408 | 27,306 | ||
Fuel inventory - at average cost | 5,071 | 4,298 | ||
Materials and supplies - at average cost | 85,391 | 85,076 | ||
Deferred nuclear refueling outage costs | 28,485 | 16,485 | ||
Prepayments and other | 6,509 | 6,154 | ||
TOTAL | 642,280 | 529,063 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 11,208 | 11,208 | ||
Decommissioning trust funds | 393,482 | 383,784 | ||
Non-utility property - at cost (less accumulated depreciation) | 1,452 | 1,453 | ||
Other | 2,976 | 2,976 | ||
TOTAL | 409,118 | 399,421 | ||
UTILITY PLANT | ||||
Electric | 6,165,950 | 6,124,359 | ||
Property under capital lease | 15,664 | 17,500 | ||
Construction work in progress | 253,268 | 226,172 | ||
Nuclear fuel under capital lease | 102,586 | 93,855 | ||
Nuclear fuel | 20,259 | 12,201 | ||
TOTAL UTILITY PLANT | 6,557,727 | 6,474,087 | ||
Less - accumulated depreciation and amortization | 2,823,727 | 2,753,525 | ||
UTILITY PLANT - NET | 3,734,000 | 3,720,562 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 87,774 | 101,658 | ||
Other regulatory assets | 433,374 | 400,174 | ||
Other | 46,611 | 42,514 | ||
TOTAL | 567,759 | 544,346 | ||
TOTAL ASSETS | $5,353,157 | $5,193,392 | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY ARKANSAS, INC. | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
June 30, 2005 and December 31, 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Currently maturing long-term debt | $147,000 | $147,000 | ||
Accounts payable: | ||||
Associated companies | 50,366 | 68,829 | ||
Other | 94,586 | 89,896 | ||
Customer deposits | 44,449 | 41,639 | ||
Taxes accrued | 32,580 | 35,874 | ||
Interest accrued | 22,572 | 21,376 | ||
Obligations under capital leases | 51,232 | 49,816 | ||
Other | 18,808 | 19,648 | ||
TOTAL | 461,593 | 474,078 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 1,127,155 | 1,121,623 | ||
Accumulated deferred investment tax credits | 66,226 | 68,452 | ||
Obligations under capital leases | 66,960 | 61,538 | ||
Other regulatory liabilities | 71,975 | 67,362 | ||
Decommissioning | 509,103 | 492,745 | ||
Accumulated provisions | 31,332 | 34,977 | ||
Long-term debt | 1,296,071 | 1,191,763 | ||
Other | 234,403 | 237,447 | ||
TOTAL | 3,403,225 | 3,275,907 | ||
Commitments and Contingencies | ||||
SHAREHOLDERS' EQUITY | ||||
Preferred stock without sinking fund | 116,350 | 116,350 | ||
Common stock, $0.01 par value, authorized 325,000,000 | ||||
shares; issued and outstanding 46,980,196 shares in 2005 | ||||
and 2004 | 470 | 470 | ||
Paid-in capital | 591,126 | 591,127 | ||
Retained earnings | 780,393 | 735,460 | ||
TOTAL | 1,488,339 | 1,443,407 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $5,353,157 | $5,193,392 | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY ARKANSAS, INC. | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2005 | 2004 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 124 | $ 115 | $ 9 | 8 | ||||
Commercial | 80 | 73 | 7 | 10 | ||||
Industrial | 84 | 77 | 7 | 9 | ||||
Governmental | 4 | 4 | - | - - | ||||
Total retail | 292 | 269 | 23 | 9 | ||||
Sales for resale | ||||||||
Associated companies | 64 | 55 | 9 | 16 | ||||
Non-associated companies | 50 | 47 | 3 | 6 | ||||
Other | 44 | 35 | 9 | 26 | ||||
Total | $ 450 | $ 406 | $ 44 | 11 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 1,481 | 1,431 | 50 | 3 | ||||
Commercial | 1,305 | 1,273 | 32 | 3 | ||||
Industrial | 1,720 | 1,714 | 6 | - - | ||||
Governmental | 66 | 67 | (1) | (1) | ||||
Total retail | 4,572 | 4,485 | 87 | 2 | ||||
Sales for resale | ||||||||
Associated companies | 1,622 | 1,513 | 109 | 7 | ||||
Non-associated companies | 1,065 | 1,248 | (183) | (15) | ||||
Total | 7,259 | 7,246 | 13 | - - | ||||
Six Months Ended | Increase/ | |||||||
Description | 2005 | 2004 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 259 | $ 246 | $ 13 | 5 | ||||
Commercial | 149 | 138 | 11 | 8 | ||||
Industrial | 156 | 145 | 11 | 8 | ||||
Governmental | 9 | 8 | 1 | 13 | ||||
Total retail | 573 | 537 | 36 | 7 | ||||
Sales for resale | ||||||||
Associated companies | 105 | 109 | (4) | (4) | ||||
Non-associated companies | 100 | 92 | 8 | 9 | ||||
Other | 39 | 31 | 8 | 26 | ||||
Total | $ 817 | $ 769 | $ 48 | 6 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 3,371 | 3,320 | 51 | 2 | ||||
Commercial | 2,554 | 2,486 | 68 | 3 | ||||
Industrial | 3,384 | 3,361 | 23 | 1 | ||||
Governmental | 134 | 131 | 3 | 2 | ||||
Total retail | 9,443 | 9,298 | 145 | 2 | ||||
Sales for resale | ||||||||
Associated companies | 2,977 | 3,185 | (208) | (7) | ||||
Non-associated companies | 2,172 | 2,533 | (361) | (14) | ||||
Total | 14,592 | 15,016 | (424) | (3) | ||||
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Hurricane Rita and Hurricane Katrina
See the Form 10-K for a discussion of the effects of Hurricanes Katrina and Rita, which hit Entergy Gulf States' service territory in the Texas and Louisiana jurisdictions in August and September 2005. The storms resulted in power outages, significant damage to electric distribution, transmission, and generation and gas infrastructure, and the loss of sales and customers due to mandatory evacuations. Following is an update to the discussion in the Form 10-K.
Entergy Gulf States currently estimates that its total restoration costs for the repair or replacement of its electric and gas facilities damaged by Hurricanes Katrina and Rita and business continuity costs will be $633 million, the majority of which is due to Hurricane Rita.
As discussed in the Form 10-K, a federal hurricane aid package became law that includes funding for Community Development Block Grants (CDBG) that allows state and local leaders to fund individual recovery priorities. The law permits funding for infrastructure restoration. It is uncertain how much funding, if any, will be designated for utility reconstruction and the timing of such decisions is also uncertain. The U.S. Department of Housing and Urban Development has allocated approximately $10.4 billion for Louisiana, $5.1 billion for Mississippi, and $74 million for Texas, with an additional $1 billion approved by Congress but not yet allocated to the states. The states, in turn, will administer the grants. Entergy Gulf States is currently preparing applications to seek CDBG funding. In March 2006 Entergy Gulf States provided a justification statement to state and local officials in Louisiana. The statement, which will be reviewed by the Louisiana Recovery Authority, includes t he estimated costs of Hurricanes Katrina and Rita damage in the Louisiana jurisdiction. The statement includes justification for a request for $164 million in CDBG funding attributable to the Louisiana portion of Entergy Gulf States' business.
Storm Costs Recovery Filings with Retail Regulators
On July 31, 2006, Entergy Louisiana and Entergy Gulf States filed a supplemental and amending storm cost recovery application with the LPSC, in which Entergy Louisiana and Entergy Gulf States requested that the LPSC (1) review Entergy Louisiana's and Entergy Gulf States' testimony and exhibits relating to the costs associated with Hurricanes Katrina and Rita, and declare that those verified, actual storm-related costs through May 31, 2006 are $466.8 million for Entergy Louisiana and $200.3 million for Entergy Gulf States in the Louisiana jurisdiction and that those costs were prudently incurred; (2) declare that the annual revenue requirements associated with the recovery of those costs, based on a ten-year levelized rate are $54.4 million for Entergy Louisiana and $26.2 million for Entergy Gulf States; (3) authorize Entergy Louisiana and Entergy Gulf States to recover the costs through Storm Cost Recovery Riders (SCRRs) proposed by Entergy Louisiana and Entergy Gulf States; (4) declare that the storm costs incurred subsequent to May 31, 2006 are to be filed by Entergy Louisiana and Entergy Gulf States with the LPSC on an annual basis in connection with their annual formula rate plan (FRP) filings, and that the SCRRs be adjusted annually to reflect such costs and any insurance proceeds or CDBG funds actually received, with the adjusted amounts to be collected through the SCRRs to take effect contemporaneous with the effective date of rate changes under the FRP; (5) declare that the storm-related costs incurred by Entergy Louisiana and Entergy Gulf States meet the conditions set forth in the FRP for exclusion from the sharing provisions in those FRPs and authorize the permanent recovery of storm costs outside of the FRPs adopted by the LPSC for Entergy Louisiana and Entergy Gulf States; and (6) authorize the funding of a storm reserve through securitization sufficient to fund a storm cost reserve of $132 million for Entergy Louisiana and $81 million for Entergy Gulf States. Hearing s on the application are scheduled for the first quarter 2007.
55
In July 2006, Entergy Gulf States filed an application with the PUCT with respect to the $393.2 million of Hurricane Rita reconstruction costs incurred in its Texas retail jurisdiction through March 31, 2006. The filing asks the PUCT to determine that $393.2 million is the amount of reasonable and necessary hurricane reconstruction costs eligible for securitization and recovery, approve the recovery of carrying costs, and approve the manner in which Entergy Gulf States-Texas allocates those costs among its retail customer classes. If approved, Entergy Gulf States' application will ultimately affect all its retail customers in Texas. Entergy Gulf States' filing does not request recovery of costs through a specific rider on customer bills or through any other means at this time. The hearing before the PUCT on the filing is scheduled for November 2006. This is the first of two filings authorized by a law passed earlier this year in a special session of the Texas Legislature. A second filing will request securitization and recovery of the eligible costs through retail rates and tariffs. Entergy Gulf States expects to make the second filing following the conclusion of the reconstruction cost case.
Results of Operations
Net Income
Second Quarter 20052006 Compared to Second Quarter 20042005
Net income decreased $11.3increased $7.4 million primarily due to higher other operation and maintenance expenses and lower miscellaneous income,net revenue partially offset by higher net revenue.interest and other charges and higher taxes other than income taxes.
Six Months Ended June 30, 20052006 Compared to Six Months Ended June 30, 20042005
Net income decreased $29.7increased $29.1 million primarily due to higher net revenue and higher other income, partially offset by higher other operation and maintenance expenses, lower net revenue,higher taxes other than income taxes, and lower miscellaneous income, partially offset by lowerhigher interest expense and a lower effective income tax rate.other charges.
Net Revenue
Second Quarter 20052006 Compared to Second Quarter 20042005
Net revenue, which is Entergy Gulf States' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 2)3) other regulatory credits.charges (credits). Following is an analysis of the change in net revenue comparing the second quarter of 20052006 to the second quarter of 2004.2005.
|
| Amount |
|
| (In Millions) |
|
|
|
|
| $ |
Base revenues | 15.8 | |
Volume/weather | 13.3 | |
Fuel recovery | 10.5 | |
Net wholesale revenue | 8.7 | |
Price applied to unbilled electric sales |
| |
|
| |
Other |
|
|
|
| $ |
Base revenues increased due to increases in the Louisiana jurisdiction effective October 2005 for the 2004 formula rate plan filing and the annual revenue requirement related to the purchase of power from the Perryville generating station, and increases in the Texas jurisdiction related to an incremental purchased capacity recovery rider that began in December 2005 and a transition to competition rider that began in March 2006.
56
The volume/weather variance is primarily due to an increase in electricity usage, including the effect of more favorable weather compared to the same period in 2005. Billed electricity usage increased a total of 326 GWh in all sectors.
The fuel recovery variance resulted primarily from the under-recovery in 2005 of fuel costs from retail customers in addition to increased fuel cost recovery in 2006 as a result of special rate contracts.
The net wholesale revenue variance is primarily due to increased volume and higher margins on sales to municipal and co-op customers.
The price applied to unbilled electric sales variance is due to an increasethe exclusion in 2006 of the fuel cost component in the calculation of the price applied to unbilled sales in 2005. Thesales. Effective January 1, 2006, the fuel cost component is higher becauseno longer included in the unbilled revenue calculation, which is in accordance with regulatory treatment. Entergy Gulf States expects that the effect of this factor will be an increaseapproximately $40 million decrease in natural gas costs and nuclear maintenance outages at River Bend.its annual net revenue for 2006 compared to 2005. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K and Note 1 to the domestic utility companies and System Energy financial statements in the Form 10-Kherein for furthera discussion of the accounting for unbilled revenues.
Fuel recovery revenues representThe purchased power capacity variance is primarily due to an under-recovery of fuelincrease in capacity charges that are recoveredprimarily associated with power purchases from the Perryville generating station in base rates.addition to new purchase power contracts in 2006.
Gross operating revenues, and fuel and purchased power expenses, and other regulatory charges (credits)
Gross operating revenues increased primarily due to:
Fuel and purchased power expenses increased primarily due to an increase in deferred fuel expense as a result of higher fuel rates.
Other regulatory charges increased primarily due to the market pricesdeferral of natural gasunder-recovered purchased power capacity costs in 2005 combined with the recovery of purchased power capacity costs in 2005. A rider was implemented in December 2005 in the Texas jurisdiction to recover incremental purchased power capacity costs. Partially offsetting the increase was a regulatory credit of $4.5 million recorded during the second quarter of 2006 as a result of Entergy Gulf States reinstating the application of regulatory accounting principles to its wholesale business. Refer to "Application of SFAS 71" in Note 7 to the domestic utility companies and purchased power.System Energy financial statements for further discussion.
Six Months Ended June 30, 20052006 Compared to Six Months Ended June 30, 20042005
Net revenue, which is Entergy Gulf States' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 2)3) other regulatory credits.charges (credits). Following is an analysis of the change in net revenue comparing the six months ended June 30, 20052006 to the six months ended June 30, 2004.2005.
57
|
| Amount |
|
| (In Millions) |
|
| |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
2005 net revenue |
| $544.5 |
Base revenues | 30.6 | |
Fuel recovery | 29.7 | |
Volume/weather | 20.5 | |
Net wholesale revenue | 13.4 | |
Price applied to unbilled electric sales | (20.0) | |
Purchased power capacity costs | (17.5) | |
Other | 20.4 | |
2006 net revenue | $621.6 |
FuelBase revenues increased due to increases in the Louisiana jurisdiction effective October 2005 for the 2004 formula rate plan filing and the annual revenue requirement related to the purchase of power from the Perryville generating station, and increases in the Texas jurisdiction related to an incremental purchased capacity recovery revenues represent an under-recoveryrider that began in December 2005 and a transition to competition rider that began in March 2006.
The fuel recovery variance resulted primarily from adjustments of fuel charges that are recoveredclause recoveries in base rates.Entergy Gulf States' Louisiana jurisdiction. The variance is also due to the under-recovery in 2005 of fuel costs from retail customers and increased fuel cost recovery in 2006 as a result of special rate contracts.
The volume/weather variance is primarily due to decreasedincreased weather-adjusted usage on billed sales in addition to an increase in usage during the unbilled sales period. Billed usage increased a total of 370 GWh in the residential and commercial sectors and decreased 350 GWh in the industrial sector.
The net wholesale revenue variance is primarily due to increased volume and higher margins on sales to municipal and co-op customers.
The price applied to unbilled sales variance is due to the exclusion in 2006 of the fuel cost component in the calculation of the price applied to unbilled sales. Effective January 1, 2006, the fuel cost component is no longer included in the unbilled revenue calculation, which is in accordance with regulatory treatment. Entergy Gulf States expects that the effect of this factor will be an approximately $40 million decrease in its annual net revenue for 2006 compared to 2005. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K and Note 1 to the domestic utility companies and System Energy financial statements in the Form 10-Kherein for furthera discussion of the accounting for unbilled revenues.
The net wholesale revenuepurchased power capacity variance resulted fromis primarily due to an increase in capacity charges primarily associated with power purchases from the average price of energy allocatedPerryville generating station in addition to municipal and co-op customers.
The rate refund provisions variance is due to additional provisions recordednew purchase power contracts in 2004 for potential rate actions and refunds.2006.
Gross operating revenues, and fuel and purchased power expenses, and other regulatory charges (credits)
Gross operating revenues increased primarily due to an increase of $97.5$268 million in fuel cost recovery revenues due to higher fuel ratesrates. Also contributing to the increase were the base revenue and an increase in wholesale revenue of $12.7 million due to an increase in sales volume to municipal and co-op customers.volume/weather variances discussed above.
Fuel and purchased power expenses increased primarily due to an increase in deferred fuel expense in addition to increases in the market prices of natural gas and purchased power. The increase in deferred fuel expense was due to higher fuel rates.
Other regulatory charges increased primarily due to the deferral of under-recovered purchased power capacity costs in 2005 combined with the recovery of purchased power capacity costs in 2005. A rider was implemented in December 2005 in the Texas jurisdiction to recover incremental purchased power capacity costs. Partially offsetting the increase was a regulatory credit of
58
$4.5 million recorded during the second quarter of 2006 as a result of Entergy Gulf States reinstating the application of regulatory accounting principles to its wholesale business. Refer to "Application of SFAS 71" in Note 7 to the domestic utility companies and System Energy financial statements for further discussion.
Other Income Statement Variances
Second Quarter 20052006 Compared to Second Quarter 20042005
Other operation and maintenance expensesTaxes other than income taxes increased $12.6 million primarily due to increases of:
Interest and unplanned maintenance outages at nuclear and fossil plants;
Miscellaneous income - net decreasedother charges increased primarily due to the increase in long-term debt outstanding as a reduction in 2004 inresult of the loss provisionfunding of $10.1 million for an environmental clean-up site.
the storm restoration costs resulting from Hurricanes Katrina and Rita.
Six Months Ended June 30, 20052006 Compared to Six Months Ended June 30, 20042005
Other operation and maintenance expenses increased $29.5primarily due to:
Taxes other than income taxes increased primarily due to increases of:
Other income increased primarily due to:
Depreciation and amortization expense increased $5 million primarily due to an increase of $1.7 million related to additional proceeds received from the radwaste settlement discussed in plant in service as well as an adjustment in 2004 to the salvage value of certain depreciable assets.
Miscellaneous income"MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - net decreased primarily due to a reduction in 2004Significant Factors and Known Trends - Central States Compact Claim" in the loss provision of $10.1 million for an environmental clean-up site.
Interest and other charges decreased $8.2 millionincreased primarily due to the retirementincrease in long-term debt outstanding as a result of $292 millionthe funding of First Mortgage Bonds in 2004.the storm restoration costs resulting from Hurricanes Katrina and Rita.
Income Taxes
The effective income tax rates for the second quarters of 2006 and 2005 were 39.1% and 2004 were 38% and 38.2%, respectively. The difference in the effective income tax raterates for the second quarter of 2006 and 2005 versus the federal statutory rate of 35% is primarily due to state income taxes and book and tax differences related to utility plant items, partially offset by the amortization of investment tax credits and book and tax differences related to the allowance of funds used during construction. The difference in the effective income tax rate for the second quarter of 2004 versus the federal statutory rate of 35% is primarily due to state income taxes partially offset by the amortization of investment tax credits.
The effective income tax rates for the six months ended June 30, 2006 and 2005 were 34.2% and 2004 were 32.7% and 35.6%, respectively. The difference in the effective income tax rate for the six months ended June 30, 2006 versus the federal statutory rate of 35% is primarily due to amortization of investment tax credits and book and tax differences related to the allowance for equity funds used during construction, partially offset by state income taxes. The difference in the effective income tax rate for the six months ended June 30, 2005 versus the federal statutory rate of 35% is primarily due to amortization of investment tax credits, book and tax differences related to the allowance for equity funds used during construction, and a downward revision in the estimate of federal income tax expense related to tax depreciation, partially offset by state income taxes and book and tax differences related to utility plant items.
59
Liquidity and Capital Resources
Cash Flow
Cash flows for the six months ended June 30, 20052006 and 20042005 were as follows:
|
|
| 2005 |
| 2004 |
|
| 2006 |
| 2005 |
|
|
| (In Thousands) |
|
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period |
| $6,974 |
| $206,030 | Cash and cash equivalents at beginning of period |
| $25,373 |
| $6,974 |
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in): | Cash flow provided by (used in): |
|
|
|
| Cash flow provided by (used in): |
|
|
|
|
| Operating activities |
| 186,084 |
| 291,317 | Operating activities |
| 290,950 |
| 186,084 |
| Investing activities |
| (175,285) |
| (152,709) | Investing activities |
| (220,594) |
| (175,285) |
| Financing activities |
| (15,446) |
| (327,410) | Financing activities |
| (87,268) |
| (15,446) |
Net decrease in cash and cash equivalents | Net decrease in cash and cash equivalents |
| (4,647) |
| (188,802) | Net decrease in cash and cash equivalents |
| (16,912) |
| (4,647) |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $2,327 |
| $17,228 | Cash and cash equivalents at end of period |
| $8,461 |
| $2,327 |
Operating Activities
Cash flow from operations decreased $105.2increased $104.9 million for the six months ended June 30, 20052006 compared to the six months ended June 30, 20042005 primarily due to the refundtiming of $76collections of receivables from customers, income tax refunds of $60.1 million for the six months ended June 30, 2006 compared to retail electricity customers perincome tax payments of $14.5 million for the Marchsame period in 2005, settlement approved by the LPSC, a decrease of $18.8 millionand an increase in the recovery of deferred fuel costs, increased pension contributionspartially offset by the timing of $12.4 million, and tax payments of $14.5 million.to vendors.
In the first quarter 2006, Entergy Corporation received an income tax refund as a result of net operating loss carryback provisions contained in the Gulf States' receivables from or (payables to) the money pool wereOpportunity Zone Act of 2005, as follows:
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($149,447) |
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Seediscussed in Note 43 to the domestic utilityutilities companies and System Energy financial statements in the Form 10-K for a description10-K. In accordance with Entergy's intercompany tax allocation agreement, in April 2006 Entergy Corporation distributed $23 million of the money pool.refund to Entergy Gulf States.
Investing Activities
Net cash used in investing activities increased $22.6$45.3 million for the six months ended June 30, 20052006 compared to the six months ended June 30, 20042005 primarily due to the maturityan increase in 2004construction expenditures of $23.6$116.2 million due to storm-related projects, partially offset by money pool activity and a decrease in under-recovered fuel and purchased power expenses of other investments$14.3 million in Texas that provided cash in 2004.have been deferred and are expected to be collected over a period greater than twelve months.
Financing Activities
Net cash used in financing activities decreased $312increased $71.8 million for the six months ended June 30, 20052006 compared to the six months ended June 30, 20042005 primarily due to an increase of $57.4 million in common stock dividends paid and the retirementnet issuance of $292$14.5 million of First Mortgage Bondslong-term debt in 2004.2005.
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Capital Structure
Entergy Gulf States' capitalization is balanced between equity and debt, as shown in the following table.
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| 51.4% |
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| 0.3% |
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| 51.7% |
| 51.7% |
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Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable, capital lease obligations, preferred stock with sinking fund, and long-term debt, including the currently maturing portion. Capital consists of debt and shareholders' equity. Net capital consists of capital less cash and cash equivalents. Entergy Gulf States uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Gulf States' financial condition.
Uses and Sources of Capital
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Gulf States' uses and sources of capital. Following is an updateare updates to the information provided in the Form 10-K.
The following table lists First Mortgage Bonds issued byEntergy Gulf States' receivables from or (payables to) the money pool were as follows:
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$2,982 |
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See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.
In February 2006, Entergy Gulf States in 2005:
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established a $25 million line of credit. The following table lists long-term debt retired byline of credit allows Entergy Gulf States thus farto borrow money and to issue letters of credit. $1.4 million in 2005:letters of credit were issued under the facility at June 30, 2006, and no borrowings were outstanding. The line of credit terminates in February 2011. In August 2006, Entergy Gulf States increased the capacity of the credit facility to $50 million.
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Significant Factors and Known Trends
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends" in the Form 10-K for a discussion of transition to retail competition, state and local rate regulation, federal regulation and proceedings, the Energy Policy Act of 2005, state and local rate regulatory risk, industrial, commercial, and wholesale customers, market and credit risks, nuclear matters, environmental risks, and litigation risks. Following are updates to the information provideddisclosed in the Form 10-K.
Jurisdictional Separation Plan
See the Form 10-K for a discussion of business and jurisdictional separation plans concerning Entergy Gulf States. In January 2006, the LPSC directed that Entergy Gulf States file a complete jurisdictional separation plan as soon as possible. Therefore, on April 26, 2006, Entergy Gulf States filed its plan for jurisdictional separation with the LPSC and requested that it grant approval no later than September 30, 2006. The plan provides for Entergy Gulf States to be separated into two vertically integrated utilities, one subject solely to the retail jurisdiction of the LPSC and the other subject solely to the retail jurisdictional of the PUCT. The plan also provides that the Texas utility should own all the distribution and transmission assets located in Texas, the gas-fired
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generating plants located in Texas, and undivided ownership shares of Entergy Gulf States' 70% interest in Nelson 6 and 42% interest in Big Cajun 2, Unit 3, which are coal-fired generating plants located in Louisiana. The Louisiana utility would own all of the remaining assets currently owned by Entergy Gulf States. The Texas utility would purchase from the Louisiana utility pursuant to a life-of-the unit purchase power agreement (PPA) a share of capacity and energy of River Bend. Each separated utility also would purchase pursuant to a PPA a share of capacity and energy of the gas-fired generating plants owned by the other utility. The PPAs associated with the gas-fired generating plants would terminate when retail open access commences in the Texas utility's service territory. Until that time, each utility will participate in the System Agreement and the Entergy System generation will continue to be dispatched in the same manner as before the jurisdictional separation. Und er the provisions of the System Agreement, the Texas utility will terminate its participation in the System Agreement, except for the aspects related to transmission equalization, when Texas implements retail open access for Entergy Gulf States. The plan also provides that the operation of the generating plants will not change as a result of the jurisdictional separation. A hearing is scheduled for September 25 to October 4, 2006 on the jurisdictional separation filing. Approvals of the FERC and the NRC may also be required for certain matters before any implementation of the jurisdictional separation of Entergy Gulf States. Although formal approval of the PUCT is not required for implementation of the jurisdictional separation, Entergy Gulf States will seek input from the PUCT and continue to keep it informed of the status of the proceedings.
State and Local Rate Regulation
In MarchAs discussed in the Form 10-K, in August 2005, the LPSC approved a settlement proposal to resolve various dockets covering a range of issues for Entergy Gulf States and Entergy Louisiana. The settlement resulted in creditsfiled with the PUCT an application for recovery of $76 millionits transition to retail electricity customers in Entergy Gulf States' Louisiana service territory. The settlement dismissed Entergy Gulf States' fourth, fifth, sixth, seventh, and eighth annual earnings reviews, Entergy Gulf States' ninth post-merger earnings review and revenue requirement analysis, the continuation of a fuel review forcompetition costs. Entergy Gulf States dockets establishedrequested recovery of $189 million in transition to consider issues concerning power purchases for the summerscompetition costs through implementation of 2001, 2002, 2003, and 2004, all prudence issues associated with decisions made through May 2005 relateda 15-year rider to the nuclear plant uprates at issue in these cases, and an LPSC docket concerning retail issues arising under the System Agreement.be effective no later than March 1, 2006. The settlement does not include the System Agreement case at FERC. In addition,$189 million represents transition to competition costs Entergy Gulf States agreed notincurred from June 1, 1999 through June 17, 2005 in preparing for competition in its service area, including attendant AFUDC, and all carrying costs projected to see kbe incurred on the transition to competition costs through February 28, 2006. The $189 million is before any gross-up for taxes or carrying costs over the 15-year recovery from customers of $2 million of excess refund amounts associated with the fourth through the eighth annual earnings reviews. The credits were issued in connection with April 2005 billings.period. Entergy Gulf States previously reserved forreached a unanimous settlement agreement on all issues with the approximate refund amounts.
active parties in the transition to competition cost recovery case. The settlement includes the establishment of a three-year formula rate plan for Entergy Gulf States that, among other provisions, establishes an ROE mid-point of 10.65% for the initial three-year term of the plan and permitsagreement allows Entergy Gulf States to recover incremental capacity$14.5 million pe r year in transition to competition costs outside ofover a traditional base rate proceeding. Under15-year period. Entergy Gulf States implemented interim rates based on this revenue level on March 1, 2006. The PUCT approved the settlement agreement in June 2006.
In March 2006, the LPSC approved an uncontested stipulated settlement in Entergy Gulf States' formula rate plan over-filing for the 2004 test year. The settlement includes a revenue requirement increase of $36.8 million and under-earnings outside the allowed rangecalls for Entergy Gulf States to apply a refund liability of 9.9%$744 thousand to 11.4% will be allocated 60%capacity deferrals. The refund liability pertained to the customers and 40% to Entergy Gulf States. In addition, there isperiods 2004-2005 as well as the potential to extend the formula rate plan beyond the initial three-year effectiveinterim period by mutual agreement of the LPSC and Entergy Gulf States. Under the settlement, therein which a $37.8 million revenue increase was no change to Entergy Gulf States' retail rates at that time.in place.
In June 2005, the Alliance for Affordable Energy and an individual plaintiff filed an appeal in the 19th Judicial District Court for the parish of East Baton Rouge, Louisiana. The plaintiffs allege that neither Entergy Gulf States nor the LPSC published notice that a formula rate plan was to be considered as part of the settlement and that the LPSC order should be set aside as null and void and without effect because the Louisiana Constitution requires that notice be published when a utility files a proposed rate schedule that would result in a change in rates. Management believes the plaintiffs' claim is without merit and expects to intervene in the proceeding to oppose the appeal.
In June 2005,May 2006, Entergy Gulf States made its formula rate plan filing with the LPSC for the 2005 test year ending December 31, 2004.year. The filing shows a net revenue deficiency of $2.58 million indicating that no refund liability exists.Entergy Gulf States' return on equity was within the allowed bandwidth. The filing also indicates that under the formula rate plan rider for approved capacity additions, a prospective$7.1 million rate increase of $23.8 million is required in order for Entergy Gulf States to earn the authorized ROE mid-pointrecover LPSC-approved incremental deferred and ongoing capacity requirements. The filing is subject to a period of 10.65%. Subject to the consideration of comments expected to be filed by the LPSC staffStaff review, and intervenors in the third quarter 2005, rate changes associated with the formula rate plan are scheduled to take effect with the first billing cycle in October 2005. Any disputed issues will be subject to further investigation by the LPSC, with any resolution of such issues being made effective October 2005.
Entergy Gulf States filed with the PUCT in July 2005 a request for implementation of an incremental purchased capacity recovery rider, consistent with the recently passed Texas legislation discussed below under "Transition to Retail Competition." The rider requests $23.1 million annually in incremental revenues on a Texas retail basis which represents the incremental purchased capacity costs, including Entergy Gulf States' obligation to purchase power from Entergy Louisiana's recently acquired Perryville plant, over what is already in Entergy Gulf States' base rates. Entergy Gulf States has reached an agreement with parties with respect to the date upon which cost recovery and cost reconciliation would begin. The parties have agreed that Entergy Gulf States will implement the rider after approval by the PUCT which could be up to 185 days from the date of filing but will reconcile and recover incremental purchased capacity costs incurred beginning September 1, 2005. The September 1, 2005 agreed upon date for the beginning of the cost recovery and cost reconciliation as well as the requested amount and the processes for implementing the rider are subject to PUCT action and approval. If approved by the PUCT, the rider would be subject to semi-annual modifications and reconciliation in conjunction with Entergy Gulf States' fuel reconciliation proceedings. Also see "Transition to Retail Competition" below for discussion of the provisions in the Texas legislation regarding Entergy Gulf States' ability to file a general rate case and for recovery of transition to competition costs.2006.
In July 2004,January 2006, Entergy Gulf States filed with the LPSC an application for a change in its rates and charges seeking an increase of $9.1 million in gas base rates in order to allow Entergy Gulf States an opportunity to earn a fair and reasonable rate of return. In June 2005, the LPSC unanimously approved Entergy Gulf States' proposed settlement that includes a $5.8 million gas base rate increase effective the first billing cycle of July 2005 and a rate stabilization plan withplan. The filing showed a revenue deficiency of $4.1 million based on an ROE mid-point of 10.5%. On May 1, 2006, Entergy Gulf States implemented a $3.5 million rate increase pursuant to an uncontested agreement with the LPSC Staff.
Federal Regulation
System Agreement Litigation
On June 1, 2005, the FERC issued a decision in the System Agreement litigation. The domestic utility companies historically have engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement, which has been approved by the FERC. The System Agreement litigation proceedings are described in the Form 10-K.
The FERC decision concluded, among other things, that:
The FERC's June 2005 order would reallocate production costs of the domestic utility companies whose relative total production costs expressed as a percentage of Entergy System average production costs are outside an upper or lower bandwidth. This would be accomplished by payments from domestic utility companies whose production costs are below Entergy System average production costs to domestic utility companies whose production costs are above Entergy System average production costs. An assessment of the potential effects of the FERC's June 2005 order requires assumptions regarding the future total production cost of each domestic utility company, which assumptions include the mix of solid fuel and gas-fired generation available to each company and the costs of natural gas and purchased power. Entergy Louisiana and Entergy Gulf States are more dependent upon gas-fired generation than Entergy Arkansas, Entergy Mississippi, or Entergy New Orleans. Of these, Entergy Arkansas is the l east dependent upon gas-fired generation. Therefore, increases in natural gas prices likely will increase the amount by which Entergy Arkansas' total production costs are below the average production costs of the domestic utility companies. Considerable uncertainty exists regarding future gas prices. Annual average Henry Hub gas prices have varied significantly over recent years, ranging from $1.72/mmBtu to $5.85/mmBtu for the 1995-2004 period, and averaging $3.43/mmBtu during the ten-year period 1995-2004 and $4.58/mmBtu during the five-year period 2000-2004. Recent market conditions have resulted in gas prices that have averaged $5.85/mmBtu for the twelve months ended December 2004. During the 12 month period July 1, 2004 to June 30, 2005 forward gas contracts for each of the next four years based on daily NYMEX close averaged $6.68/mmBtu (2006), $6.25/mmBtu (2007), $5.88/mmBtu (2008) and $5.58/mmBtu (2009). If the FERC's June 2005 order becomes final and if these gas prices occur as assumed, the following potential annual production cost reallocations among the domestic utility companies could result during the 2007-2010 period:
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If natural gas prices deviate by $1/mmBtu up or down, it is expected that Entergy Arkansas' annual payments will change in the same direction by approximately $60 to $70 million.
Various pending motions for rehearing and clarification of the FERC's June 2005 order were filed by parties to the proceeding, including the LPSC, the APSC, the MPSC, and the City Council, and by Entergy Services, Inc., on behalf of the domestic utility companies. Among other things, the LPSC's motion urged the FERC to "clarify" that the FERC's order requires the payments and receipts, to the extent any are required, to be made in 2006 based on production costs incurred in 2004 and 2005. Entergy does not believe that this request for "clarification" is consistent with the FERC order and submitted a response urging the FERC to reject this interpretation and instead find that the annual remedy order by the FERC would be evaluated based on calendar year 2006 production costs, with the first potential payments/receipts, if any were required, made in 2007.
Management believes that any changes in the allocation of production costs resulting from the FERC's June 2005 order and related retail proceedings should result in similar rate changes for retail customers. The timing of recovery of these costs in rates could be the subject of additional proceedings before Entergy's retail regulators. Although the outcome and timing of the FERC and other proceedings cannot be predicted at this time, Entergy Gulf States does not believe that the ultimate resolution of these proceedings will have a material effect on its financial condition or results of operations.Proceedings
See the Form 10-K for discussion of the proceeding that the LPSC commenced before itself regarding the System Agreement. As noted above in "StateEntergy Corporation and Local RateSubsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -", the settlement of various issues involving Entergy Gulf States and Entergy Louisiana that was approved by the LPSC has resolved the System Agreement proceeding before the LPSC, which has been dismissed without prejudice.
Transmission
See the Form 10-K for a discussion of the petition for declaratory order that EntergyAPSC Complaint filed with the FERC in January 2005, andAPSC System Agreement Investigation" for updates regarding Entergy's proceedings involving the System Agreement.
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Independent Coordinator of Transmission (ICT) proposal. On March 22, 2005, the FERC issued a declaratory order concluding that: (1) because the Southwest Power Pool (SPP) was the only entity identified as potentially being selected as the ICT and because the SPP is already a "public utility" there was no need to rule on the question of whether the functions of the ICT, alone, would serve to make the ICT a "public utility;" (2) Entergy will continue to be the "transmission provider" for transmission service across its system and that "the presence of SPP as the ICT will not change the existing balance of jurisdiction between [the FERC] and Entergy's retail regulators;" and (3) the FERC "is prepared to grant Entergy's proposed transmission pricing proposal on a two-year experimental basis, subject to certain enhancement and monitoring and reportin g conditions." The enhancements referred to by the FERC involve more fully specifying the responsibilities and duties of the ICT, including defining the ICT's role in the preparation of various transmission expansion plans and the performance of studies related to the granting of transmission or interconnection service. Before Entergy's ICT proposal can be implemented, however, Entergy is required to submit further filings with the FERC regarding the modifications and clarifications to the ICT proposal.
On April 8, 2005 several intervenors filed an Emergency Request for Clarification and Request for Expedited Commission Action seeking to have the FERC: (1) clarify the ICT's role in administering the Available Flowgate Capacity (AFC) methodology; (2) clarify the ICT's role in developing the transmission base plan; (3) clarify what the FERC meant when it required Entergy to provide firm transmission rights to customers that pay for supplemental transmission upgrades; and (4) clarify and confirm following Entergy's filing that the FERC will assess SPP's status as being independent of Entergy.
On April 21, 2005 Entergy filed a request for clarification or rehearing of the FERC's March 22 declaratory order requesting that the FERC clarify the respective role of Entergy and the ICT in developing the inputs or criteria used to create the base plan and in preparing certain studies regarding system expansion. The request for clarification further requests that the FERC clarify that the initial two-year period will commence with the actual start date of ICT operations. In the event that the FERC denies Entergy's request for clarification, then Entergy will seek rehearing on these issues. However, in its request, Entergy requested that FERC not rule on these issues at this time but, instead, that the FERC wait to evaluate these issues until such time as Entergy has filed the more detailed tariff sheets and protocols in its subsequent filing to implement the ICT. Separately, Entergy submitted a letter advising the FERC that it intended to submit on or about May 27, 2005 the filing t o implement the ICT proposal. A joint request for rehearing of the ICT declaratory order was also filed by the City Council, the LPSC, and the MPSC in which the retail regulators expressed their concerns that the findings reached in the declaratory order may result in an expansion of authority of the ICT "that is unnecessary to achieve the [FERC's] goals and is very likely to result in significant increases in the start-up and operational costs of the ICT." The retail regulators request that the FERC not act on their request for rehearing until Entergy has submitted its filing to implement the ICT. The intervenors filed a separate request for rehearing on April 21, 2005 urging the FERC to impose additional conditions on the approval of the ICT and also re-urging the FERC to reject the pricing proposal contained in the ICT proposal.
On May 12, 2005 the FERC issued an order clarifying certain aspects of its March 22 order. In the May 12 order, the FERC indicated that (1) Entergy is to work with the ICT and Entergy's stakeholders to develop procedures by which the ICT will calculate AFCs; (2) Entergy must specifically define the transmission rights that a customer that pays for supplemental upgrades will receive for such payments; (3) the FERC will review the ICT's contract to ensure that the ICT can perform its functions in an independent manner even if SPP is chosen as the ICT; and (4) the initial two-year period will start once the ICT becomes operational.
On May 27, 2005, the domestic utility companies filed the enhanced ICT proposal with the FERC. Entergy believes that the filing is consistent with the FERC guidance received in both the FERC's March 22 and May 12 orders on the ICT. Among other things, the enhanced ICT filing states that the ICT will (1) grant or deny transmission service on the domestic utility companies' transmission system; (2) administer the domestic utility companies' OASIS node for purposes of processing and evaluating transmission service requests and ensuring compliance with the domestic utility companies' obligation to post transmission-related information; (3) develop a base plan for the domestic utility companies' transmission system that will result in the ICT making the determination on whether something should be rolled into the domestic utility companies' transmission rates or directly assigned to the customer requesting or causing an upgrade to be constructed; (4) serve as the reliability coordinator for t he Entergy transmission system; and (5) oversee the operation of the weekly procurement process. The enhanced ICT proposal clarifies the rights that customers receive when they fund a supplemental upgrade and also contains a detailed methodology describing the process by which the ICT will evaluate interconnection-related investments already made on the Entergy System for purposes of determining the future allocation of the uncredited portion of these investments.
On June 3, 2005 a group of generators filed with the FERC a request that the FERC schedule a technical conference on the enhanced ICT proposal in order for Entergy to provide additional information on the enhanced ICT proposal. In response, a stakeholder meeting was held in New Orleans on June 30, 2005. Interventions and comments on the filing are due by August 5, 2005.
In addition, as discussed in the Form 10-K, Entergy Louisiana and Entergy Gulf States have filed an application with the LPSC requesting that the LPSC find that the ICT proposal is a prudent and appropriate course of action. An LPSC hearing on the ICT proposal is currently scheduled for August 2005, however certain intervenors have recently requested that the hearing be delayed until mid-September 2005.
Available Flowgate Capacity Proceedings
See the Form 10-K for a discussion of proceedings at the FERC involving Entergy's Available Flowgate Capacity (AFC) methodology. On March 22, 2005, the FERC issued an order contemporaneously with the ICT declaratory order discussed above that holds the AFC hearing in abeyance pending action on Entergy's upcoming ICT filing. The order holding the hearing in abeyance further indicated that it would cancel the hearing when the ICT begins to perform its functions. On April 8, 2005 several intervenors filed Emergency Motions for Interim ReliefEntergy Corporation and Expedited Commission Action requesting that, during the interim period before the implementation of the ICT, the FERC (1) institute an audit process to examine and modify Entergy's current AFC process; and (2) require SPP to become involved in the AFC stakeholder process and order certain modifications to Entergy's stakeholder process. The audit process being proposed by the intervenors would not involve an independent auditor, but instead wou ld be an investigation performed by a representative from the intervenors, Entergy, and possibly SPP. On April 25, 2005, Entergy filed its response to the emergency motion urging the FERC to reject the intervenors' request for the "audit" because the type of investigation proposed by the intervenors would be neither independent nor fair and would only distract from the implementation of the ICT. Instead, Entergy has proposed that the ICT conduct an independent review of the AFC process and procedures as part of its transition to assuming the identified ICT responsibilities, including the calculation of the AFCs. Entergy further indicated that it would welcome SPP's participation in the current stakeholder process. On April 21, 2005, the intervenors filed a separate request for rehearing arguing that the FERC must allow the AFC hearing to proceed in parallel with the establishment of the ICT. See "Transmission" above for further discussion of AFC.
Transition to Retail Competition
Texas
SeeSubsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends" in the Form 10-K for a discussion of the status of retail open access in Entergy Gulf States' Texas service territory and Entergy Gulf States' independent organization request.
In June 2005, a Texas law was enacted which provides that:
Jurisdictional Separation Plan
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends" in the Form 10-K for a discussion of the LPSC proceedingsupdate regarding the proposed separation of Entergy Gulf States business into a Louisiana-based vertically integrated utility company and a Texas-based vertically integrated utility company. The hearing before the LPSC scheduled for late June 2005 has been postponed.
Federal Legislation
In late July 2005 the U.S. Congress passed broad new energy legislation, the Energy Policy Act of 2005. The legislation contains electricity provisions that, among other things:
The President is expected to sign the Energy Policy Act in August 2005. The Energy Power Act requires several rulemakings by the FERC and other government agencies in order to implement its provisions. Therefore, it will be some time before a full assessment of its effect on Entergy and the energy industry can be completed.
Central States Compact Claim
The Low-Level Radioactive Waste Policy Act of 1980 holds each state responsible for disposal of low-level radioactive waste originating in that state, but allows states to participate in regional compacts to fulfill their responsibilities jointly. Arkansas and Louisiana participate in the Central Interstate Low-Level Radioactive Waste Compact (Central States Compact or Compact). Commencing in 1998, Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana made a series of contributions to the Central States Compact to fund the Central States Compact's development of a low-level radioactive waste disposal facility to be located in Boyd County, Nebraska. In December 1998, Nebraska, the host state for the proposed Central States Compact disposal facility, denied the compact's license application for the proposed disposal facility. Several parties, including the commission that governs the compact (the Compact Commission), filed a lawsuit against Nebraska seeking damages resulting from Nebraska's denial of the proposed facility's license. After a trial, the U.S. District Court concluded that Nebraska violated its good faith obligations regarding the proposed waste disposal facility and rendered a judgment against Nebraska in the amount of $151 million. In August 2004, Nebraska agreed to pay the Compact $141 million in settlement of the judgment. In July 2005, the Compact Commission decided to distribute a substantial portion of the proceeds from the settlement to the nuclear power generators that had contributed funding for the Boyd County facility, including Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana. On August 1, 2005, Nebraska paid the full amount of the settlement to the Compact, and the Compact distributed from the settlement proceeds $23.6 million to Entergy Arkansas, $19.9 million to Entergy Gulf States, and $18.4 million to Entergy Louisiana. Management is still analyzing the accounting treatment of the r eceipts, but expects that some portion of the receipts could result in income for Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana.Entergy's ICT proposal.
Critical Accounting Estimates
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Gulf States' accounting for nuclear decommissioning costs, SFAS 143, the application of SFAS 71, unbilled revenue, and qualified pension and other postretirement benefits. Following is an update to that discussion.
Unbilled Revenue
As discussed in Note 7 to the domestic utility companies and System Energy financial statements, effective January 1, 2006, the Louisiana portion of Entergy Gulf States reclassified the fuel component of unbilled accounts receivable to deferred fuel and will no longer include the fuel component in its unbilled revenue calculation, which is in accordance with regulatory treatment.
Recently Issued Accounting Pronouncements
InFASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for Entergy Gulf States in the first quarter 2005, FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - anof 2007. The FASB's objective in issuing this interpretation is to increase comparability among companies in financial reporting of FASB Statement No. 143" (FIN 47).income taxes. FIN 47 requires companies to recognize at fair value48 establishes a liability for"more-likely-than-not" recognition threshold that must be met before a conditional asset retirement obligation when incurred, whichtax benefit can be recognized in the financial statements. If a tax deduction is generally upon an asset's acquisition, construction, development, or through its normal operation. A conditional asset retirement obligation is generallytaken on a legal obligation to incur costs to remove an asset or part of an asset, such as an obligation to comply with environmental regulations and requirements. The obligation is conditional because there is currently no legal requirement to retire or remove the facility that the affected asset is a part of. FIN 47 requires that uncertainty about the timing or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information becomes available. FIN 4 7 will be effective for Entergy no later than December 31, 2005. Entergytax return, but does not believemeet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded. Entergy Gulf States does not expect that the adoption of FIN 4748 will be material tomaterially affect its financial position, or results of operations, because it estimates that any conditional asset retirement obligations required to be recognized under FIN 47 would be offset by a regulatory asset because of the expected recovery of these future costs in rates.or cash flows.
ENTERGY GULF STATES, INC. | ||||||||
INCOME STATEMENTS | ||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Six Months Ended | |||||||
2005 | 2004 | 2005 | 2004 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING REVENUES | ||||||||
Domestic electric | $746,987 | $674,283 | $1,399,383 | $1,286,654 | ||||
Natural gas | 12,532 | 11,030 | 39,387 | 37,655 | ||||
TOTAL | 759,519 | 685,313 | 1,438,770 | 1,324,309 | ||||
OPERATING EXPENSES | ||||||||
Operation and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 147,889 | 131,961 | 367,845 | 309,674 | ||||
Purchased power | 314,372 | 260,402 | 532,108 | 462,056 | ||||
Nuclear refueling outage expenses | 4,525 | 3,172 | 8,596 | 6,365 | ||||
Other operation and maintenance | 124,428 | 111,805 | 233,121 | 203,634 | ||||
Decommissioning | 2,346 | 3,798 | 4,644 | 7,528 | ||||
Taxes other than income taxes | 28,937 | 27,335 | 59,475 | 57,057 | ||||
Depreciation and amortization | 50,605 | 48,461 | 99,341 | 94,329 | ||||
Other regulatory credits - net | (5,581) | (3,453) | (5,702) | (6,477) | ||||
TOTAL | 667,521 | 583,481 | 1,299,428 | 1,134,166 | ||||
OPERATING INCOME | 91,998 | 101,832 | 139,342 | 190,143 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 4,207 | 2,526 | 9,006 | 5,047 | ||||
Interest and dividend income | 3,415 | 3,172 | 6,850 | 7,021 | ||||
Miscellaneous - net | (24) | 10,614 | 624 | 12,495 | ||||
TOTAL | 7,598 | 16,312 | 16,480 | 24,563 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 28,214 | 29,152 | 56,438 | 64,539 | ||||
Other interest - net | 2,397 | 906 | 4,382 | 2,720 | ||||
Allowance for borrowed funds used during construction | (2,499) | (1,853) | (5,505) | (3,768) | ||||
TOTAL | 28,112 | 28,205 | 55,315 | 63,491 | ||||
INCOME BEFORE INCOME TAXES | 71,484 | 89,939 | 100,507 | 151,215 | ||||
Income taxes | 27,197 | 34,348 | 32,871 | 53,896 | ||||
NET INCOME | 44,287 | 55,591 | 67,636 | 97,319 | ||||
Preferred dividend requirements and other | 1,063 | 1,123 | 2,126 | 2,273 | ||||
EARNINGS APPLICABLE TO | ||||||||
COMMON STOCK | $43,224 | $54,468 | $65,510 | $95,046 | ||||
See Notes to Respective Financial Statements. | ||||||||
63
ENTERGY GULF STATES, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2005 and 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $67,636 | $97,319 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Reserve for regulatory adjustments | (62,423) | 7,236 | ||
Other regulatory credits - net | (5,702) | (6,477) | ||
Depreciation, amortization, and decommissioning | 103,985 | 101,857 | ||
Deferred income taxes and investment tax credits | 25,014 | 20,490 | ||
Changes in working capital: | ||||
Receivables | (28,123) | 19,209 | ||
Fuel inventory | (259) | (442) | ||
Accounts payable | 89,218 | 18,459 | ||
Taxes accrued | 3,395 | 52,369 | ||
Interest accrued | 266 | (6,144) | ||
Deferred fuel costs | (3,267) | 15,505 | ||
Other working capital accounts | 5,914 | 8,057 | ||
Provision for estimated losses and reserves | 345 | (11,298) | ||
Changes in other regulatory assets | (7,960) | (849) | ||
Other | (1,955) | (23,974) | ||
Net cash flow provided by operating activities | 186,084 | 291,317 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (153,136) | (144,767) | ||
Allowance for equity funds used during construction | 9,006 | 5,047 | ||
Nuclear fuel purchases | (371) | (6,672) | ||
Proceeds from sale/leaseback of nuclear fuel | 438 | 6,672 | ||
Decommissioning trust contributions and realized | ||||
change in trust assets | (5,945) | (5,872) | ||
Changes in other investments - net | 2,629 | 23,579 | ||
Other regulatory investments | (27,906) | (30,696) | ||
Net cash flow used in investing activities | (175,285) | (152,709) | ||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of long-term debt | 282,772 | - | ||
Retirement of long-term debt | (268,229) | (292,000) | ||
Redemption of preferred stock | (2,250) | (2,250) | ||
Dividends paid: | ||||
Common stock | (25,600) | (30,900) | ||
Preferred stock | (2,139) | (2,260) | ||
Net cash flow used in financing activities | (15,446) | (327,410) | ||
Net decrease in cash and cash equivalents | (4,647) | (188,802) | ||
Cash and cash equivalents at beginning of period | 6,974 | 206,030 | ||
Cash and cash equivalents at end of period | $2,327 | $17,228 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid during the period for: | ||||
Interest - net of amount capitalized | $56,788 | $69,897 | ||
Income taxes | $14,450 | - - | ||
See Notes to Respective Financial Statements. |
ENTERGY GULF STATES, INC. | ||||||||
INCOME STATEMENTS | ||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Six Months Ended | |||||||
2006 | 2005 | 2006 | 2005 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING REVENUES | ||||||||
Domestic electric | $867,504 | $746,987 | $1,723,294 | $1,399,383 | ||||
Natural gas | 13,611 | 12,532 | 51,027 | 39,387 | ||||
TOTAL | 881,115 | 759,519 | 1,774,321 | 1,438,770 | ||||
OPERATING EXPENSES | ||||||||
Operation and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 215,255 | 147,889 | 500,130 | 367,845 | ||||
Purchased power | 337,834 | 314,372 | 650,926 | 532,108 | ||||
Nuclear refueling outage expenses | 4,427 | 4,525 | 9,101 | 8,596 | ||||
Other operation and maintenance | 123,996 | 124,428 | 245,553 | 233,121 | ||||
Decommissioning | 2,676 | 2,346 | 5,297 | 4,644 | ||||
Taxes other than income taxes | 31,663 | 28,937 | 67,688 | 59,475 | ||||
Depreciation and amortization | 52,484 | 50,605 | 101,179 | 99,341 | ||||
Other regulatory charges (credits) - net | 1,369 | (5,581) | 1,638 | (5,702) | ||||
TOTAL | 769,704 | 667,521 | 1,581,512 | 1,299,428 | ||||
OPERATING INCOME | 111,411 | 91,998 | 192,809 | 139,342 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 1,755 | 4,207 | 7,801 | 9,006 | ||||
Interest and dividend income | 6,366 | 3,415 | 14,469 | 6,850 | ||||
Miscellaneous - net | 510 | (24) | (402) | 624 | ||||
TOTAL | 8,631 | 7,598 | 21,868 | 16,480 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 34,339 | 28,214 | 67,992 | 56,438 | ||||
Other interest - net | 1,901 | 2,397 | 3,997 | 4,382 | ||||
Allowance for borrowed funds used during construction | (1,093) | (2,499) | (4,401) | (5,505) | ||||
TOTAL | 35,147 | 28,112 | 67,588 | 55,315 | ||||
INCOME BEFORE INCOME TAXES | 84,895 | 71,484 | 147,089 | 100,507 | ||||
Income taxes | 33,191 | 27,197 | 50,336 | 32,871 | ||||
NET INCOME | 51,704 | 44,287 | 96,753 | 67,636 | ||||
Preferred dividend requirements and other | 1,009 | 1,063 | 2,031 | 2,126 | ||||
EARNINGS APPLICABLE TO | ||||||||
COMMON STOCK | $50,695 | $43,224 | $94,722 | $65,510 | ||||
See Notes to Respective Financial Statements. |
64
ENTERGY GULF STATES, INC. | ||||||
BALANCE SHEETS | ||||||
ASSETS | ||||||
June 30, 2005 and December 31, 2004 | ||||||
(Unaudited) | ||||||
2005 | 2004 | |||||
(In Thousands) | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents: | ||||||
Cash | $2,244 | $5,627 | ||||
Temporary cash investments - at cost, | ||||||
which approximates market | 83 | 1,347 | ||||
Total cash and cash equivalents | 2,327 | 6,974 | ||||
Accounts receivable: | ||||||
Customer | 114,496 | 124,801 | ||||
Allowance for doubtful accounts | (1,791) | (2,687) | ||||
Associated companies | 24,182 | 13,980 | ||||
Other | 49,092 | 40,697 | ||||
Accrued unbilled revenues | 156,654 | 137,719 | ||||
Total accounts receivable | 342,633 | 314,510 | ||||
Deferred fuel costs | 118,265 | 90,124 | ||||
Accumulated deferred income taxes | 1,301 | 14,339 | ||||
Fuel inventory - at average cost | 49,917 | 49,658 | ||||
Materials and supplies - at average cost | 104,156 | 101,922 | ||||
Prepayments and other | 17,128 | 20,556 | ||||
TOTAL | 635,727 | 598,083 | ||||
OTHER PROPERTY AND INVESTMENTS | ||||||
Decommissioning trust funds | 301,271 | 290,952 | ||||
Non-utility property - at cost (less accumulated depreciation) | 94,203 | 94,052 | ||||
Other | 20,616 | 22,012 | ||||
TOTAL | 416,090 | 407,016 | ||||
UTILITY PLANT | ||||||
Electric | 8,593,692 | 8,418,119 | ||||
Natural gas | 83,684 | 78,627 | ||||
Construction work in progress | 272,345 | 331,703 | ||||
Nuclear fuel under capital lease | 60,703 | 71,279 | ||||
TOTAL UTILITY PLANT | 9,010,424 | 8,899,728 | ||||
Less - accumulated depreciation and amortization | 4,115,750 | 4,047,182 | ||||
UTILITY PLANT - NET | 4,894,674 | 4,852,546 | ||||
DEFERRED DEBITS AND OTHER ASSETS | ||||||
Regulatory assets: | ||||||
SFAS 109 regulatory asset - net | 457,090 | 444,799 | ||||
Other regulatory assets | 285,935 | 285,017 | ||||
Long-term receivables | 18,651 | 23,228 | ||||
Other | 33,082 | 44,713 | ||||
TOTAL | 794,758 | 797,757 | ||||
TOTAL ASSETS | $6,741,249 | $6,655,402 | ||||
See Notes to Respective Financial Statements. | ||||||
ENTERGY GULF STATES, INC. | ||||||
BALANCE SHEETS | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
June 30, 2005 and December 31, 2004 | ||||||
(Unaudited) | ||||||
2005 | 2004 | |||||
(In Thousands) | ||||||
CURRENT LIABILITIES | ||||||
Currently maturing long-term debt | $98,000 | $98,000 | ||||
Accounts payable: | ||||||
Associated companies | 261,800 | 153,069 | ||||
Other | 127,824 | 147,337 | ||||
Customer deposits | 56,476 | 53,229 | ||||
Taxes accrued | 31,020 | 22,882 | ||||
Nuclear refueling outage costs | 6,021 | - - | ||||
Interest accrued | 33,008 | 32,742 | ||||
Obligations under capital leases | 33,516 | 33,518 | ||||
Other | 18,513 | 19,912 | ||||
TOTAL | 666,178 | 560,689 | ||||
NON-CURRENT LIABILITIES | ||||||
Accumulated deferred income taxes and taxes accrued | 1,555,524 | 1,533,804 | ||||
Accumulated deferred investment tax credits | 135,762 | 138,616 | ||||
Obligations under capital leases | 27,187 | 37,711 | ||||
Other regulatory liabilities | 36,947 | 34,009 | ||||
Decommissioning and retirement cost liabilities | 158,859 | 152,095 | ||||
Transition to competition | 79,098 | 79,098 | ||||
Regulatory reserves | 15,871 | 81,455 | ||||
Accumulated provisions | 69,645 | 66,875 | ||||
Long-term debt | 1,908,013 | 1,891,478 | ||||
Preferred stock with sinking fund | 15,150 | 17,400 | ||||
Other | 200,269 | 229,408 | ||||
TOTAL | 4,202,325 | 4,261,949 | ||||
Commitments and Contingencies | ||||||
SHAREHOLDERS' EQUITY | ||||||
Preferred stock without sinking fund | 47,327 | 47,327 | ||||
Common stock, no par value, authorized 200,000,000 | ||||||
shares; issued and outstanding 100 shares in 2005 and 2004 | 114,055 | 114,055 | ||||
Paid-in capital | 1,157,486 | 1,157,486 | ||||
Retained earnings | 553,092 | 513,182 | ||||
Accumulated other comprehensive income | 786 | 714 | ||||
TOTAL | 1,872,746 | 1,832,764 | ||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $6,741,249 | $6,655,402 | ||||
See Notes to Respective Financial Statements. | ||||||
ENTERGY GULF STATES, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2006 and 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $96,753 | $67,636 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Reserve for regulatory adjustments | 5,947 | (62,423) | ||
Other regulatory charges (credits) - net | 1,638 | (5,702) | ||
Depreciation, amortization, and decommissioning | 106,476 | 103,985 | ||
Deferred income taxes and investment tax credits | (5,903) | 25,014 | ||
Changes in working capital: | ||||
Receivables | 121,874 | (28,123) | ||
Fuel inventory | (11,349) | (259) | ||
Accounts payable | (75,267) | (509) | ||
Taxes accrued | 115,690 | 3,395 | ||
Interest accrued | (772) | 266 | ||
Deferred fuel costs | 55,433 | (3,267) | ||
Other working capital accounts | 16,379 | 5,914 | ||
Provision for estimated losses and reserves | (2,856) | 345 | ||
Changes in other regulatory assets | (124,690) | (7,960) | ||
Other | (8,182) | (1,955) | ||
Net cash flow provided by operating activities | 291,171 | 96,357 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (269,310) | (153,136) | ||
Allowance for equity funds used during construction | 7,801 | 9,006 | ||
Nuclear fuel purchases | (38,233) | (371) | ||
Proceeds from sale/leaseback of nuclear fuel | 37,523 | 438 | ||
Proceeds from nuclear decommissioning trust fund sales | 35,710 | 15,131 | ||
Investment in nuclear decommissioning trust funds | (42,406) | (21,076) | ||
Change in money pool receivable - net | 61,028 | - | ||
Changes in other investments - net | 915 | 2,629 | ||
Other regulatory investments | (13,622) | (27,906) | ||
Net cash flow used in investing activities | (220,594) | (175,285) | ||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of long-term debt | - | 282,772 | ||
Retirement of long-term debt | - | (268,229) | ||
Redemption of preferred stock | (2,250) | (2,250) | ||
Change in money pool payable - net | - | 89,727 | ||
Dividends paid: | ||||
Common stock | (83,000) | (25,600) | ||
Preferred stock | (2,018) | (2,139) | ||
Net cash flow provided by (used in) financing activities | (87,268) | 74,281 | ||
Net decrease in cash and cash equivalents | (16,691) | (4,647) | ||
Cash and cash equivalents at beginning of period | 25,373 | 6,974 | ||
Cash and cash equivalents at end of period | $8,682 | $2,327 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid/(received) during the period for: | ||||
Interest - net of amount capitalized | $68,007 | $56,788 | ||
Income taxes | ($60,096) | $14,450 | ||
See Notes to Respective Financial Statements. |
65
ENTERGY GULF STATES, INC. | ||||||||||
STATEMENTS OF RETAINED EARNINGS AND COMPREHENSIVE INCOME | ||||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||||
(Unaudited) | ||||||||||
Three Months Ended | ||||||||||
2005 | 2004 | |||||||||
(In Thousands) | ||||||||||
RETAINED EARNINGS | ||||||||||
Retained Earnings - Beginning of period | $531,068 | $453,368 | ||||||||
Add: Net Income | 44,287 | $44,287 | 55,591 | $55,591 | ||||||
Deduct: | ||||||||||
Dividends declared on common stock | 21,200 | 24,000 | ||||||||
Preferred dividend requirements and other | 1,063 | 1,063 | 1,123 | 1,123 | ||||||
22,263 | 25,123 | |||||||||
Retained Earnings - End of period | $553,092 | $483,836 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE | ||||||||||
INCOME (Net of Taxes): | ||||||||||
Balance at beginning of period: | ||||||||||
Accumulated derivative instrument fair value changes | $722 | $3,369 | ||||||||
Net derivative instrument fair value changes | ||||||||||
arising during the period | 64 | 64 | 799 | 799 | ||||||
Balance at end of period: | ||||||||||
Accumulated derivative instrument fair value changes | $786 | $4,168 | ||||||||
Comprehensive Income | $43,288 | $55,267 | ||||||||
Six Months Ended | ||||||||||
2005 | 2004 | |||||||||
(In Thousands) | ||||||||||
RETAINED EARNINGS | ||||||||||
Retained Earnings - Beginning of period | $513,182 | $419,690 | ||||||||
Add: Net Income | 67,636 | $67,636 | 97,319 | $97,319 | ||||||
Deduct: | ||||||||||
Dividends declared on common stock | 25,600 | 30,900 | ||||||||
Preferred dividend requirements and other | 2,126 | 2,126 | 2,273 | 2,273 | ||||||
27,726 | 33,173 | |||||||||
Retained Earnings - End of period | $553,092 | $483,836 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE | ||||||||||
INCOME (Net of Taxes): | ||||||||||
Balance at beginning of period: | ||||||||||
Accumulated derivative instrument fair value changes | $714 | $3,912 | ||||||||
Net derivative instrument fair value changes | ||||||||||
arising during the period | 72 | 72 | 256 | 256 | ||||||
Balance at end of period: | ||||||||||
Accumulated derivative instrument fair value changes | $786 | $4,168 | ||||||||
Comprehensive Income | $65,582 | $95,302 | ||||||||
See Notes to Respective Financial Statements. | ||||||||||
ENTERGY GULF STATES, INC. | ||||||
BALANCE SHEETS | ||||||
ASSETS | ||||||
June 30, 2006 and December 31, 2005 | ||||||
(Unaudited) | ||||||
2006 | 2005 | |||||
(In Thousands) | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents: | ||||||
Cash | $3,452 | $7,341 | ||||
Temporary cash investments - at cost, | ||||||
which approximates market | 5,230 | 18,032 | ||||
Total cash and cash equivalents | 8,682 | 25,373 | ||||
Accounts receivable: | ||||||
Customer | 162,091 | 203,205 | ||||
Allowance for doubtful accounts | (2,886) | (4,794) | ||||
Associated companies | 45,260 | 90,223 | ||||
Other | 47,608 | 50,445 | ||||
Accrued unbilled revenues | 90,631 | 186,527 | ||||
Total accounts receivable | 342,704 | 525,606 | ||||
Deferred fuel costs | 182,458 | 254,950 | ||||
Fuel inventory - at average cost | 71,545 | 60,196 | ||||
Materials and supplies - at average cost | 115,764 | 112,544 | ||||
Prepayments and other | 7,538 | 36,996 | ||||
TOTAL | 728,691 | 1,015,665 | ||||
OTHER PROPERTY AND INVESTMENTS | ||||||
Decommissioning trust funds | 316,068 | 310,779 | ||||
Non-utility property - at cost (less accumulated depreciation) | 99,021 | 91,589 | ||||
Other | 22,563 | 22,498 | ||||
TOTAL | 437,652 | 424,866 | ||||
UTILITY PLANT | ||||||
Electric | 8,844,296 | 8,569,073 | ||||
Natural gas | 87,610 | 86,375 | ||||
Construction work in progress | 157,542 | 526,017 | ||||
Nuclear fuel under capital lease | 77,454 | 55,155 | ||||
Nuclear fuel | 10,857 | 11,338 | ||||
TOTAL UTILITY PLANT | 9,177,759 | 9,247,958 | ||||
Less - accumulated depreciation and amortization | 4,103,135 | 4,075,724 | ||||
UTILITY PLANT - NET | 5,074,624 | 5,172,234 | ||||
DEFERRED DEBITS AND OTHER ASSETS | ||||||
Regulatory assets: | ||||||
SFAS 109 regulatory asset - net | 473,980 | 459,136 | ||||
Other regulatory assets | 789,420 | 604,419 | ||||
Deferred fuel costs | 100,124 | 69,443 | ||||
Long-term receivables | 13,156 | 16,151 | ||||
Other | 35,810 | 41,195 | ||||
TOTAL | 1,412,490 | 1,190,344 | ||||
TOTAL ASSETS | $7,653,457 | $7,803,109 | ||||
See Notes to Respective Financial Statements. | ||||||
66 | ||||||
ENTERGY GULF STATES, INC. | ||||||
BALANCE SHEETS | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
June 30, 2006 and December 31, 2005 | ||||||
(Unaudited) | ||||||
2006 | 2005 | |||||
(In Thousands) | ||||||
CURRENT LIABILITIES | ||||||
Accounts payable: | ||||||
Associated companies | $101,332 | $100,313 | ||||
Other | 181,490 | 479,232 | ||||
Customer deposits | 64,741 | 57,756 | ||||
Taxes accrued | 40,836 | - - | ||||
Accumulated deferred income taxes | 59,905 | 71,196 | ||||
Nuclear refueling outage costs | 1,022 | 15,548 | ||||
Interest accrued | 33,566 | 34,338 | ||||
Obligations under capital leases | 24,935 | 33,516 | ||||
Other | 33,219 | 14,945 | ||||
TOTAL | 541,046 | 806,844 | ||||
NON-CURRENT LIABILITIES | ||||||
Accumulated deferred income taxes and taxes accrued | 1,700,037 | 1,619,890 | ||||
Accumulated deferred investment tax credits | 130,055 | 132,909 | ||||
Obligations under capital leases | 52,518 | 20,724 | ||||
Other regulatory liabilities | 41,379 | 37,482 | ||||
Decommissioning and retirement cost liabilities | 183,101 | 175,480 | ||||
Transition to competition | 79,098 | 79,098 | ||||
Regulatory reserves | 15,794 | 16,153 | ||||
Accumulated provisions | 69,384 | 67,747 | ||||
Long-term debt | 2,358,211 | 2,358,130 | ||||
Preferred stock with sinking fund | 11,700 | 13,950 | ||||
Other | 189,199 | 203,665 | ||||
TOTAL | 4,830,476 | 4,725,228 | ||||
Commitments and Contingencies | ||||||
SHAREHOLDERS' EQUITY | ||||||
Preferred stock without sinking fund | 47,327 | 47,327 | ||||
Common stock, no par value, authorized 200,000,000 | ||||||
shares; issued and outstanding 100 shares in 2006 and 2005 | 114,055 | 114,055 | ||||
Paid-in capital | 1,457,486 | 1,457,486 | ||||
Retained earnings | 665,300 | 653,578 | ||||
Accumulated other comprehensive loss | (2,233) | (1,409) | ||||
TOTAL | 2,281,935 | 2,271,037 | ||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $7,653,457 | $7,803,109 | ||||
See Notes to Respective Financial Statements. |
67
ENTERGY GULF STATES, INC. | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2005 | 2004 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $174 | $185 | ($11) | (6) | ||||
Commercial | 146 | 155 | (9) | (6) | ||||
Industrial | 223 | 233 | (10) | (4) | ||||
Governmental | 9 | 9 | - - | - - | ||||
Total retail | 552 | 582 | (30) | (5) | ||||
Sales for resale | ||||||||
Associated companies | 21 | 8 | 13 | 163 | ||||
Non-associated companies | 43 | 47 | (4) | (9) | ||||
Other | 131 | 37 | 94 | 254 | ||||
Total | $747 | $674 | $73 | 11 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 2,124 | 2,068 | 56 | 3 | ||||
Commercial | 2,013 | 1,985 | 28 | 1 | ||||
Industrial | 3,879 | 4,049 | (170) | (4) | ||||
Governmental | 109 | 103 | 6 | 6 | ||||
Total retail | 8,125 | 8,205 | (80) | (1) | ||||
Sales for resale | ||||||||
Associated companies | 729 | 239 | 490 | 205 | ||||
Non-associated companies | 726 | 984 | (258) | (26) | ||||
Total | 9,580 | 9,428 | 152 | 2 | ||||
Six Months Ended | Increase/ | |||||||
Description | 2005 | 2004 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $370 | $369 | $1 | - - | ||||
Commercial | 305 | 297 | 8 | 3 | ||||
Industrial | 467 | 445 | 22 | 5 | ||||
Governmental | 19 | 18 | 1 | 6 | ||||
Total retail | 1,161 | 1,129 | 32 | 3 | ||||
Sales for resale | ||||||||
Associated companies | 47 | 21 | 26 | 124 | ||||
Non-associated companies | 75 | 92 | (17) | (18) | ||||
Other | 116 | 45 | 71 | 158 | ||||
Total | $1,399 | $1,287 | $112 | 9 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 4,279 | 4,256 | 23 | 1 | ||||
Commercial | 3,927 | 3,847 | 80 | 2 | ||||
Industrial | 7,860 | 7,972 | (112) | (1) | ||||
Governmental | 214 | 214 | - - | - - | ||||
Total retail | 16,280 | 16,289 | (9) | - - | ||||
Sales for resale | ||||||||
Associated companies | 1,294 | 550 | 744 | 135 | ||||
Non-associated companies | 1,265 | 2,006 | (741) | (37) | ||||
Total | 18,839 | 18,845 | (6) | - - | ||||
ENTERGY GULF STATES, INC. | ||||||||||
STATEMENTS OF RETAINED EARNINGS AND COMPREHENSIVE INCOME | ||||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | ||||||||||
(Unaudited) | ||||||||||
Three Months Ended | ||||||||||
2006 | 2005 | |||||||||
(In Thousands) | ||||||||||
RETAINED EARNINGS | ||||||||||
Retained Earnings - Beginning of period | $697,605 | $531,068 | ||||||||
Add: Net Income | 51,704 | $51,704 | 44,287 | $44,287 | ||||||
Deduct: | ||||||||||
Dividends declared on common stock | 83,000 | 21,200 | ||||||||
Preferred dividend requirements and other | 1,009 | 1,009 | 1,063 | 1,063 | ||||||
84,009 | 22,263 | |||||||||
Retained Earnings - End of period | $665,300 | $553,092 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE | ||||||||||
INCOME (LOSS) (Net of Taxes): | ||||||||||
Balance at beginning of period: | ||||||||||
Other accumulated comprehensive income items | ($1,354) | $722 | ||||||||
Net unrealized investment gains | (879) | (879) | 64 | 64 | ||||||
Balance at end of period: | ||||||||||
Other accumulated comprehensive income items | ($2,233) | $786 | ||||||||
Comprehensive Income | $49,816 | $43,288 | ||||||||
Six Months Ended | ||||||||||
2006 | 2005 | |||||||||
(In Thousands) | ||||||||||
RETAINED EARNINGS | ||||||||||
Retained Earnings - Beginning of period | $653,578 | $513,182 | ||||||||
Add: Net Income | 96,753 | $96,753 | 67,636 | $67,636 | ||||||
Deduct: | ||||||||||
Dividends declared on common stock | 83,000 | 25,600 | ||||||||
Preferred dividend requirements and other | 2,031 | 2,031 | 2,126 | 2,126 | ||||||
85,031 | 27,726 | |||||||||
Retained Earnings - End of period | $665,300 | $553,092 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE | ||||||||||
INCOME (LOSS) (Net of Taxes): | ||||||||||
Balance at beginning of period: | ||||||||||
Other accumulated comprehensive income items | ($1,409) | $714 | ||||||||
Net unrealized investment gains | (824) | (824) | 72 | 72 | ||||||
Balance at end of period: | ||||||||||
Other accumulated comprehensive income items | ($2,233) | $786 | ||||||||
Comprehensive Income | $93,898 | $65,582 | ||||||||
See Notes to Respective Financial Statements. |
68
ENTERGY GULF STATES, INC. | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $258 | $174 | $84 | 48 | ||||
Commercial | 212 | 146 | 66 | 45 | ||||
Industrial | 284 | 223 | 61 | 27 | ||||
Governmental | 11 | 9 | 2 | 22 | ||||
Total retail | 765 | 552 | 213 | 39 | ||||
Sales for resale | ||||||||
Associated companies | 21 | 21 | - - | - - | ||||
Non-associated companies | 48 | 43 | 5 | 12 | ||||
Other | 34 | 131 | (97) | (74) | ||||
Total | $868 | $747 | $121 | 16 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 2,352 | 2,124 | 228 | 11 | ||||
Commercial | 2,158 | 2,013 | 145 | 7 | ||||
Industrial | 3,831 | 3,879 | (48) | (1) | ||||
Governmental | 110 | 109 | 1 | 1 | ||||
Total retail | 8,451 | 8,125 | 326 | 4 | ||||
Sales for resale | ||||||||
Associated companies | 567 | 729 | (162) | (22) | ||||
Non-associated companies | 678 | 726 | (48) | (7) | ||||
Total | 9,696 | 9,580 | 116 | 1 | ||||
Six Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $498 | $370 | $128 | 35 | ||||
Commercial | 422 | 305 | 117 | 38 | ||||
Industrial | 601 | 467 | 134 | 29 | ||||
Governmental | 24 | 19 | 5 | 26 | ||||
Total retail | 1,545 | 1,161 | 384 | 33 | ||||
Sales for resale | ||||||||
Associated companies | 48 | 47 | 1 | 2 | ||||
Non-associated companies | 99 | 75 | 24 | 32 | ||||
Other | 31 | 116 | (85) | (73) | ||||
Total | $1,723 | $1,399 | $324 | 23 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 4,448 | 4,279 | 169 | 4 | ||||
Commercial | 4,128 | 3,927 | 201 | 5 | ||||
Industrial | 7,510 | 7,860 | (350) | (4) | ||||
Governmental | 222 | 214 | 8 | 4 | ||||
Total retail | 16,308 | 16,280 | 28 | - - | ||||
Sales for resale | ||||||||
Associated companies | 1,153 | 1,294 | (141) | (11) | ||||
Non-associated companies | 1,295 | 1,265 | 30 | 2 | ||||
Total | 18,756 | 18,839 | (83) | - - | ||||
69
ENTERGY LOUISIANA, INC.LLC
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Hurricane Rita and Hurricane Katrina
See the Form 10-K for a discussion of the effects of Hurricanes Katrina and Rita, which caused catastrophic damage to Entergy Louisiana's service territory in August and September 2005, including the effect of extensive flooding that resulted from levee breaks in and around Entergy Louisiana's service territory. Following is an update to the discussion in the Form 10-K.
Entergy Louisiana currently estimates that total restoration costs for the repair and/or replacement of its electric facilities damaged by Hurricanes Katrina and Rita and business continuity costs will be $541 million.
As discussed in the Form 10-K, a federal hurricane aid package became law that includes funding for Community Development Block Grants (CDBG) that allows state and local leaders to fund individual recovery priorities. The law permits funding for infrastructure restoration. It is uncertain how much funding, if any, will be designated for utility reconstruction and the timing of such decisions is also uncertain. The U.S. Department of Housing and Urban Development has allocated approximately $10.4 billion for Louisiana, $5.1 billion for Mississippi, and $74 million for Texas, with an additional $1 billion approved by Congress but not yet allocated to the states. The states, in turn, will administer the grants. Entergy Louisiana is currently preparing an application to seek CDBG funding. In March 2006, Entergy Louisiana provided a justification statement to state and local officials. The statement, which will be reviewed by the Louisiana Recovery Authority, incl udes the estimated costs of Hurricanes Katrina and Rita damage. The statement includes justification for a request for $472 million in CDBG funding.
Storm Costs Recovery Filing with Retail Regulator
On July 31, 2006, Entergy Louisiana and Entergy Gulf States filed a supplemental and amending storm cost recovery application with the LPSC, in which Entergy Louisiana and Entergy Gulf States requested that the LPSC (1) review Entergy Louisiana's and Entergy Gulf States' testimony and exhibits relating to the costs associated with Hurricanes Katrina and Rita, and declare that those verified, actual storm-related costs through May 31, 2006 are $466.8 million for Entergy Louisiana and $200.3 million for Entergy Gulf States in the Louisiana jurisdiction and that those costs were prudently incurred; (2) declare that the annual revenue requirements associated with the recovery of those costs, based on a ten-year levelized rate are $54.4 million for Entergy Louisiana and $26.2 million for Entergy Gulf States; (3) authorize Entergy Louisiana and Entergy Gulf States to recover the costs through Storm Cost Recovery Riders (SCRRs) proposed by Entergy Louisiana and Entergy Gulf States; (4) declare that the storm costs incurred subsequent to May 31, 2006 are to be filed by Entergy Louisiana and Entergy Gulf States with the LPSC on an annual basis in connection with their annual formula rate plan (FRP) filings, and that the SCRRs be adjusted annually to reflect such costs and any insurance proceeds or CDBG funds actually received, with the adjusted amounts to be collected through the SCRRs to take effect contemporaneous with the effective date of rate changes under the FRP; (5) declare that the storm-related costs incurred by Entergy Louisiana and Entergy Gulf States meet the conditions set forth in the FRP for exclusion from the sharing provisions in those FRPs and authorize the permanent recovery of storm costs outside of the FRPs adopted by the LPSC for Entergy Louisiana and Entergy Gulf States; and (6) authorize the funding of a storm reserve through securitization sufficient to fund a storm cost reserve of $132 million for Entergy Louisiana and $81 million for Entergy Gulf States. Hearing s on the application are scheduled for the first quarter 2007.
70
Results of Operations
Net Income
Second Quarter 20052006 Compared to Second Quarter 20042005
Net income increased $30.5decreased $36.2 million primarily due to higherlower net revenue and lower depreciation and amortization expenses, partially offset by higher other operation and maintenance expenses and lower other income.
Six Months Ended June 30, 20052006 Compared to Six Months Ended June 30, 20042005
Net income increased $11.0decreased $20.6 million primarily due to higherlower net revenue partially offset by higher other income, lower other operation and maintenance expenses, and lower depreciation and amortization expenses.
Net Revenue
Second Quarter 20052006 Compared to Second Quarter 2005
Net revenue, which is Entergy Louisiana's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits. Following is an analysis of the change in net revenue comparing the second quarter of 2006 to the second quarter of 2005.
Amount | ||
(In Millions) | ||
2005 net revenue | $310.8 | |
Price applied to unbilled electric sales | (72.7) | |
Net wholesale revenue | 6.1 | |
Other | 0.8 | |
2006 net revenue | $245.0 |
The price applied to unbilled sales variance is due to the exclusion in 2006 of the fuel cost component in the calculation of the price applied to unbilled sales. Effective January 1, 2006, the fuel cost component is no longer included in the unbilled revenue calculation, which is in accordance with regulatory treatment. Entergy Louisiana expects that the effect of this factor will be significantly less for its annual results for 2006. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" herein for a discussion of the accounting for unbilled revenues.
The net wholesale revenue variance is primarily due to the sale of 75% of the generation from the Perryville plant to Entergy Gulf States pursuant to a long-term purchased power agreement.
Gross operating revenues, fuel and purchased power expenses, and other regulatory credits
Gross operating revenues decreased primarily due to:
The decrease was partially offset by an increase of $20.9 million in gross wholesale revenue due to increased sales to affiliated systems and the sale of a portion of the generation from Perryville.
Fuel and purchased power expenses decreased primarily due to a shift from higher priced gas and oil generation and purchased power to lower priced nuclear generation primarily as a result of a refueling outage in 2005. The decrease was partially offset by an increase in the recovery from customers of deferred fuel costs.
71
Other regulatory credits decreased primarily due to the LPSC order for the interim recovery of storm costs effective March 2006. Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - - State and Local Regulation"in the Form 10-K for a discussion of Entergy Louisiana's filing with the LPSC regarding storm cost recovery.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Net revenue, which is Entergy Louisiana's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 2)3) other regulatory credits. Following is an analysis of the change in net revenue comparing the second quarter of 2005six months ended June 30, 2006 to the second quarter of 2004.six months ended June 30, 2005.
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| Amount |
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| (In Millions) |
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| |
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| $ |
Price applied to unbilled electric sales |
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|
Volume/weather | (21.8) | |
Net wholesale revenue | 12.4 | |
Rate refund provisions | 6.9 | |
Storm cost recovery | 4.9 | |
Other |
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| $ |
The price applied to unbilled sales variance is due to an increasethe exclusion in 2006 of the fuel cost component in the calculation of the price applied to unbilled sales in 2005. Thesales.Effective January 1, 2006, the fuel cost component is higher becauseno longer included in the unbilled revenue calculation, which is in accordance with regulatory treatment. Entergy Louisiana expects that the effect of an increase in natural gas costs and a Waterford 3 refueling outage.this factor will be significantly less for its annual results for 2006. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K and Note 1 to the domestic utility companies and System Energy financial statements in the Form 10-Kherein for furthera discussion of the accounting for unbilled revenues.
Gross operating revenues, fuel and purchased power expenses, and other regulatory credits
Gross operating revenues increased primarily due to:
Fuel and purchased power expenses increased primarily due to a shift to higher priced gas and purchased power generation from lower priced nuclear generation due to a refueling outage. The increase was also due to an increase in the market price of natural gas.
Other regulatory credits increased primarily due to the deferral as allowed by the LPSC of capacity charges related to generation resource planning.
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
Net revenue, which is Entergy Louisiana's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory credits. Following is an analysis of the change in net revenue comparing the six months ended June 30, 2005 to the six months ended June 30, 2004.
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The price applied to unbilled sales variance is due to an increase in the fuel cost component of the price applied to unbilled sales in 2005. The fuel cost component is higher because of an increase in natural gas costs and a Waterford 3 refueling outage. #9; See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K and Note 1 to the domestic utility companies and System Energy financial statements in the Form 10-K for further discussion of the accounting for unbilled revenues.
The volume/weather variance is due to a decrease in usage in all sectors primarily due to load losses caused by Hurricane Katrina and decreased usage primarily during the unbilled sales period.
The net wholesale revenue variance is primarily due to the sale of 75% of the generation from the Perryville plant to Entergy Gulf States pursuant to a long-term purchased power agreement.
The rate refund provisions variance is primarily due to additional provisions recorded in 2005 related to LPSC-approved settlements in March 2005 and May 2005.
The storm cost recovery variance is due to the return earned on the interim recovery of storm-related costs as allowed by the LPSC effective March 2006.
Gross operating revenues and fuel and purchased power expenses and other regulatory credits
Gross operating revenues increaseddecreased primarily due to:
72
The decrease was substantially offset by:
The
Fuel and purchased power expenses increased primarily due to a shift from lower priced nuclear generation to higher priced gas and purchased power generation as a result of a refueling outage. Thean increase was partially offset by a decrease in the recovery from customers of deferred fuel costs.
Other regulatory credits increasedcosts, partially offset by a shift from higher priced gas and oil generation and purchased power to lower priced nuclear generation primarily due to the deferral as allowed by the LPSCa result of capacity charges related to generation resource planning.
a refueling outage in 2005.
Other Income Statement Variances
Second Quarter 20052006 Compared to Second Quarter 20042005
Other operation and maintenance expensesincome increased primarily due to:
The increase was partially offset by a decrease of $4.1 million in contract costs as a result of maintenance outages at fossil plants in 2004.
Depreciation and amortization expenses decreased primarily due to a change in the depreciation rate for Waterford 3 as approved by the LPSC effective April 2005.
Other income decreased primarily due to the write-off of $7.1 million in June 2005 of a portion of the customer care system investment and the related allowance for equity funds used during construction pursuant to an LPSC-approved settlement. The decrease was partially offset by an increase of $2.1 million in interest income earned primarily on deferred fuel and capacity charges.
Six Months Ended June 30, 20052006 Compared to Six Months Ended June 30, 20042005
Other operation and maintenance expenses increaseddecreased primarily due to:
Other incomeThe decrease was offset by:
Depreciation and amortization expenses decreased primarily due to a change in the depreciation rate for Waterford 3 as approved by the LPSC effective April 2005 and a revision in 2005 of estimated depreciable lives involving certain intangible assets.
Other income increased primarily due to:
Income Taxes
The effective income tax rates for the second quarters of 2006 and 2005 were 38.4% and 2004 were 40.0% and 38.5%, respectively. The effective income tax rates for the six months ended June 30, 2006 and 2005 were 38.9% and 2004 were 39.8% and 38.1%, respectively. The difference in the effective income tax rate for the second quarter of 2006 and the six months ended June 30, 2006 and 2005 versus the federal statutory rate of 35.0% is primarily due to book and tax differences related to utility plant and state income taxes, partially offset by book and tax differences related to the allowance for equity
73
funds used during construction and the amortization of investment tax credits. The difference in the effective income tax rate for the second quarter of 2005 versus the federal statutory rate of 35.0% is primarily due to state income taxes, book and tax differences related to utility plant items, and a federal tax reserve estimate revision necessary to appropriately provide for prior tax periods. The difference in the effective income tax rate for the six months ended June 30, 2005 versus the federal statutory rate of 35.0% is primarily due to state income taxes and book and tax differences related to utility plant items, partially offset by the amortization of investment tax credits and book and tax differences related to the allowance for funds used during construction. The difference in the effective income tax rate for the second quarter 2 004 and the six months ended June 30, 2004 versus the federal statutory rate of 35.0% is primarily due to book and tax differences related to utility plant items and state income taxes, partially offset by the amortization of investment tax credits.
Liquidity and Capital Resources
Cash Flow
Cash flows for the six months ended June 30, 20052006 and 20042005 were as follows:
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| 2005 |
| 2004 |
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| 2006 |
| 2005 |
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| (In Thousands) |
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| (In Thousands) | ||||
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Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period |
| $146,049 |
| $8,787 | Cash and cash equivalents at beginning of period |
| $105,285 |
| $146,049 |
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Cash flow provided by (used in): | Cash flow provided by (used in): |
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| Operating activities |
| 220,270 |
| 89,012 | Operating activities |
| 231,532 |
| 69,063 |
| Investing activities |
| (335,554) |
| (98,594) | Investing activities |
| (287,999) |
| (295,005) |
| Financing activities |
| (28,246) |
| 53,144 | Financing activities |
| (45,979) |
| 82,412 |
Net increase (decrease) in cash and cash equivalents |
| (143,530) |
| 43,562 | ||||||
Net decrease in cash and cash equivalents | Net decrease in cash and cash equivalents |
| (102,446) |
| (143,530) | |||||
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Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $2,519 |
| $52,349 | Cash and cash equivalents at end of period |
| $2,839 |
| $2,519 |
Operating Activities
Cash flow from operations increased $131.3$162.5 million for the six months ended June 30, 2006 compared to the six months ended June 30, 2005 primarily due to timing of collections of receivables from customers.
Investing Activities
Cash flow used by investing activities decreased $7.0 million for the six months ended June 30, 2006 compared to the six months ended June 30, 2005. Following are the significant investing activities occurring during the first six months of 2006 and 2005:
Financing Activities
Entergy Louisiana used $46.0 million of cash for financing activities for the six months ended June 30, 2006 compared to providing $82.4 million for the six months ended June 30, 2005 comparedprimarily due to:
Partially offsetting the above was the payment of $24.5 million of common stock dividends in 2005.
74
Capital Structure
Entergy Louisiana's capitalization is balanced between equity and debt, as shown in the following table. The decrease in debt to the six months ended June 30, 2004capital for Entergy Louisiana is primarily due to money pool activity, which provided $151.2 millionan increase in members' equity due to additional equity from its parent because of a revision in the estimate of the tax liabilities allocated to Entergy Louisiana Holdings in the merger-by-division that created Entergy Louisiana, LLC.
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| June 30, | December 31, | |
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Net debt to net capital |
| 47.1% | 49.2% | |
Effect of subtracting cash from debt |
| 0.1% | 2.1% | |
Debt to capital |
| 47.2% | 51.3% |
Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable, capital lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and members' equity. Net capital consists of capital less cash and cash equivalents. Entergy Louisiana uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Louisiana's financial condition.
Uses and Sources of Capital
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Louisiana's operating cash flows in the first six monthsuses and sources of 2005 and used $84.9 million in the first six months of 2004. The increase was partially offset by decreased recovery of deferred fuel costs. capital.
Entergy Louisiana's receivables from or (payables to) the money pool were as follows:
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
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($110,658) |
| $40,549 |
| $43,577 |
| ($41,317) |
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
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($90,879) |
| ($68,677) |
| ($110,658) |
| $40,549 |
See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.
Investing Activities
The increase of $237.0 million in net cash used in investing activities for the six months ended June 30, 2005 compared to the six months ended June 30, 2004 is primarily due to:
Financing Activities
Entergy Louisiana used $28.2 million of cash for financing activities for the six months ended June 30, 2005 compared to providing $53.1 million for the six months ended June 30, 2004 primarily due to the issuance of $100 million of 5.5% Series First Mortgage Bonds in March 2004, partially offset by a principal payment of $14.8 million in 2004 on the Waterford 3 Lease Obligation. See Note 3 to the domestic utility companies and System Energy financial statements for the details of Entergy Louisiana's long-term debt activity in 2005.
Uses and Sources of Capital
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Liquidity and Capital Resources"in the Form 10-K for a discussion of Entergy Louisiana's uses and sources of capital. Following are updates to the information provided in the Form 10-K.
In May 2005,April 2006, Entergy Louisiana entered into a credit facility for $85 million and Entergy Arkansas renewed itsLouisiana's $85 million credit facility with the same lender. Either company can borrow up to the full amount on its respective facility, but at no time can the combined amount of outstanding borrowings on the two facilities exceed $85 million. There were no outstanding borrowings under eitherexpired and was not renewed. Also, Entergy Louisiana's $15 million credit facility as of June 30, 2005.expired in May 2006 and was not renewed.
In July 2005,June 2006, Entergy Louisiana and Entergy New Orleans renewed their 364-day credit facilities with the same lender through May 2006. Entergy New Orleans increased the amountredeemed, prior to maturity, $25 million of its credit facility to $15 million, the same amount as Entergy Louisiana's facility. Either company can borrow up to the full amount on its respective facility, but at no time can the combined amount5.95% Series of outstanding borrowings on the two facilities exceed $15 million. There were no outstanding borrowings under either credit facility as of June 30, 2005.St. Charles Parish bonds.
Significant Factors and Known Trends
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends" in the Form 10-K for a discussion of utility restructuring, state and local rate regulation, federal regulation and proceedings, industrial and commercial customers,the Energy Policy Act of 2005, utility restructuring, market and credit risks, nuclear matters, environmental risks, and litigation risks. Following are updates to the information provided in the Form 10-K.
State and Local Rate Regulation
In March 2005, the LPSC approved a settlement proposal to resolve various dockets covering a range of issues for Entergy Gulf States and Entergy Louisiana. The settlement resulted in credits of $14 million for retail electricity customers of Entergy Louisiana. The settlement dismissed, among other dockets, dockets established to consider issues concerning power purchases forMay 2006, Entergy Louisiana for the summers of 2001, 2002, 2003, and 2004, all prudence issues associated with decisions made through May 2005 related to the nuclear plant uprates at issue in these cases, and an LPSC docket concerning retail issues arising under the System Agreement. The settlement does not include the System Agreement case at FERC. In addition, Entergy Louisiana agreed to forgo recovery of $3.5 million of deferred 2003 capacity costs associated with certain power purchase agreements. The credits were issued in connection with April 2005 billings. Entergy Louisiana reserved for the approximate refund amoun ts.
Refer to "State Rate Regulation" in the Form 10-K for discussion of Entergy Louisiana'sits formula rate plan filing with the LPSC requesting a base rate increase. In March 2005, the LPSC staff and Entergy Louisiana filed a proposed settlement that included an annual base rate increase of approximately $18.3 million which was implemented, subject to refund, effective with May 2005 billings. In May 2005, the LPSC approved a modified settlement which, among other things, reduces depreciation and decommissioning expense due to assuming a life extension of Waterford 3 and results in no change in rates. Subsequently, in June 2005, Entergy Louisiana made a revised compliance filing with the LPSC supporting a revised depreciation rate for Waterford 3, which reflects the removal of interim additions, and a rate increase from the purchase of the Perryville power plant, which results in a net $0.8 million annual rate reduction. Entergy Louisiana reduced rates effective with the first billing cycle in June 2005 and expects to refund excess revenue collected during May 2005, including interest, in the third quarter of 2005.
The May 2005 rate settlement includes the adoption of a three-year formula rate plan, the terms of which include an ROE mid-point of 10.25% for the initial three-year term of2005 test year. The filing shows that Entergy Louisiana's return on equity was within the plan and permit Entergy Louisiana to recover incremental capacity costs outside of a traditional base rate proceeding. Underallowed bandwidth. The filing also indicates that under the formula rate plan over-rider for approved capacity additions, a $121 million rate increase is required to recover LPSC-approved incremental
75
deferred and under-earnings outside an allowed regulatory earnings range of 9.45% to 11.05% will be allocated 60% to customers and 40% toongoing capacity requirements. Entergy Louisiana. The initial formula rate plan filing will be in May 2006 based on a 2005 test year with rates effective September 2006. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreementLouisiana requested recovery of the capacity deferrals over a three-year period, including carrying charges. $51 million of the rate increase is associated with these deferrals. The remaining $70 million of the rate increase is associated with ongoing capacity costs. The filing is subject to a period of LPSC and Entergy Louisiana.Staff review.
Federal Regulation
System Agreement Litigation
On June 1, 2005, the FERC issued a decision in the System Agreement litigation. The domestic utility companies historically have engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement, which has been approved by the FERC. The System Agreement litigation proceedings are described in the Form 10-K.
The FERC decision concluded, among other things, that:
The FERC's June 2005 order would reallocate production costs of the domestic utility companies whose relative total production costs expressed as a percentage of Entergy System average production costs are outside an upper or lower bandwidth. This would be accomplished by payments from domestic utility companies whose production costs are below Entergy System average production costs to domestic utility companies whose production costs are above Entergy System average production costs. An assessment of the potential effects of the FERC's June 2005 order requires assumptions regarding the future total production cost of each domestic utility company, which assumptions include the mix of solid fuel and gas-fired generation available to each company and the costs of natural gas and purchased power. Entergy Louisiana and Entergy Gulf States are more dependent upon gas-fired generation than Entergy Arkansas, Entergy Mississippi, or Entergy New Orleans. Of these, Entergy Arkansas is the l east dependent upon gas-fired generation. Therefore, increases in natural gas prices likely will increase the amount by which Entergy Arkansas' total production costs are below the average production costs of the domestic utility companies. Considerable uncertainty exists regarding future gas prices. Annual average Henry Hub gas prices have varied significantly over recent years, ranging from $1.72/mmBtu to $5.85/mmBtu for the 1995-2004 period, and averaging $3.43/mmBtu during the ten-year period 1995-2004 and $4.58/mmBtu during the five-year period 2000-2004. Recent market conditions have resulted in gas prices that have averaged $5.85/mmBtu for the twelve months ended December 2004. During the 12 month period July 1, 2004 to June 30, 2005 forward gas contracts for each of the next four years based on daily NYMEX close averaged $6.68/mmBtu (2006), $6.25/mmBtu (2007), $5.88/mmBtu (2008) and $5.58/mmBtu (2009). If the FERC's June 2005 order becomes final and if these gas prices occur as assumed, the following potential annual production cost reallocations among the domestic utility companies could result during the 2007-2010 period:
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If natural gas prices deviate by $1/mmBtu up or down, it is expected that Entergy Arkansas' annual payments will change in the same direction by approximately $60 to $70 million.
Various pending motions for rehearing and clarification of the FERC's June 2005 order were filed by parties to the proceeding, including the LPSC, the APSC, the MPSC, and the City Council, and by Entergy Services, Inc., on behalf of the domestic utility companies. Among other things, the LPSC's motion urged the FERC to "clarify" that the FERC's order requires the payments and receipts, to the extent any are required, to be made in 2006 based on production costs incurred in 2004 and 2005. Entergy does not believe that this request for "clarification" is consistent with the FERC order and submitted a response urging the FERC to reject this interpretation and instead find that the annual remedy order by the FERC would be evaluated based on calendar year 2006 production costs, with the first potential payments/receipts, if any were required, made in 2007.
Management believes that any changes in the allocation of production costs resulting from the FERC's June 2005 order and related retail proceedings should result in similar rate changes for retail customers. The timing of recovery of these costs in rates could be the subject of additional proceedings before Entergy's retail regulators. Although the outcome and timing of the FERC and other proceedings cannot be predicted at this time, Entergy Louisiana does not believe that the ultimate resolution of these proceedings will have a material effect on its financial condition or results of operations.Proceedings
See the Form 10-K for discussion of the proceeding that the LPSC commenced before itself regarding the System Agreement. As noted above in "StateEntergy Corporation and Local RateSubsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -," the settlement of various issues involving Entergy Gulf States and Entergy Louisiana that was approved by the LPSC has resolved the System Agreement proceeding before the LPSC, which has been dismissed without prejudice.
Transmission
See the Form 10-K for a discussion of the petition for declaratory order that EntergyAPSC Complaint filed with the FERC in January 2005, andAPSC System Agreement Investigation" for updates regarding Entergy's proceedings involving the System Agreement.
Independent Coordinator of Transmission (ICT) proposal. On March 22, 2005, the FERC issued a declaratory order concluding that: (1) because the Southwest Power Pool (SPP) was the only entity identified as potentially being selected as the ICT
See Entergy Corporation and because the SPP is already a "public utility" there was no need to rule on the questionSubsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -Independent Coordinator of whether the functions of the ICT, alone, would serve to make the ICT a "public utility;Transmission" (2) Entergy will continue to be the "transmission provider" for transmission service across its system and that "the presence of SPP as the ICT will not change the existing balance of jurisdiction between [the FERC] andan update regarding Entergy's retail regulators;" and (3) the FERC "is prepared to grant Entergy's proposed transmission pricing proposal on a two-year experimental basis, subject to certain enhancement and monitoring and reportin g conditions." The enhancements referred to by the FERC involve more fully specifying the responsibilities and duties of the ICT, including defining the ICT's role in the preparation of various transmission expansion plans and the performance of studies related to the granting of transmission or interconnection service. Before Entergy's ICT proposal can be implemented, however, Entergy is required to submit further filings with the FERC regarding the modifications and clarifications to the ICT proposal.
On April 8, 2005 several intervenors filed an Emergency Request for Clarification and Request for Expedited Commission Action seeking to have the FERC: (1) clarify the ICT's role in administering the Available Flowgate Capacity (AFC) methodology; (2) clarify the ICT's role in developing the transmission base plan; (3) clarify what the FERC meant when it required Entergy to provide firm transmission rights to customers that pay for supplemental transmission upgrades; and (4) clarify and confirm following Entergy's filing that the FERC will assess SPP's status as being independent of Entergy.
On April 21, 2005 Entergy filed a request for clarification or rehearing of the FERC's March 22 declaratory order requesting that the FERC clarify the respective role of Entergy and the ICT in developing the inputs or criteria used to create the base plan and in preparing certain studies regarding system expansion. The request for clarification further requests that the FERC clarify that the initial two-year period will commence with the actual start date of ICT operations. In the event that the FERC denies Entergy's request for clarification, then Entergy will seek rehearing on these issues. However, in its request, Entergy requested that FERC not rule on these issues at this time but, instead, that the FERC wait to evaluate these issues until such time as Entergy has filed the more detailed tariff sheets and protocols in its subsequent filing to implement the ICT. Separately, Entergy submitted a letter advising the FERC that it intended to submit on or about May 27, 2005 the filing t o implement the ICT proposal. A joint request for rehearing of the ICT declaratory order was also filed by the City Council, the LPSC, and the MPSC in which the retail regulators expressed their concerns that the findings reached in the declaratory order may result in an expansion of authority of the ICT "that is unnecessary to achieve the [FERC's] goals and is very likely to result in significant increases in the start-up and operational costs of the ICT." The retail regulators request that the FERC not act on their request for rehearing until Entergy has submitted its filing to implement the ICT. The intervenors filed a separate request for rehearing on April 21, 2005 urging the FERC to impose additional conditions on the approval of the ICT and also re-urging the FERC to reject the pricing proposal contained in the ICT proposal.
On May 12, 2005 the FERC issued an order clarifying certain aspects of its March 22 order. In the May 12 order, the FERC indicated that (1) Entergy is to work with the ICT and Entergy's stakeholders to develop procedures by which the ICT will calculate AFCs; (2) Entergy must specifically define the transmission rights that a customer that pays for supplemental upgrades will receive for such payments; (3) the FERC will review the ICT's contract to ensure that the ICT can perform its functions in an independent manner even if SPP is chosen as the ICT; and (4) the initial two-year period will start once the ICT becomes operational.
On May 27, 2005, the domestic utility companies filed the enhanced ICT proposal with the FERC. Entergy believes that the filing is consistent with the FERC guidance received in both the FERC's March 22 and May 12 orders on the ICT. Among other things, the enhanced ICT filing states that the ICT will (1) grant or deny transmission service on the domestic utility companies' transmission system; (2) administer the domestic utility companies' OASIS node for purposes of processing and evaluating transmission service requests and ensuring compliance with the domestic utility companies' obligation to post transmission-related information; (3) develop a base plan for the domestic utility companies' transmission system that will result in the ICT making the determination on whether something should be rolled into the domestic utility companies' transmission rates or directly assigned to the customer requesting or causing an upgrade to be constructed; (4) serve as the reliability coordinator for t he Entergy transmission system; and (5) oversee the operation of the weekly procurement process. The enhanced ICT proposal clarifies the rights that customers receive when they fund a supplemental upgrade and also contains a detailed methodology describing the process by which the ICT will evaluate interconnection-related investments already made on the Entergy System for purposes of determining the future allocation of the uncredited portion of these investments.
On June 3, 2005 a group of generators filed with the FERC a request that the FERC schedule a technical conference on the enhanced ICT proposal in order for Entergy to provide additional information on the enhanced ICT proposal. In response, a stakeholder meeting was held in New Orleans on June 30, 2005. Interventions and comments on the filing are due by August 5, 2005.
In addition, as discussed in the Form 10-K, Entergy Louisiana and Entergy Gulf States have filed an application with the LPSC requesting that the LPSC find that the ICT proposal is a prudent and appropriate course of action. An LPSC hearing on the ICT proposal is currently scheduled for August 2005, however certain intervenors have recently requested that the hearing be delayed until mid-September 2005.
Interconnection Orders
See the Form 10-K for a discussion of the ALJ Initial Decision and FERC order directing Entergy Louisiana to refund, in the form of transmission credits, approximately $15 million in expenses and tax obligations previously paid by a generator. Entergy's request for rehearing was denied by the FERC.
Available Flowgate Capacity Proceedings
See the Form 10-K for a discussion of proceedings at the FERC involving Entergy's Available Flowgate Capacity (AFC) methodology. On March 22, 2005, the FERC issued an order contemporaneously with the ICT declaratory order discussed above that holds the AFC hearing in abeyance pending action on Entergy's upcoming ICT filing. The order holding the hearing in abeyance further indicated that it would cancel the hearing when the ICT begins to perform its functions. On April 8, 2005 several intervenors filed Emergency Motions for Interim Relief and Expedited Commission Action requesting that, during the interim period before the implementation of the ICT, the FERC (1) institute an audit process to examine and modify Entergy's current AFC process; and (2) require SPP to become involved in the AFC stakeholder process and order certain modifications to Entergy's stakeholder process. The audit process being proposed by the intervenors would not involve an independent auditor, but instead wou ld be an investigation performed by a representative from the intervenors, Entergy, and possibly SPP. On April 25, 2005, Entergy filed its response to the emergency motion urging the FERC to reject the intervenors' request for the "audit" because the type of investigation proposed by the intervenors would be neither independent nor fair and would only distract from the implementation of the ICT. Instead, Entergy has proposed that the ICT conduct an independent review of the AFC process and procedures as part of its transition to assuming the identified ICT responsibilities, including the calculation of the AFCs. Entergy further indicated that it would welcome SPP's participation in the current stakeholder process. On April 21, 2005, the intervenors filed a separate request for rehearing arguing that the FERC must allow the AFC hearing to proceed in parallel with the establishment of the ICT. See "Transmission" above for further discussion of AFC.
Federal Legislation
In late July 2005 the U.S. Congress passed broad new energy legislation, the Energy Policy Act of 2005. The legislation contains electricity provisions that, among other things:
The President is expected to sign the Energy Policy Act in August 2005. The Energy Power Act requires several rulemakings by the FERC and other government agencies in order to implement its provisions. Therefore, it will be some time before a full assessment of its effect on Entergy and the energy industry can be completed.
Central States Compact Claim
The Low-Level Radioactive Waste Policy Act of 1980 holds each state responsible for disposal of low-level radioactive waste originating in that state, but allows states to participate in regional compacts to fulfill their responsibilities jointly. Arkansas and Louisiana participate in the Central Interstate Low-Level Radioactive Waste Compact (Central States Compact or Compact). Commencing in 1998, Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana made a series of contributions to the Central States Compact to fund the Central States Compact's development of a low-level radioactive waste disposal facility to be located in Boyd County, Nebraska. In December 1998, Nebraska, the host state for the proposed Central States Compact disposal facility, denied the compact's license application for the proposed disposal facility. Several parties, including the commission that governs the compact (the Compact Commission), filed a lawsuit against Nebraska seeking damages resulting from Nebraska's denial of the proposed facility's license. After a trial, the U.S. District Court concluded that Nebraska violated its good faith obligations regarding the proposed waste disposal facility and rendered a judgment against Nebraska in the amount of $151 million. In August 2004, Nebraska agreed to pay the Compact $141 million in settlement of the judgment. In July 2005, the Compact Commission decided to distribute a substantial portion of the proceeds from the settlement to the nuclear power generators that had contributed funding for the Boyd County facility, including Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana. On August 1, 2005, Nebraska paid the full amount of the settlement to the Compact, and the Compact distributed from the settlement proceeds $23.6 million to Entergy Arkansas, $19.9 million to Entergy Gulf States, and $18.4 million to Entergy Louisiana. Management is still analyzing the accounting treatment of the r eceipts, but expects that some portion of the receipts could result in income for Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana.
Entergy Louisiana Corporate Restructuring
On July 13, 2005, Entergy Louisiana filed with the LPSC an application for authorization to implement a plan of internal restructuring that would, in effect, result in the conversion of its form of business organization from a corporation to a limited liability company. The proposed restructuring is intended to reduce Entergy Louisiana's corporate franchise taxes. The proposed restructuring implements a recommendation from the LPSC staff and, if successfully completed, will result in a decrease in Entergy Louisiana's rates to Louisiana retail customers.
In accordance with the terms of the proposed restructuring, Entergy Louisiana will be converted to a Texas corporation and will hold all the common membership interests in Entergy Louisiana, LLC ("ELL"), a newly organized Texas limited liability company that will be allocated substantially all the assets and liabilities, including debt and lease obligations, of Entergy Louisiana immediately prior to the proposed restructuring. ELL's utility operations would remain subject to the jurisdiction of the LPSC and the FERC to the same extent that they were subject to the jurisdiction of the LPSC and the FERC when they were held by Entergy Louisiana. The proposed restructuring may not be implemented without various authorizations by certain governmental regulatory agencies, including the LPSC, the SEC, the FERC, and the NRC.
In its application to the LPSC, Entergy Louisiana noted that it may redeem a portion of the Entergy Louisiana preferred stock prior to the proposed restructuring and that, if the proposed restructuring is implemented, it anticipates redeeming any remaining Entergy Louisiana preferred stock within three to six months following the implementation of the proposed restructuring.
Any redemption of Entergy Louisiana preferred stock by Entergy Louisiana in connection with the proposed restructuring will be made at the following respective redemption prices as provided in the Entergy Louisiana amended and restated articles of incorporation, whether the redemption occurs before or after the implementation of the proposed restructuring:
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Critical Accounting Estimates
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Louisiana's accounting for nuclear decommissioning costs, unbilled revenue, and qualified pension and other postretirement costs. The followingFollowing is an update to the information provided in the Form 10-K.
Nuclear Decommissioning Coststhat discussion.
InUnbilled Revenue
As discussed in Note 7 to the second quarter of 2005,domestic utility companies and System Energy financial statements, effective January 1, 2006, Entergy Louisiana recorded a revisionreclassified the fuel component of unbilled accounts receivable to deferred fuel and will no longer include the fuel component in its estimated decommissioning cost liabilityunbilled revenue calculation, which is in accordance with a new decommissioning cost study for Waterford 3 that assumes a life extension for the plant. The revised estimate resulted in a $153.6 million reduction in its decommissioning liability, along with a $49.2 million reduction in utility plant and a $104.4 million reduction in the related regulatory asset.treatment.
Recently Issued Accounting Pronouncements
InFASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for Entergy Louisiana in the first quarter 2005, FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - anof 2007. The FASB's objective in issuing this interpretation is to increase comparability among companies in financial reporting of FASB Statement No. 143" (FIN 47).income taxes. FIN 47 requires companies to recognize at fair value48 establishes a liability for"more-likely-than-not" recognition threshold that must be met before a conditional asset retirement obligation when incurred, whichtax benefit can be recognized in the financial statements. If a tax deduction is generally upon an asset's acquisition, construction, development, or through its normal operation. A conditional asset retirement obligation is generallytaken on a legal obligation to incur costs to remove an asset or part of an asset, such as an obligation to comply with environmental regulations and requirements. The obligation is conditional because there is currently no legal requirement to retire or remove the facility that the affected asset is a part of. FIN 47 requires that uncertainty about the timing or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information becomes available. FIN 47 wi ll be effective for Entergy no later than December 31, 2005. Entergytax return, but does not believemeet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded. Entergy Louisiana does not expect that the adoption of FIN 4748 will be material tomaterially affect its financial position, or results of operations, because it estimates that any conditional asset retirement obligations required to be recognized under FIN 47 would be offset by a regulatory asset because of the expected recovery of these future costs in rates.or cash flows.
76
ENTERGY LOUISIANA, INC. | ||||||||||||||||
ENTERGY LOUISIANA, LLC | ENTERGY LOUISIANA, LLC | |||||||||||||||
INCOME STATEMENTS | INCOME STATEMENTS | INCOME STATEMENTS | ||||||||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | For the Three and Six Months Ended June 30, 2006 and 2005 | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||
2005 | 2004 | 2005 | 2004 | 2006 | 2005 | 2006 | 2005 | |||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | |||||||||||||
OPERATING REVENUES | ||||||||||||||||
Domestic electric | $647,748 | $555,511 | $1,128,421 | $1,043,557 | $550,580 | $647,748 | $1,102,637 | $1,128,421 | ||||||||
OPERATING EXPENSES | ||||||||||||||||
Operation and Maintenance: | ||||||||||||||||
Fuel, fuel-related expenses, and | ||||||||||||||||
gas purchased for resale | 127,564 | 129,885 | 265,341 | 267,664 | 105,470 | 127,564 | 309,474 | 265,341 | ||||||||
Purchased power | 226,690 | 178,102 | 397,996 | 335,832 | 212,053 | 226,690 | 388,667 | 397,996 | ||||||||
Nuclear refueling outage expenses | 3,397 | 3,455 | 6,821 | 6,632 | 4,263 | 3,397 | 8,497 | 6,821 | ||||||||
Other operation and maintenance | 99,518 | 93,671 | 188,156 | 171,369 | 98,462 | 99,518 | 182,564 | 188,156 | ||||||||
Decommissioning | 5,155 | 5,443 | 10,872 | 10,799 | 4,271 | 5,155 | 8,467 | 10,872 | ||||||||
Taxes other than income taxes | 18,300 | 18,259 | 36,657 | 34,333 | 15,173 | 18,300 | 31,179 | 36,657 | ||||||||
Depreciation and amortization | 43,645 | 47,951 | 95,453 | 94,537 | 47,417 | 43,645 | 89,502 | 95,453 | ||||||||
Other regulatory credits - net | (17,323) | (5,612) | (30,407) | (10,284) | (11,906) | (17,323) | (28,044) | (30,407) | ||||||||
TOTAL | 506,946 | 471,154 | 970,889 | 910,882 | 475,203 | 506,946 | 990,306 | 970,889 | ||||||||
OPERATING INCOME | 140,802 | 84,357 | 157,532 | 132,675 | 75,377 | 140,802 | 112,331 | 157,532 | ||||||||
OTHER INCOME | ||||||||||||||||
Allowance for equity funds used during construction | 1,840 | 1,519 | 4,377 | 2,869 | 3,590 | 1,840 | 9,177 | 4,377 | ||||||||
Interest and dividend income | 5,074 | 1,931 | 8,140 | 3,658 | 3,810 | 5,074 | 9,252 | 8,140 | ||||||||
Miscellaneous - net | (6,481) | 1,282 | (6,848) | 144 | (620) | (6,481) | (1,418) | (6,848) | ||||||||
TOTAL | 433 | 4,732 | 5,669 | 6,671 | 6,780 | 433 | 17,011 | 5,669 | ||||||||
INTEREST AND OTHER CHARGES | ||||||||||||||||
Interest on long-term debt | 16,852 | 17,878 | 34,691 | 34,336 | 20,625 | 16,852 | 41,003 | 34,691 | ||||||||
Other interest - net | 1,804 | 1,074 | 4,823 | 2,058 | 2,623 | 1,804 | 4,331 | 4,823 | ||||||||
Allowance for borrowed funds used during construction | (990) | (905) | (2,489) | (1,881) | (2,662) | (990) | (6,513) | (2,489) | ||||||||
TOTAL | 17,666 | 18,047 | 37,025 | 34,513 | 20,586 | 17,666 | 38,821 | 37,025 | ||||||||
INCOME BEFORE INCOME TAXES | 123,569 | 71,042 | 126,176 | 104,833 | 61,571 | 123,569 | 90,521 | 126,176 | ||||||||
Income taxes | 49,406 | 27,329 | 50,242 | 39,908 | 23,617 | 49,406 | 35,171 | 50,242 | ||||||||
NET INCOME | 74,163 | 43,713 | 75,934 | 64,925 | 37,954 | 74,163 | 55,350 | 75,934 | ||||||||
Preferred dividend requirements and other | 1,678 | 1,678 | 3,357 | 3,357 | 1,737 | - - | 3,475 | - - | ||||||||
EARNINGS APPLICABLE TO | ||||||||||||||||
COMMON STOCK | $72,485 | $42,035 | $72,577 | $61,568 | ||||||||||||
COMMON EQUITY | $36,217 | $74,163 | $51,875 | $75,934 | ||||||||||||
See Notes to Respective Financial Statements. |
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ENTERGY LOUISIANA, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2005 and 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $75,934 | $64,925 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Reserve for regulatory adjustments | (11,724) | - - | ||
Other regulatory credits - net | (30,407) | (10,284) | ||
Depreciation, amortization, and decommissioning | 106,325 | 105,336 | ||
Deferred income taxes and investment tax credits | 38,961 | 30,803 | ||
Changes in working capital: | ||||
Receivables | (52,011) | (50,835) | ||
Accounts payable | 119,141 | (58,301) | ||
Taxes accrued | 23,337 | 32,834 | ||
Interest accrued | (715) | (3,503) | ||
Deferred fuel costs | (80,330) | (17,039) | ||
Other working capital accounts | (22,957) | (6,575) | ||
Provision for estimated losses and reserves | 2,179 | 2,953 | ||
Changes in other regulatory assets | 17,229 | (11,137) | ||
Other | 35,308 | 9,835 | ||
Net cash flow provided by operating activities | 220,270 | 89,012 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (151,902) | (93,864) | ||
Allowance for equity funds used during construction | 4,377 | 2,869 | ||
Nuclear fuel purchases | (54,158) | - - | ||
Proceeds from the sale/leaseback of nuclear fuel | 54,158 | - - | ||
Payment for purchase of plant | (162,075) | - - | ||
Decommissioning trust contributions and realized | ||||
change in trust assets | (6,153) | (7,599) | ||
Other regulatory investments | (19,801) | - - | ||
Net cash flow used in investing activities | (335,554) | (98,594) | ||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of long-term debt | 54,611 | 99,210 | ||
Retirement of long-term debt | (55,000) | (14,809) | ||
Dividends paid: | ||||
Common stock | (24,500) | (27,900) | ||
Preferred stock | (3,357) | (3,357) | ||
Net cash flow provided by (used in) financing activities | (28,246) | 53,144 | ||
Net increase (decrease) in cash and cash equivalents | (143,530) | 43,562 | ||
Cash and cash equivalents at beginning of period | 146,049 | 8,787 | ||
Cash and cash equivalents at end of period | $2,519 | $52,349 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid during the period for: | ||||
Interest - net of amount capitalized | $38,574 | $38,446 | ||
Income taxes | $11,114 | - - | ||
See Notes to Respective Financial Statements. | ||||
78
ENTERGY LOUISIANA, INC. | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
June 30, 2005 and December 31, 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $2,519 | $3,875 | ||
Temporary cash investments - at cost, | ||||
which approximates market | - - | 142,174 | ||
Total cash and cash equivalents | 2,519 | 146,049 | ||
Accounts receivable: | ||||
Customer | 102,973 | 88,154 | ||
Allowance for doubtful accounts | (2,486) | (3,135) | ||
Associated companies | 10,425 | 43,121 | ||
Other | 13,684 | 13,070 | ||
Accrued unbilled revenues | 212,078 | 143,453 | ||
Total accounts receivable | 336,674 | 284,663 | ||
Deferred fuel costs | 88,984 | 8,654 | ||
Accumulated deferred income taxes | - - | 12,712 | ||
Materials and supplies - at average cost | 74,501 | 77,665 | ||
Deferred nuclear refueling outage costs | 23,246 | 5,605 | ||
Prepayments and other | 12,497 | 6,861 | ||
TOTAL | 538,421 | 542,209 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 14,230 | 14,230 | ||
Decommissioning trust funds | 180,999 | 172,083 | ||
Non-utility property - at cost (less accumulated depreciation) | 21,110 | 21,176 | ||
Other | 4 | 4 | ||
TOTAL | 216,343 | 207,493 | ||
UTILITY PLANT | ||||
Electric | 6,264,851 | 5,985,889 | ||
Property under capital lease | 246,853 | 250,964 | ||
Construction work in progress | 111,383 | 188,848 | ||
Nuclear fuel under capital lease | 75,353 | 31,655 | ||
TOTAL UTILITY PLANT | 6,698,440 | 6,457,356 | ||
Less - accumulated depreciation and amortization | 2,829,721 | 2,799,936 | ||
UTILITY PLANT - NET | 3,868,719 | 3,657,420 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 124,252 | 132,686 | ||
Other regulatory assets | 215,051 | 302,456 | ||
Long-term receivables | 8,222 | 10,736 | ||
Other | 27,267 | 25,994 | ||
TOTAL | 374,792 | 471,872 | ||
TOTAL ASSETS | $4,998,275 | $4,878,994 | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY LOUISIANA, INC. | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
June 30, 2005 and December 31, 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Currently maturing long-term debt | $ - | $55,000 | ||
Accounts payable: | ||||
Associated companies | 174,522 | 57,681 | ||
Other | 130,823 | 128,523 | ||
Customer deposits | 67,558 | 66,963 | ||
Taxes accrued | 34,718 | 7,268 | ||
Accumulated deferred income taxes | 24,967 | - - | ||
Interest accrued | 17,723 | 18,438 | ||
Obligations under capital leases | 22,753 | 22,753 | ||
Other | 10,827 | 10,428 | ||
TOTAL | 483,891 | 367,054 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 1,795,528 | 1,805,410 | ||
Accumulated deferred investment tax credits | 94,081 | 96,130 | ||
Obligations under capital leases | 52,600 | 8,903 | ||
Other regulatory liabilities | 59,702 | 51,260 | ||
Decommissioning | 204,497 | 347,255 | ||
Accumulated provisions | 94,832 | 92,653 | ||
Long-term debt | 985,707 | 930,695 | ||
Other | 106,541 | 106,815 | ||
TOTAL | 3,393,488 | 3,439,121 | ||
Commitments and Contingencies | ||||
SHAREHOLDERS' EQUITY | ||||
Preferred stock without sinking fund | 100,500 | 100,500 | ||
Common stock, no par value, authorized 250,000,000 | ||||
shares; issued 165,173,180 shares in 2005 | ||||
and 2004 | 1,088,900 | 1,088,900 | ||
Capital stock expense and other | (1,718) | (1,718) | ||
Retained earnings | 53,214 | 5,137 | ||
Less - treasury stock, at cost (18,202,573 shares in 2005 and 2004) | 120,000 | 120,000 | ||
TOTAL | 1,120,896 | 1,072,819 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $4,998,275 | $4,878,994 | ||
See Notes to Respective Financial Statements. |
ENTERGY LOUISIANA, INC. | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2005 | 2004 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $172 | $162 | $10 | 6 | ||||
Commercial | 122 | 116 | 6 | 5 | ||||
Industrial | 198 | 191 | 7 | 4 | ||||
Governmental | 10 | 9 | 1 | 11 | ||||
Total retail | 502 | 478 | 24 | 5 | ||||
Sales for resale | ||||||||
Associated companies | 32 | 28 | 4 | 14 | ||||
Non-associated companies | 3 | 3 | - | - - | ||||
Other | 111 | 47 | 64 | 136 | ||||
Total | $648 | $556 | $92 | 17 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 1,894 | 1,888 | 6 | - - | ||||
Commercial | 1,361 | 1,357 | 4 | - - | ||||
Industrial | 3,341 | 3,274 | 67 | 2 | ||||
Governmental | 108 | 104 | 4 | 4 | ||||
Total retail | 6,704 | 6,623 | 81 | 1 | ||||
Sales for resale | ||||||||
Associated companies | 285 | 316 | (31) | (10) | ||||
Non-associated companies | 31 | 28 | 3 | 11 | ||||
Total | 7,020 | 6,967 | 53 | 1 | ||||
Six Months Ended | Increase/ | |||||||
Description | 2005 | 2004 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $337 | $332 | $5 | 2 | ||||
Commercial | 237 | 230 | 7 | 3 | ||||
Industrial | 387 | 377 | 10 | 3 | ||||
Governmental | 20 | 18 | 2 | 11 | ||||
Total retail | 981 | 957 | 24 | 3 | ||||
Sales for resale | ||||||||
Associated companies | 47 | 38 | 9 | 24 | ||||
Non-associated companies | 5 | 7 | (2) | (29) | ||||
Other | 95 | 42 | 53 | 126 | ||||
Total | $1,128 | $1,044 | $84 | 8 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 3,823 | 3,895 | (72) | (2) | ||||
Commercial | 2,647 | 2,640 | 7 | - - | ||||
Industrial | 6,457 | 6,406 | 51 | 1 | ||||
Governmental | 226 | 213 | 13 | 6 | ||||
Total retail | 13,153 | 13,154 | (1) | - - | ||||
Sales for resale | ||||||||
Associated companies | 430 | 422 | 8 | 2 | ||||
Non-associated companies | 45 | 122 | (77) | (63) | ||||
Total | 13,628 | 13,698 | (70) | (1) | ||||
ENTERGY LOUISIANA, LLC | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2006 and 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $55,350 | $75,934 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Reserve for regulatory adjustments | 1,369 | (11,724) | ||
Other regulatory credits - net | (28,044) | (30,407) | ||
Depreciation, amortization, and decommissioning | 97,969 | 106,325 | ||
Deferred income taxes and investment tax credits | 13,810 | 38,961 | ||
Changes in working capital: | ||||
Receivables | 142,012 | (11,462) | ||
Accounts payable | (24,674) | 8,483 | ||
Taxes accrued | 33,040 | 23,337 | ||
Interest accrued | (4,294) | (715) | ||
Deferred fuel costs | (75,432) | (80,330) | ||
Other working capital accounts | 25,539 | (22,957) | ||
Provision for estimated losses and reserves | 5,164 | 2,179 | ||
Changes in other regulatory assets | (2,634) | 17,229 | ||
Other | (7,643) | (45,790) | ||
Net cash flow provided by operating activities | 231,532 | 69,063 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (273,527) | (151,902) | ||
Allowance for equity funds used during construction | 9,177 | 4,377 | ||
Nuclear fuel purchases | - - | (54,158) | ||
Proceeds from the sale/leaseback of nuclear fuel | - - | 54,158 | ||
Payment for purchase of plant | - - | (162,075) | ||
Proceeds from nuclear decommissioning trust fund sales | 11,739 | 12,484 | ||
Investment in nuclear decommissioning trust funds | (16,415) | (18,637) | ||
Change in money pool receivable - net | - - | 40,549 | ||
Other regulatory investments | (18,969) | (19,801) | ||
Net cash flow used in investing activities | (287,995) | (295,005) | ||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of long-term debt | - - | 54,611 | ||
Retirement of long-term debt | (25,000) | (55,000) | ||
Change in money pool payable - net | 22,202 | 110,658 | ||
Changes in short-term borrowings | (40,000) | - - | ||
Distributions paid: | ||||
Common equity | - - | (24,500) | ||
Preferred membership interests | (3,185) | (3,357) | ||
Net cash flow provided by (used in) financing activities | (45,983) | 82,412 | ||
Net decrease in cash and cash equivalents | (102,446) | (143,530) | ||
Cash and cash equivalents at beginning of period | 105,285 | 146,049 | ||
Cash and cash equivalents at end of period | $2,839 | $2,519 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid during the period for: | ||||
Interest - net of amount capitalized | $47,609 | $38,574 | ||
Income taxes | - - | $11,114 | ||
See Notes to Respective Financial Statements. |
79
ENTERGY LOUISIANA, LLC | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
June 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents | $2,839 | $105,285 | ||
Accounts receivable: | ||||
Customer | 95,335 | 176,169 | ||
Allowance for doubtful accounts | (7,445) | (6,141) | ||
Associated companies | 41,245 | 24,453 | ||
Other | 12,718 | 12,553 | ||
Accrued unbilled revenues | 73,081 | 149,908 | ||
Total accounts receivable | 214,934 | 356,942 | ||
Deferred fuel costs | 29,319 | 21,885 | ||
Accumulated deferred income taxes | - - | 3,884 | ||
Materials and supplies - at average cost | 95,928 | 92,275 | ||
Deferred nuclear refueling outage costs | 6,334 | 15,337 | ||
Prepayments and other | 9,567 | 173,055 | ||
TOTAL | 358,921 | 768,663 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Decommissioning trust funds | 191,274 | 187,101 | ||
Non-utility property - at cost (less accumulated depreciation) | 1,761 | 1,852 | ||
Other | 4 | 4 | ||
TOTAL | 193,039 | 188,957 | ||
UTILITY PLANT | ||||
Electric | 6,495,427 | 6,233,711 | ||
Property under capital lease | 250,610 | 250,610 | ||
Construction work in progress | 220,952 | 415,475 | ||
Nuclear fuel under capital lease | 40,289 | 58,492 | ||
TOTAL UTILITY PLANT | 7,007,278 | 6,958,288 | ||
Less - accumulated depreciation and amortization | 2,808,533 | 2,805,944 | ||
UTILITY PLANT - NET | 4,198,745 | 4,152,344 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 76,018 | 104,893 | ||
Other regulatory assets | 607,328 | 599,451 | ||
Deferred fuel costs | 67,998 | - - | ||
Long-term receivables | 6,557 | 8,222 | ||
Other | 31,305 | 32,523 | ||
TOTAL | 789,206 | 745,089 | ||
TOTAL ASSETS | $5,539,911 | $5,855,053 | ||
See Notes to Respective Financial Statements. | ||||
80 | ||||
ENTERGY LOUISIANA, LLC | ||||
BALANCE SHEETS | ||||
LIABILITIES AND MEMBERS' EQUITY | ||||
June 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Notes payable | $- | $40,000 | ||
Accounts payable: | ||||
Associated companies | 168,936 | 121,382 | ||
Other | 205,865 | 398,507 | ||
Customer deposits | 68,617 | 66,705 | ||
Taxes accrued | 47,037 | 88,548 | ||
Accumulated deferred income taxes | 21,524 | - - | ||
Interest accrued | 24,148 | 28,442 | ||
Obligations under capital leases | 33,463 | 22,753 | ||
Other | 33,058 | 8,721 | ||
TOTAL | 602,648 | 775,058 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 1,860,334 | 2,055,083 | ||
Accumulated deferred investment tax credits | 90,841 | 92,439 | ||
Obligations under capital leases | 6,826 | 35,740 | ||
Other regulatory liabilities | 42,383 | 58,129 | ||
Decommissioning | 229,759 | 221,291 | ||
Accumulated provisions | 98,329 | 93,165 | ||
Long-term debt | 1,147,412 | 1,172,400 | ||
Other | 138,776 | 146,576 | ||
TOTAL | 3,614,660 | 3,874,823 | ||
Commitments and Contingencies | ||||
MEMBERS' EQUITY | ||||
Preferred membership interests without sinking fund | 100,000 | 100,000 | ||
Members' equity | 1,222,603 | 1,105,172 | ||
TOTAL | 1,322,603 | 1,205,172 | ||
TOTAL LIABILITIES AND MEMBERS' EQUITY | $5,539,911 | $5,855,053 | ||
See Notes to Respective Financial Statements. |
81
ENTERGY LOUISIANA, LLC | ||||
STATEMENTS OF MEMBERS' EQUITY | ||||
For the Three and Six Months Ended June 30, 2006 and 2005 | ||||
(Unaudited) | ||||
Three Months Ended | ||||
2006 | 2005 | |||
(In Thousands) | ||||
MEMBERS' EQUITY | ||||
Members' Equity - Beginning of period | $1,186,436 | $1,029,317 | ||
Add: | ||||
Net income | 37,954 | 74,163 | ||
Deduct: | ||||
Distributions declared: | ||||
Common equity | - - | 22,700 | ||
Preferred membership interests | 1,737 | - - | ||
Other | 50 | - - | ||
1,787 | 22,700 | |||
Members' Equity - End of period | $1,222,603 | $1,080,780 | ||
Six Months Ended | ||||
2006 | 2005 | |||
(In Thousands) | ||||
MEMBERS' EQUITY | ||||
Members' Equity - Beginning of period | $1,105,172 | $1,029,346 | ||
Add: | ||||
Net income | 55,350 | 75,934 | ||
Additional equity from parent | 65,703 | - | ||
121,053 | 75,934 | |||
Deduct: | ||||
Distributions declared: | ||||
Common equity | - - | 24,500 | ||
Preferred membership interests | 3,475 | - - | ||
Other | 147 | - - | ||
3,622 | 24,500 | |||
Members' Equity - End of period | $1,222,603 | $1,080,780 | ||
See Notes to Respective Financial Statements. |
82
ENTERGY LOUISIANA, LLC | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $163 | $172 | ($9) | (5) | ||||
Commercial | 116 | 122 | (6) | (5) | ||||
Industrial | 177 | 198 | (21) | (11) | ||||
Governmental | 9 | 10 | (1) | (10) | ||||
Total retail | 465 | 502 | (37) | (7) | ||||
Sales for resale | ||||||||
Associated companies | 53 | 32 | 21 | 66 | ||||
Non-associated companies | 3 | 3 | - | - - | ||||
Other | 30 | 111 | (81) | (73) | ||||
Total | $551 | $648 | ($97) | (15) | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 1,947 | 1,894 | 53 | 3 | ||||
Commercial | 1,382 | 1,361 | 21 | 2 | ||||
Industrial | 3,175 | 3,341 | (166) | (5) | ||||
Governmental | 105 | 108 | (3) | (3) | ||||
Total retail | 6,609 | 6,704 | (95) | (1) | ||||
Sales for resale | ||||||||
Associated companies | 571 | 285 | 286 | 100 | ||||
Non-associated companies | 25 | 31 | (6) | (19) | ||||
Total | 7,205 | 7,020 | 185 | 3 | ||||
Six Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $324 | $337 | ($13) | (4) | ||||
Commercial | 235 | 237 | (2) | (1) | ||||
Industrial | 370 | 387 | (17) | (4) | ||||
Governmental | 19 | 20 | (1) | (5) | ||||
Total retail | 948 | 981 | (33) | (3) | ||||
Sales for resale | ||||||||
Associated companies | 133 | 47 | 86 | 183 | ||||
Non-associated companies | 5 | 5 | - | - - | ||||
Other | 17 | 95 | (78) | (82) | ||||
Total | $1,103 | $1,128 | ($25) | (2) | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 3,718 | 3,823 | (105) | (3) | ||||
Commercial | 2,628 | 2,647 | (19) | (1) | ||||
Industrial | 6,069 | 6,457 | (388) | (6) | ||||
Governmental | 216 | 226 | (10) | (4) | ||||
Total retail | 12,631 | 13,153 | (522) | (4) | ||||
Sales for resale | ||||||||
Associated companies | 1,295 | 430 | 865 | 201 | ||||
Non-associated companies | 39 | 45 | (6) | (13) | ||||
Total | 13,965 | 13,628 | 337 | 2 | ||||
83
ENTERGY MISSISSIPPI, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Hurricane Katrina
See the Form 10-K for a discussion of the effects of Hurricane Katrina, which hit Entergy Mississippi's service territory in August 2005 causing power outages and significant infrastructure damage to Entergy Mississippi's distribution and transmission systems. Entergy Mississippi currently estimates that its total restoration costs for the repair and/or replacement of its electric facilities damaged by Hurricane Katrina, and business continuity costs, and a small amount of damage caused by Hurricane Rita, will be $107 million.
As discussed in the Form 10-K, a federal hurricane aid package became law that includes funding for Community Development Block Grants (CDBG) that allows state and local leaders to fund individual recovery priorities. The law permits funding for infrastructure restoration. It is uncertain how much funding, if any, will be designated for utility reconstruction and the timing of such decisions is also uncertain. The U.S. Department of Housing and Urban Development has allocated approximately $10.4 billion for Louisiana, $5.1 billion for Mississippi, and $74 million for Texas, with an additional $1 billion approved by Congress but not yet allocated to the states. The states, in turn, will administer the grants. As discussed below, in June 2006 Entergy Mississippi filed a request with the Mississippi Development Authority for $89 million of CDBG funding for reimbursement of its Hurricane Katrina infrastructure restoration costs.
As discussed in the Form 10-K, in December 2005, Entergy Mississippi filed with the MPSC a Notice of Intent to change rates by implementing a Storm Damage Rider to recover storm damage restoration costs associated with Hurricanes Katrina and Rita totaling approximately $84 million as of November 30, 2005. In February 2006, Entergy Mississippi filed an Application for an Accounting Order seeking certification by the MPSC of Entergy Mississippi's estimated $36 million of storm restoration costs not included in the December 2005 filing. In March 2006, the Governor signed a law that established a mechanism by which the MPSC may authorize and certify an electric utility financing order and the state may issue general obligation bonds to pay the costs of repairing damage caused by Hurricane Katrina to the systems of investor-owned electric utilities. Because of the passage of this law and the possibility of Entergy Mississippi obtaining CDBG funds for Hurricane Katrina storm res toration costs, in March 2006, the MPSC issued an order approving a Joint Stipulation between Entergy Mississippi and the Mississippi Public Utilities Staff that provided for the review of Entergy Mississippi's total storm restoration costs in the Application for an Accounting Order proceeding. The Stipulation stated that the procedural schedule of the December 2005 Notice of Intent filing should be suspended until the MPSC issues a final order in the Application for an Accounting Order proceeding.
In June 2006, the MPSC issued an order certifying Entergy Mississippi's Hurricane Katrina restoration costs incurred through March 31, 2006 of $89 million, net of estimated insurance proceeds. Two days later Entergy Mississippi filed a request with the Mississippi Development Authority for $89 million of CDBG funding for reimbursement of its infrastructure restoration costs. Entergy Mississippi also filed a Petition for Financing Order with the MPSC for authorization of state general obligation bond financing of $169 million for Hurricane Katrina restoration costs and future storm costs. The $169 million amount includes Hurricane Katrina restoration costs plus $80 million to build Entergy Mississippi's storm damage reserve for the future. The amount financed through the bonds will be reduced dollar for dollar by any CDBG funds that Entergy Mississippi receives. Pursuant to the legislation, the MPSC must issue a financing order by the end of October 2006.
84
Results of Operations
Net Income
Second Quarter 20052006 Compared to Second Quarter 20042005
Net income decreased $3.1increased $2.0 million primarily due to higher net revenue, partially offset by higher other operation and maintenance expenses, higher depreciation and amortization expense, and higher taxes other than income taxes, partially offset by lower interest expense.
Six Months Ended June 30, 20052006 Compared to Six Months Ended June 30, 20042005
Net income decreased $4.5$1.9 million primarily due to higher other operation and maintenance expenses, higher depreciation and amortization expense, and higher taxes other than income taxes, and higher interest expense, partially offset by higher net revenue and lower interest expense.revenue.
Net Revenue
Second Quarter 20052006 Compared to Second Quarter 20042005
Net revenue, which is Entergy Mississippi's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 2)3) other regulatory credits. NetFollowing is an analysis of the change in net revenue was relatively unchanged comparing the second quarter of 20052006 to the second quarter of 2004.2005.
Amount | ||
(In Millions) | ||
|
| |
|
| |
2005 net revenue | $116.4 | |
Deferral of Attala costs | 6.6 | |
Volume/weather | 4.3 | |
Reserve equalization | (2.1) | |
Other | (0.4) | |
2006 net revenue | $124.8 |
The deferral of Attala costs variance is primarily due to the under-recovery of Attala power plant costs that will be recovered through the power management rider. The net income effect of this cost deferral is partially offset by Attala costs in other operation and maintenance expenses, depreciation expense, and taxes other than income taxes.
The volume/weather variance is primarily due to an increase in electricity usage, including the effect of more favorable weather during the second quarter of 2006 compared to the second quarter of 2005. Billed electricity usage increased a total of 173 GWh in the service territory.
The reserve equalization variance is primarily due to changes in the Entergy System generation mix compared to the same period in 2005 and a revision of reserve equalization payments among Entergy companies due to a FERC ruling regarding the inclusion of interruptible loads in reserve equalization calculations.
Gross operating revenues, fuel and purchased power expenses, and other regulatory credits
Gross operating revenues increased primarily due to an increase of $104 million in fuel cost recovery revenues due to higher fuel rates.
Fuel and purchased power expenses increased primarily due to increased recovery of fuel and purchased power costs due to an increase in fuel rates. The increase was also due to an increase in demand.
85
Other regulatory credits increased primarily due to the refunding through the power management recovery rider in 2006 of over-recoveries in 2005 as a result of gains recorded on gas hedging contracts, in addition to the under-recovery of Attala costs, discussed above. There is no material effect on net income due to quarterly adjustments to the power management recovery rider.
Six Months Ended June 30, 20052006 Compared to Six Months Ended June 30, 20042005
Net revenue, which is Entergy Mississippi's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 2)3) other regulatory credits. Following is an analysis of the change in net revenue comparing the six months ended June 30, 20052006 to the six months ended June 30, 2004.2005.
Amount | ||
(In Millions) | ||
| $ | |
Deferral of Attala costs | 14.5 | |
Reserve equalization |
| |
Other |
| |
| $ |
The deferral of Attala costs variance is primarily due to the under-recovery of Attala power plant costs that will be recovered through the power management rider. The net income effect of this cost deferral is partially offset by Attala costs in other operation and maintenance expenses, depreciation expense, and taxes other than income taxes.
The reserve equalization variance is primarily due to purchasechanges in the Entergy System generation mix compared to the same period in 2005 and a revision of reserve equalization payments among Entergy companies due to a FERC ruling regarding the inclusion of interruptible loads in reserve equalization calculations.
Gross operating revenues, fuel and purchased power agreementexpenses, and other regulatory credits
Gross operating revenues increased primarily due to an increase of $239 million in fuel cost recovery revenues due to higher fuel rates.
Fuel and purchased power expenses increased primarily due to increased recovery of fuel and purchased power costs due to an increase in fuel rates. The increase was also due to an increase in demand.
Other regulatory credits increased primarily due to the refunding through the power management recovery rider in 2006 of over-recoveries in 2005 as a result of gains recorded on gas hedging contracts, during 2005 which were not in place during 2004.addition to the under-recovery of Attala costs, discussed above. There is no material effect on net income due to quarterly adjustments to the power management recovery rider.
Other Income Statement Variances
Second Quarter 20052006 Compared to Second Quarter 2004
2005
Other operation and maintenance expensesexpense increased primarily due to:
86
The increase was partially offset by a decrease of $1.1$1.6 million in customer service support costs.vegetation maintenance costs in 2006.
Depreciation and amortization expense increased primarily due to an increase in plant in service.
Taxes other than income taxesInterest expense increased primarily due to higher assessment of ad valorem and franchise taxes.
Interest expense decreased primarily dueadditional long-term debt issued to net redemption of $35 million of First Mortgage Bonds during 2004.finance the Attala power plant purchase.
Six Months Ended June 30, 20052006 Compared to Six Months Ended June 30, 20042005
Other operation and maintenance expensesexpense increased primarily due to:
The increase was partially offset by a decrease of $1.0$2.8 million in customer service support costs.
Depreciation and amortization expense increased primarily due to an increasevegetation maintenance costs in plant in service.2006.
Taxes other than income taxes increased primarily due to higher assessment ofassessed values for ad valorem tax purposes as a result of the Attala plant purchase and higher franchise taxes.taxes in 2006 due to higher revenues.
Interest expense decreasedincreased primarily due to net redemption of $35 million of First Mortgage Bonds during 2004.additional long-term debt issued to finance the Attala power plant purchase.
Income Taxes
The effective income tax rates for the second quarters of 2006 and 2005 were 35.1% and 200434.9%, respectively. The effective income tax rates for the six months ended June 30, 2006 and 2005 were 34.9%31.7% and 37.0%33.5%, respectively. The difference in the effective tax rate for the second quarter of 2004six months ended June 30, 2006 versus the federal statutory rate of 35.0% is primarily due to state income taxesbook and tax differences related to the allowance for equity funds used during construction, the amortization of investment tax credits, and book and tax differences related to utility plant items, partially offset by the amortization of investment tax credits and book and tax differences related to the allowance of equity funds used during construction. The effectivestate income tax rates for the six months ended June 30, 2005 and 2004 were 33.5% and 35.8%, respectively.taxes. The difference in the effective tax rate for the six months ended June 30, 2005 versus the federal statutory rate of 35.0%35% is primarily due to book and tax differences related to the allowance of equity funds used during construction and the amortization of investment tax credits, partially offset by state income taxes.
Liquidity and Capital Resources
Cash Flow
Cash flows for the six months ended June 30, 20052006 and 20042005 were as follows:
|
|
| 2005 |
| 2004 |
|
| 2006 |
| 2005 |
|
|
| (In Thousands) |
|
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period |
| $80,396 |
| $63,838 | Cash and cash equivalents at beginning of period |
| $4,523 |
| $80,396 |
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in): | Cash flow provided by (used in): |
|
|
|
| Cash flow provided by (used in): |
|
|
|
|
| Operating activities |
| 16,495 |
| 51,564 | Operating activities |
| 221,502 |
| 48,399 |
| Investing activities |
| (67,416) |
| (69,180) | Investing activities |
| (200,314) |
| (99,320) |
| Financing activities |
| 16,255 |
| (28,296) | Financing activities |
| 12,293 |
| 16,255 |
Net decrease in cash and cash equivalents |
| (34,666) |
| (45,912) | ||||||
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents |
| 33,481 |
| (34,666) | |||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $45,730 |
| $17,926 | Cash and cash equivalents at end of period |
| $38,004 |
| $45,730 |
87
Operating Activities
Cash flow from operations decreased $35.1increased $173.1 million for the six months ended June 30, 20052006 compared to the six months ended June 30, 20042005 primarily due to money pool activity.increased collection of deferred fuel and purchased power costs and the income tax refund discussed below, partially offset by the timing of payments to vendors.
In the first quarter of 2006, Entergy Mississippi's receivables fromCorporation received an income tax refund as a result of net operating loss carryback provisions contained in the money pool wereGulf Opportunity Zone Act of 2005, as follows:
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$53,488 |
| $21,584 |
| $12,000 |
| $22,076 |
Money pool activity used $31.9 million of Entergy Mississippi's operating cash flow for the six months ended June 30, 2005 and provided $10.1 million of Entergy Mississippi's operating cash flow for the six months ended June 30, 2004. Seediscussed in Note 43 to the domestic utilityutilities companies and System Energy financial statements in the Form 10-K for a description10-K. In accordance with Entergy's intercompany tax allocation agreement, in April 2006 Entergy Corporation distributed $66 million of the money pool.refund to Entergy Mississippi.
Investing Activities
Net cash used in investing activities decreased $1.8increased $101 million for the six months ended June 30, 20052006 compared to the six months ended June 30, 2004. Decreased capital expenditures as a result2005 primarily due to the purchase of decreased spending on transmissionthe 480 MW Attala power plant for $88 million in January 2006 and fossil plant projects was offset by the maturity in 2004 of $7.5 million of other temporary investments that had been made in 2003, which provided cash in 2004.
also due to storm-related spending.
Financing Activities
FinancingNet cash provided by financing activities provided $16.3decreased $4 million for the six months ended June 30, 20052006 compared to using $28.3 million for the six months ended June 30, 20042005 primarily due to amoney pool activity and the issuance of $30 million issuance of preferred stock in 2005, and the net retirement of $39.5 million of long-term debt during 2004, partially offset by cash provided bythe issuance of $100 million of first mortgage bonds during 2006 and a $25decrease of $10 million draw on in common stock dividends paid.
Capital Structure
Entergy Mississippi's short term bank credit facilitycapitalization is balanced between equity and debt, as shown in 2004. See Note 4the following table. The increase in the debt to capital percentage as of June 30, 2006 is primarily due to the domestic utility companiesissuance of $100 million of First Mortgage Bonds in January 2006.
|
| June 30, |
| December 31, |
|
|
|
|
|
|
|
Net debt to net capital |
| 54.0% |
| 52.6% |
|
Effect of subtracting cash from debt |
| 1.3% |
| 0.1% |
|
Debt to capital |
| 55.3% |
| 52.7% |
|
Net debt consists of debt less cash and System Energycash equivalents. Debt consists of notes payable, capital lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and shareholders' equity. Net capital consists of capital less cash and cash equivalents. Entergy Mississippi uses the net debt to net capital ratio in analyzing its financial statements for the details ofcondition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi's preferred stock activity in 2005.financial condition.
Uses and Sources of Capital
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Liquidity and Capital Resources"in the Form 10-K for a discussion of Entergy Mississippi's uses and sources of capital. Following are updates to the information presented in the Form 10-K.
See the table in the Form 10-K under "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYIS -Liquidity and Capital Resources - Uses of Capital" which sets forth the amounts of Entergy Mississippi's planned construction and other capital investments for 20052006 through 2007.2008. In March 2005,January 2006, Entergy Mississippi signed an agreement to purchasepurchased for $88 million the Attala power plant, a 480 MW natural gas-fired, combined-cycle generating facility owned by Central Mississippi Generating Company (CMGC).Company. Entergy Mississippi plans to invest approximately $20 million in
88
facility upgrades at the Attala plant plus $3 million in other costs, bringing the total capital cost of the project to approximately $111 million. The Attala plant will be 100 percent owned by Entergy Mississippi, andIn November 2005, the MPSC issued an order approving the acquisition is expected to close in late 2005 or early 2006. The purchase of the plant is contingent upon obtaining necessary approvals from various federal agencies, state permitting agencies, andAttala plant. In December 2005, the MPSC including MPSC approval of investment cost recovery. In May and June 2005, Entergy Mississippi made filings at the MPSC to commence proceedings for MPSC approval both of the acquisition and ofissued an order approving the investment cost recovery forthrough the plant. power management rider and limited the recovery through the rider to a period that begins with the closing date of the purchase and ends the earlier of the date costs are incorporated into base rates or December 31, 2006.Entergy Mississippi and CMGC had previously executed a purchased power agreementintends to make an appropriate filing with the MPSC in July 2004 for 100 percent2006 to extend recovery in rates beyond 2006 of the plant's output, and this agreement will expire upon the close of the acquisition or in March 2008, whichever occurs earlier.Entergy Mississippi's Attala costs. The planned construction and other capital investments line inincludes the table in the Form 10-K includesmajority of the estimated cost of the Attala acquisition as a 2006 capital commitment.
Entergy Mississippi's receivables from or (payables to) the money pool were as follows:
June 30, |
| December 31, |
| June 30, |
| December 31, |
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$30,499 |
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See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.
In June 2005,May 2006, Entergy Mississippi issued 1,200,000 shares ofincreased its $25 par value 6.25% Series Preferred Stock, all of which aremillion credit facility to $30 million and renewed it through May 2007. Entergy Mississippi also entered into a new $20 million credit facility through May 2007. Borrowings on these credit facilities may be secured by a security interest in Entergy Mississippi's accounts receivable. No borrowings were outstanding on either facility as of June 30, 2005. The dividends are cumulative and will be payable quarterly beginning November 1, 2005. The preferred stock is redeemable on or after July 1, 2010, at Entergy Mississippi's option, at the call price of $25 per share. The proceeds from this issuance were used in the third quarter of 2005 to redeem $20 million of Entergy Mississippi's $100 par value 8.36% Series Preferred Stock and $10 million of Entergy Mississippi's $100 par value 7.44% Series Preferred Stock.2006.
In April 2005,January 2006, Entergy Mississippi renewed its 364-day credit facility through May 31, 2006. The amount available under the credit facility is $25issued $100 million of which none was drawn at June 30, 2005.5.92% Series of First Mortgage Bonds due February 2016. Entergy Mississippi used the proceeds to purchase the Attala power plant and to repay short-term indebtedness.
Significant Factors and Known Trends
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends" in the Form 10-K for a discussion of, utility restructuring, state and local rate regulation, federal regulation and proceedings and the Energy Policy Act of 2005, and market and credit risks, state and local regulatory risks, and litigation risks. The following are updates to the information provided in the Form 10-K.
State and Local Rate Regulation
In May 2005, the MPSC approved a joint stipulation entered into between the Mississippi Public Utilities Staff andMarch 2006, Entergy Mississippi regarding Entergy Mississippi'smade its annual scheduled formula rate plan filing with the MPSC. The filing was amended by an April 2006 filing. The amended filing showed that providesan increase of $3.1 million in electric revenues is warranted. The MPSC has approved a settlement providing for no changea $1.8 million rate increase, which will be implemented in rates based on a performance-adjusted ROE mid-point of 10.50%, establishing an allowed regulatory earnings range of 9.1% to 11.9%.August 2006.
Federal Regulation
System Agreement Litigation
On June 1, 2005, the FERC issued a decision in the System Agreement litigation. The domestic utility companies historically have engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement, which has been approved by the FERC. The System Agreement litigation proceedings are described in the Form 10-K.
The FERC decision concluded, among other things, that:
The FERC's June 2005 order would reallocate production costs of the domestic utility companies whose relative total production costs expressed as a percentage of Entergy System average production costs are outside an upper or lower bandwidth. This would be accomplished by payments from domestic utility companies whose production costs are below Entergy System average production costs to domestic utility companies whose production costs are above Entergy System average production costs. An assessment of the potential effects of the FERC's June 2005 order requires assumptions regarding the future total production cost of each domestic utility company, which assumptions include the mix of solid fuel and gas-fired generation available to each company and the costs of natural gas and purchased power. Entergy Louisiana and Entergy Gulf States are more dependent upon gas-fired generation than Entergy Arkansas, Entergy Mississippi, or Entergy New Orleans. Of these, Entergy Arkansas is the l east dependent upon gas-fired generation. Therefore, increases in natural gas prices likely will increase the amount by which Entergy Arkansas' total production costs are below the average production costs of the domestic utility companies. Considerable uncertainty exists regarding future gas prices. Annual average Henry Hub gas prices have varied significantly over recent years, ranging from $1.72/mmBtu to $5.85/mmBtu for the 1995-2004 period, and averaging $3.43/mmBtu during the ten-year period 1995-2004 and $4.58/mmBtu during the five-year period 2000-2004. Recent market conditions have resulted in gas prices that have averaged $5.85/mmBtu for the twelve months ended December 2004. During the 12 month period July 1, 2004 to June 30, 2005 forward gas contracts for each of the next four years based on daily NYMEX close averaged $6.68/mmBtu (2006), $6.25/mmBtu (2007), $5.88/mmBtu (2008) and $5.58/mmBtu (2009). If the FERC's June 2005 order becomes final and if these gas prices occur as assumed, the following potential annual production cost reallocations among the domestic utility companies could result during the 2007-2010 period:
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If natural gas prices deviate by $1/mmBtu up or down, it is expected that Entergy Arkansas' annual payments will change in the same direction by approximately $60 to $70 million.
Various pending motions for rehearing and clarification of the FERC's June 2005 order were filed by parties to the proceeding, including the LPSC, the APSC, the MPSC, and the City Council, and by Entergy Services, Inc., on behalf of the domestic utility companies. Among other things, the LPSC's motion urged the FERC to "clarify" that the FERC's order requires the payments and receipts, to the extent any are required, to be made in 2006 based on production costs incurred in 2004 and 2005. Entergy does not believe that this request for "clarification" is consistent with the FERC order and submitted a response urging the FERC to reject this interpretation and instead find that the annual remedy order by the FERC would be evaluated based on calendar year 2006 production costs, with the first potential payments/receipts, if any were required, made in 2007.
Management believes that any changes in the allocation of production costs resulting from the FERC's June 2005 order and related retail proceedings should result in similar rate changes for retail customers. The timing of recovery of these costs in rates could be the subject of additional proceedings before Entergy's retail regulators. Although the outcome and timing of the FERC and other proceedings cannot be predicted at this time, Entergy Mississippi does not believe that the ultimate resolution of these proceedings will have a material effect on its financial condition or results of operations.
TransmissionProceedings
See the Form 10-K for a discussion of the petition for declaratory order that Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -System Agreement Litigation,APSC Complaint filed with the FERC in January 2005, andAPSC System Agreement Investigation" for updates regarding Entergy's proceedings involving the System Agreement.
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Independent Coordinator of Transmission (ICT) proposal. On March 22, 2005, the FERC issued a declaratory order concluding that: (1) because the Southwest Power Pool (SPP) was the only entity identified as potentially being selected as the ICT
See Entergy Corporation and because the SPP is already a "public utility" there was no need to rule on the questionSubsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -Independent Coordinator of whether the functions of the ICT, alone, would serve to make the ICT a "public utility;Transmission" (2) Entergy will continue to be the "transmission provider" for transmission service across its system and that "the presence of SPP as the ICT will not change the existing balance of jurisdiction between [the FERC] and Entergy's retail regulators;" and (3) the FERC "is prepared to grant Entergy's proposed transmission pricing proposal on a two-year experimental basis, subject to certain enhancement and mon itoring and reporting conditions." The enhancements referred to by the FERC involve more fully specifying the responsibilities and duties of the ICT, including defining the ICT's role in the preparation of various transmission expansion plans and the performance of studies related to the granting of transmission or interconnection service. Beforean update regarding Entergy's ICT proposal can be implemented, however, Entergy is required to submit further filings with the FERC regarding the modifications and clarifications to the ICT proposal.
On April 8, 2005 several intervenors filed an Emergency Request for Clarification and Request for Expedited Commission Action seeking to have the FERC: (1) clarify the ICT's role in administering the Available Flowgate Capacity (AFC) methodology; (2) clarify the ICT's role in developing the transmission base plan; (3) clarify what the FERC meant when it required Entergy to provide firm transmission rights to customers that pay for supplemental transmission upgrades; and (4) clarify and confirm following Entergy's filing that the FERC will assess SPP's status as being independent of Entergy.
On April 21, 2005 Entergy filed a request for clarification or rehearing of the FERC's March 22 declaratory order requesting that the FERC clarify the respective role of Entergy and the ICT in developing the inputs or criteria used to create the base plan and in preparing certain studies regarding system expansion. The request for clarification further requests that the FERC clarify that the initial two-year period will commence with the actual start date of ICT operations. In the event that the FERC denies Entergy's request for clarification, then Entergy will seek rehearing on these issues. However, in its request, Entergy requested that FERC not rule on these issues at this time but, instead, that the FERC wait to evaluate these issues until such time as Entergy has filed the more detailed tariff sheets and protocols in its subsequent filing to implement the ICT. Separately, Entergy submitted a letter advising the FERC that it intended to submit on or about May 27, 2005 the filing t o implement the ICT proposal. A joint request for rehearing of the ICT declaratory order was also filed by the City Council, the LPSC, and the MPSC in which the retail regulators expressed their concerns that the findings reached in the declaratory order may result in an expansion of authority of the ICT "that is unnecessary to achieve the [FERC's] goals and is very likely to result in significant increases in the start-up and operational costs of the ICT." The retail regulators request that the FERC not act on their request for rehearing until Entergy has submitted its filing to implement the ICT. The intervenors filed a separate request for rehearing on April 21, 2005 urging the FERC to impose additional conditions on the approval of the ICT and also re-urging the FERC to reject the pricing proposal contained in the ICT proposal.
On May 12, 2005 the FERC issued an order clarifying certain aspects of its March 22 order. In the May 12 order, the FERC indicated that (1) Entergy is to work with the ICT and Entergy's stakeholders to develop procedures by which the ICT will calculate AFCs; (2) Entergy must specifically define the transmission rights that a customer that pays for supplemental upgrades will receive for such payments; (3) the FERC will review the ICT's contract to ensure that the ICT can perform its functions in an independent manner even if SPP is chosen as the ICT; and (4) the initial two-year period will start once the ICT becomes operational.
On May 27, 2005, the domestic utility companies filed the enhanced ICT proposal with the FERC. Entergy believes that the filing is consistent with the FERC guidance received in both the FERC's March 22 and May 12 orders on the ICT. Among other things, the enhanced ICT filing states that the ICT will (1) grant or deny transmission service on the domestic utility companies' transmission system; (2) administer the domestic utility companies' OASIS node for purposes of processing and evaluating transmission service requests and ensuring compliance with the domestic utility companies' obligation to post transmission-related information; (3) develop a base plan for the domestic utility companies' transmission system that will result in the ICT making the determination on whether something should be rolled into the domestic utility companies' transmission rates or directly assigned to the customer requesting or causing an upgrade to be constructed; (4) serve as the reliability coordinator for t he Entergy transmission system; and (5) oversee the operation of the weekly procurement process. The enhanced ICT proposal clarifies the rights that customers receive when they fund a supplemental upgrade and also contains a detailed methodology describing the process by which the ICT will evaluate interconnection-related investments already made on the Entergy System for purposes of determining the future allocation of the uncredited portion of these investments.
On June 3, 2005 a group of generators filed with the FERC a request that the FERC schedule a technical conference on the enhanced ICT proposal in order for Entergy to provide additional information on the enhanced ICT proposal. In response, a stakeholder meeting was held in New Orleans on June 30, 2005. Interventions and comments on the filing are due by August 5, 2005.
In addition, as discussed in the Form 10-K, Entergy Louisiana and Entergy Gulf States have filed an application with the LPSC requesting that the LPSC find that the ICT proposal is a prudent and appropriate course of action. An LPSC hearing on the ICT proposal is currently scheduled for August 2005, however certain intervenors have recently requested that the hearing be delayed until mid-September 2005.
Available Flowgate Capacity Proceedings
See the Form 10-K for a discussion of proceedings at the FERC involving Entergy's Available Flowgate Capacity (AFC) methodology. On March 22, 2005, the FERC issued an order contemporaneously with the ICT declaratory order discussed above that holds the AFC hearing in abeyance pending action on Entergy's upcoming ICT filing. The order holding the hearing in abeyance further indicated that it would cancel the hearing when the ICT begins to perform its functions. On April 8, 2005 several intervenors filed Emergency Motions for Interim Relief and Expedited Commission Action requesting that, during the interim period before the implementation of the ICT, the FERC (1) institute an audit process to examine and modify Entergy's current AFC process; and (2) require SPP to become involved in the AFC stakeholder process and order certain modifications to Entergy's stakeholder process. The audit process being proposed by the intervenors would not involve an independent auditor, but instead wou ld be an investigation performed by a representative from the intervenors, Entergy, and possibly SPP. On April 25, 2005, Entergy filed its response to the emergency motion urging the FERC to reject the intervenors' request for the "audit" because the type of investigation proposed by the intervenors would be neither independent nor fair and would only distract from the implementation of the ICT. Instead, Entergy has proposed that the ICT conduct an independent review of the AFC process and procedures as part of its transition to assuming the identified ICT responsibilities, including the calculation of the AFCs. Entergy further indicated that it would welcome SPP's participation in the current stakeholder process. On April 21, 2005, the intervenors filed a separate request for rehearing arguing that the FERC must allow the AFC hearing to proceed in parallel with the establishment of the ICT. See "Transmission" above for further discussion of AFC.
Federal Legislation
In late July 2005 the U.S. Congress passed broad new energy legislation, the Energy Policy Act of 2005. The legislation contains electricity provisions that, among other things:
The President is expected to sign the Energy Policy Act in August 2005. The Energy Power Act requires several rulemakings by the FERC and other government agencies in order to implement its provisions. Therefore, it will be some time before a full assessment of its effect on Entergy and the energy industry can be completed.
Critical Accounting Estimates
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy Mississippi's accounting for unbilled revenue and pension and other retirement costs.
Recently Issued Accounting Pronouncements
InFASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for Entergy Mississippi in the first quarter 2005, FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - anof 2007. The FASB's objective in issuing this interpretation is to increase comparability among companies in financial reporting of FASB Statement No. 143" (FIN 47).income taxes. FIN 47 requires companies to recognize at fair value48 establishes a liability for"more-likely-than-not" recognition threshold that must be met before a conditional asset retirement obligation when incurred, whichtax benefit can be recognized in the financial statements. If a tax deduction is generally upon an asset's acquisition, construction, development, or through its normal operation. A conditional asset retirement obligation is generallytaken on a legal obligation to incur costs to remove an asset or part of an asset, such as an obligation to comply with environmental regulations and requirements. The obligation is conditional because there is currently no legal requirement to retire or remove the facility that the affected asset is a part of. FIN 47 requires that uncertainty about the timing or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information becomes available. FIN 47 wi ll be effective for Entergy no later than December 31, 2005. Entergytax return, but does not believemeet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded. Entergy Mississippi does not expect that the adoption of FIN 4748 will be material tomaterially affect its financial position, or results of operations, because it estimates that any conditional asset retirement obligations required to be recognized under FIN 47 would be offset by a regulatory asset because of the expected recovery of these future costs in rates.or cash flows.
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ENTERGY MISSISSIPPI, INC. | ENTERGY MISSISSIPPI, INC. | ENTERGY MISSISSIPPI, INC. | ||||||||||||||
INCOME STATEMENTS | INCOME STATEMENTS | INCOME STATEMENTS | ||||||||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | For the Three and Six Months Ended June 30, 2006 and 2005 | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||
2005 | 2004 | 2005 | 2004 | 2006 | 2005 | 2006 | 2005 | |||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | |||||||||||||
OPERATING REVENUES | ||||||||||||||||
Domestic electric | $288,244 | $289,573 | $539,490 | $526,402 | $387,849 | $288,244 | $761,083 | $539,490 | ||||||||
OPERATING EXPENSES | ||||||||||||||||
Operation and Maintenance: | ||||||||||||||||
Fuel, fuel-related expenses, and | ||||||||||||||||
gas purchased for resale | 29,924 | 73,171 | 73,291 | 132,345 | 184,001 | 29,924 | 363,158 | 73,291 | ||||||||
Purchased power | 144,226 | 100,591 | 260,284 | 193,293 | 115,334 | 144,226 | 239,760 | 260,284 | ||||||||
Other operation and maintenance | 47,750 | 44,835 | 88,731 | 81,883 | 50,047 | 47,750 | 91,012 | 88,731 | ||||||||
Taxes other than income taxes | 14,900 | 13,764 | 28,666 | 26,562 | 14,707 | 14,900 | 32,223 | 28,666 | ||||||||
Depreciation and amortization | 17,982 | 15,716 | 35,919 | 30,625 | 19,074 | 17,982 | 36,070 | 35,919 | ||||||||
Other regulatory credits - net | (2,331) | (661) | (1,966) | (3,188) | (36,266) | (2,331) | (56,908) | (1,966) | ||||||||
TOTAL | 252,451 | 247,416 | 484,925 | 461,520 | 346,897 | 252,451 | 705,315 | 484,925 | ||||||||
OPERATING INCOME | 35,793 | 42,157 | 54,565 | 64,882 | 40,952 | 35,793 | 55,768 | 54,565 | ||||||||
OTHER INCOME | ||||||||||||||||
Allowance for equity funds used during construction | 1,060 | 867 | 2,061 | 1,634 | 873 | 1,060 | 2,114 | 2,061 | ||||||||
Interest and dividend income | 690 | 830 | 1,328 | 1,546 | 726 | 690 | 955 | 1,328 | ||||||||
Miscellaneous - net | (322) | 162 | (691) | (478) | (470) | (322) | (1,032) | (691) | ||||||||
TOTAL | 1,428 | 1,859 | 2,698 | 2,702 | 1,129 | 1,428 | 2,037 | 2,698 | ||||||||
INTEREST AND OTHER CHARGES | ||||||||||||||||
Interest on long-term debt | 9,839 | 11,047 | 19,673 | 21,976 | 11,492 | 9,839 | 22,607 | 19,673 | ||||||||
Other interest - net | 828 | 540 | 1,445 | 940 | 757 | 828 | 2,869 | 1,445 | ||||||||
Allowance for borrowed funds used during construction | (681) | (596) | (1,344) | (1,203) | (583) | (681) | (1,397) | (1,344) | ||||||||
TOTAL | 9,986 | 10,991 | 19,774 | 21,713 | 11,666 | 9,986 | 24,079 | 19,774 | ||||||||
INCOME BEFORE INCOME TAXES | 27,235 | 33,025 | 37,489 | 45,871 | 30,415 | 27,235 | 33,726 | 37,489 | ||||||||
Income taxes | 9,516 | 12,217 | 12,548 | 16,425 | 10,668 | 9,516 | 10,682 | 12,548 | ||||||||
NET INCOME | 17,719 | 20,808 | 24,941 | 29,446 | 19,747 | 17,719 | 23,044 | 24,941 | ||||||||
Preferred dividend requirements and other | 858 | 842 | 1,700 | 1,685 | 707 | 858 | 1,414 | 1,700 | ||||||||
EARNINGS APPLICABLE TO | ||||||||||||||||
COMMON STOCK | $16,861 | $19,966 | $23,241 | $27,761 | $19,040 | $16,861 | $21,630 | $23,241 | ||||||||
See Notes to Respective Financial Statements. | ||||||||||||||||
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ENTERGY MISSISSIPPI, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2005 and 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $24,941 | $29,446 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Other regulatory credits - net | (1,966) | (3,188) | ||
Depreciation and amortization | 35,919 | 30,625 | ||
Deferred income taxes and investment tax credits | (499) | 61,417 | ||
Changes in working capital: | ||||
Receivables | (30,332) | (8,986) | ||
Fuel inventory | (776) | 1,072 | ||
Accounts payable | (8,553) | 486 | ||
Taxes accrued | (8,091) | (60,754) | ||
Interest accrued | 525 | (1,528) | ||
Deferred fuel costs | 8,056 | 15,042 | ||
Other working capital accounts | (9) | 3,427 | ||
Provision for estimated losses and reserves | 319 | (771) | ||
Changes in other regulatory assets | (4,326) | (3,448) | ||
Other | 1,287 | (11,276) | ||
Net cash flow provided by operating activities | 16,495 | 51,564 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (69,477) | (78,320) | ||
Allowance for equity funds used during construction | 2,061 | 1,634 | ||
Changes in other temporary investments - net | - | 7,506 | ||
Net cash flow used in investing activities | (67,416) | (69,180) | ||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of long-term debt | - | 178,625 | ||
Proceeds from the issuance of preferred stock | 29,340 | - - | ||
Retirement of long-term debt | - | (218,136) | ||
Changes in short-term borrowings | - | 25,000 | ||
Dividends paid: | ||||
Common stock | (11,400) | (12,100) | ||
Preferred stock | (1,685) | (1,685) | ||
Net cash flow provided by (used in) financing activities | 16,255 | (28,296) | ||
Net decrease in cash and cash equivalents | (34,666) | (45,912) | ||
Cash and cash equivalents at beginning of period | 80,396 | 63,838 | ||
Cash and cash equivalents at end of period | $45,730 | $17,926 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid during the period for: | ||||
Interest - net of amount capitalized | $19,549 | $21,843 | ||
Income taxes | $4,446 | $2,950 | ||
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ENTERGY MISSISSIPPI, INC. | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
June 30, 2005 and December 31, 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $1,482 | $4,716 | ||
Temporary cash investment - at cost, | ||||
which approximates market | 44,248 | 75,680 | ||
Total cash and cash equivalents | 45,730 | 80,396 | ||
Accounts receivable: | ||||
Customer | 59,790 | 68,821 | ||
Allowance for doubtful accounts | (761) | (1,126) | ||
Associated companies | 57,323 | 22,616 | ||
Other | 8,121 | 12,133 | ||
Accrued unbilled revenues | 42,651 | 34,348 | ||
Total accounts receivable | 167,124 | 136,792 | ||
Accumulated deferred income taxes | 27,438 | 27,924 | ||
Fuel inventory - at average cost | 4,913 | 4,137 | ||
Materials and supplies - at average cost | 18,444 | 18,414 | ||
Prepayments and other | 11,246 | 15,413 | ||
TOTAL | 274,895 | 283,076 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 5,531 | 5,531 | ||
Non-utility property - at cost (less accumulated depreciation) | 6,259 | 6,465 | ||
TOTAL | 11,790 | 11,996 | ||
UTILITY PLANT | ||||
Electric | 2,431,311 | 2,385,465 | ||
Property under capital lease | 73 | 95 | ||
Construction work in progress | 97,967 | 89,921 | ||
TOTAL UTILITY PLANT | 2,529,351 | 2,475,481 | ||
Less - accumulated depreciation and amortization | 893,450 | 870,188 | ||
UTILITY PLANT - NET | 1,635,901 | 1,605,293 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 19,009 | 17,628 | ||
Other regulatory assets | 88,529 | 82,674 | ||
Long-term receivable | 3,270 | 4,510 | ||
Other | 31,813 | 31,009 | ||
TOTAL | 142,621 | 135,821 | ||
TOTAL ASSETS | $2,065,207 | $2,036,186 | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY MISSISSIPPI, INC. | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
June 30, 2005 and December 31, 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Accounts payable: | ||||
Associated companies | $ 42,469 | $ 65,806 | ||
Other | 40,327 | 25,543 | ||
Customer deposits | 40,232 | 37,333 | ||
Taxes accrued | 28,261 | 40,106 | ||
Interest accrued | 13,012 | 12,487 | ||
Deferred fuel costs | 30,849 | 22,793 | ||
Obligations under capital leases | 46 | 43 | ||
Other | 2,001 | 8,341 | ||
TOTAL | 197,197 | 212,452 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 443,158 | 438,321 | ||
Accumulated deferred investment tax credits | 13,023 | 13,687 | ||
Obligations under capital leases | 27 | 52 | ||
Accumulated provisions | 13,037 | 12,718 | ||
Long-term debt | 695,109 | 695,073 | ||
Other | 74,663 | 76,071 | ||
TOTAL | 1,239,017 | 1,235,922 | ||
Commitments and Contingencies | ||||
SHAREHOLDERS' EQUITY | ||||
Preferred stock without sinking fund | 80,381 | 50,381 | ||
Common stock, no par value, authorized 12,000,000 | ||||
shares in 2005 and 15,000,000 shares in 2004; | ||||
issued and outstanding 8,666,357 shares in 2005 and 2004 | 199,326 | 199,326 | ||
Capital stock expense and other | (719) | (59) | ||
Retained earnings | 350,005 | 338,164 | ||
TOTAL | 628,993 | 587,812 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $2,065,207 | $2,036,186 | ||
See Notes to Respective Financial Statements. |
ENTERGY MISSISSIPPI, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2006 and 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $23,044 | $24,941 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Other regulatory credits - net | (56,908) | (1,966) | ||
Depreciation and amortization | 36,070 | 35,919 | ||
Deferred income taxes and investment tax credits | (32,541) | (499) | ||
Changes in working capital: | ||||
Receivables | (6,727) | 1,572 | ||
Fuel inventory | (5,295) | (776) | ||
Accounts payable | (23,111) | (8,553) | ||
Taxes accrued | 76,333 | (8,091) | ||
Interest accrued | (377) | 525 | ||
Deferred fuel costs | 207,786 | 8,056 | ||
Other working capital accounts | 70,785 | (9) | ||
Provision for estimated losses and reserves | (31) | 319 | ||
Changes in other regulatory assets | (36,761) | (4,326) | ||
Other | (30,765) | 1,287 | ||
Net cash flow provided by operating activities | 221,502 | 48,399 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (82,229) | (69,477) | ||
Payment for purchase of plant | (88,199) | - - | ||
Allowance for equity funds used during construction | 2,114 | 2,061 | ||
Changes in other temporary investments - net | (1,501) | - - | ||
Change in money pool receivable - net | (30,499) | (31,904) | ||
Net cash flow used in investing activities | (200,314) | (99,320) | ||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of long-term debt | 99,173 | - - | ||
Proceeds from the issuance of preferred stock | - | 29,340 | ||
Change in money pool payable - net | (84,066) | - - | ||
Dividends paid: | ||||
Common stock | (1,400) | (11,400) | ||
Preferred stock | (1,414) | (1,685) | ||
Net cash flow provided by financing activities | 12,293 | 16,255 | ||
Net increase (decrease) in cash and cash equivalents | 33,481 | (34,666) | ||
Cash and cash equivalents at beginning of period | 4,523 | 80,396 | ||
Cash and cash equivalents at end of period | $38,004 | $45,730 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid/(received) during the period for: | ||||
Interest - net of amount capitalized | $24,777 | $19,549 | ||
Income taxes | ($52,278) | $4,446 | ||
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ENTERGY MISSISSIPPI, INC. | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2005 | 2004 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 99 | $ 102 | ($ 3) | (3) | ||||
Commercial | 91 | 92 | (1) | (1) | ||||
Industrial | 46 | 49 | (3) | (6) | ||||
Governmental | 9 | 9 | - - | - - | ||||
Total retail | 245 | 252 | (7) | (3) | ||||
Sales for resale | ||||||||
Associated companies | 12 | 8 | 4 | 50 | ||||
Non-associated companies | 8 | 8 | - - | - - | ||||
Other | 23 | 22 | 1 | 5 | ||||
Total | $ 288 | $ 290 | ($ 2) | (1) | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 1,060 | 1,074 | (14) | (1) | ||||
Commercial | 1,057 | 1,060 | (3) | - - | ||||
Industrial | 708 | 746 | (38) | (5) | ||||
Governmental | 94 | 91 | 3 | 3 | ||||
Total retail | 2,919 | 2,971 | (52) | (2) | ||||
Sales for resale | ||||||||
Associated companies | 104 | 65 | 39 | 60 | ||||
Non-associated companies | 109 | 101 | 8 | 8 | ||||
Total | 3,132 | 3,137 | (5) | - - | ||||
Six Months Ended | Increase/ | |||||||
Description | 2005 | 2004 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 195 | $ 196 | ($ 1) | (1) | ||||
Commercial | 176 | 173 | 3 | 2 | ||||
Industrial | 90 | 91 | (1) | (1) | ||||
Governmental | 18 | 17 | 1 | 6 | ||||
Total retail | 479 | 477 | 2 | - - | ||||
Sales for resale | ||||||||
Associated companies | 18 | 11 | 7 | 64 | ||||
Non-associated companies | 17 | 13 | 4 | 31 | ||||
Other | 25 | 25 | - - | - - | ||||
Total | $ 539 | $ 526 | $ 13 | 2 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 2,256 | 2,299 | (43) | (2) | ||||
Commercial | 2,078 | 2,064 | 14 | 1 | ||||
Industrial | 1,400 | 1,422 | (22) | (2) | ||||
Governmental | 186 | 182 | 4 | 2 | ||||
Total retail | 5,920 | 5,967 | (47) | (1) | ||||
Sales for resale | ||||||||
Associated companies | 121 | 78 | 43 | 55 | ||||
Non-associated companies | 177 | 167 | 10 | 6 | ||||
Total | 6,218 | 6,212 | 6 | - - | ||||
ENTERGY MISSISSIPPI, INC. | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
June 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $2,753 | $4,523 | ||
Temporary cash investments - cost, | ||||
which approximates market | 35,251 | - - | ||
Total cash and cash equivalents | 38,004 | $4,523 | ||
Accounts receivable: | ||||
Customer | 100,371 | 102,202 | ||
Allowance for doubtful accounts | (797) | (1,826) | ||
Associated companies | 39,851 | 5,415 | ||
Other | 10,730 | 9,254 | ||
Accrued unbilled revenues | 35,828 | 33,712 | ||
Total accounts receivable | 185,983 | 148,757 | ||
Deferred fuel costs | - - | 113,956 | ||
Accumulated deferred income taxes | 8,632 | - - | ||
Fuel inventory - at average cost | 8,382 | 3,087 | ||
Materials and supplies - at average cost | 25,387 | 21,521 | ||
Prepayments and other | 8,862 | 62,759 | ||
TOTAL | 275,250 | 354,603 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 5,531 | 5,531 | ||
Non-utility property - at cost (less accumulated depreciation) | 6,130 | 6,199 | ||
TOTAL | 11,661 | 11,730 | ||
UTILITY PLANT | ||||
Electric | 2,657,008 | 2,473,035 | ||
Property under capital lease | 26 | 50 | ||
Construction work in progress | 66,756 | 119,354 | ||
TOTAL UTILITY PLANT | 2,723,790 | 2,592,439 | ||
Less - accumulated depreciation and amortization | 901,307 | 886,687 | ||
UTILITY PLANT - NET | 1,822,483 | 1,705,752 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 18,234 | 17,073 | ||
Other regulatory assets | 206,850 | 186,197 | ||
Long-term receivable | 2,567 | 3,270 | ||
Other | 32,776 | 32,418 | ||
TOTAL | 260,427 | 238,958 | ||
TOTAL ASSETS | $2,369,821 | $2,311,043 | ||
See Notes to Respective Financial Statements. | ||||
94 | ||||
ENTERGY MISSISSIPPI, INC. | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
June 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Accounts payable: | ||||
Associated companies | $ 38,478 | $ 158,579 | ||
Other | 68,621 | 83,306 | ||
Customer deposits | 47,848 | 44,025 | ||
Taxes accrued | 30,161 | 33,121 | ||
Accumulated deferred income taxes | - - | 13,233 | ||
Interest accrued | 13,274 | 13,651 | ||
Deferred fuel costs | 93,830 | - - | ||
Obligations under capital leases | 28 | 40 | ||
Other | 19,669 | 2,739 | ||
TOTAL | 311,909 | 348,694 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 509,276 | 491,857 | ||
Accumulated deferred investment tax credits | 11,702 | 12,358 | ||
Obligations under capital leases | - - | 11 | ||
Other regulatory liabilities | - - | 34,368 | ||
Retirement cost liabilities | 4,133 | 4,016 | ||
Accumulated provisions | 9,405 | 9,436 | ||
Long-term debt | 795,150 | 695,146 | ||
Other | 84,455 | 91,588 | ||
TOTAL | 1,414,121 | 1,338,780 | ||
Commitments and Contingencies | ||||
SHAREHOLDERS' EQUITY | ||||
Preferred stock without sinking fund | 50,381 | 50,381 | ||
Common stock, no par value, authorized 15,000,000 | ||||
shares; issued and outstanding 8,666,357 shares in 2006 and 2005 | 199,326 | 199,326 | ||
Capital stock expense and other | (690) | (682) | ||
Retained earnings | 394,774 | 374,544 | ||
TOTAL | 643,791 | 623,569 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $2,369,821 | $2,311,043 | ||
See Notes to Respective Financial Statements. | ||||
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ENTERGY MISSISSIPPI, INC. | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 137 | $ 99 | $ 38 | 38 | ||||
Commercial | 128 | 91 | 37 | 41 | ||||
Industrial | 64 | 46 | 18 | 39 | ||||
Governmental | 12 | 9 | 3 | 33 | ||||
Total retail | 341 | 245 | 96 | 39 | ||||
Sales for resale | ||||||||
Associated companies | 15 | 12 | 3 | 25 | ||||
Non-associated companies | 11 | 8 | 3 | 38 | ||||
Other | 21 | 23 | (2) | (9) | ||||
Total | $ 388 | $ 288 | $ 100 | 35 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 1,144 | 1,060 | 84 | 8 | ||||
Commercial | 1,128 | 1,057 | 71 | 7 | ||||
Industrial | 720 | 708 | 12 | 2 | ||||
Governmental | 100 | 94 | 6 | 6 | ||||
Total retail | 3,092 | 2,919 | 173 | 6 | ||||
Sales for resale | ||||||||
Associated companies | 183 | 104 | 79 | 76 | ||||
Non-associated companies | 114 | 109 | 5 | 5 | ||||
Total | 3,389 | 3,132 | 257 | 8 | ||||
Six Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 282 | $ 195 | $ 87 | 45 | ||||
Commercial | 258 | 176 | 82 | 47 | ||||
Industrial | 132 | 90 | 42 | 47 | ||||
Governmental | 25 | 18 | 7 | 39 | ||||
Total retail | 697 | 479 | 218 | 46 | ||||
Sales for resale | ||||||||
Associated companies | 23 | 18 | 5 | 28 | ||||
Non-associated companies | 19 | 17 | 2 | 12 | ||||
Other | 22 | 25 | (3) | (12) | ||||
Total | $ 761 | $ 539 | $ 222 | 41 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 2,329 | 2,256 | 73 | 3 | ||||
Commercial | 2,168 | 2,078 | 90 | 4 | ||||
Industrial | 1,421 | 1,400 | 21 | 2 | ||||
Governmental | 193 | 186 | 7 | 4 | ||||
Total retail | 6,111 | 5,920 | 191 | 3 | ||||
Sales for resale | ||||||||
Associated companies | 254 | 121 | 133 | 110 | ||||
Non-associated companies | 182 | 177 | 5 | 3 | ||||
Total | 6,547 | 6,218 | 329 | 5 | ||||
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ENTERGY NEW ORLEANS, INC. (Debtor-in-possession)
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Hurricane Katrina
See the Form 10-K for a discussion of the effects of Hurricane Katrina, which in August 2005 caused catastrophic damage to Entergy New Orleans' service territory, including the effect of extensive flooding that resulted from levee breaks in and around the New Orleans area. Following is an update to the discussion in the Form 10-K.
As discussed in the Form 10-K, a federal hurricane aid package became law that includes funding for Community Development Block Grants (CDBG) that allows state and local leaders to fund individual recovery priorities. The law permits funding for infrastructure restoration. It is uncertain how much funding, if any, will be designated for utility reconstruction and the timing of such decisions is also uncertain. The U.S. Department of Housing and Urban Development has allocated approximately $10.4 billion for Louisiana, $5.1 billion for Mississippi, and $74 million for Texas, with an additional $1 billion approved by Congress but not yet allocated to the states. The states, in turn, will administer the grants. Entergy New Orleans is currently preparing an application to seek CDBG funding. In March 2006, Entergy New Orleans provided a justification statement to state and local officials. The statement, which will be reviewed by the Louisiana Recovery Authority, includes all the est imated costs of Hurricane Katrina damage, as well as a lost customer base component intended to help offset the need for storm-related rate increases. The statement includes justification for a request for $718 million in CDBG funding.
In the first quarter 2006, Entergy New Orleans reduced its accrued accounts payable for storm restoration costs by $97.4 million, with corresponding reductions of $88.7 million in construction work in progress and $8.7 million in regulatory assets, based on a reassessment of the nature and timing of expected restoration and rebuilding costs and the obligations associated with restoring service. Although Entergy New Orleans reduced its accrual for restoration spending by these amounts, it continues to expect to incur the related costs over time and Entergy New Orleans still expects its storm restoration and business continuity costs to total approximately $275 million. As discussed further in the Form 10-K, Entergy New Orleans still expects the cost of the longer-term accelerated replacement of the gas distribution system in New Orleans to be $355 million.
See "State and Local Rate Regulation"below for a discussion of rate filings made by Entergy New Orleans directed towards recovery of its storm losses and restoration costs.
Bankruptcy Proceedings
See Note 14 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the Entergy New Orleans bankruptcy proceeding. Following are updates to that discussion.
As discussed in the Form 10-K, the bankruptcy court issued its order in December 2005 giving final approval for the $200 million debtor-in-possession credit facility, and the indenture trustee for Entergy New Orleans' first mortgage bonds appealed the order. On March 29, 2006 the bankruptcy court approved a settlement among Entergy New Orleans, Entergy Corporation, and the indenture trustee, and the indenture trustee dismissed its appeal.
In April 2006, the bankruptcy judge extended the exclusivity period for filing a plan of reorganization by Entergy New Orleans to August 21, 2006. Entergy New Orleans has filed another motion to extend the exclusivity period for filing its plan of reorganization, requesting that the deadline be extended an additional 120 days until December 19, 2006. The court entered an order extending the August 21, 2006 date for Entergy New Orleans' exclusive right to file a plan of reorganization until the court can hear and rule on Entergy New Orleans' motion to extend, which was set for hearing on September 18, 2006. In order to file a plan of reorganization no later than December 2006, Entergy New Orleans believes that it needs resolution of its June 2006 formula rate plan and storm rider filings and commitment on timing and amount of CDBG funds. If the motion to extend is granted, Entergy New Orleans will have the exclusive right to file its plan of reorganization until December 19, 2006, a nd will have until February 15, 2007 to obtain acceptances of its plan by each class of impaired creditors.
97
The bankruptcy judge set a date of April 19, 2006 by which creditors with prepetition claims against Entergy New Orleans must, with certain exceptions, file their proofs of claim in the bankruptcy case. Approximately 500 claims have been filed thus far in Entergy New Orleans' bankruptcy proceeding. Entergy New Orleans is currently analyzing the accuracy and validity of the claims filed, and has begun seeking withdrawal or modification of claims or objecting to claims with which it disagrees.
Municipalization is one potential outcome of Entergy New Orleans' recovery effort. In June 2006 Louisiana passed a law that establishes a governance structure for a public power authority, if municipalization of Entergy New Orleans' utility business is pursued.
Results of Operations
Net Income
Second Quarter 20052006 Compared to Second Quarter 20042005
Net income decreased $3.9increased $2.4 million primarily due to higher otherlower operation and maintenance expensesexpense, interest charges, and higher depreciation and amortization expenses.taxes other than income taxes, partially offset by lower net revenue.
Six Months Ended June 30, 20052006 Compared to Six Months Ended June 30, 20042005
Net income decreased $5.3increased $2.3 million primarily due to higher otherlower operation and maintenance expensesexpense, interest charges, and taxes other than income taxes, and higher depreciation and amortization expenses.other income, partially offset by lower net revenue.
Net Revenue
Second Quarter 20052006 Compared to Second Quarter 20042005
Net revenue, which is Entergy New Orleans' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 2) other regulatory charges. Net revenue was relatively unchanged comparing the second quarter of 2005 to the second quarter of 2004.
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| |
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|
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
Net revenue, which is Entergy New Orleans' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2)3) other regulatory charges. Following is an analysis of the changes in net revenue comparing the six months ended June 30, 2005second quarter of 2006 to the six months ended June 30, 2004.second quarter of 2005.
Amount | ||
(In Millions) | ||
| $ | |
Volume/weather |
| |
|
| |
|
| |
Other |
| |
| $ |
The volume/weather variance is due to a decrease in electricity usage in the service territory primarily duringcaused by customer losses following Hurricane Katrina. Billed retail electricity usage decreased a total of 494 GWh compared to the second quarter of 2005, a decline of 35%.
The net wholesale revenue variance is due to an increase in energy available for sales for resale due to the decrease in retail usage caused by customer losses following Hurricane Katrina. The increased revenue includes the sales into the wholesale market of Entergy New Orleans' share of the output of Grand Gulf, pursuant to City Council approval of measures proposed by Entergy New Orleans to address the reduction in Entergy New Orleans' retail customer demand caused by Hurricane Katrina and provide revenue support for the costs of Entergy New Orleans' share
98
of Grand Gulf. Beginning July 1, 2006, the City Council approved the return of Grand Gulf output to the service of Entergy New Orleans' load. The City Council also approved the recovery of all Grand Gulf costs through Entergy New Orleans' fuel adjustment clause (a portion of Grand Gulf costs was previously recovered through base rates). The City Council may consider alternative rate treatment for non-fuel Grand Gulf costs in connection with Entergy New Orleans' June 2006 electric formula rate plan filing.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Net revenue, which is Entergy New Orleans' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges. Following is an analysis of the changes in net revenue comparing the six months ended June 30, 2006 to the six months ended June 30, 2005.
Amount | ||
(In Millions) | ||
2005 net revenue | $120.0 | |
Volume/weather | (53.2) | |
Net gas revenue | (7.5) | |
Price applied to unbilled electric sales | (3.3) | |
Net wholesale revenue | 41.2 | |
Other | (5.6) | |
2006 net revenue | $91.6 |
The volume/weather variance is due to a decrease in electricity usage in the service territory caused by customer losses following Hurricane Katrina. Billed retail electricity usage decreased a total of 1,075 GWh compared to the six months ended June 30, 2005, a decline of 40%.
The net gas revenue variance is due to a decrease in gas usage in the service territory caused by customer losses following Hurricane Katrina, partially offset by a revised estimate of deferred fuel costs.
The price applied to unbilled electric sales period.variance is due to a decrease in the fuel cost component of the price applied to unbilled sales. The decrease in the fuel cost component is due to a decrease in the average cost of generation due to a change in the generation mix from natural gas to solid fuel resources. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K and Note 1 to the domestic utility companies and System Energy financial statements in the Form 10-K for further discussion of the accounting for unbilled revenues.
The price applied to unbilled electric salesnet wholesale revenue variance is due to a decrease in the fuel cost component of the price applied to unbilled sales. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K and Note 1 to the domestic utility companies and System Energy financial statements in the Form 10-K for further discussion of the accounting for unbilled revenues.
The rate refund provisions variance is due to provisions recorded in the first quarter of 2004 primarily as a result of a resolution adopted by the City Council in February 2004.
Gross operating revenues and fuel and purchased power expenses
Gross operating revenues increased primarily due to an increase of $24.3 million in gross wholesale revenue as a result of increased sales to affiliates. The increase is due to increased generation resulting in more energy available for resale.
Fuel and purchased power expenses increased primarily due to an increase in electricity generatedenergy available for sales for resale due to the decrease in additionretail usage caused by customer losses following Hurricane Katrina. The increased revenue includes the sales into the wholesale market of Entergy New Orleans' share of the output of Grand Gulf, pursuant to an increaseCity Council approval of measures proposed by Entergy New Orleans to address the reduction in Entergy New Orleans' retail customer demand caused by Hurricane Katrina and provide revenue support for the pricecosts of natural gas.Entergy New Orleans' share of Grand Gulf. Beginning July 1, 2006, the City Council approved the return of Grand Gulf output to the service of Entergy New Orleans' load. The City Council also approved the recovery of all Grand Gulf costs through Entergy New Orleans' fuel adjustment clause (a portion of Grand Gulf costs was previously recovered through base rates). The City Council may consider alternative rate treatment for non-fuel Grand Gulf costs in co nnection with Entergy New Orleans' June 2006 electric formula rate plan filing.
99
Other Income Statement Variances
Second Quarter 20052006 Compared to Second Quarter 20042005
Other operation and maintenance expenses increaseddecreased primarily due to shifts in costs from normal operations and maintenance work to storm restoration work as a result of Hurricane Katrina.
Taxes other than income taxes decreased primarily due to lower franchise taxes in 2006 due to lower revenues.
Interest and other charges decreased primarily due to the following:
the bankruptcy filing, partially offset by interest accrued on the DIP credit facility.
Depreciation and amortization expense increased primarily due to an increase in plant in service.
Six Months Ended June 30, 20052006 Compared to Six Months Ended June 30, 20042005
Other operation and maintenance expenses increaseddecreased primarily due to shifts in costs from normal operations and maintenance work to storm restoration work as a result of Hurricane Katrina.
Taxes other than income taxes decreased primarily due to lower franchise taxes in 2006 due to lower revenues.
Interest and other charges decreased primarily due to the following:
Depreciation and amortization expense increased primarily due to an increase in plant in service.the bankruptcy filing, partially offset by interest accrued on the DIP credit facility.
Income Taxes
The effective income tax rates for the second quarters of 2006 and 2005 were 38.6% and 2004 were 41.9% and 38.9%, respectively. The effective income tax rates for the six months ended June 30, 2006 and 2005 were 38.3% and 2004 were 40.4% and 38.6%, respectively. The differences in the effective income tax rates for the periods presented versus the federal statutory rate of 35.0% are primarily due to state income taxes and book and tax differences related to utility plant items.
Preferred Dividends
No preferred dividends were declared during the first quarter of 2006. Due to its bankruptcy, Entergy New Orleans did not pay the preferred stock dividends due October 1, 2005; January 1, 2006; or April 1, 2006.
As discussed further in the Form 10-K, if dividends with respect to the 4.75% preferred stock are not paid for four quarters, the holders of these shares would have the right to elect a majority of the Entergy New Orleans board of directors. Entergy New Orleans filed a motion in the bankruptcy court seeking authority to recommence paying dividends to the holders of the 4.75% preferred shares. After a hearing on the motion on May 3, 2006, the court granted Entergy New Orleans the authority to pay dividends to the holders of the 4.75% preferred shares, beginning with the dividend due on July 1, 2006, and thereafter, unless objections are filed by creditors forty-five days in advance of a dividend payment date. If any objections are filed, the matter would be heard by the bankruptcy court. Entergy New Orleans declared and paid the dividend due on July 1, 2006, and intends to declare and pay the dividends on the 4.75% preferred shares each quarter pending resolution of its pl an of reorganization.
Liquidity and Capital Resources
Debtor-in-Possession Credit Facility
See the Form 10-K for a discussion of the Entergy New Orleans debtor-in-possession (DIP) credit facility. Following is an update to that discussion.
100
As discussed in the Form 10-K, the bankruptcy court issued its order in December 2005 giving final approval for the $200 million DIP credit facility, and the indenture trustee for Entergy New Orleans' first mortgage bonds appealed the order. On March 29, 2006 the bankruptcy court approved a settlement among Entergy New Orleans, Entergy Corporation, and the indenture trustee, and the indenture trustee dismissed its appeal. As of June 30, 2006, Entergy New Orleans had approximately $40 million of outstanding borrowings under the DIP credit facility. Management currently expects the bankruptcy court-authorized funding level to be sufficient to fund Entergy New Orleans' expected level of operations.
As discussed in the Form 10-K, borrowings under the DIP credit facility are due in full, and the agreement will terminate, at the earliest of several times or events, including August 23, 2006. Entergy and Entergy New Orleans have agreed to an amendment to the DIP credit agreement that extends the August 23, 2006 maturity date to August 23, 2007, and this amendment is subject to bankruptcy court approval. Entergy New Orleans has filed a motion with the bankruptcy court to authorize Entergy New Orleans to enter into the amendment, which is set for hearing August 16, 2006.
Cash Flow
Cash flows for the six months ended June 30, 20052006 and 20042005 were as follows:
|
|
| 2005 |
| 2004 |
|
| 2006 |
| 2005 |
|
|
| (In Thousands) |
|
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period |
| $7,954 |
| $4,669 | Cash and cash equivalents at beginning of period |
| $48,056 |
| $7,954 |
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|
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Cash flow provided by (used in): | Cash flow provided by (used in): |
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|
| Cash flow provided by (used in): |
|
|
|
|
| Operating activities |
| (4,481) |
| 20,014 | Operating activities |
| 78,453 |
| 1,864 |
| Investing activities |
| (23,119) |
| (22,258) | Investing activities |
| (47,845) |
| (29,464) |
| Financing activities |
| 27,704 |
| (1,524) | Financing activities |
| (50,343) |
| 27,704 |
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents |
| 104 |
| (3,768) | Net increase (decrease) in cash and cash equivalents |
| (19,735) |
| 104 |
|
|
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|
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|
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|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $8,058 |
| $901 | Cash and cash equivalents at end of period |
| $28,321 |
| $8,058 |
Operating Activities
OperatingNet cash provided by operating activities increased $76.6 million for the six months ended June 30, 2006 compared to the six months ended June 30, 2005 primarily due to receipt of the income tax refund discussed below along with a decrease in interest paid.
In the first quarter of 2006, Entergy Corporation received an income tax refund as a result of net operating loss carryback provisions contained in the Gulf Opportunity Zone Act of 2005, as discussed in Note 3 to the domestic utilities companies and System Energy financial statements in the Form 10-K. In accordance with Entergy's intercompany tax allocation agreement, in April 2006, Entergy Corporation distributed $71 million of the refund to Entergy New Orleans. As discussed above, Entergy New Orleans used the income tax refund to repay a portion of the borrowings outstanding under the DIP credit facility.
Investing Activities
Net cash used in investing activities increased $18.4 million for the six months ended June 30, 2006 compared to the six months ended June 30, 2005 primarily due to capital expenditure activity related to Hurricane Katrina in addition to money pool activity in 2005.
101
Financing Activities
Financing activities used $4.5$50.3 million of cash for the six months ended June 30, 2005 compared to providing $20.02006 because of the net repayment in 2006 of $50.3 million of cash forborrowings under the six months ended June 30, 2004 primarily due to a pension fund contribution of $12.0 million made in April 2005, money pool activity, and an income tax refund of $5.0 million received in the first quarter of 2004. Money pool activity used $6.3 million of Entergy New Orleans' operating cash flow for the six months ended June 30, 2005 compared to providing $3.6 million for the six months ended June 30, 2004.DIP credit facility.
Capital Structure
Entergy New Orleans' receivables from or (payables to) the money pool were as follows:
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
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$7,758 |
| $1,413 |
| ($1,805) |
| $1,783 |
See Note 4 to the domestic utility companies and System Energy financial statementscapitalization is shown in the Form 10-K for a descriptionfollowing table.
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| June 30, |
| December 31, |
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Debt to capital |
| 60.5% |
| 66.4% |
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Debt consists of notes payable and long-term debt, including the money pool.
Financing Activities
Financing activities provided $27.7 millioncurrently maturing portion. Capital consists of cash for the six months ended June 30, 2005 compared to using $1.5 million of cash for the six months ended June 30, 2004 primarily because in June 2005, Entergy New Orleans issued $30 million of 4.98% Series First Mortgage Bonds due July 2010. The proceeds were used to retire, at maturity, $30 million of 8.125% Series First Mortgage Bonds due July 2005.debt and shareholders' equity.
Uses and Sources of Capital
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Liquidity and Capital Resources"in the Form 10-K for a discussion of Entergy New Orleans' uses and sources of capital. The following are updates to the Form 10-K.
In July 2005, Entergy LouisianaNew Orleans' receivables from or (payables to) the money pool were as follows:
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
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($35,558) |
| ($35,558) |
| $7,758 |
| $1,413 |
See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool. Entergy New Orleans renewed their 364-day credit facilities withremains a participant in the same lender through May 2006.money pool, but Entergy New Orleans increasedhas not made, and does not expect to make, any additional borrowings from the amount of its credit facility to $15 million, the same amount asmoney pool while it is in bankruptcy proceedings. The money pool borrowings reflected on Entergy Louisiana's facility. Either company can borrow up to the full amount on its respective facility, but at no time can the combined amount of outstanding borrowings on the two facilities exceed $15 million. There were no borrowings outstanding on either facilityNew Orleans' balance sheet as of June 30, 2005. 2006 are classified as a pre-petition obligation subject to compromise.
In July 2005,addition, Entergy New Orleans grantedhad a 364-day credit facility in the lender a security interestamount of $15 million which expired in its customer accounts receivables to secure its borrowings under this facility. UnderMay 2006. As of June 30, 2006, the termsfull amount of the security agreement,credit facility remains outstanding under bankruptcy protection. In July 2006, the bankruptcy judge authorized Entergy New Orleans hasto set off $15 million of its cash currently held by the option to withdrawlender against the security interest at any time.outstanding debt on the credit facility.
Significant Factors and Known Trends
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends" in the Form 10-K for a discussion of state and local rate regulation, federal regulation and proceedings, the Energy Policy Act of 2005, market and credit risks, environmental risks, and litigation risks. Following are updates to the information presenteddiscussion in the Form 10-K.
State and Local Rate Regulation
In April 2005,June 2006, Entergy New Orleans made its annual scheduled formula rate plan filings with the City Council. The filings show various alternatives to reflect the effect of Entergy New Orleans' lost customers and decreased revenue. Entergy New Orleans' recommended alternative adjusts for lost customers and assumes that a decreasethe City Council's June 2006 decision to allow recovery of $0.2 all Grand Gulf costs through the fuel adjustment clause stays in place (a portion of Grand Gulf costs was previously recovered through base rates). Under that alternative, annual increases of $6.4
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million in electric base rate revenues is warranted and an(an increase of $3.94.4%) and $22.8 million in gas base rate revenues is(an increase of 160.9%) are warranted. The filings triggered the prescribed four-month period for review by the City Council's Advisors and other parties, has now commenced, and rate adjustments, if any, could be implemented as soon as September 2005.the first billing cycle of November 2006.
In May 2005,
At the same time as it made its formula rate plan filings, Entergy New Orleans also filed with the City Council a request to implement two storm-related riders. With the first rider, Entergy New Orleans seeks to recover over a ten-year period the $114 million in electric restoration costs and the $25 million in gas restoration costs that it has actually spent through March 31, 2006. Entergy New Orleans also proposed semiannual filings to update the rider for continuationadditional restoration spending and also to consider the receipt of CDBG funds or insurance proceeds that it may receive. With the second rider, Entergy New Orleans seeks to establish over a ten-year period a $150 million storm reserve to provide for the risk of another storm. Entergy New Orleans requested that the City Council consider the proposed riders within the same time frame as the formula rate plan and generation performance-based rate plan for an additional three years. The filing requests a target equity componentplans, which would allow implementation as soon as the first billing cycle of the capital structure of 45%, an increase from the current target of 42%.November 2006.
Federal Regulation
System Agreement Litigation
On June 1, 2005, the FERC issued a decision in the System Agreement litigation. The domestic utility companies historically have engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement, which has been approved by the FERC. The System Agreement litigation proceedings are described in the Form 10-K.
The FERC decision concluded, among other things, that:
The FERC's June 2005 order would reallocate production costs of the domestic utility companies whose relative total production costs expressed as a percentage of Entergy System average production costs are outside an upper or lower bandwidth. This would be accomplished by payments from domestic utility companies whose production costs are below Entergy System average production costs to domestic utility companies whose production costs are above Entergy System average production costs. An assessment of the potential effects of the FERC's June 2005 order requires assumptions regarding the future total production cost of each domestic utility company, which assumptions include the mix of solid fuel and gas-fired generation available to each company and the costs of natural gas and purchased power. Entergy Louisiana and Entergy Gulf States are more dependent upon gas-fired generation than Entergy Arkansas, Entergy Mississippi, or Entergy New Orleans. Of these, Entergy Arkansas is the l east dependent upon gas-fired generation. Therefore, increases in natural gas prices likely will increase the amount by which Entergy Arkansas' total production costs are below the average production costs of the domestic utility companies. Considerable uncertainty exists regarding future gas prices. Annual average Henry Hub gas prices have varied significantly over recent years, ranging from $1.72/mmBtu to $5.85/mmBtu for the 1995-2004 period, and averaging $3.43/mmBtu during the ten-year period 1995-2004 and $4.58/mmBtu during the five-year period 2000-2004. Recent market conditions have resulted in gas prices that have averaged $5.85/mmBtu for the twelve months ended December 2004. During the 12 month period July 1, 2004 to June 30, 2005 forward gas contracts for each of the next four years based on daily NYMEX close averaged $6.68/mmBtu (2006), $6.25/mmBtu (2007), $5.88/mmBtu (2008) and $5.58/mmBtu (2009). If the FERC's June 2005 order becomes final and if these gas prices occur as assumed, the following potential annual production cost reallocations among the domestic utility companies could result during the 2007-2010 period:
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If natural gas prices deviate by $1/mmBtu up or down, it is expected that Entergy Arkansas' annual payments will change in the same direction by approximately $60 to $70 million.
Various pending motions for rehearing and clarification of the FERC's June 2005 order were filed by parties to the proceeding, including the LPSC, the APSC, the MPSC, and the City Council, and by Entergy Services, Inc., on behalf of the domestic utility companies. Among other things, the LPSC's motion urged the FERC to "clarify" that the FERC's order requires the payments and receipts, to the extent any are required, to be made in 2006 based on production costs incurred in 2004 and 2005. Entergy does not believe that this request for "clarification" is consistent with the FERC order and submitted a response urging the FERC to reject this interpretation and instead find that the annual remedy order by the FERC would be evaluated based on calendar year 2006 production costs, with the first potential payments/receipts, if any were required, made in 2007.
Management believes that any changes in the allocation of production costs resulting from the FERC's June 2005 order and related retail proceedings should result in similar rate changes for retail customers. The timing of recovery of these costs in rates could be the subject of additional proceedings before Entergy's retail regulators. Although the outcome and timing of the FERC and other proceedings cannot be predicted at this time, Entergy New Orleans does not believe that the ultimate resolution of these proceedings will have a material effect on its financial condition or results of operations.Proceedings
See the Form 10-K for discussion of the City Council resolution directing Entergy New OrleansCorporation and Entergy Louisiana to notify the City CouncilSubsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and obtain prior approval for any action that would materially modify, amend, or terminate the Known Trends - Federal Regulation -System Agreement for one or more of the domestic utility companies, and the state court decision dismissing the City Council's claims for lack of subject matter jurisdiction. The City Council has appealed that decision to the Louisiana Court of Appeal for the Fourth Circuit.
Transmission
See the Form 10-K for a discussion of the petition for declaratory order that EntergyAPSC Complaint filed with the FERC in January 2005, andAPSC System Agreement Investigation" for updates regarding Entergy's proceedings involving the System Agreement.
Independent Coordinator of Transmission (ICT) proposal. On March 22, 2005, the FERC issued a declaratory order concluding that: (1) because the Southwest Power Pool (SPP) was the only entity identified as potentially being selected as the ICT and because the SPP is already a "public utility" there was no need to rule on the question of whether the functions of the ICT, alone, would serve to make the ICT a "public utility;" (2) Entergy will continue to be the "transmission provider" for transmission service across its system and that "the presence of SPP as the ICT will not change the existing balance of jurisdiction between [the FERC] and Entergy's retail regulators;" and (3) the FERC "is prepared to grant Entergy's proposed transmission pricing proposal on a two-year experimental basis, subject to certain enhancement and monitoring and reportin g conditions." The enhancements referred to by the FERC involve more fully specifying the responsibilities and duties of the ICT, including defining the ICT's role in the preparation of various transmission expansion plans and the performance of studies related to the granting of transmission or interconnection service. Before Entergy's ICT proposal can be implemented, however, Entergy is required to submit further filings with the FERC regarding the modifications and clarifications to the ICT proposal.
On April 8, 2005 several intervenors filed an Emergency Request for Clarification and Request for Expedited Commission Action seeking to have the FERC: (1) clarify the ICT's role in administering the Available Flowgate Capacity (AFC) methodology; (2) clarify the ICT's role in developing the transmission base plan; (3) clarify what the FERC meant when it required Entergy to provide firm transmission rights to customers that pay for supplemental transmission upgrades; and (4) clarify and confirm following Entergy's filing that the FERC will assess SPP's status as being independent of Entergy.
On April 21, 2005 Entergy filed a request for clarification or rehearing of the FERC's March 22 declaratory order requesting that the FERC clarify the respective role of Entergy and the ICT in developing the inputs or criteria used to create the base plan and in preparing certain studies regarding system expansion. The request for clarification further requests that the FERC clarify that the initial two-year period will commence with the actual start date of ICT operations. In the event that the FERC denies Entergy's request for clarification, then Entergy will seek rehearing on these issues. However, in its request, Entergy requested that FERC not rule on these issues at this time but, instead, that the FERC wait to evaluate these issues until such time as Entergy has filed the more detailed tariff sheets and protocols in its subsequent filing to implement the ICT. Separately, Entergy submitted a letter advising the FERC that it intended to submit on or about May 27, 2005 the filing t o implement the ICT proposal. A joint request for rehearing of the ICT declaratory order was also filed by the City Council, the LPSC, and the MPSC in which the retail regulators expressed their concerns that the findings reached in the declaratory order may result in an expansion of authority of the ICT "that is unnecessary to achieve the [FERC's] goals and is very likely to result in significant increases in the start-up and operational costs of the ICT." The retail regulators request that the FERC not act on their request for rehearing until Entergy has submitted its filing to implement the ICT. The intervenors filed a separate request for rehearing on April 21, 2005 urging the FERC to impose additional conditions on the approval of the ICT and also re-urging the FERC to reject the pricing proposal contained in the ICT proposal.
On May 12, 2005 the FERC issued an order clarifying certain aspects of its March 22 order. In the May 12 order, the FERC indicated that (1) Entergy is to work with the ICT and Entergy's stakeholders to develop procedures by which the ICT will calculate AFCs; (2) Entergy must specifically define the transmission rights that a customer that pays for supplemental upgrades will receive for such payments; (3) the FERC will review the ICT's contract to ensure that the ICT can perform its functions in an independent manner even if SPP is chosen as the ICT; and (4) the initial two-year period will start once the ICT becomes operational.
On May 27, 2005, the domestic utility companies filed the enhanced ICT proposal with the FERC. Entergy believes that the filing is consistent with the FERC guidance received in both the FERC's March 22 and May 12 orders on the ICT. Among other things, the enhanced ICT filing states that the ICT will (1) grant or deny transmission service on the domestic utility companies' transmission system; (2) administer the domestic utility companies' OASIS node for purposes of processing and evaluating transmission service requests and ensuring compliance with the domestic utility companies' obligation to post transmission-related information; (3) develop a base plan for the domestic utility companies' transmission system that will result in the ICT making the determination on whether something should be rolled into the domestic utility companies' transmission rates or directly assigned to the customer requesting or causing an upgrade to be constructed; (4) serve as the reliability coordinator for t he Entergy transmission system; and (5) oversee the operation of the weekly procurement process. The enhanced ICT proposal clarifies the rights that customers receive when they fund a supplemental upgrade and also contains a detailed methodology describing the process by which the ICT will evaluate interconnection-related investments already made on the Entergy System for purposes of determining the future allocation of the uncredited portion of these investments.
On June 3, 2005 a group of generators filed with the FERC a request that the FERC schedule a technical conference on the enhanced ICT proposal in order for Entergy to provide additional information on the enhanced ICT proposal. In response, a stakeholder meeting was held in New Orleans on June 30, 2005. Interventions and comments on the filing are due by August 5, 2005.
In addition, as discussed in the Form 10-K, Entergy Louisiana and Entergy Gulf States have filed an application with the LPSC requesting that the LPSC find that the ICT proposal is a prudent and appropriate course of action. An LPSC hearing on the ICT proposal is currently scheduled for August 2005, however certain intervenors have recently requested that the hearing be delayed until mid-September 2005.
Available Flowgate Capacity Proceedings
See the Form 10-K for a discussionEntergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -Independent Coordinator of proceedings at the FERC involving Entergy's Available Flowgate Capacity (AFC) methodology. On March 22, 2005, the FERC issued an order contemporaneously with the ICT declaratory order discussed above that holds the AFC hearing in abeyance pending action on Entergy's upcoming ICT filing. The order holding the hearing in abeyance further indicated that it would cancel the hearing when the ICT begins to perform its functions. On April 8, 2005 several intervenors filed Emergency Motions for Interim Relief and Expedited Commission Action requesting that, during the interim period before the implementation of the ICT, the FERC (1) institute an audit process to examine and modify Entergy's current AFC process; and (2) require SPP to become involved in the AFC stakeholder process and order certain modifications to Entergy's stakeholder process. The audit process being proposed by the intervenors would not involve an independent auditor, but instead wou ld be an investigation performed by a representative from the intervenors, Entergy, and possibly SPP. On April 25, 2005, Entergy filed its response to the emergency motion urging the FERC to reject the intervenors' request for the "audit" because the type of investigation proposed by the intervenors would be neither independent nor fair and would only distract from the implementation of the ICT. Instead, Entergy has proposed that the ICT conduct an independent review of the AFC process and procedures as part of its transition to assuming the identified ICT responsibilities, including the calculation of the AFCs. Entergy further indicated that it would welcome SPP's participation in the current stakeholder process. On April 21, 2005, the intervenors filed a separate request for rehearing arguing that the FERC must allow the AFC hearing to proceed in parallel with the establishment of the ICT. See "Transmission" above for further discussion of AFC.
Federal Legislation
In late July 2005 the U.S. Congress passed broad new energy legislation, the Energy Policy Act of 2005. The legislation contains electricity provisions that, among other things:
The President is expected to sign the Energy Policy Act in August 2005. The Energy Power Act requires several rulemakings by the FERC and other government agencies in order to implement its provisions. Therefore, it will be some time before a full assessment of its effect on Entergy and the energy industry can be completed.update regarding Entergy's ICT proposal.
Critical Accounting Estimates
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in Entergy New Orleans' accounting for unbilled revenue and pension and other retirement costs.
Recently Issued Accounting Pronouncements
InFASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for Entergy New Orleans in the first quarter 2005, FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - anof 2007. The FASB's objective in issuing this interpretation is to increase comparability among companies in financial reporting of FASB Statement No. 143" (FIN 47).income taxes. FIN 47 requires companies to recognize at fair value48 establishes a liability for"more-likely-than-not" recognition threshold that must be met before a conditional asset retirement obligation when incurred, whichtax benefit can be recognized in the financial statements. If a tax deduction is generally upon an asset's acquisition, construction, development, or through its normal operation. A conditional asset retirement obligation is generallytaken on a legal obligation to incur costs to remove an asset or part of an asset, such as an obligation to comply with environmental regulations and requirements. The obligation is conditional because there is currently no legal requirement to retire or remove the facility that the affected asset is a part of. FIN 47 requires that uncertainty about the timing or method of settlement of a conditional asset retirement obligation be factored into the measurement of the liability when sufficient information becomes available. FIN 47 wi ll be effective for Entergy no later than December 31, 2005. Entergytax return, but does not believemeet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded. Entergy New Orleans does not expect that the adoption of FIN 4748 will be material tomaterially affect its financial position, or results of operations, because it estimates that any conditional asset retirement obligations required to be recognized under FIN 47 would be offset by a regulatory asset because of the expected recovery of these future costs in rates.or cash flows.
ENTERGY NEW ORLEANS, INC. | ||||||||
INCOME STATEMENTS | ||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Six Months Ended | |||||||
2005 | 2004 | 2005 | 2004 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING REVENUES | ||||||||
Domestic electric | $158,799 | $159,221 | $289,971 | $271,797 | ||||
Natural gas | 31,128 | 27,116 | 91,223 | 84,307 | ||||
TOTAL | 189,927 | 186,337 | 381,194 | 356,104 | ||||
OPERATING EXPENSES | ||||||||
Operation and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 54,843 | 53,078 | 135,939 | 109,589 | ||||
Purchased power | 66,001 | 65,398 | 122,783 | 124,317 | ||||
Other operation and maintenance | 30,143 | 27,235 | 50,990 | 48,551 | ||||
Taxes other than income taxes | 10,693 | 10,069 | 21,373 | 20,064 | ||||
Depreciation and amortization | 9,059 | 6,969 | 17,145 | 13,800 | ||||
Other regulatory charges - net | 1,254 | 708 | 2,509 | 1,416 | ||||
TOTAL | 171,993 | 163,457 | 350,739 | 317,737 | ||||
OPERATING INCOME | 17,934 | 22,880 | 30,455 | 38,367 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 246 | 197 | 528 | 415 | ||||
Interest and dividend income | 308 | 157 | 526 | 327 | ||||
Miscellaneous - net | (254) | 1,106 | (377) | 812 | ||||
TOTAL | 300 | 1,460 | 677 | 1,554 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 3,518 | 3,844 | 7,004 | 7,710 | ||||
Other interest - net | 484 | 539 | 868 | 955 | ||||
Allowance for borrowed funds used during construction | (185) | (190) | (417) | (412) | ||||
TOTAL | 3,817 | 4,193 | 7,455 | 8,253 | ||||
INCOME BEFORE INCOME TAXES | 14,417 | 20,147 | 23,677 | 31,668 | ||||
Income taxes | 6,043 | 7,828 | 9,567 | 12,235 | ||||
NET INCOME | 8,374 | 12,319 | 14,110 | 19,433 | ||||
Preferred dividend requirements and other | 241 | 241 | 482 | 482 | ||||
EARNINGS APPLICABLE TO | ||||||||
COMMON STOCK | $8,133 | $12,078 | $13,628 | $18,951 | ||||
See Notes to Respective Financial Statements. | ||||||||
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ENTERGY NEW ORLEANS, INC. | ||||||||
(DEBTOR-IN-POSSESSION) | ||||||||
INCOME STATEMENTS | ||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Six Months Ended | |||||||
2006 | 2005 | 2006 | 2005 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING REVENUES | ||||||||
Domestic electric | $117,827 | $158,799 | $217,076 | $289,971 | ||||
Natural gas | 18,128 | 31,128 | 55,140 | 91,223 | ||||
TOTAL | 135,955 | 189,927 | 272,216 | 381,194 | ||||
OPERATING EXPENSES | ||||||||
Operation and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 16,433 | 54,843 | 51,101 | 135,939 | ||||
Purchased power | 67,211 | 66,001 | 127,448 | 122,783 | ||||
Other operation and maintenance | 16,279 | 30,143 | 30,089 | 50,990 | ||||
Taxes other than income taxes | 8,089 | 10,693 | 16,689 | 21,373 | ||||
Depreciation and amortization | 8,508 | 9,059 | 15,972 | 17,145 | ||||
Reorganization items | 2,115 | - - | 3,793 | - - | ||||
Other regulatory charges - net | 1,037 | 1,254 | 2,080 | 2,509 | ||||
TOTAL | 119,672 | 171,993 | 247,172 | 350,739 | ||||
OPERATING INCOME | 16,283 | 17,934 | 25,044 | 30,455 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 909 | 246 | 1,988 | 528 | ||||
Interest and dividend income | 786 | 308 | 1,589 | 526 | ||||
Miscellaneous - net | 20 | (254) | (132) | (377) | ||||
TOTAL | 1,715 | 300 | 3,445 | 677 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 185 | 3,518 | 369 | 7,004 | ||||
Other interest - net | 997 | 484 | 3,138 | 868 | ||||
Allowance for borrowed funds used during construction | (743) | (185) | (1,606) | (417) | ||||
TOTAL | 439 | 3,817 | 1,901 | 7,455 | ||||
INCOME BEFORE INCOME TAXES | 17,559 | 14,417 | 26,588 | 23,677 | ||||
Income taxes | 6,785 | 6,043 | 10,171 | 9,567 | ||||
NET INCOME | 10,774 | 8,374 | 16,417 | 14,110 | ||||
Preferred dividend requirements and other | 92 | 241 | 92 | 482 | ||||
EARNINGS APPLICABLE TO | ||||||||
COMMON STOCK | $10,682 | $8,133 | $16,325 | $13,628 | ||||
See Notes to Respective Financial Statements. | ||||||||
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ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ||||||
(DEBTOR-IN-POSSESSION) | (DEBTOR-IN-POSSESSION) | |||||||
STATEMENTS OF CASH FLOWS | STATEMENTS OF CASH FLOWS | STATEMENTS OF CASH FLOWS | ||||||
For the Six Months Ended June 30, 2005 and 2004 | ||||||||
For the Six Months Ended June 30, 2006 and 2005 | For the Six Months Ended June 30, 2006 and 2005 | |||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||
2005 | 2004 | 2006 | 2005 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING ACTIVITIES | ||||||||
Net income | $14,110 | $19,433 | $16,417 | $14,110 | ||||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||||||
Other regulatory charges - net | 2,509 | 1,416 | 2,080 | 2,509 | ||||
Depreciation and amortization | 17,145 | 13,800 | 15,972 | 17,145 | ||||
Deferred income taxes and investment tax credits | 3,407 | 19,510 | 2,811 | 3,407 | ||||
Changes in working capital: | ||||||||
Receivables | (2,215) | (2,936) | 8,438 | 4,130 | ||||
Fuel inventory | 4,181 | 5,580 | 6,068 | 4,181 | ||||
Accounts payable | (13,223) | (16,799) | (3,613) | (13,223) | ||||
Taxes accrued | 6,045 | (1,637) | 64,541 | 6,045 | ||||
Interest accrued | (403) | (413) | 549 | (403) | ||||
Deferred fuel costs | (20,837) | (9,802) | (3,022) | (20,837) | ||||
Other working capital accounts | (5,334) | 6,138 | (6,911) | (5,334) | ||||
Provision for estimated losses and reserves | (317) | (269) | (81) | (317) | ||||
Changes in pension liability | (9,955) | 850 | 2,929 | (9,955) | ||||
Changes in other regulatory assets | 3,936 | 698 | (32,658) | 3,936 | ||||
Other | (3,530) | (15,555) | 4,933 | (3,530) | ||||
Net cash flow provided by (used in) operating activities | (4,481) | 20,014 | ||||||
Net cash flow provided by operating activities | 78,453 | 1,864 | ||||||
INVESTING ACTIVITIES | ||||||||
Construction expenditures | (23,647) | (23,279) | (49,833) | (23,647) | ||||
Allowance for equity funds used during construction | 528 | 415 | 1,988 | 528 | ||||
Changes in other temporary investments - net | - - | 606 | ||||||
Change in money pool receivable - net | - - | (6,345) | ||||||
Net cash flow used in investing activities | (23,119) | (22,258) | (47,845) | (29,464) | ||||
FINANCING ACTIVITIES | ||||||||
Proceeds from the issuance of long-term debt | 29,791 | - - | - - | 29,791 | ||||
Retirement of long-term debt | (5) | - - | - - | (5) | ||||
Repayment of DIP credit facility | (50,251) | - - | ||||||
Dividends paid: | ||||||||
Common stock | (1,600) | (800) | - - | (1,600) | ||||
Preferred stock | (482) | (724) | (92) | (482) | ||||
Net cash flow provided by (used in) financing activities | 27,704 | (1,524) | (50,343) | 27,704 | ||||
Net increase (decrease) in cash and cash equivalents | 104 | (3,768) | (19,735) | 104 | ||||
Cash and cash equivalents at beginning of period | 7,954 | 4,669 | 48,056 | 7,954 | ||||
Cash and cash equivalents at end of period | $8,058 | $901 | $28,321 | $8,058 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid/(received) during the period for: | ||||||||
Interest - net of amount capitalized | $7,882 | $8,782 | $2,589 | $7,882 | ||||
Income taxes | - - | ($5,010) | ($59,730) | - - | ||||
See Notes to Respective Financial Statements. | ||||||||
105
ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ||||||
(DEBTOR-IN-POSSESSION) | (DEBTOR-IN-POSSESSION) | |||||||
BALANCE SHEETS | BALANCE SHEETS | BALANCE SHEETS | ||||||
ASSETS | ASSETS | ASSETS | ||||||
June 30, 2005 and December 31, 2004 | ||||||||
June 30, 2006 and December 31, 2005 | June 30, 2006 and December 31, 2005 | |||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||
2005 | 2004 | 2006 | 2005 | |||||
(In Thousands) | (In Thousands) | |||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents: | ||||||||
Cash | $1,640 | $2,998 | ||||||
Temporary cash investments - at cost, | ||||||||
which approximates market | 6,418 | 4,956 | ||||||
Total cash and cash equivalents | 8,058 | 7,954 | ||||||
Cash and cash equivalents | $28,321 | $48,056 | ||||||
Accounts receivable: | ||||||||
Customer | 40,156 | 47,356 | 69,307 | 82,052 | ||||
Allowance for doubtful accounts | (3,444) | (3,492) | (18,558) | (25,422) | ||||
Associated companies | 9,355 | 12,223 | 10,839 | 17,895 | ||||
Other | 5,691 | 7,329 | 6,989 | 6,530 | ||||
Accrued unbilled revenues | 38,721 | 24,848 | 27,738 | 23,698 | ||||
Total accounts receivable | 90,479 | 88,264 | 96,315 | 104,753 | ||||
Deferred fuel costs | 23,396 | 2,559 | 33,615 | 30,593 | ||||
Fuel inventory - at average cost | - - | 4,181 | 1,980 | 8,048 | ||||
Materials and supplies - at average cost | 9,468 | 9,150 | 7,046 | 8,961 | ||||
Prepayments and other | 8,685 | 3,467 | 7,485 | 61,581 | ||||
TOTAL | 140,086 | 115,575 | 174,762 | 261,992 | ||||
OTHER PROPERTY AND INVESTMENTS | ||||||||
Investment in affiliates - at equity | 3,259 | 3,259 | 3,259 | 3,259 | ||||
Non-utility property at cost (less accumulated depreciation) | 1,107 | 1,107 | ||||||
TOTAL | 4,366 | 4,366 | ||||||
UTILITY PLANT | ||||||||
Electric | 717,279 | 699,072 | 739,678 | 691,045 | ||||
Natural gas | 192,759 | 183,728 | 191,799 | 189,207 | ||||
Construction work in progress | 25,315 | 33,273 | 59,685 | 202,353 | ||||
TOTAL UTILITY PLANT | 935,353 | 916,073 | 991,162 | 1,082,605 | ||||
Less - accumulated depreciation and amortization | 448,562 | 435,519 | 430,333 | 428,053 | ||||
UTILITY PLANT - NET | 486,791 | 480,554 | 560,829 | 654,552 | ||||
DEFERRED DEBITS AND OTHER ASSETS | ||||||||
Regulatory assets: | ||||||||
Other regulatory assets | 37,101 | 40,354 | 173,045 | 166,133 | ||||
Long term receivables | 1,812 | 2,492 | 1,090 | 1,812 | ||||
Other | 21,629 | 20,540 | 22,641 | 31,266 | ||||
TOTAL | 60,542 | 63,386 | 196,776 | 199,211 | ||||
TOTAL ASSETS | $690,678 | $662,774 | $936,733 | $1,120,121 | ||||
See Notes to Respective Financial Statements. | ||||||||
106 | 106 | |||||||
ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ||||||
(DEBTOR-IN-POSSESSION) | (DEBTOR-IN-POSSESSION) | |||||||
BALANCE SHEETS | BALANCE SHEETS | BALANCE SHEETS | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
June 30, 2005 and December 31, 2004 | ||||||||
June 30, 2006 and December 31, 2005 | June 30, 2006 and December 31, 2005 | |||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||
2005 | 2004 | 2006 | 2005 | |||||
(In Thousands) | (In Thousands) | |||||||
CURRENT LIABILITIES | ||||||||
Currently maturing long-term debt | $30,000 | $30,000 | ||||||
DIP credit facility | $39,749 | $90,000 | ||||||
Notes payable | 15,000 | 15,000 | ||||||
Accounts payable: | ||||||||
Associated companies | 30,807 | 30,563 | 46,464 | 55,923 | ||||
Other | 30,682 | 44,149 | 62,613 | 228,496 | ||||
Customer deposits | 18,005 | 17,187 | 12,321 | 16,930 | ||||
Taxes accrued | 2,219 | 2,592 | 5,510 | - - | ||||
Accumulated deferred income taxes | 7,546 | 1,906 | 5,017 | 1,898 | ||||
Interest accrued | 4,354 | 4,757 | 1,744 | 1,195 | ||||
Energy Efficiency Program provision | 6,776 | 6,611 | ||||||
Other | 2,696 | 3,477 | 3,200 | 2,018 | ||||
TOTAL | 133,085 | 141,242 | ||||||
TOTAL CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE | 191,618 | 411,460 | ||||||
NON-CURRENT LIABILITIES | ||||||||
Accumulated deferred income taxes and taxes accrued | 52,582 | 47,062 | 121,008 | 127,680 | ||||
Accumulated deferred investment tax credits | 3,782 | 3,997 | 3,358 | 3,570 | ||||
SFAS 109 regulatory liability - net | 45,300 | 46,406 | 59,053 | 52,229 | ||||
Other regulatory liabilities | - - | 591 | ||||||
Retirement cost liability | 2,505 | 2,421 | ||||||
Accumulated provisions | 9,006 | 9,323 | 2,099 | 2,119 | ||||
Pension liability | 26,890 | 36,845 | 38,623 | 35,694 | ||||
Long-term debt | 229,910 | 199,902 | ||||||
Other | 3,853 | 3,755 | 5,492 | 5,730 | ||||
TOTAL | 371,323 | 347,290 | ||||||
TOTAL NON-CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE | 232,138 | 230,034 | ||||||
LIABILITIES SUBJECT TO COMPROMISE | 326,942 | 308,917 | ||||||
TOTAL LIABILITIES | 750,698 | 950,411 | ||||||
Commitments and Contingencies | ||||||||
SHAREHOLDERS' EQUITY | ||||||||
Preferred stock without sinking fund | 19,780 | 19,780 | 19,780 | 19,780 | ||||
Common stock, $4 par value, authorized 10,000,000 | ||||||||
shares; issued and outstanding 8,435,900 shares in 2005 | ||||||||
and 2004 | 33,744 | 33,744 | ||||||
shares; issued and outstanding 8,435,900 shares in 2006 | ||||||||
and 2005 | 33,744 | 33,744 | ||||||
Paid-in capital | 36,294 | 36,294 | 36,294 | 36,294 | ||||
Retained earnings | 96,452 | 84,424 | 96,217 | 79,892 | ||||
TOTAL | 186,270 | 174,242 | 186,035 | 169,710 | ||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $690,678 | $662,774 | $936,733 | $1,120,121 | ||||
See Notes to Respective Financial Statements. | ||||||||
107
ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ||||||||||||||
(DEBTOR-IN-POSSESSION) | (DEBTOR-IN-POSSESSION) | |||||||||||||||
SELECTED OPERATING RESULTS | SELECTED OPERATING RESULTS | SELECTED OPERATING RESULTS | ||||||||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | For the Three and Six Months Ended June 30, 2006 and 2005 | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Three Months Ended | Increase/ | Three Months Ended | Increase/ | |||||||||||||
Description | 2005 | 2004 | (Decrease) | % | 2006 | 2005 | (Decrease) | % | ||||||||
(Dollars In Millions) | (Dollars In Millions) | |||||||||||||||
Electric Operating Revenues: | ||||||||||||||||
Residential | $38 | $41 | ($3) | (7) | $22 | $38 | ($16) | (42) | ||||||||
Commercial | 40 | 42 | (2) | (5) | 37 | 40 | (3) | (8) | ||||||||
Industrial | 9 | 8 | 1 | 13 | 10 | 9 | 1 | 11 | ||||||||
Governmental | 17 | 18 | (1) | (6) | 14 | 17 | (3) | (18) | ||||||||
Total retail | 104 | 109 | (5) | (5) | 83 | 104 | (21) | (20) | ||||||||
Sales for resale | ||||||||||||||||
Associated companies | 35 | 30 | 5 | 17 | 4 | 35 | (31) | (89) | ||||||||
Non-associated companies | 18 | - | 18 | - - | ||||||||||||
Other | 20 | 20 | - | - - | 13 | 20 | (7) | (35) | ||||||||
Total | $159 | $159 | $ - | - - | $118 | $159 | ($41) | (26) | ||||||||
Billed Electric Energy | ||||||||||||||||
Sales (GWh): | ||||||||||||||||
Residential | 447 | 450 | (3) | (1) | 206 | 447 | (241) | (54) | ||||||||
Commercial | 552 | 545 | 7 | 1 | 402 | 552 | (150) | (27) | ||||||||
Industrial | 162 | 138 | 24 | 17 | 141 | 162 | (21) | (13) | ||||||||
Governmental | 243 | 245 | (2) | (1) | 161 | 243 | (82) | (34) | ||||||||
Total retail | 1,404 | 1,378 | 26 | 2 | 910 | 1,404 | (494) | (35) | ||||||||
Sales for resale | ||||||||||||||||
Associated companies | 400 | 390 | 10 | 3 | 6 | 400 | (394) | (99) | ||||||||
Non-associated companies | 6 | 5 | 1 | 20 | 369 | 6 | 363 | 6,050 | ||||||||
Total | 1,810 | 1,773 | 37 | 2 | 1,285 | 1,810 | (525) | (29) | ||||||||
Six Months Ended | Increase/ | Six Months Ended | Increase/ | |||||||||||||
Description | 2005 | 2004 | (Decrease) | % | 2006 | 2005 | (Decrease) | % | ||||||||
(Dollars In Millions) | (Dollars In Millions) | |||||||||||||||
Electric Operating Revenues: | ||||||||||||||||
Residential | $67 | $71 | ($4) | (6) | $39 | $67 | ($28) | (42) | ||||||||
Commercial | 74 | 76 | (2) | (3) | 72 | 74 | (2) | (3) | ||||||||
Industrial | 16 | 14 | 2 | 14 | 19 | 16 | 3 | 19 | ||||||||
Governmental | 29 | 31 | (2) | (6) | 24 | 29 | (5) | (17) | ||||||||
Total retail | 186 | 192 | (6) | (3) | 154 | 186 | (32) | (17) | ||||||||
Sales for resale | ||||||||||||||||
Associated companies | 81 | 57 | 24 | 42 | 11 | 81 | (70) | (86) | ||||||||
Non-associated companies | 1 | 1 | - | - - | 45 | 1 | 44 | 4,400 | ||||||||
Other | 22 | 22 | - | - - | 7 | 22 | (15) | (68) | ||||||||
Total | $290 | $272 | $18 | 7 | $217 | $290 | ($73) | (25) | ||||||||
Billed Electric Energy | ||||||||||||||||
Sales (GWh): | ||||||||||||||||
Residential | 847 | 867 | (20) | (2) | 344 | 847 | (503) | (59) | ||||||||
Commercial | 1,071 | 1,070 | 1 | - - | 762 | 1,071 | (309) | (29) | ||||||||
Industrial | 306 | 250 | 56 | 22 | 244 | 306 | (62) | (20) | ||||||||
Governmental | 468 | 470 | (2) | - - | 267 | 468 | (201) | (43) | ||||||||
Total retail | 2,692 | 2,657 | 35 | 1 | 1,617 | 2,692 | (1,075) | (40) | ||||||||
Sales for resale | ||||||||||||||||
Associated companies | 1,006 | 750 | 256 | 34 | 126 | 1,006 | (880) | (87) | ||||||||
Non-associated companies | 10 | 15 | (5) | (33) | 776 | 10 | 766 | 7,660 | ||||||||
Total | 3,708 | 3,422 | 286 | 8 | 2,519 | 3,708 | (1,189) | (32) | ||||||||
108
SYSTEM ENERGY RESOURCES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
System Energy's principal asset consists of a 90% ownership and leasehold interest in Grand Gulf. The capacity and energy from its 90% interest is sold under the Unit Power Sales Agreement to its only four customers, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. System Energy's operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% interest in Grand Gulf pursuant to the Unit Power Sales Agreement. Payments under the Unit Power Sales Agreement are System Energy's only source of operating revenues. Net income remained relatively unchangedincreased by $3.7 million for the second quarter increasing $0.4 million, andof 2006 compared to the second quarter of 2005 primarily due to an increase in rate base in 2006 resulting in higher operating income. Net income increased slightly by $2.0$8.2 million for the six months ended June 30, 2005,2006 compared to the same respective periods in 2004. The increase for the six months ended isJune 30, 2005 primarily due to an increase in rate base in 2006 resulting in higher opera ting income combined with higher interest income earned on temporary cashmoney pool investments.
Liquidity and Capital Resources
Cash Flow
Cash flows for the six months ended June 30, 20052006 and 20042005 were as follows:
|
|
| 2005 |
| 2004 |
|
| 2006 |
| 2005 |
|
|
| (In Thousands) |
|
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period |
| $216,355 |
| $52,536 | Cash and cash equivalents at beginning of period |
| $75,704 |
| $216,355 |
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in): | Cash flow provided by (used in): |
|
|
|
| Cash flow provided by (used in): |
|
|
|
|
| Operating activities |
| 18,468 |
| 98,371 | Operating activities |
| (83,809) |
| 120,292 |
| Investing activities |
| (18,035) |
| (24,944) | Investing activities |
| 162,738 |
| (119,859) |
| Financing activities |
| (81,590) |
| (69,943) | Financing activities |
| (92,989) |
| (81,590) |
Net increase (decrease) in cash and cash equivalents |
| (81,157) |
| 3,484 | ||||||
Net decrease in cash and cash equivalents | Net decrease in cash and cash equivalents |
| (14,060) |
| (81,157) | |||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $135,198 |
| $56,020 | Cash and cash equivalents at end of period |
| $61,644 |
| $135,198 |
Operating Activities
CashOperating activities used $83.8 million in cash flow from operations decreased $79.9for the six months ended June 30, 2006 compared to providing $120.3 million in cash flow for the six months ended June 30, 2005 comparedprimarily due to an increase of $208.5 million in income tax payments.
Investing Activities
Investing activities provided $162.7 million in cash flow for the six months ended June 30, 2004 primarily due2006 compared to money pool activity. Money pool activity used $101.8using $119.9 million of System Energy's operatingin cash flowsflow for the six months ended June 30, 2005 and used $29.0 million for the six months ended June 30, 2004. System Energy's receivables from the money pool were as follows:
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$163,416 |
| $61,592 |
| $48,082 |
| $19,064 |
See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.
Investing Activities
The decrease of $6.9 million in net cash used in investing activities for the six months ended June 30, 2005 compared to the six months ended June 30, 2004 was primarily due to a decrease of $14.0 millionmoney pool activity. Partially offsetting the increase in cash provided was an increase in construction expenditures primarily resulting from the reclassification of inventory items to capital in 2004. The decrease was partially offset by the maturity of $6.5 million of other temporary investments, which provided cash in 2004.spending on dry fuel storage.
109
Financing Activities
The increase of $11.6$11.4 million in net cash used in financing activities for the six months ended June 30, 20052006 compared to the six months ended June 30, 20042005 was primarily due to an increase of $22.4$17.2 million in common stock dividends paid, partially offset by a decrease of $5.8 million in the January 20052006 principal payment made on the Grand Gulf sale-leaseback compared to the January 20042005 principal payment. The increase was partially offset by $13.2 million
Capital Structure
System Energy's capitalization is balanced between equity and debt, as shown in bond refunding premiumsthe following table.
|
| June 30, |
| December 31, |
|
|
|
|
|
|
|
Net debt to net capital |
| 48.5% |
| 49.0% |
|
Effect of subtracting cash from debt |
| 1.8% |
| 2.1% |
|
Debt to capital |
| 50.3% |
| 51.1% |
|
Net debt consists of debt less cash and costs paid in 2004 related tocash equivalents. Debt consists of notes payable, capital lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and common shareholder's equity. Net capital consists of capital less cash and cash equivalents. System Energy refundinguses the bondsnet debt to net capital ratio in May 2004 associated withanalyzing its Grand Gulf Lease Obligation.
financial condition and believes it provides useful information to its investors and creditors in evaluating System Energy's financial condition.
Uses and Sources of Capital
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Liquidity and Capital Resources"in the Form 10-K for a discussion of System Energy's uses and sources of capital. The following is an update to the Form 10-K.
System Energy's receivables from the money pool were as follows:
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$88,331 |
| $277,287 |
| $163,416 |
| $61,592 |
See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a description of the money pool.
Significant Factors and Known Trends
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends" in the Form 10-K for a discussion of market risks, nuclear matters, litigation risks, and environmental risks.
Federal Legislation
In late July 2005 the U.S. Congress passed broad new energy legislation, the Energy Policy Act of 2005. The legislation contains electricity provisions that, among other things:
The President is expected to sign the Energy Policy Act in August 2005. The Energy Power Act requires several rulemakings by the FERC and other government agencies in order to implement its provisions. Therefore, it will be some time before a full assessment of its effect on Entergy and the energy industry can be completed.
Critical Accounting Estimates
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the Form 10-K for a discussion of the estimates and judgments necessary in System Energy's accounting for nuclear decommissioning costs and pension and other retirement benefits.
SYSTEM ENERGY RESOURCES, INC. | ||||||||
INCOME STATEMENTS | ||||||||
For the Three and Six Months Ended June 30, 2005 and 2004 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Six Months Ended | |||||||
2005 | 2004 | 2005 | 2004 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING REVENUES | ||||||||
Domestic electric | $126,364 | $132,720 | $251,154 | $259,888 | ||||
OPERATING EXPENSES | ||||||||
Operation and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 10,139 | 10,278 | 19,858 | 17,524 | ||||
Nuclear refueling outage expenses | 3,026 | 2,891 | 6,019 | 6,518 | ||||
Other operation and maintenance | 27,346 | 23,127 | 50,482 | 44,638 | ||||
Decommissioning | 6,240 | 5,805 | 12,368 | 11,505 | ||||
Taxes other than income taxes | 6,322 | 6,211 | 12,371 | 12,156 | ||||
Depreciation and amortization | 24,158 | 25,829 | 50,702 | 52,370 | ||||
Other regulatory credits - net | (4,126) | (1,006) | (8,511) | (2,175) | ||||
TOTAL | 73,105 | 73,135 | 143,289 | 142,536 | ||||
OPERATING INCOME | 53,259 | 59,585 | 107,865 | 117,352 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 321 | 453 | 627 | 867 | ||||
Interest and dividend income | 3,672 | 1,569 | 6,517 | 2,925 | ||||
Miscellaneous - net | (108) | (151) | (221) | (372) | ||||
TOTAL | 3,885 | 1,871 | 6,923 | 3,420 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 12,812 | 15,949 | 25,668 | 31,189 | ||||
Other interest - net | 6 | 146 | 8 | 356 | ||||
Allowance for borrowed funds used during construction | (102) | (146) | (199) | (281) | ||||
TOTAL | 12,716 | 15,949 | 25,477 | 31,264 | ||||
INCOME BEFORE INCOME TAXES | 44,428 | 45,507 | 89,311 | 89,508 | ||||
Income taxes | 18,503 | 19,975 | 37,154 | 39,309 | ||||
NET INCOME | $25,925 | $25,532 | $52,157 | $50,199 | ||||
See Notes to Respective Financial Statements. | ||||||||
110
Recently Issued Accounting Pronouncements
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for System Energy in the first quarter of 2007. The FASB's objective in issuing this interpretation is to increase comparability among companies in financial reporting of income taxes. FIN 48 establishes a "more-likely-than-not" recognition threshold that must be met before a tax benefit can be recognized in the financial statements. If a tax deduction is taken on a tax return, but does not meet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded. System Energy does not expect that the adoption of FIN 48 will materially affect its financial position, results of operations, or cash flows.
111
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SYSTEM ENERGY RESOURCES, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2005 and 2004 | ||||
(Unaudited) | ||||
2005 | 2004 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $52,157 | $50,199 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Other regulatory credits - net | (8,511) | (2,175) | ||
Depreciation, amortization, and decommissioning | 63,070 | 63,875 | ||
Deferred income taxes and investment tax credits | (12,140) | (166,003) | ||
Changes in working capital: | ||||
Receivables | (95,645) | (18,986) | ||
Accounts payable | (4,750) | (6,032) | ||
Taxes accrued | 28,065 | 194,383 | ||
Interest accrued | (27,831) | (17,109) | ||
Other working capital accounts | 153 | (3,605) | ||
Provision for estimated losses and reserves | 50 | (1,886) | ||
Changes in other regulatory assets | (9,080) | 11,319 | ||
Other | 32,930 | (5,609) | ||
Net cash flow provided by operating activities | 18,468 | 98,371 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (7,982) | (22,011) | ||
Allowance for equity funds used during construction | 627 | 867 | ||
Nuclear fuel purchases | - - | (45,460) | ||
Proceeds from sale/leaseback of nuclear fuel | - - | 45,640 | ||
Decommissioning trust contributions and realized | ||||
change in trust assets | (10,680) | (10,462) | ||
Changes in other temporary investments - net | - - | 6,482 | ||
Net cash flow used in investing activities | (18,035) | (24,944) | ||
FINANCING ACTIVITIES | ||||
Retirement of long-term debt | (28,790) | (6,348) | ||
Other financing activities | - - | (13,195) | ||
Dividends paid: | ||||
Common stock | (52,800) | (50,400) | ||
Net cash flow used in financing activities | (81,590) | (69,943) | ||
Net increase (decrease) in cash and cash equivalents | (81,157) | 3,484 | ||
Cash and cash equivalents at beginning of period | 216,355 | 52,536 | ||
Cash and cash equivalents at end of period | $135,198 | $56,020 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid during the period for: | ||||
Interest - net of amount capitalized | $50,605 | $46,318 | ||
Income taxes | $14,522 | - | ||
See Notes to Respective Financial Statements. | ||||
SYSTEM ENERGY RESOURCES, INC. | ||||||||
INCOME STATEMENTS | ||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Six Months Ended | |||||||
2006 | 2005 | 2006 | 2005 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING REVENUES | ||||||||
Domestic electric | $129,176 | $126,364 | $260,830 | $251,154 | ||||
OPERATING EXPENSES | ||||||||
Operation and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 10,168 | 10,139 | 21,381 | 19,858 | ||||
Nuclear refueling outage expenses | 3,962 | 3,026 | 7,535 | 6,019 | ||||
Other operation and maintenance | 26,563 | 27,346 | 49,815 | 50,482 | ||||
Decommissioning | 5,925 | 6,240 | 11,744 | 12,368 | ||||
Taxes other than income taxes | 5,817 | 6,322 | 12,006 | 12,371 | ||||
Depreciation and amortization | 23,811 | 24,158 | 49,488 | 50,702 | ||||
Other regulatory credits - net | (3,766) | (4,126) | (5,746) | (8,511) | ||||
TOTAL | 72,480 | 73,105 | 146,223 | 143,289 | ||||
OPERATING INCOME | 56,696 | 53,259 | 114,607 | 107,865 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 775 | 321 | 1,458 | 627 | ||||
Interest and dividend income | 4,271 | 3,672 | 9,900 | 6,517 | ||||
Miscellaneous - net | (91) | (108) | (198) | (221) | ||||
TOTAL | 4,955 | 3,885 | 11,160 | 6,923 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 11,996 | 12,812 | 24,529 | 25,668 | ||||
Other interest - net | 26 | 6 | 54 | 8 | ||||
Allowance for borrowed funds used during construction | (244) | (102) | (459) | (199) | ||||
TOTAL | 11,778 | 12,716 | 24,124 | 25,477 | ||||
INCOME BEFORE INCOME TAXES | 49,873 | 44,428 | 101,643 | 89,311 | ||||
Income taxes | 20,265 | 18,503 | 41,287 | 37,154 | ||||
NET INCOME | $29,608 | $25,925 | $60,356 | $52,157 | ||||
See Notes to Respective Financial Statements. | ||||||||
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SYSTEM ENERGY RESOURCES, INC. | ||||||
BALANCE SHEETS | ||||||
ASSETS | ||||||
June 30, 2005 and December 31, 2004 | ||||||
(Unaudited) | ||||||
2005 | 2004 | |||||
(In Thousands) | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents: | ||||||
Cash | $10 | $399 | ||||
Temporary cash investments - at cost, | ||||||
which approximates market | 135,188 | 215,956 | ||||
Total cash and cash equivalents | 135,198 | 216,355 | ||||
Accounts receivable: | ||||||
Associated companies | 208,818 | 111,588 | ||||
Other | 2,148 | 3,733 | ||||
Total accounts receivable | 210,966 | 115,321 | ||||
Materials and supplies - at average cost | 55,591 | 53,427 | ||||
Deferred nuclear refueling outage costs | 3,982 | 9,510 | ||||
Prepayments and other | 4,378 | 1,007 | ||||
TOTAL | 410,115 | 395,620 | ||||
OTHER PROPERTY AND INVESTMENTS | ||||||
Decommissioning trust funds | 220,696 | 205,083 | ||||
UTILITY PLANT | ||||||
Electric | 3,238,587 | 3,232,314 | ||||
Property under capital lease | 469,993 | 469,993 | ||||
Construction work in progress | 29,345 | 28,743 | ||||
Nuclear fuel under capital lease | 51,265 | 65,572 | ||||
TOTAL UTILITY PLANT | 3,789,190 | 3,796,622 | ||||
Less - accumulated depreciation and amortization | 1,834,908 | 1,780,450 | ||||
UTILITY PLANT - NET | 1,954,282 | 2,016,172 | ||||
DEFERRED DEBITS AND OTHER ASSETS | ||||||
Regulatory assets: | ||||||
SFAS 109 regulatory asset - net | 95,081 | 96,047 | ||||
Other regulatory assets | 307,354 | 296,305 | ||||
Other | 19,223 | 19,578 | ||||
TOTAL | 421,658 | 411,930 | ||||
TOTAL ASSETS | $3,006,751 | $3,028,805 | ||||
See Notes to Respective Financial Statements. | ||||||
SYSTEM ENERGY RESOURCES, INC. | ||||||
BALANCE SHEETS | ||||||
LIABILITIES AND SHAREHOLDER'S EQUITY | ||||||
June 30, 2005 and December 31, 2004 | ||||||
(Unaudited) | ||||||
2005 | 2004 | |||||
(In Thousands) | ||||||
CURRENT LIABILITIES | ||||||
Currently maturing long-term debt | $22,989 | $25,266 | ||||
Accounts payable: | ||||||
Associated companies | 3,071 | 3,880 | ||||
Other | 17,110 | 21,051 | ||||
Taxes accrued | 113,840 | 46,468 | ||||
Accumulated deferred income taxes | 1,330 | 3,477 | ||||
Interest accrued | 15,167 | 42,998 | ||||
Obligations under capital leases | 27,716 | 27,716 | ||||
Other | 1,781 | 1,621 | ||||
TOTAL | 203,004 | 172,477 | ||||
NON-CURRENT LIABILITIES | ||||||
Accumulated deferred income taxes and taxes accrued | 367,694 | 421,466 | ||||
Accumulated deferred investment tax credits | 73,874 | 75,612 | ||||
Obligations under capital leases | 23,548 | 37,855 | ||||
Other regulatory liabilities | 246,722 | 210,863 | ||||
Decommissioning | 348,261 | 335,893 | ||||
Accumulated provisions | 2,428 | 2,378 | ||||
Long-term debt | 823,123 | 849,593 | ||||
Other | 24,156 | 28,084 | ||||
TOTAL | 1,909,806 | 1,961,744 | ||||
Commitments and Contingencies | ||||||
SHAREHOLDER'S EQUITY | ||||||
Common stock, no par value, authorized 1,000,000 shares; | ||||||
issued and outstanding 789,350 shares in 2005 and 2004 | 789,350 | 789,350 | ||||
Retained earnings | 104,591 | 105,234 | ||||
TOTAL | 893,941 | 894,584 | ||||
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY | $3,006,751 | $3,028,805 | ||||
See Notes to Respective Financial Statements. | ||||||
SYSTEM ENERGY RESOURCES, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2006 and 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $60,356 | $52,157 | ||
Adjustments to reconcile net income to net cash flow provided by (used in) operating activities: | ||||
Other regulatory credits - net | (5,746) | (8,511) | ||
Depreciation, amortization, and decommissioning | 61,231 | 63,070 | ||
Deferred income taxes and investment tax credits | (9,633) | (12,140) | ||
Changes in working capital: | ||||
Receivables | 5,111 | 6,179 | ||
Accounts payable | (901) | (4,750) | ||
Taxes accrued | (180,245) | 28,065 | ||
Interest accrued | (31,520) | (27,831) | ||
Other working capital accounts | (602) | 153 | ||
Provision for estimated losses and reserves | 1 | 50 | ||
Changes in other regulatory assets | (9,921) | (9,080) | ||
Other | 28,060 | 32,930 | ||
Net cash flow provided by (used in) operating activities | (83,809) | 120,292 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (14,557) | (7,982) | ||
Allowance for equity funds used during construction | 1,458 | 627 | ||
Nuclear fuel purchases | (370) | - | ||
Proceeds from sale/leaseback of nuclear fuel | 370 | - | ||
Proceeds from nuclear decommissioning trust fund sales | 52,562 | 52,287 | ||
Investment in nuclear decommissioning trust funds | (65,681) | (62,967) | ||
Changes in money pool receivable - net | 188,956 | (101,824) | ||
Net cash flow provided by (used in) investing activities | 162,738 | (119,859) | ||
FINANCING ACTIVITIES | ||||
Retirement of long-term debt | (22,989) | (28,790) | ||
Dividends paid: | ||||
Common stock | (70,000) | (52,800) | ||
Net cash flow used in financing activities | (92,989) | (81,590) | ||
Net decrease in cash and cash equivalents | (14,060) | (81,157) | ||
Cash and cash equivalents at beginning of period | 75,704 | 216,355 | ||
Cash and cash equivalents at end of period | $61,644 | $135,198 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid during the period for: | ||||
Interest - net of amount capitalized | $53,199 | $50,605 | ||
Income taxes | $220,423 | $11,914 | ||
See Notes to Respective Financial Statements. | ||||
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SYSTEM ENERGY RESOURCES, INC. | ||||||
BALANCE SHEETS | ||||||
ASSETS | ||||||
June 30, 2006 and December 31, 2005 | ||||||
(Unaudited) | ||||||
2006 | 2005 | |||||
(In Thousands) | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents: | ||||||
Cash | $13 | $204 | ||||
Temporary cash investments - at cost, | ||||||
which approximates market | 61,631 | 75,500 | ||||
Total cash and cash equivalents | 61,644 | 75,704 | ||||
Accounts receivable: | ||||||
Associated companies | 134,078 | 327,454 | ||||
Other | 2,594 | 3,285 | ||||
Total accounts receivable | 136,672 | 330,739 | ||||
Materials and supplies - at average cost | 57,315 | 55,183 | ||||
Deferred nuclear refueling outage costs | 14,193 | 17,853 | ||||
Prepayments and other | 3,853 | 1,878 | ||||
TOTAL | 273,677 | 481,357 | ||||
OTHER PROPERTY AND INVESTMENTS | ||||||
Decommissioning trust funds | 249,517 | 236,003 | ||||
UTILITY PLANT | ||||||
Electric | 3,222,080 | 3,212,596 | ||||
Property under capital lease | 467,005 | 467,005 | ||||
Construction work in progress | 51,220 | 47,178 | ||||
Nuclear fuel under capital lease | 72,048 | 87,500 | ||||
TOTAL UTILITY PLANT | 3,812,353 | 3,814,279 | ||||
Less - accumulated depreciation and amortization | 1,944,612 | 1,889,886 | ||||
UTILITY PLANT - NET | 1,867,741 | 1,924,393 | ||||
DEFERRED DEBITS AND OTHER ASSETS | ||||||
Regulatory assets: | ||||||
SFAS 109 regulatory asset - net | 92,386 | 92,883 | ||||
Other regulatory assets | 302,492 | 292,968 | ||||
Other | 17,071 | 18,435 | ||||
TOTAL | 411,949 | 404,286 | ||||
TOTAL ASSETS | $2,802,884 | $3,046,039 | ||||
See Notes to Respective Financial Statements. | ||||||
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SYSTEM ENERGY RESOURCES, INC. | ||||||
BALANCE SHEETS | ||||||
LIABILITIES AND SHAREHOLDER'S EQUITY | ||||||
June 30, 2006 and December 31, 2005 | ||||||
(Unaudited) | ||||||
2006 | 2005 | |||||
(In Thousands) | ||||||
CURRENT LIABILITIES | ||||||
Currently maturing long-term debt | $23,335 | $22,989 | ||||
Accounts payable: | ||||||
Associated companies | (745) | - | ||||
Other | 22,614 | 22,770 | ||||
Taxes accrued | 48,074 | 228,168 | ||||
Accumulated deferred income taxes | 5,276 | 6,678 | ||||
Interest accrued | 13,589 | 45,109 | ||||
Obligations under capital leases | 30,236 | 27,716 | ||||
Other | 1,656 | 1,811 | ||||
TOTAL | 144,035 | 355,241 | ||||
NON-CURRENT LIABILITIES | ||||||
Accumulated deferred income taxes and taxes accrued | 256,573 | 267,913 | ||||
Accumulated deferred investment tax credits | 70,398 | 72,136 | ||||
Obligations under capital leases | 41,812 | 63,307 | ||||
Other regulatory liabilities | 250,828 | 224,997 | ||||
Decommissioning | 330,670 | 318,927 | ||||
Accumulated provisions | 2,400 | 2,399 | ||||
Long-term debt | 799,872 | 819,642 | ||||
Other | 22,312 | 27,849 | ||||
TOTAL | 1,774,865 | 1,797,170 | ||||
Commitments and Contingencies | ||||||
SHAREHOLDER'S EQUITY | ||||||
Common stock, no par value, authorized 1,000,000 shares; | ||||||
issued and outstanding 789,350 shares in 2006 and 2005 | 789,350 | 789,350 | ||||
Retained earnings | 94,634 | 104,278 | ||||
TOTAL | 883,984 | 893,628 | ||||
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY | $2,802,884 | $3,046,039 | ||||
See Notes to Respective Financial Statements. | ||||||
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ENTERGY ARKANSAS, ENTERGY GULF STATES, ENTERGY LOUISIANA, ENTERGY MISSISSIPPI, ENTERGY NEW ORLEANS (DEBTOR-IN-POSSESSION), AND SYSTEM ENERGY
NOTES TO RESPECTIVE FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. COMMITMENTS AND CONTINGENCIES
Entergy New Orleans Bankruptcy (Entergy New Orleans)
See Note 6 to the domestic utility companies and System Energy financial statements for information on the Entergy New Orleans bankruptcy proceeding.
Nuclear Insurance(Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
See Note 8 to the domestic utility companies and System Energy financial statements in the Form 10-K for information on nuclear liability and property and replacement power insurance associated with Entergy Arkansas', Entergy Gulf States', Entergy Louisiana's, and System Energy's nuclear power plants.
Non-Nuclear Property Insurance (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
See Note 8 to the domestic utility companies and System Energy financial statements in the Form 10-K for information on Entergy's non-nuclear property insurance program. Beginning in June 2006, the aggregation limit for all parties insured by Oil Insurance Limited for any one occurrence was reduced to $500 million. Most of Entergy's non-nuclear excess property insurance coverage includes a $75 million drop-down feature in the event of an OIL aggregation loss to which an Entergy loss contributes.
Nuclear Decommissioning and Other Asset Retirement Costs(Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy)
See Note 8 to the domestic utility companies and System Energy financial statements in the Form 10-K for information on nuclear decommissioning costs. In the second quarter of 2005, Entergy Louisiana recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for Waterford 3 that reflected an expected life extension for the plant. The revised estimate resulted in a $153.6 million reduction in its decommissioning liability, along with a $49.2 million reduction in utility plant and a $104.4 million reduction in the related regulatory asset.other retirement costs.
Income Taxes(Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
See Note 8 to the domestic utility companies and System Energy financial statements in the Form 10-K for information regarding certain material income tax audit matters involving the domestic utility companies and System Energy. Following is an update to that disclosure.
Mark to Market of Certain Power Contracts
As discussed in the Form 10-K, in 2001, Entergy Louisiana changed its method of accounting for income tax purposes related to its wholesale electric power contracts. The most significant of these is the contract to purchase power from the Vidalia hydroelectric project. On audit of Entergy Louisiana's 2001 tax return, the IRS made an adjustment reducing the amount of the deduction associated with this method change. The adjustment had no material impact on Entergy Louisiana's earnings and required no additional cash payment of 2001 income tax. The Vidalia contract method change has resulted in cumulative cash flow benefits of approximately $790 million through June 30, 2005. This benefit is expected to reverse in the years 2005 through 2031. The tax accounting election has had no effect on book income tax expense. The timing of the reversal of this benefit depends on several variables, including the price of power.
CashPoint Bankruptcy(Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
See Note 8 to the domestic utility companies and System Energy financial statements in the Form 10-K for information regarding the bankruptcy of CashPoint, which managed a network of payment agents for the domestic utility companies.
City Franchise Ordinances (Entergy New Orleans)
Entergy New Orleans provides electric and gas service in the City of New Orleans pursuant to franchise ordinances. These ordinances contain a continuing option for the City of New Orleans to purchase Entergy New Orleans' electric and gas utility properties.
Employment Litigation(Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy are defendants in numerous lawsuits filed by former employees asserting that they were wrongfully terminated and/or discriminated against on the basis of age, race, sex, or other protected characteristics. The defendant companies deny any liability to the plaintiffs.
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Asbestos and Hazardous Material Litigation(Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
Numerous lawsuits have been filed in federalSee Note 8 to the domestic utility companies and state courts in Texas, Louisiana, and Mississippi primarily by contractor employeesSystem Energy financial statements in the 1950-1980 timeframe againstForm 10-K for information regarding asbestos and hazardous material litigation at Entergy Gulf States, Entergy Louisiana, Entergy New Orleans,Mississippi, and Entergy Mississippi as premises owners of power plants, for damages caused by alleged exposure to asbestos or other hazardous material. Many other defendants are named in these lawsuits as well. Presently, there are approximately 480 lawsuits involving approximately 10,000 claims. Management believes that adequate provisions have been established to cover any exposure. Additionally, negotiations continue with insurers to recover more reimbursement, while new coverage is being secured to minimize anticipated future potential exposures. Management believes that loss exposure has been and will continue to be handled successfully so that the ultimate resolution of these matters will not be material, in the aggregate, to the financial po sition or results of operation of the domestic utility companies involved in these lawsuits.New Orleans.
NOTE 2. RATE AND REGULATORY MATTERS
Storm Costs Recovery Filings with Retail Regulators
On July 31, 2006, Entergy Louisiana and Entergy Gulf States filed a supplemental and amending storm cost recovery application with the LPSC, in which Entergy Louisiana and Entergy Gulf States requested that the LPSC (1) review Entergy Louisiana's and Entergy Gulf States' testimony and exhibits relating to the costs associated with Hurricanes Katrina and Rita, and declare that those verified, actual storm-related costs through May 31, 2006 are $466.8 million for Entergy Louisiana and $200.3 million for Entergy Gulf States in the Louisiana jurisdiction and that those costs were prudently incurred; (2) declare that the annual revenue requirements associated with the recovery of those costs, based on a ten-year levelized rate are $54.4 million for Entergy Louisiana and $26.2 million for Entergy Gulf States; (3) authorize Entergy Louisiana and Entergy Gulf States to recover the costs through Storm Cost Recovery Riders (SCRRs) proposed by Entergy Louisiana and Entergy Gulf States; (4) declare that the storm costs incurred subsequent to May 31, 2006 are to be filed by Entergy Louisiana and Entergy Gulf States with the LPSC on an annual basis in connection with their annual formula rate plan (FRP) filings, and that the SCRRs be adjusted annually to reflect such costs and any insurance proceeds or CDBG funds actually received, with the adjusted amounts to be collected through the SCRRs to take effect contemporaneous with the effective date of rate changes under the FRP; (5) declare that the storm-related costs incurred by Entergy Louisiana and Entergy Gulf States meet the conditions set forth in the FRP for exclusion from the sharing provisions in those FRPs and authorize the permanent recovery of storm costs outside of the FRPs adopted by the LPSC for Entergy Louisiana and Entergy Gulf States; and (6) authorize the funding of a storm reserve through securitization sufficient to fund a storm cost reserve of $132 million for Entergy Louisiana and $81 million for Entergy Gulf States. Hearing s on the application are scheduled for the first quarter 2007.
In July 2006, Entergy Gulf States filed an application with the PUCT with respect to the $393.2 million of Hurricane Rita reconstruction costs incurred in its Texas retail jurisdiction through March 31, 2006. The filing asks the PUCT to determine that $393.2 million is the amount of reasonable and necessary hurricane reconstruction costs eligible for securitization and recovery, approve the recovery of carrying costs, and approve the manner in which Entergy Gulf States-Texas allocates those costs among its retail customer classes. If approved, Entergy Gulf States' application will ultimately affect all its retail customers in Texas. Entergy Gulf States' filing does not request recovery of costs through a specific rider on customer bills or through any other means at this time. The hearing before the PUCT on the filing is scheduled for November 2006. This is the first of two filings authorized by a law passed earlier this year in a special session of the Texas Legislature. A second filing will request securitization and recovery of the eligible costs through retail rates and tariffs. Entergy Gulf States expects to make the second filing following the conclusion of the reconstruction cost case.
As discussed in the Form 10-K, in December 2005, Entergy Mississippi filed with the MPSC a Notice of Intent to change rates by implementing a Storm Damage Rider to recover storm damage restoration costs associated with Hurricanes Katrina and Rita totaling approximately $84 million as of November 30, 2005. In February 2006, Entergy Mississippi filed an Application for an Accounting Order seeking certification by the MPSC of Entergy Mississippi's estimated $36 million of storm restoration costs not included in the December 2005 filing. In March 2006, the Governor signed a law that established a mechanism by which the MPSC may authorize and certify an electric utility financing order and the state may issue general obligation bonds to pay the costs of repairing damage caused by Hurricane Katrina to the systems of investor-owned electric utilities. Because of the passage of this law and the possibility of Entergy Mississippi obtaining CDBG funds for Hurricane Katrina stor m restoration costs, in March 2006, the MPSC issued an order approving a Joint Stipulation between Entergy Mississippi and the Mississippi
117
Public Utilities Staff that provided for the review of Entergy Mississippi's total storm restoration costs in the Application for an Accounting Order proceeding. The Stipulation stated that the procedural schedule of the December 2005 Notice of Intent filing should be suspended until the MPSC issues a final order in the Application for an Accounting Order proceeding.
In June 2006, the MPSC issued an order certifying Entergy Mississippi's Hurricane Katrina restoration costs incurred through March 31, 2006 of $89 million, net of estimated insurance proceeds. Two days later Entergy Mississippi filed a request with the Mississippi Development Authority for $89 million of CDBG funding for reimbursement of its infrastructure restoration costs. Entergy Mississippi also filed a Petition for Financing Order with the MPSC for authorization of state general obligation bond financing of $169 million for Hurricane Katrina restoration costs and future storm costs. The $169 million amount includes Hurricane Katrina restoration costs plus $80 million to build Entergy Mississippi's storm damage reserve for the future. The amount financed through the bonds will be reduced dollar for dollar by any CDBG funds that Entergy Mississippi receives. Pursuant to the legislation, the MPSC must issue a financing order by the end of October 2006.
Deferred Fuel Costs
See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for information regarding fuel proceedings involving the domestic utility companies. The following are updates to the Form 10-K.
Entergy Arkansas
In March 2006, Entergy Arkansas filed with the APSC its annual redetermination of the energy cost rate for application to the period April 2006 through March 2007. The filed energy cost rate of $0.02827 per kWh was proposed to replace the interim rate of $0.01900 per kWh that had been in place since October 2005. The interim energy cost rate is discussed in the Form 10-K, along with the investigation that the APSC commenced concerning Entergy Arkansas' interim energy cost rate. The increase in the energy cost rate is due to increases in the cost of purchased power primarily due to the natural gas cost increase and the effect that Hurricanes Katrina and Rita had on market conditions, increased demand for purchased power during the ANO 1 refueling and steam generator replacement outage in the fall of 2005, and coal plant generation curtailments during off-peak periods due to coal delivery problems.
On March 31, 2006, the APSC suspended implementation of the $0.02827 per kWh energy cost rate, and ordered that the $0.01900 per kWh interim rate remain in effect pending the APSC proceedings on the energy cost recovery filings. The APSC also extended its investigation into Entergy Arkansas' interim energy cost rate to cover the costs included in Entergy Arkansas' March 2006 filing. The extended investigation does not identify new issues in addition to the four issues listed in the Form 10-K and covers the same time period. On April 7, 2006, the APSC issued a show cause order in the investigation proceeding that ordered Entergy Arkansas to file a cost of service study by June 8, 2006. The order also directed Entergy Arkansas to file testimony to support the cost of service study, to support the $0.02827 per kWh cost rate, and to address the general topic of elimination of the energy cost recovery rider.
Entergy Arkansas filed for rehearing of the APSC's orders, asking that the energy cost rate filed in March 2006 be implemented in May 2006 subject to refund, asserting that the APSC did not follow appropriate procedures in suspending the operation of the energy cost recovery rider, and asking the APSC to rescind its show cause order. On May 8, 2006 the APSC denied Entergy Arkansas' requests for rehearing. Entergy Arkansas appealed the APSC's decision, but later filed a motion to dismiss the appeal following the APSC's decision described below.
In June 2006, Entergy Arkansas once again filed a motion with the APSC seeking to implement the redetermined energy cost rate of $0.02827 per kWh. After a hearing the APSC approved Entergy Arkansas' request and the redetermined rate was implemented in July 2006, subject to refund pending the outcome of the APSC energy cost recovery investigation. Because of the delay in implementing the redetermined energy cost rate, Entergy Arkansas estimated in its motion that $46 million of energy costs would remain under-recovered at December 31, 2006.
118
A hearing in the APSC energy cost recovery investigation is scheduled for October 2006.
On June 7, 2006, Entergy Arkansas filed the cost of service study ordered by the APSC. On that date Entergy Arkansas also filed notice with the APSC that it intends to file for a change in base rates within 60 to 90 days of its notice. Entergy Arkansas expects to make that filing in August 2006.
Entergy Gulf States
On March 1, 2006, Entergy Gulf States filed with the PUCT an application to implement an interim fuel surcharge in connection with the under-recovery of $97 million including interest of eligible fuel costs for the period August 2005 through January 2006. This surcharge is in addition to an interim surcharge that went into effect in January 2006. Entergy Gulf States entered into a unanimous settlement that reduced the requested surcharge for actual over-collections from the months of February and March 2006, resulting in a surcharge of $78.8 million to be implemented over a twelve-month period beginning in June 2006. The PUCT approved the surcharge in June 2006. Amounts collected through the interim fuel surcharges are subject to final reconciliation in a future fuel reconciliation proceeding.
In May 2006, Entergy Gulf States filed with the PUCT a fuel and purchased power reconciliation case covering the period September 2003 through December 2005 for costs recoverable through the Texas fixed fuel factor rate and the incremental purchased capacity recovery rider. Entergy Gulf States is reconciling $1.6 billion of fuel and purchased power costs on a Texas retail basis. Hearings are scheduled for February 2007 and a PUCT decision is expected in July 2007.
Entergy Gulf States and Entergy Louisiana
In November 2005, the LPSC authorized its staff to initiate an expedited proceeding to audit the fuel and power procurement activities of Entergy Louisiana and Entergy Gulf States for the period January 1, 2005 through October 31, 2005. In April 2006, the LPSC accepted the LPSC Staff's audit report finding that the prices paid for natural gas and purchased power were reasonable and that given the market conditions surrounding Hurricanes Katrina and Rita, Entergy Louisiana and Entergy Gulf States acted reasonably and prudently in response to an extremely difficult environment.
Retail Rate Proceedings
See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for information regarding retail rate proceedings involving the domestic utility companies. The following are updates to the Form 10-K.
Filings with the LPSCAPSC (Entergy Arkansas)
Global SettlementAs discussed above in "Deferred Fuel Costs," on June 7, 2006, Entergy Arkansas filed notice with the APSC that it intends to file for a change in base rates within 60 to 90 days of its notice. Entergy Arkansas expects to make that filing in August 2006.
Filings with the PUCT and Texas Cities (Entergy Gulf States and Entergy Louisiana)States)
In MarchAs discussed in the Form 10-K, in August 2005, the LPSC approved a settlement proposal to resolve various dockets covering a range of issues for Entergy Gulf States and Entergy Louisiana. The settlement resulted in credits totaling $76 millionfiled with the PUCT an application for retail electricity customers in Entergy Gulf States' Louisiana service territory and credits totaling $14 million for retail electricity customersrecovery of Entergy Louisiana. The settlement dismissed Entergy Gulf States' fourth, fifth, sixth, seventh, and eighth annual earnings reviews, Entergy Gulf States' ninth post-merger earnings review and revenue requirement analysis, the continuation of a fuel review forits transition to competition costs. Entergy Gulf States dockets establishedrequested recovery of $189 million in transition to consider issues concerning power purchases forcompetition costs through implementation of a 15-year rider to be effective no later than March 1, 2006. The $189 million represents transition to competition costs Entergy Gulf States incurred from June 1, 1999 through June 17, 2005 in preparing for competition in its service area, including attendant AFUDC, and Entergy Louisianaall carrying costs
119
projected to be incurred on the transition to competition costs through February 28, 2006. The $189 million is before any gross-up for taxes or carrying costs over the summers of 2001, 2002, 2003, and 2004, all prudence issues associated with decisions made through May 2005 related to the nuclear plant uprates at issue in these cases, and an LPSC docket concerning retail issues arising under the S ystem Agreement. The settlement does not include the System Agreement case at FERC. In addition,15-year recovery period. Entergy Gulf States agreed not to seek recovery from customers of $2 million of excess refund amounts associatedreached a unanimous settlement agreement on all issues with the fourth throughactive parties in the eighth annual earnings reviews and Entergy Louisiana agreedtransition to forgocompetition cost recovery of $3.5 million of deferred 2003 capacity costs associated with certain power purchase agreements.case. The credits were issued in connection with April 2005 billings. Entergy Gulf States and Entergy Louisiana reserved for the approximate refund amounts.
The settlement includes the establishment of a three-year formula rate plan for Entergy Gulf States that, among other provisions, establishes an ROE mid-point of 10.65% for the initial three-year term of the plan and permitsagreement allows Entergy Gulf States to recover incremental capacity$14.5 million per year in transition to competition costs outside ofover a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an allowed range of 9.9% to 11.4% will be allocated 60% to customers and 40% to15-year period. Entergy Gulf States. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Gulf States. UnderStates implemented interim rates based on this revenue level on March 1, 2006. The PUCT approved the settlement there was no change to Entergy Gulf States' retail rates at that time.agreement in June 2006.
Filings with the LPSC
Retail Rates - Electric
(Entergy Louisiana)Gulf States)
The May 2005 rate settlement includes the adoption of a three-year formula rate plan, the terms of which include an ROE mid-point of 10.25% for the initial three-year term of the plan and permit Entergy Louisiana to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula rate plan, over- and under-earnings outside an allowed regulatory range of 9.45% to 11.05% will be allocated 60% to customers and 40% to Entergy Louisiana. The initialGulf States' formula rate plan filing will befor the 2004 test year. The settlement includes a revenue requirement increase of $36.8 million and calls for Entergy Gulf States to apply a refund liability of $744 thousand to capacity deferrals. The refund liability pertained to the periods 2004-2005 as well as the interim period in May 2006 based onwhich a 2005 test year with rates effective September 2006. In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Louisiana.$37.8 million revenue increase was in place.
(Entergy Gulf States)
In June 2005,May 2006, Entergy Gulf States made its formula rate plan filing with the LPSC for the 2005 test year ending December 31, 2004.year. The filing shows a net revenue deficiency of $2.58 million indicating that no refund liability exists.Entergy Gulf States' return on equity was within the allowed bandwidth. The filing also indicates that under the formula rate plan rider for approved capacity additions, a prospective$7.1 million rate increase of $23.8 million is required in order for Entergy Gulf States to earn the authorized ROE mid-pointrecover LPSC-approved incremental deferred and ongoing capacity requirements. The filing is subject to a period of 10.65%. Subject to the consideration of comments expected to be filed by the LPSC staffStaff review, and intervenors in the third quarter 2005, rate changes associated with the formula rate plan are scheduled to take effect with the first billing cycle in October 2005. Any disputed issues will beof September 2006.
(Entergy Louisiana)
In May 2006, Entergy Louisiana made its formula rate plan filing with the LPSC for the 2005 test year. The filing shows that Entergy Louisiana's return on equity was within the allowed bandwidth. The filing also indicates that under the formula rate plan rider for approved capacity additions, a $121 million rate increase is required to recover LPSC-approved incremental deferred and ongoing capacity requirements. Entergy Louisiana requested recovery of the capacity deferrals over a three-year period, including carrying charges. $51 million of the rate increase is associated with these deferrals. The remaining $70 million of the rate increase is associated with ongoing capacity costs. The filing is subject to further investigation bya period of LPSC Staff review, and rate changes associated with the LPSC,formula rate plan are scheduled to take effect with any resolutionthe first billing cycle of such issues being made effective October 2005.September 2006.
Retail Rates - Gas (Entergy Gulf States)
In July 2004,January 2006, Entergy Gulf States filed with the LPSC an application for a change in its rates and charges seeking an increase of $9.1 million in gas base rates in order to allow Entergy Gulf States an opportunity to earn a fair and reasonable rate of return. In June 2005, the LPSC unanimously approved Entergy Gulf States' proposed settlement that includes a $5.8 million gas base rate increase effective the first billing cycle of July 2005 and a rate stabilization plan withplan. The filing showed a revenue deficiency of $4.1 million based on an ROE mid-point of 10.5%. On May 1, 2006, Entergy Gulf States implemented a $3.5 million rate increase pursuant to an uncontested agreement with the LPSC Staff.
Filings with the PUCTMPSC (Entergy Gulf States)Mississippi)
Formula Rate Plan Filings
120
Filings with the City Council (Entergy New Orleans)
In April 2005,June 2006, Entergy New Orleans made its annual scheduled formula rate plan filings with the City Council. The filings show various alternatives to reflect the effect of Entergy New Orleans' lost customers and decreased revenue. Entergy New Orleans' recommended alternative adjusts for lost customers and assumes that a decreasethe City Council's June 2006 decision to allow recovery of $0.2all Grand Gulf costs through the fuel adjustment clause stays in place (a portion of Grand Gulf costs was previously recovered through base rates). Under that alternative, annual increases of $6.4 million in electric base rate revenues is warranted and an(an increase of $3.94.4%) and $22.8 million in gas base rate revenues is(an increase of 160.9%) are warranted. The filings triggered the prescribed four-month period for review by the City Council's Advisors and other parties, has now commenced, and rate adjustments, if any, could be implemented as soon as September 2005.the first billing cycle of November 2006.
In May 2005,At the same time as it made its formula rate plan filings, Entergy New Orleans also filed with the City Council a request to implement two storm-related riders. With the first rider, Entergy New Orleans seeks to recover over a ten-year period the $114 million in electric restoration costs and the $25 million in gas restoration costs that it has actually spent through March 31, 2006. Entergy New Orleans also proposed semiannual filings to update the rider for continuationadditional restoration spending and also to consider the receipt of CDBG funds or insurance proceeds that it may receive. With the second rider, Entergy New Orleans seeks to establish over a ten-year period a $150 million storm reserve to provide for the risk of another storm. Entergy New Orleans requested that the City Council consider the proposed riders within the same time frame as the formula rate plan and generation performance-based rate plan for an additional three years. The filing requests a target equity componentplans, which would allow implementation as soon as the first billing cycle of the capital structure of 45%, an increase from the current target of 42%.
Deferred Fuel CostsNovember 2006.
See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for information regarding fuel proceedings involving the domestic utility companies. The following are updates to the Form 10-K.
(Entergy Arkansas)
In March 2005, Entergy Arkansas filed with the APSC its energy cost recovery rider for the period April 2005 through March 2006. The filed energy cost rate, which accounts for 15 percent of a typical residential customer's bill using 1,000 kWh per month, increased 31 percent primarily attributable to a true-up adjustment for an under-recovery balance of $11.2 million and a nuclear refueling adjustment resulting from outages scheduled in 2005 at ANO 1 and 2.
(Entergy Gulf States)
In March 2004, Entergy Gulf States filed with the PUCT a fuel reconciliation case covering the period September 2000 through August 2003. Entergy Gulf States is reconciling $1.43 billion of fuel and purchased power costs on a Texas retail basis. This amount includes $8.6 million of under-recovered costs that Entergy Gulf States is asking to reconcile and roll into its fuel over/under-recovery balance to be addressed in the next appropriate fuel proceeding. This case involves imputed capacity and River Bend payment issues similar to those decided adversely in a January 2001 proceeding that is now on appeal. On January 31, 2005, the ALJ issued a Proposal for Decision that recommended disallowing $10.7 million (excluding interest) related to these two issues. In April 2005, the PUCT issued an order reversing in part the ALJ's Proposal for Decision and allowing Entergy Gulf States to recover a part of its request related to the imputed capacity and River Bend payment issues. The PUCT 's order reduced the disallowance in the case to $8.3 million. Both Entergy Gulf States and certain cities served by Entergy Gulf States filed motions for rehearing on these issues which were denied by the PUCT. Entergy Gulf States and certain Cities filed appeals to the Travis County District Court. The appeals are pending. Any disallowance will be netted against Entergy Gulf States' under-recovered costs and will be included in its deferred fuel costs balance.
In January 2001, Entergy Gulf States filed with the PUCT a fuel reconciliation case covering the period from March 1999 through August 2000. Entergy Gulf States was reconciling approximately $583 million of fuel and purchased power costs. As part of this filing, Entergy Gulf States requested authority to collect $28 million, plus interest, of under-recovered fuel and purchased power costs. In August 2002, the PUCT reduced Entergy Gulf States' request to approximately $6.3 million, including interest through July 31, 2002. Approximately $4.7 million of the total reduction to the requested surcharge relates to nuclear fuel costs that the PUCT deferred ruling on at that time. In October 2002, Entergy Gulf States appealed the PUCT's final order in Texas District Court. In its appeal, Entergy Gulf States is challenging the PUCT's disallowance of approximately $4.2 million related to imputed capacity costs and its disallowance related to costs for energy delivered from the 30% non-regu lated share of River Bend. The case was argued before the Travis County Texas District Court in August 2003 and the Travis County District Court judge affirmed the PUCT's order. In October 2003, Entergy Gulf States appealed this decision to the Court of Appeals. Oral argument before the appellate court occurred in September 2004 and in May 2005, the appellate court affirmed the lower court's decision affirming the PUCT's disallowance. Entergy Gulf States has filed a motion for rehearing with the appellate court in this case.
In January 2003, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Gulf States and its affiliates pursuant to a November 1997 LPSC general order. The audit will include a review of the reasonableness of charges flowed by Entergy Gulf States through its fuel adjustment clause in Louisiana for the period January 1, 1995 through December 31, 2002. Discovery is underway, but a detailed procedural schedule extending beyond the discovery stage has not yet been established, and the LPSC staff has not yet issued its audit report. In June 2005, the LPSC expanded the audit to include the years through 2004.
(Entergy Louisiana)
In August 2000, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of Entergy Louisiana pursuant to a November 1997 LPSC general order. The time period that is the subject of the audit is January 1, 2000 through December 31, 2001. In September 2003, the LPSC staff issued its audit report and recommended a disallowance with regard to one item. The issue relates to the alleged failure to uprate Waterford 3 in a timely manner, a claim that also has been raised in the summer 2001, 2002, and 2003 purchased power proceedings. The settlement approved by the LPSC in March 2005, discussed above, resolves the uprate imprudence disallowance and is no longer at issue in this proceeding. Subsequent to the issuance of the audit report, the scope of this docket was expanded to include a review of annual reports on fuel and purchased power transactions with affiliates and a prudence review of transmission planning issues. Also, in July 2005, t he LPSC expanded the audit to include the years 2002 through 2004. A procedural schedule has been established and LPSC staff and intervenor testimony is due in November 2005.
(Entergy Mississippi)
In January 2005, the MPSC approved a change in Entergy Mississippi's energy cost recovery rider. Entergy Mississippi's fuel over-recoveries for the third quarter of 2004 of $21.3 million will be deferred from the first quarter 2005 energy cost recovery rider adjustment calculation. The deferred amount of $21.3 million plus carrying charges is being refunded through the energy cost recovery rider in the second and third quarters of 2005 at a rate of 45% and 55%, respectively.
(Entergy New Orleans)
As discussed in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K, the City Council passed resolutions implementing a package of measures developed by Entergy New Orleans and the Council Advisors to protect customers from potential gas price spikes during the 2004 - 2005 winter heating season including the deferral of collection of up to $6.2 million of gas costs associated with a cap on the purchased gas adjustment in November and December 2004 and in the event that the average residential customer's gas bill were to exceed a threshold level. The deferrals of $1.7 million resulting from these caps will receive accelerated recovery over a seven-month period that began in April 2005.
In November 2004, the City Council directed Entergy New Orleans to confer with the City Council Advisors regarding possible modification of the current gas cost collection mechanism in order to address concerns regarding its fluctuations particularly during the winter heating season. In June 2005, Entergy New Orleans filed a new purchased gas adjustment tariff with the City Council. If approved by the City Council, the tariff would be effective in the fourth quarter of 2005.
Fuel Adjustment Clause Litigation
See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the complaint filed by a group of ratepayers with the City Council alleging that Entergy New Orleans and certain affiliates engaged in fuel procurement and power purchasing practices and included certain costs in its fuel adjustment charges that could have resulted in its customers being overcharged by more than $100 million over a period of years. On May 26, 2005, the Civil District Court for the Parish of Orleans affirmed the City Council resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004, finding no support for the plaintiff's claim that the refund amount should be higher. In June 2005, the plaintiffs appealed the Civil District Court decision to the Louisiana Fourth Circuit Court of Appeal.
Electric Industry Restructuring and the Continued Application of SFAS 71
Previous developments and information related to electric industry restructuring are presented in Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K.
Louisiana (Entergy Gulf States and Entergy Louisiana)
In November 2001, the LPSC decided not to move forward with retail open access for any customers at this time. The LPSC instead directed its staff to hold collaborative group meetings concerning open access from time to time, and to have the LPSC staff monitor developments in neighboring states and to report to the LPSC regarding the progress of retail access developments in those states. In September 2004, in response to a study performed by the Louisiana State University Center for Energy Studies that evaluated a limited industrial-only retail choice program, the LPSC asked the LPSC staff to solicit comments and obtain information from utilities, customers, and other interested parties concerning the potential costs and benefits of a limited choice program, the impact of such a program on other customers, as well as issues such asstranded costs and transmission service. Comments from interested parties were file d with the LPSC in January 2005. A technical conference was held in April 2005 and in May 2005 interested parties filed reply comments to arguments made at the technical conference. Entergy stated that it believes that there is no new information or credible evidence that would justify altering the LPSC's previous conclusion that retail access is not in the public interest.
Texas (Entergy Gulf States)
See Note 2 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the status of retail open access in Entergy Gulf States' Texas service territory and Entergy Gulf States' independent organization request.
In June 2005, a Texas law was enacted which provides that:
NOTE 3. LINES OF CREDIT, RELATED SHORT-TERM BORROWINGS, AND LONG-TERM DEBT
The short-term borrowings of the domestic utility companies (other than Entergy New Orleans) and System Energy are limited to amounts authorized by the SEC.FERC. The current FERC-authorized limits authorized are effective through November 30, 2007.March 31, 2008. In addition to borrowing from commercial banks, the domestic utilitythese companies and System Energy are authorized under a FERC order to borrow from Entergy'sthe Entergy System money pool. The money pool is an inter-company borrowing arrangement designed to reduce the domestic utility companies'Entergy's subsidiaries' dependence on external short-term borrowings. Borrowings from the money pool and external borrowings combined may not exceed the SECFERC authorized limits. The following are theThere were no external short-term borrowings from the money pool and the SEC-authorized limits for short-term borrowingsoutstanding for the domestic utility companies (other than Entergy New Orleans) and System Energy as of June 30, 2005:2006. The following are the FERC-authorized limits for short-term borrowings effective February 2006 and the outstanding short-term borrowings from the money pool for the domestic utility companies (other than Ent ergy New Orleans) and System Energy as of June 30, 2006:
|
| Authorized |
| Borrowings |
| Authorized |
| Borrowings |
|
| (In Millions) |
| (In Millions) | ||||
|
|
|
|
|
|
|
|
|
Entergy Arkansas |
| $235 |
| - |
| $250 |
| - |
Entergy Gulf States |
| $340 |
| $149.4 |
| $350 |
| - |
Entergy Louisiana |
| $225 |
| $110.7 |
| $250 |
| $90.9 |
Entergy Mississippi |
| $160 |
| - |
| $175 |
| - |
Entergy New Orleans |
| $100 |
| - | ||||
System Energy |
| $140 |
| - |
| $200 |
| - |
Under a savings provision in PUHCA 2005, which repealed PUHCA 1935, Entergy New Orleans may continue to be a participant in the money pool to the extent authorized by its SEC PUHCA 1935 order. However, Entergy New Orleans has not, and does not expect to make, any additional money pool borrowings while it is in bankruptcy proceedings. Entergy New Orleans had $35.6 million in borrowings outstanding from the money pool as of its bankruptcy filing date, September 23, 2005. The money pool borrowings reflected on Entergy New Orleans' Balance Sheet as of June 30, 2006 are classified as a pre-petition obligation subject to compromise.
121
Entergy Arkansas, Entergy Louisiana,Gulf States, and Entergy Mississippi, and Entergy New Orleans each have 364-day credit facilities available as of June 30, 2006 as follows:
|
| Amount of | Amount Drawn as of | ||||
Entergy Arkansas |
| April |
| $85 million |
| - | |
Entergy | February 2011 |
| $ | - | |||
Entergy |
| May |
| $ |
| - | |
Entergy Mississippi | May |
|
| ||||
|
| $ | - |
(a) | The |
(b) |
|
In May 2006, Entergy Mississippi increased its $25 million credit facility to $30 million and renewed it through May 2007. Entergy Mississippi also entered into a new $20 million credit facility through May 2007.
In August 2006, Entergy Gulf States increased the capacity of its credit facility to $50 million.
In addition, Entergy New Orleans, which is currently in bankruptcy and is no longer consolidated in Entergy's financial statements, had a 364-day credit facility in the amount of $15 million which expired in May 2006. As of June 30, 2006, the full amount of the credit facility remains outstanding under bankruptcy protection. In July 2006, the bankruptcy judge authorized Entergy New Orleans to set off $15 million of its cash currently held by the lender against the outstanding debt on the credit facility.
The 364-day credit facilities have variable interest rates and the average commitment fee is 0.13%. The $85 million Entergy Arkansas and Entergy Louisiana credit facilities each require the respective company tofacility requires that it maintain total shareholders' equity of at least 25% of its total assets. In July 2005, Entergy New Orleans granted the lender a security interest in its customer accounts receivables to secure its borrowings under its facility. Under
Entergy New Orleans Debtor-in-Possession Credit Facility
See Note 4 to the termsdomestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the securityEntergy New Orleans $200 million debtor-in-possession (DIP) credit facility. As discussed in the Form 10-K, the bankruptcy court issued its order in December 2005 giving final approval for the credit facility, and the indenture trustee for Entergy New Orleans' first mortgage bonds appealed the order. On March 29, 2006 the bankruptcy court approved a settlement among Entergy New Orleans, Entergy Corporation, and the indenture trustee, and the indenture trustee dismissed its appeal. As of June 30, 2006, Entergy New Orleans had approximately $40 million of outstanding borrowings under the DIP credit facility.
As discussed in the Form 10-K, borrowings under the DIP credit facility are due in full, and the agreement will terminate, at the earliest of several times or events, including August 23, 2006. Entergy and Entergy New Orleans have agreed to an amendment to the DIP credit agreement that extends the August 23, 2006 maturity date to August 23, 2007, and this amendment is subject to bankruptcy court approval. Entergy New Orleans has filed a motion with the optionbankruptcy court to withdrawauthorize Entergy New Orleans to enter into the securityamendment, which is set for hearing August 16, 2006.
The interest at any time.rate on borrowings under the DIP credit agreement will be the average interest rate of borrowings outstanding under Entergy Corporation's $2 billion revolving credit facility, which is currently approximately 5.8% per annum.
122
Long-term Debt
The following long-term debt has been issued by the domestic utility companies and System Energy in 2005:2006:
| Issue Date |
| Amount | |
|
|
| (In Thousands) | |
Mortgage Bonds: |
|
|
| |
| January |
| ||
|
|
| ||
|
|
| ||
|
|
| $100,000 | |
|
|
|
| |
|
|
|
The following long-term debt was retired by domestic utility companies and System Energy in 2006:
Retirement Date |
|
| |
| (In Thousands) | ||
Other Long-term Debt: | |||
5.95% Series due December 2023, St. Charles Parish - (Entergy Louisiana) | June 2006 | $25,000 | |
Grand Gulf Lease Obligation payment | N/A | $22,989 | |
Retirements after the balance sheet date: | |||
|
|
| |
6.3% Series due June 2018, Jefferson County - Arkansas (Entergy Arkansas) | July | $ | |
|
|
The following long-term debt was retired byEntergy Mississippi used the domestic utility companiesproceeds from the January 2006 issuance to purchase the Attala power plant from Central Mississippi Generating Company, LLC and System Energy thus far in 2005:to repay short-term indebtedness.
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| ||
| |||
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| ||
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| ||
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| ||
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| ||
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|
Entergy Arkansas used the proceeds from the March 2005June 2006 issuance to redeem, prior to maturity, $45$45.5 million of 6.25%5.6% Series of IndependenceJefferson County bonds and $9.2 million of 6.3% Series of Jefferson County bonds in April 2005.July 2006. The issuance and retirement do not appearis shown as a non-cash transaction on the cash flow statement becausesince the proceeds were placed in a trust and never held as cash by Entergy Arkansas.
In June 2005, Entergy Louisiana purchased its $55 million of 4.9% Series St. Charles Parish bonds from the holders, pursuant to a mandatory tender provision, and has not remarketed the bonds at this time.
Tax Exempt Bond Audit (Entergy Louisiana)
The Internal Revenue Service (IRS) is auditing certain Tax Exempt Bonds (Bonds) issued by St. Charles Parish, State of Louisiana (the Issuer). The Bonds were issued to finance previously unfinanced acquisition costs expended by Entergy Louisiana to acquire certain radioactive solid waste disposal facilities (the Facilities) at the Waterford Steam Electric Generating Station. In March and April 2005, the IRS issued proposed adverse determinations that the Issuer's 7.0% Series bonds due 2022, 7.5% Series bonds due 2021, and 7.05% Series bonds due 2022 are not tax exempt. The stated basis for these determinations was that radioactive waste did not constitute "solid waste" within the provisions of the Internal Revenue Code and therefore the Facilities did not qualify as solid waste disposal facilities. The Issuer has requested administrative appeals of the proposed adverse determinations with respect to the Bonds to the IRS Office of Appeals. The Issuer and Entergy Louisiana intend to continue to contest vigorously these matters. The three series of Bonds are the only series of bonds issued by the Issuer for the benefit of Entergy Louisiana that are the subject of audits by the IRS.
NOTE 4. PREFERRED STOCK
(Entergy Mississippi)Arkansas)
In June 2005,March 2006, Entergy MississippiArkansas issued 1,200,0003,000,000 shares of $25 par value 6.25%6.45% Series Preferred Stock, all of which arewere outstanding as of June 30, 2005.2006. The dividends are cumulative and will be payable quarterly beginning NovemberJuly 1, 2005.2006. The preferred stock is redeemable on or after JulyApril 1, 2010,2011, at Entergy Mississippi'sArkansas' option, at the call price of $25 per share. TheIn April 2006, Entergy Arkansas used the proceeds from this issuance were usedto redeem the following preferred stock:
Series of Entergy Arkansas Preferred Stock | Redemption Price Per Share | |
7.32% Preferred Stock, Cumulative, $100.00 par value | $103.17 | |
7.80% Preferred Stock, Cumulative, $100.00 par value | $103.25 | |
7.40% Preferred Stock, Cumulative, $100.00 par value | $102.80 | |
7.88% Preferred Stock, Cumulative, $100.00 par value | $103.00 | |
$1.96 Preferred Stock, Cumulative, $0.01 par value | $ 25.00 |
123
(Entergy New Orleans)
Since the filing of the bankruptcy proceedings, Entergy New Orleans has not been able to declare and pay dividends on its 4.75% preferred stock for three quarters. As discussed further in the thirdForm 10-K, if dividends with respect to the 4.75% preferred stock are not paid for four quarters, the holders of these shares would have the right to elect a majority of the Entergy New Orleans board of directors. Entergy New Orleans filed a motion in the bankruptcy court seeking authority to recommence paying dividends to the holders of the 4.75% preferred shares. After a hearing on the motion on May 3, 2006, the court granted Entergy New Orleans the authority to pay dividends to the holders of the 4.75% preferred shares, beginning with the dividend due on July 1, 2006, and thereafter, unless objections are filed by creditors forty-five days in advance of a dividend payment date. If any objections are filed, the matter would be heard by the bankruptcy court. Entergy New Orleans dec lared and paid the dividend due on July 1, 2006, and intends to declare and pay the dividends on the 4.75% preferred shares each quarter pending resolution of 2005 to redeem all $20 millionits plan of Entergy Mississippi's $100 par value 8.36% Series Preferred Stock and all $10 million of Entergy Mississippi's $100 par value 7.44% Series Preferred Stock.reorganization.
NOTE 5. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS
Components of Net Pension Cost
The domestic utility companies' and System Energy's qualified pension cost, including amounts capitalized, for the second quarters of 20052006 and 2004,2005, included the following components:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2005 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy | ||||||||||||
2006 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy | ||||||||||||
|
| (In Thousands) |
| (In Thousands) | ||||||||||||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $3,329 |
| $2,704 |
| $1,957 |
| $1,005 |
| $436 |
| $944 |
| $3,626 |
| $2,993 |
| $2,182 |
| $1,077 |
| $501 |
| $1,031 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 9,115 |
| 7,235 |
| 5,525 |
| 2,998 |
| 1,148 |
| 1,413 |
| 9,915 |
| 7,914 |
| 6,052 |
| 3,252 |
| 1,282 |
| 1,604 |
Expected return on assets |
| (9,009) |
| (9,709) |
| (6,666) |
| (3,566) |
| (731) |
| (1,324) |
| (9,834) |
| (10,176) |
| (7,114) |
| (3,683) |
| (884) |
| (1,775) |
Amortization of transition asset |
| - |
| - |
| - |
| - |
| - |
| (69) | ||||||||||||
Amortization of prior service cost |
| 415 |
| 378 |
| 163 |
| 128 |
| 57 |
| 17 |
| 415 |
| 309 |
| 141 |
| 128 |
| 56 |
| 12 |
Amortization of loss |
| 1,613 |
| 1,213 |
| 730 |
| 527 |
| 151 |
| 229 |
| 2,438 |
| 640 |
| 1,509 |
| 725 |
| 509 |
| 167 |
Net pension cost |
| $5,463 |
| $1,821 |
| $1,709 |
| $1,092 |
| $1,061 |
| $1,210 |
| $6,560 |
| $1,680 |
| $2,770 |
| $1,499 |
| $1,464 |
| $1,039 |
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2005 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $3,329 |
| $2,704 |
| $1,957 |
| $1,005 |
| $436 |
| $944 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 9,115 |
| 7,235 |
| 5,525 |
| 2,998 |
| 1,148 |
| 1,413 |
Expected return on assets |
| (9,009) |
| (9,709) |
| (6,666) |
| (3,566) |
| (731) |
| (1,324) |
Amortization of transition asset |
| - |
| - |
| - |
| - |
| - |
| (69) |
Amortization of prior service cost |
| 415 |
| 378 |
| 163 |
| 128 |
| 57 |
| 17 |
Amortization of loss |
| 1,613 |
| 1,213 |
| 730 |
| 527 |
| 151 |
| 229 |
Net pension cost |
| $5,463 |
| $1,821 |
| $1,709 |
| $1,092 |
| $1,061 |
| $1,210 |
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2004 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $2,923 |
| $2,416 |
| $1,715 |
| $946 |
| $424 |
| $824 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 8,616 |
| 7,108 |
| 5,178 |
| 2,890 |
| 1,041 |
| 1,231 |
Expected return on assets |
| (9,288) |
| (9,931) |
| (6,937) |
| (3,694) |
| (625) |
| (1,053) |
Amortization of transition asset |
| - |
| - |
| - |
| - |
| - |
| (79) |
Amortization of prior service cost |
| 417 |
| 465 |
| 189 |
| 141 |
| 57 |
| 18 |
Amortization of loss |
| 762 |
| 32 |
| 82 |
| 132 |
| 151 |
| 193 |
Net pension cost |
| $3,430 |
| $90 |
| $227 |
| $415 |
| $1,048 |
| $1,134 |
124
The domestic utility companies' and System Energy's pension cost, including amounts capitalized, for the six months ended June 30, 20052006 and 2004,2005, included the following components:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2005 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy | ||||||||||||
2006 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy | ||||||||||||
|
| (In Thousands) |
| (In Thousands) | ||||||||||||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $6,658 |
| $5,408 |
| $3,914 |
| $2,010 |
| $872 |
| $1,888 |
| $7,252 |
| $5,986 |
| $4,365 |
| $2,154 |
| $1,002 |
| $2,062 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 18,230 |
| 14,470 |
| 11,050 |
| 5,996 |
| 2,296 |
| 2,826 |
| 19,830 |
| 15,828 |
| 12,103 |
| 6,504 |
| 2,563 |
| 3,209 |
Expected return on assets |
| (18,018) |
| (19,418) |
| (13,332) |
| (7,132) |
| (1,462) |
| (2,648) |
| (19,668) |
| (20,351) |
| (14,227) |
| (7,366) |
| (1,767) |
| (3,551) |
Amortization of transition asset |
| - |
| - |
| - |
| - |
| - |
| (138) | ||||||||||||
Amortization of prior service cost |
| 830 |
| 756 |
| 326 |
| 256 |
| 114 |
| 34 |
| 831 |
| 617 |
| 281 |
| 257 |
| 112 |
| 24 |
Amortization of loss |
| 3,226 |
| 2,426 |
| 1,460 |
| 1,054 |
| 302 |
| 458 |
| 4,875 |
| 1,280 |
| 3,018 |
| 1,449 |
| 1,018 |
| 334 |
Net pension cost |
| $10,926 |
| $3,642 |
| $3,418 |
| $2,184 |
| $2,122 |
| $2,420 |
| $13,120 |
| $3,360 |
| $5,540 |
| $2,998 |
| $2,928 |
| $2,078 |
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2004 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy | ||||||||||||
2005 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy | ||||||||||||
|
| (In Thousands) |
| (In Thousands) | ||||||||||||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $5,926 |
| $4,870 |
| $3,440 |
| $1,900 |
| $850 |
| $1,670 |
| $6,658 |
| $5,408 |
| $3,914 |
| $2,010 |
| $872 |
| $1,888 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 17,232 |
| 14,218 |
| 10,362 |
| 5,782 |
| 2,082 |
| 2,464 |
| 18,230 |
| 14,470 |
| 11,050 |
| 5,996 |
| 2,296 |
| 2,826 |
Expected return on assets |
| (18,534) |
| (19,822) |
| (13,732) |
| (7,384) |
| (1,552) |
| (2,088) |
| (18,018) |
| (19,418) |
| (13,332) |
| (7,132) |
| (1,462) |
| (2,648) |
Amortization of transition asset |
| - |
| - |
| - |
| - |
| - |
| (160) |
| - |
| - |
| - |
| - |
| - |
| (138) |
Amortization of prior service cost |
| 834 |
| 930 |
| 378 |
| 282 |
| 114 |
| 36 |
| 830 |
| 756 |
| 326 |
| 256 |
| 114 |
| 34 |
Amortization of loss |
| 1,632 |
| 674 |
| 376 |
| 414 |
| 208 |
| 304 |
| 3,226 |
| 2,426 |
| 1,460 |
| 1,054 |
| 302 |
| 458 |
Net pension cost |
| $7,090 |
| $870 |
| $824 |
| $994 |
| $1,702 |
| $2,226 |
| $10,926 |
| $3,642 |
| $3,418 |
| $2,184 |
| $2,122 |
| $2,420 |
The domestic utility companies recognized the following pension cost for their non-qualified pension plans in the second quarters of 2006 and 2005:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
|
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
|
|
| (In Thousands) | |||||||||
Non-Qualified Pension Cost |
| $113 |
| $220 |
| $5 |
| $36 |
| $54 |
|
Non-Qualified Pension Cost |
| $101 |
| $296 |
| $6 |
| $37 |
| $51 |
|
The domestic utility companies recognized the following pension cost for their non-qualified pension plans for the six months ended June 30, 2006 and 2005:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
|
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
|
|
| (In Thousands) | |||||||||
Non-Qualified Pension Cost Six |
| $226 |
| $439 |
| $11 |
| $73 |
| $107 |
|
Non-Qualified Pension Cost Six |
| $203 |
| $593 |
| $11 |
| $75 |
| $102 |
|
125
Components of Net Other Postretirement Benefit Cost
The domestic utility companies' and System Energy's other postretirement benefit cost, including amounts capitalized, for the second quarters of 20052006 and 2004,2005, included the following components:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2006 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $1,337 |
| $1,254 |
| $854 |
| $419 |
| $232 |
| $414 |
Interest cost on APBO |
| 2,844 |
| 2,747 |
| 1,856 |
| 944 |
| 856 |
| 407 |
Expected return on assets |
| (1,797) |
| (1,489) |
| - |
| (709) |
| (611) |
| (421) |
Amortization of transition obligation |
| 205 |
| 151 |
| 96 |
| 88 |
| 416 |
| 2 |
Amortization of prior service cost |
| (408) |
| - |
| (24) |
| (137) |
| 10 |
| (301) |
Amortization of loss |
| 1,671 |
| 1,002 |
| 893 |
| 644 |
| 343 |
| 207 |
Net other postretirement benefit cost |
| $3,852 |
| $3,665 |
| $3,675 |
| $1,249 |
| $1,246 |
| $308 |
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2005 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $1,157 |
| $1,634 |
| $689 |
| $363 |
| $192 |
| $415 |
Interest cost on APBO |
| 2,589 |
| 2,924 |
| 1,673 |
| 833 |
| 789 |
| 394 |
Expected return on assets |
| (1,637) |
| (1,366) |
| - |
| (669) |
| (579) |
| (387) |
Amortization of transition obligation |
| 205 |
| 947 |
| 95 |
| 88 |
| 435 |
| 4 |
Amortization of prior service cost |
| (173) |
| - |
| 18 |
| (46) |
| 10 |
| (139) |
Amortization of loss |
| 1,276 |
| 770 |
| 691 |
| 471 |
| 211 |
| 146 |
Net other postretirement benefit cost |
| $3,417 |
| $4,909 |
| $3,166 |
| $1,040 |
| $1,058 |
| $433 |
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2004 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $827 |
| $1,415 |
| $614 |
| $245 |
| $178 |
| $341 |
Interest cost on APBO |
| 2,394 |
| 2,871 |
| 1,644 |
| 703 |
| 810 |
| 371 |
Expected return on assets |
| (1,529) |
| (1,256) |
| - |
| (631) |
| (558) |
| (316) |
Amortization of transition obligation |
| (132) |
| 1,147 |
| 300 |
| (43) |
| 529 |
| 4 |
Amortization of prior service cost |
| 63 |
| - |
| 56 |
| 26 |
| 20 |
| (83) |
Amortization of loss |
| 1,112 |
| 514 |
| 457 |
| 349 |
| 99 |
| 99 |
Net other postretirement benefit cost |
| $2,735 |
| $4,691 |
| $3,071 |
| $649 |
| $1,078 |
| $416 |
The domestic utility companies' and System Energy's other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 20052006 and 2004,2005, included the following components:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2005 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy | ||||||||||||
2006 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy | ||||||||||||
|
| (In Thousands) |
| (In Thousands) | ||||||||||||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $2,314 |
| $3,268 |
| $1,378 |
| $726 |
| $384 |
| $830 |
| $2,674 |
| $2,508 |
| $1,708 |
| $838 |
| $464 |
| $828 |
Interest cost on APBO |
| 5,178 |
| 5,848 |
| 3,346 |
| 1,666 |
| 1,578 |
| 788 |
| 5,688 |
| 5,494 |
| 3,712 |
| 1,888 |
| 1,712 |
| 814 |
Expected return on assets |
| (3,274) |
| (2,732) |
| - |
| (1,338) |
| (1,158) |
| (774) |
| (3,594) |
| (2,978) |
| - |
| (1,418) |
| (1,222) |
| (842) |
Amortization of transition obligation |
| 410 |
| 1,894 |
| 190 |
| 176 |
| 870 |
| 8 |
| 410 |
| 302 |
| 192 |
| 176 |
| 832 |
| 4 |
Amortization of prior service cost |
| (346) |
| - |
| 36 |
| (92) |
| 20 |
| (278) |
| (816) |
| - |
| (48) |
| (274) |
| 20 |
| (602) |
Amortization of loss |
| 2,552 |
| 1,540 |
| 1,382 |
| 942 |
| 422 |
| 292 |
| 3,342 |
| 2,004 |
| 1,786 |
| 1,288 |
| 686 |
| 414 |
Net other postretirement benefit cost |
| $6,834 |
| $9,818 |
| $6,332 |
| $2,080 |
| $2,116 |
| $866 |
| $7,704 |
| $7,330 |
| $7,350 |
| $2,498 |
| $2,492 |
| $616 |
126
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2004 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy | ||||||||||||
2005 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy | ||||||||||||
|
| (In Thousands) |
| (In Thousands) | ||||||||||||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $2,459 |
| $2,944 |
| $1,333 |
| $721 |
| $382 |
| $729 |
| $2,314 |
| $3,268 |
| $1,378 |
| $726 |
| $384 |
| $830 |
Interest cost on APBO |
| 5,227 |
| 5,812 |
| 3,344 |
| 1,581 |
| 1,637 |
| 759 |
| 5,178 |
| 5,848 |
| 3,346 |
| 1,666 |
| 1,578 |
| 788 |
Expected return on assets |
| (3,131) |
| (2,491) |
| - |
| (1,284) |
| (1,124) |
| (626) |
| (3,274) |
| (2,732) |
| - |
| (1,338) |
| (1,158) |
| (774) |
Amortization of transition obligation |
| 477 |
| 2,295 |
| 600 |
| 211 |
| 1,058 |
| 7 |
| 410 |
| 1,894 |
| 190 |
| 176 |
| 870 |
| 8 |
Amortization of prior service cost |
| 63 |
| - |
| 56 |
| 26 |
| 20 |
| (175) |
| (346) |
| - |
| 36 |
| (92) |
| 20 |
| (278) |
Amortization of loss |
| 2,185 |
| 1,163 |
| 1,020 |
| 697 |
| 256 |
| 231 |
| 2,552 |
| 1,540 |
| 1,382 |
| 942 |
| 422 |
| 292 |
Net other postretirement benefit cost |
| $7,280 |
| $9,723 |
| $6,353 |
| $1,952 |
| $2,229 |
| $925 |
| $6,834 |
| $9,818 |
| $6,332 |
| $2,080 |
| $2,116 |
| $866 |
Employer Contributions
The domestic utility companies and System Energy expect to contribute the following to pension plans in 2005:2006. A portion of these contributions were planned to be made in 2005, but were delayed until January 2006 in accordance with the Katrina Emergency Tax Relief Act. For further information on pension funding refer to Note 10 to the domestic utility companies and System Energy's financial statements in the Form 10-K.
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System | |
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Expected 2006 pension contributions |
|
|
|
|
|
|
|
|
|
|
|
|
Pension contributions made through |
| $48,614 |
| $13,398 |
|
|
| $7,211 |
| $ - |
| $8,262 |
Remaining estimated pension |
| $65,930 |
| $8,704 |
|
|
| $9,146 |
| $ - |
| $4,775 |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System | |
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Expected 2005 pension contributions |
|
|
|
|
|
|
|
|
|
|
|
|
Revised expected 2005 pension contributions |
| $13,802 | $21,893 | - | $3,416 | $21,281 | $12,305 | |||||
Pension contributions made through July 2005 |
| $4,003 | $14,818 | - | $1,025 | $14,404 | $7,694 | |||||
Remaining estimated pension contributions to be made in 2005 |
| $9,799 | $7,075 | - | $2,391 | $6,877 | $4,611 |
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act)
Based on actuarial analysis, the estimated impact of future Medicare subsidies reduced the December 31, 20042005 Accumulated Postretirement Benefit Obligation (APBO), the second quarterquarters 2006 and 2005 and 2004 other postretirement benefit cost, and the six months ended June 30, 20052006 and 2004 other postretirement benefit cost2005 for the domestic utility companies and System Energy as follows:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Reduction in 12/31/2005 APBO |
| ($42,337) |
| ($36,740) |
| ($23,640) |
| ($14,407) |
| ($11,206) |
| ($5,972) |
Reduction in second quarter 2006 |
| ($1,562) |
| ($1,332) |
| ($865) |
| ($512) |
| ($376) |
| ($268) |
Reduction in second quarter 2005 |
| ($1,446) |
| ($1,269) |
| ($790) |
| ($476) |
| ($350) |
| ($245) |
Reduction in six months ended June 30, | ($3,124) |
| ($2,664) |
| ($1,730) |
| ($1,024) |
| ($752) |
| ($536) | |
Reduction in six months ended June 30, | ($2,892) |
| ($2,538) |
| ($1,580) |
| ($952) |
| ($700) |
| ($490) |
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Reduction in 12/31/2004 APBO |
| ($35,928) |
| ($31,846) |
| ($20,085) |
| ($12,227) |
| ($9,742) |
| ($4,982) |
Reduction in second quarter 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
other postretirement benefit cost |
| ($1,446) |
| ($1,269) |
| ($790) |
| ($476) |
| ($350) |
| ($245) |
Reduction in second quarter 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
other postretirement benefit cost |
| ($777) |
| ($821) |
| ($605) |
| ($250) |
| ($261) |
| ($161) |
Reduction in six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
127
For further information on the Medicare Act refer to Note 10 to the domestic utility companies and System Energy's financial statements in the Form 10-K.
NOTE 6. ENTERGY NEW ORLEANS BANKRUPTCY PROCEEDING
See Note 14 to the domestic utility companies and System Energy financial statements in the Form 10-Kfor a discussion of the Entergy New Orleans bankruptcy proceeding. Following are updates to that discussion.
As discussed in the Form 10-K, the bankruptcy court issued its order in December 2005 giving final approval for the $200 million debtor-in-possession (DIP) credit facility, and the indenture trustee for Entergy New Orleans' first mortgage bonds appealed the order. On March 29, 2006 the bankruptcy court approved a settlement among Entergy New Orleans, Entergy Corporation, and the indenture trustee, and the indenture trustee dismissed its appeal.
In April 2006, the bankruptcy judge extended the exclusivity period for filing a plan of reorganization by Entergy New Orleans to August 21, 2006. Entergy New Orleans has filed another motion to extend the exclusivity period for filing its plan of reorganization, requesting that the deadline be extended an additional 120 days until December 19, 2006. The court entered an order extending the August 21, 2006 date for Entergy New Orleans' exclusive right to file a plan of reorganization until the court can hear and rule on Entergy New Orleans' motion to extend, which was set for hearing on September 18, 2006. In order to file a plan of reorganization no later than December 2006, Entergy New Orleans believes that it needs resolution of its June 2006 formula rate plan and storm rider filings and commitment on timing and amount of CDBG funds. If the motion to extend is granted, Entergy New Orleans will have the exclusive right to file its plan of reorganization until December 19, 2006, a nd will have until February 15, 2007 to obtain acceptances of its plan by each class of impaired creditors.
The bankruptcy judge set a date of April 19, 2006 by which creditors with prepetition claims against Entergy New Orleans must, with certain exceptions, file their proofs of claim in the bankruptcy case. Approximately 500 claims have been filed thus far in Entergy New Orleans' bankruptcy proceeding. Entergy New Orleans is currently analyzing the accuracy and validity of the claims filed, and has begun seeking withdrawal or modification of claims or objecting to claims with which it disagrees.
Certain pre-petition liabilities have been classified as liabilities subject to compromise in Entergy New Orleans' Balance Sheet as of June 30, 2006 and December 31, 2005. The following table summarizes the components of liabilities subject to compromise as of June 30, 2006 and December 31, 2005:
June 30, 2006 | December 31, 2005 | |||
(In Thousands) | ||||
Accounts payable - Associated companies | $64,893 | $46,815 | ||
Accounts payable - Other | 25,000 | 25,000 | ||
Interest accrued | 1,473 | 1,473 | ||
Accumulated provisions | 5,709 | 5,770 | ||
Long-term debt | 229,867 | 229,859 | ||
Total Liabilities Subject to Compromise | $326,942 | $308,917 |
Payment terms for the amount classified as subject to compromise will be established in connection with a plan of reorganization.
The accompanying financial statements have been prepared on the basis that Entergy New Orleans will continue as a going concern. Entergy New Orleans' filing for protection under Chapter 11 of the United States Bankruptcy Code as a result of the liquidity issues caused by Hurricane Katrina gives rise to substantial doubt regarding Entergy New Orleans' ability to continue as a going concern for a reasonable period of time, primarily because of the loss of control inherent in the bankruptcy process. The financial statements do not include any adjustments that might
128
result from the outcome of this uncertainty including adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that may be necessary if Entergy New Orleans is unable to continue as a going concern. The financial statements also do not attempt to reflect liabilities at the priority or status of any claims that the holders of such liabilities will have.
Entergy continues to work with the federal, state, and local authorities to resolve the bankruptcy in a manner that allows Entergy New Orleans' customers to be served by a financially viable entity as required by law. Key factors that will influence the timing and outcome of the Entergy New Orleans bankruptcy include:
NOTE 7. ACCOUNTING POLICY UPDATES
Revenue and Fuel Costs
Entergy recognizes revenue from electric power and gas sales when it delivers power or gas to its customers. To the extent that deliveries have occurred but a bill has not been issued, the domestic utility companies accrue an estimate of the revenues for energy delivered since the latest billings. Entergy calculates the estimate based upon several factors including billings through the last billing cycle in a month, actual generation in the month, historical line loss factors, and prices in effect in the domestic utility companies' various jurisdictions. Each month the estimated unbilled revenue amounts are recorded as revenue and unbilled accounts receivable, and the prior month's estimate is reversed. Therefore, changes in price and volume differences resulting from factors such as weather affect the calculation of unbilled revenues from one period to the next, and may result in variability in reported revenues from one period to the next as prior estimates are so recorded and re versed.
Prior to 2006, Entergy Louisiana and the Louisiana portion of Entergy Gulf States included a component of fuel cost recovery in their unbilled revenue calculations. Effective January 1, 2006, this fuel component of unbilled accounts receivable was reclassified to deferred fuel and is no longer included in the unbilled revenue calculations for Entergy Louisiana and the Louisiana portion of Entergy Gulf States, which is in accordance with regulatory treatment.
Application of SFAS 71
During 2005 and 2006 Entergy filed notices with the FERC to withdraw its market-based rate authority for wholesale transactions in the Entergy control area and submitted new cost-based rates to the FERC for approval. During the second quarter of 2006, the FERC issued an order accepting the cost based rates filed by Entergy. As described further in Note 1 to the domestic utility companies and System Energy financial statements in the Form 10-K, the domestic utility companies and System Energy apply the provisions of SFAS 71 to operations that meet three criteria including that rates are approved by a regulator, are cost-based and can be charged to and collected from customers. As also described in Note 1 to the domestic utility companies and System Energy financial statements in the Form 10-K, Entergy Gulf States did not apply regulatory accounting principles to its wholesale jurisdiction. The FERC decision in the second quarter of 2006 results in Entergy Gulf States meeting the SFA S 71 criteria discussed above for its wholesale jurisdiction and, therefore, Entergy Gulf States reinstated the application of regulatory accounting principles to its wholesale business which resulted in a regulatory credit of approximately $4.5 million during the second quarter of 2006.
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In the opinion of the management of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassification of previously reported amounts to conform to current classifications) necessary for a fair statement of the results for the interim periods presented. The business of the domestic utility companies and System Energy is subject to seasonal fluctuations, however, with the peak periods occurring during the third quarter. The results for the interim periods presented should not be used as a basis for estimating results of operations for a full year.
Part I, Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of June 30, 2005,2006, evaluations were performed under the supervision and with the participation of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Resources (individually "Registrant" and collectively the "Registrants") management, including their respective Chief Executive Officers (CEO) and Chief Financial Officers (CFO). The evaluations assessed the effectiveness of the Registrants' disclosure controls and procedures. Based on the evaluations, each CEO and CFO has concluded that, as to the Registrant or Registrants for which they serve as CEO or CFO, the Registrant's or Registrants' disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange CommissionCommis sion rules and f orms.forms; and that the Registrant's or Registrants' disclosure controls and procedures are also effective in reasonably assuring that such information is accumulated and communicated to the Registrant's or Registrants' management, including their respective CEOs and CFOs, as appropriate to allow timely decisions regarding required disclosure.
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ENTERGY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See "PART I, Item 1,Litigation" in the Form 10-K for a discussion of legal proceedings affecting Entergy. Following is an updateare updates to that discussion.
Entergy New Orleans Fuel Clause Lawsuit
See "Entergy New Orleans Fuel Clause Lawsuit" inPart I, Item 1 of the Form 10-K for a discussion of the complaint filed with the City Council by a group of ratepayers alleging that Entergy New Orleans and certain affiliates engaged in fuel procurement and power purchasing practices and included certain costs in its fuel adjustment charges that could have resulted in its customers being overcharged by more than $100 million over a period of years. On May 26, 2005, the Civil District Court for the Parish of Orleans affirmed the City Council resolution that resulted in a refund to customers of $11.3 million, including interest, during the months of June through September 2004, finding no support for the plaintiff's claim that the refund amount should be higher. In June 2005, the plaintiffs appealed the Civil District Court decision to the Louisiana Fourth Circuit Court of Appeal.
Entergy New Orleans Rate of Return Lawsuit
See "Entergy New Orleans Rate of Return Lawsuit" inPart I, Item 1 of the Form 10-K for a discussion of the hearing set before the City Council regarding the effect of the provision of the 1922 Ordinance in setting lawful rates. The hearing concluded in June 2005.
Texas Power Price Lawsuit
See "Texas Power Price Lawsuit" inPart I, Item 1 of the Form 10-K for a discussion of the lawsuit filed in the district court of Chambers County, Texas by Texas residents on behalf of a purported class apparently of the Texas retail customers of Entergy Gulf States who were billed and paid for electric power from January 1, 1994 to the present. The plaintiff's appeal of the district court's dismissal of the lawsuit has been briefed and oral arguments are expected to be heard byIn April 2006, the Court of Appeals this year.denied a motion for rehearing of the decision to remand the case to the district court. In May 2006, Entergy filed a petition for discretionary review with the Texas Supreme Court.
Entergy Louisiana Formula Ratemaking PlanNew Orleans Rate of Return Lawsuit and Entergy New Orleans Fuel Clause Litigation
See "Entergy Louisiana Formula Ratemaking PlanNew Orleans Rate of Return Lawsuit" inPart I, Item 1 of the Form 10-K for a discussion of the complaintlawsuit filed by a group of residential and business ratepayers against Entergy Louisiana and the LPSCNew Orleans in state court in East Baton RougeOrleans Parish purportedly on behalf of all ratepayers in New Orleans. In accordance with the procedural schedule, the evidentiary record and post-hearing briefs of the parties were submitted to the City Council in March 2006. In April 2006, the City Council unanimously approved a groupresolution dismissing with prejudice the plaintiffs' claims. The plaintiffs appealed the resolution to the Civil District Court for the Parish of Orleans. The district court has not yet issued a procedural schedule for the appeal.
Additionally, in the Entergy Louisiana ratepayers. This case has been abandonedNew Orleans bankruptcy proceeding, the complaint filed by operationthe named plaintiffs in the Entergy New Orleans rate of law.return lawsuit, together with the named plaintiffs in the Entergy New Orleans fuel clause lawsuit, asking the court to declare that Entergy New Orleans, Entergy Corporation, and Entergy Services are a single business enterprise, and as such, are liable in solido with Entergy New Orleans for any claims asserted in the Entergy New Orleans rate of return lawsuit and the Entergy New Orleans fuel clause lawsuit, was dismissed on April 26, 2006. The matter is on appeal to the U.S. District Court for the Eastern District of Louisiana. In addition, in April 2006, proofs of claim were filed by the plaintiffs in the Entergy New Orleans rate of return lawsuit and by the plaintiffs in the Entergy New Orleans fuel adjustment clause litigation relating to both the City Council and class action proceedings. The plaintiffs in the Entergy New Orleans rate of retur n lawsuit and the plaintiffs in the Entergy New Orleans fuel adjustment clause litigation also filed for class certification. In July 2006, the bankruptcy court denied the request for class certification. The individual claims of the approximately 14 individual named plaintiffs remain pending in the bankruptcy proceeding, and it is uncertain whether the bankruptcy judge will re-open the bar date for other ratepayers to file individual proofs of claim based on the allegations in the two lawsuits.
Fiber Optic Cable LitigationMurphy Oil Lawsuit
See "Fiber Optic Cable Litigation""Murphy Oil Lawsuit" inPart I, Item 1 of the Form 10-K for a discussion of the litigationseveral lawsuits filed by several property owners in state court in St. JamesBernard Parish, Louisiana against Murphy Oil, Entergy Louisiana, and others for injuries they allegedly suffered as a result of an explosion at the refinery in June 1995. Claiborne P. Deming, who became a director of Entergy Services, Entergy Technology Holding Company (ETHC),Corporation in 2002, is the President and Entergy Technology Company (ETC) purportedly on behalfChief Executive Officer of all property owners in Louisiana who have conveyed easementsMurphy Oil. Mr. Deming did not stand for re-election to the defendants. TheEntergy Corporation Board of Directors and his term expired in May 2006. In June 2006, the Louisiana FifthFourth Circuit Court of Appeal has denied Entergy's appeal ofaffirmed the trial court's order certifyingallocation of fault against Entergy Louisiana, but reduced the amount of damages owed by Entergy Louisiana to approximately $1.2 million. Murphy Oil filed a class. Entergy ismotion for rehearing seeking to have the appellate review beforecourt reverse its decision to reduce the Louisiana Supreme Court.damages.
With respect131
Environmental Regulation and Proceedings
On April 19, 2006, an environmental advocacy organization served a notice of intent to bring an environmental citizen's suit pursuant to the separate lawsuitsfederal Resource Conservation and Recovery Act (RCRA) against Entergy. Notice of suit is required by RCRA sixty days before actual filing. The suit, if filed, by several property owners against Entergy Corporation, Entergy Mississippi, Entergy Services, ETHC, and ETC in state court in various counties in Mississippi allegingwill allege that Entergy Mississippi installed fiber optic cable across their properties without obtaining appropriate easements, plaintiffsviolated an EPA regulation by failing formally to report a discovered release of radioactive material into the environment at Indian Point. These allegations relate to the ongoing site investigation of radionuclides found in somegroundwater wells at the site. It is expected that the environmental advocacy organization will ask the court to require Entergy formally to notify EPA of the lawsuitssite condition, will seek to have agreedEPA formally involved in the ongoing site investigation and any required remediation, will seek attorney's fees under the statute, and may seek to dismisshave the lawsuits based on evidence that there wasjudge impose statutory penalties. Entergy continues to investigate the matter.
Item 1A. Risk Factors
There have been no fiber optic cable running across their property.material changes to the risk factors discussed in "PART I, Item 1A,Risk Factors" in the Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities (1)
Period |
| Total Number of |
| Average Price Paid |
| Total Number of |
| Maximum $ Amount |
|
|
|
|
|
|
|
|
|
4/01/2005-4/30/2005 |
| 1,082,100 |
| $71.56 |
| 1,082,100 |
| $668,580,091 |
5/01/2005-5/31/2005 |
| 2,039,400 |
| $72.14 |
| 2,039,400 |
| $531,610,303 |
6/01/2005-6/30/2005 |
| 432,900 |
| $75.36 |
| 432,900 |
| $520,169,627 |
Total |
| 3,554,400 |
| $72.35 |
| 3,554,400 |
|
|
In accordance with Entergy's stock-based compensation plans, Entergy periodically grants stock options to its employees that may be exercised to obtain shares of Entergy's common stock. According to the plans, these shares can be newly issued shares, treasury stock, or shares purchased on the open market. See Note 7 to the consolidated financial statements in the Form 10-K for additional discussion of the stock-based compensation plans. Entergy's management has been authorized to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans, and this authorization does not have an expiration date. In August 2004, Entergy announced a program under which Entergy Corporation will repurchase up to $1.5 billion of its common stock. This repurchase program is incremental to the existing authority to repurchase shares to fund the exercise of employee stock options. As a result of Hurricanes Katrina and Rita, the $1.5 billion program w as temporarily suspended, and the Board extended authorization for its completion through 2008. Entergy Corporation did not repurchase any shares of common stock during the six months ended June 30, 2006. At any point in time through 2008, Entergy Corporation may elect to repurchase shares to complete the remaining $400 million of authorization under the $1.5 billion program or to fund the exercise of grants under its employee based compensation plans.
|
|
|
|
Item 4. Submission of Matters to a Vote of Security Holders
Election of Board of Directors
Entergy Corporation
The annual meeting of stockholders of Entergy Corporation was held on May 13, 2005.12, 2006. The following matters were voted on and received the specified number of votes for, abstentions, votes withheld (against), and broker non-votes:
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|
|
|
|
|
| Votes For |
| Votes Withheld |
|
|
|
|
| ||||
Maureen S. Bateman |
| 189,249,148 |
| 2,266,155 |
| 181,913,615 |
| 3,159,171 |
W. Frank Blount |
| 185,747,483 |
| 5,767,820 |
| 177,995,619 |
| 7,077,167 |
Simon D. deBree |
| 189,220,546 |
| 2,294,757 |
| 181,832,243 |
| 3,240,543 |
Claiborne P. Deming |
| 189,372,818 |
| 2,142,485 | ||||
Gary W. Edwards | 181,813,592 | 3,259,194 | ||||||
Alexis M. Herman |
| 189,015,162 |
| 2,500,141 |
| 180,732,615 |
| 4,340,171 |
Donald C. Hintz |
| 187,510,762 |
| 4,004,541 |
| 181,413,474 |
| 3,659,312 |
J. Wayne Leonard |
| 187,755,699 |
| 3,759,604 |
| 181,518,863 |
| 3,553,923 |
Robert v.d. Luft |
| 187,644,635 |
| 3,870,668 | ||||
Kathleen A. Murphy |
| 189,219,495 |
| 2,295,808 | ||||
Stuart L. Levenick | 182,579,969 | 2,492,817 | ||||||
Robert v.d. Luft* |
| 181,366,991 |
| 3,705,795 | ||||
James R. Nichols |
| 187,612,722 |
| 3,902,581 |
| 181,459,874 |
| 3,612,912 |
William A. Percy, II |
| 189,167,248 |
| 2,348,055 |
| 182,578,764 |
| 2,494,022 |
Dennis H. Reilley* |
| 189,064,868 |
| 2,450,435 | ||||
W. J. "Billy" Tauzin |
| 182,310,093 |
| 2,762,693 | ||||
Steven V. Wilkinson |
| 189,221,507 |
| 2,293,796 |
| 182,683,898 |
| 2,388,888 |
* Mr. Reilley resignedLuft retired from the Board effective May 20, 2005.August 1, 2006.
Entergy Arkansas
A consent in lieu of a meeting of common stockholders was executed on May 27, 2005.June 22, 2006. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Arkansas: Hugh T. McDonald, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.
Entergy Gulf States
A consent in lieu of a meeting of common stockholders was executed on May 27, 2005.June 22, 2006. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Gulf States: Joseph F. Domino, Chairman, E. Renae Conley, Leo P. Denault, Mark Savoff, and Richard J. Smith.
Entergy Louisiana
A consent in lieu of a meeting of common stockholdersmembers was executed on May 27, 2005.June 22, 2006. The consent was signed on behalf of Entergy Corporation,Louisiana Holdings, Inc., the holder of all issued and outstanding sharescommon membership interests. The holder of the common stock. The common stockholder,membership interests by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Louisiana: E. Renae Conley, Chairman,Chair, Leo P. Denault, Mark Savoff, and Richard J. Smith.
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Entergy Mississippi
A consent in lieu of a meeting of common stockholders was executed on May 27, 2005.June 22, 2006. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Mississippi: Carolyn C. Shanks, Chairman, Leo P. Denault, Mark Savoff, and Richard J. Smith.
Entergy New Orleans
A consent in lieu of a meeting of common stockholders was executed on May 27, 2005.July 31, 2006. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy New Orleans: Daniel F. Packer, Chairman, Leo P. Denault, Mark Savoff,Tracie L. Boutte, and Richard J. Smith.Roderick K. West.
System Energy
A consent in lieu of a meeting of common stockholders was executed on May 27, 2005.June 22, 2006. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of System Energy: Gary J. Taylor, Chairman, Steven C. McNeal, and Leo P. Denault.
Item 5. Other Information
PropertyExecutive Agreements (Entergy Corporation)
Grant of Restricted Stock Units to Chairman of the Board and Other Generation ResourcesChief Executive Officer. On August 3, 2006, the Personnel Committee of the Board of Directors of Entergy Corporation approved a grant of 100,000 restricted stock units ("Restricted Units") to Mr. J. Wayne Leonard, Entergy Corporation's Chairman of the Board and Chief Executive Officer. The units were issued under Entergy's 1998 Equity Ownership Plan ("EOP") pursuant to a restricted unit agreement ("Restricted Unit Agreement"). Subject to Mr. Leonard's continued employment within the Entergy System, the Restricted Units will vest in equal installments on August 3, 2008 (50,000 units) and August 3, 2009 (50,000 units). On the vesting date, Mr. Leonard will receive in cash for each vested unit the cash equivalent of a share of Entergy Corporation's common stock. The Restricted Units do not accrue dividend equivalents.
See "Part I, Item 1"
Under certain conditions, Mr. Leonard's Restricted Units may vest on an earlier date under the terms and conditions set forth in the Form 10-KRestricted Unit Agreement, Mr. Leonard's October 2000 Retention Agreement ("Retention Agreement"), or the EOP, although Mr. Leonard will receive payment for a discussionaccelerated vesting of the affiliate purchased power agreements (PPAs) filedrestricted units under only one of the acceleration provisions. Under the Restricted Unit Agreement, these accelerated vesting conditions include any one of the following events, as defined under the agreement: (i) termination of employment by Mr. Leonard for Good Reason; (ii) death or Disability; or (iii) termination of Mr. Leonard's employment for any reason other than Cause. "Good Reason" is generally defined in the Restricted Unit Agreement as (i) a substantial reduction in duties or responsibilities, (ii) a five percent or greater reduction in base salary, (iii) relocation to a location other than Entergy withCorporation's corporate headquarters, and/or (iv) discontinuation o f participation in certain compensation and other benefit plans (other than as a result of changes similarly affecting other executive officers). Under the FERC. On June 30, 2005, the FERC ALJ issued an initial decision finding,Retention Agreement, among other things, the Restricted Units may vest on an earlier date if Mr. Leonard's employment is terminated on account of a Qualifying Termination or a Merger Related Termination, as those terms are defined in the Retention Agreement. Under the EOP, the Restricted Units may vest on an earlier date if Mr. Leonard's employment is terminated on account of a Qualifying Event, as that term is defined in the PPAs are justEOP.
For additional information regarding Mr. Leonard's employment arrangements, see "Executive Retention Agreements- Retention Agreement with Mr. Leonard" in Entergy Corporation's proxy statement dated March 24, 2006.
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Retention Agreement with Executive Vice President and reasonable and not unduly discriminatory, except forChief Financial Officer. On August 3, 2006, the Entergy Arkansas retained share of Grand Gulf portion (19MW)Personnel Committee of the Board of Directors approved a retention agreement to be entered into between Entergy Arkansas 110MW PPAsCorporation and Leo P. Denault, its Executive Vice President and Chief Financial Officer ("Retention Agreement"). The Retention Agreement entitles Mr. Denault to receive certain benefits if his employment with Entergy Louisiana and Entergy New Orleans. The ALJ therefore removed the 19MW attributablea System Company is terminated under specified circumstances. If Mr. Denault's employment should terminate prior to the Entergy Arkansas retained share from the PPA with Entergy Louisiana. Because the City Council desired to keep the retained shareattainment of age 55 on account of a Termination Event, as defined in the PPA withRetention Agreement and described below, then Mr. Denault is entitled to receive, among other things, (a) 2.99 times his base salary and annual cash bonus, as described in the Retention Agreement; (b) Target LTIP Awards, described as the value of his unvested performance shares units (calculated at target payout levels) under the EOP and under the 2007 Equity Ow nership and Long Term Cash Incentive Plan ("Equity Plan"), and (c) Other EOP Awards, described as the value of any unvested restricted shares, stock options, and other equity awards that may be granted under the Equity Plan. If Mr. Denault's employment should terminate on or after attainment of age 55 on account of a Termination Event, as defined in the Retention Agreement and described below, then Mr. Denault is entitled to receive (a) SERP Credited Service and SERP Permission to Retire, as defined in the Retention Agreement; (b) Target LTIP Awards (as described above); and (c) Other EOP Awards (as described above).
"Termination Event" is generally defined to include (i) termination of Mr. Denault's employment by Entergy New Orleans,for reasons other than Cause or Disability, as defined in the ALJ didRetention Agreement or (ii) Mr. Denault's termination of employment for "Good Reason" (as defined in the Retention Agreement and described above in the description of Mr. Leonard's Restricted Unit Agreement).
Should Mr. Denault, on or after attainment of 55, terminate employment for any reason other than a Termination Event, death or disability, then he shall be entitled to SERP Credited Service but not removeSERP Permission to Retire. If Mr. Denault should terminate employment at any time on account of death or Disability, then he or his estate shall receive (a) SERP Credited Service and SERP Permission to Retire or separate, in the 19MW from that PPA. There is no deadline with respect to whencase of Disability; (b) Target LTIP Awards (as described above); and (c) Other EOP Awards (as described above).
For additional information regarding Mr. Denault's employments arrangements, including his participation in an Entergy-sponsored executive severance plan, see "System Executive Continuity Plans" in Entergy Corporation's proxy statement dated March 24, 2006. Cash payments otherwise payable under the Retention Agreement shall be offset, on a final decision will be issueddollar for dollar basis, by the FERC.
On June 28, 2005, a proposed recommendation was issued by an LPSC ALJ regarding the River Bend PPA between Entergy Gulf States and Entergy Louisiana and the PPA between Entergy Arkansas and Entergy Louisiana for capacity from a portion of Entergy Arkansas' coal and nuclear fueled base load resources (EAI WBL). The ALJ found that once certain transmission issues are resolved, Entergy Louisiana should be encouraged to acquire as much of the 30% share of River Bend as Entergy Gulf States receives authorization to make available. The ALJ further found that the River Bend PPA offers the lowest cost when compared to proposals submitted in response to the Entergy Fall 2002 and Spring 2003 requests for proposal for supply side resources, that it should be dispatchable by the Entergy System, and that it provides Entergy Louisiana with a diverse solid fuel resource that should offer price stability during a time of rising gas prices. Entergy believes that the transmission issues have been resolved. With respect to the EAI WBL, the LPSC ALJ found that because there are no transmission issues with respect to this contract and because the pricing of the PPA is to be at the revised MSS-4 price (except for the Grand Gulf related portion of the PPA, which would be priced at $46) the PPA is attractive to ratepayers. The LPSC ALJ also determined that the FERC is the regulatory body with jurisdiction to determine whether a right of first refusal to the underlying EAI WBL resources existscash payments under the System Agreement and that if the FERC were to determine that such a right of first refusal does exist, the LPSC may want to direct Entergy Louisiana to exercise that right. In a June 30, 2005 decision, the presiding FERC ALJ determined that such a right of first refusal does not exist. A final decision from the LPSC is expected in the late third quarterExecutive Continuity Plan or fourth quarter of 2005.
Federal Regulation
FERC Audits
See "FERC Audits" inPart I, Item 1 in the Form 10-K for a discussion of audits and reviews initiated by the FERC. The FERC is currently reviewing certain wholesale sales and purchases involving EPMC that occurred during the 1998-2001 time period and similar transactions that Entergy-Koch Trading may have undertaken. EPMC was an Entergy subsidiary engaged in non-regulated wholesale marketing and trading activities prior to the formation of Entergy-Koch. Entergy is working with the FERC investigation staff to provide information regarding these transactions.
Other Customer-initiated Proceedings at the FERC
See the Form 10-K for a discussion of the complaint filed with the FERC in February 2005 by ExxonMobil Chemical Company and ExxonMobil Refining & Supply Company (ExxonMobil) against Entergy Services and the domestic utility companies. On April 18, 2005, the FERC (1) rejected as unfounded ExxonMobil's allegation concerning the netting of its station power needs; and (2) set for hearing the question of whether the facility upgrades and related charges are subject to FERC jurisdiction and, if so, when they became subject to FERC jurisdiction, whether the monthly facility charge violated FERC pricing policy, and whether any refunds are appropriate. The FERC then held the hearing in abeyance in order to provide the parties an opportunity to settle their dispute before hearing procedures commence. Settlement discussions are underway.
On January 24, 2005 Cottonwood Energy Company, L.P., an independent generator, filed with the FERC a rate schedule for reactive power that proposes to impose on Entergy Gulf States a rate for reactive supply service allegedly supplied by Cottonwood's electric generating facility. Cottonwood has proposed a fixed monthly charge ($3.4 million annually), which according to Cottonwood represents its revenue requirement for reactive power service. Entergy believes that independent generators should only be compensated for reactive power to the extent that they have an affirmative and continual obligation to provide reactive power support beyond their power factor range when directed to do so by the transmission provider, and is opposing Cottonwood's rate schedule. On March 23, 2005, the FERC accepted Cottonwood's proposed reactive power rate schedule for filing effective on February 1, 2005, subject to refund, and established hearing and settlement judge procedures. A hearing in this p roceeding is currently scheduled to commence in January 2006, with an ALJ initial decision scheduled to be issued by April 2006. A similar filing was made by Union Power Partners in May 2005 requesting $4.15 million annually. On July 15, 2005, the FERC accepted Union Power Partners' proposed reactive power rate schedule for filing, effective May 18, subject to refund and established hearing and settlement judge procedures. In the event that Cottonwood and UPP are successful, Entergy anticipates that other merchant plants located on Entergy's transmission system may request similar compensation.
Environmental Regulation
See "PART I, Item 1,Clean Air Act and Subsequent Amendments, Hazardous Air Pollutants" in the Form 10-K for information related to the hazardous air pollutant emissions reduction programs. In March 2005, the EPA issued a rule to permanently cap and reduce mercury emissions from coal-fired power plants. The Clean Air Mercury Rule establishes "standards of performance" limiting mercury emissions from new and existing coal-fired power plants and creates a market-based cap-and-tradeseverance program that will reduce nationwide utility emissions of mercury in two distinct phases. The first phase cap is 38 tons beginning in 2010. The rule has been challenged in the United States Court of Appeals for the District of Columbia Circuit. Unless the rule is stayed, however, the compliance deadlines remain in effect. The rule is also being challenged by various members of the U.S. Senate through a process called the Congressional Review Act. Entergy will continue to monitor these d evelopments.
Entergy owns units that will be subject to the mercury emissions regulations and is studying compliance options in order to determine the best control alternative. Entergy estimates that any necessary capital expenditures for its coal facilities will occur through 2009 and will be approximately $26 million, including $15.4 million at Entergy Arkansas, $4.9 million at Entergy Gulf States, and $5.3 million at Entergy Mississippi. Ongoing operating costs will increase beginning in 2010.
See "PART I, Item 1,Clean Air Act and Subsequent Amendments, Interstate Air Transport" in the Form 10-K for information related to SO2 and NOX emissions reduction programs. In March 2005, the EPA finalized the Clean Air Interstate Rule (CAIR), which will reduce SO2 and NOX emissions from electric generation plants in order to improve air quality in 29 eastern states. The rule will require a combination of capital investment to install pollution control equipment and increased operating costs. Entergy's capital investment and annual operation and maintenance allowance purchase costs will depend on the economic assessment of NOX and SO2 allowance markets, the cost of control technologies, and unit usage. Entergy estimates that the capital expenditures for its Fossil generation fleet will occur through 2009 and will be approximately $90 million, including $2.9 million at Entergy Arkansas, $17 million at E ntergy Gulf States, $36.1 million at Entergy Louisiana, $6.2 million at Entergy Mississippi, and $27.4 million at Entergy New Orleans.or arrangement.
The capital financial impact could be offsetterms and conditions of Mr. Leonard's Restricted Unit Agreement and Mr. Denault's Retention Agreement are summaries and are qualified in their entirety by emission markets which allow for purchases or use of allocated credits; however,reference to the allocationterms and conditions of the emission allowancesactual agreements, which are filed as Exhibits 10(a) and the set up of the market will determine the ultimate cost10(b) to Entergy. Entergy believes that the allocation is unfairly skewed towards states with relatively higher emissions by the use of a fuel-adjustment factor in the final rule that was not included in the draft rule. Entergy will continue to study the final rule's impact to its generation fleet and will work to ensure that all states are treated fairly in the allocation of emission credits. Entergy has filed a Petition for Reconsideration with the EPA and a Petition for Review in the United States Court of Appeals for the District of Columbia Circuit concerning the final rule's use of fuel-adjustment factors.this Form 10-Q.
Election of Directors
On July 29, 2005, the Board elected two new members, Gary W. Edwards and Stuart L. Levenick. There is no arrangement or understanding between either of the newly-elected directors and any person pursuant to which each was selected as a director.
Earnings Ratios (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
The domestic utility companies and System Energy have calculated ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred dividendsdividends/distributions pursuant to Item 503 of Regulation S-K of the SEC as follows:
Ratios of Earnings to Fixed Charges | |||||||||||
Twelve Months Ended | |||||||||||
December 31, | June 30, | ||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | ||||||
Entergy Arkansas | 3.29 | 2.79 | 3.17 | 3.37 | 3.75 | 3.71 | |||||
Entergy Gulf States | 2.36 | 2.49 | 1.51 | 3.04 | 3.34 | 3.46 | |||||
Entergy Louisiana | 2.76 | 3.14 | 3.93 | 3.60 | 3.50 | 2.98 | |||||
Entergy Mississippi | 2.14 | 2.48 | 3.06 | 3.41 | 3.16 | 2.89 | |||||
Entergy New Orleans | (a) | (b) | 1.73 | 3.60 | 1.22 | 1.62 | |||||
System Energy | 2.12 | 3.25 | 3.66 | 3.95 | 3.85 | 4.08 |
Ratios of Earnings to Fixed Charges | |||||||||||
Twelve Months Ended | |||||||||||
December 31, | June 30, | ||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2005 | ||||||
Entergy Arkansas | 3.01 | 3.29 | 2.79 | 3.17 | 3.37 | 3.64 | |||||
Entergy Gulf States | 2.60 | 2.36 | 2.49 | 1.51 | 3.04 | 2.82 | |||||
Entergy Louisiana | 3.33 | 2.76 | 3.14 | 3.93 | 3.60 | 3.80 | |||||
Entergy Mississippi | 2.33 | 2.14 | 2.48 | 3.06 | 3.41 | 3.34 | |||||
Entergy New Orleans | 2.66 | (a) | (b) | 1.73 | 3.60 | 3.28 | |||||
System Energy | 2.41 | 2.12 | 3.25 | 3.66 | 3.95 | 4.25 |
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Ratios of Earnings to Combined Fixed Charges | Ratios of Earnings to Combined Fixed Charges | |||||||||||||||||||||
Twelve Months Ended | Twelve Months Ended | |||||||||||||||||||||
December 31, | June 30, | December 31, | June 30, | |||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | |||||||||||
Entergy Arkansas | 2.70 | 2.99 | 2.53 | 2.79 | 2.98 | 3.22 | 2.99 | 2.53 | 2.79 | 2.98 | 3.34 | 3.29 | ||||||||||
Entergy Gulf States | 2.39 | 2.21 | 2.40 | 1.45 | 2.90 | 2.69 | 2.21 | 2.40 | 1.45 | 2.90 | 3.18 | 3.32 | ||||||||||
Entergy Louisiana | 2.93 | 2.51 | 2.86 | 3.46 | 3.16 | 3.34 | 2.76 | 3.14 | 3.93 | 3.60 | 3.50 | 2.81 | ||||||||||
Entergy Mississippi | 2.09 | 1.96 | 2.27 | 2.77 | 3.07 | 3.00 | 1.96 | 2.27 | 2.77 | 3.07 | 2.83 | 2.64 | ||||||||||
Entergy New Orleans | 2.43 | (a) | (b) | 1.59 | 3.31 | 2.99 | (a) | (b) | 1.59 | 3.31 | 1.12 | 1.54 |
(a) | Earnings for the twelve months ended December 31, 2001, for Entergy New Orleans were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $6.6 million and $9.5 million, respectively. |
(b) | Earnings for the twelve months ended December 31, 2002, for Entergy New Orleans were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $0.7 million and $3.4 million, respectively. |
Item 6. Exhibits *
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31(a) - | Rule 13a-14(a)/15d-14(a) Certification for Entergy Corporation. | |
31(b) - | Rule 13a-14(a)/15d-14(a) Certification for Entergy Corporation. | |
31(c) - | Rule 13a-14(a)/15d-14(a) Certification for Entergy Arkansas. | |
31(d) - | Rule 13a-14(a)/15d-14(a) Certification for Entergy | |
31(e) - | Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf | |
31(f) - | Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States. | |
31(g) - | Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States. | |
31(h) - | Rule 13a-14(a)/15d-14(a) Certification for Entergy Louisiana. | |
31(i) - | Rule 13a-14(a)/15d-14(a) Certification for Entergy Louisiana. | |
31(j) - | Rule 13a-14(a)/15d-14(a) Certification for Entergy Mississippi. | |
| Rule 13a-14(a)/15d-14(a) Certification for Entergy Mississippi. | |
31(l) - | Rule 13a-14(a)/15d-14(a) Certification for Entergy New Orleans. |
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31(m) - | Rule 13a-14(a)/15d-14(a) Certification for Entergy New Orleans. | |
| Rule 13a-14(a)/15d-14(a) Certification for System Energy. | |
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| Rule 13a-14(a)/15d-14(a) Certification for System Energy. | |
32(a) - | Section 1350 Certification for Entergy Corporation. | |
32(b) - | Section 1350 Certification for Entergy Corporation. | |
32(c) - | Section 1350 Certification for Entergy Arkansas. | |
32(d) - | Section 1350 Certification for Entergy | |
32(e) - | Section 1350 Certification for Entergy Gulf | |
32(f) - | Section 1350 Certification for Entergy Gulf States. | |
32(g) - | Section 1350 Certification for Entergy Gulf States. | |
32(h) - | Section 1350 Certification for Entergy Louisiana. | |
32(i) - | Section 1350 Certification for Entergy Louisiana. | |
32(j) - | Section 1350 Certification for Entergy Mississippi. | |
| Section 1350 Certification for Entergy Mississippi. | |
32(l) - | Section 1350 Certification for Entergy New Orleans. | |
| Section 1350 Certification for Entergy New Orleans. | |
32(n) - | Section 1350 Certification for System Energy. | |
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| Section 1350 Certification for System Energy. | |
99(a) - | Entergy Arkansas' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. | |
99(b) - | Entergy Gulf States' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. | |
99(c) - | Entergy | |
99(d) - | Entergy Mississippi's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. | |
99(e) - | Entergy New Orleans' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. | |
99(f) - | System Energy's Computation of Ratios of Earnings to Fixed Charges, as defined. |
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Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Entergy Corporation agrees to furnish to the Commission upon request any instrument with respect to long-term debt that is not registered or listed herein as an Exhibit because the total amount of securities authorized under such agreement does not exceed ten percent of the total assets of Entergy Corporation and its subsidiaries on a consolidated basis.
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* | Reference is made to a duplicate list of exhibits being filed as a part of this report on Form 10-Q for the quarter ended June 30, |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.
ENTERGY CORPORATION |
/s/ Nathan E. Langston |
Date: August 4, 20058, 2006
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