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 | |
OR | |
TRANSITION REPORT PURSUANT TO SECTION 13 | |
For the transition period from ____________ to ____________ |
| Registrant, State of Incorporation, Address of |
| Registrant, State of Incorporation, Address of | |
1-11299 | ENTERGY CORPORATION | 1-31508 | ENTERGY MISSISSIPPI, INC. | |
1-10764 | ENTERGY ARKANSAS, INC. | 0-5807 | ENTERGY NEW ORLEANS, INC. | |
1-27031 | ENTERGY GULF STATES, INC. | 1-9067 | SYSTEM ENERGY RESOURCES, INC. | |
1-32718 | ENTERGY LOUISIANA, LLC | |||
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. Yesþ Noo
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large |
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Entergy Corporation | Ö | ||||
Entergy Arkansas, Inc. | Ö | ||||
Entergy Gulf States, Inc. | Ö | ||||
Entergy Louisiana, LLC | 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). Yeso Noþ
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Outstanding at | ||
Entergy Corporation | ($0.01 par value) |
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Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, 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, 2005, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 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-QJune 30, 2006March 31, 2007
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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New Accounting Pronouncements | 14 | ||||
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 |
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Part I. Item 4. Controls and Procedures | 39 | ||||
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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New Accounting Pronouncements | 44 | ||||
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 |
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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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New Accounting Pronouncements | 55 | ||||
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, LLC | |||||
Management's Financial Discussion and Analysis | |||||
Hurricane Rita and Hurricane Katrina |
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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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New Accounting Pronouncements | 66 | ||||
Income Statements |
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Statements of Cash Flows |
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Balance Sheets |
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ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-QJune 30, 2006March 31, 2007
Page Number | |||
Statements of Members' Equity and Comprehensive Income | 72 | ||
Selected Operating Results | 73 | ||
Entergy Mississippi, Inc. | |||
Management's Financial Discussion and Analysis | |||
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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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New Accounting Pronouncements | 77 | ||
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 New Orleans, Inc. (Debtor-in-possession) | |||
Management's Financial Discussion and Analysis | |||
Hurricane Katrina |
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Bankruptcy Proceedings |
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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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New Accounting Pronouncements | 87 | ||
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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System Energy Resources, 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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New Accounting Pronouncements | 94 | ||
Income Statements |
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Statements of Cash Flows |
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Balance Sheets |
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Part II. Other Information | |||
Item 1. Legal Proceedings |
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Item 1A. Risk Factors |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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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 filingcombined report and from time to time, Entergy Corporation and the Registrant Subsidiaries each makes statements as a registrant 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. Words such as "believes," "intends," "plans," "predicts" and "estimates" and similar expressions are intended to identify forward-looking statements but are not the only means to identify these statements. Although Entergyeach of these registrants believes that these forward-looking statements and the underlying assumptions are reasonable, it cannot provide assurance that they will prove correct. Any forward-looking statement is based on information current as of the date of this combined report and speaks only as of the date on which such statement is made. Except to the extent required by the federal securities laws, Entergy undertakesthese registrants undertake 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 thereuncertainties. There are factors that could cause actual results to differ materially from those expressed or implied in the statements. Some offorward-looking statements, including those factors discussed or incorporated by reference in (a) Item 1A. Risk Factors in the Form 10-K, (b) Management's Financial Discussion and Analysis in the Form 10-K and in this report, and (c) the following factors (in addition to the risk factors in the Form 10-K as well as others described elsewhere in this combined report and in subsequent securities filings) include::
FORWARD-LOOKING INFORMATION (Concluded)
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DEFINITIONS
Certain abbreviations or acronyms used in the text are defined below:
Abbreviation or Acronym | Term |
AEEC | Arkansas Electric Energy Consumers |
AFUDC | Allowance for Funds Used During Construction |
ALJ | Administrative Law Judge |
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 |
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Board | Board of Directors of Entergy Corporation |
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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 |
CPI-U | Consumer Price Index - Urban |
DOE | United States Department of Energy |
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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. |
Entergy Louisiana | Entergy Louisiana Holdings, Inc. and Entergy Louisiana, LLC |
EPA | United States Environmental Protection Agency |
EPDC | Entergy Power Development Corporation, a wholly-owned subsidiary of Entergy Corporation |
ERCOT | Electric Reliability Council of Texas |
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)
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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 |
GWh billed | Total number of GWh billed to all customers |
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 |
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DEFINITIONS(Continued)
Abbreviation or Acronym | Term |
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 |
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 |
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 |
NRC | Nuclear Regulatory Commission |
NYPA | New York Power Authority |
OASIS | Open Access Same Time Information Systems |
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PPA | Purchased power agreement |
production cost | Cost in $/MMBtu associated with delivering gas, excluding the cost of the gas |
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)
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PURPA | Public Utility Regulatory Policies Act of 1978 |
Registrant Subsidiaries | Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, LLC, Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. |
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 |
spark spread | Dollar difference between electricity prices per unit and natural gas prices after assuming a conversion ratio for the number of natural gas units necessary to generate one unit of electricity |
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 |
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DEFINITIONS(Concluded)
Abbreviation or Acronym | Term |
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 specified generation asset is unavailable as a result of forced or planned outage or unanticipated event or circumstance, the seller is not liable to the buyer for any damages resulting from the seller's failure to deliver power |
unit-contingent with | Transaction under which power is supplied from a specific generation asset; if the specified generation asset is unavailable as a result of forced or planned outage or unanticipated event or circumstance, the seller is not liable to the buyer for any damages resulting from the seller's failure to deliver power unless the actual availability over a specified period of time is below an availability threshold specified in the contract |
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 |
UK | The United Kingdom of Great Britain and Northern Ireland |
Utility | Entergy's business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution |
Utility operating companies | Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans |
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 soldThe non-nuclear wholesale assets business sells to wholesale customers the electric power produced by power plants that it owns while it focuses on improving performance and exploring sales or restructuring opportunities for 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.power plants.
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
Entergy has reached an agreement with one of its excess insurers under which Entergy will receive $69.5 million in settlement of its Hurricane Katrina claim. Entergy expects that $53.7 million of this amount will be allocated to Entergy New Orleans. Entergy New Orleans submitted the agreement to the discussion inbankruptcy court, which approved the Form 10-K.agreement on April 25, 2007. Entergy expects to receive the proceeds under the settlement agreement by the end of May 2007.
Community Development Block Grants (CDBG)
As discussed inSee the Form 10-K for a federaldiscussion of the Katrina Relief Bill, a hurricane aid package became law that includes funding for$11.5 billion in Community Development Block Grants (CDBG)(for the states affected by Hurricanes Katrina, Rita, and Wilma) 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 2006,2007, the City Council certified that Entergy New Orleans has incurred $205 million in storm-related costs through December 2006 that are eligible for CDBG funding under the state action plan, and certified 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 theNew Orleans' estimated costs of Hurricanes Katrina and Rita damage, as well as$465 million for the gas system rebuild. In April 2007, Entergy New Orleans a lost customer base component intendedexecuted an agreement with the Louisiana Office of Community Development under which $200 million of CDBG funds will be made available to help offset the need for storm-related rate increases. The statements include justification for requests for CDBG funding of $718 million byEntergy New Orleans. Entergy New Orleans $472 million bysubmitted the agreement to the bankruptcy court, which approved it on April 25, 2007. 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 $89New Orleans received $171.7 million of CDBG funding for reimbursement of its Hurricane Katrina infrastructure restorationthe funds on April 27, 2007, and the remainder will be paid to Entergy New Orleans as it incurs and submits additional eligible 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,On May 7, 2007, the bankruptcy judge extended the exclusivity period for filing aentered an order confirming Entergy New Orleans' plan of reorganization. With the receipt of CDBG funds, and the agreement on insurance recovery with one of its excess insurers, Entergy New Orleans waived the conditions precedent in its plan of reorganization, and the plan became effective on May 8, 2007.
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Following are significant terms in Entergy New Orleans' plan of reorganization:
Entergy New Orleans currently estimates that the prepetition claims that will be allowed and paid (either in cash or by notes) in the bankruptcy case will approximate the prepetition liabilities currently recorded by Entergy New Orleans, including interest.
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 purposes2007, retroactive to January 1, 2005.2007. Because Entergy owns all of the common stock of Entergy New Orleans, this changereconsolidation will not affect the amount of net income that 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 in 2007, rather than just its net income being presented as is"Equity in earnings (loss) of unconsolidated equity affiliates," as will remain the case for periods prior to 2005.2005 and 2006.
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Results of Operations
Second Quarter 2006 Compared to Second Quarter 2005
Following are income statement variances for Utility, Non-Utility Nuclear, Parent & Other, business segments, and Entergy comparing the secondfirst quarter 20062007 to the secondfirst quarter 20052006 showing how much the line item increased or (decreased) in comparison to the prior period:
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2nd Quarter 2005 Consolidated Net Income |
| $217,260 |
| $58,277 |
| $17,011 | $292,548 | |||||||||
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Net revenue (operating revenue less fuel |
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2006 Consolidated Net Income |
| $119,752 |
| $81,530 |
| ($7,654) | $193,628 | |||||||||
Net revenue (operating revenue less fuel |
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Other operation and maintenance expenses |
| (1,957) | 10,196 | 6,260 | 14,499 |
| 26,208 | (3,459) | (11,210) | 11,539 | ||||||
Taxes other than income taxes |
| (2,164) | (741) | (981) | (3,886) |
| 6,680 | (1,270) | 4,161 | 9,571 | ||||||
Depreciation |
| 11,754 | 1,958 | (189) | 13,523 |
| 17,413 | 1,146 | 384 | 18,943 | ||||||
Other income |
| 7,721 | 4,822 | (12,672) | (129) |
| 9,900 | (442) | 7,101 | 16,559 | ||||||
Interest charges |
| 10,107 | (2,857) | 12,190 | 19,440 |
| 5,848 | (5,163) | 10,080 | 10,765 | ||||||
Other expenses |
| 610 | 2,504 | 17 | 3,131 | |||||||||||
Discontinued operations (net-of-tax) |
| - | - | 15,932 | 15,932 | |||||||||||
Other expenses and discontinued operations |
| 1,058 | 2,112 | (2,238) | 932 | |||||||||||
Income taxes |
| (38,317) | 6,353 | 3,016 | (28,948) |
| 2,207 | 31,819 | (8,303) | 25,723 | ||||||
2nd Quarter 2006 Consolidated Net Income |
| $206,542 |
| $63,379 |
| $19,655 | $289,576 | |||||||||
2007 Consolidated Net Income |
| $104,450 |
| $128,170 |
| ($20,425) | $212,195 |
(1) | Parent & Other includes eliminations, which are primarily intersegment activity. |
Refer to "ENTERGY CORPORATION AND SUBSIDIARIES -SELECTED OPERATING RESULTS" for further information with respect to Utility operating statistics.
Net Revenue
Utility
Following is an analysis of the change in net revenue which is Entergy's measure of gross margin, comparing the secondfirst quarter of 20062007 to the secondfirst quarter of 2005.2006.
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Pass-through rider revenue | 8.5 | |
Net wholesale revenue | (19.0) | |
Fuel recovery |
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Purchased power capacity | (37.2) | |
Other |
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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.
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The volume/weather variance resulted primarily from more favorable weather in the second quarter of 2006 compared to the second quarter of 2005 in addition to an increase in weather-adjusted usage. Billedincreased electricity usage, including increased a total of 801 GWh in the residential and commercial sectors and decreased 87 GWh in the industrial sector. The increase was partially offset by decreased usage during the unbilled period.sales period and more favorable weather compared to the same period in 2006. Billed usage increased by a total of 1,015 GWh, an increase of 5%. See Note 1 to the financial statements in the Form 10-K for a discussion of the accounting for unbilled revenues.
The base revenues variance resulted primarily from rate increases primarily at Entergy Gulf States in the Louisiana jurisdiction effective October 2005September 2006 for the 20042005 formula rate plan filing to recover LPSC-approved incremental deferred and ongoing purchased power capacity costs and for the annual revenue requirement relatedinterim recovery of storm costs. The formula rate plan filing is discussed in Note 2 to the purchase of power from the Perryville generating station, and increases at Entergy Gulf Statesfinancial statements in the Texas jurisdiction relatedForm 10-K.
The pass-through rider revenue variance is due to a change in 2006 in the accounting for city franchise tax revenues in Arkansas as directed by the APSC. The change results in an incremental purchased capacity recoveryincrease in rider that beganrevenue with a corresponding increase 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.taxes, resulting in no effect on net income.
The net wholesale revenue variance is primarily due to decreased results from wholesale contracts and lower wholesale prices.
The purchased power capacity variance is due to higher capacity charges and new purchased power contracts that began in mid-2006. A portion of the variance is due to the amortization of deferred capacity costs and is offset in base revenues due to base rate contracts.increases implemented to recover incremental deferred and ongoing purchased power capacity charges at Entergy Louisiana, as discussed above.
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 a power, uprate completed since the second quarter of 2005, partially offset by the effect of refueling outages on available generation output. The total number of refueling days was essentially the same in the second quarter of 2006 compared to the second quarter of 2005. However, the outage in the second quarter of 2006 was at a larger unit, Indian Point 2, while most of the outage days in the second quarter of 2005 were at a smaller unit, Pilgrim. Following are key performance measures for Non-Utility Nuclear for the second quarters of 2006 and 2005:
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| 2006 |
| 2005 |
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| 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 a power development project.
Other Operation and Maintenance Expenses
Other operation and maintenance expenses increased for Non-Utility Nuclear from $145 million for the second quarter of 2005 to $155 million for the second quarter of 2006 primarily due to higher refueling outage expenses.
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.
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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 second quarters of 2006 and 2005 were 31.0% and 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 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 book 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:
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| Non-Utility |
| Parent & Other |
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(In Thousands) | ||||||||
2005 Consolidated Net Income |
| $313,286 |
| $136,242 |
| $21,399 | $470,927 | |
Net revenue (operating revenue less fuel |
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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.
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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.
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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 costsreduced production as a result of special rate contracts. The increase was partially offset by the Entergy Arkansas energy cost recovery true-up madea refueling outage 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 GWh2007. There were no refueling outages 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 recoveryfirst quarter 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.
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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, 2006first quarters of 2007 and 2005:2006:
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| 2006 |
| 2005 |
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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% |
| 2007 |
| 2006 | |
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Net MW in operation at March 31 |
| 4,200 |
| 4,135 |
Average realized price per MWh |
| $55.11 |
| $44.28 |
GWh billed |
| 8,315 |
| 8,763 |
Capacity factor |
| 90.5% |
| 97.1% |
Parent & Other
Net revenue increaseddecreased for Parent & Other primarily due to lower production as a result of an additional plant outage in the $14.1 million gain ($8.6 million net-of-tax) realized onfirst quarter 2007 compared to the sale of the non-nuclear wholesale asset business' remaining interestsame period in a power development project.2006.
Other Operation and Maintenance Expenses
Utility
Other operation and maintenance expenses increased from $359 million for the Utility from $750first quarter of 2006 to $385 million in 2005 to $761 million in 2006for the first quarter of 2007 primarily due to the following:to:
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.
Parent & Other
Other operation and maintenance expenses increaseddecreased from $20 million for Non-Utility Nuclear from $288the first quarter of 2006 to $9 million in 2005 to $306 million in 2006for the first quarter of 2007 primarily due to higher refueling outage expenses.restoration expenses at the Harrison County plant incurred in the first quarter of 2006.
Other Income
Other incomeUtility
Depreciation and amortization expenses increased from $186 million for the Utility from $59first quarter of 2006 to $203 million in 2005 to $79 million in 2006for the first quarter of 2007 primarily due to an increase in interest income recorded on the deferred fuel costs balance. plant in service.
Other income decreasedincreased from $43 million for Non-Utility Nuclear from $48the first quarter of 2006 to $53 million in 2005 to $33 million in 2006for the first quarter of 2007 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.carrying charges on storm costs.
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.
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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,first quarters of 2007 and 2006 were 39.9% and 2005 were 33.5% and 33.9%36.8%, 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%35% for the first quarter of 2007 is primarily due to the recognition of anbook and tax timing differences for utility plant items and state income tax benefit related to ANO 1 steam generator removal cost and the favorable resolution of a tax audit issue,taxes, 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. These factors were partially offset by state income taxes and book and tax differences on utility plant items.related to the allowance for equity funds used during construction and the amortization of investment tax credits.
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.
Debtor-in-Possession Credit Facility
See the Form 10-K for 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 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 bankruptcy court to authorize Entergy New Orleans to enter into the amendment, which is set for hearing August 16, 2006.8
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 from 2006 to 2007 is the result of additional borrowings under Entergy Corporation's revolving credit facilities, along with a decrease in shareholders' equity primarily due to repurchases of common stock.
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| December 31, |
| March 31, |
| December 31, |
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Net debt to net capital |
| 50.3% |
| 51.5% |
| 51.8% |
| 49.4% |
Effect of subtracting cash from debt |
| 2.1% |
| 1.6% |
| 2.9% |
| 2.9% |
Debt to capital |
| 52.4% |
| 53.1% |
| 54.7% |
| 52.3% |
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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, 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.
As discussed in the Form 10-K, Entergy Corporation has in place two separate revolving credit facilities, a five-year credit facility and a three-year credit facility. The five-year credit facility expires in May 2010 and the three-year facility expires in December 2008. Entergy canCorporation also has the ability to issue letters of credit against the total borrowing capacity of both the three-year and the five-year credit facilities. Following is a summary of the borrowings outstanding and capacity available under these facilities as of June 30, 2006:March 31, 2007:
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| Letters | Capacity | ||||
(In Millions) | ||||||||
5-Year Facility | $2,000 | $805 | $144 | $1,051 | ||||
3-Year Facility | $1,500 | $- | $- | $1,500 |
Entergy Arkansas, Entergy Gulf States, and Entergy Mississippi each have credit facilities available as of June 30, 2006 as follows:
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5-Year Facility | $2,000 | $895 | $79 | $1,026 | ||||
3-Year Facility | $1,500 | $540 | $- | $960 |
See Note 4 to the consolidated financial statements for additional discussion of Entergy's credit facilities.facilities, and see Part II, Item 5 for an update of the borrowings outstanding as of May 8, 2007.
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 planned construction and other capital investments by operating segment for 20062007 through 2008. Following is an update to that discussion:2009.
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decommissioned Big Rock Point nuclear plant, which is located near Charlevoix, Michigan. Management
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In April 2007, Entergy Louisiana announced that it plans to pursue the self-build solid fuel repowering of a 538MW unit at its Little Gypsy plant. Petroleum coke will be the unit's primary fuel source. Entergy Louisiana expects to closespend $1.02 billion on the transactionproject, and expects the project to be completed in 2011-2012.The planned capital investment estimate in the first quarter 2007, pendingForm 10-K included the approvalscapital required for a project of this type.
Debtor-in-Possession Credit Agreement
See the Form 10-K for a discussion of the NRC,Entergy New Orleans debtor-in-possession (DIP) credit facility between Entergy New Orleans as borrower and Entergy Corporation as lender. As of March 31, 2007, Entergy New Orleans had $42 million of outstanding borrowings under the FERC,DIP credit agreement. During April 2007, at the Michigan Public Service Commission,same time that it made a scheduled pension plan contribution, Entergy New Orleans borrowed under the DIP credit agreement, and other regulatory agencies.on May 8, 2007 had $67 million of outstanding borrowings under the DIP credit agreement.
Cash Flow Activity
As shown in Entergy's Statements of Cash Flows, cash flows for the sixthree months ended June 30,March 31, 2007 and 2006 and 2005 were as follows:
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| 2006 |
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Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period |
| $583 |
| $620 | Cash and cash equivalents at beginning of period |
| $1,016 |
| $583 |
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Effect of deconsolidating Entergy New Orleans in 2005 | - | (8) | ||||||||
Cash flow provided by (used in): | Cash flow provided by (used in): |
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| Cash flow provided by (used in): |
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| Operating activities |
| 1,480 |
| 773 | Operating activities |
| 476 |
| 1,012 |
| Investing activities |
| (1,054) |
| (674) | Investing activities |
| (253) |
| (859) |
| Financing activities |
| (279) |
| (104) | Financing activities |
| (159) |
| 16 |
Effect of exchange rates on cash and cash equivalents | (1) | - | ||||||||
Net increase (decrease) in cash and cash equivalents |
| 146 |
| (5) | ||||||
Net increase in cash and cash equivalents | Net increase in cash and cash equivalents |
| 64 |
| 169 | |||||
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Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $729 |
| $607 | Cash and cash equivalents at end of period |
| $1,080 |
| $752 |
Operating Activities
Entergy's cash flow provided by operating activities increaseddecreased by $707$536 million for the sixthree months ended June 30, 2006March 31, 2007 compared to the sixthree months ended June 30, 2005 primarily due to the following activity:March 31, 2006. Following are cash flows from operating activities by segment:
Entergy Corporation received a $344 million income tax refund in 2006. The income tax refund was received by Entergy Corporation (including $71 million attributable to Entergy New Orleans) as a result of net operating loss carrybackcarry back provisions contained in the Gulf Opportunity Zone Act of 2005, as discussed in the Form 10-K.2005. In accordance with Entergy's intercompany tax allocation agreement, $273 million of the refund was distributed to the Utility (including Entergy New Orleans)business in April 2006, with most of the remainder distributed primarily to Non-Utility Nuclear.
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Investing Activities
Net cash used in investing activities increaseddecreased by $380$606 million for the sixthree months ended June 30, 2006March 31, 2007 compared to the sixthree months ended June 30, 2005March 31, 2006 primarily due to the following activity:
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The increase was partially offset by:
Financing Activities
Net
Financing activities used $159 million of cash used in financing activities increased by $175 million for the sixthree months ended June 30, 2006March 31, 2007 compared to providing $16 million of cash for the sixthree months ended June 30, 2005. Following is a description ofMarch 31, 2006 primarily due to the significant financing activity occurring during the first six months of 2006 and 2005:following activity:
This activity was offset by Entergy Corporation increasing the net borrowings onunder its credit facilities by $615 million in the first quarter 2007, compared to increasing the net borrowings under its credit facilities by $20 million duringin the six months ended June 30, 2006 compared to $585 million during the six months ended June 30, 2005.first quarter 2006. See Note 4 to the consolidated financial statements for a description of the Entergy Corporation credit facilities.
See Note 4 to the consolidated financial statements for the details of long-term debt activity in the 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, and market and credit risks, utility restructuring, and nuclear matters.risk sensitive instruments. Following are updates to the information provided in the Form 10-K.
State and Local Rate Regulation
See the Form 10-K for thea 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
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.
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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 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 which a $37.8 million revenue increase was in place.
In May 2006, Entergy Gulf States made its formula rate plan filing with the LPSC for the 2005 test year. The filing shows that 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 $7.1 million rate increase is required to recover LPSC-approved incremental
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deferred and ongoing capacity requirements. The filing is subject to 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 Gulf States -Texas
As discussed in Note 2 to the consolidated financial statements herein for updates to the proceedings 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 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 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 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
In March 2006, Entergy Mississippi made its annual scheduled formula rate plan filing with the MPSC. The filing was amended by an April 2006 filing. The amended filing showed that an increase of $3.1 million in electric revenues is warranted. The MPSC has approved a settlement providing for a $1.8 million rate increase, which will be implemented in August 2006.
Entergy New Orleans
In June 2006, Entergy New Orleans made its annual 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 the City Council's June 2006 decision to allow recovery of 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 million in electric base rate revenues (an increase of 4.4%) and $22.8 million in gas base rate revenues (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 the first billing cycle of November 2006.
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 additional 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 plans, which would allow implementation as soon as the first billing cycle of November 2006.chart.
Federal Regulation
System Agreement Litigation
See the Form 10-K for a discussion of the federal regulatory proceedings. Following are updates to that discussion.
System Agreement litigation proceedings atProceedings
During March and April 2007, the FERC. In April 2006, Entergy filedUtility operating companies made four separate filings with the FERC its compliance filing to implement the provisions of the FERC's decision. The filing amends the System Agreement to provide for the calculation of production costs, average production costs, and payments/receipts among the domestic utility companiesproposing modifications to the extent requiredformula used to maintaincalculate the rough production cost equalization pursuantpayments/receipts. The proposed modifications will (1) continue to reflect in the FERC's decision,calculation the results of the Utility operating companies' gas hedging program for boiler fuel; (2) confirm the allocation of an individual Utility operating company's bandwidth payment/receipt to its wholesale loads, if any, and makes clearestablish the allocation between retail jurisdictions in the case of Entergy Louisiana and Entergy Gulf States that all payments/receipts will be classified as energy costs. The payments/receipts would be based on calendar year 2006 productionprovide retail service to customers in two separate jurisdictions; (3) modify the basis for functionalizing certain categories of costs with any payments/receipts among the domestic utilityUtility operating companies to be made in twelve equal monthly installments, commencing in June 2007.
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). Amongconsistent with 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, orservice schedules in the alternativeSystem Agreement; and (4) properly reflect in the calculation property under capital lease. The Utility operating comp anies have requested that all four
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filings be allowed 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,become effective no later than May 29, 2007 so that a utility company couldthey can be required to make a payment based on a previous year's production costs even if such utilit y company has exitedreflected in 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 bandwidthfirst payments/receipts. The domestic utility companies responded toAPSC, LPSC, MPSC, City Council, and the issues raisedAEEC have each intervened and in some instances protested one or more of these four filings. Separately, on April 3, 2007, 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 filedcomplaint with the FERC in which it seeks to have the FERC order the following modifications to the rough production costs equalization calculation: (1) elimination of interruptible loads from the methodology used to allocate demand-related capacity costs; and (2) change of the method used to re-price energy from the Vidalia hydroelectric project for purposes of calculating production cost disparities. Entergy has filed an intervention and protest in this proceeding.
In conjunction with the recent application of Entergy Gulf States and Calcasieu Power, LLC seeking FERC approval of Entergy Gulf States' acquisition of the Calcasieu Generating Facility, the Utility operating companies filed a MotionPetition for Summary Disposition on the same issuesDeclaratory Order requesting that the LPSC had raisedFERC find either (1) that in its proteststhose circumstances where a resource to be acquired or constructed has been determined by Entergy's Operating Committee to be a resource devoted to serving Entergy System load and has been approved by the compliance filing. The domestic utility companies filed an answer urgingapplicable retail regulator, the FERC to rejectcost of such resource shall be reflected in the LPSC's Motion for Summary Disposition and asking the FERC for summary disposition of several issues in favorproduction cost disparity calculation; or (2) that Entergy Gulf States' acquisition of the domestic utility companies' positions.Calcasieu facility is prudent and the costs are properly reflected in the production cost disparity calculation. The APSC, LPSC, MPSC, City Council, NRG, Occidental, LEUG, AEEC, and EPSA have intervened in the proceeding, with the APSC, LPSC, and City Council filing protests.
The FERC's decision inOn April 3, 2007, the System Agreement proceeding is currently pending before the United StatesU.S. Court of Appeals for the D.C. Circuit. The partiesCircuit issued its opinion in the LPSC's appeal of the FERC's March 2004 and April 2005 orders related to the proceeding reached agreement on a proposed briefing schedule that would result intreatment under 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 costsSystem Agreement of the domestic utilityUtility operating companies' interruptible loads. In its opinion, the D.C. Circuit concluded that the FERC (1) acted arbitrarily and capriciously by allowing the Utility operating 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 more thanphase-in the Entergy System average production cost, 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, as amended by its December 2005 order on rehearing, has been calculated on the basis of a 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 June 2006 price is the Firstelimination of the Month 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 asinterruptible load over a 12-month period 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 for the August 2006 contract for each trading day from the period 5/2/06 - - 5/31/06 inclusive. A similar calculation is made using the daily settlements of the September 2006 through December 2006 NYMEX contractstime; (2) failed to arrive at those monthly prices. This resulted in an average annual gas price of $7.49/mmBtu. If the FERC's June 2005 order, as amended by its December 2005 order on rehearing, becomes final and if an annual average gas price of $7.49/ mmBtu occurs for 2006 as assumed, the following potential annual production cost reallocation among the domestic utility companiesadequately explain why refunds could result:
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In calculating the production costs for this purposenot be ordered 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 Entergy 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 207Section 206(c) of the Federal Power Act.Act; and (3) exercised appropriately its discretion to defer addressing the cost of sulfur dioxide allowances until a later time. The APSC states that "The purpose ofD.C. Circuit remanded the complaint ismatter 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, withfor a refund effective date to be set atmore considered determination on the earliest possible time. Specific areasissue 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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refunds.
On July 31, 2006, the domestic utility companies submitted their answer to the APSC complaint. In their answer, the domestic utility companies acknowledge that whileApril 27, 2007, the FERC isdenied the appropriate forumrequests for rehearing filed regarding the Utility operating companies' compliance filing to considerimplement 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 has acted prudently. As further indicated in the domestic utility companies' answer, following the issuance of the FERC's System Agreement decision, allwith one exception regarding the issue of the production costs of the domestic utility companies are now inputs to a formula rate that will result in bandwidth payments among the domestic utility companies in order to roughly equalize production costs. Based on well-established Supreme Court precedent, the FERC has exclusive jurisdiction over all inputs thatretrospective refunds. That issue will be includedaddressed subsequent to the remanded proceeding involving the interruptible load decision discussed in the System Agreement bandwidth formula rates filed in compliance with the FERC's System Agreement decision and retail regulators are preempted from taking any action that disturbs the FERC's findings with respect to these production cost inputs and the FERC-determined allocation of production costs among the domestic utility companies. The domestic utility companies believe that their conduct with respect to these issues has been prudent and will vigorously defend such conduct.
Several parties have intervened in the proceeding, including the MPSC, the LPSC, and the City Council. The LPSC's answer and comments in response to the APSC Complaint ask the FERC to 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 benefits 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 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 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 describe actions taken since December 19, 2005 to encourage or persuade the FERC to authorize Entergy Arkansas to exit the Entergy System Agreement sooner than 96 months, and to describe current and future actions related to development of a replacement system agreement. Responsive testimony was filed with the APSC in 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.previous paragraph.
Independent Coordinator of Transmission (ICT)
InAs discussed in the Form 10-K, in the FERC's April 2006 the FERC issued an order approving with modification Entergy's ICT proposal, filed in May 2005. In its order, the FERC: (1) approvedFERC stated that the establishment of the ICT, 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 rehearing of the FERC order, and those requests are still pending.
The proposed modifications include, among other things: (1) Entergy must file with the FERC the criteria used to grant and deny transmission service, including calculating available flowgate capacity; (2) the FERC extended the initial term of the ICT from two years to four years; and Entergy is precluded from terminating the ICT prior to the end 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 process and models under the direction of the ICT; (4) with regard to any dispute between the ICT and Entergy concerning transmission service requests, transmission planning, and interconnection requests, the ICT's position will prevail during the pendency of the dispute resolution; and (5) the WPP must be operational within approximately 14 months of the FERC order, or June 24, 2007, or the FERC may reevaluate all approvals to proceed with the ICT.
The Utility operating companies have been working with the ICT and a software vendor to develop the software and systems necessary to implement the WPP and currently expect that the WPP will commence operations on June 18, 2007. The software and systems are still being developed and tested, however. Entergy made its compliance filingwill notify the FERC as soon as practicable if it and the ICT determine that the June 24, 2007 deadline for implementing the WPP cannot be met. The Utility operating companies also filed with the FERC on April 24, 2007 a request to make certain corrections and limited modifications to the current WPP tariff provisions and requested that the F ERC allow these proposed changes to go into effect no later than June 18, 2007. Additionally, Entergy Gulf States and Entergy Louisiana are required to file with the LPSC a compliance filing for review of the model to be used in the WPP prior to receiving final approval for implementation of the WPP. The Utility operating companies currently expect to submit the required compliance filing during May 24, 2006, including2007.
Available Flowgate Capacity (AFC) Proceeding
In accordance with the executed ICT agreement with SPP. Entergy informedprovisions of the FERC that, assuming it has received all required approvals, Entergy intends to install SPP asorder approving the ICT, within 30 daysduring the first quarter 2007 the Utility operating companies notified the FERC, the ICT, and the stakeholders that certain instances had been identified in which software errors related to the AFC process had resulted in the reporting of FERC approvalinaccurate data. Following the reporting of the initial errors, certain market participants urged the FERC to move forward with
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the AFC hearing process in light of those errors. In April 2007, the FERC issued an order terminating the AFC hearing, now that Entergy's ICT agreement. Several parties have filed protests regarding Entergy's compliance filing, and considerationhas been installed. Requests for rehearing of Entergy's compliance filing is pending at the FERC.
The LPSC voted to approveFERC order canceling the ICT proposalAFC hearing are due in July 2006.May 2007.
Market and Credit RisksRisk Sensitive Instruments
Commodity Price Risk
Power Generation
As discussed more fully in the Form 10-K, the 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 fluctuationvariability of market power prices. Following is an updated summary of the amount of the Non-Utility Nuclear business' output that is sold forward as of March 31, 2007 under physical or financial contracts (2006(2007 represents the remaining twothree quarters of the year):
2006 | 2007 | 2008 | 2009 | 2010 | 2007 | 2008 | 2009 | 2010 | 2011 | |||||||||||||
Non-Utility Nuclear: | ||||||||||||||||||||||
Non-Utility Nuclear (including Palisades acquisition): | Non-Utility Nuclear (including Palisades acquisition): | |||||||||||||||||||||
Percent of planned generation sold forward: | Percent of planned generation sold forward: | Percent of planned generation sold forward: | ||||||||||||||||||||
Unit-contingent | 34% | 39% | 34% | 25% | 12% | Unit-contingent | 44% | 48% | 38% | 25% | 23% | |||||||||||
Unit-contingent with guarantee of availability (1) | 53% | 47% | 32% | 13% | 5% | Unit-contingent with availability guarantees (1) | 45% | 36% | 28% | 22% | 7% | |||||||||||
Firm liquidated damages | 4% | 8% | 0% | 0% | 0% | Firm liquidated damages | 6% | 4% | 0% | 0% | 0% | |||||||||||
Total | 91% | 94% | 66% | 38% | 17% | Total | 95% | 88% | 66% | 47% | 30% | |||||||||||
Planned generation (TWh) | Planned generation (TWh) | 17 | 34 | 34 | 35 | 34 | Planned generation (TWh) | 30 | 41 | 41 | 41 | 42 | ||||||||||
Average contracted price per MWh | Average contracted price per MWh | $41 | $49 | $53 | $58 | $46 | Average contracted price per MWh | $48 | $54 | $57 | $53 | $47 |
(1) | A sale of power on a unit contingent basis coupled with a guarantee of availability provides for the payment to the power purchaser of contract damages, if incurred, in the event the seller fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold. All of Entergy's outstanding guarantees of availability provide for dollar limits on Entergy's maximum liability under such guarantees. |
The Vermont Yankee acquisition included a 10-year PPA under which the former owners will buy the power produced by the plant through the expiration in 2012 of the current operating license for the payment toplant. The PPA includes an adjustment clause under which the power purchaser of contract damages, if incurred,prices specified in the eventPPA will be adjusted downward monthly if power market prices drop below PPA prices, which has not happened thus far and is not expected in the seller fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold. All of Entergy's outstanding guarantees of availability provide for dollar limits on Entergy's maximum liability under such guarantees.
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 plantsplants. Non-Utility Nuclear calculated that nothing was owed to NYPA under the value sharing agreements for 2005. On November 1, 2006, NYPA filed a demand for arbitration claiming that $90.5 million was due to NYPA under these agreements for 2005. Non-Utility Nuclear filed a motion in New York state court to determine whether NYPA's claim should be decided by a court as opposed to an arbitrator. In February 2007, the court issued an order denying Non-Utility Nuclear's request, and a discussionNYPA's claim is now in binding arbitration. Non-Utility Nuclear has also calculated that nothing was owed to NYPA under the value sharing agreements for 2006. On April 24, 2007, NYPA filed an amended demand for arbitration claiming that an additional $54 million was due to NYPA under the value sharing agreements for 2006. With respect to bot h of these claims, Non-Utility Nuclear disagrees with NYPA's interpretation of the Vermont Yankee PPA price adjustment clause.value sharing agreements, believes it has meritorious defenses to NYPA's claims, and intends to defend against those claims vigorously.
Some of the agreements to sell the power produced by Entergy's Non-Utility Nuclear power plants contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations under the agreements. The Entergy subsidiary will beis required to provide collateral based upon the difference between the current market and contracted power prices in the regions where Non-Utility Nuclear sells power. The primary form of
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collateral to satisfy these requirements would beis an Entergy Corporation guaranty. Cash and letters of credit are also acceptable
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forms of collateral. At June 30, 2006,March 31, 2007, based on power prices at that time, Entergy had in place as collateral $1,275$797 million of Entergy Corporation guarantees for wholesale transactions, including $100$73 million of guarantees that support letters of credit. The assurance requirement associated with Non-Utility Nuclear is estimated to increase by an amount of up to $445$297 million if gas prices increase $1 per MMBtu in both the short- and long-term markets. In the event of a decrease in Entergy Corporation's credit rating to below investment grade, Entergy will be required to replace Entergy Corporation guarantees with cash or letters of credit under some of the agreements.
In 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 the amount of the Non-Utility Nuclear business' installed capacity that is currently sold forward, and the blended amount of the Non-Utility Nuclear business' planned generation output and installed capacity that is currently sold forward (2006as of March 31, 2007 (2007 represents the remaining twothree quarters of the year):
2006 | 2007 | 2008 | 2009 | 2010 | 2007 | 2008 | 2009 | 2010 | 2011 | |||||||||||||
Non-Utility Nuclear: | ||||||||||||||||||||||
Non-Utility Nuclear (including Palisades acquisition): | Non-Utility Nuclear (including Palisades acquisition): | |||||||||||||||||||||
Percent of capacity sold forward: | Percent of capacity sold forward: | Percent of capacity sold forward: | ||||||||||||||||||||
Bundled capacity and energy contracts | 13% | 12% | 12% | 12% | 12% | Bundled capacity and energy contracts | 23% | 27% | 27% | 27% | 26% | |||||||||||
Capacity contracts | 77% | 48% | 36% | 24% | 3% | Capacity contracts | 63% | 39% | 26% | 9% | 3% | |||||||||||
Total | 90% | 60% | 48% | 36% | 15% | Total | 86% | 66% | 53% | 36% | 29% | |||||||||||
Planned net MW in operation | Planned net MW in operation | 4,200 | 4,200 | 4,200 | 4,200 | 4,200 | Planned net MW in operation | 4,998 | 4,998 | 4,998 | 4,998 | 4,998 | ||||||||||
Average capacity contract price per kW per month | Average capacity contract price per kW per month | $1.1 | $1.1 | $1.1 | $1.0 | $0.9 | Average capacity contract price per kW per month | $1.7 | $1.4 | $1.3 | $1.7 | $2.0 | ||||||||||
Blended Capacity and Energy (based on revenues) | Blended Capacity and Energy (based on revenues) | Blended Capacity and Energy (based on revenues) | ||||||||||||||||||||
% of planned generation and capacity sold forward | % of planned generation and capacity sold forward | 86% | 88% | 57% | 33% | 11% | % of planned generation and capacity sold forward | 92% | 83% | 60% | 39% | 22% | ||||||||||
Average contract revenue per MWh | Average contract revenue per MWh | $42 | $50 | $53 | $59 | $46 | Average contract revenue per MWh | $49 | $54 | $58 | $54 | $47 |
As of March 31, 2007, approximately 98% of Non-Utility Nuclear's counterparty exposure from energy and capacity contracts is with counterparties with investment grade credit ratings.
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. Following is an update to that discussion.
Unbilled Revenue
As 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 IssuedNew Accounting Pronouncements
The FASB Interpretationissued Statement of Financial Accounting Standards No. 48, "Accounting159, "The Fair Value Option for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006Financial Assets and is effective for Entergy inFinancial Liabilities" (SFAS 159) during the first quarter of 2007. SFAS 159 provides an option for companies to select certain financial assets and liabilities to be accounted for at fair value with changes in the fair value of those assets or liabilities being reported through earnings. The FASB's objective in issuing this interpretationintent of the standard is to increase comparability amongmitigate volatility in reported earnings caused by the application of the more complicated fair value hedging accounting rules. Under SFAS 159, companies in financial reportingcan select existing assets or liabilities for this fair value option concurrent with the effective date of income taxes. FIN 48 establishes a "more-likely-than-not" recognition threshold that must be met before a tax benefitJanuary 1, 2008 for companies with fiscal years ending December 31 or can be recognizedselect future assets or liabilities as they are acquired or entered into. Entergy is in the financial statements. Ifprocess of evaluating the potential effect of making this accounting election.
In June 2006, the EITF reached a consensus on EITF Issue 06-3 "How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)" (EITF 06-3). The scope of this issue includes any tax deductionassessed by a governmental authority that is takenboth imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer, and may include, but is not limited to, sales, use, value added, and some excise taxes. Under EITF 06-3, the presentation of taxes within the scope of this issue on either a gross basis (included in revenues and costs) or a net basis (excluded from revenues) basis is an
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accounting policy decision that should be disclosed. For any such taxes reported on a tax return, but doesgross basis, the amounts of those taxes in interim and annual financial statements, for each period for which an income statement is presented, should be disclosed if those amounts are significant. Entergy's policy is to present such taxes on a net basis. EITF 06-3 did 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. Entergy does not expect that the adoption of FIN 48 will materially affect itsEntergy's financial position, results of operations, or cash flows.statements.
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ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED STATEMENTS OF INCOME | ||||
For the Three Months Ended March 31, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands, Except Share Data) | ||||
OPERATING REVENUES | ||||
Electric | $2,064,653 | $2,092,933 | ||
Natural gas | 37,928 | 37,415 | ||
Competitive businesses | 497,649 | 437,683 | ||
TOTAL | 2,600,230 | 2,568,031 | ||
OPERATING EXPENSES | ||||
Operating and Maintenance: | ||||
Fuel, fuel-related expenses, and | ||||
gas purchased for resale | 709,981 | 840,171 | ||
Purchased power | 477,753 | 461,370 | ||
Nuclear refueling outage expenses | 42,975 | 41,993 | ||
Other operation and maintenance | 540,969 | 529,430 | ||
Decommissioning | 37,785 | 35,596 | ||
Taxes other than income taxes | 112,909 | 103,338 | ||
Depreciation and amortization | 224,331 | 205,388 | ||
Other regulatory charges (credits) - net | 22,507 | (44,018) | ||
TOTAL | 2,169,210 | 2,173,268 | ||
OPERATING INCOME | 431,020 | 394,763 | ||
OTHER INCOME | ||||
Allowance for equity funds used during construction | 16,067 | 15,459 | ||
Interest and dividend income | 57,768 | 43,831 | ||
Equity in earnings of unconsolidated equity affiliates | 4,534 | 3,586 | ||
Miscellaneous - net | (5,141) | (6,207) | ||
TOTAL | 73,228 | 56,669 | ||
INTEREST AND OTHER CHARGES | ||||
Interest on long-term debt | 119,854 | 120,481 | ||
Other interest - net | 31,297 | 17,261 | ||
Allowance for borrowed funds used during construction | (9,631) | (9,045) | ||
Preferred dividend requirements and other | 5,980 | 8,038 | ||
TOTAL | 147,500 | 136,735 | ||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 356,748 | 314,697 | ||
Income taxes | 144,553 | 118,830 | ||
INCOME FROM CONTINUING OPERATIONS | 212,195 | 195,867 | ||
LOSS FROM DISCONTINUED OPERATIONS (net of income tax | ||||
benefit of ($1,204)) | - | (2,239) | ||
CONSOLIDATED NET INCOME | $212,195 | $193,628 | ||
Basic earnings (loss) per average common share: | ||||
Continuing operations | $1.06 | $0.94 | ||
Discontinued operations | - | ($0.01) | ||
Basic earnings per average common share | $1.06 | $0.93 | ||
Diluted earnings (loss) per average common share: | ||||
Continuing operations | $1.03 | $0.93 | ||
Discontinued operations | - | ($0.01) | ||
Diluted earnings per average common share | $1.03 | $0.92 | ||
Dividends declared per common share | $0.54 | $0.54 | ||
Basic average number of common shares outstanding | 200,549,935 | 207,732,341 | ||
Diluted average number of common shares outstanding | 206,133,440 | 211,374,512 | ||
See Notes to Financial Statements. |
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ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
For the Three Months Ended March 31, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Consolidated net income | $212,195 | $193,628 | ||
Adjustments to reconcile consolidated net income to net cash flow | ||||
provided by operating activities: | ||||
Reserve for regulatory adjustments | 10,931 | 42,162 | ||
Other regulatory charges (credits) - net | 22,507 | (44,018) | ||
Depreciation, amortization, and decommissioning | 262,117 | 241,807 | ||
Deferred income taxes, investment tax credits, and non-current taxes accrued | 368,709 | 370,774 | ||
Equity in earnings of unconsolidated equity affiliates - net of dividends | (4,534) | (1,412) | ||
Changes in working capital: | ||||
Receivables | 63,874 | 328,019 | ||
Fuel inventory | (4,648) | (28,607) | ||
Accounts payable | (288,421) | (256,420) | ||
Taxes accrued | (187,324) | 35,968 | ||
Interest accrued | (20,827) | (16,861) | ||
Deferred fuel | 151,853 | 199,619 | ||
Other working capital accounts | (110,493) | 140,795 | ||
Provision for estimated losses and reserves | (15,918) | 15,029 | ||
Changes in other regulatory assets | 68,790 | (75,674) | ||
Other | (52,702) | (132,294) | ||
Net cash flow provided by operating activities | 476,109 | 1,012,515 | ||
INVESTING ACTIVITIES | ||||
Construction/capital expenditures | (284,731) | (664,178) | ||
Allowance for equity funds used during construction | 16,067 | 15,459 | ||
Nuclear fuel purchases | (184,806) | (91,027) | ||
Proceeds from sale/leaseback of nuclear fuel | 114,486 | 8,827 | ||
Proceeds from sale of assets and businesses | 2,617 | - | ||
Payment for purchase of plant | - | (88,199) | ||
Decrease in other investments | 113,027 | 12,340 | ||
Proceeds from nuclear decommissioning trust fund sales | 160,007 | 283,874 | ||
Investment in nuclear decommissioning trust funds | (189,536) | (312,417) | ||
Other regulatory investments | - | (23,448) | ||
Net cash flow used in investing activities | (252,869) | (858,769) | ||
See Notes to Financial Statements. | ||||
18 | ||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
For the Three Months Ended March 31, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of: | ||||
Long-term debt | 820,016 | 748,584 | ||
Preferred stock | - | 73,354 | ||
Common stock and treasury stock | 30,889 | 11,805 | ||
Retirement of long-term debt | (334,873) | (655,649) | ||
Repurchase of common stock | (558,186) | - | ||
Redemption of preferred stock | (2,250) | (2,250) | ||
Changes in credit line borrowings - net | - | (40,000) | ||
Dividends paid: | ||||
Common stock | (108,967) | (112,190) | ||
Preferred stock | (5,987) | (7,661) | ||
Net cash flow provided by (used in) financing activities | (159,358) | 15,993 | ||
Effect of exchange rates on cash and cash equivalents | (11) | (173) | ||
Net increase in cash and cash equivalents | 63,871 | 169,566 | ||
Cash and cash equivalents at beginning of period | 1,016,152 | 582,820 | ||
Cash and cash equivalents at end of period | $1,080,023 | $752,386 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid/(received) during the period for: | ||||
Interest - net of amount capitalized | $165,856 | $146,429 | ||
Income taxes | $31,433 | ($345,366) | ||
See Notes to Financial Statements. | ||||
19
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
ASSETS | ||||
March 31, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $113,975 | $117,379 | ||
Temporary cash investments - at cost, | ||||
which approximates market | 966,048 | 898,773 | ||
Total cash and cash equivalents | 1,080,023 | 1,016,152 | ||
Note receivable - Entergy New Orleans DIP loan | 42,026 | 51,934 | ||
Notes receivable | 614 | 699 | ||
Accounts receivable: | ||||
Customer | 405,416 | 410,512 | ||
Allowance for doubtful accounts | (19,386) | (19,348) | ||
Other | 446,710 | 487,264 | ||
Accrued unbilled revenues | 230,980 | 249,165 | ||
Total receivables | 1,063,720 | 1,127,593 | ||
Accumulated deferred income taxes | 19,533 | 11,680 | ||
Fuel inventory - at average cost | 197,746 | 193,098 | ||
Materials and supplies - at average cost | 616,893 | 604,998 | ||
Deferred nuclear refueling outage costs | 144,176 | 147,521 | ||
Prepayments and other | 131,377 | 171,759 | ||
TOTAL | 3,296,108 | 3,325,434 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 233,520 | 229,089 | ||
Decommissioning trust funds | 2,905,580 | 2,858,523 | ||
Non-utility property - at cost (less accumulated depreciation) | 210,285 | 212,726 | ||
Other | 41,777 | 47,115 | ||
TOTAL | 3,391,162 | 3,347,453 | ||
PROPERTY, PLANT AND EQUIPMENT | ||||
Electric | 30,950,535 | 30,713,284 | ||
Property under capital lease | 729,443 | 730,182 | ||
Natural gas | 94,785 | 92,787 | ||
Construction work in progress | 778,900 | 786,147 | ||
Nuclear fuel under capital lease | 222,203 | 269,485 | ||
Nuclear fuel | 646,191 | 561,291 | ||
TOTAL PROPERTY, PLANT AND EQUIPMENT | 33,422,057 | 33,153,176 | ||
Less - accumulated depreciation and amortization | 13,883,748 | 13,715,099 | ||
PROPERTY, PLANT AND EQUIPMENT - NET | 19,538,309 | 19,438,077 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 744,424 | 740,110 | ||
Other regulatory assets | 2,653,282 | 2,768,352 | ||
Deferred fuel costs | 168,122 | 168,122 | ||
Long-term receivables | 17,875 | 19,349 | ||
Goodwill | 377,172 | 377,172 | ||
Other | 960,388 | 898,662 | ||
TOTAL | 4,921,263 | 4,971,767 | ||
TOTAL ASSETS | $31,146,842 | $31,082,731 | ||
See Notes to Financial Statements. | ||||
20 | ||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
March 31, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Currently maturing long-term debt | $271,942 | $181,576 | ||
Notes payable | 25,039 | 25,039 | ||
Accounts payable | 812,018 | 1,122,596 | ||
Customer deposits | 256,753 | 248,031 | ||
Taxes accrued | - | 187,324 | ||
Interest accrued | 140,004 | 160,831 | ||
Deferred fuel costs | 224,883 | 73,031 | ||
Obligations under capital leases | 153,186 | 153,246 | ||
Pension and other postretirement liabilities | 33,726 | 41,912 | ||
Other | 170,902 | 271,544 | ||
TOTAL | 2,088,453 | 2,465,130 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 6,142,823 | 5,820,700 | ||
Accumulated deferred investment tax credits | 354,102 | 358,550 | ||
Obligations under capital leases | 218,118 | 188,033 | ||
Other regulatory liabilities | 506,016 | 449,237 | ||
Decommissioning and asset retirement cost liabilities | 2,058,544 | 2,023,846 | ||
Transition to competition | 79,098 | 79,098 | ||
Accumulated provisions | 91,286 | 88,902 | ||
Pension and other postretirement liabilities | 1,438,754 | 1,410,433 | ||
Long-term debt | 9,197,328 | 8,798,087 | ||
Preferred stock with sinking fund | 8,250 | 10,500 | ||
Other | 780,099 | 847,415 | ||
TOTAL | 20,874,418 | 20,074,801 | ||
Commitments and Contingencies | ||||
Preferred stock without sinking fund | 344,915 | 344,913 | ||
SHAREHOLDERS' EQUITY | ||||
Common stock, $.01 par value, authorized 500,000,000 | ||||
shares; issued 248,174,087 shares in 2007 and in 2006 | 2,482 | 2,482 | ||
Paid-in capital | 4,831,803 | 4,827,265 | ||
Retained earnings | 6,211,617 | 6,113,042 | ||
Accumulated other comprehensive loss | (54,560) | (100,512) | ||
Less - treasury stock, at cost (50,353,826 shares in 2007 and | ||||
45,506,311 shares in 2006) | 3,152,286 | 2,644,390 | ||
TOTAL | 7,839,056 | 8,197,887 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $31,146,842 | $31,082,731 | ||
See Notes to Financial Statements. | ||||
21
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||||
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL | ||||||||||
For the Three Months Ended March 31, 2007 and 2006 | ||||||||||
(Unaudited) | ||||||||||
2007 | 2006 | |||||||||
(In Thousands) | ||||||||||
RETAINED EARNINGS | ||||||||||
Retained Earnings - Beginning of period | $6,113,042 | $5,433,931 | ||||||||
Add: | ||||||||||
Consolidated net income | 212,195 | $212,195 | 193,628 | $193,628 | ||||||
Adjustment related to FIN 48 implementation | (4,600) | - | ||||||||
Total | 207,595 | 193,628 | ||||||||
Deduct: | ||||||||||
Dividends declared on common stock | 109,020 | 112,138 | ||||||||
Capital stock and other expenses | - | - | ||||||||
Total | 109,020 | 112,138 | ||||||||
Retained Earnings - End of period | $6,211,617 | $5,515,421 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE LOSS | ||||||||||
Balance at beginning of period: | ||||||||||
Accumulated derivative instrument fair value changes | ($105,578) | ($392,614) | ||||||||
Pension and other postretirement liabilities | (105,909) | - | ||||||||
Net unrealized investment gains | 104,551 | 67,923 | ||||||||
Foreign currency translation | 6,424 | 3,217 | ||||||||
Minimum pension liability | - | (22,345) | ||||||||
Total | (100,512) | (343,819) | ||||||||
Net derivative instrument fair value changes | ||||||||||
arising during the period (net of tax expense of $28,325 and $120,392) | 41,467 | 41,467 | 191,313 | 191,313 | ||||||
Pension and other postretirement liabilities (net of tax expense of $274) | 478 | 478 | - | - | ||||||
Net unrealized investment gains (net of tax expense of $2,790 and $2,314) | 3,996 | 3,996 | 3,327 | 3,327 | ||||||
Foreign currency translation (net of tax expense of $6 and $93) | 11 | 11 | 173 | 173 | ||||||
Balance at end of period: | ||||||||||
Accumulated derivative instrument fair value changes | (64,111) | (201,301) | ||||||||
Pension and other postretirement liabilities | (105,431) | - | ||||||||
Net unrealized investment gains | 108,547 | 71,250 | ||||||||
Foreign currency translation | 6,435 | 3,390 | ||||||||
Minimum pension liability | - | (22,345) | ||||||||
Total | ($54,560) | ($149,006) | ||||||||
Comprehensive Income | $258,147 | $388,441 | ||||||||
PAID-IN CAPITAL | ||||||||||
Paid-in Capital - Beginning of period | $4,827,265 | $4,817,637 | ||||||||
Add (Deduct): | ||||||||||
Common stock issuances related to stock plans | 4,538 | (1,600) | ||||||||
Paid-in Capital - End of period | $4,831,803 | $4,816,037 | ||||||||
See Notes to Financial Statements. |
22
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. | ||||||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three Months Ended March 31, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
Increase/ | ||||||||
Description | 2007 | 2006 | (Decrease) | % | ||||
(Dollars in Millions) | ||||||||
Utility Electric Operating Revenues: | ||||||||
Residential | $719 | $697 | $22 | 3 | ||||
Commercial | 518 | 541 | (23) | (4) | ||||
Industrial | 623 | 667 | (44) | (7) | ||||
Governmental | 37 | 40 | (3) | (8) | ||||
Total retail | 1,897 | 1,945 | (48) | (2) | ||||
Sales for resale | 131 | 175 | (44) | (25) | ||||
Other | 37 | (27) | 64 | 237 | ||||
Total | $2,065 | $2,093 | ($28) | (1) | ||||
Utility Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 7,558 | 6,917 | 641 | 9 | ||||
Commercial | 5,721 | 5,499 | 222 | 4 | ||||
Industrial | 9,186 | 9,042 | 144 | 2 | ||||
Governmental | 385 | 377 | 8 | 2 | ||||
Total retail | 22,850 | 21,835 | 1,015 | 5 | ||||
Sales for resale | 2,536 | 2,761 | (225) | (8) | ||||
Total | 25,386 | 24,596 | 790 | 3 | ||||
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 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 | ||||||||
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
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 insurance associated with Entergy's nuclear power plants. Following is an update to that information.
Property Insurance
In April 2007, the excess layer coverage for the Utility nuclear plants was increased to $750 million per occurrence per plant and the blanket layer coverage (shared among the plants) for the Utility nuclear plants was decreased to $350 million per occurrence.
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. BeginningFollowing is an update to that information.
Entergy has reached an agreement with one of its excess insurers under which Entergy will receive $69.5 million in June 2006,settlement of its Hurricane Katrina claim. Entergy expects that $53.7 million of this amount will be allocated to Entergy New Orleans. Entergy New Orleans submitted the aggregation limit for all parties insuredagreement to the bankruptcy court, which approved the agreement on April 25, 2007. Entergy expects to receive the proceeds under the settlement agreement by Oil Insurance Limited (OIL) for any one occurrence was reduced to $500 million. Mostthe end 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.May 2007.
Nuclear Decommissioning and Other Asset Retirement CostsNYPA Value Sharing Agreements
See Note 8 to the consolidated financial statements in the Form 10-K for information on nuclear decommissioningthe NYPA Value Sharing Agreements. Non-Utility Nuclear calculated that nothing was owed to NYPA under the value sharing agreements for 2005. On November 1, 2006, NYPA filed a demand for arbitration claiming that $90.5 million was due to NYPA under these agreements for 2005. Non-Utility Nuclear filed a motion in New York state court to determine whether NYPA's claim should be decided by a court as opposed to an arbitrator. In February 2007, the court issued an order denying Non-Utility Nuclear's request, and other retirement costs.NYPA's claim is now in binding arbitration. Non-Utility Nuclear has also calculated that nothing was owed to NYPA under the value sharing agreements for 2006. On April 24, 2007, NYPA filed an amended demand for arbitration claiming that an additional $54 million was due to NYPA under the value sharing agreements for 2006. With respect to both of these claims, Non-Utility Nuclear disagrees with NYPA's interpretation of the value sharing agreements, believes it has meritorious defenses to NYPA's claims, and intends to defend against those claims vigorously.
CashPoint Bankruptcy(Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
See Note 8 to the financial statements in the Form 10-K for information regarding the bankruptcy of CashPoint, which managed a network of payment agents for the Utility operating companies.
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Employment Litigation
Entergy Corporation and certain subsidiariesthe Registrant Subsidiaries are defendants in numerous lawsuits and other labor-related proceedings filed by former employees asserting that they were wrongfully terminated and/or discriminated against on the basis of age, race, sex, and/or other protected characteristics. The defendant companiesEntergy Corporation and these subsidiaries are vigorously defending these suits and deny any liability to the plaintiffs. Nevertheless, no assurance can be given as to the outcome of these cases.
Asbestos and Hazardous Material Litigation(Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
See Note 8 to the financial statements in the Form 10-K for information regarding asbestos and hazardous material litigation at Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans.
NOTE 2. RATE AND REGULATORY MATTERS
Storm Costs Recovery Filings with Retail RegulatorsRegulatory Assets
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 relatingOther Regulatory Assets
See Note 2 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)
30
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 discussedfinancial statements in the Form 10-K for information regarding regulatory assets 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 byUtility business reflected on the MPSCbalance sheets 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.Registrant Subsidiaries.
Deferred Fuel Costs
See Note 2 to the consolidated financial statements in the Form 10-K for information regarding fuel proceedings involving the domestic utilityUtility operating companies. Following are updates to that information.
Entergy Arkansas
In March 2006,2007, in order to allow further consideration by the APSC, the APSC granted Entergy Arkansas' petition for rehearing and for stay of the APSC's January 2007 order in the proceeding investigating Entergy Arkansas' interim energy cost rate.
In March 2007, Entergy Arkansas filed with the APSC its annual redetermination of the energy cost rate for application to the period April 20062007 through March 2007.2008. The filed energy cost rate of $0.02827 per decreased from $0.02827/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
31
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 $0.01179/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. (Texas)
In May 2006,March 2007, Entergy Gulf States filed with the PUCT a request to refund $78.5 million, including interest, of fuel and purchased power reconciliation case coveringcost recovery over-collections for the period September 2003 through December 2005 for costs recoverable through the Texas fixed fuel factor rate and the incremental purchased capacity recovery rider.January 2007. Entergy Gulf States requested that the proposed refund be made over a six-month period beginning June 2007; however, the refund period is reconciling $1.6 billionsubject to the PUCT's discretion.
25
Storm Cost Recovery Filings
See Note 2 to the financial statements in the Form 10-K for information regarding storm cost recovery filings involving the Utility operating companies. The following are updates to the Form 10-K.
Entergy Gulf States - Texas
In April 2007, the PUCT issued its financing order authorizing the issuance of fuelsecuritization bonds to recover $353 million of hurricane reconstruction costs and purchased powerup to $6 million of transaction costs, on a Texas retail basis. Hearings are scheduled for February 2007offset by $32 million of related deferred income tax benefits. Entergy Gulf States expects by mid-2007 to implement rates to recover revenues to pay the securitization bonds, and a PUCT decision is expected in Julyexpects to receive securitization funding by the end of the third quarter 2007.
32
Entergy Gulf States - Louisiana and Entergy Louisiana
In November 2005, the LPSC authorized its staff to initiate an expedited proceeding to audit the fuel and power procurement activities ofFebruary 2007, Entergy Louisiana and Entergy Gulf States for the period January 1, 2005 through October 31, 2005. In April 2006,filed rebuttal testimony and filed a second supplemental and amending application by which they seek authority from the LPSC acceptedto securitize their storm cost recovery and storm reserve amounts, together with certain debt retirement costs and upfront and ongoing costs of the LPSC Staff's audit report findingsecuritized debt issued. Securitization is authorized by a law signed by the Governor of Louisiana in May 2006. The filing updates actual storm-related costs through January 2007 and estimated future costs, declaring that Entergy Louisiana's costs are $561 million and Entergy Gulf States' costs are $219 million. The filing also updates the prices paidrequested storm reserve amounts, requesting $141 million for natural gas and purchased power were reasonable and that given the market conditions surrounding Hurricanes Katrina and Rita, Entergy Louisiana and $87 million for Entergy Gulf States. Hearings began in late-April 2007. At the start of the hearing, a stipulation among Entergy Gulf States, acted reasonablyEntergy Louisiana, the LPSC staff, and prudentlymost other parties in responsethe proceeding was read into the record. The stipulation quantifies the balance of storm restoration costs for recovery as $545 million for Entergy Louisiana and $187 million for Entergy Gulf States, and sets the storm reserve amounts at $152 million for Entergy Louisiana and $87 million for Entergy Gulf States. The stipulation also calls for securitization of the storm restoration costs and storm reserves in those same amounts. The LPSC has not issued a decision in the proceeding.
Entergy New Orleans
In March 2007, the City Council certified that Entergy New Orleans has incurred $205 million in storm-related costs through December 2006 that are eligible for CDBG funding under the state action plan, and certified Entergy New Orleans' estimated costs of $465 million for the gas system rebuild. In April 2007, Entergy New Orleans executed an agreement with the Louisiana Office of Community Development under which $200 million of CDBG funds will be made available to an extremely difficult environment.Entergy New Orleans. Entergy New Orleans submitted the agreement to the bankruptcy court, which approved it on April 25, 2007. Entergy New Orleans received $171.7 million of the funds on April 27, 2007, and the remainder will be paid to Entergy New Orleans as it incurs and submits additional eligible costs.
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 utilityUtility operating companies. The following are updates to the Form 10-K.
Filings with the PUCT and Texas CitiesAPSC (Entergy Arkansas)
As discussedIn March 2007, Entergy Arkansas filed rebuttal testimony in the Form 10-K,rate case that it filed in August 2005,2006. The rebuttal testimony requests an annual rate increase of $106.5 million, and retains a return on common equity (ROE) of 11.25%. A primary reason for the decline in the rate request from the original request of $150 million is the removal of the revenue requirement for the proposed acquisition of a load-following, combined cycle gas-fired generation resource, because Entergy Gulf States filedArkansas was not able to complete negotiations with the PUCTowner within the time requirements of the rate case. Also, in March 2007 and April 2007, the APSC staff and intervenors filed additional testimony. The APSC staff's filings indicate that an application for recoveryannual rate increase of its transition to competition costs.$2 million is warranted, with a proposed ROE of 9.9%. The APSC staff has also taken positions, which Entergy Gulf States requested recovery of $189 million
26
Arkansas opposes, regarding costs accumulated in transition to competitionthe storm reserve, FERC-allocated System Agreement cost allocation, and removal costs through implementationassociated with the termination 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 incurredlease that could have an adverse effect 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 partiesfuture financial results. An evidentiary hearing in the transition to competition cost recovery case. The agreement allows Entergy Gulf States to recover $14.5 million per yearrate case proceeding ended 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.early-May 2007.
Filings with the LPSC
Retail Rates - Electric
(Entergy Gulf States)
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 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 which a $37.8 million revenue increase was in place.
In May 2006, Entergy Gulf States made its formula rate plan filing with the LPSC for the 2005 test year. The filing shows that 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 $7.1 million rate increase is required to recover LPSC-approved incremental deferred and ongoing capacity requirements. The filing is subject to 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 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
33
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 Staff review, and rate changes associated with the formula rate plan are scheduled to take effect with the first billing cycle of September 2006.
Retail Rates - Gas (Entergy Gulf States)
In January 2006,2007, Entergy Gulf States filed with the LPSC its gas rate stabilization plan.plan for the test year ending September 30, 2006. The filing showed a revenue deficiency of $4.1$3.5 million based on an ROE mid-point of 10.5%. On May 1, 2006,In March 2007, Entergy Gulf States filed a set of rate and rider schedules that reflected all proposed LPSC staff adjustments and implemented a $3.5$2.4 million base rate increase effective with the first billing cycle of April 2007 pursuant to an uncontested agreement with the LPSC Staff.rate stabilization plan.
Filings with the MPSC (Entergy Mississippi)
In March 2006,2007, Entergy Mississippi made its annual scheduled formula rate plan filing for the 2006 test year with the MPSC. The filing was amended by an April 2006 filing. The amended filing showedshows that an increase of $3.1$12.9 million in annual electric revenues is warranted. The MPSC has approved a settlement providing for a $1.8 million rate increase, which will be implemented in August 2006.Mississippi Public Utilities Staff is reviewing the filing.
Electric Industry Restructuring
Filings withTexas (Entergy Gulf States)
Refer to Note 2 to the City Councilfinancial statements in the Form 10-K for the current Texas legislation and Entergy Gulf States' proposed transition to competition plan.
In JuneDecember 2006, Entergy New Orleans made its annual formula rate plan filings with the City Council. The filings show various alternativesPUCT asked for parties to reflectbrief the effecteffects of the 2005 legislation on the competition dockets of Entergy New Orleans' lost customers and decreased revenue. Entergy New Orleans' recommended alternative adjusts for lost customers and assumesGulf States, most notably, the settlement that the City Council's June 2006 decisionparties entered with respect to allow recoverythe unbundling of all GrandEntergy 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 (an increase of 4.4%) and $22.8 million in gas base rate revenues (an increase of 160.9%) are warranted. The filings triggered the prescribed four-month periodStates for review by the City Council's Advisors and other parties, and rate adjustments, if any, could be implemented as soon as the first billing cycle of November 2006.
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 additional 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 requestedretail open access. Finding that the City Council consider2005 legislation now provides the proposed riders withinmechanism by which Entergy Gulf States will transition to competition, the same time frame asPUCT, on February 1, 2007, dismissed Entergy Gulf States' unbundled cost of service proceeding. After analyzing the formula rate plans, which would allow implementation as soon as the first billing cycle of November 2006.PUCT's decision, Entergy Gulf States recorded a provision for its estimated exposure related to certain past fuel cost recoveries that may be credited to customers.
27
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:
34
|
| For the Three Months Ended June 30, | |||||||
|
| 2006 |
| 2005 | |||||
|
| (In Millions, Except Per Share Data) | |||||||
|
|
|
| $/share |
|
|
| $/share | |
Earnings applicable to common stock |
| $281.8 |
|
|
| $286.2 |
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Average number of common shares |
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Average dilutive effect of: |
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|
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| |
| Stock Options |
| 3.4 |
| (0.022) |
| 4.2 |
| (0.027) |
| Deferred Units |
| 0.2 |
| (0.001) |
| 0.2 |
| (0.001) |
Average number of common shares |
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| |
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| For the Six Months Ended June 30, |
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| For the Three Months Ended March 31, | ||||||||||||
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| 2006 |
| 2005 |
|
| 2007 |
| 2006 | ||||||||
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| (In Millions, Except Per Share Data) |
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| (In Millions, Except Per Share Data) | ||||||||||||
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| $/share |
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| $/share |
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| $/share |
|
|
| $/share |
Earnings applicable to common stock | Earnings applicable to common stock |
| $475.4 |
|
|
| $458.1 |
|
| Earnings applicable to common stock |
| $212.2 |
|
|
| $193.6 |
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Average number of common shares | Average number of common shares |
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| Average number of common shares |
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|
Average dilutive effect of: | Average dilutive effect of: |
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| Average dilutive effect of: |
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|
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|
| Stock Options |
| 3.4 |
| (0.037) |
| 4.3 |
| (0.042) | Stock Options |
| 4.8 |
| (0.025) |
| 3.5 |
| (0.015) |
| Deferred Units |
| 0.2 |
| (0.002) |
| 0.2 |
| (0.002) | Equity Units | 0.7 | (0.003) | - | - | ||||
| Deferred Units |
| 0.1 |
| (0.001) |
| 0.2 |
| (0.001) | |||||||||
Average number of common shares | Average number of common shares |
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| Average number of common shares |
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Entergy's stock option and other equity compensation plans are discussed in Note 712 to the consolidated financial statements in the Form 10-K.
Treasury Stock
During the six months ended June 30, 2006,first quarter of 2007, Entergy Corporation issued 539,777824,527 shares of its previously repurchased common stock to satisfy stock option exercises and other stock-based awards. During the first quarter of 2007, Entergy Corporation purchased 5,672,042 shares of common stock for a total purchase price of $558.2 million.
Retained Earnings
On AugustApril 4, 2006,2007, Entergy Corporation's Board of Directors declared a common stock dividend of $0.54 per share, payable on SeptemberJune 1, 20062007 to holders of record as of August 15, 2006.May 10, 2007.
Accumulated Other Comprehensive Income
Cash flow hedges with net unrealized losses of approximately $126$67.8 million net-of-tax at June 30, 2006March 31, 2007 are scheduledexpected to maturebe reclassified into earnings during the next twelve months.
3528
NOTE 4. LINES OF CREDIT, RELATED SHORT-TERM BORROWINGS, AND LONG-TERM DEBT
Entergy Corporation has in place two separate revolving credit facilities, a five-year credit facility and a three-year credit facility. The five-year credit facility, which expires in May 2010, has a borrowing capacity of $2 billion of which $805 million was outstanding as of June 30, 2006. Theand the three-year facility, which expires in December 2008, has a borrowing capacity of $1.5 billion, none of which was outstanding as of June 30, 2006.billion. Entergy canCorporation also has the ability to issue letters of credit against the total borrowing capacity of both credit facilities, and letters of credit totaling $144 million had been issued against the five-year facility at June 30, 2006. The total unused capacity for these facilities as of June 30, 2006 was approximately $2.6 billion.facilities. The commitment fee for this facilitythese facilities 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 companie s.Utility operating companies. Following is a summary of the borrowings outstanding and capacity available under these facilities as of March 31, 2007.
|
|
| Letters | Capacity | ||||
(In Millions) | ||||||||
5-Year Facility | $2,000 | $895 | $79 | $1,026 | ||||
3-Year Facility | $1,500 | $540 | $- | $960 |
See Part II, Item 5 for an update of the borrowings outstanding as of May 8, 2007.
Entergy Corporation's facilities require it to maintain a consolidated debt ratio of 65% or less of its total capitalization. If Entergy fails to meet this ratio, or if Entergy or the Utility operating companies (except Entergy New Orleans) and System Energy default on other indebtedness or are in bankruptcy or insolvency proceedings, an acceleration of the facilities' maturity dates may occur.
Entergy Arkansas, Entergy Gulf States, and Entergy Mississippi, each havehad credit facilities available as of June 30, 2006March 31, 2007 as follows:
|
|
|
| Amount of |
| Amount Drawn as of |
|
|
|
|
|
|
|
Entergy Arkansas |
| April 2007 |
| $85 million |
| - |
Entergy Gulf States | February 2011 | $ | - | |||
Entergy Mississippi | May 2007 | $30 million (b) | - | |||
Entergy Mississippi |
| May 2007 |
| $20 million (b) |
| - |
(a) | The credit facility allows Entergy Gulf States to issue letters of credit against the borrowing capacity of the facility. As of |
(b) | Borrowings under the Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable. |
In May 2006,April 2007, Entergy MississippiArkansas renewed its credit facility through April 2008 and increased its $25 millionthe amount of the credit facility to $30 million and renewed$100 million. Prior to expiration on May 31, 2007, it through May 2007.is expected that Entergy Mississippi also entered into a new $20 million credit facility through May 2007.
In August 2006, Entergy Gulf States increased the capacitywill renew both of its credit facility to $50 million.facilities.
The credit facilities have variable interest rates and the average commitment fee is 0.13%. The $85 million Entergy Arkansas credit facility requires that it maintain total shareholders' equity of at least 25% of its total assets.
The FERC has issued an order ("FERC Short-Term Order") approving the short-term borrowing limitsborrowings of the domestic utility companies (exceptRegistrant Subsidiaries (other than Entergy New Orleans) and System Energycertain other Entergy subsidiaries are limited to amounts authorized by the FERC. The current FERC-authorized limits are effective through March 31, 2008. Entergy New Orleans may rely on existing SEC PUHCA 1935 orders for its financing authority, subject to bankruptcy court approval. In addition to borrowings from commercial banks, thethese companies are authorized under a FERC Short-Term Order authorized the domestic utility companies (except Entergy New Orleans which is authorized by an SEC PUHCA 1935 order) and System Energyorder to continue as participants inborrow from the Entergy System 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 short-term borrowings combined may not exceed the FERC authorized limits. As of June 30, 2006,March 31, 2007, Entergy's subsidiaries' aggregate money pool and external short-term borrowings authorized limit was $2.0 billion, and the aggregate outstanding borrowing fr omfrom the money pool was $200.6 million.$330.1 million, and Entergy's subsidiaries' had no outstanding short-term borrowing from external sources.
3629
Long-term Debt
The following long-term debt has been issued by Entergy in 2006:
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The following long-term debt was retiredare the FERC-authorized limits for short-term borrowings effective February 8, 2006 and the outstanding short-term borrowings from the money pool for the Registrant Subsidiaries (other than Entergy New Orleans) as of March 31, 2007:
|
| Authorized |
| Borrowings |
|
| (In Millions) | ||
|
|
|
|
|
Entergy Arkansas |
| $250 |
| - |
Entergy Gulf States |
| $350 |
| - |
Entergy Louisiana |
| $250 |
| $67.1 |
Entergy Mississippi |
| $175 |
| - |
System Energy |
| $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 made, and does not expect to make, any additional money pool borrowings while it is in 2006:bankruptcy proceedings. Entergy New Orleans had $37.2 million in borrowings outstanding from the money pool as of its bankruptcy filing date, September 23, 2005.
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In January 2007, Entergy Mississippi used the proceeds from the January 2006 issuanceredeemed, prior to purchase the Attala power plant from Central Mississippi Generating Company, LLC and to repay short-term indebtedness.maturity, $100 million of 4.35% Series of First Mortgage Bonds due April 2008.
Entergy Arkansas usedNew Orleans Debtor-in-Possession Credit Facility
See Note 4 in the proceeds fromForm 10-K for a discussion of the June 2006 issuance to redeem, prior to maturity, $45.5Entergy New Orleans $200 million debtor-in-possession (DIP) credit facility. As of March 31, 2007, Entergy New Orleans had $42 million of 5.6% Series of Jefferson County bondsoutstanding borrowings under the DIP credit agreement. During April 2007, at the same time that it made a scheduled pension plan contribution, Entergy New Orleans borrowed under the DIP credit agreement, and $9.2on May 8, 2007 had $67 million of 6.3% Series of Jefferson County bonds in July 2006. The issuance is shown as a non-cash transaction onoutstanding borrowings under the cash flow statement since the proceeds were placed in a trust and never held as cash by Entergy Arkansas.DIP credit agreement.
NOTE 5. PREFERRED STOCKACQUISITIONS
In March 2006,April 2007, Entergy's Non-Utility Nuclear business purchased the 798 MW Palisades nuclear energy plant located near South Haven, Michigan from Consumers Energy Company for a cash payment of $380 million. Entergy Arkansas issued 3,000,000 sharesreceived the plant, nuclear fuel, inventories, and other assets. The liability to decommission the plant, as well as related decommissioning trust funds of $25 par value 6.45% Series Preferred Stock, allapproximately $250 million, was also transferred to Entergy's Non-Utility Nuclear business. Entergy's Non-Utility Nuclear business executed a unit contingent, 15-year purchased power agreement (PPA) with Consumers Energy for 100% of which were outstandingthe plant's output, excluding any future uprates. Prices under the PPA range from $43.50/MWh in 2007 to $61.50/MWh in 2022, and the average price under the PPA is $51/MWh. In the first quarter 2007, the NRC renewed Palisades' operating license until 2031. Also as part of June 30, 2006. The dividends are cumulative and payable quarterly beginning July 1, 2006. The preferred stock is redeemable on or after April 1, 2011, at Entergy Arkansas' option,the transaction, Consumers Energy paid Entergy's Non-Utility Nuclear business $30 million to assume responsibility for spent fuel 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:
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37decommissioned Big Rock Point nuclear plant, which is located near Charlevoix, Michigan.
30
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 Entergy Louisiana Holdings amended and restated articles of incorporation:
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NOTE 6. STOCK-BASED COMPENSATION PLANS
Entergy grants stock options, which are described more fully in Note 712 to the consolidated financial statements in the Form 10-K. Entergy adopted SFAS 123R, "Share-Based Payment" on January 1, 2006. The impact of adoption of the standard did not materially affect Entergy's financial position, results of operations, or cash flows because Entergy adopted the fair value based method of accounting for stock options prescribed by SFAS 123, "Accounting for Stock-Based 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. Stock-based compensation expense included in earnings applicable to common
The following table includes financial information for stock netoptions for each of related tax effects, for the secondyears presented:
2007 | 2006 | ||
(In Millions) | |||
Compensation expense included in Entergy's Net Income for the first quarter | $3.3 | $2.8 | |
Tax benefit recognized in Entergy's Net Income for the first quarter | $1.3 | $1.1 | |
Compensation cost capitalized as part of fixed assets and inventory as of |
|
|
Entergy granted 1,854,900 stock options during the first quarter 2006 and six months ended June 30, 2006 is $2.0 million and $3.7 million, respective ly. Stock-based compensation expense included in earnings applicable to commonof 2007 with a weighted-average fair value of $14.15. At March 31, 2007, there were 11,834,930 stock netoptions outstanding with a weighted-average exercise price of related tax effects, for$57.54. The aggregate intrinsic value of the second quarter 2005 and six months ended June 30, 2005 is $2.0 million and $3.8 million, respectively.stock options outstanding was $561 million.
NOTE 7. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS
Components of Net Pension Cost
Entergy's qualified pension cost, including amounts capitalized, for the secondfirst quarters of 20062007 and 2005,2006, included the following components:
|
| 2006 |
| 2005 |
| 2007 |
| 2006 |
|
| (In Thousands) |
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
Service cost - benefits earned during the period |
| $23,176 |
| $21,010 |
| $23,428 |
| $23,176 |
Interest cost on projected benefit obligation |
| 41,814 |
| 37,484 |
| 44,602 |
| 41,814 |
Expected return on assets |
| (44,482) |
| (38,781) |
| (49,179) |
| (44,482) |
Amortization of transition asset |
| - |
| (166) | ||||
Amortization of prior service cost |
| 1,365 |
| 1,306 |
| 1,338 |
| 1,365 |
Amortization of loss |
| 10,931 |
| 7,305 |
| 11,075 |
| 10,931 |
Net pension costs |
| $32,804 |
| $28,158 |
| $31,264 |
| $32,804 |
3831
Entergy'sThe Registrant Subsidiaries' qualified pension cost, including amounts capitalized, for the six months ended June 30,first quarters of 2007 and 2006, and 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 |
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2007 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $3,638 |
| $3,011 |
| $2,231 |
| $1,089 |
| $470 |
| $1,021 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 10,498 |
| 8,139 |
| 6,251 |
| 3,371 |
| 1,260 |
| 1,710 |
Expected return on assets |
| (11,009) |
| (10,750) |
| (7,808) |
| (3,837) |
| (1,446) |
| (2,136) |
Amortization of prior service cost |
| 412 |
| 304 |
| 160 |
| 114 |
| 44 |
| 12 |
Amortization of loss |
| 2,721 |
| 623 |
| 1,433 |
| 749 |
| 368 |
| 151 |
Net pension cost |
| $6,260 |
| $1,327 |
| $2,267 |
| $1,486 |
| $696 |
| $758 |
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2006 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $3,626 |
| $2,993 |
| $2,182 |
| $1,077 |
| $501 |
| $1,031 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 9,915 |
| 7,914 |
| 6,052 |
| 3,252 |
| 1,282 |
| 1,604 |
Expected return on assets |
| (9,834) |
| (10,176) |
| (7,114) |
| (3,683) |
| (884) |
| (1,775) |
Amortization of prior service cost |
| 415 |
| 309 |
| 141 |
| 128 |
| 56 |
| 12 |
Amortization of loss |
| 2,438 |
| 640 |
| 1,509 |
| 725 |
| 509 |
| 167 |
Net pension cost |
| $6,560 |
| $1,680 |
| $2,770 |
| $1,499 |
| $1,464 |
| $1,039 |
Entergy recognized $3.9$4.0 million and $4.0$3.9 million in pension cost for its non-qualified pension plans in the secondfirst quarters of 2007 and 2006, and 2005, respectively. Entergy
The Registrant Subsidiaries recognized $7.8 million and $8.1 million inthe following pension cost for itstheir non-qualified pension plans forin the six months ended June 30, 2006first quarters of 2007 and 2005, respectively.2006:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
|
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
|
|
| (In Thousands) | |||||||||
Non-Qualified Pension Cost First |
| $123 |
| $317 |
| $6 |
| $44 |
| $57 |
|
Non-Qualified Pension Cost First |
| $113 |
| $220 |
| $5 |
| $36 |
| $54 |
|
32
Components of Net Other Postretirement Benefit Cost
Entergy's other postretirement benefit cost, including amounts capitalized, for the secondfirst quarters of 20062007 and 2005,2006, included the following components:
|
| 2006 |
| 2005 |
| 2007 |
| 2006 |
|
| (In Thousands) |
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
Service cost - benefits earned during the period |
| $10,370 |
| $9,208 |
| $10,638 |
| $10,370 |
Interest cost on APBO |
| 14,316 |
| 13,501 |
| 14,816 |
| 14,316 |
Expected return on assets |
| (4,756) |
| (4,363) |
| (5,577) |
| (4,756) |
Amortization of transition obligation |
| 542 |
| 1,340 |
| 542 |
| 542 |
Amortization of prior service cost |
| (3,688) |
| (1,989) |
| (4,049) |
| (3,688) |
Amortization of loss |
| 5,698 |
| 5,271 |
| 4,461 |
| 5,698 |
Net other postretirement benefit cost |
| $22,482 |
| $22,968 |
| $20,831 |
| $22,482 |
Entergy'sThe Registrant Subsidiaries' other postretirement benefit cost, including amounts capitalized, for the six months ended June 30,first quarters of 2007 and 2006, and 2005, included the following components:
|
| 2006 |
| 2005 |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2007 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy | ||||
|
| (In Thousands) |
| (In Thousands) | ||||||||||||
|
|
|
|
| ||||||||||||
Service cost - benefits earned during the period |
| $20,740 |
| $18,416 | ||||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
| ||||
during the period |
| $1,525 |
| $1,547 |
| $973 |
| $476 |
| $255 |
| $451 | ||||
Interest cost on APBO |
| 28,632 |
| 27,002 |
| 3,037 |
| 2,876 |
| 1,941 |
| 1,049 |
| 870 |
| 433 |
Expected return on assets |
| (9,512) |
| (8,726) |
| (2,231) |
| (1,697) |
| - |
| (819) |
| (682) |
| (470) |
Amortization of transition obligation |
| 1,084 |
| 2,680 |
| 205 |
| 151 |
| 96 |
| 88 |
| 416 |
| 2 |
Amortization of prior service cost |
| (7,376) |
| (3,978) |
| (197) |
| 218 |
| 117 |
| (62) |
| 90 |
| (283) |
Amortization of loss |
| 11,396 |
| 10,542 |
| 1,500 |
| 793 |
| 764 |
| 613 |
| 282 |
| 149 |
Net other postretirement benefit cost |
| $44,964 |
| $45,936 |
| $3,839 |
| $3,888 |
| $3,891 |
| $1,345 |
| $1,231 |
| $282 |
|
| 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 |
Employer Contributions
Entergy expects to contribute $349$176 million to its qualified pension plans in 2006 (including $107 million delayed from 2005 as a result of the Katrina Emergency Tax Relief Act).2007. As of the end of July 2006,April 2007, Entergy had contributed $189$96 million to its pension plans. Therefore, Entergy presently anticipates contributing an additional $160$80 million to fund its qualified pension plans in 2006.2007.
3933
The Registrant Subsidiaries expect to contribute the following to qualified pension plans in 2007:
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System | |
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Expected 2007 pension contributions |
|
|
|
|
|
|
|
|
|
|
|
|
Pension contributions made through |
| $ - |
| $16,550 |
|
|
| $ - |
| $28,459 |
| $3,538 |
Remaining estimated pension |
| $6,987 |
| $8,796 |
|
|
| $784 |
| $15,126 |
| $2,150 |
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, 20052006 Accumulated Postretirement Benefit Obligation (APBO) by $176$183 million, and reduced the secondfirst quarter 20062007 and 20052006 other postretirement benefit cost by $6.3 million and $6.9 million, and $6.4respectively. In the first quarter 2007, Entergy received $0.9 million respectively. Itin Medicare subsidies for prescription drug claims during the third quarter 2006.
Based on actuarial analysis, the estimated impact of future Medicare subsidies reduced the six months ended June 30,December 31, 2006 APBO and 2005the first quarters 2007 and 2006 other postretirement benefit cost by $13.9 million and $12.9 million, respectively. Referfor the Registrant Subsidiaries as follows:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Reduction in 12/31/2006 APBO |
| ($40,636) |
| ($35,991) |
| ($22,486) |
| ($13,560) |
| ($10,110) |
| ($5,966) |
Reduction in first quarter 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
other postretirement benefit cost |
| ($1,376) |
| ($1,222) |
| ($762) |
| ($438) |
| ($311) |
| ($246) |
Reduction in first quarter 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
other postretirement benefit cost |
| ($1,562) |
| ($1,332) |
| ($865) |
| ($512) |
| ($376) |
| ($268) |
Medicare subsidies received in |
|
|
|
|
|
|
|
|
|
|
|
For further information on the Medicare Act refer to Note 1011 to the consolidated financial statements in the Form 10-K for further discussion.10-K.
34
NOTE 8. BUSINESS SEGMENT INFORMATION
Entergy's reportable segments as of June 30, 2006March 31, 2007 are 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 Servicesnon-nuclear wholesale assets business and earnings on the proceeds of sales of previously-owned businesses. As a result of the Entergy New Orleans bankruptcy filing, Entergy has discontinued the consolidation of Entergy New Orleans retroactive to January 1, 2005, and is reporting Entergy New Orleans results under the equity method of accounting in the Utility segment. As discussed more thoroughly in Note 9 to the financial statements, Entergy expects to reconsolidate Entergy New Orleans in the second quarter 2007, retroactive to January 1, 2007.
Entergy's segment financial information for the secondfirst quarters of 20062007 and 20052006 is as follows:
|
|
|
|
|
|
|
|
|
| |
(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, 2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
(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 |
|
|
|
|
|
|
|
|
|
| |
(In Thousands) | ||||||||||
2007 |
|
|
|
|
|
|
|
|
| |
Operating Revenues | $2,103,269 |
| $458,251 |
| $45,048 |
| ($6,338) |
| $2,600,230 | |
Equity in earnings of |
|
|
|
|
| |||||
unconsolidated equity affiliates | $2,909 |
| $- |
| $1,625 |
| $- |
| $4,534 | |
Income Taxes (Benefit) | $79,180 |
| $84,735 |
| ($19,362) |
| $- |
| $144,553 | |
Net Income (Loss) | $104,450 |
| $128,170 |
| ($20,425) |
| $- |
| $212,195 | |
Total Assets | $25,167,308 | $5,513,662 | $2,887,861 | ($2,421,989) | $31,146,842 | |||||
|
|
|
|
|
| |||||
2006 |
|
|
|
|
|
|
|
|
| |
Operating Revenues | $2,131,020 |
| $388,010 |
| $66,688 |
| ($17,687) |
| $2,568,031 | |
Equity in earnings (loss) of |
|
|
|
|
| |||||
unconsolidated equity affiliates | $5,643 |
| $- |
| ($2,057) |
| $- |
| $3,586 | |
Income Taxes (Benefit) | $76,973 |
| $52,916 |
| ($11,059) |
| $- |
| $118,830 | |
Net Income (Loss) | $119,752 |
| $81,530 |
| ($7,622) |
| ($32) |
| $193,628 | |
Total Assets | $24,736,486 | $5,037,167 | $3,451,763 | ($2,709,370) | $30,516,046 |
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 Almost all of Entergy's goodwill is related to 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.Utility segment.
NOTE 9. ENTERGY NEW ORLEANS BANKRUPTCY PROCEEDING
See Note 1618 to the consolidated financial statements in the Form 10-K for a discussion of the Entergy New Orleans bankruptcy proceeding,proceeding. On May 7, 2007, the bankruptcy judge entered an order confirming Entergy New Orleans' plan of reorganization. With the receipt of CDBG funds, and a discussionthe agreement on insurance recovery with one of Entergy's decision to deconsolidate its investmentexcess insurers, Entergy New Orleans waived the conditions precedent in its plan of reorganization, and the plan became effective on May 8, 2007.
35
Following are significant terms in Entergy New Orleans' plan of reorganization:
Entergy New Orleans currently estimates that the prepetition claims that will be allowed and paid (either in cash or by notes) in the bankruptcy case will approximate the prepetition liabilities currently recorded by Entergy New Orleans, including interest.
(Entergy Corporation)
Entergy's income statement for the three and six months ended June 30, 2006March 31, 2007 includes $67$41 million and $128 million, respectively, in operating revenues and $4$34 million and $11 million, respectively, in purchased power expenses from transactions with Entergy New Orleans. Entergy's income statement for the three and six months ended June 30, 2005March 31, 2006 includes $44$61 million and $87 million, respectively, in operating revenues and $35$7 million and $81 million, respectively, in purchased power expenses from transactions with Entergy New Orleans. Entergy's balance sheet as of June 30, 2006March 31, 2007 includes $111.4$98 million of accounts receivable that are payable to Entergy or its subsidiariesaffiliates by Entergy New Orleans, includi ng $64.9Orleans. Entergy's balance sheet as of December 31, 2006 includes $95 million of pre-petition accounts.accounts that are payable to Entergy affiliates by Entergy New Orleans.
As discussedWith confirmation of the plan of reorganization, Entergy expects to reconsolidate Entergy New Orleans in the Form 10-K, becausesecond quarter 2007, retroactive to January 1, 2007. Because Entergy owns all of the common stock of Entergy New Orleans, Entergy's deconsolidation of Entergy New Orleans doesreconsolidation will not affect the amount of net income that Entergy records resulting from Entergy New Orleans' operations.operations for any current or prior period, but will result in Entergy New Orleans' results being included in each individual income statement line item in 2007, rather than just its net income being presented as "Equity in earnings (loss) of unconsolidated equity affiliates," as will remain the case for 2005 and 2006.
41(Entergy New Orleans)
NOTE 10. ACCOUNTING POLICY UPDATE
RevenueReorganization items reported as operating expenses in the income statements for the three months ended March 31, 2007 and Fuel Costs2006 primarily consist of professional fees associated with the bankruptcy case.
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.
36
NOTE 10. INCOME TAXES
Entergy or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. With few exceptions, Entergy is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by taxing authorities for years before 2002. Entergy's U.S. income tax returns for 2002 and 2003 are currently under examination by the IRS, and the examination is anticipated to be completed by the end of 2007. As of March 31, 2007, the IRS has not proposed any significant adjustments resulting from the current examination.
On November 16, 2006, the IRS issued a Notice of Deficiency to Entergy for the tax years 1997 and 1998. The Notice asserts that Entergy owes additional tax of $17.3 million for 1997 and $61.7 million for 1998. Entergy and the IRS have settled all issues for 1997 and 1998 except for those raised in the Notice which are described as follows: 1) The IRS believes that U.K. Windfall Tax paid by London Electricity, a former subsidiary of Entergy, was not an eligible tax under the foreign tax credit provisions of the Internal Revenue Code. Entergy believes that it properly claimed a foreign tax credit for the tax year 1998 attributable to the Windfall Tax paid by London Electricity. This issue accounts for $59.7 million of the 1998 deficiency. 2) The IRS denied Entergy's change in method of accounting for street lighting assets and the related increase in depreciation deductions for 1997 and 1998. Entergy believes that street lighting assets are a separate line of business not subject to the same 20-year depreciable life as distribution assets, but rather are properly classified as having a 7-year depreciable life. This issue accounts for all of the 1997 deficiency of $17.3 million and $2 million of the 1998 deficiency. On December 6, 2006, Entergy filed a petition in the U.S. Tax Court requesting a redetermination of these issues and the resulting deficiencies.
Entergy expects the IRS to issue another Notice of Deficiency in 2007 for the years 1999 - 2001 related to the U.K. Windfall Tax credit and street lighting issues indicating deficiencies of approximately $29 million and $7 million, respectively. In addition, Entergy expects the IRS to include in the Notice an amount related to depreciation deductions that resulted from Entergy's purchase price allocations on its acquisitions of the Pilgrim and Indian Point 2 power plants. Entergy's allocation methodology results in nuclear plant depreciation deductions which have been disallowed by the IRS. Entergy estimates that the 1999 - 2001 deficiency related to nuclear plant depreciation will be approximately $11 million.
For years after 2001, the U.K. Windfall Tax, street lighting, and nuclear plant depreciation issues resulted in federal and state tax benefits of approximately $63 million, $6 million, and $52 million, respectively for each issue, for a total of $121 million.
In summary, these three issues have resulted in tax reductions of approximately $152 million for foreign tax credits, $32 million for street lighting, and $63 million for nuclear depreciation, for a total of $247 million for all years. The potential for accrued federal and state interest on these three issues for all years is estimated to be approximately $69 million, after-tax and net of deposit offsets. Entergy believes that the provisions recorded in its financial statements and as shown in the table below are sufficient to address these three issues as well as other liabilities that are reasonably estimable, including an estimate of probable interest expense, associated with all uncertain tax positions.
Entergy has $124 million in deposits on account with the IRS covering these three and all other uncertain tax positions.
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006. 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. Entergy and the Registrant Subsidiaries adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48), on January 1, 2007. As a result of the implementation of FIN 48, Entergy recognized an increase in the
37
liability for unrecognized tax benefits of approximately $5 million, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings.
As of January 1, 2007, Entergy had a total balance of unrecognized tax benefits of approximately $2 billion. Included in this balance of unrecognized tax benefits are $1.7 billion of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective income tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. Entergy's January 1, 2007 balance of unrecognized tax benefits includes $244 million which could affect the effective income tax rate. Entergy accrues interest and penalties expenses related to unrecognized tax benefits in income tax expense. Entergy's January 1, 2007 balance of unrecognized tax benefits includes approximately $52 million accrued for the possible payment of interest and penalties.
As of January 1, 2007, Entergy and the Registrant Subsidiaries have total balances of unrecognized tax benefits, which did not change significantly during the three months ended March 31, 2007, reflected in their balance sheets as follows:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System | ||
| Entergy | Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy | ||
(In Thousands) | ||||||||||||||
Taxes accrued |
| ($184,372) | ($43,445) |
| ($640) |
| $234 |
| $5,830 |
| $4,304 |
| ($35,506) | |
Accumulated deferred |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total unrecognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Registrant Subsidiaries' January 1, 2007 balances of unrecognized tax benefits include amounts which could affect the effective income tax rate as follows (in millions):
Entergy Arkansas | $0.8 |
Entergy Gulf States | $3.6 |
Entergy Louisiana | $1.2 |
Entergy Mississippi | $3.4 |
Entergy New Orleans | $1.4 |
System Energy | $1.7 |
The Registrant Subsidiaries accrue interest and penalties related to unrecognized tax benefits in income tax expense. Included in the January 1, 2007 balance of unrecognized tax benefits were accruals for the possible payment of interest and penalty as follows (in millions):
Entergy Arkansas | $1.6 |
Entergy Gulf States | $4.0 |
Entergy Louisiana | $0.8 |
Entergy Mississippi | $3.9 |
Entergy New Orleans | $0.9 |
System Energy | $0.8 |
Entergy and the Registrant Subsidiaries do not expect that total unrecognized tax benefits will significantly change within the next twelve months.
38
NOTE 11. NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159) during the first quarter of 2007. SFAS 159 provides an option for companies to select certain financial assets and liabilities to be accounted for at fair value with changes in the fair value of those assets or liabilities being reported through earnings. The intent of the standard is to mitigate volatility in reported earnings caused by the application of the more complicated fair value hedging accounting rules. Under SFAS 159, companies can select existing assets or liabilities for this fair value option concurrent with the effective date of January 1, 2008 for companies with fiscal years ending December 31 or can select future assets or liabilities as they are acquired or entered into. Entergy is in the process of evaluating the potential effect of making this accounting election.
In June 2006, the EITF reached a consensus on EITF Issue 06-3 "How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)" (EITF 06-3). The scope of this issue includes any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer, and may include, but is not limited to, sales, use, value added, and some excise taxes. Under EITF 06-3, the presentation of taxes within the scope of this issue on either a gross basis (included in revenues and costs) or a net basis (excluded from revenues) is an accounting policy decision that should be disclosed. For any such taxes reported on a gross basis, the amounts of those taxes in interim and annual financial statements, for each period for which an income statement is presented, should be disclosed if those amounts are significant. Entergy's pol icy is to present such taxes on a net basis. EITF 06-3 did not affect Entergy's financial statements.
In the opinion of the management of Entergy Corporation, 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 Utility segment, however,Registrant Subsidiaries 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
42
Disclosure Controls and Procedures
As of March 31, 2007, 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 Commi ssion rules and 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.
39
ENTERGY ARKANSAS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Second Quarter 2006 Compared to Second Quarter 2005
Net income increased $7.4 million primarily dueremained relatively unchanged for the first quarter of 2007 compared to a lower effective income tax rate, partially offset by lowerthe first quarter of 2006 because higher net revenue higher depreciation and amortization expenses, and lower other income.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Net income increased $4.4 million primarily due to a lower effective income tax rate, partiallywas offset by higher depreciation and amortization expensestaxes other than income taxes and higher other operation and maintenance expenses.
Net Revenue
Second Quarter 2006 Compared to Second Quarter 2005
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 3) other regulatory credits. Following is an analysis of the change in net revenue comparing the secondfirst quarter of 20062007 to the secondfirst quarter of 2005.
| ||
| ||
|
| |
|
| |
|
| |
|
| |
|
|
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 an 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. Billed electricity usage increased a total of 309 GWh in all sectors.
Gross operating revenues, fuel and purchased power expenses, and other regulatory credits
Gross operating revenues increased primarily due to an increase of $30.3 million in fuel cost recovery revenues due to an increase in the energy cost recovery rider effective October 2005and an increase of $25.3 million in gross wholesale revenue resulting from higher wholesale prices and volume.
Fuel and purchased power expenses increased primarily due to increased deferred fuel expense resulting primarily from higher purchased 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 Grand Gulf rider effective January 2006.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
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 3) other regulatory credits. Following is an analysis of the change in net revenue comparing the six months ended June 30, 2006 to the six months ended June 30, 2005.
|
| Amount |
|
| (In Millions) |
|
|
|
|
| $ |
|
| |
Volume/weather |
| |
Deferred fuel cost revisions |
|
|
|
| |
Other |
|
|
|
| $ |
The net wholesalepass-through rider revenue variance is primarily due to higher wholesale prices and improveda change in August 2006 in the accounting for city franchise tax revenues as directed by the APSC. The change results related to co-owner contracts.in an increase in rider revenue with a corresponding increase in taxes other than income taxes resulting in no effect on net income.
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, 2005.2006. Billed retail electricity usage increased by a total of 471 GWh in all sectors.113 GWh.
The deferred fuel cost revisions variance is primarily due to the 20042006 energy cost recovery true-up, made in the first quarter of 2005,2007, which increased net revenue by $4$6.6 million.
The capacity costsnet wholesale revenue 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.decreased results from wholesale contracts and lower wholesale prices.
Gross operating revenues and fuel and purchased power expenses and other regulatory credits
Gross operating revenues increased primarily due to to:
40
The increase was partially offset by a decrease of $17.7 million in gross wholesale revenue resulting from higherdue to lower wholesale prices and a decrease in volume.
Fuel and purchased power expenses increased primarily due to increasedan increase in deferred fuel expense resulting primarilyassociated with higher energy cost recovery rates collected from higher purchased 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.
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.customers.
Other Income Statement Variances
Second QuarterOther operation and maintenance expenses increased primarily due to:
Partially offsetting the increase was a decrease of $1.6 million in payroll and benefits costs.
Taxes other than income taxes increased primarily due to an increase in city franchise tax expense due to a change in August 2006 Compared to Second Quarter 2005in the accounting for city franchise tax revenues as directed by the APSC. The change results in an increase in taxes other than income taxes with a corresponding increase in rider revenue, resulting in no effect on net income.
Depreciation and amortization expenses increased primarily due to an increase in plant in service and a revision in 20052006 of estimated depreciable lives involving certain intangible assets.
44
Other income decreasedincreased primarily due to:
Interest and reactor vessel head replacement at ANO 1 completed in the fourth quarter 2005 and additional transmission work performed in 2005; and
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Other operation and maintenance expensesother charges increased primarily due to $4.1interest expense of $2.9 million applied as a credit against bad debt expenserecorded in the first quarter of 2005 in accordance with2007 on advances from independent power producers per a settlement agreement with the APSC.
Depreciation and amortization expenses increased primarily due to an increase in plant in service andFERC order, partially offset by a revision in 2005 of estimated depreciable lives involving certain intangible assets.to the allowance for borrowed funds used during construction related to removal costs.
Income Taxes
The effective income tax rates for the secondfirst quarters of 2007 and 2006 were 45.4% and 2005 were 8.9% and 37.0%44.1%, respectively. The difference in the effective income tax rate for the secondfirst quarter of 2007 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 book and tax differences related to the allowance for equity funds used during construction. The difference in the effective income tax rate for the first 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 amortization of investment tax credits and book and tax differences related to the allowance for funds used during construction.
The effective income tax rates for the six months ended June 30, 2006 and 2005 were 25.0% and 36.3%, 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.credits.
41
Liquidity and Capital Resources
Cash Flow
Cash flows for the six months ended June 30,first quarters of 2007 and 2006 and 2005 were as follows:
|
|
| 2006 |
| 2005 |
|
| 2007 |
| 2006 |
|
|
| (In Thousands) |
|
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period |
| $9,393 |
| $89,744 | Cash and cash equivalents at beginning of period |
| $34,815 |
| $9,393 |
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in): | Cash flow provided by (used in): |
|
|
|
| Cash flow provided by (used in): |
|
|
|
|
| Operating activities |
| 225,953 |
| 210,270 | Operating activities |
| 208,282 |
| 95,463 |
| Investing activities |
| (147,364) |
| (246,232) | Investing activities |
| (115,117) |
| (89,049) |
| Financing activities |
| (68,931) |
| 57,634 | Financing activities |
| (17,518) |
| 28,556 |
Net increase in cash and cash equivalents | Net increase in cash and cash equivalents |
| 9,658 |
| 21,672 | Net increase in cash and cash equivalents |
| 75,647 |
| 34,970 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $19,051 |
| $111,416 | Cash and cash equivalents at end of period |
| $110,462 |
| $44,363 |
45
Operating Activities
Cash flow from operations increased $15.7$112.8 million for the six months ended June 30, 2006first quarter of 2007 compared to the six months ended June 30, 2005first quarter of 2006 primarily due to the timing of payments to vendors, 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.customers.
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 $12 million of the refund to Entergy Arkansas.
Investing Activities
Net cash flow used in investing activities decreased $98.9increased $26.1 million for the six months ended June 30, 2006first quarter of 2007 compared to the six months ended June 30, 2005first quarter of 2006 primarily due to money pool activity.
Financing Activities
Financing activities used $68.9$17.5 million in cash flows for the six months ended June 30, 2006first quarter of 2007 compared to providing $57.6$28.6 million in cash flows for the six months ended June 30, 2005first quarter of 2006 primarily due to the net issuance of $92.9$75 million of long-term debt for the six months ended June 30, 2005preferred stock in addition toMarch 2006, partially offset by money pool activity.
See "Uses and Sources of Capital" below for the 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, |
| March 31, |
| December 31, |
|
|
|
|
|
|
|
|
|
Net debt to net capital |
| 47.9% |
| 47.4% |
| 45.9% |
| 47.5% |
Effect of subtracting cash from debt |
| 0.3% |
| 0.1% |
| 2.0% |
| 0.6% |
Debt to capital |
| 48.2% |
| 47.5% |
| 47.9% |
| 48.1% |
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 shareholders' equity. Net capital consists of capital less cash and cash equivalents. Entergy Arkansas 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 Arkansas' financial condition.
42
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 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
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
In April 2006,2007, Entergy Arkansas renewed its $85 million credit facility through April 30, 2007. The2008 and increased the amount of the credit facility is no longer subject to a combined borrowing limit with Entergy Louisiana's credit facility.$100 million. There were no outstanding borrowings under the Entergy Arkansas credit facility as of June 30, 2006.
In June 2006, Entergy Arkansas issued $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 July 2006. The issuance is shown as a non-cash transaction on the cash flow statement since the proceeds were placed in a trust and never held as cash by Entergy Arkansas.March 31, 2007.
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 |
March 31, |
| December 31, |
| March 31, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$62,748 |
| $16,109 |
| $24,577 |
| ($27,346) |
See Note 4 to the 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 utility restructuring, federal regulation and proceedings, market and credit risks, state and local rate regulatory risks,regulation, energy cost rate investigation, federal regulation, utility restructuring, nuclear matters, and environmental risks. Following are updates to the information provided in the Form 10-K.
State and Local Rate Regulation
Entergy Arkansas
In March 2006,2007, Entergy Arkansas filed with the APSC its annual redetermination of the energy cost rate for application to the period April 20062007 through March 2007.2008. The filed energy cost rate of $0.02827 per decreased from $0.02827/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$0.01179/kWh.
In March 2007, Entergy Arkansas filed rebuttal testimony in the Form 10-K, alongrate case that it filed in August 2006. The rebuttal testimony requests an annual rate increase of $106.5 million, and retains a return on common equity (ROE) of 11.25%. A primary reason for the decline in the rate request from the original request of $150 million is the removal of the revenue requirement for the proposed acquisition of a load-following, combined cycle gas-fired generation resource, because Entergy Arkansas was not able to complete negotiations with the investigation thatowner within the time requirements of the rate case. Also, in March 2007 and April 2007, the APSC commenced concerningstaff and intervenors filed additional testimony. The APSC staff's filings indicate that an annual rate increase of $2 million is warranted, with a proposed ROE of 9.9%. The APSC staff has also taken positions, which Entergy Arkansas opposes, regarding costs accumulated in the storm reserve, FERC-allocated System Agreement cost all ocation, and removal costs associated with the termination of a lease that could have an adverse effect on future financial results. An evidentiary hearing in the rate case proceeding ended in early-May 2007.
Energy Cost Rate Investigation
In March 2007, in order to allow further consideration by the APSC, the APSC granted Entergy Arkansas' petition for rehearing and for stay of the APSC's January 2007 order in the proceeding investigating 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.
4743
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.Federal Regulation
See Entergy Corporation"System Agreement Proceedings", "Independent Coordinator of Transmission", and Subsidiaries'"Available Flowgate Capacity Proceeding" in the "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -System Agreement Litigation" for a discussionsection 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 rec overy rider or a production cost allocation rider, would ensure that Entergy Arkansas' customers pay only the amount allocated by the FERC.
Federal Regulation
System Agreement Proceedings
See Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant FactorsSubsidiaries Management's Financial Discussion and Known Trends - Federal Regulation -System Agreement Litigation,APSC Complaint filed with the FERC, andAPSC System Agreement Investigation"Analysis for updates regarding proceedings involvingto the System Agreement.discussion in the Form 10-K.
Independent Coordinator of Transmission (ICT)
See Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -Independent Coordinator of Transmission"for an 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 Arkansas' accounting for nuclear decommissioning costs, unbilled revenue, and qualified pension and other postretirement benefits.
48
Recently IssuedNew Accounting Pronouncements
FASB Interpretation No. 48, "AccountingSee "New Accounting Pronouncements" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for Entergy Arkansas in the first quartera discussion 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. Entergy Arkansas does not expect that the adoption of FIN 48 will materially affect its financial position, results of operations, or cash flows.new accounting pronouncements.
44
ENTERGY ARKANSAS, INC. | ||||
INCOME STATEMENTS | ||||
For the Three Months Ended March 31, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
OPERATING REVENUES | ||||
Electric | $502,738 | $447,622 | ||
OPERATING EXPENSES | ||||
Operation and Maintenance: | ||||
Fuel, fuel-related expenses, and | ||||
gas purchased for resale | 138,039 | 102,471 | ||
Purchased power | 116,405 | 118,930 | ||
Nuclear refueling outage expenses | 7,013 | 7,355 | ||
Other operation and maintenance | 99,855 | 91,755 | ||
Decommissioning | 8,000 | 7,483 | ||
Taxes other than income taxes | 19,983 | 9,620 | ||
Depreciation and amortization | 56,065 | 52,818 | ||
Other regulatory credits - net | (5,028) | (5,527) | ||
TOTAL | 440,332 | 384,905 | ||
OPERATING INCOME | 62,406 | 62,717 | ||
OTHER INCOME | ||||
Allowance for equity funds used during construction | 5,596 | 1,902 | ||
Interest and dividend income | 7,583 | 7,675 | ||
Miscellaneous - net | (1,206) | (885) | ||
TOTAL | 11,973 | 8,692 | ||
INTEREST AND OTHER CHARGES | ||||
Interest on long-term debt | 19,354 | 18,978 | ||
Other interest - net | 4,897 | 1,540 | ||
Allowance for borrowed funds used during construction | (2,744) | (857) | ||
TOTAL | 21,507 | 19,661 | ||
INCOME BEFORE INCOME TAXES | 52,872 | 51,748 | ||
Income taxes | 23,990 | 22,825 | ||
NET INCOME | 28,882 | 28,923 | ||
Preferred dividend requirements and other | 1,718 | 2,038 | ||
EARNINGS APPLICABLE TO | ||||
COMMON STOCK | $27,164 | $26,885 | ||
See Notes to Financial Statements. | ||||
49
45
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46
ENTERGY ARKANSAS, 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 | $504,223 | $450,097 | $951,845 | $817,457 | ||||
OPERATING EXPENSES | ||||||||
Operation and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 84,806 | 46,612 | 187,277 | 83,415 | ||||
Purchased power | 167,981 | 139,899 | 286,911 | 247,531 | ||||
Nuclear refueling outage expenses | 7,371 | 7,019 | 14,726 | 13,336 | ||||
Other operation and maintenance | 105,895 | 105,727 | 197,650 | 191,556 | ||||
Decommissioning | 7,608 | 8,246 | 15,091 | 16,359 | ||||
Taxes other than income taxes | 8,982 | 10,051 | 18,602 | 19,888 | ||||
Depreciation and amortization | 54,143 | 48,023 | 106,961 | 99,800 | ||||
Other regulatory credits - net | (8,359) | (2,589) | (13,886) | (3,384) | ||||
TOTAL | 428,427 | 362,988 | 813,332 | 668,501 | ||||
OPERATING INCOME | 75,796 | 87,109 | 138,513 | 148,956 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 1,916 | 3,491 | 3,818 | 7,450 | ||||
Interest and dividend income | 3,998 | 5,078 | 11,673 | 9,370 | ||||
Miscellaneous - net | (687) | (47) | (1,572) | (679) | ||||
TOTAL | 5,227 | 8,522 | 13,919 | 16,141 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 19,361 | 19,968 | 38,339 | 40,750 | ||||
Other interest - net | 1,328 | 798 | 2,868 | 2,224 | ||||
Allowance for borrowed funds used during construction | (822) | (1,725) | (1,679) | (3,736) | ||||
TOTAL | 19,867 | 19,041 | 39,528 | 39,238 | ||||
INCOME BEFORE INCOME TAXES | 61,156 | 76,590 | 112,904 | 125,859 | ||||
Income taxes | 5,421 | 28,300 | 28,246 | 45,638 | ||||
NET INCOME | 55,735 | 48,290 | 84,658 | 80,221 | ||||
Preferred dividend requirements and other | 2,085 | 1,944 | 4,123 | 3,888 | ||||
EARNINGS APPLICABLE TO | ||||||||
COMMON STOCK | $53,650 | $46,346 | $80,535 | $76,333 | ||||
See Notes to Respective Financial Statements. | ||||||||
ENTERGY ARKANSAS, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Three Months Ended March 31, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $28,882 | $28,923 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Reserve for regulatory adjustments | (552) | 7,082 | ||
Other regulatory credits - net | (5,028) | (5,527) | ||
Depreciation, amortization, and decommissioning | 64,065 | 60,301 | ||
Deferred income taxes,investment tax credits, and non-current taxes accrued | 67,344 | 20,019 | ||
Changes in working capital: | ||||
Receivables | 39,292 | 25,549 | ||
Fuel inventory | (12,908) | (14,869) | ||
Accounts payable | (27,956) | (69,957) | ||
Taxes accrued | (30,513) | 9,570 | ||
Interest accrued | 596 | 3,666 | ||
Deferred fuel costs | 84,739 | 47,312 | ||
Other working capital accounts | 3,845 | 5,649 | ||
Provision for estimated losses and reserves | 134 | (1,214) | ||
Changes in other regulatory assets | 8,441 | 2,037 | ||
Other | (12,099) | (23,078) | ||
Net cash flow provided by operating activities | 208,282 | 95,463 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (72,495) | (63,547) | ||
Allowance for equity funds used during construction | 5,596 | 1,902 | ||
Nuclear fuel purchases | (30,530) | - - | ||
Proceeds from sale/leaseback of nuclear fuel | 32,601 | - - | ||
Proceeds from nuclear decommissioning trust fund sales | 7,008 | 48,526 | ||
Investment in nuclear decommissioning trust funds | (10,658) | (51,353) | ||
Change in money pool receivable - net | (46,639) | (24,577) | ||
Net cash flow used in investing activities | (115,117) | (89,049) | ||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of preferred stock | - - | 73,446 | ||
Change in money pool payable - net | - - | (27,346) | ||
Dividends paid: | ||||
Common stock | (15,800) | (15,600) | ||
Preferred stock | (1,718) | (1,944) | ||
Net cash flow provided by (used in) financing activities | (17,518) | 28,556 | ||
Net increase in cash and cash equivalents | 75,647 | 34,970 | ||
Cash and cash equivalents at beginning of period | 34,815 | 9,393 | ||
Cash and cash equivalents at end of period | $110,462 | $44,363 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid during the period for: | ||||
Interest - net of amount capitalized | $20,361 | $14,049 | ||
See Notes to Financial Statements. | ||||
47
ENTERGY ARKANSAS, INC. | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
March 31, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $2,684 | $2,849 | ||
Temporary cash investments - at cost, | ||||
which approximates market | 107,778 | 31,966 | ||
Total cash and cash equivalents | 110,462 | 34,815 | ||
Accounts receivable: | ||||
Customer | 106,874 | 105,347 | ||
Allowance for doubtful accounts | (15,031) | (15,257) | ||
Associated companies | 101,243 | 57,554 | ||
Other | 84,748 | 114,108 | ||
Accrued unbilled revenues | 58,141 | 66,876 | ||
Total accounts receivable | 335,975 | 328,628 | ||
Deferred fuel costs | - - | 2,157 | ||
Accumulated deferred income taxes | 22,086 | 19,232 | ||
Fuel inventory - at average cost | 35,881 | 22,973 | ||
Materials and supplies - at average cost | 102,660 | 100,061 | ||
Deferred nuclear refueling outage costs | 17,892 | 23,678 | ||
Prepayments and other | 9,073 | 6,368 | ||
TOTAL | 634,029 | 537,912 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 11,205 | 11,206 | ||
Decommissioning trust funds | 444,162 | 439,408 | ||
Non-utility property - at cost (less accumulated depreciation) | 1,445 | 1,446 | ||
Other | 2,976 | 2,976 | ||
TOTAL | 459,788 | 455,036 | ||
UTILITY PLANT | ||||
Electric | 6,643,784 | 6,599,348 | ||
Property under capital lease | 4,534 | 5,260 | ||
Construction work in progress | 128,018 | 113,069 | ||
Nuclear fuel under capital lease | 121,397 | 124,850 | ||
Nuclear fuel | 19,253 | 21,044 | ||
TOTAL UTILITY PLANT | 6,916,986 | 6,863,571 | ||
Less - accumulated depreciation and amortization | 3,019,804 | 2,986,576 | ||
UTILITY PLANT - NET | 3,897,182 | 3,876,995 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 86,312 | 93,682 | ||
Other regulatory assets | 529,742 | 542,052 | ||
Other | 40,812 | 35,359 | ||
TOTAL | 656,866 | 671,093 | ||
TOTAL ASSETS | $5,647,865 | $5,541,036 | ||
See Notes to Financial Statements. | ||||
48 | ||||
ENTERGY ARKANSAS, INC. | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
March 31, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Accounts payable: | ||||
Associated companies | $36,553 | $64,546 | ||
Other | 116,478 | 117,655 | ||
Customer deposits | 52,896 | 49,978 | ||
Taxes accrued | 6,648 | 37,161 | ||
Interest accrued | 20,175 | 19,579 | ||
Deferred fuel costs | 82,582 | - - | ||
Obligations under capital leases | 56,203 | 56,265 | ||
Other | 14,648 | 15,372 | ||
TOTAL | 386,183 | 360,556 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 1,306,294 | 1,243,855 | ||
Accumulated deferred investment tax credits | 58,839 | 59,834 | ||
Obligations under capital leases | 69,728 | 73,845 | ||
Other regulatory liabilities | 104,454 | 103,350 | ||
Decommissioning | 480,810 | 472,810 | ||
Accumulated provisions | 14,673 | 14,539 | ||
Pension and other postretirement liabilities | 258,407 | 259,147 | ||
Long-term debt | 1,308,400 | 1,306,201 | ||
Other | 98,438 | 96,623 | ||
TOTAL | 3,700,043 | 3,630,204 | ||
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 2007 | ||||
and 2006 | 470 | 470 | ||
Paid-in capital | 588,527 | 588,528 | ||
Retained earnings | 856,292 | 844,928 | ||
TOTAL | 1,561,639 | 1,550,276 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $5,647,865 | $5,541,036 | ||
See Notes to Financial Statements. | ||||
49
ENTERGY ARKANSAS, INC. | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three Months Ended March 31, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
Increase/ | ||||||||
Description | 2007 | 2006 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 181 | $ 151 | $ 30 | 20 | ||||
Commercial | 99 | 80 | 19 | 24 | ||||
Industrial | 102 | 89 | 13 | 15 | ||||
Governmental | 5 | 4 | 1 | 25 | ||||
Total retail | 387 | 324 | 63 | 19 | ||||
Sales for resale | ||||||||
Associated companies | 78 | 78 | - - | - - | ||||
Non-associated companies | 33 | 51 | (18) | (35) | ||||
Other | 5 | (5) | 10 | 200 | ||||
Total | $ 503 | $ 448 | $ 55 | 12 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 2,032 | 1,910 | 122 | 6 | ||||
Commercial | 1,327 | 1,279 | 48 | 4 | ||||
Industrial | 1,721 | 1,778 | (57) | (3) | ||||
Governmental | 65 | 65 | - | - - | ||||
Total retail | 5,145 | 5,032 | 113 | 2 | ||||
Sales for resale | ||||||||
Associated companies | 1,993 | 1,865 | 128 | 7 | ||||
Non-associated companies | 669 | 856 | (187) | (22) | ||||
Total | 7,807 | 7,753 | 54 | 1 | ||||
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
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 storms2005, which 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.evacuations, and Entergy Gulf States' efforts to recover storm restoration costs. 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.discussion.
Storm CostsCost Recovery Filings with Retail Regulators
On July 31, 2006,In April 2007, the PUCT issued its financing order authorizing the issuance of securitization bonds to recover $353 million of hurricane reconstruction costs and up to $6 million of transaction costs, offset by $32 million of related deferred income tax benefits. Entergy Gulf States expects by mid-2007 to implement rates to recover revenues to pay the securitization bonds, and expects to receive securitization funding by the end of the third quarter 2007.
In February 2007, Entergy Louisiana and Entergy Gulf States filed rebuttal testimony and filed a second supplemental and amending application by which they seek authority from the LPSC to securitize their storm cost recovery applicationand storm reserve amounts, together with certain debt retirement costs and upfront and ongoing costs of the LPSC,securitized debt issued. Securitization is authorized by a law signed by the Governor of Louisiana in which Entergy LouisianaMay 2006. The filing updates actual storm-related costs through January 2007 and Entergy Gulf States requestedestimated future costs, declaring that the LPSC (1) review Entergy Louisiana's costs are $561 million and Entergy Gulf States' testimony and exhibits relating tocosts are $219 million. The filing also updates the costs associated with Hurricanes Katrina and Rita, and declare that those verified, actual storm-related costs through May 31, 2006 are $466.8requested storm reserve amounts, requesting $141 million for Entergy Louisiana and $200.3$87 million for Entergy Gulf States. Hearings began in late-April 2007. At the start of the hearing, a stipulation among Entergy Gulf States, Entergy Louisiana, the LPSC staff, and most other parties in the proceeding was read into the record. The stipulation quantifies the balance of storm restoration costs for recovery as $545 million for Entergy Louisiana and $187 million for Entergy Gulf States, inand sets 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 $54.4storm reserve amounts at $152 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$87 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 eligiblestipulation also calls for securitization and recovery, approveof the recovery of carryingstorm restoration costs and approvestorm reserves in those same amounts. The LPSC has not issued a decision in 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.proceeding.
Results of Operations
Net Income
Second Quarter 2006 Compared to Second Quarter 2005
Net income increased $7.4decreased $17.5 million primarily due to higher net revenue partially offset by higher interest and other charges and higher taxes other than income taxes.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Net income increased $29.1 million primarily due to higherlower net revenue and a higher othereffective income tax rate partially offset by higher other operation and maintenance expenses, higher taxes other than income taxes, and higher interest and other charges.income.
Net Revenue
Second Quarter 2006 Compared to Second Quarter 2005
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 3) other regulatory charges (credits).charges. Following is an analysis of the change in net revenue comparing the secondfirst quarter of 20062007 to the secondfirst quarter of 2005.2006.
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| Amount |
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| (In Millions) |
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| $ |
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| |
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| |
Fuel recovery |
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| |
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| |
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| |
Other |
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| $ |
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 2006.51
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 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" herein for a discussion of the accounting for unbilled revenues.
The purchased power capacity variance is primarily due to an increase in capacity charges primarily associated with power purchases from the Perryville generating station in addition to new purchase power contracts in 2006.
Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)
Gross operating revenues increased primarily due to an increase in fuel cost recovery revenues of $107.1 million due to higher fuel rates. Also contributing to the increase were the base revenue and volume/weather variances discussed above.
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 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 $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.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
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 3) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing the six months ended June 30, 2006 to the six months ended June 30, 2005.
57
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| |
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| |
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| |
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| |
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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.
The fuel recovery variance resulted primarily from adjustments of fuel clause recoveries in the first quarter of 2006 in Entergy Gulf States' Louisiana jurisdiction. The variance is also due tojurisdiction and a reserve for potential rate refunds in the under-recoveryfirst quarter of 2007 in 2005 of fuel costs from retail customers and increased fuel cost recovery in 2006Entergy Gulf States' Texas jurisdiction as a result of special rate contracts.a PUCT ruling related to the application of past PUCT rulings addressing transition to competition in Texas.
The volume/weather variance is primarily due to increased weather-adjustedelectricity usage, on billed sales in addition to an increase inincluding increased usage during the unbilled sales period.period and the effect of more favorable weather compared to the same period in 2006. Billed usage increased a total of 370 GWh185 GWh. See Note 1 to the financial statements 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" hereinForm 10-K for a discussion of the accounting for unbilled revenues.
The purchased power capacity variance is primarily due to an increase in capacity charges primarily associated with power purchases from the Perryville generating station in addition to new purchase power contracts in 2006.
Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)
Gross operating revenues increaseddecreased primarily due to an increase of $268 milliona decrease in fuel cost recovery revenues of $97 million due to higherlower fuel rates. Also contributing to the increase were the base revenue andThe decrease was partially offset by more favorable volume/weather variancesas discussed above.
Fuel and purchased power expenses increaseddecreased primarily due to an increase in deferreddecreased recovery of 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 higherpower costs as a result of lower fuel rates.
Other regulatory charges increased primarily due to the deferral of under-recoveredhigher 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 ofcharges.
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 2006 Compared to Second Quarter 2005
Taxes other than income taxes increaseddecreased primarily due to higherlower Louisiana local franchise taxes primarily due to higher revenues as discussed above.
Interest and other charges increased primarily due to the increase in long-term debt outstanding as a result of the funding of the storm restoration costs resulting from Hurricanes Katrina and Rita.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Other operation and maintenance expenses increased primarily due to:
Taxes other than income taxes increased primarily due to higher Louisiana local franchise taxes primarily due to higherlower fuel recovery revenues as discussed above.
Other income increased primarily due to:
Interest and other charges increased primarily due to the increase in long-term debt outstanding asinterest recorded on advances from independent power producers per a result of the funding of the storm restoration costs resulting from Hurricanes KatrinaFERC order and Rita.interest recorded on deferred fuel costs.
Income Taxes
The effective income tax ratesrate was 39.8% for the second quartersfirst quarter of 20062007 and 2005 were 39.1% and 38%, respectively. The difference in the effective income tax rates27.6% for the secondfirst 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.
The effective income tax rates for the six months ended June 30, 2006 and 2005 were 34.2% and 32.7%, respectively.2006. The difference in the effective income tax rate for the six months ended June 30, 2006first quarter of 2007 versus the federal statutory rate of 35% is due to book and tax differences related to utility plant items and state income taxes, partially offset by book and tax differences related to the allowance for equity funds used during construction. The difference in the effective income tax rate for the first quarter of 2006 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 and utility plant items, 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, and flow-through 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
timing differences.
52
Liquidity and Capital Resources
Cash Flow
Cash flows for the six months ended June 30,first quarters of 2007 and 2006 and 2005 were as follows:
|
|
| 2006 |
| 2005 |
|
| 2007 |
| 2006 |
|
|
| (In Thousands) |
|
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period |
| $25,373 |
| $6,974 | Cash and cash equivalents at beginning of period |
| $180,381 |
| $25,373 |
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in): | Cash flow provided by (used in): |
|
|
|
| Cash flow provided by (used in): |
|
|
|
|
| Operating activities |
| 290,950 |
| 186,084 | Operating activities |
| 141,210 |
| 138,424 |
| Investing activities |
| (220,594) |
| (175,285) | Investing activities |
| (88,201) |
| (153,109) |
| Financing activities |
| (87,268) |
| (15,446) | Financing activities |
| (36,818) |
| 1,845 |
Net decrease in cash and cash equivalents |
| (16,912) |
| (4,647) | ||||||
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents |
| 16,191 |
| (12,840) | |||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $8,461 |
| $2,327 | Cash and cash equivalents at end of period |
| $196,572 |
| $12,533 |
Operating Activities
Cash flow from operations increased $104.9 million for the six months ended June 30, 2006 compared to the six months ended June 30, 2005 primarily due to the timing of collections of receivables from customers, income tax refunds of $60.1 million for the six months ended June 30, 2006 compared to income tax payments of $14.5 million for the same period in 2005, and an increase in the recovery of deferred fuel costs, partially offset by the timing of payments 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 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 $23 million of the refund to Entergy Gulf States.
Investing Activities
Net cash used in investing activities increased $45.3decreased $64.9 million for the six months ended June 30, 2006first quarter of 2007 compared to the six months ended June 30, 2005first quarter of 2006 primarily due to an increasea decrease in construction expenditures of $116.2$137 million due to storm-related projects in 2006, partially offset by money pool activity and a decrease in under-recovered fuel and purchased power expenses of $14.3 million in Texas that have been deferred and are expected to be collected over a period greater than twelve months.activity.
Financing Activities
NetFinancing activities used cash used in financing activities increased $71.8of $36.8 million for the six months ended June 30, 2006first quarter of 2007 compared to providing cash of $1.8 million for the six months ended June 30, 2005first quarter of 2006 primarily due to an increase of $57.4 million in common stock dividends paid in 2007 and the net issuance of $14.5 million of long-term debt in 2005.
60
money pool activity.
Capital Structure
Entergy Gulf States' capitalization is balanced between equity and debt, as shown in the following table.
|
| June 30, |
| December 31, |
|
| March 31, |
| December 31, | |
|
|
|
|
|
|
|
|
|
|
|
Net debt to net capital |
| 51.7% |
| 51.4% |
|
| 49.9% |
| 50.1% |
|
Effect of subtracting cash from debt |
| - |
| 0.3% |
|
| 2.1% |
| 1.9% |
|
Debt to capital |
| 51.7% |
| 51.7% |
|
| 52.0% |
| 52.0% |
|
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.
53
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 are updates to the information provided in the Form 10-K.
Entergy Gulf States' receivables from or (payables to) the money pool were as follows:
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$2,982 |
| $64,011 |
| ($149,447) |
| ($59,720) |
March 31, |
| December 31, |
| March 31, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$107,555 |
| $75,048 |
| ($5,124) |
| $64,011 |
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 establishedhas a $25$50 million line of credit. The line of credit allows Entergy Gulf States to borrow money and to issue letters of credit. $1.4 million in letters of credit were issued under the facility at June 30, 2006,March 31, 2007, 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.
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,competition; state and local rate regulation,regulation; federal regulation and proceedings,regulation; the Energy Policy Act of 2005, state and local rate regulatory risk,2005; industrial, commercial, and wholesale customers, market and credit risks,customers; nuclear matters,matters; environmental risks,risks; and litigation risks. Following are updates to the information disclosed 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,March 2007, Entergy Gulf States filed an application with the FERC requesting authorization to implement its plan for jurisdictional separation withplan that will result in the LPSC and requested that it grant approval no later than September 30, 2006. The plan provides forrestructuring of Entergy Gulf States to be separated into two vertically integratedseparate utilities, one subject solely to the retail jurisdiction of the LPSC (EGS-LA) and the other subject solely to the retail jurisdictionaljurisdiction of the PUCT. ThePUCT (ETI). Interventions and protests are due by May 14, 2007.
In addition to the terms of the plan also providesdescribed in the Form 10-K, additional terms of the plan include that EGS-LA will retain the Texas utility should own all the distribution and transmission assets located in Texas, the gas-fired
61
generating plants located in Texas, and undivided ownership sharesentirety 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 utilityoutstanding long-term debt. Under one or more debt assumption agreements with EGS-LA, ETI would own allassume a portion of this long-term debt allocable to the remaining assets currently owned byportion of Entergy Gulf States. The Texas utilityStates' assets allocated to ETI. EGS-LA will record an assumption asset to reflect the long-term debt assumed by ETI. ETI would purchasegrant EGS-LA a first lien on its assets to secure its debt obligations under the debt assumption agreement or agreements. ETI would have three years from the Louisiana utility pursuantdate of separation to a life-of-the unit purchase power agreement (PPA) a sharepay off the assumed debt. In addition, under the proposal, the currently outstanding preferred stock 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 changeStates would be redeemed as a resultpart of the jurisdictional separation. A hearing is scheduled
Entergy Gulf States has also filed with the FERC an application, on behalf of ETI, for September 25authority from the end of 2007 through March 31, 2010 to October 4, 2006issue up to $200 million of short-term debt, up to $300 million of tax-exempt bonds, and up to $1.4 billion of other long-term securities, including common and preferred stock and long-term debt. Entergy Gulf States, on behalf of EGS-LA, has filed a similar FERC application for authority over the same time period to issue up to $200 million of short-term debt, up to $500 million of tax-exempt bonds and up to $750 million of other long-term securities, including common and preferred membership units and long-term debt.
Additional FERC filings and a filing with the NRC will be made before the separation can occur. In addition, under the LPSC order approving the jurisdictional separation filing. Approvals ofplan, jurisdictional separation will not occur if Entergy Gulf States cannot obtain reasonable assurances from the FERC andrating agencies that upon the NRC may alsoseparation there will not be requireda downgrade in ETI's or EGS-LA's credit ratings from Entergy Gulf States' credit ratings. Entergy Gulf States' current target for certain matters before any implementation ofcompleting the jurisdictional separation is projected to be the end 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.2007.
54
State and Local Rate Regulation
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 pe r 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.
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 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 which a $37.8 million revenue increase was in place.
In May 2006, Entergy Gulf States made its formula rate plan filing with the LPSC for the 2005 test year. The filing shows that 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 $7.1 million rate increase is required to recover LPSC-approved incremental deferred and ongoing capacity requirements. The filing is subject to 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.
In March 2007, Entergy Gulf States filed with the LPSC Staff.PUCT a request to refund $78.5 million, including interest, of fuel cost recovery over-collections for the period through January 2007. Entergy Gulf States requested that the proposed refund be made over a six-month period beginning June 2007; however, the refund period is subject to the PUCT's discretion.
Federal Regulation
See "
System Agreement Proceedings
See Entergy Corporation", "Independent Coordinator of Transmission", and Subsidiaries'"Available Flowgate Capacity Proceeding" in the " "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -System Agreement Litigation,APSC Complaint filed with the FERC, andAPSC System Agreement Investigation" for updates regarding proceedings involving the System Agreement.
62
Independent Coordinatorsection of Transmission (ICT)
See Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant FactorsSubsidiaries Management's Financial Discussion and Known Trends - Federal Regulation -Independent Coordinator of Transmission"Analysis for an update regarding Entergy's ICT proposal.updates to the discussion in the Form 10-K.
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, 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 IssuedNew Accounting Pronouncements
FASB Interpretation No. 48, "AccountingSee "New Accounting Pronouncements" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for Entergy Gulf States in the first quartera discussion 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. Entergy Gulf States does not expect that the adoption of FIN 48 will materially affect its financial position, results of operations, or cash flows.new accounting pronouncements.
6355
ENTERGY GULF STATES, INC. | ENTERGY GULF STATES, INC. | ENTERGY GULF STATES, INC. | ||||||||||
INCOME STATEMENTS | INCOME STATEMENTS | INCOME STATEMENTS | ||||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | ||||||||||||
For the Three Months Ended March 31, 2007 and 2006 | For the Three Months Ended March 31, 2007 and 2006 | |||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Three Months Ended | Six Months Ended | 2007 | 2006 | |||||||||
2006 | 2005 | 2006 | 2005 | (In Thousands) | ||||||||
(In Thousands) | (In Thousands) | |||||||||||
OPERATING REVENUES | ||||||||||||
Domestic electric | $867,504 | $746,987 | $1,723,294 | $1,399,383 | ||||||||
Electric | $795,254 | $855,790 | ||||||||||
Natural gas | 13,611 | 12,532 | 51,027 | 39,387 | 37,928 | 37,415 | ||||||
TOTAL | 881,115 | 759,519 | 1,774,321 | 1,438,770 | 833,182 | 893,205 | ||||||
OPERATING EXPENSES | ||||||||||||
Operation and Maintenance: | ||||||||||||
Fuel, fuel-related expenses, and | ||||||||||||
gas purchased for resale | 215,255 | 147,889 | 500,130 | 367,845 | 239,568 | 284,876 | ||||||
Purchased power | 337,834 | 314,372 | 650,926 | 532,108 | 306,804 | 313,092 | ||||||
Nuclear refueling outage expenses | 4,427 | 4,525 | 9,101 | 8,596 | 3,656 | 4,674 | ||||||
Other operation and maintenance | 123,996 | 124,428 | 245,553 | 233,121 | 125,854 | 121,557 | ||||||
Decommissioning | 2,676 | 2,346 | 5,297 | 4,644 | 2,844 | 2,622 | ||||||
Taxes other than income taxes | 31,663 | 28,937 | 67,688 | 59,475 | 31,311 | 36,025 | ||||||
Depreciation and amortization | 52,484 | 50,605 | 101,179 | 99,341 | 52,415 | 48,695 | ||||||
Other regulatory charges (credits) - net | 1,369 | (5,581) | 1,638 | (5,702) | ||||||||
Other regulatory charges - net | 8,358 | 269 | ||||||||||
TOTAL | 769,704 | 667,521 | 1,581,512 | 1,299,428 | 770,810 | 811,810 | ||||||
OPERATING INCOME | 111,411 | 91,998 | 192,809 | 139,342 | 62,372 | 81,395 | ||||||
OTHER INCOME | ||||||||||||
Allowance for equity funds used during construction | 1,755 | 4,207 | 7,801 | 9,006 | 4,432 | 6,046 | ||||||
Interest and dividend income | 6,366 | 3,415 | 14,469 | 6,850 | 16,375 | 8,103 | ||||||
Miscellaneous - net | 510 | (24) | (402) | 624 | - - | (910) | ||||||
TOTAL | 8,631 | 7,598 | 21,868 | 16,480 | 20,807 | 13,239 | ||||||
INTEREST AND OTHER CHARGES | ||||||||||||
Interest on long-term debt | 34,339 | 28,214 | 67,992 | 56,438 | 34,893 | 33,653 | ||||||
Other interest - net | 1,901 | 2,397 | 3,997 | 4,382 | 5,344 | 2,096 | ||||||
Allowance for borrowed funds used during construction | (1,093) | (2,499) | (4,401) | (5,505) | (2,888) | (3,309) | ||||||
TOTAL | 35,147 | 28,112 | 67,588 | 55,315 | 37,349 | 32,440 | ||||||
INCOME BEFORE INCOME TAXES | 84,895 | 71,484 | 147,089 | 100,507 | 45,830 | 62,194 | ||||||
Income taxes | 33,191 | 27,197 | 50,336 | 32,871 | 18,233 | 17,145 | ||||||
NET INCOME | 51,704 | 44,287 | 96,753 | 67,636 | 27,597 | 45,049 | ||||||
Preferred dividend requirements and other | 1,009 | 1,063 | 2,031 | 2,126 | 962 | 1,022 | ||||||
EARNINGS APPLICABLE TO | ||||||||||||
COMMON STOCK | $50,695 | $43,224 | $94,722 | $65,510 | $26,635 | $44,027 | ||||||
See Notes to Respective Financial Statements. | ||||||||||||
See Notes to Financial Statements. |
64
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. |
6556
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. |
ENTERGY GULF STATES, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Three Months Ended March 31, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $27,597 | $45,049 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Reserve for regulatory adjustments | 11,816 | 6,087 | ||
Other regulatory charges - net | 8,358 | 269 | ||
Depreciation, amortization, and decommissioning | 55,259 | 51,317 | ||
Deferred income taxes, investment tax credits, and non-current taxes accrued | 13,128 | 32,760 | ||
Changes in working capital: | ||||
Receivables | 17,530 | 120,195 | ||
Fuel inventory | (6,595) | (9,143) | ||
Accounts payable | (6,063) | (17,833) | ||
Taxes accrued | (384) | - | ||
Interest accrued | 579 | (102) | ||
Deferred fuel costs | 34,127 | 27,723 | ||
Other working capital accounts | (18,560) | (660) | ||
Provision for estimated losses and reserves | 693 | (769) | ||
Changes in other regulatory assets | 7,971 | (106,199) | ||
Other | (4,246) | (10,270) | ||
Net cash flow provided by operating activities | 141,210 | 138,424 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (69,249) | (206,217) | ||
Allowance for equity funds used during construction | 4,432 | 6,046 | ||
Insurance proceeds | 8,134 | - | ||
Nuclear fuel purchases | (7,461) | (6,102) | ||
Proceeds from sale/leaseback of nuclear fuel | 9,923 | 5,391 | ||
Proceeds from nuclear decommissioning trust fund sales | 12,093 | 20,360 | ||
Investment in nuclear decommissioning trust funds | (15,947) | (23,891) | ||
Change in money pool receivable - net | (32,507) | 64,011 | ||
Changes in other investments - net | 2,381 | 915 | ||
Other regulatory investments | - | (13,622) | ||
Net cash flow used in investing activities | (88,201) | (153,109) | ||
FINANCING ACTIVITIES | ||||
Change in money pool payable - net | - | 5,124 | ||
Redemption of preferred stock | (2,250) | (2,250) | ||
Dividends paid: | ||||
Common stock | (33,600) | - | ||
Preferred stock | (968) | (1,029) | ||
Net cash flow provided by (used in) financing activities | (36,818) | 1,845 | ||
Net increase (decrease) in cash and cash equivalents | 16,191 | (12,840) | ||
Cash and cash equivalents at beginning of period | 180,381 | 25,373 | ||
Cash and cash equivalents at end of period | $196,572 | $12,533 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid during the period for: | ||||
Interest - net of amount capitalized | $37,457 | $33,485 | ||
See Notes to Financial Statements. |
67
57
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. |
ENTERGY GULF STATES, INC. | |||||
BALANCE SHEETS | |||||
ASSETS | |||||
March 31, 2007 and December 31, 2006 | |||||
(Unaudited) | |||||
2007 | 2006 | ||||
(In Thousands) | |||||
CURRENT ASSETS | |||||
Cash and cash equivalents: | |||||
Cash | $2,608 | $2,923 | |||
Temporary cash investments - at cost, | |||||
which approximates market | 193,964 | 177,458 | |||
Total cash and cash equivalents | 196,572 | 180,381 | |||
Accounts receivable: | |||||
Customer | 139,578 | 146,144 | |||
Allowance for doubtful accounts | (1,522) | (1,618) | |||
Associated companies | 133,836 | 106,990 | |||
Other | 46,838 | 50,811 | |||
Accrued unbilled revenues | 78,112 | 79,538 | |||
Total accounts receivable | 396,842 | 381,865 | |||
Accumulated deferred income taxes | 17,934 | 20,352 | |||
Fuel inventory - at average cost | 75,806 | 69,211 | |||
Materials and supplies - at average cost | 122,329 | 120,245 | |||
Deferred nuclear refueling outage costs | 9,517 | 12,971 | |||
Prepayments and other | 19,071 | 16,725 | |||
TOTAL | 838,071 | 801,750 | |||
OTHER PROPERTY AND INVESTMENTS | |||||
Decommissioning trust funds | 348,388 | 344,911 | |||
Non-utility property - at cost (less accumulated depreciation) | 94,263 | 94,776 | |||
Other | 23,585 | 25,218 | |||
TOTAL | 466,236 | 464,905 | |||
UTILITY PLANT | |||||
Electric | 8,905,494 | 8,857,166 | |||
Natural gas | 94,366 | 92,368 | |||
Construction work in progress | 145,111 | 149,392 | |||
Nuclear fuel under capital lease | 65,604 | 73,422 | |||
Nuclear fuel | 9,715 | 10,821 | |||
TOTAL UTILITY PLANT | 9,220,290 | 9,183,169 | |||
Less - accumulated depreciation and amortization | 4,299,104 | 4,263,307 | |||
UTILITY PLANT - NET | 4,921,186 | 4,919,862 | |||
DEFERRED DEBITS AND OTHER ASSETS | |||||
Regulatory assets: | |||||
SFAS 109 regulatory asset - net | 478,795 | 465,259 | |||
Other regulatory assets | 967,100 | 1,001,016 | |||
Deferred fuel costs | 100,124 | 100,124 | |||
Long-term receivables | 8,359 | 9,833 | |||
Other | 29,854 | 23,928 | |||
TOTAL | 1,584,232 | 1,600,160 | |||
TOTAL ASSETS | $7,809,725 | $7,786,677 | |||
See Notes to Financial Statements. | |||||
58 | |||||
ENTERGY GULF STATES, INC. | |||||
BALANCE SHEETS | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
March 31, 2007 and December 31, 2006 | |||||
(Unaudited) | |||||
2007 | 2006 | ||||
(In Thousands) | |||||
CURRENT LIABILITIES | |||||
Accounts payable: | |||||
Associated companies | $103,101 | $79,584 | |||
Other | 161,479 | 200,746 | |||
Customer deposits | 71,355 | 68,844 | |||
Taxes accrued | 27,397 | 27,781 | |||
Interest accrued | 35,062 | 34,483 | |||
Deferred fuel costs | 60,389 | 26,262 | |||
Obligations under capital leases | 24,769 | 24,769 | |||
Pension and other postretirement liabilities | 7,735 | 7,662 | |||
Other | 11,833 | 31,933 | |||
TOTAL | 503,120 | 502,064 | |||
NON-CURRENT LIABILITIES | |||||
Accumulated deferred income taxes and taxes accrued | 1,827,120 | 1,803,461 | |||
Accumulated deferred investment tax credits | 125,775 | 127,202 | |||
Obligations under capital leases | 40,835 | 48,653 | |||
Other regulatory liabilities | 60,434 | 53,648 | |||
Decommissioning and asset retirement cost liabilities | 195,124 | 191,036 | |||
Transition to competition | 79,098 | 79,098 | |||
Accumulated provisions | 23,151 | 21,245 | |||
Pension and other postretirement liabilities | 142,805 | 141,834 | |||
Long-term debt | 2,358,939 | 2,358,327 | |||
Preferred stock with sinking fund | 8,250 | 10,500 | |||
Other | 198,827 | 196,731 | |||
TOTAL | 5,060,358 | 5,031,735 | |||
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 2007 and 2006 | 114,055 | 114,055 | |||
Paid-in capital | 1,457,486 | 1,457,486 | |||
Retained earnings | 646,959 | 653,924 | |||
Accumulated other comprehensive loss | (19,580) | (19,914) | |||
TOTAL | 2,246,247 | 2,252,878 | |||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $7,809,725 | $7,786,677 | |||
See Notes to Financial Statements. |
68
59
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) | - - | ||||
ENTERGY GULF STATES, INC. | |||||||||
STATEMENTS OF RETAINED EARNINGS AND COMPREHENSIVE INCOME | |||||||||
For the Three Months Ended March 31, 2007 and 2006 | |||||||||
(Unaudited) | |||||||||
2007 | 2006 | ||||||||
(In Thousands) | |||||||||
RETAINED EARNINGS | |||||||||
Retained Earnings - Beginning of period | $653,924 | $659,102 | |||||||
Add: Net Income | 27,597 | $27,597 | 45,049 | $45,049 | |||||
Deduct: | |||||||||
Dividends declared on common stock | 33,600 | - - | |||||||
Preferred dividend requirements and other | 962 | 962 | 1,022 | 1,022 | |||||
34,562 | 1,022 | ||||||||
Retained Earnings - End of period | $646,959 | $703,129 | |||||||
ACCUMULATED OTHER COMPREHENSIVE LOSS (Net of Taxes): | |||||||||
Balance at beginning of period: | |||||||||
Pension and other postretirement liabilities | ($19,914) | $ - | |||||||
Other accumulated comprehensive income items | - | (1,409) | |||||||
Pension and other postretirement liabilities (net of tax expense of $326) | $334 | $334 | - | ||||||
Net unrealized investment gains | - | - | 55 | 55 | |||||
Balance at end of period: | |||||||||
Pension and other postretirement liabilities | (19,580) | - - | |||||||
Other accumulated comprehensive income items | - | (1,354) | |||||||
Total | ($19,580) | ($1,354) | |||||||
Comprehensive Income | $26,969 | $44,082 | |||||||
See Notes to Financial Statements. | |||||||||
69
60
ENTERGY GULF STATES, INC. | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three Months Ended March 31, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
Increase/ | ||||||||
Description | 2007 | 2006 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $242 | $240 | $2 | 1 | ||||
Commercial | 193 | 210 | (17) | (8) | ||||
Industrial | 255 | 317 | (62) | (20) | ||||
Governmental | 12 | 13 | (1) | (8) | ||||
Total retail | 702 | 780 | (78) | (10) | ||||
Sales for resale | ||||||||
Associated companies | 28 | 27 | 1 | 4 | ||||
Non-associated companies | 50 | 52 | (2) | (4) | ||||
Other | 15 | (3) | 18 | 600 | ||||
Total | $795 | $856 | ($61) | (7) | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 2,322 | 2,096 | 226 | 11 | ||||
Commercial | 2,024 | 1,970 | 54 | 3 | ||||
Industrial | 3,584 | 3,679 | (95) | (3) | ||||
Governmental | 112 | 112 | - - | - | ||||
Total retail | 8,042 | 7,857 | 185 | 2 | ||||
Sales for resale | ||||||||
Associated companies | 754 | 585 | 169 | 29 | ||||
Non-associated companies | 851 | 617 | 234 | 38 | ||||
Total | 9,647 | 9,059 | 588 | 6 | ||||
61
ENTERGY LOUISIANA, 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 updateterritory, and Entergy Louisiana's efforts to the discussion in the Form 10-K.recover storm restoration costs.
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,February 2007, Entergy Louisiana and Entergy Gulf States filed rebuttal testimony and filed a second supplemental and amending application by which they seek authority from the LPSC to securitize their storm cost recovery applicationand storm reserve amounts, together with certain debt retirement costs and upfront and ongoing costs of the LPSC,securitized debt issued. Securitization is authorized by a law signed by the Governor of Louisiana in which Entergy LouisianaMay 2006. The filing updates actual storm-related costs through January 2007 and Entergy Gulf States requestedestimated future costs, declaring that the LPSC (1) review Entergy Louisiana's costs are $561 million and Entergy Gulf States' testimony and exhibits relating tocosts are $219 million. The filing also updates the costs associated with Hurricanes Katrina and Rita, and declare that those verified, actual storm-related costs through May 31, 2006 are $466.8requested storm reserve amounts, requesting $141 million for Entergy Louisiana and $200.3$87 million for Entergy Gulf States. Hearings began in late-April 2007. At the start of the hearing, a stipulation among Entergy Gulf States, Entergy Louisiana, the LPSC staff, and most other parties in the proceeding was read into the record. The stipulation quantifies the balance of storm restoration costs for recovery as $545 million for Entergy Louisiana and $187 million for Entergy Gulf States, inand sets 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 $54.4storm reserve amounts at $152 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$87 million for Entergy Gulf States. Hearing s onThe stipulation also calls for securitization of the application are scheduled forstorm restoration costs and storm reserves in those same amounts. The LPSC has not issued a decision in the first quarter 2007.
70
proceeding.
Results of Operations
Net Income
Second Quarter 2006 Compared to Second Quarter 2005
Net income decreased $36.2increased $6.4 million for the first quarter of 2007 compared to the first quarter of 2006 primarily due to lowerhigher net revenue, partially offset by higher other income.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Net income decreased $20.6 million primarily due to lower net revenue partially offset by higher other income, lower other operation and maintenance expenses, and lowerhigher depreciation and amortization expenses.expenses, and lower other income.
Net Revenue
Second Quarter 2006 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.charges (credits). Following is an analysis of the change in net revenue comparing the secondfirst quarter of 20062007 to the secondfirst quarter of 2005.
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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 3) other regulatory credits. Following is an analysis of the change in net revenue comparing the six months ended June 30, 2006 to the six months ended June 30, 2005.
|
| Amount |
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| (In Millions) |
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| |
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| $ |
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| |
Volume/weather |
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Other |
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| $ |
The price applied to unbilled salesvolume/weather variance is due to the exclusion in 2006 of the fuel cost componentincreased electricity usage primarily in the calculation of the price applied to unbilled sales.Effective January 1, 2006, the fuel cost component is no longer included inindustrial class, including electricity sales during the unbilled revenue calculation, which is in accordance with regulatory treatment. Entergy Louisiana expects thatservice period and the effect of this factor will be significantly less for its annual results formore favorable weather in the service territory compared to 2006. Billed retail electricity usage increased a total of 573 GWh in all sectors. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" hereinNote 1 to the financial statements in the Form 10-K for a 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 during the unbilled sales period.62
The net wholesale revenuebase revenues variance is primarily due to increases effective September 2006 for the sale2005 formula rate plan filing to recover LPSC-approved incremental deferred and ongoing capacity costs and for the interim recovery of 75%storm costs. See Note 2 to the financial statements in the Form 10-K for a discussion of the generation from the Perryville plant to Entergy Gulf States pursuant to a long-termformula rate plan filing.
The purchased power agreement.
The rate refund provisionscapacity variance is primarily due to additional provisions recordedhigher purchased power capacity charges and the amortization of capacity charges effective September 2006 as a result of the formula rate plan filing in 2005 related to LPSC-approved settlementsMay 2006. A portion of the purchased power capacity costs is offset in March and May 2005.
The storm cost recovery variance isbase revenues due to a base rate increase implemented to recover incremental deferred and ongoing purchased power capacity charges, as mentioned above. See Note 2 to the return earned onfinancial statements in the interim recoveryForm 10-K for a discussion of storm-related costs as allowed by the LPSC effective March 2006.formula rate plan filing.
Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)
Gross operating revenues and fuel and purchased power expenses
Gross operating revenues decreasedincreased primarily due to:
72
The decrease was substantially offset by:
The increase was partially offset by a decrease of $42.9 million in gross wholesale revenue due to increaseddecreased sales to affiliated systems and the sale of a portion of the generation from Perryville; and
Fuel and purchased power expenses increased primarily due to an increase in the average market price of purchased power and an increase in net area demand, partially offset by a decrease in the recovery from customers of deferred fuel costs, partially offset by a shift from higher priced gas and oil generation and purchased powercosts.
Other regulatory credits decreased primarily due to lower priced nuclear generation primarilythe deferral of capacity charges in 2006 in addition to the amortization of these capacity charges in 2007 as a result of a refueling outage in 2005.the May 2006 formula rate plan filing (for the 2005 test year) with the LPSC to recover such costs through base rates effective September 2006.
Other Income Statement Variances
Second Quarter 2006 Compared to Second Quarter 2005
Other income increased 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.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Other operation and maintenance expenses decreasedincreased primarily due to:
The increase was partially offset by the following:
The decrease was offset by:
Depreciation and amortization expenses decreasedincreased primarily due to a changerevision made in the depreciation rate for Waterford 3 as approved by the LPSC effective April 2005 and a revision in 2005first quarter of 2006 of estimated depreciable lives involving certain intangible assets.assets and an increase in plant in service.
63
Other income increaseddecreased primarily due to:
Income Taxes
The effective income tax rates for the secondfirst quarters of 2007 and 2006 were 35.6% and 2005 were 38.4% and 40.0%, respectively. The effective income tax rates for the six months ended June 30, 2006 and 2005 were 38.9% and 39.8%39.9%, respectively. The difference in the effective income tax rate for the secondfirst 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 and book and tax differences related to utility plant items, partially offset by book and a federal tax reserve estimate revision necessarydifferences related to appropriately providethe allowance for priorequity funds used during construction and the amortization of investment tax periods.credits.
Liquidity and Capital Resources
Cash Flow
Cash flows for the six months ended June 30,first quarters of 2007 and 2006 and 2005 were as follows:
|
|
| 2006 |
| 2005 |
|
| 2007 |
| 2006 |
|
|
| (In Thousands) |
|
| (In Thousands) | ||||
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Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period |
| $105,285 |
| $146,049 | Cash and cash equivalents at beginning of period |
| $2,743 |
| $105,285 |
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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): |
|
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|
| Operating activities |
| 231,532 |
| 69,063 | Operating activities |
| 29,837 |
| 192,210 |
| Investing activities |
| (287,999) |
| (295,005) | Investing activities |
| (41,487) |
| (218,567) |
| Financing activities |
| (45,979) |
| 82,412 | Financing activities |
| 11,325 |
| (71,254) |
Net decrease in cash and cash equivalents | Net decrease in cash and cash equivalents |
| (102,446) |
| (143,530) | Net decrease in cash and cash equivalents |
| (325) |
| (97,611) |
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Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $2,839 |
| $2,519 | Cash and cash equivalents at end of period |
| $2,418 |
| $7,674 |
Operating Activities
Cash flow from operations increased $162.5decreased $162.4 million for the six months ended June 30, 2006first quarter of 2007 compared to the six months ended June 30, 2005first quarter of 2006 primarily due to timing of collections of receivables from customers.
customers and payments to vendors, partially offset by increased recovery of deferred fuel costs.
Investing Activities
Cash flow
The decrease of $177.1 million in net cash used by investing activities decreased $7.0 million for the six months ended June 30, 2006first quarter of 2007 compared to the six months ended June 30, 2005. Following are the significant investing activities occurring during the first six monthsquarter of 2006 is primarily due to higher distribution and 2005:
Financing Activities
Entergy Louisiana used $46.0 million of cash forLouisiana's financing activities for the six months ended June 30, 2006 compared to providing $82.4provided $11.3 million for the six months ended June 30, 2005first quarter of 2007 compared to using $71.3 million for the first quarter of 2006 primarily due to:
Partially offsetting the above was the payment of $24.5 million of common stock dividends in 2005.
7464
Capital Structure
Entergy Louisiana's capitalization is balanced between equity and debt, as shown in the following table. The decrease in debt to capital for Entergy Louisiana is primarily due to an 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.
|
| June 30, | December 31, |
| March 31, | December 31, | ||
|
|
| ||||||
Net debt to net capital |
| 47.1% | 49.2% |
| 45.8% | 46.4% | ||
Effect of subtracting cash from debt |
| 0.1% | 2.1% |
| 0.1% | - | ||
Debt to capital |
| 47.2% | 51.3% |
| 45.9% | 46.4% |
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 uses and sources of capital.
In April 2007, Entergy Louisiana announced that it plans to pursue the self-build solid fuel repowering of a 538MW unit at its Little Gypsy plant. Petroleum coke will be the unit's primary fuel source. Entergy Louisiana expects to spend $1.02 billion on the project, and expects the project to be completed in 2011-2012. The planned capital investment estimate in the Form 10-K included the capital required for a project of this type.
Entergy Louisiana's receivables from or (payables to)payables to the money pool were as follows:
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
| |
($90,879) |
| ($68,677) |
| ($110,658) |
| $40,549 |
March 31, |
| December 31, |
| March 31, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
($67,103) |
| ($54,041) |
| ($38,871) |
| ($68,677) |
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 April 2006, Entergy Louisiana's $85 million credit facility expired and was not renewed. Also, Entergy Louisiana's $15 million credit facility expired in May 2006 and was not renewed.
In June 2006, Entergy Louisiana redeemed, prior to maturity, $25 million of 5.95% Series of 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 state and local rate regulation, federal regulation, and proceedings, the Energy Policy Act of 2005, utility restructuring, market and credit risks, nuclear matters, environmental risks, and litigation risks.
State and Local Rate Regulation
In May 2006, Entergy Louisiana made its formula rate plan filing with Following are updates to the LPSC forinformation provided in 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 incrementalForm 10-K.
75
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 a period of LPSC Staff review.
Federal Regulation
See "
System Agreement Proceedings
See 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", and"APSC System Agreement Investigation" for updates regarding proceedings involving the System Agreement.
Independent Coordinator of Transmission (ICT)
See Entergy Corporation", and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Available Flowgate Capacity Proceeding" in the "Significant Factors and Known Trends - Federal Regulation -Independent Coordinator" section of Transmission"Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update regarding Entergy's ICT proposal.updates to the discussion in the Form 10-K.
65
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. 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, Entergy Louisiana 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.benefits.
Recently IssuedNew Accounting Pronouncements
FASB Interpretation No. 48, "AccountingSee "New Accounting Pronouncements" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for Entergy Louisiana in the first quartera discussion 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. Entergy Louisiana does not expect that the adoption of FIN 48 will materially affect its financial position, results of operations, or cash flows.
76new accounting pronouncements.
ENTERGY LOUISIANA, LLC | ||||||||
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 | $550,580 | $647,748 | $1,102,637 | $1,128,421 | ||||
OPERATING EXPENSES | ||||||||
Operation and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 105,470 | 127,564 | 309,474 | 265,341 | ||||
Purchased power | 212,053 | 226,690 | 388,667 | 397,996 | ||||
Nuclear refueling outage expenses | 4,263 | 3,397 | 8,497 | 6,821 | ||||
Other operation and maintenance | 98,462 | 99,518 | 182,564 | 188,156 | ||||
Decommissioning | 4,271 | 5,155 | 8,467 | 10,872 | ||||
Taxes other than income taxes | 15,173 | 18,300 | 31,179 | 36,657 | ||||
Depreciation and amortization | 47,417 | 43,645 | 89,502 | 95,453 | ||||
Other regulatory credits - net | (11,906) | (17,323) | (28,044) | (30,407) | ||||
TOTAL | 475,203 | 506,946 | 990,306 | 970,889 | ||||
OPERATING INCOME | 75,377 | 140,802 | 112,331 | 157,532 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 3,590 | 1,840 | 9,177 | 4,377 | ||||
Interest and dividend income | 3,810 | 5,074 | 9,252 | 8,140 | ||||
Miscellaneous - net | (620) | (6,481) | (1,418) | (6,848) | ||||
TOTAL | 6,780 | 433 | 17,011 | 5,669 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 20,625 | 16,852 | 41,003 | 34,691 | ||||
Other interest - net | 2,623 | 1,804 | 4,331 | 4,823 | ||||
Allowance for borrowed funds used during construction | (2,662) | (990) | (6,513) | (2,489) | ||||
TOTAL | 20,586 | 17,666 | 38,821 | 37,025 | ||||
INCOME BEFORE INCOME TAXES | 61,571 | 123,569 | 90,521 | 126,176 | ||||
Income taxes | 23,617 | 49,406 | 35,171 | 50,242 | ||||
NET INCOME | 37,954 | 74,163 | 55,350 | 75,934 | ||||
Preferred dividend requirements and other | 1,737 | - - | 3,475 | - - | ||||
EARNINGS APPLICABLE TO | ||||||||
COMMON EQUITY | $36,217 | $74,163 | $51,875 | $75,934 | ||||
See Notes to Respective Financial Statements. |
7766
ENTERGY LOUISIANA, LLC | ||||
INCOME STATEMENTS | ||||
For the Three Months Ended March 31, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
OPERATING REVENUES | ||||
Electric | $617,479 | $552,057 | ||
OPERATING EXPENSES | ||||
Operation and Maintenance: | ||||
Fuel, fuel-related expenses, and | ||||
gas purchased for resale | 193,956 | 204,004 | ||
Purchased power | 197,763 | 176,614 | ||
Nuclear refueling outage expenses | 4,197 | 4,234 | ||
Other operation and maintenance | 91,467 | 84,102 | ||
Decommissioning | 4,508 | 4,196 | ||
Taxes other than income taxes | 13,814 | 16,006 | ||
Depreciation and amortization | 48,978 | 42,085 | ||
Other regulatory charges (credits) - net | 11,343 | (16,138) | ||
TOTAL | 566,026 | 515,103 | ||
OPERATING INCOME | 51,453 | 36,954 | ||
OTHER INCOME | ||||
Allowance for equity funds used during construction | 3,948 | 5,587 | ||
Interest and dividend income | 3,594 | 5,442 | ||
Miscellaneous - net | (1,232) | (798) | ||
TOTAL | 6,310 | 10,231 | ||
INTEREST AND OTHER CHARGES | ||||
Interest on long-term debt | 20,233 | 20,378 | ||
Other interest - net | 3,360 | 1,708 | ||
Allowance for borrowed funds used during construction | (2,746) | (3,851) | ||
TOTAL | 20,847 | 18,235 | ||
INCOME BEFORE INCOME TAXES | 36,916 | 28,950 | ||
Income taxes | 13,148 | 11,554 | ||
NET INCOME | 23,768 | 17,396 | ||
Preferred dividend requirements and other | 1,738 | 1,738 | ||
EARNINGS APPLICABLE TO | ||||
COMMON EQUITY | $22,030 | $15,658 | ||
See Notes to Financial Statements. |
67
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68
ENTERGY LOUISIANA, LLC | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Three Months Ended March 31, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $23,768 | $17,396 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Reserve for regulatory adjustments | 104 | (185) | ||
Other regulatory charges (credits) - net | 11,343 | (16,138) | ||
Depreciation, amortization, and decommissioning | 53,486 | 46,281 | ||
Deferred income taxes, investment tax credits, and non-current taxes accrued | 17,108 | (149,174) | ||
Changes in working capital: | ||||
Receivables | (19,852) | 143,629 | ||
Accounts payable | (100,435) | (42,366) | ||
Taxes accrued | 15,123 | 35,756 | ||
Interest accrued | (1,764) | (2,397) | ||
Deferred fuel costs | 52,789 | 1,507 | ||
Other working capital accounts | (22,023) | 153,597 | ||
Provision for estimated losses and reserves | (2,209) | 1,067 | ||
Changes in other regulatory assets | 7,084 | 23,903 | ||
Other | (4,685) | (20,666) | ||
Net cash flow provided by operating activities | 29,837 | 192,210 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (56,974) | (211,398) | ||
Allowance for equity funds used during construction | 3,948 | 5,587 | ||
Insurance proceeds | 2,765 | - - | ||
Nuclear fuel purchases | (3,103) | - - | ||
Proceeds from the sale/leaseback of nuclear fuel | 14,279 | - - | ||
Proceeds from nuclear decommissioning trust fund sales | 3,693 | 7,187 | ||
Investment in nuclear decommissioning trust funds | (6,095) | (10,117) | ||
Other regulatory investments | - - | (9,826) | ||
Net cash flow used in investing activities | (41,487) | (218,567) | ||
FINANCING ACTIVITIES | ||||
Additional equity from parent | 1,119 | - | ||
Change in money pool payable - net | 13,062 | (29,806) | ||
Changes in short-term borrowings | - - | (40,000) | ||
Distributions paid: | ||||
Preferred membership interests | (2,856) | (1,448) | ||
Net cash flow provided by (used in) financing activities | 11,325 | (71,254) | ||
Net decrease in cash and cash equivalents | (325) | (97,611) | ||
Cash and cash equivalents at beginning of period | 2,743 | 105,285 | ||
Cash and cash equivalents at end of period | $2,418 | $7,674 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid during the period for: | ||||
Interest - net of amount capitalized | $24,402 | $23,521 | ||
See Notes to Financial Statements. |
78
69
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. |
ENTERGY LOUISIANA, LLC | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
March 31, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents | $2,418 | $2,743 | ||
Accounts receivable: | ||||
Customer | 105,071 | 97,207 | ||
Allowance for doubtful accounts | (2,192) | (1,856) | ||
Associated companies | 48,235 | 28,621 | ||
Other | 19,380 | 22,652 | ||
Accrued unbilled revenues | 65,610 | 69,628 | ||
Total accounts receivable | 236,104 | 216,252 | ||
Deferred fuel costs | - - | 46,310 | ||
Materials and supplies - at average cost | 101,689 | 98,284 | ||
Deferred nuclear refueling outage costs | 20,292 | 23,639 | ||
Prepayments and other | 14,212 | 5,769 | ||
TOTAL | 374,715 | 392,997 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Decommissioning trust funds | 220,158 | 208,926 | ||
Non-utility property - at cost (less accumulated depreciation) | 1,624 | 1,670 | ||
Other | 4 | 4 | ||
TOTAL | 221,786 | 210,600 | ||
UTILITY PLANT | ||||
Electric | 6,755,036 | 6,693,633 | ||
Property under capital lease | 252,972 | 252,972 | ||
Construction work in progress | 177,219 | 190,454 | ||
Nuclear fuel under capital lease | 75,120 | 82,464 | ||
TOTAL UTILITY PLANT | 7,260,347 | 7,219,523 | ||
Less - accumulated depreciation and amortization | 3,002,111 | 2,959,422 | ||
UTILITY PLANT - NET | 4,258,236 | 4,260,101 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 156,720 | 157,789 | ||
Other regulatory assets | 501,323 | 539,309 | ||
Deferred fuel costs | 67,998 | 67,998 | ||
Long-term receivables | 5,986 | 5,986 | ||
Other | 25,795 | 20,062 | ||
TOTAL | 757,822 | 791,144 | ||
TOTAL ASSETS | $5,612,559 | $5,654,842 | ||
See Notes to Financial Statements. | ||||
70 | ||||
ENTERGY LOUISIANA, LLC | ||||
BALANCE SHEETS | ||||
LIABILITIES AND MEMBERS' EQUITY | ||||
March 31, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Accounts payable: | ||||
Associated companies | $139,778 | $160,555 | ||
Other | 127,109 | 203,076 | ||
Customer deposits | 74,361 | 72,579 | ||
Taxes accrued | 21,360 | 6,237 | ||
Accumulated deferred income taxes | 15,974 | 32,026 | ||
Interest accrued | 28,725 | 30,489 | ||
Deferred fuel cost | 6,479 | - - | ||
Obligations under capital leases | 39,067 | 39,067 | ||
Pension and other postretirement liabilities | 8,368 | 8,276 | ||
Other | 14,014 | 30,425 | ||
TOTAL | 475,235 | 582,730 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 1,852,511 | 1,827,900 | ||
Accumulated deferred investment tax credits | 88,443 | 89,242 | ||
Obligations under capital leases | 36,052 | 43,397 | ||
Other regulatory liabilities | 69,005 | 50,210 | ||
Decommissioning | 243,045 | 238,536 | ||
Accumulated provisions | 21,589 | 23,798 | ||
Pension and other postretirement liabilities | 148,184 | 146,646 | ||
Long-term debt | 1,147,650 | 1,147,647 | ||
Other | 88,877 | 86,428 | ||
TOTAL | 3,695,356 | 3,653,804 | ||
Commitments and Contingencies | ||||
MEMBERS' EQUITY | ||||
Preferred membership interests without sinking fund | 100,000 | 100,000 | ||
Members' equity | 1,367,152 | 1,344,003 | ||
Accumulated other comprehensive loss | (25,184) | (25,695) | ||
TOTAL | 1,441,968 | 1,418,308 | ||
TOTAL LIABILITIES AND MEMBERS' EQUITY | $5,612,559 | $5,654,842 | ||
See Notes to 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 | ||||
8371
ENTERGY LOUISIANA, LLC | ||||||||
STATEMENTS OF MEMBERS' EQUITY AND COMPREHENSIVE INCOME | ||||||||
For the Three Months Ended March 31, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
2007 | 2006 | |||||||
(In Thousands) | ||||||||
MEMBERS' EQUITY | ||||||||
Members' Equity - Beginning of period | $1,344,003 | $1,105,172 | ||||||
Add: | ||||||||
Net income | 23,768 | $23,768 | 17,396 | $17,396 | ||||
Additional equity from parent | 1,119 | 65,703 | ||||||
24,887 | 83,099 | |||||||
Deduct: | ||||||||
Distributions declared: | ||||||||
Preferred membership interests | 1,738 | 1,738 | 1,738 | 1,738 | ||||
Other | - | 97 | ||||||
1,738 | 1,835 | |||||||
Members' Equity - End of period | $1,367,152 | $1,186,436 | ||||||
ACCUMULATED OTHER COMPREHENSIVE | ||||||||
INCOME (Net of Taxes): | ||||||||
Balance at beginning of period: | ||||||||
Pension and other postretirement liabilities | ($25,695) | $- | ||||||
Pension and other postretirement liabilities (net of tax expense of $466) | 511 | 511 | - | |||||
Balance at end of period: | ||||||||
Pension and other postretirement liabilities | ($25,184) | $- | ||||||
Comprehensive Income | $22,541 | $15,658 | ||||||
See Notes to Financial Statements. | ||||||||
72
ENTERGY LOUISIANA, LLC | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three Months Ended March 31, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
Increase/ | ||||||||
Description | 2007 | 2006 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $196 | $161 | $35 | 22 | ||||
Commercial | 136 | 119 | 17 | 14 | ||||
Industrial | 225 | 193 | 32 | 17 | ||||
Governmental | 12 | 11 | 1 | 9 | ||||
Total retail | 569 | 484 | 85 | 18 | ||||
Sales for resale | ||||||||
Associated companies | 38 | 80 | (42) | (53) | ||||
Non-associated companies | 2 | 2 | - | - - | ||||
Other | 8 | (14) | 22 | 157 | ||||
Total | $617 | $552 | $65 | 12 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 1,952 | 1,771 | 181 | 10 | ||||
Commercial | 1,300 | 1,246 | 54 | 4 | ||||
Industrial | 3,228 | 2,894 | 334 | 12 | ||||
Governmental | 115 | 111 | 4 | 4 | ||||
Total retail (1) | 6,595 | 6,022 | 573 | 10 | ||||
Sales for resale | ||||||||
Associated companies | 342 | 723 | (381) | (53) | ||||
Non-associated companies | 32 | 14 | 18 | 129 | ||||
Total | 6,969 | 6,759 | 210 | 3 | ||||
(1) 2006 billed electric energy sales includes 96 GWh of billings related to 2005 deliveries that were billed in | ||||||||
73
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 2006 Compared to Second Quarter 2005
Net income increased $2.0$2.1 million for the first quarter of 2007 compared to the first quarter of 2006 primarily due to higher other income and higher net revenue, partially offset by higher other operation and maintenance expenses, higher depreciation and amortization expense, and a higher interest expense.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005effective income tax rate.
Net income decreased $1.9 million primarily due to higher other operation and maintenance expense, higher taxes other than income taxes, and higher interest expense, partially offset by higher net revenue.Revenue
Net Revenue
Second Quarter 2006 Compared to Second Quarter 2005
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 3) other regulatory credits.charges (credits). Following is an analysis of the change in net revenue comparing the secondfirst quarter of 20062007 to the secondfirst quarter of 2005.2006.
Amount | ||
(In Millions) | ||
| $ | |
|
| |
Volume/weather |
| |
|
| |
Other |
| |
| $ |
The volume/weather variance is primarily due to increased usage primarily during the unbilled sales period and more favorable weather on billed sales compared to the same period in 2006. 9; See Note 1 to the financial statements in the Form 10-K for a discussion of the accounting for unbilled revenues.
The deferral of Attala costs variance is primarily due to the under-recoverydeferral of Attala power plant costs during the first quarter of 2006 that will bewas recovered throughin the power management rider.second quarter of 2006. The net income effect of this cost deferral iswas 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 creditscharges (credits)
Gross operating revenues increaseddecreased primarily due to an increasea decrease of $104$147.3 million in fuel cost recovery revenues due to lower fuel rates, partially offset by higher fuelpower management rider rates.
Fuel and purchased power expenses increaseddecreased primarily due to increased recovery ofa decrease in deferred fuel and purchased power costsexpense due to an increasea decrease in fuel rates. The increase was also due to an increase in demand.
85
Other regulatory creditscharges increased primarily due to the refunding in 2006, 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-recoveryover-recovery in 2007, through the Grand Gulf rider, of Grand Gulf capacity charges. The increase was partially offset by the deferral of Attala costs in 2006, 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, 2006 Compared to Six Months Ended June 30, 200574
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 3) other regulatory credits. Following is an analysis of the change in net revenue comparing the six months ended June 30, 2006 to the six months ended June 30, 2005.
| ||
| ||
|
| |
|
| |
|
| |
|
| |
|
|
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 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 $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, 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.
Other Income Statement Variances
Second Quarter 2006 Compared to Second Quarter 2005
Other operation and maintenance expense increased primarily due to:
86
The increase was partially offset by a decrease of $1.6 million in vegetation maintenance costs in 2006.
Depreciation and amortization expense increased primarily due to an increase in plant in service.
Interest expense increased primarily due to additional long-term debt issued to finance the Attala power plant purchase.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Other operation and maintenance expense increased primarily due to:
The increase was partially offset by a decrease of $2.8$1.7 million in vegetation maintenance costsloss reserves in 2006.2007.
Depreciation and amortization expenses increased primarily due to an increase in plant in service. The increase is also due to an adjustment made in February 2006 as a result of a revision in estimated depreciable lives involving certain intangible assets.
Taxes other than income taxes decreased primarily due to lower franchise taxes in 2007.
Other income increased primarily due to the gain recorded on the sale of non-utility property and higher assessed values for ad valorem tax purposesinterest earned on money pool investments.
Interest expense decreased primarily due to a decrease in long-term debt outstanding as a result of the Attala plant purchase and higher franchise taxesredemption of $100 million of first mortgage bonds in 2006January 2007. Interest expense also decreased due to higher revenues.
Interest expense increased primarily due to additional long-term debt issued to finance the Attala power plant purchase.
money pool activity.
Income Taxes
The effective income tax rates for the secondfirst quarters of 2007 and 2006 were 35.6% and 2005 were 35.1% and 34.9%, respectively. The effective income tax rates for the six months ended June 30, 2006 and 2005 were 31.7% and 33.5%0.4%, respectively. The difference in the effective tax rate for the six months ended June 30,first quarter of 2006 versus the federal statutory rate of 35.0% is primarily due to book 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 state income taxes. The difference in the effective tax rate for the six months ended June 30, 2005 versus the federal statutory rate of 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.items.
Liquidity and Capital Resources
Cash Flow
Cash flows for the six months ended June 30,first quarters of 2007 and 2006 and 2005 were as follows:
|
|
| 2006 |
| 2005 |
|
| 2007 |
| 2006 |
|
|
| (In Thousands) |
|
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period |
| $4,523 |
| $80,396 | Cash and cash equivalents at beginning of period |
| $73,417 |
| $4,523 |
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in): | Cash flow provided by (used in): |
|
|
|
| Cash flow provided by (used in): |
|
|
|
|
| Operating activities |
| 221,502 |
| 48,399 | Operating activities |
| (18,033) |
| 60,292 |
| Investing activities |
| (200,314) |
| (99,320) | Investing activities |
| 84,504 |
| (135,611) |
| Financing activities |
| 12,293 |
| 16,255 | Financing activities |
| (102,707) |
| 80,199 |
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents |
| 33,481 |
| (34,666) | Net increase (decrease) in cash and cash equivalents |
| (36,236) |
| 4,880 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $38,004 |
| $45,730 | Cash and cash equivalents at end of period |
| $37,181 |
| $9,403 |
8775
Operating Activities
Cash flow from operations increased $173.1Entergy Mississippi's operating activities used $18.0 million for the six months ended June 30, 2006first quarter of 2007 compared to providing $60.3 million for the six months ended June 30, 2005first quarter of 2006 primarily due to increaseddecreased 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 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 $66 million of the refund to Entergy Mississippi.
Investing Activities
NetInvesting activities provided $84.5 million in cash used in investing activities increased $101flow for the first quarter of 2007 compared to using $135.6 million for the six months ended June 30,first quarter 2006 compared to the six months ended June 30, 2005 primarily due to:
Financing Activities
Net cash provided byEntergy's Mississippi's financing activities decreased $4used $102.7 million for the six months ended June 30, 2006first quarter of 2007 compared to providing $80.2 million for the six months ended June 30, 2005first quarter of 2006 primarily due to money pool activity and the issuance of $30 million of preferred stock in 2005, partially offset by the issuanceredemption, prior to maturity, of $100 million of first mortgage bonds in January 2007, and the issuance of $100 million of long-term debt during 2006, and a decrease of $10 million in common stock dividends paid.partially offset by money pool activity.
Capital Structure
Entergy Mississippi's capitalization is balanced between equity and debt, as shown in the following table. The increasedecrease in the debt to capital percentage as of June 30, 2006March 31, 2007 is primarily due to the issuanceredemption of $100 million of First Mortgage Bonds in January 2006.2007.
|
| June 30, |
| December 31, |
|
| March 31, |
| December 31, |
|
|
|
|
|
|
|
|
|
|
Net debt to net capital |
| 54.0% |
| 52.6% |
|
| 49.5% |
| 51.9% |
Effect of subtracting cash from debt |
| 1.3% |
| 0.1% |
|
| 1.4% |
| 2.4% |
Debt to capital |
| 55.3% |
| 52.7% |
|
| 50.9% |
| 54.3% |
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 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 condition and believes it provides useful information to its investors and creditors in evaluating Entergy Mississippi's financial condition.
76
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 2006 through 2008. In January 2006, Entergy Mississippi purchased for $88 million the Attala power plant, a 480 MW natural gas-fired, combined-cycle generating facility owned by Central Mississippi Generating 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.In November 2005, the MPSC issued an order approving the acquisition of the Attala plant. In December 2005, the MPSC issued an order approving the investment cost recovery through the 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 intends to make an appropriate filing with the MPSC in 2006 to extend recovery in rates beyond 2006 of Entergy Mississippi's Attala costs. The planned construction and other capital investments line includes the majority 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, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$30,499 |
| ($84,066) |
| $53,488 |
| $21,584 |
March 31, |
| December 31, |
| March 31, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$29,999 |
| $39,573 |
| ($65,732) |
| ($84,066) |
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 May 2006,As discussed in the Form 10-K, Entergy Mississippi increased its $25has two separate credit facilities in the aggregate amount of $50 million credit facility to $30 million and renewed it through May 2007. Entergy Mississippi also entered into a new $20 million credit facility throughthat expire in May 2007. Borrowings on theseunder the credit facilities may be secured by a security interest in Entergy Mississippi's accounts receivable. Entergy Mississippi expects to renew both of its credit facilities prior to expiration. No borrowings were outstanding onunder either facility as of June 30, 2006.March 31, 2007.
In January 2006,2007, Entergy Mississippi issuedredeemed, prior to maturity, $100 million of 5.92%4.35% 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.April 2008.
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 and the Energy Policy Act of 2005, and market and credit risks.utility restructuring. The following are updatesis an update to the information provided in the Form 10-K.
State and Local Rate Regulation
In March 2006,2007, Entergy Mississippi made its annual scheduled formula rate plan filing for the 2006 test year with the MPSC. The filing was amended by an April 2006 filing. The amended filing showedshows that an increase of $3.1$12.9 million in annual electric revenues is warranted. The MPSC has approved a settlement providing for a $1.8 million rate increase, which will be implemented in August 2006.Mississippi Public Utilities Staff is reviewing the filing.
Federal Regulation
See "
System Agreement Proceedings
See 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", and"APSC System Agreement Investigation" for updates regarding proceedings involving the System Agreement.
89
Independent Coordinator of Transmission (ICT)
See Entergy Corporation", and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Available Flowgate Capacity Proceeding" in the "Significant Factors and Known Trends - Federal Regulation -Independent Coordinator" section of Transmission"Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update regarding Entergy's ICT proposal.updates to the discussion in the Form 10-K.
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 qualified pension and other retirement costs.postretirement benefits.
Recently IssuedNew Accounting Pronouncements
FASB Interpretation No. 48, "AccountingSee "New Accounting Pronouncements" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for Entergy Mississippi in the first quartera discussion 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. Entergy Mississippi does not expect that the adoption of FIN 48 will materially affect its financial position, results of operations, or cash flows.new accounting pronouncements.
90
77
ENTERGY MISSISSIPPI, INC. | ENTERGY MISSISSIPPI, INC. | ENTERGY MISSISSIPPI, INC. | ||||||||||
INCOME STATEMENTS | INCOME STATEMENTS | INCOME STATEMENTS | ||||||||||
For the Three and Six Months Ended June 30, 2006 and 2005 | ||||||||||||
For the Three Months Ended March 31, 2007 and 2006 | For the Three Months Ended March 31, 2007 and 2006 | |||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Three Months Ended | Six Months Ended | 2007 | 2006 | |||||||||
2006 | 2005 | 2006 | 2005 | (In Thousands) | ||||||||
(In Thousands) | (In Thousands) | |||||||||||
OPERATING REVENUES | ||||||||||||
Domestic electric | $387,849 | $288,244 | $761,083 | $539,490 | ||||||||
Electric | $270,525 | $373,234 | ||||||||||
OPERATING EXPENSES | ||||||||||||
Operation and Maintenance: | ||||||||||||
Fuel, fuel-related expenses, and | ||||||||||||
gas purchased for resale | 184,001 | 29,924 | 363,158 | 73,291 | 70,974 | 179,157 | ||||||
Purchased power | 115,334 | 144,226 | 239,760 | 260,284 | 95,835 | 124,426 | ||||||
Other operation and maintenance | 50,047 | 47,750 | 91,012 | 88,731 | 45,115 | 40,965 | ||||||
Taxes other than income taxes | 14,707 | 14,900 | 32,223 | 28,666 | 15,015 | 17,516 | ||||||
Depreciation and amortization | 19,074 | 17,982 | 36,070 | 35,919 | 20,269 | 16,996 | ||||||
Other regulatory credits - net | (36,266) | (2,331) | (56,908) | (1,966) | ||||||||
Other regulatory charges (credits) - net | 9,795 | (20,642) | ||||||||||
TOTAL | 346,897 | 252,451 | 705,315 | 484,925 | 257,003 | 358,418 | ||||||
OPERATING INCOME | 40,952 | 35,793 | 55,768 | 54,565 | 13,522 | 14,816 | ||||||
OTHER INCOME | ||||||||||||
Allowance for equity funds used during construction | 873 | 1,060 | 2,114 | 2,061 | Allowance for equity funds used during construction | 1,676 | 1,241 | |||||
Interest and dividend income | 726 | 690 | 955 | 1,328 | 1,448 | 229 | ||||||
Miscellaneous - net | (470) | (322) | (1,032) | (691) | 2,252 | (562) | ||||||
TOTAL | 1,129 | 1,428 | 2,037 | 2,698 | 5,376 | 908 | ||||||
INTEREST AND OTHER CHARGES | ||||||||||||
Interest on long-term debt | 11,492 | 9,839 | 22,607 | 19,673 | 10,382 | 11,115 | ||||||
Other interest - net | 757 | 828 | 2,869 | 1,445 | 1,235 | 2,112 | ||||||
Allowance for borrowed funds used during construction | (583) | (681) | (1,397) | (1,344) | Allowance for borrowed funds used during construction | (1,119) | (814) | |||||
TOTAL | 11,666 | 9,986 | 24,079 | 19,774 | 10,498 | 12,413 | ||||||
INCOME BEFORE INCOME TAXES | 30,415 | 27,235 | 33,726 | 37,489 | 8,400 | 3,311 | ||||||
Income taxes | 10,668 | 9,516 | 10,682 | 12,548 | 2,991 | 14 | ||||||
NET INCOME | 19,747 | 17,719 | 23,044 | 24,941 | 5,409 | 3,297 | ||||||
Preferred dividend requirements and other | 707 | 858 | 1,414 | 1,700 | 707 | 707 | ||||||
EARNINGS APPLICABLE TO | ||||||||||||
COMMON STOCK | $19,040 | $16,861 | $21,630 | $23,241 | $4,702 | $2,590 | ||||||
See Notes to Respective Financial Statements. | ||||||||||||
See Notes to Financial Statements. |
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78
ENTERGY MISSISSIPPI, INC. | ENTERGY MISSISSIPPI, INC. | ENTERGY MISSISSIPPI, INC. | ||||||
STATEMENTS OF CASH FLOWS | STATEMENTS OF CASH FLOWS | STATEMENTS OF CASH FLOWS | ||||||
For the Six Months Ended June 30, 2006 and 2005 | ||||||||
For the Three Months Ended March 31, 2007 and 2006 | For the Three Months Ended March 31, 2007 and 2006 | |||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||
2006 | 2005 | 2007 | 2006 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING ACTIVITIES | ||||||||
Net income | $23,044 | $24,941 | $5,409 | $3,297 | ||||
Adjustments to reconcile net income to net cash flow provided by operating activities: | Adjustments to reconcile net income to net cash flow provided by operating activities: | |||||||
Other regulatory credits - net | (56,908) | (1,966) | ||||||
Other regulatory charges (credits) - net | 9,795 | (20,642) | ||||||
Depreciation and amortization | 36,070 | 35,919 | 20,269 | 16,996 | ||||
Deferred income taxes and investment tax credits | (32,541) | (499) | ||||||
Deferred income taxes, investment tax credits, and non-current taxes accrued | Deferred income taxes, investment tax credits, and non-current taxes accrued | (2,936) | 62,760 | |||||
Changes in working capital: | ||||||||
Receivables | (6,727) | 1,572 | 11,621 | 14,211 | ||||
Fuel inventory | (5,295) | (776) | (44) | (3,103) | ||||
Accounts payable | (23,111) | (8,553) | (10,893) | (53,206) | ||||
Taxes accrued | 76,333 | (8,091) | (23,943) | (33,121) | ||||
Interest accrued | (377) | 525 | 1,697 | 1,323 | ||||
Deferred fuel costs | 207,786 | 8,056 | (19,802) | 123,076 | ||||
Other working capital accounts | 70,785 | (9) | (15,662) | (38,085) | ||||
Provision for estimated losses and reserves | (31) | 319 | 292 | (23) | ||||
Changes in other regulatory assets | (36,761) | (4,326) | 18,322 | (14,621) | ||||
Other | (30,765) | 1,287 | (12,158) | 1,430 | ||||
Net cash flow provided by operating activities | 221,502 | 48,399 | ||||||
Net cash flow provided by (used in) operating activities | (18,033) | 60,292 | ||||||
INVESTING ACTIVITIES | ||||||||
Construction expenditures | (82,229) | (69,477) | (29,362) | (48,653) | ||||
Payment for purchase of plant | (88,199) | - - | - | (88,199) | ||||
Allowance for equity funds used during construction | 2,114 | 2,061 | 1,676 | 1,241 | ||||
Changes in other temporary investments - net | (1,501) | - - | ||||||
Change in money pool receivable - net | (30,499) | (31,904) | 9,574 | - | ||||
Net cash flow used in investing activities | (200,314) | (99,320) | ||||||
Change in other temporary investments - net | 100,000 | - | ||||||
Proceeds from sale of assets | 2,616 | - | ||||||
Net cash flow provided by (used in) investing activities | 84,504 | (135,611) | ||||||
FINANCING ACTIVITIES | ||||||||
Proceeds from the issuance of long-term debt | 99,173 | - - | - | 99,240 | ||||
Proceeds from the issuance of preferred stock | - | 29,340 | ||||||
Retirement of long-term debt | (100,000) | - | ||||||
Change in money pool payable - net | (84,066) | - - | - | (18,334) | ||||
Dividends paid: | ||||||||
Common stock | (1,400) | (11,400) | (2,000) | - | ||||
Preferred stock | (1,414) | (1,685) | (707) | (707) | ||||
Net cash flow provided by financing activities | 12,293 | 16,255 | ||||||
Net cash flow provided by (used in) financing activities | (102,707) | 80,199 | ||||||
Net increase (decrease) in cash and cash equivalents | 33,481 | (34,666) | (36,236) | 4,880 | ||||
Cash and cash equivalents at beginning of period | 4,523 | 80,396 | 73,417 | 4,523 | ||||
Cash and cash equivalents at end of period | $38,004 | $45,730 | $37,181 | $9,403 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||
Cash paid/(received) during the period for: | ||||||||
Cash paid during the period for: | ||||||||
Interest - net of amount capitalized | $24,777 | $19,549 | $9,401 | $11,390 | ||||
Income taxes | ($52,278) | $4,446 | ||||||
See Notes to Financial Statements. |
93
79
ENTERGY MISSISSIPPI, INC. | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
March 31, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $1,703 | $2,128 | ||
Temporary cash investment - at cost, | ||||
which approximates market | 35,478 | 71,289 | ||
Total cash and cash equivalents | 37,181 | 73,417 | ||
Accounts receivable: | ||||
Customer | 53,439 | 61,216 | ||
Allowance for doubtful accounts | (642) | (616) | ||
Associated companies | 36,367 | 45,040 | ||
Other | 7,966 | 9,032 | ||
Accrued unbilled revenues | 28,897 | 32,550 | ||
Total accounts receivable | 126,027 | 147,222 | ||
Accumulated deferred income taxes | 432 | - | ||
Fuel inventory - at average cost | 7,689 | 7,645 | ||
Materials and supplies - at average cost | 29,886 | 28,607 | ||
Other special deposits | - | 100,000 | ||
Prepayments and other | 13,674 | 7,398 | ||
TOTAL | 214,889 | 364,289 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 5,531 | 5,531 | ||
Non-utility property - at cost (less accumulated depreciation) | 5,243 | 6,061 | ||
TOTAL | 10,774 | 11,592 | ||
UTILITY PLANT | ||||
Electric | 2,736,499 | 2,692,971 | ||
Property under capital lease | 4 | 17 | ||
Construction work in progress | 65,331 | 79,950 | ||
TOTAL UTILITY PLANT | 2,801,834 | 2,772,938 | ||
Less - accumulated depreciation and amortization | 959,553 | 945,548 | ||
UTILITY PLANT - NET | 1,842,281 | 1,827,390 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 28,579 | 26,378 | ||
Other regulatory assets | 160,980 | 186,986 | ||
Long-term receivables | 2,288 | 2,288 | ||
Other | 24,653 | 21,968 | ||
TOTAL | 216,500 | 237,620 | ||
TOTAL ASSETS | $2,284,444 | $2,440,891 | ||
See Notes to Financial Statements. | ||||
80 | ||||
ENTERGY MISSISSIPPI, INC. | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
March 31, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Accounts payable: | ||||
Associated companies | $58,171 | $59,696 | ||
Other | 26,843 | 38,097 | ||
Customer deposits | 53,296 | 51,568 | ||
Taxes accrued | 21,744 | 45,687 | ||
Accumulated deferred income taxes | - | 3,963 | ||
Interest accrued | 14,760 | 13,063 | ||
Deferred fuel costs | 75,434 | 95,236 | ||
Obligations under capital leases | 4 | 2 | ||
Other | 7,787 | 17,622 | ||
TOTAL | 258,039 | 324,934 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 519,452 | 516,558 | ||
Accumulated deferred investment tax credits | 10,722 | 11,047 | ||
Other regulatory liabilities | 5,965 | - | ||
Asset retirement cost liabilities | 4,315 | 4,254 | ||
Accumulated provisions | 10,328 | 10,036 | ||
Pension and other postretirement liabilities | 64,368 | 64,604 | ||
Long-term debt | 695,218 | 795,187 | ||
Other | 45,317 | 46,253 | ||
TOTAL | 1,355,685 | 1,447,939 | ||
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 2007 and 2006 | 199,326 | 199,326 | ||
Capital stock expense and other | (690) | (690) | ||
Retained earnings | 421,703 | 419,001 | ||
TOTAL | 670,720 | 668,018 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $2,284,444 | $2,440,891 | ||
See Notes to Financial Statements. | ||||
81
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. | ||||
ENTERGY MISSISSIPPI, INC. | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three Months Ended March 31, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
Increase/ | ||||||||
Description | 2007 | 2006 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 101 | $ 146 | ($45) | (31) | ||||
Commercial | 90 | 130 | (40) | (31) | ||||
Industrial | 41 | 68 | (27) | (40) | ||||
Governmental | 9 | 13 | (4) | (31) | ||||
Total retail | 241 | 357 | (116) | (32) | ||||
Sales for resale | ||||||||
Associated companies | 16 | 8 | 8 | 100 | ||||
Non-associated companies | 6 | 8 | (2) | (25) | ||||
Other | 7 | - | 7 | - | ||||
Total | $ 270 | $ 373 | ($103) | (28) | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 1,251 | 1,185 | 66 | 6 | ||||
Commercial | 1,070 | 1,040 | 30 | 3 | ||||
Industrial | 653 | 701 | (48) | (7) | ||||
Governmental | 95 | 93 | 2 | 2 | ||||
Total retail | 3,069 | 3,019 | 50 | 2 | ||||
Sales for resale | ||||||||
Associated companies | 146 | 71 | 75 | 106 | ||||
Non-associated companies | 84 | 68 | 16 | 24 | ||||
Total | 3,299 | 3,158 | 141 | 4 | ||||
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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 updatearea, and Entergy New Orleans' efforts to the discussion in the Form 10-K.seek recovery of storm restoration costs.
As discussed inIn March 2007, the Form 10-K, a federal hurricane aid package became lawCity Council certified 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 seekhas incurred $205 million in storm-related costs through December 2006 that are eligible for CDBG funding.funding under the state action plan, and certified Entergy New Orleans' estimated costs of $465 million for the gas system rebuild. In March 2006,April 2007, Entergy New Orleans provided a justification statement to state and local officials. The statement,executed an agreement with the Louisiana Office of Community Development under which $200 million of CDBG funds 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 intendedmade available 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. 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, basedsubmitted the agreement to the bankruptcy court, which approved it on a reassessment of the nature and timing of expected restoration and rebuilding costs and the obligations associated with restoring service. AlthoughApril 25, 2007. Entergy New Orleans reduced its accrual for restoration spending by these amounts, it continuesreceived $171.7 million of the funds on April 27, 2007, and the remainder will be paid to expect to incur the related costs over time and Entergy New Orleans stillas it incurs and submits additional eligible costs.
Entergy has reached an agreement with one of its excess insurers under which Entergy will receive $69.5 million in settlement of its Hurricane Katrina claim. Entergy expects its storm restoration and business continuity coststhat $53.7 million of this amount will be allocated to total approximately $275 million. As discussed further in the Form 10-K,Entergy New Orleans. Entergy New Orleans stillsubmitted the agreement to the bankruptcy court, which approved the agreement on April 25, 2007. Entergy expects to receive the costproceeds under the settlement agreement by the end of the longer-term accelerated replacement of the gas distribution system in New Orleans to be $355 million.May 2007.
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. On May 7, 2007, the bankruptcy judge entered an order confirming Entergy New Orleans' plan of reorganization. With the receipt of CDBG funds, and the agreement on insurance recovery with one of its excess insurers, Entergy New Orleans waived the conditions precedent in its plan of reorganization, and the plan became effective on May 8, 2007. Following are updatessignificant terms in Entergy New Orleans' plan of reorganization:
As discussedthe Entergy System money pool.
In April 2006,first mortgage bondholders an amount equal to the one year of interest from the bankruptcy judge extendedpetition date that the exclusivity periodbondholders had waived previously in the bankruptcy proceeding.
83
Entergy New Orleans currently estimates that the prepetition claims that will be allowed and paid (either in cash or by notes) in the bankruptcy case will approximate the prepetition liabilities currently recorded by Entergy New Orleans, including interest.
With confirmation of the plan of reorganization, Entergy expects to August 21, 2006.reconsolidate Entergy New Orleans has filed another motionin the second quarter 2007, retroactive to extendJanuary 1, 2007. Because Entergy owns all of the exclusivity period for filing its plancommon stock of reorganization, requestingEntergy New Orleans, reconsolidation will not affect the amount of net income that the deadline be extended an additional 120 days until December 19, 2006. The court entered an order extending the August 21, 2006 date forEntergy records from 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 setoperations 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 Orleansany current or prior period, but 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 farresult in Entergy New Orleans' bankruptcy proceeding. Entergy New Orleans is currently analyzingresults being included in each individual income statement line item in 2007, rather than just its net income being presented as "Equity in earnings (loss) of unconsolidated equity affiliates," as will remain the accuracycase for 2005 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.2006.
Results of Operations
Net Income
Second Quarter 2006 Compared to Second Quarter 2005
Net income increased $2.4decreased $2.5 million in the first quarter 2007 compared to the first quarter 2006 primarily due to lowerhigher other operation and maintenance expense,expenses and higher interest charges, and taxes other than income taxes, partially offset by lower net revenue.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Net income increased $2.3 million primarily due to lower operation and maintenance expense, interest charges, and taxes other than income taxes, and higher other income, partially offset by lower net revenue.
Net Revenue
Second Quarter 2006 Compared to Second Quarter 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 secondfirst quarter of 20062007 to the secondfirst quarter of 2005.2006.
Amount | ||
(In Millions) | ||
| $ | |
Fuel recovery | 21.1 | |
Volume/weather |
| |
Net wholesale revenue |
| |
Other |
| |
| $ |
The fuel recovery variance is due to the inclusion of Grand Gulf costs in fuel recoveries effective July 1, 2006. In June 2006, the City Council approved the recovery of Grand Gulf costs through the fuel adjustment clause, without a corresponding change in base rates (a significant portion of Grand Gulf costs was previously recovered through base rates).
The volume/weather variance is due to a decreasean increase in electricity usage in the service territory causedin 2007 compared to the same period in 2006. The first quarter of 2006 was affected by customer losses following Hurricane Katrina. Billed retail electricity usage decreasedincreased a total of 494224 GWh compared to the secondfirst quarter of 2005, a decline2006, an increase of 35%32%.
The net wholesale revenue variance is due to an increase inhigher energy available for resale sales for resalein 2006 due to the decrease in retail usage caused by customer losses following Hurricane Katrina. The increasedIn addition, 2006 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
84
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.
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| |
|
| |
|
| |
|
| |
|
|
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 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 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 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 2006 Compared to Second Quarter 2005
Other operation and maintenance expenses decreasedincreased primarily due to shiftsstorm restoration work capitalized in costs from2006 as a result of Hurricane Katrina compared to normal operations and maintenance work to storm restoration work as a result of Hurricane Katrina.in 2007.
Taxes other thanOther income taxes decreased primarilyincreased due to lower franchise taxes in 2006 duecarrying costs of $2 million related to lower revenues.the Hurricane Katrina storm costs regulatory asset.
Interest and other charges decreasedincreased primarily due to the cessation of interest accruals on the first mortgage bondsbonds. On September 23, 2006, when the one-year interest moratorium agreed to by the bondholders expired, Entergy New Orleans resumed interest accruals on its outstanding first mortgage bonds. In addition, Entergy New Orleans began accruing interest on affiliate accounts payable as a result of its plan of reorganization filed with the bankruptcy filing, partially offset by interest accrued on the DIP credit facility.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Other operation and maintenance expenses decreased primarily due to shiftscourt in costs from normal operations and maintenance work to storm restoration work as a resultFebruary 2007. The plan of Hurricane Katrina.
Taxes other than income taxes decreased primarily due to lower franchise taxesreorganization is discussed in 2006 due to lower revenues.
Interest and other charges decreased primarily dueNote 18 to the cessation of interest accruals onfinancial statements in the first mortgage bonds as a result ofForm 10-K and updated in Note 9 to the bankruptcy filing, partially offset by interest accrued on the DIP credit facility.financial statements herein.
Income Taxes
The effective income tax ratesrate was 32.4% for the second quartersfirst quarter of 20062007 and 2005 were 38.6% and 41.9%, respectively.37.5% for the first quarter of 2006. The effective income tax ratesrate for the six months ended June 30, 2006 and 2005 were 38.3% and 40.4%, respectively. The differences in the effective income tax rates for the periods presented versusfirst quarter of 2007 was lower than the federal statutory rate of 35.0% are35% primarily due to statebook and tax differences related to the allowance of equity funds used during construction and the amortization of deferred income taxes and investment tax credits, partially offset by book and tax differences related to utility plant items.items and state income taxes.
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 inBecause its plan of reorganization proposes to pay the Form 10-K, ifaccumulated, unpaid dividends with respect to the 4.75%on all three series of its 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 motionbegan accruing for those dividends in the bankruptcy court seeking authority to recommence paying dividendsfourth quarter 2006. The plan of reorganization is discussed in Note 9 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.financial statements.
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 amongbetween Entergy New Orleans as borrower and Entergy Corporation and the indenture trustee, and the indenture trustee dismissed its appeal.as lender. As of June 30, 2006,March 31, 2007, Entergy New Orleans had approximately $40$42 million of outstanding borrowings under the DIP credit facility. Management currently expectsagreement. During April 2007, at the bankruptcy court-authorized funding level to be sufficient to fundsame time as it made a scheduled pension plan contribution, Entergy New Orleans' expected levelOrleans borrowed under the DIP credit agreement, and on May 8, 2007 had $67 million of operations.
As discussed in the Form 10-K,outstanding 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.agreement.
85
Cash Flow
Cash flows for the six months ended June 30,first quarters of 2007 and 2006 and 2005 were as follows:
|
|
| 2006 |
| 2005 |
|
| 2007 |
| 2006 |
|
|
| (In Thousands) |
|
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period |
| $48,056 |
| $7,954 | Cash and cash equivalents at beginning of period |
| $17,093 |
| $48,056 |
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in): | Cash flow provided by (used in): |
|
|
|
| Cash flow provided by (used in): |
|
|
|
|
| Operating activities |
| 78,453 |
| 1,864 | Operating activities |
| 17,191 |
| 30,729 |
| Investing activities |
| (47,845) |
| (29,464) | Investing activities |
| (3,795) |
| (43,240) |
| Financing activities |
| (50,343) |
| 27,704 | Financing activities |
| (10,000) |
| (10,000) |
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents |
| (19,735) |
| 104 | Net increase (decrease) in cash and cash equivalents |
| 3,396 |
| (22,511) |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $28,321 |
| $8,058 | Cash and cash equivalents at end of period |
| $20,489 |
| $25,545 |
Operating Activities
Net cash provided by operating activities increased $76.6decreased $13.5 million for the six months ended June 30, 2006first quarter of 2007 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 primarily due to an increase in interest paid of $6.9 million. Entergy Corporation received an income tax refund as a resultNew Orleans' operating cash flow for the first quarter of net2007 is also affected by increased operating loss carryback provisions containedactivity in the Gulf Opportunity Zone Act of 2005, as discussed in Note 32007 compared 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 Aprilfirst quarter of 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.following Hurricane Katrina.
Investing Activities
Net cash used in investing activities increased $18.4decreased $39.4 million for the six months ended June 30, 2006first quarter of 2007 compared to the six months ended June 30, 2005first quarter of 2006 primarily due to capital expenditure activity in 2006 related to Hurricane KatrinaKatrina. Entergy New Orleans also received proceeds of $10 million related to the sale in addition to money pool activity in 2005.
101
Financing Activities
Financing activities used $50.3 millionthe first quarter of cash for the six months ended June 30, 2006 because2007 of the net repayment in 2006a power plant that had been out of $50.3 million of borrowings under the DIP credit facility.service since 1984.
Capital Structure
Entergy New Orleans' capitalization is shown in the following table.
|
| June 30, |
| December 31, |
|
|
|
|
|
|
|
Debt to capital |
| 60.5% |
| 66.4% |
|
|
| March 31, |
| December 31, |
|
|
|
|
|
|
|
Net debt to net capital |
| 58.7% |
| 60.4% |
|
Effect of subtracting cash from debt | 1.9% | 1.5% | |||
Debt to capital |
| 60.6% |
| 61.9% |
|
Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable 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 New Orleans 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 New Orleans' financial condition.
86
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.
Entergy New Orleans' receivables from or (payables to)payables to the money pool were as follows:
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
($35,558) |
| ($35,558) |
| $7,758 |
| $1,413 |
March 31, |
| December 31, |
| March 31, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
($37,166) |
| ($37,166) |
| ($37,166) |
| ($37,166) |
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 remains a participant in the money pool, but Entergy New Orleans has not made, and does not expect to make, any additional borrowings from the money pool while it is in bankruptcy proceedings. The money pool borrowings reflected onSeeBankruptcy Proceedings above for a discussion of the treatment in Entergy New Orleans' balance sheet asplan of June 30, 2006 are classified as a pre-petition obligation subject to compromise.
In addition, Entergy New Orleans had a 364-day credit facility in the amount of $15 million which expired in May 2006. As of June 30, 2006, the full amountreorganization of the credit facility remains outstanding under bankruptcy protection. In July 2006,payable to 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.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 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 discussion in the Form 10-K.
State and Local Rate
Federal Regulation
In June 2006, Entergy New Orleans made its annual 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 the City Council's June 2006 decision to allow recovery of 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
102
million in electric base rate revenues (an increase of 4.4%) and $22.8 million in gas base rate revenues (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 the first billing cycle of November 2006.
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 additional 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 plans, which would allow implementation as soon as the first billing cycle of November 2006.
Federal Regulation
System Agreement Proceedings
See 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", and"APSC System Agreement Investigation" for updates regarding proceedings involving the System Agreement.
Independent Coordinator of Transmission (ICT)
See Entergy Corporation", and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Available Flowgate Capacity Proceeding" in the "Significant Factors and Known Trends - Federal Regulation -Independent Coordinator" section of Transmission"Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for an update regarding Entergy's ICT proposal.updates to the discussion in the Form 10-K.
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 qualified pension and other retirement costs.postretirement benefits.
Recently IssuedNew Accounting Pronouncements
FASB Interpretation No. 48, "AccountingSee "New Accounting Pronouncements" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for Entergy New Orleans in the first quartera discussion 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. Entergy New Orleans does not expect that the adoption of FIN 48 will materially affect its financial position, results of operations, or cash flows.new accounting pronouncements.
10387
ENTERGY NEW ORLEANS, INC. | ||||
(DEBTOR-IN-POSSESSION) | ||||
INCOME STATEMENTS | ||||
For the Three Months Ended March 31, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
OPERATING REVENUES | ||||
Electric | $121,619 | $99,249 | ||
Natural gas | 47,023 | 37,012 | ||
TOTAL | 168,642 | 136,261 | ||
OPERATING EXPENSES | ||||
Operation and Maintenance: | ||||
Fuel, fuel-related expenses, and | ||||
gas purchased for resale | 77,431 | 34,668 | ||
Purchased power | 40,159 | 60,237 | ||
Other operation and maintenance | 22,205 | 13,810 | ||
Taxes other than income taxes | 9,774 | 8,600 | ||
Depreciation and amortization | 8,123 | 7,464 | ||
Reorganization items | 2,343 | 1,678 | ||
Other regulatory charges - net | 1,033 | 1,043 | ||
TOTAL | 161,068 | 127,500 | ||
OPERATING INCOME | 7,574 | 8,761 | ||
OTHER INCOME | ||||
Allowance for equity funds used during construction | 1,191 | 1,079 | ||
Interest and dividend income | 2,733 | 803 | ||
Miscellaneous - net | (179) | (152) | ||
TOTAL | 3,745 | 1,730 | ||
INTEREST AND OTHER CHARGES | ||||
Interest on long-term debt | 3,245 | 184 | ||
Other interest - net | 4,309 | 2,141 | ||
Allowance for borrowed funds used during construction | (898) | (863) | ||
TOTAL | 6,656 | 1,462 | ||
INCOME BEFORE INCOME TAXES | 4,663 | 9,029 | ||
Income taxes | 1,513 | 3,386 | ||
NET INCOME | 3,150 | 5,643 | ||
Preferred dividend requirements and other | 241 | - - | ||
EARNINGS APPLICABLE TO | ||||
COMMON STOCK | $2,909 | $5,643 | ||
See Notes to Financial Statements. | ||||
88
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. | ||||||||
ENTERGY NEW ORLEANS, INC. | ||||
(DEBTOR-IN-POSSESSION) | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Three Months Ended March 31, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $3,150 | $5,643 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Other regulatory charges - net | 1,033 | 1,043 | ||
Depreciation and amortization | 8,123 | 7,464 | ||
Deferred income taxes, investment tax credits, and non-current taxes accrued | 15,615 | 70,879 | ||
Changes in working capital: | ||||
Receivables | (6,626) | 14,565 | ||
Fuel inventory | 4,843 | 6,820 | ||
Accounts payable | 15,069 | (6,995) | ||
Taxes accrued | 7,123 | - | ||
Interest accrued | (1,377) | 282 | ||
Deferred fuel costs | 2,207 | 4,581 | ||
Other working capital accounts | (5,790) | (66,694) | ||
Provision for estimated losses and reserves | 421 | - | ||
Changes in other regulatory assets | (1,175) | 7,308 | ||
Other | (25,425) | (14,167) | ||
Net cash flow provided by operating activities | 17,191 | 30,729 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (17,836) | (44,319) | ||
Allowance for equity funds used during construction | 1,191 | 1,079 | ||
Insurance proceeds | 2,804 | - | ||
Proceeds from the sale of assets | 10,046 | - | ||
Net cash flow used in investing activities | (3,795) | (43,240) | ||
FINANCING ACTIVITIES | ||||
Repayment of DIP credit facility | (9,908) | (10,000) | ||
Dividends paid: | ||||
Preferred stock | (92) | - | ||
Net cash flow used in financing activities | (10,000) | (10,000) | ||
Net increase (decrease) in cash and cash equivalents | 3,396 | (22,511) | ||
Cash and cash equivalents at beginning of period | 17,093 | 48,056 | ||
Cash and cash equivalents at end of period | $20,489 | $25,545 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid during the period for: | ||||
Interest - net of amount capitalized | $8,745 | $1,859 | ||
See Notes to Financial Statements. | ||||
104
89
ENTERGY NEW ORLEANS, INC. | ||||
(DEBTOR-IN-POSSESSION) | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2006 and 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $16,417 | $14,110 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Other regulatory charges - net | 2,080 | 2,509 | ||
Depreciation and amortization | 15,972 | 17,145 | ||
Deferred income taxes and investment tax credits | 2,811 | 3,407 | ||
Changes in working capital: | ||||
Receivables | 8,438 | 4,130 | ||
Fuel inventory | 6,068 | 4,181 | ||
Accounts payable | (3,613) | (13,223) | ||
Taxes accrued | 64,541 | 6,045 | ||
Interest accrued | 549 | (403) | ||
Deferred fuel costs | (3,022) | (20,837) | ||
Other working capital accounts | (6,911) | (5,334) | ||
Provision for estimated losses and reserves | (81) | (317) | ||
Changes in pension liability | 2,929 | (9,955) | ||
Changes in other regulatory assets | (32,658) | 3,936 | ||
Other | 4,933 | (3,530) | ||
Net cash flow provided by operating activities | 78,453 | 1,864 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (49,833) | (23,647) | ||
Allowance for equity funds used during construction | 1,988 | 528 | ||
Change in money pool receivable - net | - - | (6,345) | ||
Net cash flow used in investing activities | (47,845) | (29,464) | ||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of long-term debt | - - | 29,791 | ||
Retirement of long-term debt | - - | (5) | ||
Repayment of DIP credit facility | (50,251) | - - | ||
Dividends paid: | ||||
Common stock | - - | (1,600) | ||
Preferred stock | (92) | (482) | ||
Net cash flow provided by (used in) financing activities | (50,343) | 27,704 | ||
Net increase (decrease) in cash and cash equivalents | (19,735) | 104 | ||
Cash and cash equivalents at beginning of period | 48,056 | 7,954 | ||
Cash and cash equivalents at end of period | $28,321 | $8,058 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid/(received) during the period for: | ||||
Interest - net of amount capitalized | $2,589 | $7,882 | ||
Income taxes | ($59,730) | - - | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY NEW ORLEANS, INC. | ||||
(DEBTOR-IN-POSSESSION) | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
March 31, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents | ||||
Cash | $661 | $3,886 | ||
Temporary cash investments - at cost | ||||
which approximates market | 19,828 | 13,207 | ||
Total cash and cash equivalents | 20,489 | 17,093 | ||
Accounts receivable: | ||||
Customer | 60,758 | 58,999 | ||
Allowance for doubtful accounts | (10,389) | (10,563) | ||
Associated companies | 23,607 | 17,797 | ||
Other | 9,589 | 8,428 | ||
Accrued unbilled revenues | 21,480 | 23,758 | ||
Total accounts receivable | 105,045 | 98,419 | ||
Deferred fuel costs | 16,789 | 18,996 | ||
Fuel inventory - at average cost | 198 | 5,041 | ||
Materials and supplies - at average cost | 7,612 | 7,825 | ||
Prepayments and other | 10,904 | 5,641 | ||
TOTAL | 161,037 | 153,015 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 3,259 | 3,259 | ||
Non-utility property at cost (less accumulated depreciation) | 1,016 | 1,107 | ||
TOTAL | 4,275 | 4,366 | ||
UTILITY PLANT | ||||
Electric | 700,959 | 698,081 | ||
Natural gas | 190,483 | 186,932 | ||
Construction work in progress | 12,858 | 21,824 | ||
TOTAL UTILITY PLANT | 904,300 | 906,837 | ||
Less - accumulated depreciation and amortization | 455,464 | 446,673 | ||
UTILITY PLANT - NET | 448,836 | 460,164 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
Other regulatory assets | 300,824 | 295,440 | ||
Long term receivables | 936 | 936 | ||
Other | 9,464 | 7,230 | ||
TOTAL | 311,224 | 303,606 | ||
TOTAL ASSETS | $925,372 | $921,151 | ||
See Notes to Financial Statements. | ||||
90 | ||||
ENTERGY NEW ORLEANS, INC. | ||||
(DEBTOR-IN-POSSESSION) | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
March 31, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
DIP credit facility | $42,026 | $51,934 | ||
Accounts payable: | ||||
Associated companies | 97,771 | 94,686 | ||
Other | 76,245 | 76,831 | ||
Customer deposits | 16,139 | 14,808 | ||
Taxes accrued | 9,209 | 2,086 | ||
Accumulated deferred income taxes | 2,005 | 2,924 | ||
Interest accrued | 16,627 | 18,004 | ||
Other | 4,232 | 6,154 | ||
TOTAL CURRENT LIABILITIES | 264,254 | 267,427 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 95,003 | 98,884 | ||
Accumulated deferred investment tax credits | 3,067 | 3,157 | ||
SFAS 109 regulatory liability - net | 71,740 | 71,870 | ||
Other regulatory liabilities | 9,522 | - - | ||
Retirement cost liability | 2,635 | 2,591 | ||
Accumulated provisions | 8,806 | 8,385 | ||
Pension and other postretirement liabilities | 59,125 | 60,033 | ||
Long-term debt | 229,879 | 229,875 | ||
Other | 4,664 | 5,161 | ||
TOTAL NON-CURRENT LIABILITIES | 484,441 | 479,956 | ||
Commitments and Contingencies | ||||
SHAREHOLDERS' EQUITY | ||||
Preferred stock without sinking fund | 19,780 | 19,780 | ||
Common stock, $4 par value, authorized 10,000,000 | ||||
shares; issued and outstanding 8,435,900 shares in 2007 | ||||
and 2006 | 33,744 | 33,744 | ||
Paid-in capital | 36,294 | 36,294 | ||
Retained earnings | 86,859 | 83,950 | ||
TOTAL | 176,677 | 173,768 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $925,372 | $921,151 | ||
See Notes to Financial Statements. |
105
91
ENTERGY NEW ORLEANS, INC. | ||||
(DEBTOR-IN-POSSESSION) | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
June 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents | $28,321 | $48,056 | ||
Accounts receivable: | ||||
Customer | 69,307 | 82,052 | ||
Allowance for doubtful accounts | (18,558) | (25,422) | ||
Associated companies | 10,839 | 17,895 | ||
Other | 6,989 | 6,530 | ||
Accrued unbilled revenues | 27,738 | 23,698 | ||
Total accounts receivable | 96,315 | 104,753 | ||
Deferred fuel costs | 33,615 | 30,593 | ||
Fuel inventory - at average cost | 1,980 | 8,048 | ||
Materials and supplies - at average cost | 7,046 | 8,961 | ||
Prepayments and other | 7,485 | 61,581 | ||
TOTAL | 174,762 | 261,992 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 3,259 | 3,259 | ||
Non-utility property at cost (less accumulated depreciation) | 1,107 | 1,107 | ||
TOTAL | 4,366 | 4,366 | ||
UTILITY PLANT | ||||
Electric | 739,678 | 691,045 | ||
Natural gas | 191,799 | 189,207 | ||
Construction work in progress | 59,685 | 202,353 | ||
TOTAL UTILITY PLANT | 991,162 | 1,082,605 | ||
Less - accumulated depreciation and amortization | 430,333 | 428,053 | ||
UTILITY PLANT - NET | 560,829 | 654,552 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
Other regulatory assets | 173,045 | 166,133 | ||
Long term receivables | 1,090 | 1,812 | ||
Other | 22,641 | 31,266 | ||
TOTAL | 196,776 | 199,211 | ||
TOTAL ASSETS | $936,733 | $1,120,121 | ||
See Notes to Respective Financial Statements. | ||||
106 | ||||
ENTERGY NEW ORLEANS, INC. | ||||
(DEBTOR-IN-POSSESSION) | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
June 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
DIP credit facility | $39,749 | $90,000 | ||
Notes payable | 15,000 | 15,000 | ||
Accounts payable: | ||||
Associated companies | 46,464 | 55,923 | ||
Other | 62,613 | 228,496 | ||
Customer deposits | 12,321 | 16,930 | ||
Taxes accrued | 5,510 | - - | ||
Accumulated deferred income taxes | 5,017 | 1,898 | ||
Interest accrued | 1,744 | 1,195 | ||
Other | 3,200 | 2,018 | ||
TOTAL CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE | 191,618 | 411,460 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 121,008 | 127,680 | ||
Accumulated deferred investment tax credits | 3,358 | 3,570 | ||
SFAS 109 regulatory liability - net | 59,053 | 52,229 | ||
Other regulatory liabilities | - - | 591 | ||
Retirement cost liability | 2,505 | 2,421 | ||
Accumulated provisions | 2,099 | 2,119 | ||
Pension liability | 38,623 | 35,694 | ||
Other | 5,492 | 5,730 | ||
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 | ||
Common stock, $4 par value, authorized 10,000,000 | ||||
shares; issued and outstanding 8,435,900 shares in 2006 | ||||
and 2005 | 33,744 | 33,744 | ||
Paid-in capital | 36,294 | 36,294 | ||
Retained earnings | 96,217 | 79,892 | ||
TOTAL | 186,035 | 169,710 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $936,733 | $1,120,121 | ||
See Notes to Respective Financial Statements. |
ENTERGY NEW ORLEANS, INC. | ||||||||
(DEBTOR-IN-POSSESSION) | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three Months Ended March 31, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
Increase/ | ||||||||
Description | 2007 | 2006 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $25 | $17 | $8 | 47 | ||||
Commercial | 38 | 35 | 3 | 9 | ||||
Industrial | 10 | 8 | 2 | 25 | ||||
Governmental | 15 | 10 | 5 | 50 | ||||
Total retail | 88 | 70 | 18 | 26 | ||||
Sales for resale | ||||||||
Associated companies | 34 | 7 | 27 | 386 | ||||
Non-associated companies | - | 27 | (27) | (100) | ||||
Other | - | (5) | 5 | 100 | ||||
Total | $122 | $99 | $23 | 23 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 234 | 138 | 96 | 70 | ||||
Commercial | 395 | 360 | 35 | 10 | ||||
Industrial | 137 | 102 | 35 | 34 | ||||
Governmental | 164 | 106 | 58 | 55 | ||||
Total retail | 930 | 706 | 224 | 32 | ||||
Sales for resale | ||||||||
Associated companies | 350 | 120 | 230 | 192 | ||||
Non-associated companies | 2 | 407 | (405) | (100) | ||||
Total | 1,282 | 1,233 | 49 | 4 | ||||
107
ENTERGY NEW ORLEANS, INC. | ||||||||
(DEBTOR-IN-POSSESSION) | ||||||||
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 | $22 | $38 | ($16) | (42) | ||||
Commercial | 37 | 40 | (3) | (8) | ||||
Industrial | 10 | 9 | 1 | 11 | ||||
Governmental | 14 | 17 | (3) | (18) | ||||
Total retail | 83 | 104 | (21) | (20) | ||||
Sales for resale | ||||||||
Associated companies | 4 | 35 | (31) | (89) | ||||
Non-associated companies | 18 | - | 18 | - - | ||||
Other | 13 | 20 | (7) | (35) | ||||
Total | $118 | $159 | ($41) | (26) | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 206 | 447 | (241) | (54) | ||||
Commercial | 402 | 552 | (150) | (27) | ||||
Industrial | 141 | 162 | (21) | (13) | ||||
Governmental | 161 | 243 | (82) | (34) | ||||
Total retail | 910 | 1,404 | (494) | (35) | ||||
Sales for resale | ||||||||
Associated companies | 6 | 400 | (394) | (99) | ||||
Non-associated companies | 369 | 6 | 363 | 6,050 | ||||
Total | 1,285 | 1,810 | (525) | (29) | ||||
Six Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $39 | $67 | ($28) | (42) | ||||
Commercial | 72 | 74 | (2) | (3) | ||||
Industrial | 19 | 16 | 3 | 19 | ||||
Governmental | 24 | 29 | (5) | (17) | ||||
Total retail | 154 | 186 | (32) | (17) | ||||
Sales for resale | ||||||||
Associated companies | 11 | 81 | (70) | (86) | ||||
Non-associated companies | 45 | 1 | 44 | 4,400 | ||||
Other | 7 | 22 | (15) | (68) | ||||
Total | $217 | $290 | ($73) | (25) | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 344 | 847 | (503) | (59) | ||||
Commercial | 762 | 1,071 | (309) | (29) | ||||
Industrial | 244 | 306 | (62) | (20) | ||||
Governmental | 267 | 468 | (201) | (43) | ||||
Total retail | 1,617 | 2,692 | (1,075) | (40) | ||||
Sales for resale | ||||||||
Associated companies | 126 | 1,006 | (880) | (87) | ||||
Non-associated companies | 776 | 10 | 766 | 7,660 | ||||
Total | 2,519 | 3,708 | (1,189) | (32) | ||||
10892
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 increaseddecreased by $3.7$3.5 million for the secondfirst quarter of 20062007 compared to the secondfirst quarter of 20052006. The decrease is primarily due to an increasea decrease in rate base in 2006 resulting in higher operating income. Net income increased by $8.2 million for the six months ended June 30, 2006first quarter of 2007 compared to the six months ended June 30, 2005 primarily due to an increase in rate basesame period in 2006 resulting in higher opera ting income combined with higher interest income earned on money pool investments.lower operating income.
Liquidity and Capital Resources
Cash Flow
Cash flows for the six months ended June 30,first quarters of 2007 and 2006 and 2005 were as follows:
|
|
| 2006 |
| 2005 |
|
| 2007 |
| 2006 |
|
|
| (In Thousands) |
|
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period |
| $75,704 |
| $216,355 | Cash and cash equivalents at beginning of period |
| $135,012 |
| $75,704 |
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in): | Cash flow provided by (used in): |
|
|
|
| Cash flow provided by (used in): |
|
|
|
|
| Operating activities |
| (83,809) |
| 120,292 | Operating activities |
| 59,420 |
| 59,065 |
| Investing activities |
| 162,738 |
| (119,859) | Investing activities |
| (31,754) |
| 107,623 |
| Financing activities |
| (92,989) |
| (81,590) | Financing activities |
| (45,835) |
| (57,089) |
Net decrease in cash and cash equivalents |
| (14,060) |
| (81,157) | ||||||
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents |
| (18,169) |
| 109,599 | |||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $61,644 |
| $135,198 | Cash and cash equivalents at end of period |
| $116,843 |
| $185,303 |
OperatingInvesting Activities
OperatingInvesting activities used $83.8$31.8 million in cash flow for the six months ended June 30, 2006first quarter of 2007 compared to providing $120.3$107.6 million in cash flow for the six months ended June 30, 2005 primarily due to an increasefirst quarter 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, 2006 compared to using $119.9 million in cash flow for the six months ended June 30, 2005 primarily due to money pool activity. Partially offsetting the increase in cash provided was an increase in construction expenditures primarily resulting from capital spending on dry fuel storage.
109
Financing Activities
The increasedecrease of $11.4$11.3 million in net cash used in financing activities for the six months ended June 30, 2006first quarter of 2007 compared to the six months ended June 30, 2005first quarter of 2006 was primarily due to an increasea decrease of $17.2$11.6 million in common stock dividends paid, partially offset by a decrease of $5.8 million in the January 2006 principal payment made on the Grand Gulf sale-leaseback compared to the January 2005 principal payment.dividends.
93
Capital Structure
System Energy's capitalization is balanced between equity and debt, as shown in the following table.
|
| June 30, |
| December 31, |
|
| March 31, |
| December 31, |
|
|
|
|
|
|
|
|
|
|
Net debt to net capital |
| 48.5% |
| 49.0% |
|
| 47.7% |
| 46.4% |
Effect of subtracting cash from debt |
| 1.8% |
| 2.1% |
|
| 3.5% |
| 4.2% |
Debt to capital |
| 50.3% |
| 51.1% |
|
| 51.2% |
| 50.6% |
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 common shareholder's equity. Net capital consists of capital less cash and cash equivalents. System Energy 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 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 |
March 31, |
| December 31, |
| March 31, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$99,031 |
| $88,231 |
| $155,495 |
| $277,287 |
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,the Energy Policy Act of 2005, nuclear matters, litigation risks, and environmental risks.
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 qualified pension and other retirementpostretirement benefits.
110
Recently IssuedNew Accounting Pronouncements
FASB Interpretation No. 48, "AccountingSee "New Accounting Pronouncements" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for System Energy in the first quartera discussion 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.new accounting pronouncements.
11194
SYSTEM ENERGY RESOURCES, INC. | ||||
INCOME STATEMENTS | ||||
For the Three Months Ended March 31, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
OPERATING REVENUES | ||||
Electric | $126,157 | $131,654 | ||
OPERATING EXPENSES | ||||
Operation and Maintenance: | ||||
Fuel, fuel-related expenses, and | ||||
gas purchased for resale | 8,388 | 11,213 | ||
Nuclear refueling outage expenses | 4,535 | 3,573 | ||
Other operation and maintenance | 24,237 | 23,252 | ||
Decommissioning | 6,255 | 5,819 | ||
Taxes other than income taxes | 8,411 | 6,189 | ||
Depreciation and amortization | 25,962 | 25,677 | ||
Other regulatory credits - net | (1,960) | (1,980) | ||
TOTAL | 75,828 | 73,743 | ||
OPERATING INCOME | 50,329 | 57,911 | ||
OTHER INCOME | ||||
Allowance for equity funds used during construction | 416 | 683 | ||
Interest and dividend income | 5,815 | 5,629 | ||
Miscellaneous - net | (79) | (107) | ||
TOTAL | 6,152 | 6,205 | ||
INTEREST AND OTHER CHARGES | ||||
Interest on long-term debt | 12,353 | 12,533 | ||
Other interest - net | 16 | 28 | ||
Allowance for borrowed funds used during construction | (135) | (215) | ||
TOTAL | 12,234 | 12,346 | ||
INCOME BEFORE INCOME TAXES | 44,247 | 51,770 | ||
Income taxes | 16,950 | 21,022 | ||
NET INCOME | $27,297 | $30,748 | ||
See Notes to Financial Statements. | ||||
95
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96
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. | ||||||||
SYSTEM ENERGY RESOURCES, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Three Months Ended March 31, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
�� | ||||
OPERATING ACTIVITIES | ||||
Net income | $27,297 | $30,748 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Other regulatory credits - net | (1,960) | (1,980) | ||
Depreciation, amortization, and decommissioning | 32,217 | 31,496 | ||
Deferred income taxes, investment tax credits and non-current taxes accrued | 57,248 | 25,174 | ||
Changes in working capital: | ||||
Receivables | 969 | 8,979 | ||
Accounts payable | 17,411 | 1,039 | ||
Taxes accrued | (47,988) | (18,964) | ||
Interest accrued | (31,678) | (30,412) | ||
Other working capital accounts | (17,321) | (2,097) | ||
Changes in other regulatory assets | 721 | (4,392) | ||
Other | 22,504 | 19,474 | ||
Net cash flow provided by operating activities | 59,420 | 59,065 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (14,275) | (8,122) | ||
Allowance for equity funds used during construction | 416 | 683 | ||
Nuclear fuel purchases | (56,279) | (370) | ||
Proceeds from sale/leaseback of nuclear fuel | 56,370 | 370 | ||
Proceeds from nuclear decommissioning trust fund sales | 27,337 | 27,489 | ||
Investment in nuclear decommissioning trust funds | (34,523) | (34,219) | ||
Change in money pool receivable - net | (10,800) | 121,792 | ||
Net cash flow provided by (used in) investing activities | (31,754) | 107,623 | ||
FINANCING ACTIVITIES | ||||
Retirement of long-term debt | (23,335) | (22,989) | ||
Dividends paid: | ||||
Common stock | (22,500) | (34,100) | ||
Net cash flow used in financing activities | (45,835) | (57,089) | ||
Net increase (decrease) in cash and cash equivalents | (18,169) | 109,599 | ||
Cash and cash equivalents at beginning of period | 135,012 | 75,704 | ||
Cash and cash equivalents at end of period | $116,843 | $185,303 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid during the period for: | ||||
Interest - net of amount capitalized | $42,592 | $41,520 | ||
See Notes to Financial Statements. | ||||
112
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. | ||||||
114 | ||||||
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, 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 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 and other retirement costs.
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)
See Note 8 to the domestic utility companies and System Energy financial statements in the Form 10-K for information regarding asbestos and hazardous material litigation at Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy 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 APSC (Entergy Arkansas)
As 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)
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
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 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.
Filings with the LPSC
Retail Rates - Electric
(Entergy Gulf States)
In May 2006, Entergy Gulf States made its formula rate plan filing with the LPSC for the 2005 test year. The filing shows that 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 $7.1 million rate increase is required to recover LPSC-approved incremental deferred and ongoing capacity requirements. The filing is subject to 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 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 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.
Retail Rates - Gas (Entergy Gulf States)
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.
Filings with the MPSC (Entergy Mississippi)
Formula Rate Plan Filings
In March 2006, Entergy Mississippi made its annual scheduled formula rate plan filing with the MPSC. The filing was amended by an April 2006 filing. The amended filing showed that an increase of $3.1 million in electric revenues is warranted. The MPSC has approved a settlement providing for a $1.8 million rate increase, which will be implemented in August 2006.
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Filings with the City Council (Entergy New Orleans)
In June 2006, Entergy New Orleans made its annual 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 the City Council's June 2006 decision to allow recovery of 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 million in electric base rate revenues (an increase of 4.4%) and $22.8 million in gas base rate revenues (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 the first billing cycle of November 2006.
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 additional 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 plans, which would allow implementation as soon as the first billing cycle of November 2006.
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 FERC. The current FERC-authorized limits are effective through March 31, 2008. In addition to borrowing from commercial banks, these companies are authorized under a FERC order to borrow from the Entergy System 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 FERC authorized limits. There were no external short-term borrowings outstanding for the domestic utility companies (other than Entergy New Orleans) and System Energy as of June 30, 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:
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| Authorized |
| Borrowings |
|
| (In Millions) | ||
|
|
|
|
|
Entergy Arkansas |
| $250 |
| - |
Entergy Gulf States |
| $350 |
| - |
Entergy Louisiana |
| $250 |
| $90.9 |
Entergy Mississippi |
| $175 |
| - |
System Energy |
| $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.
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Entergy Arkansas, Entergy Gulf States, and Entergy Mississippi, each have credit facilities available as of June 30, 2006 as follows:
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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 credit facilities have variable interest rates and the average commitment fee is 0.13%. The $85 million Entergy Arkansas credit facility 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.
Entergy New Orleans Debtor-in-Possession Credit Facility
See Note 4 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the Entergy 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 bankruptcy court to authorize Entergy New Orleans to enter into the amendment, which is set for hearing August 16, 2006.
The interest 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.
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Long-term Debt
The following long-term debt has been issued by the domestic utility companies and System Energy in 2006:
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The following long-term debt was retired by domestic utility companies and System Energy in 2006:
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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.
Entergy Arkansas used the proceeds from the June 2006 issuance 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 July 2006. The issuance is shown as a non-cash transaction on the cash flow statement since the proceeds were placed in a trust and never held as cash by Entergy Arkansas.
NOTE 4. PREFERRED STOCK
(Entergy Arkansas)
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 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:
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(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 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 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 its plan of 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 2006 and 2005, included the following components:
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| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2006 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
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| (In Thousands) | ||||||||||
Service cost - benefits earned |
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during the period |
| $3,626 |
| $2,993 |
| $2,182 |
| $1,077 |
| $501 |
| $1,031 |
Interest cost on projected |
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benefit obligation |
| 9,915 |
| 7,914 |
| 6,052 |
| 3,252 |
| 1,282 |
| 1,604 |
Expected return on assets |
| (9,834) |
| (10,176) |
| (7,114) |
| (3,683) |
| (884) |
| (1,775) |
Amortization of prior service cost |
| 415 |
| 309 |
| 141 |
| 128 |
| 56 |
| 12 |
Amortization of loss |
| 2,438 |
| 640 |
| 1,509 |
| 725 |
| 509 |
| 167 |
Net pension cost |
| $6,560 |
| $1,680 |
| $2,770 |
| $1,499 |
| $1,464 |
| $1,039 |
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| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2005 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
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Service cost - benefits earned |
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|
|
|
|
|
|
|
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 |
124
The domestic utility companies' and System Energy's pension cost, including amounts capitalized, for the six months ended June 30, 2006 and 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 |
| $7,252 |
| $5,986 |
| $4,365 |
| $2,154 |
| $1,002 |
| $2,062 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 19,830 |
| 15,828 |
| 12,103 |
| 6,504 |
| 2,563 |
| 3,209 |
Expected return on assets |
| (19,668) |
| (20,351) |
| (14,227) |
| (7,366) |
| (1,767) |
| (3,551) |
Amortization of prior service cost |
| 831 |
| 617 |
| 281 |
| 257 |
| 112 |
| 24 |
Amortization of loss |
| 4,875 |
| 1,280 |
| 3,018 |
| 1,449 |
| 1,018 |
| 334 |
Net pension cost |
| $13,120 |
| $3,360 |
| $5,540 |
| $2,998 |
| $2,928 |
| $2,078 |
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2005 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $6,658 |
| $5,408 |
| $3,914 |
| $2,010 |
| $872 |
| $1,888 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 18,230 |
| 14,470 |
| 11,050 |
| 5,996 |
| 2,296 |
| 2,826 |
Expected return on assets |
| (18,018) |
| (19,418) |
| (13,332) |
| (7,132) |
| (1,462) |
| (2,648) |
Amortization of transition asset |
| - |
| - |
| - |
| - |
| - |
| (138) |
Amortization of prior service cost |
| 830 |
| 756 |
| 326 |
| 256 |
| 114 |
| 34 |
Amortization of loss |
| 3,226 |
| 2,426 |
| 1,460 |
| 1,054 |
| 302 |
| 458 |
Net pension cost |
| $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 2006 and 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 |
The domestic utility companies' and System Energy's other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 2006 and 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 |
| $2,674 |
| $2,508 |
| $1,708 |
| $838 |
| $464 |
| $828 |
Interest cost on APBO |
| 5,688 |
| 5,494 |
| 3,712 |
| 1,888 |
| 1,712 |
| 814 |
Expected return on assets |
| (3,594) |
| (2,978) |
| - |
| (1,418) |
| (1,222) |
| (842) |
Amortization of transition obligation |
| 410 |
| 302 |
| 192 |
| 176 |
| 832 |
| 4 |
Amortization of prior service cost |
| (816) |
| - |
| (48) |
| (274) |
| 20 |
| (602) |
Amortization of loss |
| 3,342 |
| 2,004 |
| 1,786 |
| 1,288 |
| 686 |
| 414 |
Net other postretirement benefit cost |
| $7,704 |
| $7,330 |
| $7,350 |
| $2,498 |
| $2,492 |
| $616 |
126
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2005 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $2,314 |
| $3,268 |
| $1,378 |
| $726 |
| $384 |
| $830 |
Interest cost on APBO |
| 5,178 |
| 5,848 |
| 3,346 |
| 1,666 |
| 1,578 |
| 788 |
Expected return on assets |
| (3,274) |
| (2,732) |
| - |
| (1,338) |
| (1,158) |
| (774) |
Amortization of transition obligation |
| 410 |
| 1,894 |
| 190 |
| 176 |
| 870 |
| 8 |
Amortization of prior service cost |
| (346) |
| - |
| 36 |
| (92) |
| 20 |
| (278) |
Amortization of loss |
| 2,552 |
| 1,540 |
| 1,382 |
| 942 |
| 422 |
| 292 |
Net other postretirement benefit cost |
| $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 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 |
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, 2005 Accumulated Postretirement Benefit Obligation (APBO), the second quarters 2006 and 2005 other postretirement benefit cost, and the six months ended June 30, 2006 and 2005 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) |
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
12897
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:
SYSTEM ENERGY RESOURCES, INC. | ||||||
BALANCE SHEETS | ||||||
ASSETS | ||||||
March 31, 2007 and December 31, 2006 | ||||||
(Unaudited) | ||||||
2007 | 2006 | |||||
(In Thousands) | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents: | ||||||
Cash | $143 | $56 | ||||
Temporary cash investments - at cost, | ||||||
which approximates market | 116,700 | 134,956 | ||||
Total cash and cash equivalents | 116,843 | 135,012 | ||||
Accounts receivable: | ||||||
Associated companies | 142,349 | 142,121 | ||||
Other | 12,904 | 3,301 | ||||
Total accounts receivable | 155,253 | 145,422 | ||||
Materials and supplies - at average cost | 60,846 | 61,097 | ||||
Deferred nuclear refueling outage costs | 13,166 | 5,060 | ||||
Prepayments and other | 10,946 | 1,480 | ||||
TOTAL | 357,054 | 348,071 | ||||
OTHER PROPERTY AND INVESTMENTS | ||||||
Decommissioning trust funds | 289,801 | 281,430 | ||||
UTILITY PLANT | ||||||
Electric | 3,245,500 | 3,248,582 | ||||
Property under capital lease | 471,933 | 471,933 | ||||
Construction work in progress | 49,481 | 38,088 | ||||
Nuclear fuel under capital lease | 104,645 | 55,280 | ||||
Nuclear fuel | 10,222 | 10,222 | ||||
TOTAL UTILITY PLANT | 3,881,781 | 3,824,105 | ||||
Less - accumulated depreciation and amortization | 2,021,979 | 2,000,320 | ||||
UTILITY PLANT - NET | 1,859,802 | 1,823,785 | ||||
DEFERRED DEBITS AND OTHER ASSETS | ||||||
Regulatory assets: | ||||||
SFAS 109 regulatory asset - net | 88,288 | 92,600 | ||||
Other regulatory assets | 295,030 | 293,292 | ||||
Other | 13,396 | 14,062 | ||||
TOTAL | 396,714 | 399,954 | ||||
TOTAL ASSETS | $2,903,371 | $2,853,240 | ||||
See Notes to Financial Statements. | ||||||
98 | ||||||
SYSTEM ENERGY RESOURCES, INC. | ||||||
BALANCE SHEETS | ||||||
LIABILITIES AND SHAREHOLDER'S EQUITY | ||||||
March 31, 2007 and December 31, 2006 | ||||||
(Unaudited) | ||||||
2007 | 2006 | |||||
(In Thousands) | ||||||
CURRENT LIABILITIES | ||||||
Currently maturing long-term debt | $96,701 | $93,335 | ||||
Accounts payable: | ||||||
Associated companies | 4,966 | 1,634 | ||||
Other | 40,715 | 26,636 | ||||
Taxes accrued | - | 47,988 | ||||
Accumulated deferred income taxes | 4,945 | 1,828 | ||||
Interest accrued | 14,457 | 46,135 | ||||
Obligations under capital leases | 33,142 | 33,142 | ||||
TOTAL | 194,926 | 250,698 | ||||
NON-CURRENT LIABILITIES | ||||||
Accumulated deferred income taxes and taxes accrued | 353,318 | 304,691 | ||||
Accumulated deferred investment tax credits | 67,791 | 68,660 | ||||
Obligations under capital leases | 71,503 | 22,138 | ||||
Other regulatory liabilities | 266,158 | 242,029 | ||||
Decommissioning | 349,101 | 342,846 | ||||
Accumulated provisions | 2,422 | 2,422 | ||||
Pension and other postretirement liabilities | 32,735 | 32,060 | ||||
Long-term debt | 703,234 | 729,914 | ||||
Other | - | 396 | ||||
TOTAL | 1,846,262 | 1,745,156 | ||||
Commitments and Contingencies | ||||||
SHAREHOLDER'S EQUITY | ||||||
Common stock, no par value, authorized 1,000,000 shares; | ||||||
issued and outstanding 789,350 shares in 2007 and 2006 | 789,350 | 789,350 | ||||
Retained earnings | 72,833 | 68,036 | ||||
TOTAL | 862,183 | 857,386 | ||||
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY | $2,903,371 | $2,853,240 | ||||
See Notes to Financial Statements. | ||||||
NOTE 7. ACCOUNTING POLICY UPDATES99
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.
129
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, 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 Commis sion rules and 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.
130
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, administrative, and other regulatory proceedings affecting Entergy. Following are updates
Item 1A. Risk Factors
There have been no material changes to that discussion.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 $ |
|
|
|
|
|
|
|
|
|
1/01/2007-1/31/2007 |
| 55,000 |
| $92.07 |
| 55,000 |
| $1,500,000,000 |
2/01/2007-2/28/2007 |
| 4,907,042 |
| $98.39 |
| 4,907,042 |
| $1,027,316,661 |
3/01/2007-3/31/2007 |
| 710,000 |
| $98.92 |
| 710,000 |
| $999,999,949 |
Total |
| 5,672,042 |
| $98.39 |
| 5,672,042 |
|
|
(1) | In accordance with Entergy's stock-based compensation plans, Entergy periodically grants stock options to key employees, which 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. Entergy's management has been authorized by the Board to repurchase on the open market shares up to an amount sufficient to fund the exercise of grants under the plans. In addition to this authority, on January 29, 2007, the Board approved a repurchase program under which Entergy is authorized to repurchase up to $1.5 billion of its common stock. The program does not have an expiration date, but Entergy expects to complete it over the next two years. See Note 12 to the financial statements in the Form 10-K for additional discussion of the stock-based compensation plans. |
(2) | Maximum amount of shares that may yet be repurchased relates only to the $1.5 billion plan and does not include an estimate of the amount of shares that may be purchased to fund the exercise of grants under the stock-based compensation plans. |
Item 5. Other Information
Texas Power Price Lawsuit
Other Generation Resources
See "Texas Power Price Lawsuit"On April 5, 2007 the FERC issued an Opinion and Order on Rehearing and Clarification (Opinion) in the proceeding involving Entergy Louisiana and Entergy New Orleans' three long-term contracts to procure power from affiliates that are discussed in Part I,1, Item 1 of the Form 10-K for a discussion of10-K. In its Opinion, the lawsuit filed inFERC rejects the district court of Chambers County, Texas by Texas residents on behalf of a purported class apparently ofUtility operating companies and the Texas retail customers of Entergy Gulf States who were billed and paid for electric power from January 1, 1994LPSC's request to the present. In April 2006, the Court of Appeals 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.
allow Entergy New Orleans Rateand Entergy Louisiana to purchase the Independence plant capacity and energy for a term extending for the life-of-the-unit, as originally proposed, as opposed to the ten-year term ordered by the FERC in its initial opinion. The Opinion also clarifies that while the Utility operating companies' use of Return Lawsuitbid information obtained from the 2002 request for proposal to develop the Entergy Arkansas base load purchase power agreements was improper, the record does not establish that the communications constituted a violation of the Utility operating companies' code of conduct. The Opinio n further
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clarified that the retained share of Grand Gulf that is purchased by Entergy Louisiana and Entergy New Orleans Fuel Clause Litigation
See "Entergy New Orleans Ratefrom Entergy Arkansas should be priced at cost, and not at the below-cost price of Return Lawsuit"$46/MWh specified in Part I, Item 1 of the Form 10-K fororiginal opinion. Additionally, the Opinion rejects: (1) the LPSC's argument that one-month capacity sales by Entergy Arkansas to third parties triggered a discussion of the lawsuit filed by a group of residential and business ratepayers against Entergy New Orleans in state court in Orleans Parish purportedlyright-of-first refusal on behalf of all ratepayers in New Orleans. In accordance with the procedural schedule,other Utility operating companies related to Entergy Arkansas' base load capacity; and (2) the evidentiary record and post-hearing briefsLPSC's argument that Entergy Gulf States was entitled to a portion of the parties were submitted to the City Council in March 2006. In April 2006, the City Council unanimously approved a resolution 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 New Orleans bankruptcy proceeding, the complaint filed by the named plaintiffs in the Entergy New Orleans rate of 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.
Murphy Oil Lawsuit
See "Murphy Oil Lawsuit" in Part I, Item 1 of the Form 10-K for a discussion of the several lawsuits filed in state court in St. Bernard Parish, Louisiana against Murphy Oil,River Bend purchased power agreement (rather than just Entergy Louisiana and others for injuries they allegedly suffered as a result of an explosion atEntergy New Orleans) and the refinery in June 1995. Claiborne P. Deming, who became a director of Entergy Corporation in 2002, is the President and Chief Executive Officer of Murphy Oil. Mr. Deming did not stand for re-election to the Entergy Corporation Board of Directors and his term expired in May 2006. In June 2006, the Louisiana Fourth Circuit Court of Appeal affirmed the trial court's allocation of fault against Entergy Louisiana, but reduced the amount of damages owed by Entergy Louisiana to approximately $1.2 million. Murphy Oil filed a motion for rehearing seeking to have the appellate court reverse its decision to reduce the damages.
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LPSC's jurisdictional arguments related thereto.
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 federal Resource ConservationClean Air Act and Recovery Act (RCRA) against Entergy. Notice of suit is required by RCRA sixty days before actual filing. The suit, if filed, will allege that Entergy violated 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 groundwater 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 site condition, will seek to have EPA formally involved in the ongoing site investigation and any required remediation, will seek attorney's fees under the statute, and may seek to have the judge impose statutory penalties. Entergy continues to investigate the matter.
Item 1A. Risk Factors
There have been no 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 ProceedsSubsequent Amendments
Issuer Purchases of Equity SecuritiesNew Source Review (NSR)
In accordance with Entergy's stock-based compensation plans, Entergy periodically grants stock optionsApril 2007 the U.S. Supreme Court ruled that the applicability of Clean Air Act NSR requirements are not limited only to its employeesmodifications that create an increase in hourly emission rates, but also can apply to modifications that create an increase in annual emission rates (Environmental Defense v. Duke Energy). This holding reversed a Fourth Circuit Court of Appeals decision limiting the applicability of NSR. This Supreme Court decision may be exercisedresult in a renewed effort by the EPA 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 statementsbring enforcement actions against electric generating units for major non-permitted facility modifications. As discussed in the Form 10-K, Entergy has an established process for identifying modifications requiring additional discussionClean Air Act permitting approval and has not been the subject 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 programEPA or to fund the exercise of grants under its employee based compensation plans.
Item 4. Submission of Matters to a Vote of Security Holdersstate enforcement action regarding NSR.
Election of Board of Directors
Entergy CorporationFuture Legislative and Regulatory Developments
In April 2007 the U.S. Supreme Court held that the EPA is authorized by the current provisions of the Clean Air Act to regulate emissions of CO2 and other "greenhouse gases" as "pollutants" (Massachusetts v. EPA) and that the EPA is required to regulate these emissions from motor vehicles if the emissions are anticipated to endanger public health or welfare. The annual meetingSupreme Court directed the EPA to make further findings in this regard. The decision is expected to affect a similar case pending in the U.S. Court of stockholders of Entergy Corporation was held on May 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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Name of Nominee |
| Votes For |
| Votes Withheld |
Maureen S. Bateman |
| 181,913,615 |
| 3,159,171 |
W. Frank Blount |
| 177,995,619 |
| 7,077,167 |
Simon D. deBree |
| 181,832,243 |
| 3,240,543 |
Gary W. Edwards | 181,813,592 | 3,259,194 | ||
Alexis M. Herman |
| 180,732,615 |
| 4,340,171 |
Donald C. Hintz |
| 181,413,474 |
| 3,659,312 |
J. Wayne Leonard |
| 181,518,863 |
| 3,553,923 |
Stuart L. Levenick | 182,579,969 | 2,492,817 | ||
Robert v.d. Luft* |
| 181,366,991 |
| 3,705,795 |
James R. Nichols |
| 181,459,874 |
| 3,612,912 |
William A. Percy, II |
| 182,578,764 |
| 2,494,022 |
W. J. "Billy" Tauzin |
| 182,310,093 |
| 2,762,693 |
Steven V. Wilkinson |
| 182,683,898 |
| 2,388,888 |
Mr. Luft retired from the Board effective August 1, 2006.
other "greenhouse gases" from motor vehicles or from power plants. Entergy Arkansas
A consent in lieu ofis participating as a meeting of common stockholders was executed on 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 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 members was executed on June 22, 2006. The consent was signed on behalf of Entergy Louisiana Holdings, Inc., the holder of all issued and outstanding common membership interests. The holderfriend of the common membership interests by such consent, elected the following individuals to servecourt in both of these cases in support of reasonable market-based regulation of CO2 as directors constituting the Board of Directors of Entergy Louisiana: E. Renae Conley, 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 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 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, Tracie L. Boutte, and Roderick K. West.
System Energy
A consent in lieu of a meeting of common stockholders was executed on 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
Executive Agreements (Entergy Corporation)
Grant of Restricted Stock Units to Chairman of the Board and Chief 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.
Under certain conditions, Mr. Leonard's Restricted Units may vest on an earlier datepollutant under the terms and conditions set forth in the Restricted Unit Agreement, Mr. Leonard's October 2000 Retention Agreement ("Retention Agreement"), or the EOP, although Mr. Leonard will receive payment for accelerated vesting of the restricted 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 Corporation'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 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 EOP.
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 Chief Financial Officer. On August 3, 2006, the Personnel Committee of the Board of Directors approved a retention agreement to be entered into between Entergy Corporation 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 a System Company is terminated under specified circumstances. If Mr. Denault's employment should terminate prior to 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, 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 for reasons other than Cause or Disability, as defined in the Retention 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 SERP 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 case 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 dollar for dollar basis, by cash payments under the System Executive Continuity Plan or any other severance program or arrangement.
The terms and conditions of Mr. Leonard's Restricted Unit Agreement and Mr. Denault's Retention Agreement are summaries and are qualified in their entirety by reference to the terms and conditions of the actual agreements, which are filed as Exhibits 10(a) and 10(b) to this Form 10-Q.Clean Air Act.
Bankruptcy of Entergy New Orleans - Order Confirming Plan of Reorganization
On May 7, 2007, Judge Jerry Brown of the United States Bankruptcy Court for the Eastern District of Louisiana entered an order confirming Entergy New Orleans' plan of reorganization under the provisions of Chapter 11 of the United States Bankruptcy Code (Case No. 05-17697). For a summary of the material features of the plan of reorganization, see "Bankruptcy Proceedings" in Entergy New Orleans' Management's Financial Discussion and Analysis in this report on Form 10-Q. No shares or other units of Entergy Corporation or Entergy New Orleans are reserved for future issuance in respect of claims and interests filed and allowed under the plan. Information regarding the assets and liabilities of Entergy New Orleans can be found in its financial statements and the notes thereto contained in the report on Form 10-Q. A copy of the plan of reorganization as confirmed is included as Exhibit 2(a) to this report on Form 10-Q.
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Entergy Corporation Revolving Credit Facilities
As more fully-described in its report on Form 8-K filed on June 1, 2005 and in Note 4 to the financial statements in this report, Entergy Corporation has two revolving credit facilities available to it. Entergy Corporation from time to time has borrowed under the facilities and has also from time to time issued letters of credit against the borrowing capacity of the facilities. Following is a summary of the borrowings outstanding and capacity available under these facilities as of May 8, 2007:
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|
| Letters | Capacity | ||||
(In Millions) | ||||||||
5-Year Facility | $2,000 | $895 | $79 | $1,026 | ||||
3-Year Facility | $1,500 | $1,030 | $- | $470 |
Amendment to Entergy New Orleans Articles of Incorporation and By-Laws
Effective May 8, 2007, pursuant to the terms of its plan of reorganization, Entergy New Orleans amended its articles of incorporation and its by-laws. The amendments:
The Amended and Restated Articles of Incorporation of Entergy New Orleans, Inc. are included as Exhibit 3(a) and the Amended By-Laws of Entergy New Orleans, Inc. are included as Exhibit 3(b) to this report on Form 10-Q.
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Earnings Ratios (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy)
The domestic utility companies and System EnergyRegistrant Subsidiaries have calculated ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred dividends/distributions pursuant to Item 503 of Regulation S-K of the SEC as follows:
Ratios of Earnings to Fixed Charges | Ratios of Earnings to Fixed Charges | |||||||||||||||||||||
Twelve Months Ended | Twelve Months Ended | |||||||||||||||||||||
December 31, | June 30, | December 31, | March 31, | |||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||
Entergy Arkansas | 3.29 | 2.79 | 3.17 | 3.37 | 3.75 | 3.71 | 2.79 | 3.17 | 3.37 | 3.75 | 3.37 | 3.30 | ||||||||||
Entergy Gulf States | 2.36 | 2.49 | 1.51 | 3.04 | 3.34 | 3.46 | 2.49 | 1.51 | 3.04 | 3.34 | 3.01 | 2.85 | ||||||||||
Entergy Louisiana | 2.76 | 3.14 | 3.93 | 3.60 | 3.50 | 2.98 | 3.14 | 3.93 | 3.60 | 3.50 | 3.23 | 3.26 | ||||||||||
Entergy Mississippi | 2.14 | 2.48 | 3.06 | 3.41 | 3.16 | 2.89 | 2.48 | 3.06 | 3.41 | 3.16 | 2.54 | 2.68 | ||||||||||
Entergy New Orleans | (a) | (b) | 1.73 | 3.60 | 1.22 | 1.62 | (a) | 1.73 | 3.60 | 1.22 | 1.52 | 1.24 | ||||||||||
System Energy | 2.12 | 3.25 | 3.66 | 3.95 | 3.85 | 4.08 | 3.25 | 3.66 | 3.95 | 3.85 | 4.05 | 3.94 |
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Ratios of Earnings to Combined Fixed Charges | |||||||||||
Twelve Months Ended | |||||||||||
December 31, | March 31, | ||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | 2007 | ||||||
Entergy Arkansas | 2.53 | 2.79 | 2.98 | 3.34 | 3.06 | 3.01 | |||||
Entergy Gulf States | 2.40 | 1.45 | 2.90 | 3.18 | 2.90 | 2.74 | |||||
Entergy Louisiana | - | - | - | - | 2.90 | 2.94 | |||||
Entergy Mississippi | 2.27 | 2.77 | 3.07 | 2.83 | 2.34 | 2.45 | |||||
Entergy New Orleans | (a) | 1.59 | 3.31 | 1.12 | 1.35 | 1.11 |
Ratios of Earnings to Combined Fixed Charges | |||||||||||
Twelve Months Ended | |||||||||||
December 31, | June 30, | ||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | ||||||
Entergy Arkansas | 2.99 | 2.53 | 2.79 | 2.98 | 3.34 | 3.29 | |||||
Entergy Gulf States | 2.21 | 2.40 | 1.45 | 2.90 | 3.18 | 3.32 | |||||
Entergy Louisiana | 2.76 | 3.14 | 3.93 | 3.60 | 3.50 | 2.81 | |||||
Entergy Mississippi | 1.96 | 2.27 | 2.77 | 3.07 | 2.83 | 2.64 | |||||
Entergy New Orleans | (a) | (b) | 1.59 | 3.31 | 1.12 | 1.54 |
(a) |
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| 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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12(b) - | Entergy | |
12(c) - | Entergy Louisiana's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Distributions, as defined. | |
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12(d) - | Entergy Mississippi's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. | |
12(e) - | Entergy New Orleans' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. | |
12(f) - | System Energy's Computation of Ratios of Earnings to Fixed Charges, as defined. | |
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 Arkansas. | |
31(e) - | Rule 13a-14(a)/15d-14(a) Certification for Entergy Gulf States. | |
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. | |
31(k) - | 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. |
31(m) - | Rule 13a-14(a)/15d-14(a) Certification for Entergy New Orleans. | |
31(n) - | Rule 13a-14(a)/15d-14(a) Certification for System Energy. | |
31(o) - | 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 Arkansas. | |
32(e) - | Section 1350 Certification for Entergy Gulf States. | |
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. | |
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32(j) - | Section 1350 Certification for Entergy Mississippi. | |
32(k) - | Section 1350 Certification for Entergy Mississippi. | |
32(l) - | Section 1350 Certification for Entergy New Orleans. | |
32(m) - | Section 1350 Certification for Entergy New Orleans. | |
32(n) - | Section 1350 Certification for System Energy. | |
32(o) - | Section 1350 Certification for System Energy. | |
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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 |
** | Incorporated herein by reference as indicated. |
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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 8, 2006May 9, 2007
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