__________________________________________________________________________________________
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 or Organization, Address of |
| Registrant, State of Incorporation or Organization, 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
|
|
|
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 |
|
| |||
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
|
|
|
Outstanding at | ||
Entergy Corporation | ($0.01 par value) |
|
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, 2005,2006, and the Quarterly ReportsReport on Form 10-Q for the quartersquarter ended March 31, 2006 and June 30, 20062007, 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-QSeptemberJune 30, 20062007
Page Number | |||||
Definitions | 1 | ||||
Entergy Corporation and Subsidiaries | |||||
Management's Financial Discussion and Analysis | |||||
Hurricane Katrina and Hurricane Rita | 4 | ||||
Results of Operations |
| ||||
Liquidity and Capital Resources | 14 | ||||
Significant Factors and Known Trends | 18 | ||||
Critical Accounting Estimates |
| ||||
|
| ||||
Consolidated Statements of Income |
| ||||
Consolidated Statements of Cash Flows |
| ||||
Consolidated Balance Sheets |
| ||||
Consolidated Statements of Retained Earnings, Comprehensive Income, and |
| ||||
Selected Operating Results |
| ||||
Notes to |
| ||||
Part I. Item 3. Quantitative and Qualitative Disclosures About Market Risk | 55 | ||||
Part I. Item 4. Controls and Procedures | 55 | ||||
Entergy Arkansas, Inc. | |||||
Management's Financial Discussion and Analysis | |||||
Results of Operations |
| ||||
Liquidity and Capital Resources |
| ||||
Significant Factors and Known Trends |
| ||||
Critical Accounting Estimates |
| ||||
|
| ||||
Income Statements |
| ||||
Statements of Cash Flows |
| ||||
Balance Sheets |
| ||||
Selected Operating Results |
| ||||
Entergy Gulf States, Inc. | |||||
Management's Financial Discussion and Analysis | |||||
Hurricane Rita and Hurricane Katrina |
| ||||
Results of Operations |
| ||||
Liquidity and Capital Resources | 71 | ||||
Significant Factors and Known Trends |
| ||||
Critical Accounting Estimates |
| ||||
| 74 | ||||
Consolidated Income Statements | 75 | ||||
|
| ||||
Consolidated Statements of Cash Flows | 77 | ||||
Consolidated Balance Sheets | 78 | ||||
Consolidated Statements of Retained Earnings and Comprehensive Income | 80 | ||||
Selected Operating Results | 81 | ||||
Entergy Louisiana, LLC | |||||
Management's Financial Discussion and Analysis | |||||
Hurricane Rita and Hurricane Katrina | 82 | ||||
Results of Operations |
| ||||
Liquidity and Capital Resources |
| ||||
Significant Factors and Known Trends |
| ||||
Critical Accounting Estimates |
| ||||
|
| ||||
Income Statements |
| ||||
Statements of Cash Flows |
| ||||
|
| ||||
|
| ||||
|
|
ENTERGY CORPORATION AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-QSeptemberJune 30, 20062007
Page Number | |||||
Balance Sheets | 92 | ||||
Statements of Members' Equity and Comprehensive Income | 94 | ||||
Selected Operating Results | 95 | ||||
Entergy Mississippi, Inc. | |||||
Management's Financial Discussion and Analysis | |||||
|
| ||||
|
| ||||
Liquidity and Capital Resources |
| ||||
Significant Factors and Known Trends |
| ||||
Critical Accounting Estimates |
| ||||
|
| ||||
Income Statements |
| ||||
Statements of Cash Flows |
| ||||
Balance Sheets |
| ||||
Selected Operating Results |
| ||||
Entergy New Orleans, Inc. | |||||
Management's Financial Discussion and Analysis | |||||
Hurricane Katrina |
| ||||
Bankruptcy Proceedings |
| ||||
Results of Operations |
| ||||
Liquidity and Capital Resources |
| ||||
Significant Factors and Known Trends |
| ||||
Critical Accounting Estimates | 112 | ||||
New Accounting Pronouncements | 112 | ||||
Income Statements | 113 | ||||
Statements of Cash Flows | 115 | ||||
Balance Sheets | 116 | ||||
Selected Operating Results | 118 | ||||
System Energy Resources, Inc. | |||||
Management's Financial Discussion and Analysis | |||||
Results of Operations | 119 | ||||
| 119 | ||||
Significant Factors and Known Trends | 120 | ||||
Critical Accounting Estimates | 120 | ||||
New Accounting Pronouncements | 120 | ||||
Income Statements | 121 | ||||
Statements of Cash Flows | 123 | ||||
Balance Sheets | 124 | ||||
|
| ||||
| |||||
| |||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
Part II. Other Information | |||||
Item 1. Legal Proceedings |
| ||||
Item 1A. Risk Factors |
| ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
| ||||
Item 4. Submission of Matters to a Vote of Security Holders | 126 | ||||
Item 5. Other Information |
| ||||
Item 6. Exhibits |
| ||||
Signature |
|
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," "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 reg istrants 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)
(Page left blank intentionally)
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 |
| Price at which generation output |
| Price at which the combination of generation output and capacity are expected to be sold to third parties, given existing contract or option exercise prices based on expected dispatch |
Average realized price per MWh | Revenue per MWh billed |
Board | Board of Directors of Entergy Corporation |
|
|
|
|
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 |
|
|
EITF | FASB's Emerging Issues Task Force |
|
|
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, 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) |
1
DEFINITIONS (Continued)
|
|
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 |
1
DEFINITIONS(Continued)
Abbreviation or Acronym | Term |
Independence | Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 7% by Entergy Power |
IRS | Internal Revenue Service |
ISO | Independent System Operator |
kV | Kilovolt |
kW | Kilowatt |
kWh | Kilowatt-hour(s) |
LDEQ | Louisiana Department of Environmental Quality |
LPSC | Louisiana Public Service Commission |
Mcf | One thousand cubic feet of gas |
MMBtu | One million British Thermal Units |
MPSC | Mississippi Public Service Commission |
MW | Megawatt(s), which equals one thousand |
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 |
NRC | Nuclear Regulatory Commission |
NYPA | New York Power Authority |
OASIS | Open Access Same Time Information |
|
|
|
|
|
|
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 |
2
DEFINITIONS(Concluded)
|
|
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 |
|
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 |
2
DEFINITIONS(Concluded)
Abbreviation or Acronym | Term |
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 |
System Energy | System Energy Resources, Inc. |
System Fuels | System Fuels, Inc. |
TWh | Terawatt-hour(s), which equals one billion |
unit-contingent | Transaction under which power is supplied from a specific generation asset; if the asset is unavailable, the seller is not liable to the buyer for any damages |
|
|
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 |
3
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. Due to the November 2006 expiration of contingencies on the sale of Entergy-Koch's trading business, and the corresponding release to Entergy-Koch of sales proceeds held in escrow, Entergy expects to record a gain related to this investment of approximately $60 million, net-of-tax, in the fourth quarter of 2006. 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 updatesSee Note 2 to the financial statements herein for a discussion of updates in Entergy Gulf States', Entergy Louisiana's, and Entergy Mississippi's storm cost recovery proceedings.
Entergy reached an agreement with one of its excess insurers under which Entergy received $69.5 million in the second quarter 2007 in settlement of its Hurricane Katrina claim with that insurer. Entergy has received a total of $134.5 million as of June 30, 2007 on its Hurricanes Katrina and Rita insurance claims, including $83.1 million in 2007. Refer to Note 8 to the financial statements in the Form 10-K.10-K for a description of Entergy's non-nuclear property insurance coverage.
Community Development Block GrantsGrant (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. The U.S. Department of Housing and Urban Development has allocated approximately $10.4 billion for Louisiana, $5.5 billion for Mississippi, and $0.5 billion for Texas. The states, in turn, will administer the grants.
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 Louisiana, and Entergy Gulf States-Louisiana provided justification statements to state and local officials in March 2006 and presented revised justification statements to the Louisiana Recovery Authority in September 2006. The statements 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 CDBG funding of $592 million forEntergy New Orleans. Entergy New Orleans $539submitted the agreement to the bankruptcy court, which approved it on April 25, 2007. Entergy New Orleans has received $176.8 million for Entergy Louisiana,of the funds as of June 30, 2007, and $183 million for Entergy Gulf States-Louisiana.
In October 2006, the Louisiana Recovery Authority Board endorsed a resolution proposing to allocate $200 million in CDBG fundsremainder will be paid to Entergy New Orleans to defray gasas it incurs and electric utility system repair costs in an effort to provide rate relief for Entergy New Orleans customers. The proposal will now be developed as an action plan amendment and published for public comment. Once public input is reviewed and considered, the final plan will come before the Louisiana Recovery Authority Board, the Governor, and the Louisiana Legislature for approval before submission of the plan to the U.S. Department of Housing and Urban Development for its approval. The City Council will certify Entergy New Orleans' repair costs before they are submitted for funding. The Louisiana Recovery Authority Board has not allocated any CDBG funds to Entergy Louisiana and Entergy Gulf States-Louisiana at this time.submits additional eligible costs.
4
As discussed further below, Entergy Mississippi filed a request with the Mississippi Development Authority for CDBG funding for reimbursement of its Hurricane Katrina infrastructure restoration costs and received $81 million in October 2006.
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, including carrying 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 Ent ergy Gulf States. Hearings are scheduled for March 2007. Entergy Gulf States and Entergy Louisiana also intend to pursue securitization options for the storm cost recovery as well, which is authorized by a law signed by the Governor of Louisiana in May 2006.
In March 2006, the Governor of Mississippi signed a law that established a mechanism by which the MPSC could authorize and certify an electric utility financing order and the state could issue general obligation bonds to finance 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 restoration costs, in March 2006, the MPSC issued an order approving a Joint Stipulation between Entergy Mississippi
5
and the Mississippi Public Utilities Staff that provided for a review of Entergy Mississippi's total storm restoration costs in an Application for an Accounting Order proceeding. The Stipulation stated that the procedural schedule of Entergy Mississippi's December 2005 filing seeking recovery of hurricane costs through an existing Entergy Mississippi storm damage rider 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 Hurricane Katrina 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 included the $89 million of Hurricane Katrina restoration costs plus $80 million to build Entergy Mississippi's storm damage reserve for the future. Entergy Mississippi's filing stated that the amount actually financed through the state bonds would be net of any CDBG funds that Entergy Mississippi received.
In October 2006, the Mississippi Development Authority approved for payment and Entergy Mississippi received $81 million in CDBG funding for Hurricane Katrina costs. The MPSC then issued a financing order authorizing the issuance of $48 million of state general obligation bonds, with $8 million for the remainder of Entergy Mississippi's certified Hurricane Katrina restoration costs and $40 million for the increase in Entergy Mississippi's storm damage reserve. $30 million of the storm reserve will be set aside in a restricted account. Entergy Mississippi expects to forward the financing order to the state bond commission, as per the March 2006 law, and expects to receive the proceeds from the state general obligation bond issuance in the first quarter of 2007.
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, the domestic utility companies affected by Hurricanes Katrina and Rita are pursuing insurance recoveries for their covered losses caused by Hurricanes Katrina and Rita. The domestic utility companies have received $37 million thus far on their insurance claims. Entergy currently expects to receive payment for the majority of its estimated insurance recoveries related to Hurricanes Katrina and Rita through 2009.
Entergy New Orleans Bankruptcy
On October 23, 2006See the Form 10-K for a discussion of the Entergy New Orleans filed abankruptcy 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 a disclosure statement with the bankruptcy court. Objections to the disclosure statement must be filed by November 29, 2006, and a hearing regarding its adequacy is scheduled for December 7, 2006. The period within which plan became effective on May 8, 2007.
Following are significant terms in Entergy New Orleans' plan of reorganization:
The bankruptcy court also extended the time within whichallowed third-party prepetition accounts payable (approximately $29 million, including interest). Entergy New Orleans has an exclusive right to file a planpaid interest from September 23, 2005 at the Louisiana judicial rate of reorganization until November 15, 2006. Financial Guaranty Insurance Company (FGIC)interest for 2005 (6%) and 2006 (8%), and at the insurerLouisiana judicial rate of two series totaling $75 millioninterest plus 1% for 2007. The Louisiana judicial rate of Entergy New Orleans' first mortgage bonds, filed a motion to terminate the exclusive period within which Entergy New Orleans has an exclusive right to file and solicit acceptances of a plan of reorganization. FGIC asks the court to allow itself or other stakeholders the right to file an alternative and competing plan of reorganization and to solicit acceptancesinterest for such a proposed plan. FGIC's motion to terminate exclusivity2007 is set for hearing on November 15, 2006.
The plan of reorganization reflects Entergy New Orleans' continuing effort to work with 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. The plan of reorganization also provides full compensation to Entergy New Orleans' creditors whose claims are allowed by the bankruptcy court. Conditions precedent proposed in the plan of reorganization, as currently filed, before it can become effective include:
6
In addition, key factors that will continue to influence the timing and outcome of Entergy New Orleans' recovery efforts include the level of economic recovery of New Orleans and the number of customers that return to New Orleans, including the timing of their return.pool. Entergy New Orleans currently estimates that approximately 85,000 electric customersincluded in the principal amount of the notes accrued interest from September 23, 2005 at the Louisiana judicial rate of interest for 2005 (6%) and 65,000 gas customers have returned2006 (8%), and are taking service. Prior to Hurricane Katrina,at the Louisiana judicial rate of interest plus 1% for 2007 through the date of issuance of the notes. The Louisiana judicial rate of interest is 9.5% for 2007. Entergy New Orleans had approximately 190,000 electric customers and 145,000 gas customers.
The bankruptcy judge set awill pay interest on the notes from their date of April 19, 2006 by which creditors with prepetition claims against issuance at the Louisiana judicial rate of interest plus 1%.
Municipalization is one potential outcome of Entergy New Orleans' recovery effort that may be pursued by a stakeholder or stakeholders, either in the reorganization process or afterterms, and Entergy New Orleans exits from bankruptcy. In June 2006, the Louisiana Legislature passed a law that establishes a governance structure for a public power authority,paid its unpaid preferred dividends in arrears (approximately $1 million).
With confirmation of the Form 10-K, if dividends with respect to the 4.75% preferred stock are not paid for four quarters, the holdersplan of these shares have the right to elect a majority of thereorganization, Entergy has reconsolidated 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
7
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 change willreconsolidation does not affect the amount of net income that Entergy records resultingrecorded from Entergy New Orleans' operations for anythe current or prior period, but willdoes result in Entergy New Orleans' net income or loss being presented as "Equity in earnings of unconsolidated equity affiliates" rather than itsfinancial results being included in each individual income statement line item in 2007, rather than only 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.
5
Results of Operations
ThirdSecond Quarter 20062007 Compared to ThirdSecond Quarter 20052006
Following are income statement variances for Utility, Non-Utility Nuclear, Parent & Other, business segments, and Entergy comparing the thirdsecond quarter 20062007 to the thirdsecond quarter 20052006 showing how much the line item increased or (decreased) in comparison to the prior period:
|
|
| Non-Utility |
| Parent & Other |
|
|
|
| Non-Utility |
| Parent & Other (1) |
| |||
(In Thousands) | (In Thousands) | |||||||||||||||
|
|
|
|
|
| |||||||||||
3rd Quarter 2005 Consolidated Net Income (Loss) |
| $304,459 |
| $69,253 |
| ($17,324) | $356,388 | |||||||||
Net revenue (operating revenue less fuel expense, |
|
|
|
|
| |||||||||||
2nd Quarter 2006 Consolidated Net Income |
| $199,623 |
| $63,379 |
| $18,800 | $281,802 | |||||||||
Net revenue (operating revenue less fuel |
|
|
|
|
| |||||||||||
Other operation and maintenance expenses |
| 94,128 | 12,891 | (6,510) | 100,509 |
| 59,383 | 19,803 | (12,750) | 66,436 | ||||||
Taxes other than income taxes |
| 35,750 | 26 | (966) | 34,810 |
| 20,747 | 4,130 | 341 | 25,218 | ||||||
Depreciation |
| 8,615 | 6,618 | (406) | 14,827 |
| 14,017 | 6,283 | 410 | 20,710 | ||||||
Other income |
| (15,625) | 34,736 | 17,566 | 36,677 |
| (3,423) | 10,468 | 3,815 | 10,860 | ||||||
Interest charges |
| 5,275 | 2,356 | 5,509 | 13,140 |
| 3,740 | (3,585) | 18,983 | 19,138 | ||||||
Other expenses |
| 1,369 | 2,105 | 16 | 3,490 | |||||||||||
Discontinued operations (net-of-tax) |
| - | - | 6,058 | 6,058 | |||||||||||
Other (including discontinued operations) |
| 863 | (7,163) | (14,709) | (21,009) | |||||||||||
Income taxes |
| (44,585) | 16,476 | 8,466 | (19,643) |
| 4,684 | 22,598 | (43,732) | (16,450) | ||||||
3rd Quarter 2006 Consolidated Net Income (Loss) |
| $295,989 |
| $106,898 |
| ($7,193) | $395,694 | |||||||||
2nd Quarter 2007 Consolidated Net Income |
| $148,194 |
| $108,726 |
| $10,682 | $267,602 |
(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.
86
Three Months Ended June 30, 2006 | |||
| Entergy Corporation |
| |
(In Thousands) | |||
Operating Revenues | $2,628,502 | $65,087 | |
Operating Expenses: | |||
Fuel, fuel-related, and gas purchased for resale and purchased | 1,239,027 | 13,642 | |
Other operation and maintenance | 573,234 | 17,527 | |
Taxes other than income taxes | 91,130 | 8,088 | |
Depreciation and amortization | 217,943 | 8,466 | |
Other regulatory credits - net | (58,929) | 1,038 | |
Other operating expenses | 78,804 | 42 | |
Total Operating Expenses | $2,141,209 | $48,803 | |
Other Income | $44,565 | ($9,512) | |
Interest and Other Charges | $140,274 | ($13) | |
Income From Continuing Operations Before Income Taxes | $391,584 | $6,785 | |
Income Taxes | $122,901 | $6,785 | |
Income From Continuing Operations | $268,683 | $ - | |
Income From Discontinued Operations | $13,119 | $ - | |
Consolidated Net Income | $281,802 | $ - |
* | Reflects the adjustment needed to reconsolidate Entergy New Orleans for 2006. The adjustment includes intercompany eliminations. |
Net Revenue
Utility
Following is an analysis of the change in net revenue which is Entergy's measure of gross margin, comparing the thirdsecond quarter of 20062007 to the thirdsecond quarter of 2005.2006.
|
| Amount |
|
| (In Millions) |
2006 net revenue (includes $50.4 |
| $1,126.2 |
| 28.0 | |
Fuel recovery |
|
|
|
| |
|
| |
|
| |
Pass-through rider revenue |
| |
Purchased power capacity |
| |
Net wholesale revenue |
| |
Volume/weather | (18.9) | |
Other |
|
|
|
| $ |
7
The base revenues variance resulted from rate increases primarily from increasesat Entergy Louisiana effective October 2005 in the Louisiana jurisdiction of Entergy Gulf StatesSeptember 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 increasesfinancial statements in the Texas jurisdiction of Entergy Gulf States 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.Form 10-K.
The price applied to unbilled electric salesfuel recovery variance is due to higherthe inclusion of Grand Gulf costs in Entergy New Orleans' 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 and the exclusion in 2006(a significant portion 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 EntergyGrand Gulf States, which is in accordance with regulatory treatment. Entergy expects that the effect of this factor will be a decrease in net revenue of approximately $30 million for its annual results for 2006. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" herein.
costs was previously recovered through base rates).
The volume/weathertransmission revenue variance resulted primarily fromis due to an increase in electricity usage, including increased usage duringrates effective June 2006 and the unbilled sales period. Billed usage increased a totaladdition of 3% compared to the third quarter of 2005.new transmission customers in 2006.
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 increase in rider revenue with a corresponding increase in taxes other than income taxes, resulting in no effect on net income.
The purchased power capacity variance is primarily due to higher capacity charges and new purchased power contracts in 2006.charges. A portion of the increasevariance is due to the amortization of deferred capacity costs and is offset in base revenues due to base rate increases implemented to recover incremental deferred and ongoing purchased power capacity charges at Entergy Louisiana, as discussed above.
The net wholesale revenue variance is primarily due to an Octobermore energy available for resale at Entergy New Orleans in 2006 FERC order requiring Entergy Arkansas to make arefund to a coal plant co-owner as a result of a contract dispute. Refer to Note 2due to the consolidateddecrease in retail usage caused by customer losses following Hurricane Katrina. In 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 Entergy New Orleans' retail customer usage caused by Hurricane Katrina and to provide revenue support for the costs of Entergy New Orleans' share of Grand Gulf.
The volume/weather variance resulted primarily from less favorable weather compared to the same period in 2006 in the residential and commercial sectors and decreased usage during the unbilled sales period, partially offset by an increase in billed usage after adjusting for the effects of weather. See Note 1 to the financial statements in the Form 10-K for furthera discussion of the FERC's decision.
9accounting for unbilled revenues.
Non-Utility Nuclear
Net revenue increased for Non-Utility Nuclear primarily due to higher pricing in its contracts to sell power. Also contributing topower and additional production available resulting from the acquisition of the Palisades plant in April 2007. The increase was partially offset by the effect on revenues of two refueling outages in revenues was increased generation in 2006 due to a power uprate completed since the thirdsecond quarter of 20052007 and fewer outages.an extended unplanned outage at a plant compared to one refueling outage in the second quarter of 2006. Following are key performance measures for Non-Utility Nuclear for the thirdsecond quarters of 20062007 and 2005:2006:
| 2006 |
| 2005 | |
|
|
|
| |
| 4,200 |
| 4,105 | |
Average realized price per MWh |
| $45.35 |
| $42.58 |
Generation in GWh for the quarter |
| 9,028 |
| 8,474 |
Capacity factor for the quarter |
| 99% |
| 95% |
| 2007 |
| 2006 | |
|
|
|
|
|
Net MW in operation at June 30 |
| 4,998 |
| 4,200 |
Average realized price per MWh |
| $51.28 |
| $43.76 |
GWh billed |
| 8,896 |
| 8,281 |
Capacity factor |
| 82% |
| 90% |
8
Parent & Other
Other Operation and Maintenance Expenses
Utility
Other operation and maintenance expenses increased from $419 million for the Utility from $326second quarter of 2006 to $461 million in 2005 to $420 million in 2006for the second quarter of 2007 primarily due to the following:to:
Non-Utility Nuclear
Other operation and maintenance expenses increased from $155 million for the second quarter of 2006 to $175 million for the second quarter of 2007 primarily due to an increasethe acquisition of the Palisades plant in contract costs.
April 2007.
Taxes Other Than Income Taxes
Taxes other than income taxes increased for the Utility from $82$84 million for the thirdsecond quarter of 20052006 to $118$97 million for the thirdsecond quarter of 20062007 primarily due to an increase of $9 million in city franchise taxes in Arkansas due to a change in August 2006 in 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.Also contributing to the increase was higher franchise tax expense at Entergy Gulf States as a result of higher gross revenues.
Other IncomeInterest Charges
Other incomeInterest charges increased for Non-Utility NuclearParent & Other primarily due to miscellaneous income of $27.0 million ($16.6 million net-of-tax) resulting from a reduction in the decommissioning liability for a plant as a result of revised decommissioning costs and changes in assumptions regarding the timing of when decommissioning of a plant will begin.additional borrowings on Entergy Corporation's revolving credit facilities.
The effective income tax rates for the thirdsecond quarters of 2007 and 2006 were 28.0% and 2005 were 33.8% and 37.9%31.0%, respectively. The differencereduction in the effective income tax rate versus the statutory rate of 35% for the second quarter of 2007 is primarily due to the resolution of tax audit issues in the 2002-2003 audit cycle, book and tax differences related to the allowance for equity funds used during construction, and the amortization of investment tax credits. These factors were partially offset by book and tax differences for utility plant items and state income taxes. The reduction in the effective income tax rate for the thirdsecond quarter of 2006 versus the federal statutory rate of 35.0% is primarily due to the flow-throughrecognition of a pension iteman 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 third 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 investment tax credit amortization.
10
9
Nine
Six Months Ended SeptemberJune 30, 20062007 Compared to NineSix Months Ended SeptemberJune 30, 20052006
Following are income statement variances for Utility, Non-Utility Nuclear, Parent & Other, business segments, and Entergy comparing the ninesix months ended SeptemberJune 30, 20062007 to the ninesix months ended SeptemberJune 30, 20052006 showing how much the line item increased or (decreased) in comparison to the prior period:
|
|
| Non-Utility |
| Parent & Other |
|
|
|
| Non-Utility |
| Parent & Other (1) |
| |||
(In Thousands) | (In Thousands) | |||||||||||||||
|
|
|
|
|
| |||||||||||
2005 Consolidated Net Income |
| $617,745 |
| $205,495 |
| $4,075 | $827,315 | |||||||||
Net revenue (operating revenue less fuel expense, |
|
|
|
|
| |||||||||||
2006 Consolidated Net Income |
| $319,375 |
| $144,908 |
| $11,148 | $475,431 | |||||||||
Net revenue (operating revenue less fuel |
|
|
|
|
| |||||||||||
Other operation and maintenance expenses |
| 105,277 | 30,886 | 4,636 | 140,799 |
| 109,001 | 16,344 | (23,963) | 101,382 | ||||||
Taxes other than income taxes |
| 40,393 | 4,105 | (852) | 43,646 |
| 37,201 | 2,859 | 4,503 | 44,563 | ||||||
Depreciation |
| 10,482 | 8,794 | (1,058) | 18,218 |
| 39,509 | 7,429 | 793 | 47,731 | ||||||
Other income |
| 4,851 | 19,839 | (3,923) | 20,767 |
| 3,922 | 10,026 | 10,915 | 24,863 | ||||||
Interest charges |
| 20,278 | (993) | 30,521 | 49,806 |
| 14,911 | (8,748) | 27,247 | 33,410 | ||||||
Other expenses |
| 2,930 | 4,420 | 49 | 7,399 | |||||||||||
Discontinued operations (net-of-tax) |
| - | - | 21,116 | 21,116 | |||||||||||
Other (including discontinued operations) |
| 1,578 | (9,275) | (14,288) | (21,985) | |||||||||||
Income taxes |
| (51,452) | 24,578 | 4,872 | (22,002) |
| 8,403 | 54,416 | (52,034) | 10,785 | ||||||
2006 Consolidated Net Income |
| $629,464 |
| $251,806 |
| $5,666 | $886,936 | |||||||||
2007 Consolidated Net Income |
| $252,644 |
| $236,896 |
| ($9,743) | $479,797 |
(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.
10
The variance explanations for the Utility for the six months ended June 30, 2007 compared to the six months ended June 30, 2006 in "Results of Operations" below reflect the 2006 results of operations of Entergy New Orleans as if it were reconsolidated in 2006, consistent with the 2007 presentation including the results in each individual income statement line item. Entergy's as-reported results for 2006, which had Entergy New Orleans deconsolidated, and the amounts needed to reconsolidate Entergy New Orleans, which include inter-company items, are set forth in the table below.
Six Months Ended June 30, 2006 | |||
| Entergy Corporation |
| |
(In Thousands) | |||
Operating Revenues | $5,196,537 | $133,155 | |
Operating Expenses: | |||
Fuel, fuel-related, and gas purchased for resale and purchased | 2,540,569 | 41,256 | |
Other operation and maintenance | 1,102,664 | 32,114 | |
Taxes other than income taxes | 194,468 | 16,689 | |
Depreciation and amortization | 423,332 | 15,889 | |
Other regulatory credits - net | (102,946) | 2,080 | |
Other operating expenses | 156,394 | 83 | |
Total Operating Expenses | $4,314,481 | $108,111 | |
Other Income | $101,235 | ($15,012) | |
Interest and Other Charges | $277,008 | ($139) | |
Income From Continuing Operations Before Income Taxes | $706,283 | $10,171 | |
Income Taxes | $241,732 | $10,171 | |
Income From Continuing Operations | $464,551 | $ - | |
Income From Discontinued Operations | $10,880 | $ - | |
Consolidated Net Income | $475,431 | $ - |
* | Reflects the adjustment needed to reconsolidate Entergy New Orleans for 2006. The adjustment includes intercompany eliminations. |
Net Revenue
Utility
Following is an analysis of the change in net revenue which is Entergy's measure of gross margin, comparing the ninesix months ended SeptemberJune 30, 20062007 to the ninesix months ended SeptemberJune 30, 2005.2006.
|
| Amount |
|
| (In Millions) |
2006 net revenue (includes $89.8 |
| |
| $ | |
|
| |
Volume/weather |
|
|
Base revenues | 54.8 | |
Pass-through rider revenue | 18.6 | |
| 17.8 | |
Fuel recovery |
|
|
|
| |
|
| |
|
| |
|
| |
Other |
|
|
|
| $ |
11
The base revenues variance resulted primarily from increases effective October 2005 in the Louisiana jurisdiction of Entergy Gulf States 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 of Entergy Gulf States 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 volume/weather variance resulted primarily from increased electricity usage, including the effect of more favorable weather on billed sales, compared to the same period in 2005 and an increase inincreased usage during the unbilled sales period. Billed usage increased by a total of 1,041 GWh, an increase of 2%. See Note 1 to the financial statements in the residentialForm 10-K for a discussion of the accounting for unbilled revenues.
The base revenues variance resulted from rate increases primarily at Entergy Louisiana effective September 2006 for the 2005 formula rate plan filing to recover LPSC-approved incremental deferred and commercial sectors.ongoing purchased power capacity costs and for the interim recovery of storm costs. The formula rate plan filing is discussed in Note 2 to the financial statements in the Form 10-K.
The pass-through rider revenue variance is due primarily 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 increase in rider revenue with a corresponding increase in taxes other than income taxes, resulting in no effect on net income.
The transmission revenue variance is due to an increase in rates effective June 2006 and the addition of new transmission customers in 2006.
The fuel recovery variance resulted primarily fromis due to the inclusion of Grand Gulf costs in Entergy New Orleans' 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 fuel recovery variance is partially offset by adjustments of fuel clause recoveries in the first quarter of 2006 in Entergy Gulf States' Louisiana jurisdiction the under-recovery in 2005 of fuel costs from retail customers, and increased recovery in 2006 of fuel costs. The increase was partially offset by the Entergy Arkansas energy cost recovery true-up madea reserve for potential rate refunds in the first quarter of 2005.2007 in Entergy Gulf States' Texas jurisdiction as a result of a PUCT ruling related to the application of past PUCT rulings addressing transition to competition in Texas, both of which have unfavorable effects on net revenue for the six months ended June 30, 2007.
The transmissionnet wholesale revenue variance is due primarily to 1) more energy available for resale at Entergy New Orleans in 2006 due to new transmission customersthe decrease in 2006. Also contributingretail usage caused by customer losses following Hurricane Katrina, 2) the inclusion in 2006 revenue of 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 increase was an increasereduction in rates effective June 2006.Entergy New Orleans' retail customer usage caused by Hurricane Katrina and to provide revenue support for the costs of Entergy New Orleans' share of Grand Gulf, and 3) decreased results from wholesale contracts and lower wholesale prices.
The storm cost recoverypurchased 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 return earned on the interim recoveryamortization of storm-relateddeferred capacity costs and is offset in base revenues due to base rate increases implemented to recover incremental deferred and ongoing purchased power capacity charges at Entergy Louisiana, and the Louisiana jurisdiction of Entergy Gulf States in early-2006 as allowed by the LPSC.
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 a decrease in net revenue of approximately $30 million for its annual results for 2006. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" herein.
The net wholesale variance is primarily due to an October 2006 FERC order requiring Entergy Arkansas to make a refund to a coal plant co-owner as a result of a contract dispute. Refer to Note 2 to the consolidated financial statements for further discussion of the FERC's decision.discussed above.
Non-Utility Nuclear
Net revenue increased for Non-Utility Nuclear primarily due to higher pricing in its contracts to sell power. Also contributingpower and additional production available resulting from the acquisition of the Palisades plant in April 2007. The increase was partially offset by the effect on 2007 revenues of three refueling outages and an extended unplanned outage at a plant compared to one refueling outage in the increase in revenues was increased generation in 2006 due to power uprates at certain plants completed in 2005 and 2006 and fewer refueling outagessame period in 2006. Following are key performance measures for Non-Utility Nuclear for the ninesix months ended SeptemberJune 30, 20062007 and 2005:2006:
|
| 2006 |
| 2005 |
|
|
|
|
|
Net MW in operation at September 30 |
| 4,200 |
| 4,105 |
Average realized price per MWh |
| $44.58 |
| $42.26 |
Generation in GWh for the period |
| 26,018 |
| 24,896 |
Capacity factor for the period |
| 95% |
| 93% |
|
| 2007 |
| 2006 |
|
|
|
|
|
Net MW in operation at June 30 |
| 4,998 |
| 4,200 |
Average realized price per MWh |
| $53.13 |
| $44.03 |
GWh billed |
| 17,211 |
| 17,044 |
Capacity factor |
| 86% |
| 94% |
12
Parent & Other
Net revenue increaseddecreased 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.project in the second quarter of 2006. Also contributing to the decrease were higher natural gas prices in 2007 compared to the same period in 2006 as well as lower production as a result of an additional plant outage in 2007 compared to the same period in 2006. A substantial portion of the effect on net income of this decline is offset by a related decrease in other operation and maintenance expenses.
Other Operation and Maintenance Expenses
Utility
Other operation and maintenance expenses increased from $793 million for the Utility from $1.1 billion in 2005six months ended June 30, 2006 to $1.2 billion in 2006$870 million for the six months ended June 30, 2007 primarily due to the following:to:
Other operation and maintenance expenses increased for Non-Utility Nuclear from $438 million in 2005 to $469 million in 2006 primarily dueaddition to the timing of refueling outages, and increased benefit and insurance costs.
Other Income Statement Items
Taxes Other Than Income Taxes
Utility
Taxes other than income taxes increased from $178 million for the Utility from $240six months ended June 30, 2006 to $199 million in 2005 to $280 million in 2006for the six months ended June 30, 2007 primarily due to an increase of $15 million in city franchise taxes in Arkansas due to a change in August 2006 in 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. Also contributing
Depreciation and amortization expenses increased from $399 million for the six months ended June 30, 2006 to $423 million for the six months ended June 30, 2007 primarily due to an increase was higher franchise tax expense at Entergy Gulf States asin plant in service and a resultrevision made in the first quarter of higher gross revenues.2006 of estimated depreciable lives involving certain intangible assets.
Other income increased from $64 million for the six months ended June 30, 2006 to $83 million for the six months ended June 30, 2007 primarily due to carrying charges on storm costs.
13
Interest Charges
Utility
Interest and other charges increased from $188.6 million for the six months ended June 30, 2006 to $203.8 million for the six months ended June 30, 2007 primarily due to the following:
Parent & Other
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.
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.
borrowings under Entergy Corporation's revolving credit facilities.
Income Taxes
The effective income tax rates for the ninesix monthsended SeptemberJune 30, 2007 and 2006 were 33.9% and 2005 were 33.6% and 35.7%33.5%, respectively. The differencereduction in the effective income tax rate versus the statutory rate of 35% for the six months ended June 30, 2007 is primarily due to the resolution of tax audit issues in the 2002-2003 audit cycle, book and tax differences related to the allowance for equity funds used during construction, and the amortization of investment tax credits. These factors were partially offset by book and tax differences for utility plant items and state income taxes. The reduction in the effective income tax rate for the ninesix months ended SeptemberJune 30, 2006 versus the federal statutory rate of 35.0% is primarily due to the flow-through of a pension item, 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 nine months ended September 30, 2005
13
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 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.
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 September 30, 2006, Entergy New Orleans had approximately $32 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, which included August 23, 2006. Entergy Corporation 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 the bankruptcy court approved this amendment.
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 primarily 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.
|
| June 30, |
| December 31, |
|
|
|
|
|
Net debt to net capital |
| 54.1% |
| 49.4% |
Effect of subtracting cash from debt |
| 3.2% |
| 2.9% |
Debt to capital |
| 57.3% |
| 52.3% |
|
| September 30, |
| December 31, |
|
|
|
|
|
Net debt to net capital |
| 48.3% |
| 51.5% |
Effect of subtracting cash from debt |
| 2.1% |
| 1.6% |
Debt to capital |
| 50.4% |
| 53.1% |
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.
14
As discussed in the Form 10-K, Entergy Corporation hashad in place as of June 30, 2007, 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 SeptemberJune 30, 2006:2007:
|
|
| Letters | Capacity | ||||
(In Millions) | ||||||||
5-Year Facility | $2,000 | $855 | $79 | $1,066 | ||||
3-Year Facility | $1,500 | $1,115 | $- | $385 |
14
|
|
| Letters | Capacity | ||||
(In Millions) | ||||||||
5-Year Facility | $2,000 | $495 | $94 | $1,411 | ||||
3-Year Facility | $1,500 | $- | $- | $1,500 |
On August 2, 2007, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana,Corporation entered into a new, $3.5 billion credit facility, and Entergy Mississippi each hasterminated the two previously existing facilities. See Part II, Item 5 herein for additional information on the new credit facilities availablefacility, including the amounts of the borrowings and letters of credit outstanding as of September 30, 2006 as follows:August 8, 2007.
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
|
|
|
|
|
|
|
|
See Note 4 to the consolidated financial statements for additional discussion of Entergy's credit facilities.
Capital Expenditure Plans and Other Uses of Capital
See the table in the Form 10-K under "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Liquidity and Capital Resources - Capital Expenditure Plans and Other Uses of Capital," which sets forth the amounts of planned construction and other capital investments by operating segment for 20062007 through 2008. Following are updates to that discussion:2009.
In July 2006,April 2007, Entergy's Non-Utility Nuclear business reached an agreement to purchase Consumers Energy Company'spurchased the 798 MW Palisades nuclear energy plant located near South Haven, Michigan from Consumers Energy Company for $380a net cash payment of $336 million. Entergy received the plant, nuclear fuel, inventories, and other assets. The liability to decommission the plant, as well as related decommissioning trust funds, was also transferred to Entergy's Non-Utility Nuclear business. Entergy's Non-Utility Nuclear business will acquire the plant, nuclear fuel, and other assets. In the near-term, Entergy intends to finance the acquisition through borrowings from Entergy Corporation's revolving credit facilities. As part of the purchase, Entergy's Non-Utility Nuclear business also executed a unit-contingent, 15-year purchased power agreement (PPA) with Consumers Energy for 100% of the 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 the transaction, Entergy's Non-Utility Nuclear business will assume responsibility for eventual decommissioning of the plant. Consumers Energy will retain $200 million of the current $566 million Palisades decommissioning trust fund balance, and Entergy may return approximately $100 million more of the trust fund to Consumers Energy depending upon a pending tax ruling. Also as pa rt of the transaction, Consumers Energy will pay Entergy's Non-Utility Nuclear business $30 million to acceptassumed responsibility for spent fuel at the decommissioned Big Rock Point nuclear plant, which is located near Charlevoix, Michigan. ManagementPalisades' financial results since April 2007 are included in Entergy's Non-Utility Nuclear business segment. See Note 5 to the financial statements herein for a discussion of the purchase price allocation and the amortization to revenue of the below-market PPA.
In April 2007, Entergy Louisiana announced that it plans to pursue the self-build solid fuel repowering of a 538 MW unit at its Little Gypsy plant. Petroleum coke will be the unit's primary fuel source. In July 2007, Entergy Louisiana filed with the LPSC for approval of the repowering project, and stated that it expects to closespend $1.55 billion on the transactionproject. In addition to seeking a finding that the project is in the second quarter 2007, pendingpublic interest, the approvalsfiling with the LPSC asks that Entergy Louisiana be allowed to recover a portion of the NRC,project's financing costs during the FERC,construction period. Entergy Louisiana expects the Michigan Public Service Commission, and other regulatory agencies.
15
In July 2007, Entergy Arkansas signed an agreement to purchase for $210 million the Ouachita Power Facility, a 789 MW natural gas-fired, combined-cycle, load-following generating facility located in north Louisiana and owned by Ouachita Power, LLC. Entergy Arkansas and Entergy Louisiana plan to invest a total of approximately $75 million in reliability upgrades. The Pension Protection ActOuachita plant will be 100 percent owned by Entergy Arkansas, and the acquisition is expected to close in 2008. Entergy Arkansas expects to sell to Entergy Gulf States, under a separate agreement, approximately one-third of 2006the output of the Ouachita plant on a long-term basis. The purchase of the plant is contingent upon obtaining necessary approvals, including full cost recovery, from various federal and state regulatory and permitting agencies. The planned capital investments estimate in the Form 10-K included $190 million in 2008 for the estimated cost of an acquisition of this type.
The Pension Protection ActEntergy now expects to spend $73 million more through 2008 than the amount included in the Form 10-K planned capital investment estimate for initial development costs for potential new nuclear development at the Grand Gulf and River Bend sites, including licensing and design activities.
Dividends
On July 30, 2007, the Board declared a quarterly dividend per Entergy Corporation common share of 2006 was signed by$0.75, which is an increase from the Presidentprior quarterly dividend per share of $0.54. Declarations of dividends on August 17, 2006. The intentEntergy's common stock are made at the discretion of the legislation is to require companies to fund 100%Board. Among other things, the Board evaluates the level of their pension liability;Entergy's common stock dividends based upon Entergy's earnings, financial strength, and then for companies to fund, on a going-forward basis, an amount generally estimated to be the amount that the pension liability increases each year due to an additional year of service by the employees eligible for pension benefits. The legislation requires that funding shortfalls be eliminated by companies over a seven-year period, beginning in 2008.future investment opportunities.
Debtor-in-Possession Credit Agreement
The Pension Protection Act also extendedSee the provisionsForm 10-K for a discussion of the Pension Funding Equity Act that would have expiredEntergy New Orleans debtor-in-possession (DIP) credit facility between Entergy New Orleans as borrower and Entergy Corporation as lender. Pursuant to the terms of its plan of reorganization, which became effective in 2006 had the Pension Protection Act not been enacted, which increased the allowed discount rate used to calculate the pension funding liability.May 2007, Entergy is in the process of evaluating the effects of the new legislation, but expects that the implementation of the Pension Protection Act will not result in annual pension contributions going-forward that are materially higher than the levels required in 2005 and 2006.New Orleans fully repaid its DIP credit facility borrowings.
Cash Flow Activity
As shown in Entergy's Statements of Cash Flows, cash flows for the ninesix months ended SeptemberJune 30, 20062007 and 20052006 were as follows:
|
|
| 2006 |
| 2005 |
|
| 2007 |
| 2006 |
|
|
| (In Millions) |
|
| (In Millions) | ||||
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
| ||||||
Effect of deconsolidating Entergy New Orleans in 2005 | - | (8) | ||||||||
|
|
|
|
| ||||||
Cash flow provided by (used in): | Cash flow provided by (used in): |
|
|
|
| Cash flow provided by (used in): |
|
|
|
|
| Operating activities |
| 2,257 |
| 1,107 | Operating activities |
| 964 |
| 1,480 |
| Investing activities |
| (1,395) |
| (1,204) | Investing activities |
| (1,016) |
| (1,054) |
| Financing activities |
| (699) |
| 84 | Financing activities |
| 339 |
| (279) |
Effect of exchange rates on cash and cash equivalents | Effect of exchange rates on cash and cash equivalents | (1) | (1) | Effect of exchange rates on cash and cash equivalents | - | (1) | ||||
Net increase (decrease) in cash and cash equivalents |
| 162 |
| (14) | ||||||
Net increase in cash and cash equivalents | Net increase in cash and cash equivalents |
| 287 |
| 146 | |||||
|
|
|
|
|
| |||||
Effect of reconsolidating Entergy New Orleans in 2007 | Effect of reconsolidating Entergy New Orleans in 2007 | 17 | - | |||||||
|
|
|
|
|
| |||||
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $745 |
| $598 | Cash and cash equivalents at end of period |
| $1,320 |
| $729 |
16
Operating Activities
Entergy's cash flow provided by operating activities increaseddecreased by $1,150$516 million for the ninesix months ended SeptemberJune 30, 20062007 compared to the ninesix months ended SeptemberJune 30, 2005 primarily due to the following activity:2006. Following are cash flows from operating activities by segment:
payments being made in 2007, partially offset by the receipt of $177 million of Community Development Block Grant funds by Entergy Corporation received aNew Orleans in 2007 and significant storm restoration spending in 2006. A $344 million income tax refund was received by Entergy Corporation in 2006 (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.
16
Investing Activities
Net cash used in investing activities increaseddecreased by $191$38 million for the ninesix months ended SeptemberJune 30, 20062007 compared to the ninesix months ended SeptemberJune 30, 2005 primarily due2006. The following activity is notable in comparing the six months ended June 30, 2007 to the following activity:six months ended June 30, 2006:
The increase was partially offset by:
Financing Activities
NetFinancing activities provided $339 million of cash used in financing activities was $699 million for the ninesix months ended SeptemberJune 30, 20062007 compared to netusing $279 million of cash flow provided by financing activities of $84 million for the ninesix months ended SeptemberJune 30, 2005. Following2006. The following activity is notable in comparing the six months ended June 30, 2007 to the six months ended June 30, 2006:
17
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 Note 2 to the financial statements 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 dueherein for updates 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 railroad 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 did 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.
In June 2006, Entergy Arkansas filed a motion with the APSC seeking again 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.
On June 7, 2006, Entergy Arkansas filed a cost of service study and testimony supporting the redetermined energy cost rate and testimony addressing the prospective elimination of the energy cost recovery rider as ordered by the APSC. A hearing was held in the APSC energy cost recovery investigation on October 12, 2006 and post-hearing briefs were filed by Entergy Arkansas, the APSC General Staff, the Arkansas Attorney General, and the Arkansas Electric Energy Consumers. No party recommended termination of the energy cost recovery rider in the fuel cost investigation proceeding. The timing of a decision in this proceeding is uncertain.
In August 2006, Entergy Arkansas filed with the APSC a request for a change in base rates. Entergy Arkansas requested a general base rate increase of $150 million (using an ROE of 11.25%), as well as recovery of FERC-allocated costs pursuant to the FERC decision on the System Agreement. Entergy Arkansas also requested a capacity management rider to recover incremental capacity costs. A procedural schedule has been established with hearings expected to begin in April 2007.
See "System Agreement Litigation" herein for a discussion of Entergy's compliance filingdiscussed in that proceeding. If the FERC approves the compliance
18
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 proposed in the August 2006 base rate case 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, 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 $0.7 million to capacity deferrals. The refund liability pertained to the periods 2004-2005 as well as the interim period in which a $37.2 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. Entergy Gulf States modified the filing in August 2006 to reflect an 11.1% return on equity which is within the allowed bandwidth. The modified filing includes a formula rate plan increase of $17.2 million which provides for interim recovery of storm costs from Hurricanes Katrina and Rita and recovery of LPSC-approved incremental deferred and ongoing capacity costs. The increase was implemented, subject to refund, with the first billing cycle of September 2006.
Entergy Gulf States -Texas
As discussed in Note 2 to the consolidated financial statements in the Form 10-K, in August 2005, Entergy Gulf States filed with the PUCT 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 Texas 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 Enterg y 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. Entergy Louisiana modified the filing in August 2006 to reflect a 9.45% return on equity which is within the allowed bandwidth. The modified filing includes an increase of $24 million for interim recovery of storm costs from Hurricanes Katrina and Rita and a $120 million rate increase to recover LPSC-approved incremental deferred and ongoing capacity costs. The filing requested recovery of approximately $50 million for the amortization of capacity deferrals over a three-year period, including carrying charges, and approximately $70 million for ongoing capacity costs. The increase was implemented, subject to refund, with the first billing cycle of September 2006. Comments were provided by the LPSC Staff, which Entergy Louisiana is currently reviewing. Entergy Louisiana subsequently updated its formula rate plan rider to reflect adjustments proposed by the LPSC Staff with which it agrees. The adjusted return on equity of 9.56% remains within the allowed bandwidth. Ongoing and deferred incremental capacity costs were reduced to $119 million. The updated formula rate plan rider was implemented, subject to refund, with the first billing cycle of October 2006.
19
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 was 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 presented 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 during the rate-effective period (a significant portion of Grand Gulf costs was previously recovered through base rates).
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 sought to recover the electric and gas restoration costs that it had 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 sought to establish a storm reserve to provide for the risk of another storm.
In October 2006 the City Council approved a settlement agreement that resolves Entergy New Orleans' rate and storm-related rider filings by providing for phased-in rate increases, while taking into account with respect to storm restoration costs the anticipated receipt of CDBG funding as recommended by the Louisiana Recovery Authority. The settlement provides for a 0% increase in electric base rates through December 2007, with a $3.9 million increase implemented in January 2008. Recovery of all Grand Gulf costs through the fuel adjustment clause will continue. Gas base rates will increase by $4.75 million in November 2006, an additional $1.5 million in March 2007, and an additional $4.75 million in November 2007. The settlement calls for Entergy New Orleans to file a base rate case by July 31, 2008. Any storm costs in excess of CDBG funding and insurance proceeds will be addressed in that base rate case. A storm cost recovery rider is authorized but initially set at $0 because of the anticipated receipt of CDBG funding. The settlement also authorizes a $75 million storm reserve for damage from future storms, which will be created over a ten-year period through a storm reserve rider beginning in March 2007. These storm reserve funds will be held in a restricted escrow account.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 at the FERC. Proceedings
In April 2006,May 2007 Entergy filed with the FERC its compliance filingthe rates to implement the provisions of the FERC's decision. The filing amendsorders in the System Agreement to provide forproceeding that are discussed in the calculation of production costs, average production costs, andForm 10-K.The filing shows the following payments/receipts among the domestic utilityUtility operating companies to the extent required to maintain rough production cost equalization pursuant to the FERC's decision, and makes clear that all payments/receipts will be classified as energy costs. The payments/receipts would befor 2007, based on calendar year 2006 production costs, with any payments/receipts among the domestic utility companies to be made in twelve equal monthly installments, commencing for service in June 2007.
Motions2007, are necessary to intervene without protest were filed by the City of New Orleans, the MPSC, the Louisiana Energy Users Group, and Occidental Chemical Corporation. Protests to the compliance filing were filed by the APSC, the LPSC, Arkansas Electric Energy Consumers, Inc. (AEEC), and the Arkansas Attorney General (Arkansas AG). Among other things, the LPSC urged the FERC: (1) to require any payments/receipts to
20
commence in January 2007, rather than June 2007, and to require such payments to be made in a single lump sum payment, rather than in twelve equal monthly installments, or in the alternative to require a paying utility company to complete all payments within the calendar year following the year in which the disparity occurred; (2) to find that the bandwidth remedy is analogous to a "cost-of-service tariff with deferred billing," as opposed to a prospective remedy, so that a utility company could be required to make a payment based on a previous year's production costs even if such utility company has exited the System Agreement and so that interest would be due on the amount of any payment; and (3) to order interest on any payments to the extent they are not made in a single lump sum amount. In addition to the above issues, the LPSC and the other parties filing protests urged the FERC to require the bandwidth calculation to be set forth in a separate service schedule within the Syst em 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 aachieve rough production cost of the paying utility company for the year in which the payment is made, instead of excluding such costs as proposed in the compliance filing. The AEEC, among other things, urges the FERC to segregate the capacity and energy cost components of any bandwidth payments/receipts. The domestic utility companies responded to the issues raised in the protests and urged the FERC to approve the compliance filing as submitted by Entergy. The LPSC filed a reply to Entergy's response reasserting its previous positions and alleging, among other things, that Entergy was trying to delay the bandwidth payment in an effort to protect purported excess profits at Entergy Arkansas.
Separately, in July 2006 the LPSC filed with the FERC a Motion for Summary Disposition on the same issues that the LPSC had raised in its protests to the compliance filing. The domestic utility companies filed an answer urging the FERC to reject the LPSC's Motion for Summary Disposition and asking the FERC for summary disposition of several issues in favor of the domestic utility companies' positions.
The FERC's decision in the System Agreement proceeding is currently pending before the United States Court of Appeals for the D.C. Circuit. The parties to the proceeding reached agreement on a proposed briefing schedule that would result in the completion of briefing during the first half of 2007. The proposed briefing schedule has been submitted to the Court of Appeals.
The FERC's decision would reallocate total production costs of the domestic utility companies whose relative total production costs expressed as a percentage of Entergy System average production costs are outside an upper or lower bandwidth. This would be accomplished by payments from domestic utility companies whose production costs are more than 11% below Entergy System average production costs to domestic utility companies whose production costs are more than the Entergy System average production cost, with payments going first to those domestic utility companies whose total production costs are farthest above the Entergy System average. For purposes of the August 2006 Entergy Arkansas general base rate case filing discussed above in "State and Local Rate Regulation", an assessment of the potential effects ofequalization under the FERC's June 2005 order, as amended by its December 2005 order on rehearing, was calculated on the basis of a 2006 test year, using a 2006 gas price that consisted of a non-we ighted average of twelve months of gas prices calculated as follows: January through May 2006 were actual, volume-weighted monthly averages of day-ahead cash prices as reported byEnergy Intelligence Natural Gas Week; the June 2006 price was the First of the Month Index price as reported byPlatts Inside FERC's Gas Market Report; the July 2006 price was the 5/31/06 NYMEX Henry Hub settlement price; and August through December 2006 were 30 calendar-day rolling averages as of May 31, 2006 of forward NYMEX Henry Hub gas contracts. For example, the August 2006 price was 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 was made using the daily settlements of the September 2006 through December 2006 NYMEX contracts 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 companies could result:
21orders:
| |
(In Millions) | |
Entergy Arkansas | $ |
Entergy Gulf States | ($ |
Entergy Louisiana | ($ |
Entergy Mississippi | ($ |
Entergy New Orleans | $0 |
If the actual, annual, average natural gas price deviates by $1/mmBtu up or down from the price assumed above, it is expected that Entergy Arkansas' annual payments will change
Several parties intervened in the same direction by approximately $70proceeding at the FERC, including the APSC, the MPSC, the Council, and the LPSC, which have also filed protests. The APSC, the MPSC, and the Council asked the FERC to $80 million.
In calculatingconfirm that the FERC did not intend to preempt a retail regulator from undertaking an independent prudence review of the production costs in setting retail rates, or ask the FERC to set the rough production cost equalization payments/receipts for this purpose underhearing to allow the retail regulators the opportunity to evaluate the prudence of the underlying production costs. In July 2007, the FERC accepted the proposed rates for filing, allowed them to go into effect as of June 1, 2007, subject to refund, and set the filing, including the calculation and underlying production costs, for hearing and settlement procedures. Additionally, the Utility operating companies had filed with the FERC proposing certain modifications to the rough production cost equalization calculation. The FERC rejected certain o f the proposed modifications, accepted certain of the proposed modifications without further proceedings, and set two of the proposed modifications for hearing and settlement proceedings.
Entergy Arkansas will pay $36 million per month for seven months, and began making the payments in June 2007. As discussed in Note 2 to the financial statements, the APSC has approved through December 31, 2008 a production cost allocation rider for recovery from customers of the retail portion of the costs allocated to Entergy Arkansas.
18
On April 27, 2007, the FERC denied the requests for rehearing filed regarding the Utility operating companies' compliance filing to implement the System Agreement decision, with one exception regarding the issue of retrospective refunds. That issue will be addressed subsequent to the remanded proceeding involving the interruptible load decision discussed in the paragraph below. The period for appeal of the April 27 decision expired in June 2007. The LPSC appealed to the D.C. Circuit Court of Appeals the denial of rehearing, and the Utility operating companies and the APSC intervened in that appeal.
Based on the FERC's April 27 order outputon rehearing, Entergy Arkansas recorded accounts payable and Entergy Gulf States, Entergy Louisiana, and Entergy Mississippi recorded accounts receivable to reflect the rough production cost equalization payments and receipts required to implement the FERC's remedy for calendar year 2006 production costs that FERC accepted for filing and allowed to go into effect in June 2007. Entergy Arkansas recorded a corresponding regulatory asset for its right to collect the payments from its customers and Entergy Gulf States, Entergy Louisiana, and Entergy Mississippi recorded corresponding regulatory liabilities for their obligations to give the receipts to their customers. The regulatory asset and liabilities are shown as "System Agreement cost equalization" on the respective balance sheets. The liabilities and assets for the payments and receipts that may be required to implement the FERC's remedy for calendar year 2007 production costs will be recorded af ter additional information becomes available during the second half of 2007. The FERC's remedy is based on annual production costs which cannot be accurately estimated at this time. The level of any payments and receipts is significantly affected by a number of factors, including, among others, weather, the price of alternative fuels, the operating characteristics of the System's generating fleet, and multiple factors affecting the calculation of the non-fuel related revenue requirement components of the total production costs, such as plant investment.
On April 3, 2007, the LPSC filed a complaint with the FERC in which it sought to have the FERC order the following modifications to Entergy's 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 power plant does not reflectproject for purposes of calculating production cost disparities. Entergy filed an intervention and protest in this proceeding. In May 2007 the actual Vidalia price forFERC denied 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 reflectedLPSC's complaint. The LPSC has requested rehearing.
As discussed in the comparison of the domestic utility companies' total production costs.
APSC Complaint at the FERC
InForm 10-K, in June 2006 the APSC filed a complaint withat the FERC against Entergy Services as the representative of Entergy Corporation and the domestic utility companies, pursuant to Sections 205, 206 and 207 of the Federal Power Act. The APSC complaintthat states, "the purpose of the complaint is to institute an investigation into the prudence of Entergy's practices affecting the wholesale rates that flow through its System Agreement." In June 2007 the FERC denied the APSC's complaint on the basis that it was premature. The complaint requests, among other things,FERC found that the annual rough production cost equalization filing is the appropriate proceeding for the retail regulators to raise prudence issues. Regarding transmission, the FERC found that it has recently implemented reforms related to transmission. If those reforms are inadequate to address the APSC's concerns, then it can renew its complaint. The APSC, the MPSC, and the Council have asked for rehearing or clarification of this order to confirm that the FERC disallow any costs founddid not intend to be imprudent, withpreempt a refund effective date to be set at the earliest possible time. Specific areas of requested investigation include:
The complaint also requests that the FERC exercise its authority under Section 207 of the FPA to investigate the adequacy of Entergy's transmission system and direct it to make all necessary upgrades to ensure that its transmission facilities provide reliable, adequate and economic service.
In July 2006, the domestic utility companies submitted their answer to the APSC complaint. In their answer, the domestic utility companies acknowledge that while the FERC is the appropriate forum to consider the issues raised in the APSC's complaint, the APSC has provided no probative evidence supporting its allegations and has not met the standards under the Federal Power Act (FPA) to have a matter set for hearing. Under the FPA standards, the APSC must create "serious doubt" as to the propriety of the challenged actions. As indicated in the domestic utility companies' answer, the APSC complaint does not raise a "serious doubt" but instead largely relies on unsupported assertions, many of which have been investigated in other proceedings. In those limited instances when the APSC complaint references "evidence" in an attempt to support its request for a hearing, the "evidence" to which it refers in fact does nothing to support its position but, rather, shows that Entergy has acted prud ently. As further indicated in the domestic utility companies' answer, following the issuance of the FERC's System Agreement decision, allprudence review of the production costs in setting retail rates.
As discussed in the Form 10-K, on December 18, 2006, the LPSC filed a complaint requesting the FERC "immediately institute a proceeding to determine whether, and on what terms, [Entergy Arkansas] may withdraw" from the System Agreement. In June 2007 the FERC denied the LPSC's complaint on the basis that it was premature. The FERC's order indicates that the FERC will evaluate at the time of Entergy Arkansas' departure whether "the System Agreement will remain just and reasonable for the remaining members .... and likewise that any new Entergy Arkansas jurisdictional wholesale arrangements will be just and reasonable." The FERC Order goes on to state that "in light of the domestic utility companies are now inputs to a formula rate that will result in bandwidth payments amonghistory and nature of the domestic utility companies in order to roughly equalize production costs. The domestic utility companies' answer further explains that based on well-established
22
Supreme Court precedent, the FERC has exclusive jurisdiction over all inputs that will be included inexisting members' planning and operation of their facilities under 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 respectit is possible it may ultimately be appropriate 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 respectrequire transition measures or other conditions 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,ensure just and reasonable. In September 2006,reasonable wholesale rates and services" upon the domestic utility companies, the APSC, and other intervenors in the proceeding filed responses to the answers and comments submitted by the various intervenors in July 2006. In their responses, the APSC and the LPSC, among others, argue that the FERC need not address at this time its jurisdiction over the matters raised by the complaint and further that the retail regulators are not preempted from exercising jurisdiction over those same production costs that are being considered in the proceeding. In October 2006, the domestic utility companies filed an answer to the other parties' September 2006 comments. In the October 2006 answer, the domestic utility companies explain, among other things, that the FERC must address the jurisdictional issues raised by the parties to the proceeding and that the LPSC's and APSC's view concerning jurisdiction and preemption are inconsistent with federal law and regulation.
APSC System Agreement Investigation
In 2004, the APSC commenced an investigation into whethertermination of 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,Agreement.
On April 3, 2007, the U.S. Court of Appeals for the D.C. Circuit issued its opinion in the LPSC's appeal of the FERC's March 2004 and April 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 thoseorders related to the following area s: construction of new generating plants located outside of Arkansas, coststreatment under the System Agreement 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 persuadeUtility 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 to authorizephase-in the effects of the elimination of the interruptible load over a 12-month period of time; (2) failed to adequately explain why refunds could not be ordered under Section 206(c) of the Federal Power Act; and (3) exercised appropriately its discretion to defer addressing the cost of sulfur dioxide allowances until a later time. The D.C. Circuit remanded the matter to the FERC for a more considered determination on the issue of refunds.
19
In conjunction with the recent application of Entergy ArkansasGulf States and Calcasieu Power, LLC seeking FERC approval of Entergy Gulf States' acquisition of the Calcasieu Generating Facility, the Utility operating companies filed a Petition for Declaratory Order requesting that the FERC find either (1) that in those circumstances where a resource to exitbe 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 applicable retail regulator, the cost of such resource shall be reflected in the rough production cost equalization calculation; or (2) that Entergy Gulf States' acquisition of the Calcasieu facility is prudent and the costs are properly reflected in the rough production cost equalization calculation. The APSC, LPSC, MPSC, City Council, and several other parties intervened in the proceeding, with the APSC, LPSC, and City Council filing protests. In July 2007 the FERC deni ed the application for a declaratory order. The FERC concluded that (1) the circumstances surrounding resource acquisition on the Entergy System Agreement sooner than 96 months,were not of sufficient "local interest" to warrant the FERC deferring to the findings of the applicable regulator; and (2) with respect to describe current and future actions related to developmentthe alternative request for relief, consistent with its prior precedent, the FERC would not "entertain the issue of the prudence of a replacement system agreement. Responsive testimony was filed withpurchase until such time as the APSC in July and August 2006. A public hearing forpurchaser passes on the purpose of cross-examination of Mr. McDonald on his testimony and for questioning by the APSC was also conducted in July 2006. There is no further procedural schedule set in this investigation at this time.
MPSC System Agreement Inquiry
In response to an inquiry from the MPSC, Entergy Mississippi advised the MPSC of its view that it would be premature to decide at this time whether to terminate Entergy Mississippi's participation in the current System Agreement. Entergy Mississippi indicated that it would report to the MPSC during the first quarter of 2007 regarding its continuing evaluationcost of the issues concerning Entergy Mississippi's participation in the current System Agreement.purchase to its customers."
Independent Coordinator of Transmission (ICT)
In April 2006May 2007 the FERC issued an order approving with modification Entergy's ICT proposal filed in May 2005. In its order,denied the FERC: (1) approved 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 filed requests for rehearing of its October 2006 order. In June 2007, the Utility operating companies made their compliance filing pursuant to the FERC's order denying rehearing.
As discussed in the Form 10-K, in the FERC's April 2006 order approving Entergy's ICT proposal, the FERC order.
23
The proposed modifications include, among other things: (1) Entergy must file withstated that 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 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 theweekly procurement 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(WPP) must be operational within approximately 14 months of the FERC order, or June 24, 2007, or the FERC m aymay reevaluate all approvals to proceed with the ICT. In September 2006, the FERC issued orders that generally denied the requests for rehearing relating toThe Utility operating companies have been working with the ICT Proposal and related matters ata software vendor to develop the FERC.software and systems necessary to implement the WPP. The domestic utilityUtility operating companies also filed a request for clarification of two discrete issues arising from the FERC order on rehearing related to the ICT Proposal.
Entergy's domestic utility companies made their compliance filing with the FERC on MayApril 24, 2006, including2007 a request to make certain corrections and limited modifications to the executed ICT agreementcurrent WPP tariff provisions. On June 8, 2007, the Utility operating companies filed a status report with SPP. The domestic utility companies informedthe FERC notifying the FERC that, assuming they have received all required approvals,due to unexpected issues with the domestic utilitydevelopment of the WPP software and testing, the WPP would not be operational by June 24, but instead is currently expected to be operational no later than September 24, 2007. The Utility operating companies intendc ommitted to install SPP asnotify the FERC of the actual implementation date at least one week prior to commencing WPP operations.
As discussed in the Form 10-K, in October 2006 the Utility operating companies had filed revisions to their Open Access Transmission Tariff ("OATT") to establish a mechanism to recover from their wholesale transmission customers the (1) costs incurred to develop or join a regional transmission organization and to develop the ICT; and (2) the on-going costs that will be incurred under the ICT within 30 days of FERC approval of the ICT agreement. Several parties filed protests regarding the domestic utility companies' compliance filing. On October 18,agreements. In December 2006 the FERC accepted the domestic utility companies' complianceproposed provisions for filing and set them for hearing and settlement procedures. In June 2007 the Utility operating companies reached a settlement-in-principle with modification, and directed the domestic utility companies to install SPP as the ICT within 30 days of the order. The required changesparties to the compliance filing include, among others, the elimination of provisions that would have, in certain limited instances, allowed the ICT to be terminated during the initial four-year term. The domestic utility companies were also orderedproceeding and expect to file certain additional informationthe settlement with the FERC and to sub mit the required changes to the compliance filing. The domestic utility companies anticipate installing the ICT within 30 days of the FERC order as directed by the FERC.
The LPSC voted to approve the ICT proposal in July 2006.
August 2007.
Available Flowgate Capacity (AFC) Proceeding
SeeIn accordance with the Form 10-K for a discussionprovisions of previous activitythe FERC order approving the ICT, during the first and second quarters of 2007 the Utility operating companies notified the FERC, the ICT, and the stakeholders that certain instances had been identified in this proceeding.which software errors related to the AFC process had resulted in the reporting of inaccurate data. Following the notificationreporting of the potential loss by the domestic utility companies of AFC data, a separate, non-public investigation was initiated byinitial errors, certain market participants urged the FERC to reviewmove forward with the domestic utility companies' record retention policies and practices.AFC hearing process in light of those errors. In October 2006,April 2007, the FERC Office of Enforcement issued an audit report addressingorder terminating the domestic utility companies' compliance with the FERC's records retention regulations. The audit report notes the following: (i) one instance where the domestic utility companies' treatment of a contract failed to comply with a FERC-imposed record retention period and notification requirement; (ii) one instance where the domestic utility companies temporarily lost an individual record but were subsequently able to reproduce it; (iii) four instances where records were retained for the full period required by the FERC, but may haveAFC hearing, now that Entergy's ICT has been inadvertently lost prior to a retention period requir ed by a different agency or the domestic utility companies' internal retention requirements; and (iv) a limited number of instances where the domestic utility companies' internal policies could be improved. The findings and recommendations in the audit report, which were agreed to by the domestic utility companies, represent a consensual resolution of the audit. Although these findings are not indicative of any significant areas of non-compliance, the domestic utility companies believe that the audit staff's recommendations will improve the records retention program and therefore agreed to implement the audit staff's recommendations. Additionally, as previously reportedinstalled.
20
Market-based Rate Authority
As discussed in the Form 10-K, during SPP's independent auditin May 2005, the FERC instituted a proceeding under Section 206 of the AFC process limited instances were identifiedFPA to investigate whether Entergy satisfies the FERC's transmission market power and affiliate abuse/reciprocal dealing standards for the granting of market-based rate authority, and established a refund effective date pursuant to the provisions of Section 206, for purposes of the additional issues set for hearing. The FERC decided to hold that investigation in which transmission service either was granted whenabeyance, however, pending the outcomes of the ICT proceedings and Entergy's affiliate purchased power agreements proceeding. In June 2005, Entergy sought rehearing of the May order instituting the proceeding. The FERC terminated the Section 206 proceeding in May 2007 and dismissed Entergy's request for rehearing as moot. The FERC found that there was insufficient transmission capacity or was not granted when there was sufficient transmission capacity. These instances were self-reported tono further need for the FERC enforcement staff. As a result of the domestic utility companies' further review of these transactions on a more detailed basis and after identifying another issue related to the design of the AFC computer software program, the domestic utility companies identified additional instances of incorrectly granting or rejecting transmission service requests. The identified instances now involve less than 1.8% of the total transmission service requests acted on during the period at issue.
24
The domestic utility companies also self-reported these additional instances to the FERC enforcement staff. Although it has not evidenced its intent to do so, among the remedies available to the FERC is the ability to levy fines for these instances. The domestic utility companies are working with FERC enforcement staff to provide additional information related to these instances.proceeding.
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'Nuclear's output that is sold forward as of June 30, 2007 under physical or financial contracts (2006(2007 represents the remaining quartertwo quarters of the year):
2006 | 2007 | 2008 | 2009 | 2010 | |||||||
Non-Utility Nuclear: | |||||||||||
Percent of planned generation sold forward: | |||||||||||
Unit-contingent | 34% | 36% | 28% | 24% | 10% | ||||||
Unit-contingent with guarantee of availability (1) | 52% | 42% | 34% | 17% | 11% | ||||||
Firm liquidated damages | 4% | 7% | 4% | 0% | 0% | ||||||
Palisades assuming second quarter 2007 closing | 0% | 10% | 17% | 15% | 16% | ||||||
Total | 90% | 95% | 83% | 56% | 37% | ||||||
Planned generation (TWh) (including pending Palisades acquisition) | 9 | 38 | 41 | 41 | 41 | ||||||
Average contracted price per MWh (including pending Palisades acquisition) | $41 | $49 | $53 | $56 | $50 | ||||||
Average contracted price per MWh (excluding pending Palisades acquisition) | $41 | $49 | $55 | $60 | $54 |
2007 | 2008 | 2009 | 2010 | 2011 | |||||||
Non-Utility Nuclear (including Palisades | |||||||||||
Percent of planned generation sold forward: | |||||||||||
Unit-contingent | 43% | 48% | 42% | 31% | 29% | ||||||
Unit-contingent with availability guarantees (1) | 46% | 36% | 28% | 22% | 7% | ||||||
Firm liquidated damages | 7% | 4% | 0% | 0% | 0% | ||||||
Total | 96% | 88% | 70% | 53% | 36% | ||||||
Planned generation (TWh) | 21 | 41 | 41 | 41 | 42 | ||||||
Average contract price per MWh | $48 | $54 | $58 | $56 | $51 |
(1) | A sale of power on a |
ExcludingThe Vermont Yankee acquisition included a 10-year PPA under which the generation associated withformer owners will buy the pending Palisades acquisition, Non-Utility Nuclear's total percentpower produced by the plant through the expiration in 2012 of planned generation sold forwardthe current operating license for the plant. The PPA includes an adjustment clause under which the prices specified in the PPA will be adjusted downward monthly if power market prices drop below PPA prices, which has not happened thus far and is 94%not expected in 2007, 79% in 2008, 48% in 2009, and 25% in 2010.the foreseeable future.
See the Form 10-K for a discussion of Non-Utility Nuclear's value sharing agreements with NYPA involving energy sales from the Fitzpatrick and Indian Point 3 power plants and a discussion of the Vermont Yankee PPA price adjustment clause. Non-Utility Nuclear's calculation under the NYPA value sharing agreement shows thatplants. Non-Utility Nuclear owescalculated that $0 was owed to NYPA $0for 2005 under that agreement for 2005. NYPA's calculation, under its interpretation of the agreement, shows that $90.5 million is due for 2005. Non-Utility Nuclear believes that its interpretation is correct, and has refused NYPA's demand for $90.5 million. As called for by the value sharing agreement,agreements. In November 2006 NYPA has filed a demand for arbitration against theclaiming that $90.5 million was due to NYPA for 2005 under these agreements. Non-Utility Nuclear subsidiaries that own Fitzpatrick and Indian Point 3filed 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 amountcourt issued an order denying Non-Utility Nuclear's request, and NYPA's claim is now in arbitration. Non-Utility Nuclear has also calculated that $0 was owed if any,to NYPA for 2005.2006 under the value sharing agreements. In April 2007 NYPA filed an amended demand for arbitration claiming that an additional $54 million was due to NYPA for 2006 under the value sharing agreements. With respect to both of these claims, Non-Util ity 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. Arbitration hearings were held in July 2007, and the arbitrator's decision is pending.
21
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
25
form of collateral to satisfy these requirements would beis an Entergy Corporation guaranty. Cash and letters of credit are also acceptable forms of collateral. At SeptemberJune 30, 2006,2007, based on power prices at that time, Entergy had in place as collateral $905$808 million of Entergy Corporation guarantees for wholesale transactions, including $85$73 million of guarantees that support letters of credit.Thecredit. The assurance requirement associated with Non-Utility Nuclear is estimated to increase by an amount of up to $410$343 million if gas prices increase $1 per MMBtu in both the short-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 June 30, 2007 (2007 represents the remaining quartertwo quarters of the year):
2006 | 2007 | 2008 | 2009 | 2010 | 2007 | 2008 | 2009 | 2010 | 2011 | |||||||||||||
Non-Utility Nuclear: | ||||||||||||||||||||||
Non-Utility Nuclear (including Palisades | Non-Utility Nuclear (including Palisades | |||||||||||||||||||||
Percent of capacity sold forward: | Percent of capacity sold forward: | Percent of capacity sold forward: | ||||||||||||||||||||
Bundled capacity and energy contracts | 13% | 11% | 11% | 11% | 11% | Bundled capacity and energy contracts | 21% | 27% | 27% | 27% | 26% | |||||||||||
Capacity contracts | 82% | 64% | 35% | 26% | 9% | Capacity contracts | 66% | 39% | 26% | 9% | 3% | |||||||||||
Palisades assuming second quarter 2007 closing | 0% | 10% | 16% | 16% | 16% | Total | 87% | 66% | 53% | 36% | 29% | |||||||||||
Total | 95% | 85% | 62% | 53% | 36% | |||||||||||||||||
Planned net MW in operation (average including pending Palisades acquisition) | 4,200 | 4,666 | 4,998 | 4,998 | 4,998 | |||||||||||||||||
Planned net MW in operation | 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 | $1.6 | $1.2 | $1.3 | $1.7 | 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 | 87% | 92% | 77% | 51% | 30% | % of planned generation and capacity sold forward | 94% | 83% | 64% | 45% | 27% | ||||||||||
Average contract revenue per MWh (including pending Palisades acquisition) | $42 | $50 | $53 | $57 | $51 | |||||||||||||||||
Average contract revenue per MWh (excluding pending Palisades acquisition) | $42 | $51 | $56 | $61 | $55 | |||||||||||||||||
Average contract revenue per MWh | Average contract revenue per MWh | $50 | $54 | $59 | $56 | $51 |
ExcludingAs of June 30, 2007, approximately 97% of Non-Utility Nuclear's counterparty exposure from energy and capacity contracts is with counterparties with investment grade credit ratings.
Non-Utility Nuclear NRC Filing
On July 30, 2007, Entergy Nuclear Operations, Inc., the capacity associatedoperator of the six nuclear power plants included in Entergy's Non-Utility Nuclear business, filed an application with the pending Palisades acquisition,NRC requesting that the NRC approve an "indirect transfer of control" of the plants to an Entergy subsidiary holding company. The proposed transfer of control will not result in any change in the role of Entergy Nuclear Operations as the licensed operator of the plants or changes in the officers, personnel or day-to-day operation of the plants. If approved, the new holding company structure could facilitate the Non-Utility Nuclear's total percentNuclear business' ability to pursue debt financing based upon its own balance sheet and financial results. In its NRC filing, Entergy Nuclear Operations contemplates that the Non-Utility Nuclear business could borrow up to $5.5 billion in debt. Potential uses of planned capacity sold forwardthe proceeds could include repayment of Entergy Corporation indebtedness, share repurchases, additional investmen ts, or other corporate purposes. In addition, the new structure could facilitate other transactions, such as a joint venture, carve out, spin off, or other structures. No decisions have been made on any possible transaction, however, including both financing and other alternatives, nor has any decision been made regarding the potential use of financing proceeds. The proposed restructuring is 84% in 2007, 54% in 2008, 44% in 2009, and 23% in 2010. Excluding the generation and capacity associated with the pending Palisades acquisition, Non-Utility Nuclear's blended capacity and energy sold forward (based on revenues) is 91% in 2007, 74% in 2008, 45% in 2009, and 21% in 2010.also subject to certain state regulatory approvals.
22
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.
26
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. If a tax deduction is taken on a tax return, but does not meetprocess of evaluating 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 adoptionpotential effect of FIN 48 will materially affect its financial position, results of operations, or cash flows.making this accounting election.
In SeptemberJune 2006, FASB issued SFAS 158, "Employers' Accounting for Defined Benefit Pensionthe EITF reached a consensus on EITF Issue 06-3 "How Taxes Collected from Customers and Other Postretirement Plans,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 amendmentaccounting policy decision that should be disclosed. For any such taxes reported on a gross basis, the amounts of FASB Statements Nos. 87, 88, 106those taxes in interim and 132(R)," to be effective December 31, 2006. SFAS 158 requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet with the offset recorded to other comprehensive income. Entergy has previously disclosed its funded status in Note 10 to the consolidatedannual financial statements, in the Form 10-K. SFAS 158 also requires that changes in that funded statusfor each period for which an income statement is presented, should be recorded in other comprehensive income in the period in which the changes occur.disclosed if those amounts are significant. Entergy's Utility business, with the exception of the Louisiana jurisdictions which provide for recovery of other postretirement benefit costspol icy is to present such taxes on a pay as you gonet basis, is generally allowedunless required to recover pension and other postretirement benefit costs each period based upon costs calculated under S FAS 87 and SFAS 106. Entergy's analysis, including the regulatory accounting requirements to support recording the majority of the effect of adoption of SFAS 158 asreport differently by a regulatory asset, isauthority. EITF 06-3 did not yet complete. Entergy does not expect the implementation of this standard, however, to materially affect Entergy's financial position or results of operations.statements.
23
27
(Page left blank intentionally)
2824
ENTERGY CORPORATION AND SUBSIDIARIES | ENTERGY CORPORATION AND SUBSIDIARIES | ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | CONSOLIDATED STATEMENTS OF INCOME | CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | For the Three and Six Months Ended June 30, 2007 and 2006 | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||
2006 | 2005 | 2006 | 2005 | 2007 | 2006 | 2007 | 2006 | |||||||||
(In Thousands, Except Share Data) | (In Thousands, Except Share Data) | |||||||||||||||
OPERATING REVENUES | ||||||||||||||||
Domestic electric | $2,761,124 | $2,490,265 | $7,031,771 | $6,236,949 | ||||||||||||
Electric | $2,194,644 | $2,177,710 | $4,306,104 | $4,270,646 | ||||||||||||
Natural gas | 12,495 | 12,343 | 63,522 | 51,729 | 42,909 | 13,612 | 127,861 | 51,027 | ||||||||
Competitive businesses | 481,100 | 395,650 | 1,355,961 | 1,165,153 | 531,799 | 437,180 | 1,029,446 | 874,864 | ||||||||
TOTAL | 3,254,719 | 2,898,258 | 8,451,254 | 7,453,831 | 2,769,352 | 2,628,502 | 5,463,411 | 5,196,537 | ||||||||
OPERATING EXPENSES | ||||||||||||||||
Operating and Maintenance: | ||||||||||||||||
Fuel, fuel-related expenses, and | ||||||||||||||||
gas purchased for resale | 987,558 | 607,307 | 2,489,347 | 1,525,652 | 595,602 | 661,619 | 1,383,014 | 1,501,791 | ||||||||
Purchased power | 607,777 | 748,552 | 1,646,555 | 1,788,736 | 601,000 | 577,408 | 1,045,239 | 1,038,778 | ||||||||
Nuclear refueling outage expenses | 43,045 | 41,432 | 127,584 | 120,393 | 44,614 | 42,546 | 87,589 | 84,540 | ||||||||
Other operation and maintenance | 590,992 | 490,483 | 1,693,657 | 1,552,858 | 639,670 | 573,234 | 1,204,046 | 1,102,664 | ||||||||
Decommissioning | 36,933 | 35,056 | 108,787 | 108,579 | 42,080 | 36,258 | 79,910 | 71,854 | ||||||||
Taxes other than income taxes | 133,527 | 98,717 | 327,995 | 284,349 | 116,348 | 91,130 | 239,031 | 194,468 | ||||||||
Depreciation and amortization | 232,042 | 217,215 | 655,374 | 637,156 | 238,653 | 217,943 | 471,063 | 423,332 | ||||||||
Other regulatory charges (credits) - net | (21,563) | 5,156 | (124,509) | (44,814) | 13,345 | (58,929) | 36,885 | (102,946) | ||||||||
TOTAL | 2,610,311 | 2,243,918 | 6,924,790 | 5,972,909 | 2,291,312 | 2,141,209 | 4,546,777 | 4,314,481 | ||||||||
OPERATING INCOME | 644,408 | 654,340 | 1,526,464 | 1,480,922 | 478,040 | 487,293 | 916,634 | 882,056 | ||||||||
OTHER INCOME | ||||||||||||||||
Allowance for equity funds used during construction | 7,721 | 5,894 | 32,088 | 29,414 | 7,459 | 8,908 | 24,717 | 24,367 | ||||||||
Interest and dividend income | 37,720 | 50,564 | 116,689 | 115,621 | 53,948 | 35,139 | 111,058 | 78,968 | ||||||||
Equity in earnings of unconsolidated equity affiliates | 14,772 | 8,419 | 26,843 | 22,012 | 477 | 8,483 | 2,101 | 12,070 | ||||||||
Miscellaneous - net | 30,964 | (10,377) | 16,793 | 4,599 | (6,459) | (7,965) | (11,778) | (14,170) | ||||||||
TOTAL | 91,177 | 54,500 | 192,413 | 171,646 | 55,425 | 44,565 | 126,098 | 101,235 | ||||||||
INTEREST AND OTHER CHARGES | ||||||||||||||||
Interest on long-term debt | 125,907 | 111,101 | 369,058 | 324,149 | 124,057 | 122,670 | 247,156 | 243,151 | ||||||||
Other interest - net | 15,035 | 18,679 | 47,532 | 43,436 | 33,553 | 15,235 | 65,768 | 32,495 | ||||||||
Allowance for borrowed funds used during construction | (4,538) | (6,516) | (18,989) | (19,790) | (4,386) | (5,405) | (14,915) | (14,450) | ||||||||
Preferred dividend requirements and other | 6,188 | 7,774 | 12,409 | 15,812 | ||||||||||||
TOTAL | 136,404 | 123,264 | 397,601 | 347,795 | 159,412 | 140,274 | 310,418 | 277,008 | ||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 599,181 | 585,576 | 1,321,276 | 1,304,773 | 374,053 | 391,584 | 732,314 | 706,283 | ||||||||
Income taxes | 202,437 | 222,080 | 444,170 | 466,172 | 106,451 | 122,901 | 252,517 | 241,732 | ||||||||
INCOME FROM CONTINUING OPERATIONS | 396,744 | 363,496 | 877,106 | 838,601 | 267,602 | 268,683 | 479,797 | 464,551 | ||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (net of income tax | ||||||||||||||||
expense (benefit) of ($563), ($3,823), $5,423 and ($6,057) , respectively) | (1,050) | (7,108) | 9,830 | (11,286) | ||||||||||||
INCOME FROM DISCONTINUED OPERATIONS (net of income tax | ||||||||||||||||
expense of $7,190 and $5,986, respectively) | - | 13,119 | - | 10,880 | ||||||||||||
CONSOLIDATED NET INCOME | 395,694 | 356,388 | 886,936 | 827,315 | $267,602 | $281,802 | $479,797 | $475,431 | ||||||||
Preferred dividend requirements and other | 6,811 | 6,436 | 22,622 | 19,217 | ||||||||||||
EARNINGS APPLICABLE TO | ||||||||||||||||
COMMON STOCK | $388,883 | $349,952 | $864,314 | $808,098 | ||||||||||||
Basic earnings (loss) per average common share: | ||||||||||||||||
Basic earnings per average common share: | ||||||||||||||||
Continuing operations | $1.87 | $1.71 | $4.11 | $3.88 | $1.36 | $1.29 | $2.41 | $2.24 | ||||||||
Discontinued operations | - | ($0.03) | $0.05 | ($0.05) | - | $0.06 | - | 0.05 | ||||||||
Basic earnings per average common share | $1.87 | $1.68 | $4.16 | $3.83 | $1.36 | $1.35 | $2.41 | $2.29 | ||||||||
Diluted earnings (loss) per average common share: | ||||||||||||||||
Diluted earnings per average common share: | ||||||||||||||||
Continuing operations | $1.83 | $1.68 | $4.03 | $3.80 | $1.32 | $1.27 | $2.34 | $2.20 | ||||||||
Discontinued operations | - | ($0.03) | $0.05 | ($0.05) | - | $0.06 | - | 0.05 | ||||||||
Diluted earnings per average common share | $1.83 | $1.65 | $4.08 | $3.75 | $1.32 | $1.33 | $2.34 | $2.25 | ||||||||
Dividends declared per common share | $0.54 | $0.54 | $1.62 | $1.62 | $0.54 | $0.54 | $1.08 | $1.08 | ||||||||
Basic average number of common shares outstanding | 208,382,863 | 207,906,762 | 208,034,946 | 211,033,629 | 196,979,140 | 207,982,485 | 198,754,673 | 207,858,104 | ||||||||
Diluted average number of common shares outstanding | 212,404,770 | 212,335,619 | 211,782,858 | 215,540,185 | 203,423,646 | 211,557,985 | 204,785,090 | 211,467,674 | ||||||||
See Notes to Consolidated Financial Statements. | ||||||||||||||||
See Notes to Financial Statements. |
29
25
ENTERGY CORPORATION AND SUBSIDIARIES | ENTERGY CORPORATION AND SUBSIDIARIES | ENTERGY CORPORATION AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
For the Nine Months Ended September 30, 2006 and 2005 | ||||||||
For the Six Months Ended June 30, 2007 and 2006 | For the Six Months Ended June 30, 2007 and 2006 | |||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||
2006 | 2005 | 2007 | 2006 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING ACTIVITIES | ||||||||
Consolidated net income | $886,936 | $827,315 | $479,797 | $475,431 | ||||
Adjustments to reconcile consolidated net income to net cash flow | ||||||||
provided by operating activities: | ||||||||
Reserve for regulatory adjustments | 43,960 | (85,212) | 8,038 | 41,683 | ||||
Other regulatory credits - net | (124,509) | (44,814) | ||||||
Other regulatory charges (credits) - net | 36,885 | (102,946) | ||||||
Depreciation, amortization, and decommissioning | 765,627 | 747,397 | 550,973 | 496,632 | ||||
Deferred income taxes and investment tax credits | (90,439) | 204,297 | ||||||
Deferred income taxes, investment tax credits, and non-current taxes accrued | 507,929 | 427,272 | ||||||
Equity in earnings of unconsolidated equity affiliates - net of dividends | (24,669) | (16,712) | (2,101) | (9,896) | ||||
Changes in working capital: | ||||||||
Receivables | 210,311 | (675,927) | (123,088) | 318,480 | ||||
Fuel inventory | 3,652 | (10,407) | (10,533) | (13,650) | ||||
Accounts payable | (390,804) | 508,648 | (137,102) | (285,750) | ||||
Taxes accrued | 768,251 | 186,803 | (189,410) | 23,941 | ||||
Interest accrued | 3,190 | 15,231 | (29,093) | (21,754) | ||||
Deferred fuel | 436,663 | (267,441) | 37,705 | 272,835 | ||||
Other working capital accounts | 111,491 | (64,075) | (169,775) | 103,790 | ||||
Provision for estimated losses and reserves | 27,595 | 5,755 | 56,241 | 25,037 | ||||
Changes in other regulatory assets | (193,323) | (316,327) | 132,989 | (165,527) | ||||
Other | (176,575) | 92,417 | (185,323) | (105,035) | ||||
Net cash flow provided by operating activities | 2,257,357 | 1,106,948 | 964,132 | 1,480,543 | ||||
INVESTING ACTIVITIES | ||||||||
Construction/capital expenditures | (1,233,505) | (877,165) | (717,115) | (952,432) | ||||
Allowance for equity funds used during construction | 32,088 | 29,414 | 24,717 | 24,367 | ||||
Nuclear fuel purchases | (260,759) | (260,587) | (219,328) | (124,250) | ||||
Proceeds from sale/leaseback of nuclear fuel | 135,079 | 174,140 | 124,185 | 41,109 | ||||
Proceeds from sale of assets and businesses | 77,159 | - | 13,063 | 77,159 | ||||
Payment for purchase of plant | (88,199) | (162,075) | (336,211) | (88,199) | ||||
Insurance proceeds received for property damages | 82,081 | 10,330 | ||||||
Decrease in other investments | 56,501 | 19,698 | 73,969 | 50,070 | ||||
Purchases of other temporary investments | - | (1,591,025) | ||||||
Liquidation of other temporary investments | - | 1,778,975 | ||||||
Proceeds from nuclear decommissioning trust fund sales | 580,745 | 711,494 | 1,013,414 | 523,806 | ||||
Investment in nuclear decommissioning trust funds | (655,788) | (786,635) | (1,075,084) | (573,921) | ||||
Other regulatory investments | (38,506) | (240,232) | - | (42,479) | ||||
Net cash flow used in investing activities | (1,395,185) | (1,203,998) | (1,016,309) | (1,054,440) | ||||
See Notes to Consolidated Financial Statements. | ||||||||
See Notes to Financial Statements. | ||||||||
30 | ||||||||
26 | 26 | |||||||
ENTERGY CORPORATION AND SUBSIDIARIES | ENTERGY CORPORATION AND SUBSIDIARIES | ENTERGY CORPORATION AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
For the Nine Months Ended September 30, 2006 and 2005 | ||||||||
For the Six Months Ended June 30, 2007 and 2006 | For the Six Months Ended June 30, 2007 and 2006 | |||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||
2006 | 2005 | 2007 | 2006 | |||||
(In Thousands) | (In Thousands) | |||||||
FINANCING ACTIVITIES | ||||||||
Proceeds from the issuance of: | ||||||||
Long-term debt | 1,377,701 | 2,538,976 | 2,042,123 | 1,237,865 | ||||
Preferred stock | 73,354 | 29,998 | - | 73,354 | ||||
Common stock and treasury stock | 32,072 | 114,552 | 53,706 | 15,372 | ||||
Retirement of long-term debt | (1,598,425) | (1,366,909) | (699,906) | (1,143,746) | ||||
Repurchase of common stock | - | (878,188) | (825,460) | - | ||||
Redemption of preferred stock | (183,881) | (33,719) | (2,250) | (181,060) | ||||
Changes in credit line borrowings - net | (40,000) | 39,850 | - | (40,000) | ||||
Dividends paid: | ||||||||
Common stock | (337,104) | (341,437) | (215,472) | (224,458) | ||||
Preferred stock | (22,861) | (19,087) | (13,344) | (16,760) | ||||
Net cash flow provided by (used in) financing activities | (699,144) | 84,036 | 339,397 | (279,433) | ||||
Effect of exchange rates on cash and cash equivalents | (820) | (787) | (243) | (556) | ||||
Net increase (decrease) in cash and cash equivalents | 162,208 | (13,801) | ||||||
Net increase in cash and cash equivalents | 286,977 | 146,114 | ||||||
Cash and cash equivalents at beginning of period | 582,820 | 619,786 | 1,016,152 | 582,820 | ||||
Effect of the deconsolidation of Entergy New Orleans on cash and cash equivalents | - | (7,954) | ||||||
Effect of the reconsolidation of Entergy New Orleans on cash and cash equivalents | 17,093 | - | ||||||
Cash and cash equivalents at end of period | $745,028 | $598,031 | $1,320,222 | $728,934 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid (received) during the period for: | ||||||||
Cash paid/(received) during the period for: | ||||||||
Interest - net of amount capitalized | $390,059 | $332,056 | $297,229 | $282,454 | ||||
Income taxes | ($197,560) | $118,989 | $228,750 | ($231,325) | ||||
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. | ||||||||
See Notes to Financial Statements. | ||||||||
27 | 27 | |||||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
ASSETS | ||||
June 30, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $104,004 | $117,379 | ||
Temporary cash investments - at cost, | ||||
which approximates market | 1,216,218 | 898,773 | ||
Total cash and cash equivalents | 1,320,222 | 1,016,152 | ||
Note receivable - Entergy New Orleans DIP loan | - | 51,934 | ||
Notes receivable | 490 | 699 | ||
Accounts receivable: | ||||
Customer | 463,960 | 410,512 | ||
Allowance for doubtful accounts | (27,231) | (19,348) | ||
Other | 466,307 | 487,264 | ||
Accrued unbilled revenues | 333,477 | 249,165 | ||
Total receivables | 1,236,513 | 1,127,593 | ||
Accumulated deferred income taxes | - | 11,680 | ||
Fuel inventory - at average cost | 208,672 | 193,098 | ||
Materials and supplies - at average cost | 665,964 | 604,998 | ||
Deferred nuclear refueling outage costs | 216,444 | 147,521 | ||
System agreement cost equalization | 215,800 | - | ||
Prepayments and other | 172,733 | 171,759 | ||
TOTAL | 4,036,838 | 3,325,434 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 79,063 | 229,089 | ||
Decommissioning trust funds | 3,223,901 | 2,858,523 | ||
Non-utility property - at cost (less accumulated depreciation) | 210,848 | 212,726 | ||
Other | 72,845 | 47,115 | ||
TOTAL | 3,586,657 | 3,347,453 | ||
PROPERTY, PLANT AND EQUIPMENT | ||||
Electric | 32,728,200 | 30,713,284 | ||
Property under capital lease | 728,683 | 730,182 | ||
Natural gas | 294,595 | 92,787 | ||
Construction work in progress | 855,149 | 786,147 | ||
Nuclear fuel under capital lease | 190,640 | 269,485 | ||
Nuclear fuel | 727,488 | 561,291 | ||
TOTAL PROPERTY, PLANT AND EQUIPMENT | 35,524,755 | 33,153,176 | ||
Less - accumulated depreciation and amortization | 14,690,254 | 13,715,099 | ||
PROPERTY, PLANT AND EQUIPMENT - NET | 20,834,501 | 19,438,077 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 655,642 | 740,110 | ||
Other regulatory assets | 2,774,223 | 2,768,352 | ||
Deferred fuel costs | 168,122 | 168,122 | ||
Long-term receivables | 17,293 | 19,349 | ||
Goodwill | 377,172 | 377,172 | ||
Other | 964,279 | 898,662 | ||
TOTAL | 4,956,731 | 4,971,767 | ||
TOTAL ASSETS | $33,414,727 | $31,082,731 | ||
See Notes to Financial Statements. | ||||
28 | ||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
June 30, 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 | 997,247 | 1,122,596 | ||
Customer deposits | 277,438 | 248,031 | ||
Taxes accrued | - | 187,324 | ||
Accumulated deferred income taxes | 18,545 | - | ||
Interest accrued | 149,741 | 160,831 | ||
Deferred fuel costs | 91,740 | 73,031 | ||
Obligations under capital leases | 152,682 | 153,246 | ||
Pension and other postretirement liabilities | 32,338 | 41,912 | ||
System agreement cost equalization | 215,800 | - | ||
Other | 257,541 | 271,544 | ||
TOTAL | 2,490,053 | 2,465,130 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 6,170,259 | 5,820,700 | ||
Accumulated deferred investment tax credits | 352,634 | 358,550 | ||
Obligations under capital leases | 185,980 | 188,033 | ||
Other regulatory liabilities | 524,047 | 449,237 | ||
Decommissioning and asset retirement cost liabilities | 2,316,081 | 2,023,846 | ||
Transition to competition | 79,098 | 79,098 | ||
Accumulated provisions | 130,522 | 88,902 | ||
Pension and other postretirement liabilities | 1,463,720 | 1,410,433 | ||
Long-term debt | 10,291,695 | 8,798,087 | ||
Preferred stock with sinking fund | 8,250 | 10,500 | ||
Other | 1,250,405 | 847,415 | ||
TOTAL | 22,772,691 | 20,074,801 | ||
Commitments and Contingencies | ||||
Preferred stock without sinking fund | 364,474 | 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 | 4,841,059 | 4,827,265 | ||
Retained earnings | 6,372,687 | 6,113,042 | ||
Accumulated other comprehensive loss | (41,769) | (100,512) | ||
Less - treasury stock, at cost (52,114,693 shares in 2007 and | ||||
45,506,311 shares in 2006) | 3,386,950 | 2,644,390 | ||
TOTAL | 7,787,509 | 8,197,887 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $33,414,727 | $31,082,731 | ||
See Notes to Financial Statements. | ||||
29 | ||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||||
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL | ||||||||||
For the Three Months Ended June 30, 2007 and 2006 | ||||||||||
(Unaudited) | ||||||||||
2007 | 2006 | |||||||||
(In Thousands) | ||||||||||
RETAINED EARNINGS | ||||||||||
Retained Earnings - Beginning of period | $6,211,617 | $5,515,421 | ||||||||
Add: Consolidated net income | 267,602 | $267,602 | 281,802 | $281,802 | ||||||
Deduct: | ||||||||||
Dividends declared on common stock | 106,532 | 112,295 | ||||||||
Capital stock and other expenses | - | 3,310 | ||||||||
Total | 106,532 | 115,605 | ||||||||
Retained Earnings - End of period | $6,372,687 | $5,681,618 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE LOSS | ||||||||||
Balance at beginning 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) | ||||||||
Net derivative instrument fair value changes | ||||||||||
arising during the period (net of tax expense of $1,851 and $11,151) | 4,549 | 4,549 | 6,672 | 6,672 | ||||||
Pension and other postretirement liabilities (net of tax expense of $1,092) | (339) | (339) | - | - | ||||||
Net unrealized investment gains (net of tax expense (benefit) of $4,317 and ($10,117)) | 8,350 | 8,350 | (11,874) | (11,874) | ||||||
Foreign currency translation (net of tax expense of $124 and $206) | 231 | 231 | 383 | 383 | ||||||
Balance at end of period: | ||||||||||
Accumulated derivative instrument fair value changes | (59,562) | (194,629) | ||||||||
Pension and other postretirement liabilities | (105,770) | - | ||||||||
Net unrealized investment gains | 116,897 | 59,376 | ||||||||
Foreign currency translation | 6,666 | 3,773 | ||||||||
Minimum pension liability | - | (22,345) | ||||||||
Total | ($41,769) | ($153,825) | ||||||||
Comprehensive Income | $280,393 | $276,983 | ||||||||
PAID-IN CAPITAL | ||||||||||
Paid-in Capital - Beginning of period | $4,831,803 | $4,816,037 | ||||||||
Add: | ||||||||||
Common stock issuances related to stock plans | 9,256 | 1,591 | ||||||||
�� | ||||||||||
Paid-in Capital - End of period | $4,841,059 | $4,817,628 | ||||||||
See Notes to Financial Statements. |
30
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||||
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL | ||||||||||
For the Six Months Ended June 30, 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 | 479,797 | $479,797 | 475,431 | $475,431 | ||||||
Adjustment related to FIN 48 implementation | (4,600) | - | ||||||||
Total | 475,197 | 475,431 | ||||||||
Deduct: | ||||||||||
Dividends declared on common stock | 215,552 | 224,434 | ||||||||
Capital stock and other expenses | - | 3,310 | ||||||||
Total | 215,552 | 227,744 | ||||||||
Retained Earnings - End of period | $6,372,687 | $5,681,618 | ||||||||
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 $30,176 and $131,543) | 46,016 | 46,016 | 197,985 | 197,985 | ||||||
Pension and other postretirement liabilities (net of tax expense of $1,366) | 139 | 139 | - | - | ||||||
Net unrealized investment gains (net of tax expense (benefit) of $7,107 and ($7,802)) | 12,346 | 12,346 | (8,547) | (8,547) | ||||||
Foreign currency translation (net of tax expense of $130 and $299) | 242 | 242 | 556 | 556 | ||||||
Balance at end of period: | ||||||||||
Accumulated derivative instrument fair value changes | (59,562) | (194,629) | ||||||||
Pension and other postretirement liabilities | (105,770) | - | ||||||||
Net unrealized investment gains | 116,897 | 59,376 | ||||||||
Foreign currency translation | 6,666 | 3,773 | ||||||||
Minimum pension liability | - | (22,345) | ||||||||
Total | ($41,769) | ($153,825) | ||||||||
Comprehensive Income | $538,540 | $665,425 | ||||||||
PAID-IN CAPITAL | ||||||||||
Paid-in Capital - Beginning of period | $4,827,265 | $4,817,637 | ||||||||
Add (Deduct): | ||||||||||
Common stock issuances related to stock plans | 13,794 | (9) | ||||||||
Paid-in Capital - End of period | $4,841,059 | $4,817,628 | ||||||||
See Notes to Financial Statements. |
31
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
ASSETS | ||||
September 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $136,421 | $221,773 | ||
Temporary cash investments - at cost, | ||||
which approximates market | 608,607 | 361,047 | ||
Total cash and cash equivalents | 745,028 | 582,820 | ||
Note receivable - Entergy New Orleans DIP loan | 31,841 | 90,000 | ||
Notes receivable | 1,127 | 3,227 | ||
Accounts receivable: | ||||
Customer | 631,983 | 629,717 | ||
Allowance for doubtful accounts | (19,553) | (30,805) | ||
Other | 438,359 | 459,152 | ||
Accrued unbilled revenues | 292,612 | 477,570 | ||
Total receivables | 1,343,401 | 1,535,634 | ||
Deferred fuel costs | 73,722 | 543,927 | ||
Fuel inventory - at average cost | 202,543 | 206,195 | ||
Materials and supplies - at average cost | 594,870 | 610,932 | ||
Deferred nuclear refueling outage costs | 104,511 | 157,764 | ||
Prepayments and other | 89,291 | 325,795 | ||
TOTAL | 3,186,334 | 4,056,294 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 323,007 | 296,784 | ||
Decommissioning trust funds | 2,748,771 | 2,606,765 | ||
Non-utility property - at cost (less accumulated depreciation) | 213,179 | 228,833 | ||
Other | 40,630 | 81,535 | ||
TOTAL | 3,325,587 | 3,213,917 | ||
PROPERTY, PLANT AND EQUIPMENT | ||||
Electric | 30,429,958 | 29,161,027 | ||
Property under capital lease | 723,614 | 727,565 | ||
Natural gas | 89,685 | 86,794 | ||
Construction work in progress | 815,266 | 1,524,085 | ||
Nuclear fuel under capital lease | 248,506 | 271,615 | ||
Nuclear fuel | 462,338 | 436,646 | ||
TOTAL PROPERTY, PLANT AND EQUIPMENT | 32,769,367 | 32,207,732 | ||
Less - accumulated depreciation and amortization | 13,413,896 | 13,010,687 | ||
PROPERTY, PLANT AND EQUIPMENT - NET | 19,355,471 | 19,197,045 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 777,042 | 735,221 | ||
Other regulatory assets | 2,376,634 | 2,133,724 | ||
Deferred fuel costs | 168,122 | 120,489 | ||
Long-term receivables | 22,989 | 25,572 | ||
Goodwill | 377,172 | 377,172 | ||
Other | 968,303 | 991,835 | ||
TOTAL | 4,690,262 | 4,384,013 | ||
TOTAL ASSETS | $30,557,654 | $30,851,269 | ||
See Notes to Consolidated Financial Statements. | ||||
32 | ||||
ENTERGY CORPORATION AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
September 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 | 869,185 | 1,655,787 | ||
Customer deposits | 239,612 | 222,206 | ||
Taxes accrued | 254,205 | 188,159 | ||
Accumulated deferred income taxes | 36,805 | 143,409 | ||
Nuclear refueling outage costs | 4,791 | 15,548 | ||
Interest accrued | 158,045 | 154,855 | ||
Obligations under capital leases | 136,944 | 130,882 | ||
Other | 329,125 | 473,510 | ||
TOTAL | 2,136,944 | 3,127,914 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 5,958,146 | 5,279,228 | ||
Accumulated deferred investment tax credits | 363,050 | 376,550 | ||
Obligations under capital leases | 183,835 | 175,005 | ||
Other regulatory liabilities | 431,901 | 408,667 | ||
Decommissioning and retirement cost liabilities | 1,994,185 | 1,923,971 | ||
Transition to competition | 79,098 | 79,101 | ||
Regulatory reserves | 15,916 | 18,624 | ||
Accumulated provisions | 515,547 | 556,028 | ||
Long-term debt | 8,614,114 | 8,824,493 | ||
Preferred stock with sinking fund | 10,500 | 13,950 | ||
Other | 1,351,123 | 1,879,017 | ||
TOTAL | 19,517,415 | 19,534,634 | ||
Commitments and Contingencies | ||||
Preferred stock without sinking fund | 345,035 | 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 | 4,818,892 | 4,817,637 | ||
Retained earnings | 5,950,786 | 5,428,407 | ||
Accumulated other comprehensive loss | (101,808) | (343,819) | ||
Less - treasury stock, at cost (39,606,024 shares in 2006 and | ||||
40,644,602 shares in 2005) | 2,112,092 | 2,161,960 | ||
TOTAL | 8,558,260 | 7,742,747 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $30,557,654 | $30,851,269 | ||
See Notes to Consolidated Financial Statements. |
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2007 | 2006 | (Decrease) | % | ||||
(Dollars in Millions) | ||||||||
Utility Electric Operating Revenues: | ||||||||
Residential | $691 | $697 | ($6) | (1) | ||||
Commercial | 576 | 546 | 30 | 5 | ||||
Industrial | 640 | 620 | 20 | 3 | ||||
Governmental | 54 | 36 | 18 | 50 | ||||
Total retail | 1,961 | 1,899 | 62 | 3 | ||||
Sales for resale (1) | 98 | 161 | (63) | (39) | ||||
Other | 136 | 118 | 18 | 15 | ||||
Total | $2,195 | $2,178 | $17 | 1 | ||||
Utility Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 6,985 | 7,034 | (49) | (1) | ||||
Commercial | 6,481 | 6,060 | 421 | 7 | ||||
Industrial | 9,814 | 9,561 | 253 | 3 | ||||
Governmental | 562 | 378 | 184 | 49 | ||||
Total retail | 23,842 | 23,033 | 809 | 4 | ||||
Sales for resale (1) | 1,428 | 2,816 | (1,388) | (49) | ||||
Total | 25,270 | 25,849 | (579) | (2) | ||||
Six Months Ended | Increase/ | |||||||
Description | 2007 | 2006 | (Decrease) | % | ||||
(Dollars in Millions) | ||||||||
Utility Electric Operating Revenues: | ||||||||
Residential | $1,435 | $1,394 | $41 | 3 | ||||
Commercial | 1,132 | 1,087 | 45 | 4 | ||||
Industrial | 1,273 | 1,287 | (14) | (1) | ||||
Governmental | 105 | 76 | 29 | 38 | ||||
Total retail | 3,945 | 3,844 | 101 | 3 | ||||
Sales for resale (1) | 189 | 336 | (147) | (44) | ||||
Other | 172 | 91 | 81 | 89 | ||||
Total | $4,306 | $4,271 | $35 | 1 | ||||
Utility Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 14,777 | 13,997 | 780 | 6 | ||||
Commercial | 12,597 | 11,594 | 1,003 | 9 | ||||
Industrial | 19,137 | 18,613 | 524 | 3 | ||||
Governmental | 1,111 | 760 | 351 | 46 | ||||
Total retail | 47,622 | 44,964 | 2,658 | 6 | ||||
Sales for resale (1) | 3,066 | 5,577 | (2,511) | (45) | ||||
Total | 50,688 | 50,541 | 147 | - - | ||||
(1) 2006 includes sales to Entergy New Orleans, which was deconsolidated for 2006. Entergy New Orleans was reconsolidated effective January 1, 2007. | ||||||||
3332
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||||
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL | ||||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||||
(Unaudited) | ||||||||||
Three Months Ended | ||||||||||
2006 | 2005 | |||||||||
(In Thousands) | ||||||||||
RETAINED EARNINGS | ||||||||||
Retained Earnings - Beginning of period | $5,676,094 | $5,212,985 | ||||||||
Add: Earnings applicable to common stock | 388,883 | $388,883 | 349,952 | $349,952 | ||||||
Deduct: | ||||||||||
Dividends declared on common stock | 112,570 | 112,166 | ||||||||
Capital stock and other expenses | 1,621 | 553 | ||||||||
Total | 114,191 | 112,719 | ||||||||
Retained Earnings - End of period | $5,950,786 | $5,450,218 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE LOSS | ||||||||||
Balance at beginning 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) | ||||||||
Net derivative instrument fair value changes | ||||||||||
arising during the period (net of tax expense (benefit) of $17,470 and ($77,484)) | 27,295 | 27,295 | (116,238) | (116,238) | ||||||
Foreign currency translation (net of tax expense of $143 and $493) | 265 | 265 | 916 | 916 | ||||||
Minimum pension liability (net of tax expense of $386) | 617 | 617 | - | - | ||||||
Net unrealized investment gains (net of tax expense (benefit) of $18,788 and ($651)) | 23,840 | 23,840 | (3,548) | (3,548) | ||||||
Balance at end of period: | ||||||||||
Accumulated derivative instrument fair value changes | ($167,334) | ($324,305) | ||||||||
Other accumulated comprehensive income items | 65,526 | 58,428 | ||||||||
Total | ($101,808) | ($265,877) | ||||||||
Comprehensive Income | $440,900 | $231,082 | ||||||||
PAID-IN CAPITAL | ||||||||||
Paid-in Capital - Beginning of period | $4,817,628 | $4,845,037 | ||||||||
Add: Common stock issuances related to stock plans | 1,264 | (5,227) | ||||||||
Paid-in Capital - End of period | $4,818,892 | $4,839,810 | ||||||||
Nine 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 | 864,314 | $864,314 | 808,098 | $808,098 | ||||||
Deduct: | ||||||||||
Dividends declared on common stock | 337,004 | 341,614 | ||||||||
Capital stock and other expenses | 4,931 | 568 | ||||||||
Total | 341,935 | 342,182 | ||||||||
Retained Earnings - End of period | $5,950,786 | $5,450,218 | ||||||||
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 $149,013 and ($115,176)) | 225,280 | 225,280 | (182,894) | (182,894) | ||||||
Foreign currency translation (net of tax expense of $442 and $424) | 821 | 821 | 787 | 787 | ||||||
Minimum pension liability (net of tax expense (benefit) of $386 and ($1,344)) | 617 | 617 | (2,054) | (2,054) | ||||||
Net unrealized investment gains (net of tax expense of $10,986 and $8,794) | 15,293 | 15,293 | 11,737 | 11,737 | ||||||
Balance at end of period: | ||||||||||
Accumulated derivative instrument fair value changes | ($167,334) | ($324,305) | ||||||||
Other accumulated comprehensive income items | 65,526 | 58,428 | ||||||||
Total | ($101,808) | ($265,877) | ||||||||
Comprehensive Income | $1,106,325 | $635,674 | ||||||||
PAID-IN CAPITAL | ||||||||||
Paid-in Capital - Beginning of period | $4,817,637 | $4,835,375 | ||||||||
Add: Common stock issuances related to stock plans | 1,255 | 4,435 | ||||||||
Paid-in Capital - End of period | $4,818,892 | $4,839,810 | ||||||||
See Notes to Consolidated Financial Statements. | ||||||||||
34
ENTERGY CORPORATION AND SUBSIDIARIES | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
U.S. Utility Electric Operating Revenues: | ||||||||
Residential | $1,115 | $1,002 | $113 | 11 | ||||
Commercial | 687 | 601 | 86 | 14 | ||||
Industrial | 704 | 642 | 62 | 10 | ||||
Governmental | 42 | 37 | 5 | 14 | ||||
Total retail | 2,548 | 2,282 | 266 | 12 | ||||
Sales for resale | 147 | 189 | (42) | (22) | ||||
Other | 66 | 19 | 47 | 247 | ||||
Total | $2,761 | $2,490 | $271 | 11 | ||||
U.S. Utility Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 10,772 | 10,630 | 142 | 1 | ||||
Commercial | 7,484 | 7,301 | 183 | 3 | ||||
Industrial | 10,154 | 9,736 | 418 | 4 | ||||
Governmental | 436 | 424 | 12 | 3 | ||||
Total retail | 28,846 | 28,091 | 755 | 3 | ||||
Sales for resale | 2,894 | 3,184 | (290) | (9) | ||||
Total | 31,740 | 31,275 | 465 | 1 | ||||
Nine Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
U.S. Utility Electric Operating Revenues: | ||||||||
Residential | $2,509 | $2,164 | $345 | 16 | ||||
Commercial | 1,773 | 1,469 | 304 | 21 | ||||
Industrial | 1,990 | 1,742 | 248 | 14 | ||||
Governmental | 118 | 101 | 17 | 17 | ||||
Total retail | 6,390 | 5,476 | 914 | 17 | ||||
Sales for resale | 488 | 474 | 14 | 3 | ||||
Other | 154 | 287 | (133) | (46) | ||||
Total | $7,032 | $6,237 | $795 | 13 | ||||
U.S. Utility Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 24,768 | 24,358 | 410 | 2 | ||||
Commercial | 19,078 | 18,507 | 571 | 3 | ||||
Industrial | 28,768 | 28,837 | (69) | - - | ||||
Governmental | 1,196 | 1,184 | 12 | 1 | ||||
Total retail | 73,810 | 72,886 | 924 | 1 | ||||
Sales for resale | 8,471 | 8,811 | (340) | (4) | ||||
Total | 82,281 | 81,697 | 584 | 1 | ||||
35
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 herein 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. Beginning in June 2006, the aggregation limit for all parties insured by Oil Insurance Limited (OIL) for anyFollowing is an update to that information.
Entergy reached an agreement with one occurrence was reduced to $500 million. Most of Entergy's non-nuclearits excess property insurance coverage includes a $75insurers under which Entergy received $69.5 million drop-down feature in the eventsecond quarter 2007 in settlement of an OIL aggregation lossits Hurricane Katrina claim with that insurer. $53.8 million of the proceeds were allocated to which an Entergy loss contributes.New Orleans, $2.1 million were allocated to Entergy Gulf States, and $9.7 million were allocated to Entergy Louisiana. Entergy has received a total of $134.5 million as of June 30, 2007 on its Hurricanes Katrina and Rita claims, including $70.7 million allocated to Entergy New Orleans, $33.2 million allocated to Entergy Gulf States, and $24.8 million allocated to Entergy Louisiana.
To the extent that Entergy New Orleans receives insurance proceeds for future construction expenditures associated with rebuilding its gas system, the October 2006 City Council resolution approving the settlement of Entergy New Orleans' rate and storm-cost recovery filings requires Entergy New Orleans to record those proceeds in a designated sub-account of other deferred credits. This other deferred credit is shown as "Gas system rebuild insurance proceeds" on Entergy New Orleans' balance sheet.
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. 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 other retirement costs. In the third quarter of 2006, Entergy'sIndian Point 3 power plants. Non-Utility Nuclear business recordedcalculated that $0 was owed to NYPA for 2005 under the value sharing agreements. In November 2006, NYPA filed a reductiondemand for arbitration claiming that $90.5 million was due to NYPA for 2005 under these agreements. 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 NYPA's claim is now in arbitration. Non-Utility Nuclear has also calculated that $0 was owed to NYPA for 2006 under the value sharing agreements. In April 2007, NYPA filed an amended demand for arbitration claimin g that an additional $54 million was due to NYPA for 2006 under the value sharing agreements. With respect to both of $27.0 millionthese 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. Arbitration hearings were held in its decommissioning cost liabilitiesJuly 2007, and the arbitrator's decision is pending.
33
CashPoint Bankruptcy(Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans)
See Note 8 to the financial statements in conjunction with a new decommissioning cost study as a result of revised decommissioning costs and changes in assumptionsthe Form 10-K for information regarding the timingbankruptcy of whenCashPoint, which managed a network of payment agents for the decommissioning of a plant will begin. The revised estimate resulted in miscellaneous income of $27.0 million ($16.6 million net-of-tax), reflecting the excess of the reduction in the liability over the amount of undepreciated asset retirement cost.Utility operating companies.
Employment Litigationand Labor-related Proceedings
Entergy Corporation and certain subsidiariesthe Registrant Subsidiaries are defendants in numerousresponding to various lawsuits and other labor-related proceedings filed by current and former employees asserting that they were wrongfully terminated and/employees. These actions include, but are not limited to, allegations of wrongful employment actions; wage disputes and other claims under the Fair Labor Standards Act or discriminated against onits state counterparts; claims of race, gender and disability discrimination; disputes arising under collective bargaining agreements; unfair labor practice proceedings and other administrative proceedings before the basisNational Labor Relations Board; claims of age, race, sex,retaliation; and claims for or other protected characteristics. The defendant companiesregarding benefits under various Entergy Corporation sponsored plans. Entergy Corporation and the Registrant Subsidiaries are responding to these suits and proceedings and deny any liability to the plaintiffs.claimants.
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 Statesfinancial statements 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, including carrying costs, based on a ten-year levelized rate are $54.4 millionForm 10-K for Entergy Louisiana and $26.2 million for Entergy Gulf States; (3) authorize Entergy Louisiana and Entergy
36
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 forthinformation regarding regulatory assets 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 o f 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 are scheduled for March 2007. Entergy Gulf States and Entergy Louisiana also intend to pursue securitization options for the storm cost recovery as well, which is authorized by a law signed by the Governor of Louisiana in May 2006.
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 allocates those costs among its Texas 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. This is the first of two filings authorized by a law passed earlier this year in a special session of the Texas Legislature. A hearing before the PUCTUtility business reflected on the filing was scheduled for November 1-3, 2006, but at the commencementbalance sheets of the hearing all of the parties in attendance announced that they had reached a unanimous agreement in principle to settle the issues in the proceeding. The parties are developing the documentation to formalize the settlement. The parties intend to submit the settlement documents to the PUCT prior to Thanksgiving 2006 so that the PUCT can approve them by early December 2006. A second filing will request securitization and recovery of the costs eligible for securitization through retail rates and tariffs. Entergy Gulf States expects to make the second filing following the conclusion of the reconstruction cost case.
In March 2006, the Governor of Mississippi signed a law that established a mechanism by which the MPSC could authorize and certify an electric utility financing order and the state could issue general obligation bonds to finance 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 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 a review of Entergy Mississippi's total storm restoration costs in an Application for an Accounting Order proceeding. The Stipulation stated that the procedural schedule of Entergy Mississippi's December 2005 filing seeking recovery of hurricane costs through an existing Entergy Mississippi storm damage rider should be suspended until the MP SC issues a final order in the Application for an Accounting Order proceeding. Registrant Subsidiaries.
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 Hurricane Katrina 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 included the $89 million of Hurricane Katrina restoration costs plus $80 million to build Entergy Mississippi's storm damage reserve for the future. Entergy Mississippi's filing stated that the amount actually financed through the state bonds would be net of any CDBG funds that Entergy Mississippi received.
37
In October 2006, the Mississippi Development Authority approved for payment and Entergy Mississippi received $81 million in CDBG funding for Hurricane Katrina costs. The MPSC then issued a financing order authorizing the issuance of $48 million of state general obligation bonds, with $8 million for the remainder of Entergy Mississippi's certified Hurricane Katrina restoration costs and $40 million for the increase in Entergy Mississippi's storm damage reserve. $30 million of the storm reserve will be set aside in a restricted account. Entergy Mississippi expects to forward the financing order to the state bond commission, as per the March 2006 law, and expects to receive the proceeds from the state general obligation bond issuance in the first quarter of 2007.
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. The following are updates to the Form 10-K.
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. The APSC has taken no action in this proceeding since its March 2007 order.
Also 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$0.01179/kWh effective the interim rate of $0.01900 per kWh that had beenfirst billing cycle in place since October 2005. The interim energy cost rate is discussed in Note 2 to the financial statements 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 railroad 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 did 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.2007.
In its June 2006,2007 order regarding Entergy Arkansas filed a motion with the APSC seeking again to implement the redetermined energy costArkansas' rate of $0.02827 per kWh. After a hearing,case, discussed below, the APSC approved the continuation of 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.
On June 7, 2006, Entergy Arkansas filed a cost of service study and testimony supporting the redetermined energy cost rate and testimony addressing the prospective elimination of the energy cost recovery rider as ordered by the APSC. A hearing was held in the APSC energy cost recovery investigation on October 12, 2006 and post-hearing briefs were filed by Entergy Arkansas, the APSC General Staff, the Arkansas Attorney General, and the Arkansas Electric Energy Consumers. No party recommended termination of the energy cost recovery rider in the fuel cost investigation proceeding. The timing of a decision in this proceeding is uncertain.through December 31, 2008.
34
Entergy Gulf States (Texas)
In March 2006,2007 Entergy Gulf States filed a request with the PUCT an application to implement an interim fuel surcharge in connection with the under-recovery of $97refund $78.5 million, including interest, on eligibleof fuel costs for the period August 2005cost recovery over-collections through January 2006. This surcharge is in addition to an interim surcharge that went into effect in January 2006. Entergy Gulf States entered into2007. In June 2007 the PUCT approved a unanimous stipulation and settlement agreement that reducedupdated the requested surcharge for
38
actual over-collections from the monthsover-collection balance through April 2007 and established a refund amount, including interest, of February and March 2006, resulting in a surcharge of $78.8 million to$109.4 million. The refund will be implementedmade over a twelve-monthtwo-month period beginning in June 2006. The PUCT approved the surcharge in June 2006. Entergy Gulf States has since entered into a joint agreement with several parties, which was approved by the PUCT, to remove the first interim fuel surcharge (the January 2006 surcharge) effective with the first billing cycle in November 2006. That surcharge was to be in effect until the end of 2006. Additionally, Entergy Gulf States requested that the PUCT remove the second interim surcharge (the June 2006 surcharge) as of November 2006 as well, which the PUCT has approved. Both of these requests are the result of over-recoveries in recent months.July 2007. Amounts collectedrefunded through the interim fuel surchargesrefund 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. HearingsA hearing was conducted before administrative law judges (ALJs) in April 2007. On July 24, 2007, the ALJs issued a proposal for decision recommending that Entergy Gulf States be authorized to reconcile all of its requested Texas fixed fuel factor expenses and recommending a minor adjustment to the incremental purchased capacity recovery calculation. The ALJs also recommend granting an exception to PUCT rules to allow for recovery of an additional $11.4 million in Texas-jurisdictional purchased power capacity costs. The PUCT is scheduled to consider the proposal for decision during its August 16, 2007 open meeting.
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 scheduled for February 2007 and a PUCT decision is expected in July 2007.updates to the Form 10-K.
Entergy Gulf States - Texas
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. In June 2007, Entergy Gulf States Reconstruction Funding I, LLC (Entergy Gulf States Reconstruction Funding), a company wholly-owned and consolidated by Entergy Gulf States, issued $329.5 million of senior secured transition bonds (securitization bonds). With the proceeds, Entergy Gulf States Reconstruction Funding purchased from Entergy Gulf States the transition property, which is the right to recover from customers though a transition charge amounts sufficient to service the securitization bonds. Entergy Gulf States began cost recovery through the transition charge in July 2007, and the transition charge is expected to remain in place over a 15-year period. See Note 4 to the financial statements for additional information regarding the securitization bonds.
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, including carrying charges, 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 on the quantification of the amounts eligible for securitization began in late-April 2007. At the start of the hearing, a stipulation among Entergy Gulf State s, 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, acted reasonably and prudentlysets 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 responsethose same amounts. Hearings on authorization of securitization of the storm costs and reserves were held in June 2007. On August 1, 2007, the LPSC voted to issue an extremely difficult environment.order approving recovery of the stipulated storm cost recovery and storm reserve amounts plus certain debt retirement and upfront and ongoing costs through securitization financing.
35
Entergy Mississippi
In October 2006 the MPSC issued a financing order authorizing the issuance of state bonds to finance $8 million of Entergy Mississippi's certified Hurricane Katrina restoration costs and $40 million for an increase in Entergy Mississippi's storm damage reserve. $30 million of the storm damage reserve will be set aside in a restricted account. A Mississippi state entity issued the bonds in May 2007, and Entergy Mississippi received proceeds of $48 million. Entergy Mississippi will not report the bonds in its balance sheet because the bonds are the obligation of the state entity, and there is no recourse against Entergy Mississippi in the event of a bond default. To service the bonds, Entergy Mississippi will collect a system restoration charge on behalf of the state, and will remit the collections to the state. By analogy to and in accordance with Entergy's accounting policy for collection of sales taxes, Entergy Mississippi will not report the collections as revenue because it is merely acting as the billing and collection agent for the state.
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 Entergy New Orleans. Entergy New Orleans submitted the agreement to the bankruptcy court, which approved it on April 25, 2007. Entergy New Orleans has received $176.8 million of the funds as of June 30, 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 APSC (Entergy Arkansas)
In June 2007, after hearings on Entergy Arkansas' August 2006 rate filing requesting an adjusted annual increase of $106.5 million, the APSC ordered Entergy Arkansas filed with the APSC a request for a change in base rates. Entergy Arkansas requested a general base rate increase of $150to reduce its annual rates by $5 million, (usingand set an ROE of 11.25%), as well as9.9% with a hypothetical common equity level lower than Entergy Arkansas' actual capital structure. For the purpose of setting rates, the APSC disallowed a portion of costs associated with incentive compensation based on financial measures and all costs associated with Entergy's stock-based compensation plans. In addition, under the terms of the APSC's order, recovery of FERC-allocatedstorm restoration costs pursuantin the future will be limited to a fixed annual amount of $14.4 million, regardless of the FERC decision onactual annual amount of future restoration costs. The APSC's order also threatens Entergy Arkansas' ability to recover $52 million of costs previously accumulated in Entergy Arkansas' storm reserve and $18 million of rem oval costs associated with the System Agreement.termination of a lease. Management believes, however, that Entergy Arkansas also requestedis entitled to recover these prudently incurred costs and will vigorously pursue its right to recover them. The APSC rejected Entergy Arkansas' request for a capacity management rider to recover incremental capacity costs, but directed Entergy Arkansas and the other parties in the case to develop an annual earnings review process that may address this issue.
See Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -System Agreement Litigation" for a discussion of Entergy's compliance filing in that proceeding. In its June 2007 decision on Entergy Arkansas' rate filing, the APSC approved through December 31, 2008 a production cost allocation rider for recovery from customers of the retail portion of the costs allocated to Entergy Arkansas as a result of the System Agreement litigation.
36
Entergy Arkansas filed in July 2007 for rehearing of the APSC's June 2007 order.
Filings with the LPSC
(Entergy Gulf States)
In May 2006, Entergy Gulf States made its formula rate plan filing with the LPSC for the 2005 test year. Entergy Gulf States modified the filing in August 2006 to reflect an 11.1% return on equity which is within the allowed bandwidth. The modified filing includes a formula rate plan increase of $17.2 million annually that provides for 1) interim recovery of $10.5 million of storm costs from Hurricanes Katrina and Rita and 2) recovery of $6.7 million of LPSC-approved incremental deferred and ongoing capacity costs. The increase was implemented, subject to refund, with the first billing cycle of September 2006. In May 2007 the LPSC approved a settlement between Entergy Louisiana and the LPSC Staff, affirming the rates that were implemented in September 2006.
In May 2007, Entergy Gulf States made its formula rate plan filing with the LPSC for the 2006 test year. The filing reflected a 10.0% return on equity, which is within the allowed bandwidth. The filing includes three adjustments that result in a formula rate plan decrease of $23 million annually: 1) cessation of interim Hurricanes Katrina and Rita cost recovery, in anticipation of securitized storm cost recovery; 2) reduction of the storm cost accrual, in anticipation of a securitized storm reserve; and 3) reduced capacity costs in the 2006 test year compared to the 2005 test year.
(Entergy Louisiana)
In May 2007, Entergy Louisiana made its formula rate plan filing with the LPSC for the 2006 test year, indicating a 7.6% return on equity. If the LPSC approves Entergy Louisiana's request to recover $39.8 million in unrecovered fixed costs associated with the loss of customers that resulted from Hurricanes Katrina and Rita, the ROE would increase to 9.4%, which is within the band of no change adjacent to the lower end of the sharing bandwidth. Other adjustments included in the filing that result ultimately in a formula rate plan decrease of $6.9 million annually include: 1) cessation of interim Hurricanes Katrina and Rita cost recovery, in anticipation of securitized storm cost recovery; 2) reduction of the storm cost accrual, in anticipation of a securitized storm reserve; and 3) reduced capacity costs in the 2006 test year compared to the 2005 test year.
Retail Rates- Gas (Entergy Gulf States)
In January 2007, Entergy Gulf States filed with the LPSC its gas rate stabilization plan for the test year ending September 30, 2006. The filing showed a revenue deficiency of $3.5 million based on an ROE mid-point of 10.5%. In March 2007, Entergy Gulf States filed a set of rate and rider schedules that reflected all proposed LPSC staff adjustments and implemented a $2.4 million base rate increase effective with the first billing cycle of April 2007 pursuant to the rate stabilization plan.
Filings with the MPSC (Entergy Mississippi)
In March 2007, Entergy Mississippi made its annual scheduled formula rate plan filing for the 2006 test year with the MPSC. The filing showed that an increase of $12.9 million in annual electric revenues is warranted. In June 2007 the MPSC approved a joint stipulation between Entergy Mississippi and the Mississippi Public Utilities Staff that provides for a $10.5 million rate increase, which was effective beginning with July 2007 billings.
37
Electric Industry Restructuring
Texas (Entergy Gulf States)
Refer to Note 2 to the financial statements in the Form 10-K for the current Texas legislation and Entergy Gulf States' proposed transition to competition plan.
As required by the June 2005 legislation, Entergy Gulf States filed its proposed transition to competition plan in December 2006. The plan provides that to achieve full customer choice, Entergy Gulf States should join ERCOT because ERCOT already has all of the prerequisites for retail choice. Pursuant to PUCT order, on June 4, 2007 Entergy Gulf States filed a restatement of the plan, in which Entergy Gulf States requested that the PUCT approve a "Financial Stability Provision" that is designed to ensure that Entergy Gulf States' proposed integration with ERCOT will not, during the necessary construction period, cause certain Entergy Gulf States' credit metrics and rating to decrease. The June 4, 2007 filing also proposes a rule making process and recognizes that legislative action might be needed to accomplish the required infrastructure improvements. Under Entergy Gulf States' plan, retail open access could commence as early as 2013. Entergy Gulf States' plan includes an estimate that direct construction costs for facilities to interconnect Entergy Gulf States' Texas operations with ERCOT could be approximately $1 billion. The Texas Legislature did not pass legislation addressing Entergy Gulf States' transition plan before adjourning its 2007 session. PUCT hearings on Entergy Gulf States' plan began in May 2007, were abated, and were then completed in July 2007. A procedural schedule has been establishedPUCT decision on Entergy Gulf States' plan is expected in the third quarter 2007.
In December 2006, the PUCT asked for parties to brief the effects of the 2005 legislation on the competition dockets of Entergy Gulf States, most notably, the settlement that the parties entered with hearingsrespect to the unbundling of Entergy Gulf States for retail open access. Finding that the 2005 legislation now provides the mechanism by which Entergy Gulf States will transition to competition, the PUCT, on February 1, 2007, dismissed Entergy Gulf States' unbundled cost of service proceeding. After analyzing the 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.
Common Stock
Earnings per Share
The following tables present Entergy's basic and diluted earnings per share calculations included on the consolidated income statement:
|
| For the Three Months Ended June 30, | |||||||
|
| 2007 |
| 2006 | |||||
|
| (In Millions, Except Per Share Data) | |||||||
|
|
|
| $/share |
|
|
| $/share | |
Consolidated net income |
| $267.6 |
|
|
| $281.8 |
|
| |
|
|
|
|
|
|
|
|
| |
Average number of common shares |
|
|
|
|
|
|
|
| |
Average dilutive effect of: |
|
|
|
|
|
|
|
| |
| Stock Options |
| 5.1 |
| (0.034) |
| 3.4 |
| (0.022) |
Equity Units | 1.2 | (0.008) | - | - | |||||
| Deferred Units |
| 0.1 |
| (0.001) |
| 0.2 |
| (0.001) |
Average number of common shares |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
38
|
| For the Six Months Ended June 30, | |||||||
|
| 2007 |
| 2006 | |||||
|
| (In Millions, Except Per Share Data) | |||||||
|
|
|
| $/share |
|
|
| $/share | |
Consolidated net income |
| $479.8 |
|
|
| $475.4 |
|
| |
|
|
|
|
|
|
|
|
| |
Average number of common shares |
|
|
|
|
|
|
|
| |
Average dilutive effect of: |
|
|
|
|
|
|
|
| |
| Stock Options |
| 5.0 |
| (0.059) |
| 3.4 |
| (0.037) |
Equity Units | 0.9 | (0.011) | - | - | |||||
| Deferred Units |
| 0.1 |
| (0.001) |
| 0.2 |
| (0.002) |
Average number of common shares |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Entergy's stock option and other equity compensation plans are discussed in Note 12 to the consolidated financial statements in the Form 10-K.
Treasury Stock
During the six months ended June 30, 2007, Entergy Corporation issued 1,404,160 shares of its previously repurchased common stock to satisfy stock option exercises and other stock-based awards. Also during the six months ended June 30, 2007, Entergy Corporation purchased 8,012,542 shares of its common stock for a total purchase price of $825.5 million.
Retained Earnings
On July 30, 2007, Entergy Corporation's Board of Directors declared a common stock dividend of $0.75 per share, payable on September 1, 2007, to holders of record as of August 10, 2007.
Accumulated Other Comprehensive Income
Cash flow hedges with net unrealized losses of approximately $38.5 million net-of-tax at June 30, 2007 are expected to beginbe reclassified into earnings during the next twelve months.
NOTE 4. LINES OF CREDIT, RELATED SHORT-TERM BORROWINGS, AND LONG-TERM DEBT
Entergy Corporation had in place as of June 30, 2007, 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 and the three-year facility, which expires in December 2008, has a borrowing capacity of $1.5 billion. Entergy Corporation also has the ability to issue letters of credit against the total borrowing capacity of both credit facilities. The commitment fee for these 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 Utility operating companies. The weighted average interest rates as of June 30, 2007 were 5.78% on the five-year facility and 5.85% on the three-year facility. Following is a summary of the borrowings outstanding and capacity available under these facilities as of June 30, 2007.
39
|
|
| Letters | Capacity | ||||
(In Millions) | ||||||||
5-Year Facility | $2,000 | $855 | $79 | $1,066 | ||||
3-Year Facility | $1,500 | $1,115 | $- | $385 |
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 and System Energy default on other indebtedness or are in bankruptcy or insolvency proceedings, an acceleration of the facilities' maturity dates may occur.
On August 2, 2007, Entergy Corporation entered into a new, $3.5 billion credit facility, and terminated the two previously existing facilities. See Part II, Item 5 herein for additional information on the new credit facility, including the amounts of the borrowings and letters of credit outstanding as of August 8, 2007.
Entergy Arkansas, Entergy Gulf States, and Entergy Mississippi, each had credit facilities available as of June 30, 2007 as follows:
|
| Amount of | Amount Drawn as of | |||
Entergy Arkansas | April 2008 | $100 million | - | |||
Entergy Gulf States | February 2011 | $50 million (a) | - | |||
Entergy Mississippi | May 2008 | $30 million (b) | - | |||
Entergy Mississippi | May 2008 | $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 June 30, 2007, $1.4 million in letters of credit had been issued. |
(b) | Borrowings under the Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable. |
The credit facilities have variable interest rates and the average commitment fee is 0.13%. The Entergy Arkansas credit facility requires that it maintain total shareholders' equity of at least 25% of its total assets.
On August 2, 2007, Entergy Gulf States and Entergy Louisiana each entered into new, $200 million credit facilities. See Part II, Item 5 herein for additional information on the new credit facilities, under which there were no borrowings or letters of credit outstanding as of August 8, 2007.
The short-term borrowings of the Registrant Subsidiaries and certain other Entergy subsidiaries are limited to amounts authorized by the FERC. The current FERC-authorized limits are effective through March 31, 2008 (except for Entergy New Orleans, which is effective through May 4, 2009). In addition to borrowings 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. As of June 30, 2007, Entergy's subsidiaries' aggregate money pool and external short-term borrowings authorized limit was $2.0 billion, the aggregate outstanding borrowing from the money pool was $305.6 million, and Entergy's subsidiaries had no outstanding short-term borrowing from external sources.
40
The following are the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings from the money pool for the Registrant Subsidiaries as of June 30, 2007:
|
| Authorized |
| Borrowings |
|
| (In Millions) | ||
|
|
|
|
|
Entergy Arkansas |
| $250 |
| - |
Entergy Gulf States |
| $350 |
| - |
Entergy Louisiana |
| $250 |
| $47 |
Entergy Mississippi |
| $175 |
| - |
Entergy New Orleans | $100 | - | ||
System Energy |
| $200 |
| - |
Debt Issuances
(Entergy Gulf States)
In April 2007, the PUCT issued a financing order authorizing the issuance of securitization bonds to recover $353 million of Entergy Gulf States' Hurricane Rita reconstruction costs and up to $6 million of transaction costs, offset by $32 million of related deferred income tax benefits. In June 2007, Entergy Gulf States Reconstruction Funding I, LLC, a company wholly-owned and consolidated by Entergy Gulf States, issued $329.5 million of senior secured transition bonds (securitization bonds), as follows:
Amount | |
(In Thousands) | |
Senior Secured Transition Bonds, Series A: | |
Tranche A-1 (5.51%) due October 2013 | $93,500 |
Tranche A-2 (5.79%) due October 2018 | 121,600 |
Tranche A-3 (5.93%) due June 2022 | 114,400 |
Total senior secured transition bonds | $329,500 |
The scheduled principal payments for the bonds for the next five years are $19.1 million for 2008, $17.7 million for 2009, $18.6 million for 2010, $19.7 million for 2011, and $20.8 million for 2012. All of the scheduled principal payments for 2008-2012 are for Tranche A-1, except for $2.3 million for Tranche A-2 in 2012.
With the proceeds, Entergy Gulf States Reconstruction Funding purchased from Entergy Gulf States the transition property, which is the right to recover from customers though a transition charge amounts sufficient to service the securitization bonds. Entergy Gulf States began cost recovery through the transition charge in July 2007. The creditors of Entergy Gulf States do not have recourse to the assets or revenues of Entergy Gulf States Reconstruction Funding, including the transition property, and the creditors of Entergy Gulf States Reconstruction Funding do not have recourse to the assets or revenues of Entergy Gulf States. Entergy Gulf States has no payment obligations to Entergy Gulf States Reconstruction Funding except to remit transition charge collections.
(Entergy Mississippi)
In January 2007, Entergy Mississippi redeemed, prior to maturity, its $100 million, 4.35% Series First Mortgage Bonds due April 2008.
(Entergy New Orleans)
Pursuant to its plan of reorganization, in May 2007 Entergy New Orleans issued notes due in three years in satisfaction of its affiliate prepetition accounts payable (approximately $74 million, including interest), including its indebtedness to the Entergy System money pool. Entergy New Orleans included in the principal amount of the notes accrued interest from September 23, 2005 at the Louisiana judicial rate of interest for 2005
41
(6%) and 2006 (8%), and at the Louisiana judicial rate of interest plus 1% for 2007 through the date of issuance of the notes. The Louisiana judicial rate of interest is 9.5% for 2007. Entergy New Orleans will pay interest on the notes from their date of issuance at the Louisiana judicial rate of interest plus 1%.
Entergy New Orleans Debtor-in-Possession Credit Facility
See Note 4 in the Form 10-K for a discussion of the Entergy New Orleans $200 million debtor-in-possession (DIP) credit facility. Pursuant to the terms of its plan of reorganization, which became effective in May 2007, Entergy New Orleans fully repaid its DIP credit facility borrowings.
NOTE 5. ACQUISITIONS
In 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 net cash payment of $336 million. Entergy received the plant, nuclear fuel, inventories, and other assets. The liability to decommission the plant, as well as related decommissioning trust funds, 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 the 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. As part of the transaction, Entergy's Non-Utility Nuclear business assumed responsibility for spent fuel at the decommissioned Big Rock Point nuclear plant, which is located near Charlevoix, Michigan. Palisades' financial results since April 2007 are included in Entergy's Non-Utility Nuclear business segment. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.
Amount | ||
(In Millions) | ||
Plant (including nuclear fuel) | $727 | |
Decommissioning trust funds | 252 | |
Other assets | 41 | |
Total assets acquired | 1,020 | |
Purchased power agreement (below market) | 420 | |
Decommissioning liability | 220 | |
Other liabilities | 44 | |
Total liabilities assumed | 684 | |
Net assets acquired | $336 |
The allocation was based on preliminary information and the final allocation may differ, although management does not expect the difference to be material.
Non-Utility Nuclear will amortize the purchased power agreement liability to revenue over the life of the agreement. The amount that will be amortized each period is based upon the difference between the present value calculated at the date of acquisition of each year's difference between revenue under the agreement and revenue based on estimated market prices. The amounts to be amortized to revenue for the next five years will be $50 million for 2007, $76 million for 2008, $53 million for 2009, $46 million for 2010, and $43 million for 2011.
42
NOTE 6. STOCK-BASED COMPENSATION
Entergy grants equity-based awards including, but not limited to, stock option awards, which are described more fully in Note 12 to the consolidated financial statements in the Form 10-K. Entergy adopted SFAS 123R, "Share-Based Payment" on January 1, 2006. The 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.
The following table includes financial information for stock options for each of the years presented:
2007 | 2006 | ||
(In Millions) | |||
Compensation expense included in Entergy's Net Income for the second quarter | $3.9 | $3.2 | |
Tax benefit recognized in Entergy's Net Income for the second quarter | $1.5 | $1.2 | |
Compensation expense included in Entergy's Net Income for the six months ended June 30, | $7.1 | $6.0 | |
Tax benefit recognized in Entergy's Net Income for the six months ended June 30, | $2.7 | $2.3 | |
Compensation cost capitalized as part of fixed assets and inventory as of June 30, | $1.2 | $1.1 |
Entergy granted 1,854,900 stock options during the first quarter of 2007 with a weighted-average fair value of $14.15. At June 30, 2007, there were 11,215,584 stock options outstanding with a weighted-average exercise price of $57.88. The aggregate intrinsic value of the stock options outstanding was $555 million.
NOTE 7. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS
Components of Net Pension Cost
Entergy's qualified pension cost, including amounts capitalized, for the second quarters of 2007 and 2006, included the following components:
|
| 2007 |
| 2006 |
|
| (In Thousands) | ||
|
|
|
|
|
Service cost - benefits earned during the period |
| $24,141 |
| $23,176 |
Interest cost on projected benefit obligation |
| 46,292 |
| 41,814 |
Expected return on assets |
| (50,880) |
| (44,482) |
Amortization of prior service cost |
| 1,383 |
| 1,365 |
Amortization of loss |
| 11,444 |
| 10,931 |
Net pension costs |
| $32,380 |
| $32,804 |
43
Entergy's qualified pension cost, including amounts capitalized, for the six months ended June 30, 2007 and 2006, included the following components:
|
| 2007 |
| 2006 |
|
| (In Thousands) | ||
|
|
|
|
|
Service cost - benefits earned during the period |
| $48,038 |
| $46,352 |
Interest cost on projected benefit obligation |
| 92,154 |
| 83,628 |
Expected return on assets |
| (101,506) |
| (88,964) |
Amortization of prior service cost |
| 2,766 |
| 2,730 |
Amortization of loss |
| 22,888 |
| 21,862 |
Net pension costs |
| $64,340 |
| $65,608 |
The Registrant Subsidiaries' qualified pension cost, including amounts capitalized, for the second quarters of 2007 and 2006, included the following components:
|
| 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 |
44
The Registrant Subsidiaries' qualified pension cost, including amounts capitalized, for the six months ended June 30, 2007 and 2006, included the following components:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2007 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $7,276 |
| $6,022 |
| $4,462 |
| $2,178 |
| $940 |
| $2,042 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 20,996 |
| 16,278 |
| 12,502 |
| 6,742 |
| 2,520 |
| 3,420 |
Expected return on assets |
| (22,018) |
| (21,500) |
| (15,616) |
| (7,674) |
| (2,892) |
| (4,272) |
Amortization of prior service cost |
| 824 |
| 608 |
| 320 |
| 228 |
| 88 |
| 24 |
Amortization of loss |
| 5,442 |
| 1,246 |
| 2,866 |
| 1,498 |
| 736 |
| 302 |
Net pension cost |
| $12,520 |
| $2,654 |
| $4,534 |
| $2,972 |
| $1,392 |
| $1,516 |
|
| 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 recognized $4.0 million and $3.9 million in pension cost for its non-qualified pension plans in the second quarters of 2007 and 2006, respectively. Entergy recognized $8.0 million and $7.8 million in pension cost for its non-qualified pension plans for the six months ended June 30, 2007 and 2006, respectively.
The Registrant Subsidiaries recognized the following pension cost for their non-qualified pension plans in the second quarters of 2007 and 2006:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
|
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
|
|
| (In Thousands) | |||||||||
Non-Qualified Pension Cost |
| $123 |
| $317 |
| $6 |
| $44 |
| $57 |
|
Non-Qualified Pension Cost |
| $113 |
| $220 |
| $5 |
| $36 |
| $54 |
|
45
The Registrant Subsidiaries recognized the following pension cost for their non-qualified pension plans for the six months ended June 30, 2007 and 2006:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
|
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
|
|
| (In Thousands) | |||||||||
Non-Qualified Pension Cost Six |
| $246 |
| $634 |
| $12 |
| $88 |
| $114 |
|
Non-Qualified Pension Cost Six |
| $226 |
| $439 |
| $11 |
| $73 |
| $107 |
|
Components of Net Other Postretirement Benefit Cost
Entergy's other postretirement benefit cost, including amounts capitalized, for the second quarters of 2007 and 2006, included the following components:
|
| 2007 |
| 2006 |
|
| (In Thousands) | ||
|
|
|
|
|
Service cost - benefits earned during the period |
| $11,034 |
| $10,370 |
Interest cost on APBO |
| 15,808 |
| 14,316 |
Expected return on assets |
| (6,325) |
| (4,756) |
Amortization of transition obligation |
| 958 |
| 542 |
Amortization of prior service cost |
| (3,959) |
| (3,688) |
Amortization of loss |
| 4,743 |
| 5,698 |
Net other postretirement benefit cost |
| $22,259 |
| $22,482 |
Entergy's other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 2007 and 2006, included the following components:
|
| 2007 |
| 2006 |
|
| (In Thousands) | ||
|
|
|
|
|
Service cost - benefits earned during the period |
| $21,927 |
| $20,740 |
Interest cost on APBO |
| 31,494 |
| 28,632 |
Expected return on assets |
| (12,585) |
| (9,512) |
Amortization of transition obligation |
| 1,916 |
| 1,084 |
Amortization of prior service cost |
| (7,918) |
| (7,376) |
Amortization of loss |
| 9,486 |
| 11,396 |
Net other postretirement benefit cost |
| $44,320 |
| $44,964 |
46
The Registrant Subsidiaries' other postretirement benefit cost, including amounts capitalized, for the second quarters of 2007 and 2006, included the following components:
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System | |
2007 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $1,525 |
| $1,547 |
| $973 |
| $476 |
| $255 |
| $451 |
Interest cost on APBO |
| 3,037 |
| 2,876 |
| 1,941 |
| 1,049 |
| 870 |
| 433 |
Expected return on assets |
| (2,231) |
| (1,697) |
| - |
| (819) |
| (682) |
| (470) |
Amortization of transition obligation |
| 205 |
| 151 |
| 96 |
| 88 |
| 416 |
| 2 |
Amortization of prior service cost |
| (197) |
| 218 |
| 117 |
| (62) |
| 90 |
| (283) |
Amortization of loss |
| 1,500 |
| 793 |
| 764 |
| 613 |
| 282 |
| 149 |
Net other postretirement benefit cost |
| $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 |
The Registrant Subsidiaries' other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 2007 and 2006, included the following components:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2007 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $3,050 |
| $3,094 |
| $1,946 |
| $952 |
| $510 |
| $902 |
Interest cost on APBO |
| 6,074 |
| 5,752 |
| 3,882 |
| 2,098 |
| 1,740 |
| 866 |
Expected return on assets |
| (4,462) |
| (3,394) |
| - |
| (1,638) |
| (1,364) |
| (940) |
Amortization of transition obligation |
| 410 |
| 302 |
| 192 |
| 176 |
| 832 |
| 4 |
Amortization of prior service cost |
| (394) |
| 436 |
| 234 |
| (124) |
| 180 |
| (566) |
Amortization of loss |
| 3,000 |
| 1,586 |
| 1,528 |
| 1,226 |
| 564 |
| 298 |
Net other postretirement benefit cost |
| $7,678 |
| $7,776 |
| $7,782 |
| $2,690 |
| $2,462 |
| $564 |
47
|
| 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 |
Employer Contributions
Entergy expects to contribute $176 million to its qualified pension plans in 2007. As of the end of July 2007, Entergy had contributed $153 million to its pension plans. Therefore, Entergy presently anticipates contributing an additional $23 million to fund its qualified pension plans in 2007.
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 |
| $ - |
|
|
|
|
| $ - |
| $43,585 |
| $5,419 |
Remaining estimated pension |
| $6,987 |
| $ - |
|
|
| $784 |
| $ - |
| $269 |
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, 2006 Accumulated Postretirement Benefit Obligation by $183 million, and reduced the second quarter 2007 and 2006 other postretirement benefit cost by $6.6 million and $6.9 million, respectively. It reduced the six months ended June 30, 2007 and 2006 other postretirement benefit cost by $13.2 million and $13.9 million, respectively. In the six months ended June 30, 2007, Entergy received $1.7 million in Medicare subsidies for prescription drug claims during 2006.
48
Based on actuarial analysis, the estimated impact of future Medicare subsidies reduced the December 31, 2006 APBO and the second quarters 2007 and 2006 other postretirement benefit cost for 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 second quarter 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
other postretirement benefit cost |
| ($1,376) |
| ($1,222) |
| ($762) |
| ($438) |
| ($311) |
| ($246) |
Reduction in second quarter 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
other postretirement benefit cost |
| ($1,562) |
| ($1,332) |
| ($865) |
| ($512) |
| ($376) |
| ($268) |
Reduction in six months ended |
|
|
|
|
| |||||||
June 30, 2007 other | ||||||||||||
postretirement benefit cost | ($2,752) |
| ($2,444) |
| ($1,524) |
| ($876) |
| ($622) |
| ($492) | |
Reduction in six months ended |
|
|
|
|
| |||||||
June 30, 2006 other | ||||||||||||
postretirement benefit cost | ($3,124) | ($2,664) | ($1,730) | ($1,024) | ($752) | ($536) | ||||||
Medicare subsidies received in the | ||||||||||||
six months ended June 30, 2007 | ||||||||||||
for 2006 claims | $484 |
| $402 |
| $248 |
| $142 |
| $146 |
| $30 |
For further information on the Medicare Act refer to Note 11 to the financial statements in the Form 10-K.
NOTE 8. BUSINESS SEGMENT INFORMATION
Entergy's reportable segments as of June 30, 2007 are Utility and Non-Utility Nuclear. "All Other" includes the parent company, Entergy Corporation, and other business activity, including the non-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 discontinued the consolidation of Entergy New Orleans retroactive to January 1, 2005 and reported Entergy New Orleans results under the equity method of accounting in the Utility segment in 2006 and 2005. On May 7, 2007, the bankruptcy judge entered an order confirming Entergy New Orleans' plan of reorganization. With confirmation of the plan of reorganization, Entergy reconsolidated Entergy New Orleans in the second quarter 2007, retroactive to January 1, 2007.
49
Entergy's segment financial information for the second quarters of 2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
| |
(In Thousands) | ||||||||||
2007 |
|
|
|
|
|
|
|
|
| |
Operating Revenues | $2,238,555 |
| $471,521 |
| $65,817 |
| ($6,541) |
| $2,769,352 | |
Equity in earnings of |
|
|
|
|
| |||||
unconsolidated equity affiliates | $- |
| $- |
| $477 |
| $- |
| $477 | |
Income Taxes (Benefit) | $98,460 |
| $63,929 |
| ($55,938) |
| $- |
| $106,451 | |
Net Income | $148,194 |
| $108,726 |
| $10,682 |
| $- |
| $267,602 | |
|
|
|
|
|
|
| ||||
2006 |
|
|
|
|
|
|
|
|
| |
Operating Revenues | $2,191,891 |
| $362,363 |
| $82,785 |
| ($8,537) |
| $2,628,502 | |
Equity in earnings (loss) of |
|
|
|
|
| |||||
unconsolidated equity affiliates | $10,682 |
| $- |
| ($2,199) |
| $- |
| $8,483 | |
Income Taxes (Benefit) | $93,776 |
| $41,331 |
| ($12,206) |
| $- |
| $122,901 | |
Net Income | $199,623 |
| $63,379 |
| $18,883 |
| ($83) |
| $281,802 |
Entergy's segment financial information for the six months ended June 30, 2007 and 2006 is as follows:
|
|
|
|
| |||||
(In Thousands) | |||||||||
2007 |
|
|
|
|
|
|
|
|
|
Operating Revenues | $4,435,654 |
| $929,772 |
| $110,865 |
| ($12,880) |
| $5,463,411 |
Equity in earnings (loss) of |
|
|
|
|
| ||||
unconsolidated equity affiliates | ($1) |
| $- |
| $2,102 |
| $- |
| $2,101 |
Income Taxes (Benefit) | $179,152 |
| $148,664 |
| ($75,299) |
| $- |
| $252,517 |
Net Income (Loss) | $252,644 |
| $236,896 |
| ($9,743) |
| $- |
| $479,797 |
Total Assets | $26,244,883 | $6,649,467 | $10,814,538 | ($10,294,161) | $33,414,727 | ||||
|
|
|
|
|
|
| |||
2006 |
|
|
|
|
|
|
|
|
|
Operating Revenues | $4,322,913 |
| $750,372 |
| $149,476 |
| ($26,224) |
| $5,196,537 |
Equity in earnings (loss) of |
|
|
|
|
| ||||
unconsolidated equity affiliates | $16,325 |
| $- |
| ($4,255) |
| $- |
| $12,070 |
Income Taxes (Benefit) | $170,749 |
| $94,248 |
| ($23,265) |
| $- |
| $241,732 |
Net Income | $319,375 |
| $144,908 |
| $11,263 |
| ($115) |
| $475,431 |
Total Assets | $24,763,451 | $5,138,175 | $3,127,773 | ($2,465,726) | $30,563,673 |
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. Almost all of Entergy's goodwill is related to the Utility segment.
50
NOTE 9. ENTERGY NEW ORLEANS BANKRUPTCY PROCEEDING
See Note 18 to the 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 significant terms in Entergy New Orleans' plan of reorganization:
(Entergy Corporation)
With confirmation of the plan of reorganization, Entergy reconsolidated Entergy New Orleans in the second quarter 2007, retroactive to January 1, 2007. Because Entergy owns all of the common stock of Entergy New Orleans, reconsolidation does not affect the amount of net income that Entergy records from Entergy New Orleans' operations for any current or prior period, but does 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.
(Entergy New Orleans)
Reorganization items reported as operating expenses in 2006 in the Entergy New Orleans income statement primarily consist of professional fees associated with the bankruptcy case.
51
NOTE 10. INCOME TAXES
Entergy or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. With few exceptions, as discussed below, 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 entered into an agreement with the IRS Appeals Division in the second quarter 2007 to partially settle tax years 1999 - 2001. Entergy will litigate the following issues that it is not settling:
The U.K. Windfall Tax and street lighting issues are already docketed in U.S. Tax Court for tax years 1997 and 1998 with a trial date set in the first quarter of 2008.
The IRS completed its examination of the 2002 and 2003 tax returns and issued an Examination Report on June 29, 2007. During the examination, Entergy agreed to adjustments related to its method of accounting for income tax purposes related to 1) its wholesale electric power contracts and 2) the simplified method of allocating overhead or "mixed service costs" provided for under IRS regulations, which affects the amount of cost of goods sold related to the production of electricity.
Entergy's agreement with the IRS on electric power contracts involved an adjustment to reduce Entergy Louisiana Holdings' deduction related to its accounting for the contract to purchase power from the Vidalia hydroelectric project. The adjustment did not have a material impact on Entergy Louisiana Holdings' earnings. The agreement on overhead allocation methodology related to the Registrant Subsidiaries' 2003 filing of a change in tax accounting method for the allocation of "mixed service costs" to self-produced assets. Entergy reached a settlement agreement concerning the Registrant Subsidiaries' deductions related to the method change for the year ended December 31, 2003. As Entergy has a consolidated net operating loss for 2003, these adjustments have the effect of reducing the consolidated net operating loss carryover and do not require a payment to the IRS at this time. The settlement did not have a material impact on the Registrant Subsidiaries' earnings.
In the report for the 2002-2003 audit cycle, the IRS also proposed adjustments which Entergy did not agree to as follows: 1) the U.K. Windfall Tax foreign tax credit issue mentioned above; 2) the street lighting issue mentioned above; 3) certain repair deductions; 4) deductions claimed for research and experimentation (R&E) expenditures; 5) income tax credits claimed for R&E; and 6) a 2003 deduction associated with the revisions to the emergency plans at the Indian Point Energy Center. Regarding all of these issues, Entergy disagrees with the IRS Examination Division position and will file a formal protest with the IRS and will pursue administrative relief within the IRS Appeals Division.
Entergy believes that the provisions recorded in its financial statements are sufficient to address these issues as well as other liabilities that are reasonably estimable, including an estimate of probable interest expense, associated with all uncertain tax positions.
52
Entergy has $202 million in deposits on account with the IRS to cover its 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 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 interes t and penalties.
As of January 1, 2007, Entergy and the Registrant Subsidiaries had total balances of unrecognized tax benefits 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 included amounts that 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 |
53
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.
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, unless required to report differently by a regulatory agency. 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 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.
54
Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk
Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends- Market and Credit Risk Sensitive InstrumentsOF ENTERGY CORPORATION AND SUBSIDIARIES."
Part I, Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of June 30, 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 (each individually a "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 Commission 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.
55
ENTERGY ARKANSAS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Second Quarter 2007 Compared to Second Quarter 2006
Net income decreased $25.1 million primarily due to a higher effective income tax rate and higher other operation and maintenance expenses. The decrease was partially offset by higher net revenue.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Net income decreased $25.2 million primarily due to a higher effective income tax rate and higher other operation and maintenance expenses. The decrease was partially offset by higher net revenue.
Net Revenue
Second Quarter 2007 Compared to Second Quarter 2006
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits. Following is an analysis of the change in net revenue comparing the second quarter of 2007 to the second quarter of 2006.
Amount | ||
(In Millions) | ||
2006 net revenue | $259.8 | |
Pass-through rider revenue | 6.8 | |
Transmission revenue | 3.4 | |
Volume/weather | (5.4) | |
Other | 3.0 | |
2007 net revenue | $267.6 |
The pass-through rider revenue variance is primarily due to a change in August 2006 in the accounting for city franchise tax revenues as directed by the APSC. The change results in an increase in rider revenue with a corresponding increase in taxes other than income taxes resulting in no effect on net income.
The transmission revenue variance is primarily due to higher rates and the addition of new transmission customers in 2006.
The volume/weather variance is primarily due to the effect of less favorable weather compared to the same period in 2006. Billed retail electricity usage decreased by a total of 110 GWh.
56
Gross operating revenues and fuel and purchased power expenses
Gross operating revenues decreased primarily due to:
Fuel and purchased power expenses decreased primarily due to a decrease in deferred fuel expense associated with lower energy cost recovery rates collected from customers.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Net revenue 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, 2007 to the six months ended June 30, 2006.
Amount | ||
(In Millions) | ||
2006 net revenue | $491.5 | |
Pass-through rider revenue | 15.3 | |
Deferred fuel costs revisions | 8.6 | |
Transmission revenue | 3.9 | |
Net wholesale revenue | (7.9) | |
Other | 9.5 | |
2007 net revenue | $520.9 |
The pass-through rider revenue variance is primarily due to a change in August 2006 in the accounting for city franchise tax revenues as directed by the APSC. The change results in an increase in rider revenue with a corresponding increase in taxes other than income taxes resulting in no effect on net income.
The deferred fuel cost revisions variance is primarily due to the 2006 energy cost recovery true-up, made in the first quarter of 2007, which increased net revenue by $6.6 million.
The transmission revenue variance is due to higher rates and the addition of new transmission customers in 2006.
The net wholesale revenue variance is primarily due to decreased results from wholesale contracts and lower wholesale prices.
Other Income Statement Variances
Second Quarter 2007 Compared to Second Quarter 2006
Other operation and maintenance expenses increased primarily due to:
57
Taxes other than income taxes increased primarily due to an increase in city franchise tax expense due to a change in August 2006 in 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.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Other 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 in 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 2006 of estimated depreciable lives involving certain intangible assets.
Other income increased primarily due to a revision in the first quarter of 2007 to the allowance for equity funds used during construction related to removal costs.
Interest and other charges increased primarily due to interest expense of $3.6 million recorded in the six months ended June 30, 2007 on advances from independent power producers per a FERC order, partially offset by a revision to the estimate of allowance for borrowed funds used during construction related to removal costs.
Income Taxes
The effective income tax rate was 36.8% for the second quarter of 2007 and 41.3% for the six months ended June 30, 2007. The difference in the effective income tax rate for the second 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 six months ended June 30, 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 a downward revision in the estimate of federal income tax expense related to tax depreciation.
The effective income tax rate was 8.9% for the second quarter of 2006 and 25.0% for the six months ended June 30, 2006. The differences in the effective income tax rate for the second quarter of 2006 and the six months ended June 30, 2006 versus the federal statutory rate of 35.0% are primarily due to the flow through of an income tax benefit related to the steam generator removal cost.
58
Liquidity and Capital Resources
Cash Flow
Cash flows for the six months ended June 30, 2007 and 2006 were as follows:
|
| 2007 |
| 2006 | |
|
| (In Thousands) | |||
|
|
|
|
| |
Cash and cash equivalents at beginning of period |
| $34,815 |
| $9,393 | |
|
|
|
|
| |
Cash flow provided by (used in): |
|
|
|
| |
| Operating activities |
| 225,125 |
| 225,953 |
| Investing activities |
| (159,165) |
| (147,364) |
| Financing activities |
| (33,937) |
| (68,931) |
Net increase in cash and cash equivalents |
| 32,023 |
| 9,658 | |
|
|
|
|
| |
Cash and cash equivalents at end of period |
| $66,838 |
| $19,051 |
Operating Activities
Cash flow from operations was practically unchanged for the six months ended June 30, 2007 compared to the six months ended June 30, 2006. Income tax payments of $18.6 million in 2007 compared to income tax refunds of $23.5 million in 2006, along with decreased recovery of deferred fuel costs, were almost entirely offset by the timing of collection of receivables from customers.
Investing Activities
Net cash flow used in investing activities increased $11.8 million for the six months ended June 30, 2007 compared to the six months ended June 30, 2006 primarily due to increased construction expenditures resulting from an increase in transmission spending for additional costs for substation and transmission lines. The increase was partially offset by other regulatory investments in 2006 resulting from fuel cost under-recoveries that have been deferred and are expected to be recovered over a period greater than twelve months.
Financing Activities
Net cash flow used in financing activities decreased $35 million for the six months ended June 30, 2007 compared to the six months ended June 30, 2006 primarily due to money pool activity.
Capital Structure
Entergy Arkansas' capitalization is balanced between equity and debt, as shown in the following table.
|
| June 30, |
| December 31, |
|
|
|
|
|
Net debt to net capital |
| 46.3% |
| 47.5% |
Effect of subtracting cash from debt |
| 1.2% |
| 0.6% |
Debt to capital |
| 47.5% |
| 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.
59
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.
See the table in the Form 10-K under "Uses of Capital" which sets forth the amounts of Entergy Arkansas' planned construction and other capital investments for 2007 through 2009. In July 2007, Entergy Arkansas signed an agreement to purchase for $210 million the Ouachita Power Facility, a 789 MW natural gas-fired, combined-cycle, load-following generating facility located in north Louisiana and owned by Ouachita Power, LLC. Entergy Arkansas plans to invest approximately $43 million in reliability upgrades. The Ouachita plant will be 100 percent owned by Entergy Arkansas, and the acquisition is expected to close in 2008. Entergy Arkansas expects to sell to Entergy Gulf States, under a separate agreement, approximately one-third of the output of the Ouachita plant on a long-term basis. The purchase of the plant is contingent upon obtaining necessary approvals, including full cost recovery, from various federal and state regulatory and permitting agencies. The planned capital investments estimate in the Form 10-K included $190 million in 2008 for the estimated cost of an acquisition of this type.
In April 2007, Entergy Arkansas renewed its credit facility through April 2008 and increased the amount of the credit facility to $100 million. There were no outstanding borrowings under the Entergy Arkansas credit facility as of June 30, 2007.
Entergy Arkansas' receivables from or (payables to) the money pool were as follows:
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$26,450 |
| $16,109 |
| $15,567 |
| ($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 state and local rate 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
In June 2007, after hearings on Entergy Arkansas' August 2006 rate filing requesting an adjusted annual increase of $106.5 million, the APSC ordered Entergy Arkansas to reduce its annual rates by $5 million, and set an ROE of 9.9% with a hypothetical common equity level lower than Entergy Arkansas' actual capital structure. For the purpose of setting rates, the APSC disallowed a portion of costs associated with incentive compensation based on financial measures and all costs associated with Entergy's stock-based compensation plans. In addition, under the terms of the APSC's order, recovery of storm restoration costs in the future will be limited to a fixed annual amount of $14.4 million, regardless of the actual annual amount of future restoration costs. The APSC's order also threatens Entergy Arkansas' ability to recover $52 million of costs previously accumulated in Entergy Arkansas' storm reserve and $18 million of removal costs associated with the termination of a lease. Management believes, however, that Entergy Arkansas is entitled to recover these prudently incurred costs and will vigorously pursue its right to recover them. The APSC rejected Entergy Arkansas' request for a capacity management rider to recover incremental capacity costs, but directed Entergy Arkansas and the other parties in the case to develop an annual earnings review process that may address this issue.
60
See Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends -Federal Regulation -
Common Stock
Earnings per Share
The following tables present Entergy's basic and diluted earnings per share calculations included on the consolidated income statement:
|
| For the Three Months Ended June 30, | |||||||
|
| 2007 |
| 2006 | |||||
|
| (In Millions, Except Per Share Data) | |||||||
|
|
|
| $/share |
|
|
| $/share | |
Consolidated net income |
| $267.6 |
|
|
| $281.8 |
|
| |
|
|
|
|
|
|
|
|
| |
Average number of common shares |
|
|
|
|
|
|
|
| |
Average dilutive effect of: |
|
|
|
|
|
|
|
| |
| Stock Options |
| 5.1 |
| (0.034) |
| 3.4 |
| (0.022) |
Equity Units | 1.2 | (0.008) | - | - | |||||
| Deferred Units |
| 0.1 |
| (0.001) |
| 0.2 |
| (0.001) |
Average number of common shares |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
38
|
| For the Six Months Ended June 30, | |||||||
|
| 2007 |
| 2006 | |||||
|
| (In Millions, Except Per Share Data) | |||||||
|
|
|
| $/share |
|
|
| $/share | |
Consolidated net income |
| $479.8 |
|
|
| $475.4 |
|
| |
|
|
|
|
|
|
|
|
| |
Average number of common shares |
|
|
|
|
|
|
|
| |
Average dilutive effect of: |
|
|
|
|
|
|
|
| |
| Stock Options |
| 5.0 |
| (0.059) |
| 3.4 |
| (0.037) |
Equity Units | 0.9 | (0.011) | - | - | |||||
| Deferred Units |
| 0.1 |
| (0.001) |
| 0.2 |
| (0.002) |
Average number of common shares |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Entergy's stock option and other equity compensation plans are discussed in Note 12 to the consolidated financial statements in the Form 10-K10-K.
Treasury Stock
During the six months ended June 30, 2007, Entergy Corporation issued 1,404,160 shares of its previously repurchased common stock to satisfy stock option exercises and other stock-based awards. Also during the six months ended June 30, 2007, Entergy Corporation purchased 8,012,542 shares of its common stock for a total purchase price of $825.5 million.
Retained Earnings
On July 30, 2007, Entergy Corporation's Board of Directors declared a common stock dividend of $0.75 per share, payable on September 1, 2007, to holders of record as of August 10, 2007.
Accumulated Other Comprehensive Income
Cash flow hedges with net unrealized losses of approximately $38.5 million net-of-tax at June 30, 2007 are expected to be reclassified into earnings during the next twelve months.
NOTE 4. LINES OF CREDIT, RELATED SHORT-TERM BORROWINGS, AND LONG-TERM DEBT
Entergy Corporation had in place as of June 30, 2007, 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 and the three-year facility, which expires in December 2008, has a borrowing capacity of $1.5 billion. Entergy Corporation also has the ability to issue letters of credit against the total borrowing capacity of both credit facilities. The commitment fee for these 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 Utility operating companies. The weighted average interest rates as of June 30, 2007 were 5.78% on the five-year facility and 5.85% on the three-year facility. Following is a summary of the borrowings outstanding and capacity available under these facilities as of June 30, 2007.
39
|
|
| Letters | Capacity | ||||
(In Millions) | ||||||||
5-Year Facility | $2,000 | $855 | $79 | $1,066 | ||||
3-Year Facility | $1,500 | $1,115 | $- | $385 |
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 and System Energy default on other indebtedness or are in bankruptcy or insolvency proceedings, an acceleration of the facilities' maturity dates may occur.
On August 2, 2007, Entergy Corporation entered into a new, $3.5 billion credit facility, and terminated the two previously existing facilities. See Part II, Item 5 herein for a discussion of Entergy's compliance filing in that proceeding. Ifadditional information on the FERC approvesnew credit facility, including 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 partamounts of the normal workingborrowings and letters of the energy cost recovery rider. As noted above, the APSC has given notice that it is considering the prospective eliminationcredit outstanding as of the energy cost recovery rider. Therefore, Entergy Arkansas proposed in the August 2006 base rate case 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.& nbsp; A separate exact recovery rider, similar to the energy cost recovery rider, would ensure that Entergy Arkansas customers pay only the amount allocated by the FERC.8, 2007.
Filings with the PUCT and Texas Cities
As discussed in the Form 10-K, in August 2005,Entergy Arkansas, Entergy Gulf States, filed withand Entergy Mississippi, each had credit facilities available as of June 30, 2007 as follows:
|
| Amount of | Amount Drawn as of | |||
Entergy Arkansas | April 2008 | $100 million | - | |||
Entergy Gulf States | February 2011 | $50 million (a) | - | |||
Entergy Mississippi | May 2008 | $30 million (b) | - | |||
Entergy Mississippi | May 2008 | $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 June 30, 2007, $1.4 million in letters of credit had been issued. |
(b) | Borrowings under the Entergy Mississippi credit facilities may be secured by a security interest in its accounts receivable. |
The credit facilities have variable interest rates and the PUCT an application for recoveryaverage commitment fee is 0.13%. The Entergy Arkansas credit facility requires that it maintain total shareholders' equity of at least 25% of its transition to competition costs.total assets.
On August 2, 2007, Entergy Gulf States requested recovery of $189and Entergy Louisiana each entered into new, $200 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
39
through June 17, 2005 in preparingcredit facilities. See Part II, Item 5 herein for competition in its Texas service area, including attendant AFUDC, and all carrying costs projected to be incurredadditional information on the transition to competition costs through February 28, 2006. The $189 million is before any gross-up for taxesnew credit facilities, under which there were no borrowings 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.letters of credit outstanding as of August 8, 2007.
Filings withThe short-term borrowings of the LPSCRegistrant Subsidiaries and certain other Entergy subsidiaries are limited to amounts authorized by the FERC. The current FERC-authorized limits are effective through March 31, 2008 (except for Entergy New Orleans, which is effective through May 4, 2009). In addition to borrowings 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. As of June 30, 2007, Entergy's subsidiaries' aggregate money pool and external short-term borrowings authorized limit was $2.0 billion, the aggregate outstanding borrowing from the money pool was $305.6 million, and Entergy's subsidiaries had no outstanding short-term borrowing from external sources.
Retail Rates - Electric40
The following are the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings from the money pool for the Registrant Subsidiaries as of June 30, 2007:
|
| Authorized |
| Borrowings |
|
| (In Millions) | ||
|
|
|
|
|
Entergy Arkansas |
| $250 |
| - |
Entergy Gulf States |
| $350 |
| - |
Entergy Louisiana |
| $250 |
| $47 |
Entergy Mississippi |
| $175 |
| - |
Entergy New Orleans | $100 | - | ||
System Energy |
| $200 |
| - |
Debt Issuances
(Entergy Gulf States)
In March 2006,April 2007, the LPSC approved an uncontested stipulated settlement inPUCT issued a financing order authorizing the issuance of securitization bonds to recover $353 million of Entergy Gulf States' formula rate plan filing for the 2004 test year. The settlement includes a revenue requirement increaseHurricane Rita reconstruction costs and up to $6 million of $36.8transaction costs, offset by $32 million and calls forof related deferred income tax benefits. In June 2007, Entergy Gulf States Reconstruction Funding I, LLC, a company wholly-owned and consolidated by Entergy Gulf States, issued $329.5 million of senior secured transition bonds (securitization bonds), as follows:
Amount | |
(In Thousands) | |
Senior Secured Transition Bonds, Series A: | |
Tranche A-1 (5.51%) due October 2013 | $93,500 |
Tranche A-2 (5.79%) due October 2018 | 121,600 |
Tranche A-3 (5.93%) due June 2022 | 114,400 |
Total senior secured transition bonds | $329,500 |
The scheduled principal payments for the bonds for the next five years are $19.1 million for 2008, $17.7 million for 2009, $18.6 million for 2010, $19.7 million for 2011, and $20.8 million for 2012. All of the scheduled principal payments for 2008-2012 are for Tranche A-1, except for $2.3 million for Tranche A-2 in 2012.
With the proceeds, Entergy Gulf States Reconstruction Funding purchased from Entergy Gulf States the transition property, which is the right to applyrecover from customers though a refund liabilitytransition charge amounts sufficient to service the securitization bonds. Entergy Gulf States began cost recovery through the transition charge in July 2007. The creditors of $744 thousand to capacity deferrals. The refund liability pertainedEntergy Gulf States do not have recourse to the periods 2004-2005assets or revenues of Entergy Gulf States Reconstruction Funding, including the transition property, and the creditors of Entergy Gulf States Reconstruction Funding do not have recourse to the assets or revenues of Entergy Gulf States. Entergy Gulf States has no payment obligations to Entergy Gulf States Reconstruction Funding except to remit transition charge collections.
(Entergy Mississippi)
In January 2007, Entergy Mississippi redeemed, prior to maturity, its $100 million, 4.35% Series First Mortgage Bonds due April 2008.
(Entergy New Orleans)
Pursuant to its plan of reorganization, in May 2007 Entergy New Orleans issued notes due in three years in satisfaction of its affiliate prepetition accounts payable (approximately $74 million, including interest), including its indebtedness to the Entergy System money pool. Entergy New Orleans included in the principal amount of the notes accrued interest from September 23, 2005 at the Louisiana judicial rate of interest for 2005
41
(6%) and 2006 (8%), and at the Louisiana judicial rate of interest plus 1% for 2007 through the date of issuance of the notes. The Louisiana judicial rate of interest is 9.5% for 2007. Entergy New Orleans will pay interest on the notes from their date of issuance at the Louisiana judicial rate of interest plus 1%.
Entergy New Orleans Debtor-in-Possession Credit Facility
See Note 4 in the Form 10-K for a discussion of the Entergy New Orleans $200 million debtor-in-possession (DIP) credit facility. Pursuant to the terms of its plan of reorganization, which became effective in May 2007, Entergy New Orleans fully repaid its DIP credit facility borrowings.
NOTE 5. ACQUISITIONS
In 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 net cash payment of $336 million. Entergy received the plant, nuclear fuel, inventories, and other assets. The liability to decommission the plant, as well as related decommissioning trust funds, 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 the interim periodplant'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. As part of the transaction, Entergy's Non-Utility Nuclear business assumed responsibility for spent fuel at the decommissioned Big Rock Point nuclear plant, which a $37.2 million revenue increaseis located near Charlevoix, Michigan. Palisades' financial results since April 2007 are included in Entergy's Non-Utility Nuclear business segment. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.
Amount | ||
(In Millions) | ||
Plant (including nuclear fuel) | $727 | |
Decommissioning trust funds | 252 | |
Other assets | 41 | |
Total assets acquired | 1,020 | |
Purchased power agreement (below market) | 420 | |
Decommissioning liability | 220 | |
Other liabilities | 44 | |
Total liabilities assumed | 684 | |
Net assets acquired | $336 |
The allocation was in place.based on preliminary information and the final allocation may differ, although management does not expect the difference to be material.
Non-Utility Nuclear will amortize the purchased power agreement liability to revenue over the life of the agreement. The amount that will be amortized each period is based upon the difference between the present value calculated at the date of acquisition of each year's difference between revenue under the agreement and revenue based on estimated market prices. The amounts to be amortized to revenue for the next five years will be $50 million for 2007, $76 million for 2008, $53 million for 2009, $46 million for 2010, and $43 million for 2011.
42
NOTE 6. STOCK-BASED COMPENSATION
Entergy grants equity-based awards including, but not limited to, stock option awards, which are described more fully in Note 12 to the consolidated financial statements in the Form 10-K. Entergy adopted SFAS 123R, "Share-Based Payment" on January 1, 2006. The 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.
The following table includes financial information for stock options for each of the years presented:
2007 | 2006 | ||
(In Millions) | |||
Compensation expense included in Entergy's Net Income for the second quarter | $3.9 | $3.2 | |
Tax benefit recognized in Entergy's Net Income for the second quarter | $1.5 | $1.2 | |
Compensation expense included in Entergy's Net Income for the six months ended June 30, | $7.1 | $6.0 | |
Tax benefit recognized in Entergy's Net Income for the six months ended June 30, | $2.7 | $2.3 | |
Compensation cost capitalized as part of fixed assets and inventory as of June 30, | $1.2 | $1.1 |
Entergy granted 1,854,900 stock options during the first quarter of 2007 with a weighted-average fair value of $14.15. At June 30, 2007, there were 11,215,584 stock options outstanding with a weighted-average exercise price of $57.88. The aggregate intrinsic value of the stock options outstanding was $555 million.
NOTE 7. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS
Components of Net Pension Cost
Entergy's qualified pension cost, including amounts capitalized, for the second quarters of 2007 and 2006, included the following components:
|
| 2007 |
| 2006 |
|
| (In Thousands) | ||
|
|
|
|
|
Service cost - benefits earned during the period |
| $24,141 |
| $23,176 |
Interest cost on projected benefit obligation |
| 46,292 |
| 41,814 |
Expected return on assets |
| (50,880) |
| (44,482) |
Amortization of prior service cost |
| 1,383 |
| 1,365 |
Amortization of loss |
| 11,444 |
| 10,931 |
Net pension costs |
| $32,380 |
| $32,804 |
43
Entergy's qualified pension cost, including amounts capitalized, for the six months ended June 30, 2007 and 2006, included the following components:
|
| 2007 |
| 2006 |
|
| (In Thousands) | ||
|
|
|
|
|
Service cost - benefits earned during the period |
| $48,038 |
| $46,352 |
Interest cost on projected benefit obligation |
| 92,154 |
| 83,628 |
Expected return on assets |
| (101,506) |
| (88,964) |
Amortization of prior service cost |
| 2,766 |
| 2,730 |
Amortization of loss |
| 22,888 |
| 21,862 |
Net pension costs |
| $64,340 |
| $65,608 |
The Registrant Subsidiaries' qualified pension cost, including amounts capitalized, for the second quarters of 2007 and 2006, included the following components:
|
| 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 |
44
The Registrant Subsidiaries' qualified pension cost, including amounts capitalized, for the six months ended June 30, 2007 and 2006, included the following components:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2007 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $7,276 |
| $6,022 |
| $4,462 |
| $2,178 |
| $940 |
| $2,042 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 20,996 |
| 16,278 |
| 12,502 |
| 6,742 |
| 2,520 |
| 3,420 |
Expected return on assets |
| (22,018) |
| (21,500) |
| (15,616) |
| (7,674) |
| (2,892) |
| (4,272) |
Amortization of prior service cost |
| 824 |
| 608 |
| 320 |
| 228 |
| 88 |
| 24 |
Amortization of loss |
| 5,442 |
| 1,246 |
| 2,866 |
| 1,498 |
| 736 |
| 302 |
Net pension cost |
| $12,520 |
| $2,654 |
| $4,534 |
| $2,972 |
| $1,392 |
| $1,516 |
|
| 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 recognized $4.0 million and $3.9 million in pension cost for its non-qualified pension plans in the second quarters of 2007 and 2006, respectively. Entergy recognized $8.0 million and $7.8 million in pension cost for its non-qualified pension plans for the six months ended June 30, 2007 and 2006, respectively.
The Registrant Subsidiaries recognized the following pension cost for their non-qualified pension plans in the second quarters of 2007 and 2006:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
|
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
|
|
| (In Thousands) | |||||||||
Non-Qualified Pension Cost |
| $123 |
| $317 |
| $6 |
| $44 |
| $57 |
|
Non-Qualified Pension Cost |
| $113 |
| $220 |
| $5 |
| $36 |
| $54 |
|
45
The Registrant Subsidiaries recognized the following pension cost for their non-qualified pension plans for the six months ended June 30, 2007 and 2006:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
|
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
|
|
| (In Thousands) | |||||||||
Non-Qualified Pension Cost Six |
| $246 |
| $634 |
| $12 |
| $88 |
| $114 |
|
Non-Qualified Pension Cost Six |
| $226 |
| $439 |
| $11 |
| $73 |
| $107 |
|
Components of Net Other Postretirement Benefit Cost
Entergy's other postretirement benefit cost, including amounts capitalized, for the second quarters of 2007 and 2006, included the following components:
|
| 2007 |
| 2006 |
|
| (In Thousands) | ||
|
|
|
|
|
Service cost - benefits earned during the period |
| $11,034 |
| $10,370 |
Interest cost on APBO |
| 15,808 |
| 14,316 |
Expected return on assets |
| (6,325) |
| (4,756) |
Amortization of transition obligation |
| 958 |
| 542 |
Amortization of prior service cost |
| (3,959) |
| (3,688) |
Amortization of loss |
| 4,743 |
| 5,698 |
Net other postretirement benefit cost |
| $22,259 |
| $22,482 |
Entergy's other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 2007 and 2006, included the following components:
|
| 2007 |
| 2006 |
|
| (In Thousands) | ||
|
|
|
|
|
Service cost - benefits earned during the period |
| $21,927 |
| $20,740 |
Interest cost on APBO |
| 31,494 |
| 28,632 |
Expected return on assets |
| (12,585) |
| (9,512) |
Amortization of transition obligation |
| 1,916 |
| 1,084 |
Amortization of prior service cost |
| (7,918) |
| (7,376) |
Amortization of loss |
| 9,486 |
| 11,396 |
Net other postretirement benefit cost |
| $44,320 |
| $44,964 |
46
The Registrant Subsidiaries' other postretirement benefit cost, including amounts capitalized, for the second quarters of 2007 and 2006, included the following components:
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System | |
2007 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $1,525 |
| $1,547 |
| $973 |
| $476 |
| $255 |
| $451 |
Interest cost on APBO |
| 3,037 |
| 2,876 |
| 1,941 |
| 1,049 |
| 870 |
| 433 |
Expected return on assets |
| (2,231) |
| (1,697) |
| - |
| (819) |
| (682) |
| (470) |
Amortization of transition obligation |
| 205 |
| 151 |
| 96 |
| 88 |
| 416 |
| 2 |
Amortization of prior service cost |
| (197) |
| 218 |
| 117 |
| (62) |
| 90 |
| (283) |
Amortization of loss |
| 1,500 |
| 793 |
| 764 |
| 613 |
| 282 |
| 149 |
Net other postretirement benefit cost |
| $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 |
The Registrant Subsidiaries' other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 2007 and 2006, included the following components:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2007 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $3,050 |
| $3,094 |
| $1,946 |
| $952 |
| $510 |
| $902 |
Interest cost on APBO |
| 6,074 |
| 5,752 |
| 3,882 |
| 2,098 |
| 1,740 |
| 866 |
Expected return on assets |
| (4,462) |
| (3,394) |
| - |
| (1,638) |
| (1,364) |
| (940) |
Amortization of transition obligation |
| 410 |
| 302 |
| 192 |
| 176 |
| 832 |
| 4 |
Amortization of prior service cost |
| (394) |
| 436 |
| 234 |
| (124) |
| 180 |
| (566) |
Amortization of loss |
| 3,000 |
| 1,586 |
| 1,528 |
| 1,226 |
| 564 |
| 298 |
Net other postretirement benefit cost |
| $7,678 |
| $7,776 |
| $7,782 |
| $2,690 |
| $2,462 |
| $564 |
47
|
| 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 |
Employer Contributions
Entergy expects to contribute $176 million to its qualified pension plans in 2007. As of the end of July 2007, Entergy had contributed $153 million to its pension plans. Therefore, Entergy presently anticipates contributing an additional $23 million to fund its qualified pension plans in 2007.
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 |
| $ - |
|
|
|
|
| $ - |
| $43,585 |
| $5,419 |
Remaining estimated pension |
| $6,987 |
| $ - |
|
|
| $784 |
| $ - |
| $269 |
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, 2006 Accumulated Postretirement Benefit Obligation by $183 million, and reduced the second quarter 2007 and 2006 other postretirement benefit cost by $6.6 million and $6.9 million, respectively. It reduced the six months ended June 30, 2007 and 2006 other postretirement benefit cost by $13.2 million and $13.9 million, respectively. In the six months ended June 30, 2007, Entergy received $1.7 million in Medicare subsidies for prescription drug claims during 2006.
48
Based on actuarial analysis, the estimated impact of future Medicare subsidies reduced the December 31, 2006 APBO and the second quarters 2007 and 2006 other postretirement benefit cost for 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 second quarter 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
other postretirement benefit cost |
| ($1,376) |
| ($1,222) |
| ($762) |
| ($438) |
| ($311) |
| ($246) |
Reduction in second quarter 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
other postretirement benefit cost |
| ($1,562) |
| ($1,332) |
| ($865) |
| ($512) |
| ($376) |
| ($268) |
Reduction in six months ended |
|
|
|
|
| |||||||
June 30, 2007 other | ||||||||||||
postretirement benefit cost | ($2,752) |
| ($2,444) |
| ($1,524) |
| ($876) |
| ($622) |
| ($492) | |
Reduction in six months ended |
|
|
|
|
| |||||||
June 30, 2006 other | ||||||||||||
postretirement benefit cost | ($3,124) | ($2,664) | ($1,730) | ($1,024) | ($752) | ($536) | ||||||
Medicare subsidies received in the | ||||||||||||
six months ended June 30, 2007 | ||||||||||||
for 2006 claims | $484 |
| $402 |
| $248 |
| $142 |
| $146 |
| $30 |
For further information on the Medicare Act refer to Note 11 to the financial statements in the Form 10-K.
NOTE 8. BUSINESS SEGMENT INFORMATION
Entergy's reportable segments as of June 30, 2007 are Utility and Non-Utility Nuclear. "All Other" includes the parent company, Entergy Corporation, and other business activity, including the non-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 discontinued the consolidation of Entergy New Orleans retroactive to January 1, 2005 and reported Entergy New Orleans results under the equity method of accounting in the Utility segment in 2006 and 2005. On May 7, 2007, the bankruptcy judge entered an order confirming Entergy New Orleans' plan of reorganization. With confirmation of the plan of reorganization, Entergy reconsolidated Entergy New Orleans in the second quarter 2007, retroactive to January 1, 2007.
49
Entergy's segment financial information for the second quarters of 2007 and 2006 Entergy Gulf States made its formula rate plan filingis as follows:
|
|
|
|
|
|
|
|
|
| |
(In Thousands) | ||||||||||
2007 |
|
|
|
|
|
|
|
|
| |
Operating Revenues | $2,238,555 |
| $471,521 |
| $65,817 |
| ($6,541) |
| $2,769,352 | |
Equity in earnings of |
|
|
|
|
| |||||
unconsolidated equity affiliates | $- |
| $- |
| $477 |
| $- |
| $477 | |
Income Taxes (Benefit) | $98,460 |
| $63,929 |
| ($55,938) |
| $- |
| $106,451 | |
Net Income | $148,194 |
| $108,726 |
| $10,682 |
| $- |
| $267,602 | |
|
|
|
|
|
|
| ||||
2006 |
|
|
|
|
|
|
|
|
| |
Operating Revenues | $2,191,891 |
| $362,363 |
| $82,785 |
| ($8,537) |
| $2,628,502 | |
Equity in earnings (loss) of |
|
|
|
|
| |||||
unconsolidated equity affiliates | $10,682 |
| $- |
| ($2,199) |
| $- |
| $8,483 | |
Income Taxes (Benefit) | $93,776 |
| $41,331 |
| ($12,206) |
| $- |
| $122,901 | |
Net Income | $199,623 |
| $63,379 |
| $18,883 |
| ($83) |
| $281,802 |
Entergy's segment financial information for the six months ended June 30, 2007 and 2006 is as follows:
|
|
|
|
| |||||
(In Thousands) | |||||||||
2007 |
|
|
|
|
|
|
|
|
|
Operating Revenues | $4,435,654 |
| $929,772 |
| $110,865 |
| ($12,880) |
| $5,463,411 |
Equity in earnings (loss) of |
|
|
|
|
| ||||
unconsolidated equity affiliates | ($1) |
| $- |
| $2,102 |
| $- |
| $2,101 |
Income Taxes (Benefit) | $179,152 |
| $148,664 |
| ($75,299) |
| $- |
| $252,517 |
Net Income (Loss) | $252,644 |
| $236,896 |
| ($9,743) |
| $- |
| $479,797 |
Total Assets | $26,244,883 | $6,649,467 | $10,814,538 | ($10,294,161) | $33,414,727 | ||||
|
|
|
|
|
|
| |||
2006 |
|
|
|
|
|
|
|
|
|
Operating Revenues | $4,322,913 |
| $750,372 |
| $149,476 |
| ($26,224) |
| $5,196,537 |
Equity in earnings (loss) of |
|
|
|
|
| ||||
unconsolidated equity affiliates | $16,325 |
| $- |
| ($4,255) |
| $- |
| $12,070 |
Income Taxes (Benefit) | $170,749 |
| $94,248 |
| ($23,265) |
| $- |
| $241,732 |
Net Income | $319,375 |
| $144,908 |
| $11,263 |
| ($115) |
| $475,431 |
Total Assets | $24,763,451 | $5,138,175 | $3,127,773 | ($2,465,726) | $30,563,673 |
Businesses marked with * are sometimes referred to as the "competitive businesses," with the LPSCexception of the parent company, Entergy Corporation. Eliminations are primarily intersegment activity. Almost all of Entergy's goodwill is related to the Utility segment.
50
NOTE 9. ENTERGY NEW ORLEANS BANKRUPTCY PROCEEDING
See Note 18 to the financial statements in the Form 10-K for a discussion of the 2005 test year. Entergy Gulf States modifiedNew Orleans bankruptcy proceeding. On May 7, 2007, the filingbankruptcy 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 August 2006 to reflect an 11.1% returnits plan of reorganization, and the plan became effective on equity which is withinMay 8, 2007.
Following are significant terms in Entergy New Orleans' plan of reorganization:
(Entergy Corporation)
With confirmation of the plan of reorganization, Entergy reconsolidated Entergy New Orleans in the second quarter 2007, retroactive to January 1, 2007. Because Entergy owns all of the common stock of Entergy New Orleans, reconsolidation does not affect the amount of net income that Entergy records from Entergy New Orleans' operations for any current or prior period, but does 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.
(Entergy Louisiana)New Orleans)
Reorganization items reported as operating expenses in 2006 in the Entergy New Orleans income statement primarily consist of professional fees associated with the bankruptcy case.
51
NOTE 10. INCOME TAXES
Entergy or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. With few exceptions, as discussed below, 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 entered into an agreement with the IRS Appeals Division in the second quarter 2007 to partially settle tax years 1999 - 2001. Entergy will litigate the following issues that it is not settling:
The U.K. Windfall Tax and street lighting issues are already docketed in U.S. Tax Court for tax years 1997 and 1998 with a trial date set in the first quarter of 2008.
The IRS completed its examination of the 2002 and 2003 tax returns and issued an Examination Report on June 29, 2007. During the examination, Entergy agreed to adjustments related to its method of accounting for income tax purposes related to 1) its wholesale electric power contracts and 2) the simplified method of allocating overhead or "mixed service costs" provided for under IRS regulations, which affects the amount of cost of goods sold related to the production of electricity.
Entergy's agreement with the IRS on electric power contracts involved an adjustment to reduce Entergy Louisiana Holdings' deduction related to its accounting for the contract to purchase power from the Vidalia hydroelectric project. The adjustment did not have a material impact on Entergy Louisiana Holdings' earnings. The agreement on overhead allocation methodology related to the Registrant Subsidiaries' 2003 filing of a change in tax accounting method for the allocation of "mixed service costs" to self-produced assets. Entergy reached a settlement agreement concerning the Registrant Subsidiaries' deductions related to the method change for the year ended December 31, 2003. As Entergy has a consolidated net operating loss for 2003, these adjustments have the effect of reducing the consolidated net operating loss carryover and do not require a payment to the IRS at this time. The settlement did not have a material impact on the Registrant Subsidiaries' earnings.
In May 2006,the report for the 2002-2003 audit cycle, the IRS also proposed adjustments which Entergy Louisiana made its formula rate plan filingdid not agree to as follows: 1) the U.K. Windfall Tax foreign tax credit issue mentioned above; 2) the street lighting issue mentioned above; 3) certain repair deductions; 4) deductions claimed for research and experimentation (R&E) expenditures; 5) income tax credits claimed for R&E; and 6) a 2003 deduction associated with the LPSCrevisions to the emergency plans at the Indian Point Energy Center. Regarding all of these issues, Entergy disagrees with the IRS Examination Division position and will file a formal protest with the IRS and will pursue administrative relief within the IRS Appeals Division.
Entergy believes that the provisions recorded in its financial statements are sufficient to address these issues as well as other liabilities that are reasonably estimable, including an estimate of probable interest expense, associated with all uncertain tax positions.
52
Entergy has $202 million in deposits on account with the IRS to cover its 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 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 2005 test year.possible payment of interes t and penalties.
As of January 1, 2007, Entergy Louisiana modifiedand the filingRegistrant Subsidiaries had total balances of unrecognized tax benefits reflected in August 2006their 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 included amounts that 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 |
53
The Registrant Subsidiaries accrue interest and penalties related to reflect a 9.45% return on equity which isunrecognized 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 allowed bandwidth. next twelve months.
NOTE 11. NEW ACCOUNTING PRONOUNCEMENTS
The modified filing includesFASB 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 increaseoption for companies to select certain financial assets and liabilities to be accounted for at fair value with changes in the fair value of $24 millionthose 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 interim recovery of storm costs from Hurricanes Katrina and Rita and a $120 million rate increase to recover LPSC-approved incremental deferred and ongoing capacity costs. The filing requested recovery of approximately $50 million for the amortization of capacity deferrals over a three-year period, including carrying charges, and approximately $70 million for ongoing capacity costs. The increase was implemented, subject to refund,this fair value option concurrent with the first billing cycleeffective date of September 2006. Comments were provided byJanuary 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 LPSC Staff, which Entergy Louisiana is currently reviewing. Entergy Louisiana subsequently updated its formula rate plan rider to reflect adjustments proposed byprocess of evaluating the LPSC Staff with which it agrees. The adjusted return on equitypotential effect of 9.56% remains within the allowed bandwidth. Ongoing and deferred incremental capacity costs were reduced to $119 million. The updated formula rate plan rider was implemented, subject to refund, with the first billing cycle of October 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
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 was implemented in August 2006.
40
Filings with the City Councilmaking 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, unless required to report differently by a regulatory agency. 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, made its annual formula rate plan filingsand 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 Registrant Subsidiaries is subject to seasonal fluctuations, however, with the City Council.peak periods occurring during the third quarter. The filingsresults for the interim periods presented various alternativesshould not be used as a basis for estimating results of operations for a full year.
54
Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk
Refer to reflect"MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends- Market and Credit Risk Sensitive InstrumentsOF ENTERGY CORPORATION AND SUBSIDIARIES."
Part I, Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of June 30, 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 (each individually a "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 Commission 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.
55
ENTERGY ARKANSAS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
Second Quarter 2007 Compared to Second Quarter 2006
Net income decreased $25.1 million primarily due to a higher effective income tax rate and higher other operation and maintenance expenses. The decrease was partially offset by higher net revenue.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Net income decreased $25.2 million primarily due to a higher effective income tax rate and higher other operation and maintenance expenses. The decrease was partially offset by higher net revenue.
Net Revenue
Second Quarter 2007 Compared to Second Quarter 2006
Net revenue consists of operating revenues net of: 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits. Following is an analysis of the change in net revenue comparing the second quarter of 2007 to the second quarter of 2006.
Amount | ||
(In Millions) | ||
2006 net revenue | $259.8 | |
Pass-through rider revenue | 6.8 | |
Transmission revenue | 3.4 | |
Volume/weather | (5.4) | |
Other | 3.0 | |
2007 net revenue | $267.6 |
The pass-through rider revenue variance is primarily due to a change in August 2006 in the accounting for city franchise tax revenues as directed by the APSC. The change results in an increase in rider revenue with a corresponding increase in taxes other than income taxes resulting in no effect on net income.
The transmission revenue variance is primarily due to higher rates and the addition of new transmission customers in 2006.
The volume/weather variance is primarily due to the effect of Entergy New Orleans' lostless favorable weather compared to the same period in 2006. Billed retail electricity usage decreased by a total of 110 GWh.
56
Gross operating revenues and fuel and purchased power expenses
Gross operating revenues decreased primarily due to:
Fuel and purchased power expenses decreased primarily due to a decrease in deferred fuel expense associated with lower energy cost recovery rates collected from customers.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Net revenue 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, 2007 to the six months ended June 30, 2006.
Amount | ||
(In Millions) | ||
2006 net revenue | $491.5 | |
Pass-through rider revenue | 15.3 | |
Deferred fuel costs revisions | 8.6 | |
Transmission revenue | 3.9 | |
Net wholesale revenue | (7.9) | |
Other | 9.5 | |
2007 net revenue | $520.9 |
The pass-through rider revenue variance is primarily due to a change in August 2006 in the accounting for city franchise tax revenues as directed by the APSC. The change results in an increase in rider revenue with a corresponding increase in taxes other than income taxes resulting in no effect on net income.
The deferred fuel cost revisions variance is primarily due to the 2006 energy cost recovery true-up, made in the first quarter of 2007, which increased net revenue by $6.6 million.
The transmission revenue variance is due to higher rates and the addition of new transmission customers in 2006.
The net wholesale revenue variance is primarily due to decreased results from wholesale contracts and decreased revenue. Entergy New Orleans' recommended alternative adjustslower wholesale prices.
Other Income Statement Variances
Second Quarter 2007 Compared to Second Quarter 2006
Other operation and maintenance expenses increased primarily due to:
57
Taxes other than income taxes increased primarily due to an increase in city franchise tax expense due to a change in August 2006 in the accounting for lost customerscity 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.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Other operation and assumes thatmaintenance 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 in 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 2006 of estimated depreciable lives involving certain intangible assets.
Other income increased primarily due to a revision in the first quarter of 2007 to the allowance for equity funds used during construction related to removal costs.
Interest and other charges increased primarily due to interest expense of $3.6 million recorded in the six months ended June 30, 2007 on advances from independent power producers per a FERC order, partially offset by a revision to the estimate of allowance for borrowed funds used during construction related to removal costs.
Income Taxes
The effective income tax rate was 36.8% for the second quarter of 2007 and 41.3% for the six months ended June 30, 2007. The difference in the effective income tax rate for the second 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 six months ended June 30, 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 a downward revision in the estimate of federal income tax expense related to tax depreciation.
The effective income tax rate was 8.9% for the second quarter of 2006 decisionand 25.0% for the six months ended June 30, 2006. The differences in the effective income tax rate for the second quarter of 2006 and the six months ended June 30, 2006 versus the federal statutory rate of 35.0% are primarily due to allowthe flow through of an income tax benefit related to the steam generator removal cost.
58
Liquidity and Capital Resources
Cash Flow
Cash flows for the six months ended June 30, 2007 and 2006 were as follows:
|
| 2007 |
| 2006 | |
|
| (In Thousands) | |||
|
|
|
|
| |
Cash and cash equivalents at beginning of period |
| $34,815 |
| $9,393 | |
|
|
|
|
| |
Cash flow provided by (used in): |
|
|
|
| |
| Operating activities |
| 225,125 |
| 225,953 |
| Investing activities |
| (159,165) |
| (147,364) |
| Financing activities |
| (33,937) |
| (68,931) |
Net increase in cash and cash equivalents |
| 32,023 |
| 9,658 | |
|
|
|
|
| |
Cash and cash equivalents at end of period |
| $66,838 |
| $19,051 |
Operating Activities
Cash flow from operations was practically unchanged for the six months ended June 30, 2007 compared to the six months ended June 30, 2006. Income tax payments of $18.6 million in 2007 compared to income tax refunds of $23.5 million in 2006, along with decreased recovery of all Grand Gulfdeferred fuel costs, throughwere almost entirely offset by the fuel adjustment clause stays in place during the rate-effective period (a significant portiontiming of Grand Gulf costs was previously recovered through base rates).collection of receivables from customers.
Investing Activities
AtNet cash flow used in investing activities increased $11.8 million for the same time as it made its formula rate plan filings, Entergy New Orleans also filed withsix months ended June 30, 2007 compared to the City Council a requestsix months ended June 30, 2006 primarily due to implement two storm-related riders. With the first rider, Entergy New Orleans sought to recover the electric and gas restoration costs that it had actually spent through March 31, 2006. Entergy New Orleans also proposed semiannual filings to update the riderincreased construction expenditures resulting from an increase in transmission spending for additional restoration spendingcosts for substation and alsotransmission lines. The increase was partially offset by other regulatory investments in 2006 resulting from fuel cost under-recoveries that have been deferred and are expected to consider the receipt of CDBG funds or insurance proceeds that it may receive. With the second rider, Entergy New Orleans sought to establishbe recovered over a storm reserve to provideperiod greater than twelve months.
Financing Activities
Net cash flow used in financing activities decreased $35 million for the risksix months ended June 30, 2007 compared to the six months ended June 30, 2006 primarily due to money pool activity.
Capital Structure
Entergy Arkansas' capitalization is balanced between equity and debt, as shown in the following table.
|
| June 30, |
| December 31, |
|
|
|
|
|
Net debt to net capital |
| 46.3% |
| 47.5% |
Effect of subtracting cash from debt |
| 1.2% |
| 0.6% |
Debt to capital |
| 47.5% |
| 48.1% |
Net debt consists of another storm.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.
59
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.
See the table in the Form 10-K under "Uses of Capital" which sets forth the amounts of Entergy Arkansas' planned construction and other capital investments for 2007 through 2009. In July 2007, Entergy Arkansas signed an agreement to purchase for $210 million the Ouachita Power Facility, a 789 MW natural gas-fired, combined-cycle, load-following generating facility located in north Louisiana and owned by Ouachita Power, LLC. Entergy Arkansas plans to invest approximately $43 million in reliability upgrades. The Ouachita plant will be 100 percent owned by Entergy Arkansas, and the acquisition is expected to close in 2008. Entergy Arkansas expects to sell to Entergy Gulf States, under a separate agreement, approximately one-third of the output of the Ouachita plant on a long-term basis. The purchase of the plant is contingent upon obtaining necessary approvals, including full cost recovery, from various federal and state regulatory and permitting agencies. The planned capital investments estimate in the Form 10-K included $190 million in 2008 for the estimated cost of an acquisition of this type.
In October 2006April 2007, Entergy Arkansas renewed its credit facility through April 2008 and increased the City Council approved a settlement agreement that resolvesamount of the credit facility to $100 million. There were no outstanding borrowings under the Entergy New Orleans' rate and storm-related rider filings by providing for phased-in rate increases, while taking into account with respectArkansas credit facility as of June 30, 2007.
Entergy Arkansas' receivables from or (payables to) the money pool were as follows:
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$26,450 |
| $16,109 |
| $15,567 |
| ($27,346) |
See Note 4 to storm restoration costs the anticipated receipt of CDBG funding as recommended byfinancial statements in the Louisiana Recovery Authority. The settlement providesForm 10-K for a 0% increase in electric base rates through December 2007, with a $3.9 million increase implemented in January 2008. Recovery of all Grand Gulf costs through the fuel adjustment clause will continue. Gas base rates will increase by $4.75 million in November 2006, an additional $1.5 million in March 2007, and an additional $4.75 million in November 2007. The settlement calls for Entergy New Orleans to file a base rate case by July 31, 2008. Any storm costs in excess of CDBG funding and insurance proceeds will be addressed in that base rate case. A storm cost recovery rider is authorized but initially set at $0 becausedescription of the anticipated receipt of CDBG funding. The settlement also authorizes a $75 million storm reserve for damage from future storms, which will be created over a ten-year period through a storm reserve rider beginning in March 2007. These storm reserve funds will be held in a restricted escrow account.money pool.
Customer-Initiated Proceeding at the FERCSignificant Factors and Known Trends
As discussedSee "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends" in Part I, Item 1 of the Form 10-K for a discussion of state and local rate regulation, energy cost rate investigation, federal regulation, utility restructuring, nuclear matters, and environmental risks. Following are updates to the information provided in September 2004, East Texas Electric Cooperative (ETEC) filed a complaint at the FERC againstForm 10-K.
State and Local Rate Regulation
In June 2007, after hearings on Entergy Arkansas' August 2006 rate filing requesting an adjusted annual increase of $106.5 million, the APSC ordered Entergy Arkansas relatingto reduce its annual rates by $5 million, and set an ROE of 9.9% with a hypothetical common equity level lower than Entergy Arkansas' actual capital structure. For the purpose of setting rates, the APSC disallowed a portion of costs associated with incentive compensation based on financial measures and all costs associated with Entergy's stock-based compensation plans. In addition, under the terms of the APSC's order, recovery of storm restoration costs in the future will be limited to a contract dispute overfixed annual amount of $14.4 million, regardless of the pricingactual annual amount of substitute energy atfuture restoration costs. The APSC's order also threatens Entergy Arkansas' ability to recover $52 million of costs previously accumulated in Entergy Arkansas' storm reserve and $18 million of removal costs associated with the co-owned Independence coal unit. In October 2004, Arkansas Electric Cooperative (AECC) filedtermination of a similar complaint at the FERC againstlease. Management believes, however, that Entergy Arkansas addressing the same issue with respectis entitled to Independencerecover these prudently incurred costs and another co-owned coal unit, White Bluff. FERC consolidated these cases, orderedwill vigorously pursue its right to recover them. The APSC rejected Entergy Arkansas' request for a hearing in the consolidated proceeding, and established refund effective dates. The main issue in the consolidated case relatescapacity management rider to the consequences under the governing contracts when the dispatch of the coal units is constrained due to system operating conditions. In August 2005,recover incremental capacity costs, but directed Entergy Arkansas and ETEC filed a settlement at the FERCother parties in the case to develop an annual earnings review process that resolved all issues in dispute between ETEC and Entergy Arkansas. As part of the settlement, ETEC dismi ssed its complaint. A hearing was held on the AECC complaint and an ALJ Initial Decision was issued in January 2006 in which the ALJ found AECC's claims to be without merit. On October 25, 2006, the FERC issued an order on the ALJ's Initial Decision. In the order, the FERC reversed the ALJ's findings. Specifically, the FERC found that the governing contracts do not recognize the effects of dispatch constraints on the co-owned units. The FERC explained that for over twenty-three years the course of conduct of the parties was such that AECC received its full entitlement to the two coal units, regardless of any reduced output caused by system operating constraints. Based on the order, Entergy Arkansas is required to refund to AECC all excess amounts billed to AECC as a result of the system operating constraints. Entergy Arkansas estimates currently thatmay address this will result in a refund to AECC of approximately $26 million, although Entergy Arkansas is still refining the estimate. Requests for rehearing of t he FERC's decision are due on November 24, 2006.issue.
4160
NOTE 3. COMMON EQUITY
See Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends -
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:
|
| For the Three Months Ended September 30, | |||||||
|
| 2006 |
| 2005 | |||||
|
| (In Millions, Except Per Share Data) | |||||||
|
|
|
| $/share |
|
|
| $/share | |
Earnings applicable to common stock |
| $388.9 |
|
|
| $350.0 |
|
| |
|
|
|
|
|
|
|
|
| |
Average number of common shares |
|
|
|
|
|
|
|
| |
Average dilutive effect of: |
|
|
|
|
|
|
|
| |
| Stock Options |
| 3.8 |
| (0.034) |
| 4.2 |
| (0.033) |
| Deferred Units |
| 0.2 |
| (0.002) |
| 0.2 |
| (0.002) |
Average number of common shares |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended June 30, | |||||||
|
| 2007 |
| 2006 | |||||
|
| (In Millions, Except Per Share Data) | |||||||
|
|
|
| $/share |
|
|
| $/share | |
Consolidated net income |
| $267.6 |
|
|
| $281.8 |
|
| |
|
|
|
|
|
|
|
|
| |
Average number of common shares |
|
|
|
|
|
|
|
| |
Average dilutive effect of: |
|
|
|
|
|
|
|
| |
| Stock Options |
| 5.1 |
| (0.034) |
| 3.4 |
| (0.022) |
Equity Units | 1.2 | (0.008) | - | - | |||||
| Deferred Units |
| 0.1 |
| (0.001) |
| 0.2 |
| (0.001) |
Average number of common shares |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
38
|
| For the Nine Months Ended September 30, | |||||||
|
| 2006 |
| 2005 | |||||
|
| (In Millions, Except Per Share Data) | |||||||
|
|
|
| $/share |
|
|
| $/share | |
Earnings applicable to common stock |
| $864.3 |
|
|
| $808.1 |
|
| |
|
|
|
|
|
|
|
|
| |
Average number of common shares |
|
|
|
|
|
|
|
| |
Average dilutive effect of: |
|
|
|
|
|
|
|
| |
| Stock Options |
| 3.6 |
| (0.070) |
| 4.3 |
| (0.076) |
| Deferred Units |
| 0.2 |
| (0.004) |
| 0.2 |
| (0.005) |
Average number of common shares |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| For the Six Months Ended June 30, | |||||||
|
| 2007 |
| 2006 | |||||
|
| (In Millions, Except Per Share Data) | |||||||
|
|
|
| $/share |
|
|
| $/share | |
Consolidated net income |
| $479.8 |
|
|
| $475.4 |
|
| |
|
|
|
|
|
|
|
|
| |
Average number of common shares |
|
|
|
|
|
|
|
| |
Average dilutive effect of: |
|
|
|
|
|
|
|
| |
| Stock Options |
| 5.0 |
| (0.059) |
| 3.4 |
| (0.037) |
Equity Units | 0.9 | (0.011) | - | - | |||||
| Deferred Units |
| 0.1 |
| (0.001) |
| 0.2 |
| (0.002) |
Average number of common shares |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
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 ninesix months ended SeptemberJune 30, 2006,2007, Entergy Corporation issued 1,038,5781,404,160 shares of its previously repurchased common stock to satisfy stock option exercises and other stock-based awards. Also during the six months ended June 30, 2007, Entergy Corporation purchased 8,012,542 shares of its common stock for a total purchase price of $825.5 million.
Retained Earnings
On October 27, 2006,July 30, 2007, Entergy Corporation's Board of Directors declared a common stock dividend of $0.54$0.75 per share, payable on DecemberSeptember 1, 20062007, to holders of record as of NovemberAugust 10, 2006.
422007.
Accumulated Other Comprehensive Income
Cash flow hedges with net unrealized losses of approximately $130$38.5 million net-of-tax at SeptemberJune 30, 20062007 are scheduledexpected to maturebe reclassified into earnings during the next twelve months.
NOTE 4. LINES OF CREDIT, RELATED SHORT-TERM BORROWINGS, AND LONG-TERM DEBT
Entergy Corporation hashad in place as of June 30, 2007, 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 $495 million was outstanding as of September 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 September 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 $94.1 million had been issued against the five-year facility at September 30, 2006. The total unused capacity for these facilities as of September 30, 2006 was approximately $2.9 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 dome stic utilityUtility operating companies. The weighted average interest rates as of June 30, 2007 were 5.78% on the five-year facility and 5.85% on the three-year facility. Following is a summary of the borrowings outstanding and capacity available under these facilities as of June 30, 2007.
39
|
|
| Letters | Capacity | ||||
(In Millions) | ||||||||
5-Year Facility | $2,000 | $855 | $79 | $1,066 | ||||
3-Year Facility | $1,500 | $1,115 | $- | $385 |
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 and System Energy default on other indebtedness or are in bankruptcy or insolvency proceedings, an acceleration of the facilities' maturity dates may occur.
On August 2, 2007, Entergy Corporation entered into a new, $3.5 billion credit facility, and terminated the two previously existing facilities. See Part II, Item 5 herein for additional information on the new credit facility, including the amounts of the borrowings and letters of credit outstanding as of August 8, 2007.
Entergy Arkansas, Entergy Gulf States, and Entergy Mississippi, each hashad credit facilities available as of SeptemberJune 30, 20062007 as follows:
|
|
|
| Amount of |
| Amount Drawn as of |
|
|
|
|
|
|
|
Entergy Arkansas |
| April |
| $ |
| - |
Entergy Gulf States | February 2011 | $50 million (a) | - | |||
Entergy Mississippi | May | $30 million (b) | - | |||
Entergy Mississippi |
| May |
| $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, 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.
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.
On August 2, 2007, Entergy Gulf States and Entergy Louisiana each entered into new, $200 million credit facilities. See Part II, Item 5 herein for additional information on the new credit facilities, under which there were no borrowings or letters of credit outstanding as of August 8, 2007.
The FERC has issued an order ("FERC Short-Term Order") approving the short-term borrowing limitsborrowings of the domestic utility companies (exceptRegistrant Subsidiaries and certain other Entergy New Orleans) and System Energysubsidiaries are limited to amounts authorized by the FERC. The current FERC-authorized limits are effective through March 31, 2008.2008 (except for Entergy New Orleans, may rely on existing SEC PUHCA 1935 orders for its financing authority, subject to bankruptcy court approval.which is effective through May 4, 2009). 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 authorizedFERC-authorized limits. As of SeptemberJune 30, 2006,2007, Entergy's subsidiaries' aggregate money pool and external short-term borrowings authorized limit was $2.0 billion, and the aggregate outstanding borrow ingborrowing from the money pool was $346.9 million.$305.6 million, and Entergy's subsidiaries had no outstanding short-term borrowing from external sources.
4340
Long-term
The following are the FERC-authorized limits for short-term borrowings and the outstanding short-term borrowings from the money pool for the Registrant Subsidiaries as of June 30, 2007:
|
| Authorized |
| Borrowings |
|
| (In Millions) | ||
|
|
|
|
|
Entergy Arkansas |
| $250 |
| - |
Entergy Gulf States |
| $350 |
| - |
Entergy Louisiana |
| $250 |
| $47 |
Entergy Mississippi |
| $175 |
| - |
Entergy New Orleans | $100 | - | ||
System Energy |
| $200 |
| - |
Debt Issuances
The following long-term debt has been(Entergy Gulf States)
In April 2007, the PUCT issued a financing order authorizing the issuance of securitization bonds to recover $353 million of Entergy Gulf States' Hurricane Rita reconstruction costs and up to $6 million of transaction costs, offset by $32 million of related deferred income tax benefits. In June 2007, Entergy Gulf States Reconstruction Funding I, LLC, a company wholly-owned and consolidated by Entergy in 2006:Gulf States, issued $329.5 million of senior secured transition bonds (securitization bonds), as follows:
|
|
(In Thousands) | |
Senior Secured Transition Bonds, Series A: | |
Tranche A-1 (5.51%) due October 2013 | $93,500 |
Tranche A-2 (5.79%) due October 2018 | 121,600 |
Tranche A-3 (5.93%) due June 2022 | 114,400 |
Total senior secured transition bonds | $329,500 |
The scheduled principal payments for the bonds for the next five years are $19.1 million for 2008, $17.7 million for 2009, $18.6 million for 2010, $19.7 million for 2011, and $20.8 million for 2012. All of the scheduled principal payments for 2008-2012 are for Tranche A-1, except for $2.3 million for Tranche A-2 in 2012.
With the proceeds, Entergy Gulf States Reconstruction Funding purchased from Entergy Gulf States the transition property, which is the right to recover from customers though a transition charge amounts sufficient to service the securitization bonds. Entergy Gulf States began cost recovery through the transition charge in July 2007. The creditors of Entergy Gulf States do not have recourse to the assets or revenues of Entergy Gulf States Reconstruction Funding, including the transition property, and the creditors of Entergy Gulf States Reconstruction Funding do not have recourse to the assets or revenues of Entergy Gulf States. Entergy Gulf States has no payment obligations to Entergy Gulf States Reconstruction Funding except to remit transition charge collections.
(Entergy Mississippi)
In January 2007, Entergy Mississippi redeemed, prior to maturity, its $100 million, 4.35% Series First Mortgage Bonds due April 2008.
(Entergy New Orleans)
Pursuant to its plan of reorganization, in May 2007 Entergy New Orleans issued notes due in three years in satisfaction of its affiliate prepetition accounts payable (approximately $74 million, including interest), including its indebtedness to the Entergy System money pool. Entergy New Orleans included in the principal amount of the notes accrued interest from September 23, 2005 at the Louisiana judicial rate of interest for 2005
41
(6%) and 2006 (8%), and at the Louisiana judicial rate of interest plus 1% for 2007 through the date of issuance of the notes. The Louisiana judicial rate of interest is 9.5% for 2007. Entergy New Orleans will pay interest on the notes from their date of issuance at the Louisiana judicial rate of interest plus 1%.
Entergy New Orleans Debtor-in-Possession Credit Facility
See Note 4 in the Form 10-K for a discussion of the Entergy New Orleans $200 million debtor-in-possession (DIP) credit facility. Pursuant to the terms of its plan of reorganization, which became effective in May 2007, Entergy New Orleans fully repaid its DIP credit facility borrowings.
NOTE 5. ACQUISITIONS
In 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 net cash payment of $336 million. Entergy received the plant, nuclear fuel, inventories, and other assets. The liability to decommission the plant, as well as related decommissioning trust funds, 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 the 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. As part of the transaction, Entergy's Non-Utility Nuclear business assumed responsibility for spent fuel at the decommissioned Big Rock Point nuclear plant, which is located near Charlevoix, Michigan. Palisades' financial results since April 2007 are included in Entergy's Non-Utility Nuclear business segment. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.
| Amount | ||
|
| (In | |
|
|
|
|
| $727 | ||
Decommissioning trust funds | 252 | ||
Other assets | 41 | ||
Total assets acquired |
|
| |
|
|
| |
| |||
|
|
|
The following long-term debt was retired by Entergy in 2006:
|
| ||
| |||
| |||
| |||
|
|
| |
|
|
| |
|
|
| |
|
|
|
Entergy Mississippi used the proceeds from the January 2006 issuance to purchase the Attala power plant from Central Mississippi Generating Company, LLC and to repay short-term indebtedness.
Entergy Arkansas used the proceeds from the June 2006 issuance to redeem, prior to maturity, the $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.
44
NOTE 5. PREFERRED STOCK
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 September 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:
|
| |
| 420 | |
Decommissioning liability | 220 | |
Other liabilities | 44 | |
Total liabilities assumed | 684 | |
Net assets acquired | $ | |
|
| |
|
| |
|
| |
|
|
In June 2006, Entergy Louisiana Holdings redeemed allThe allocation was based on preliminary information and the final allocation may differ, although management does not expect the difference to be material.
Non-Utility Nuclear will amortize the purchased power agreement liability to revenue over the life of its preferred stock and amended its charter to eliminate authority to issue any future series of preferred stock.the agreement. The redemption was madeamount that will be amortized each period is based upon the difference between the present value calculated at the following respective redemption prices as provided indate of acquisition of each year's difference between revenue under the Entergy Louisiana Holdings amendedagreement and restated articles of incorporation:revenue based on estimated market prices. The amounts to be amortized to revenue for the next five years will be $50 million for 2007, $76 million for 2008, $53 million for 2009, $46 million for 2010, and $43 million for 2011.
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
42
NOTE 6. STOCK-BASED COMPENSATION PLANS
Entergy grants equity-based awards including, but not limited to, stock options,option awards, 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 effect 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 stock, net of related tax effects, for the third quarter 2006 and nine months ended September 30, 2006 is $2.0 million and $5.7 million, respe ctively. Stock-based compensation expense included in earnings applicable to common stock, net of related tax effects, for the third quarter 2005 and nine months ended September 30, 2005 is $2.0 million and $5.8 million, respectively.
45The following table includes financial information for stock options for each of the years presented:
2007 | 2006 | ||
(In Millions) | |||
Compensation expense included in Entergy's Net Income for the second quarter | $3.9 | $3.2 | |
Tax benefit recognized in Entergy's Net Income for the second quarter | $1.5 | $1.2 | |
Compensation expense included in Entergy's Net Income for the six months ended June 30, | $7.1 | $6.0 | |
Tax benefit recognized in Entergy's Net Income for the six months ended June 30, | $2.7 | $2.3 | |
Compensation cost capitalized as part of fixed assets and inventory as of June 30, | $1.2 | $1.1 |
Entergy granted 1,854,900 stock options during the first quarter of 2007 with a weighted-average fair value of $14.15. At June 30, 2007, there were 11,215,584 stock options outstanding with a weighted-average exercise price of $57.88. The aggregate intrinsic value of the stock options outstanding was $555 million.
NOTE 7. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS
Components of Net Pension Cost
Entergy's qualified pension cost, including amounts capitalized, for the thirdsecond 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 |
| $20,250 |
| $24,141 |
| $23,176 |
Interest cost on projected benefit obligation |
| 41,814 |
| 40,254 |
| 46,292 |
| 41,814 |
Expected return on assets |
| (44,482) |
| (40,989) |
| (50,880) |
| (44,482) |
Amortization of transition asset |
| - |
| (165) | ||||
Amortization of prior service cost |
| 1,365 |
| 1,125 |
| 1,383 |
| 1,365 |
Amortization of loss |
| 10,931 |
| 10,497 |
| 11,444 |
| 10,931 |
Net pension costs |
| $32,804 |
| $30,972 |
| $32,380 |
| $32,804 |
43
Entergy's qualified pension cost, including amounts capitalized, for the ninesix months ended SeptemberJune 30, 20062007 and 2005,2006, included the following components:
|
| 2006 |
| 2005 |
| 2007 |
| 2006 |
|
| (In Thousands) |
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
Service cost - benefits earned during the period |
| $69,529 |
| $62,271 |
| $48,038 |
| $46,352 |
Interest cost on projected benefit obligation |
| 125,443 |
| 115,222 |
| 92,154 |
| 83,628 |
Expected return on assets |
| (133,447) |
| (118,552) |
| (101,506) |
| (88,964) |
Amortization of transition asset |
| - |
| (497) | ||||
Amortization of prior service cost |
| 4,096 |
| 3,736 |
| 2,766 |
| 2,730 |
Amortization of loss |
| 32,790 |
| 25,109 |
| 22,888 |
| 21,862 |
Net pension costs |
| $98,411 |
| $87,289 |
| $64,340 |
| $65,608 |
The Registrant Subsidiaries' qualified pension cost, including amounts capitalized, for the second quarters of 2007 and 2006, included the following components:
|
| 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 |
44
The Registrant Subsidiaries' qualified pension cost, including amounts capitalized, for the six months ended June 30, 2007 and 2006, included the following components:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2007 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $7,276 |
| $6,022 |
| $4,462 |
| $2,178 |
| $940 |
| $2,042 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 20,996 |
| 16,278 |
| 12,502 |
| 6,742 |
| 2,520 |
| 3,420 |
Expected return on assets |
| (22,018) |
| (21,500) |
| (15,616) |
| (7,674) |
| (2,892) |
| (4,272) |
Amortization of prior service cost |
| 824 |
| 608 |
| 320 |
| 228 |
| 88 |
| 24 |
Amortization of loss |
| 5,442 |
| 1,246 |
| 2,866 |
| 1,498 |
| 736 |
| 302 |
Net pension cost |
| $12,520 |
| $2,654 |
| $4,534 |
| $2,972 |
| $1,392 |
| $1,516 |
|
| 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 recognized $5.2$4.0 million and $4.1$3.9 million in pension cost for its non-qualified pension plans in the thirdsecond quarters of 20062007 and 2005,2006, respectively. Entergy recognized $13.1$8.0 million and $12.2$7.8 million in pension cost for its non-qualified pension plans for the ninesix months ended SeptemberJune 30, 20062007 and 2005,2006, respectively.
The Registrant Subsidiaries recognized the following pension cost for their non-qualified pension plans in the second quarters of 2007 and 2006:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
|
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
|
|
| (In Thousands) | |||||||||
Non-Qualified Pension Cost |
| $123 |
| $317 |
| $6 |
| $44 |
| $57 |
|
Non-Qualified Pension Cost |
| $113 |
| $220 |
| $5 |
| $36 |
| $54 |
|
45
The Registrant Subsidiaries recognized the following pension cost for their non-qualified pension plans for the six months ended June 30, 2007 and 2006:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
|
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
|
|
| (In Thousands) | |||||||||
Non-Qualified Pension Cost Six |
| $246 |
| $634 |
| $12 |
| $88 |
| $114 |
|
Non-Qualified Pension Cost Six |
| $226 |
| $439 |
| $11 |
| $73 |
| $107 |
|
Components of Net Other Postretirement Benefit Cost
Entergy's other postretirement benefit cost, including amounts capitalized, for the thirdsecond 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 |
| $9,447 |
| $11,034 |
| $10,370 |
Interest cost on APBO |
| 14,316 |
| 12,441 |
| 15,808 |
| 14,316 |
Expected return on assets |
| (4,756) |
| (4,338) |
| (6,325) |
| (4,756) |
Amortization of transition obligation |
| 542 |
| 345 |
| 958 |
| 542 |
Amortization of prior service cost |
| (3,688) |
| (4,881) |
| (3,959) |
| (3,688) |
Amortization of loss |
| 5,698 |
| 5,877 |
| 4,743 |
| 5,698 |
Net other postretirement benefit cost |
| $22,482 |
| $18,891 |
| $22,259 |
| $22,482 |
46
Entergy's other postretirement benefit cost, including amounts capitalized, for the ninesix months ended SeptemberJune 30, 20062007 and 2005,2006, included the following components:
|
| 2006 |
| 2005 |
| 2007 |
| 2006 |
|
| (In Thousands) |
| (In Thousands) | ||||
|
|
|
|
|
|
|
|
|
Service cost - benefits earned during the period |
| $31,110 |
| $27,863 |
| $21,927 |
| $20,740 |
Interest cost on APBO |
| 42,947 |
| 39,443 |
| 31,494 |
| 28,632 |
Expected return on assets |
| (14,268) |
| (13,065) |
| (12,585) |
| (9,512) |
Amortization of transition obligation |
| 1,627 |
| 3,025 |
| 1,916 |
| 1,084 |
Amortization of prior service cost |
| (11,063) |
| (8,859) |
| (7,918) |
| (7,376) |
Amortization of loss |
| 17,092 |
| 16,421 |
| 9,486 |
| 11,396 |
Net other postretirement benefit cost |
| $67,445 |
| $64,828 |
| $44,320 |
| $44,964 |
46
The Registrant Subsidiaries' other postretirement benefit cost, including amounts capitalized, for the second quarters of 2007 and 2006, included the following components:
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System | |
2007 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $1,525 |
| $1,547 |
| $973 |
| $476 |
| $255 |
| $451 |
Interest cost on APBO |
| 3,037 |
| 2,876 |
| 1,941 |
| 1,049 |
| 870 |
| 433 |
Expected return on assets |
| (2,231) |
| (1,697) |
| - |
| (819) |
| (682) |
| (470) |
Amortization of transition obligation |
| 205 |
| 151 |
| 96 |
| 88 |
| 416 |
| 2 |
Amortization of prior service cost |
| (197) |
| 218 |
| 117 |
| (62) |
| 90 |
| (283) |
Amortization of loss |
| 1,500 |
| 793 |
| 764 |
| 613 |
| 282 |
| 149 |
Net other postretirement benefit cost |
| $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 |
The Registrant Subsidiaries' other postretirement benefit cost, including amounts capitalized, for the six months ended June 30, 2007 and 2006, included the following components:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2007 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $3,050 |
| $3,094 |
| $1,946 |
| $952 |
| $510 |
| $902 |
Interest cost on APBO |
| 6,074 |
| 5,752 |
| 3,882 |
| 2,098 |
| 1,740 |
| 866 |
Expected return on assets |
| (4,462) |
| (3,394) |
| - |
| (1,638) |
| (1,364) |
| (940) |
Amortization of transition obligation |
| 410 |
| 302 |
| 192 |
| 176 |
| 832 |
| 4 |
Amortization of prior service cost |
| (394) |
| 436 |
| 234 |
| (124) |
| 180 |
| (566) |
Amortization of loss |
| 3,000 |
| 1,586 |
| 1,528 |
| 1,226 |
| 564 |
| 298 |
Net other postretirement benefit cost |
| $7,678 |
| $7,776 |
| $7,782 |
| $2,690 |
| $2,462 |
| $564 |
47
|
| 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 |
Employer Contributions
Entergy previously disclosed in the Form 10-K that it expectedexpects 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). Due to the Pension Protection Act, described below, Entergy has revised its 2006 contributions to $318 million.2007. As of the end of October 2006,July 2007, Entergy hashad contributed the $318$153 million to its pension plans. Therefore, Entergy presently anticipates contributing an additional $23 million to fund its qualified pension plans in 2007.
The Pension Protection Act of 2006 was signed byRegistrant Subsidiaries expect to contribute the President on August 17, 2006. The intent of the legislation isfollowing to require companies to fund 100% of theirqualified pension liability; and then for companies to fund, on a going-forward basis, an amount generally estimated to be the amount that the pension liability increases each year due to an additional year of service by the employees eligible for pension benefits. The legislation requires that funding shortfalls be eliminated by companies over a seven-year period, beginningplans in 2008.2007:
The Pension Protection Act also extended the provisions of the Pension Funding Equity Act that would have expired in 2006 had the Pension Protection Act not been enacted, which increased the allowed discount rate used to calculate the pension funding liability. The latter provision reduced Entergy's 2006 expected pension contributions by approximately $31 million.
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System | |
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Expected 2007 pension contributions |
|
|
|
|
|
|
|
|
|
|
|
|
Pension contributions made through |
| $ - |
|
|
|
|
| $ - |
| $43,585 |
| $5,419 |
Remaining estimated pension |
| $6,987 |
| $ - |
|
|
| $784 |
| $ - |
| $269 |
Entergy is in the process of evaluating the effects of the new legislation, but expects that the implementation of the Pension Protection Act will not result in annual pension contributions going-forward that are materially higher than the levels required in 2005 and 2006.
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act)
Based on actuarial analysis, the estimated effectimpact of future Medicare subsidies reduced the December 31, 20052006 Accumulated Postretirement Benefit Obligation by $176$183 million, and reduced the thirdsecond quarter 20062007 and 20052006 other postretirement benefit cost by $6.9$6.6 million and $5.7$6.9 million, respectively. It reduced the ninesix months ended SeptemberJune 30, 20062007 and 20052006 other postretirement benefit cost by $20.8$13.2 million and $18.6$13.9 million, respectively. In the third quarter 2006,six months ended June 30, 2007, Entergy received $1.8$1.7 million in Medicare subsidies for prescription drug claims through Juneduring 2006. Refer
48
Based on actuarial analysis, the estimated impact of future Medicare subsidies reduced the December 31, 2006 APBO and the second quarters 2007 and 2006 other postretirement benefit cost for 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 second quarter 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
other postretirement benefit cost |
| ($1,376) |
| ($1,222) |
| ($762) |
| ($438) |
| ($311) |
| ($246) |
Reduction in second quarter 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
other postretirement benefit cost |
| ($1,562) |
| ($1,332) |
| ($865) |
| ($512) |
| ($376) |
| ($268) |
Reduction in six months ended |
|
|
|
|
| |||||||
June 30, 2007 other | ||||||||||||
postretirement benefit cost | ($2,752) |
| ($2,444) |
| ($1,524) |
| ($876) |
| ($622) |
| ($492) | |
Reduction in six months ended |
|
|
|
|
| |||||||
June 30, 2006 other | ||||||||||||
postretirement benefit cost | ($3,124) | ($2,664) | ($1,730) | ($1,024) | ($752) | ($536) | ||||||
Medicare subsidies received in the | ||||||||||||
six months ended June 30, 2007 | ||||||||||||
for 2006 claims | $484 |
| $402 |
| $248 |
| $142 |
| $146 |
| $30 |
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.
47
NOTE 8. BUSINESS SEGMENT INFORMATION
Entergy's reportable segments as of SeptemberJune 30, 20062007 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 reportingreported Entergy New Orleans results under the equity method of accounting in the Utility segment.segment in 2006 and 2005. On May 7, 2007, the bankruptcy judge entered an order confirming Entergy New Orleans' plan of reorganization. With confirmation of the plan of reorganization, Entergy reconsolidated Entergy New Orleans in the second quarter 2007, retroactive to January 1, 2007.
49
Entergy's segment financial information for the second quarters of 2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
| |
(In Thousands) | ||||||||||
2007 |
|
|
|
|
|
|
|
|
| |
Operating Revenues | $2,238,555 |
| $471,521 |
| $65,817 |
| ($6,541) |
| $2,769,352 | |
Equity in earnings of |
|
|
|
|
| |||||
unconsolidated equity affiliates | $- |
| $- |
| $477 |
| $- |
| $477 | |
Income Taxes (Benefit) | $98,460 |
| $63,929 |
| ($55,938) |
| $- |
| $106,451 | |
Net Income | $148,194 |
| $108,726 |
| $10,682 |
| $- |
| $267,602 | |
|
|
|
|
|
|
| ||||
2006 |
|
|
|
|
|
|
|
|
| |
Operating Revenues | $2,191,891 |
| $362,363 |
| $82,785 |
| ($8,537) |
| $2,628,502 | |
Equity in earnings (loss) of |
|
|
|
|
| |||||
unconsolidated equity affiliates | $10,682 |
| $- |
| ($2,199) |
| $- |
| $8,483 | |
Income Taxes (Benefit) | $93,776 |
| $41,331 |
| ($12,206) |
| $- |
| $122,901 | |
Net Income | $199,623 |
| $63,379 |
| $18,883 |
| ($83) |
| $281,802 |
Entergy's segment financial information for the third quarters ofsix months ended June 30, 2007 and 2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
| |
(In Thousands) | ||||||||||
2006 |
|
|
|
|
|
|
|
|
| |
Operating revenues | $2,774,447 |
| $409,431 |
| $77,571 |
| ($6,730) |
| $3,254,719 | |
Equity in earnings of |
|
|
|
| 7,436 |
|
|
|
| |
Income taxes | 141,009 |
| 57,494 |
| 3,934 |
| - |
| 202,437 | |
Income (loss) from continuing | 295,989 | 106,898 | (6,269) | 126 | 396,744 | |||||
Loss from discontinued |
|
|
|
|
| |||||
Net income (loss) | 295,989 |
| 106,898 |
| (7,319) |
| 126 |
| 395,694 | |
|
|
|
|
|
|
| ||||
2005 |
|
|
|
|
|
|
|
|
| |
Operating revenues | $2,503,000 |
| $360,777 |
| $56,601 |
| ($22,120) |
| $2,898,258 | |
Equity in earnings of |
|
|
|
|
|
|
|
|
| |
Income taxes (benefit) | 185,594 |
| 41,018 |
| (4,532) |
| - |
| 222,080 | |
Income (loss) from continuing | 304,459 | 69,253 | (10,293) | 77 | 363,496 | |||||
Loss from discontinued operations |
|
|
|
|
| |||||
Net income (loss) | 304,459 |
| 69,253 |
| (17,401) |
| 77 |
| 356,388 |
48
Entergy's segment financial information for the nine months ended September 30, 2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
(In Thousands) | |||||||||
2006 |
|
|
|
|
|
|
|
|
|
Operating revenues | $7,097,362 |
| $1,159,803 |
| $227,043 |
| ($32,954) |
| $8,451,254 |
Equity in earnings of |
|
|
|
| 3,182 |
|
|
|
|
Income taxes (benefit) | 311,760 |
| 151,742 |
| (19,332) |
| - |
| 444,170 |
Income (loss) from continuing | 629,464 | 251,806 | (4,174) | 10 | 877,106 | ||||
Income from discontinued |
|
|
|
|
| ||||
Net income | 629,464 |
| 251,806 |
| 5,656 |
| 10 |
| 886,936 |
Total assets | 24,751,827 |
| 5,230,065 |
| 2,851,702 |
| (2,275,940) |
| 30,557,654 |
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
Operating revenues | $6,289,865 |
| $1,052,058 |
| $170,020 |
| ($58,112) |
| $7,453,831 |
Equity in earnings of |
|
|
|
| 1,967 |
|
|
|
|
Income taxes (benefit) | 363,212 |
| 127,164 |
| (24,204) |
| - |
| 466,172 |
Income from continuing operations | 617,745 | 205,495 | 15,331 | 30 | 838,601 | ||||
Loss from discontinued operations |
|
|
|
|
| ||||
Net income | 617,745 |
| 205,495 |
| 4,045 |
| 30 |
| 827,315 |
Total assets | 24,243,609 |
| 4,893,308 |
| 3,629,739 |
| (2,799,914) |
| 29,966,742 |
|
|
|
|
| |||||
(In Thousands) | |||||||||
2007 |
|
|
|
|
|
|
|
|
|
Operating Revenues | $4,435,654 |
| $929,772 |
| $110,865 |
| ($12,880) |
| $5,463,411 |
Equity in earnings (loss) of |
|
|
|
|
| ||||
unconsolidated equity affiliates | ($1) |
| $- |
| $2,102 |
| $- |
| $2,101 |
Income Taxes (Benefit) | $179,152 |
| $148,664 |
| ($75,299) |
| $- |
| $252,517 |
Net Income (Loss) | $252,644 |
| $236,896 |
| ($9,743) |
| $- |
| $479,797 |
Total Assets | $26,244,883 | $6,649,467 | $10,814,538 | ($10,294,161) | $33,414,727 | ||||
|
|
|
|
|
|
| |||
2006 |
|
|
|
|
|
|
|
|
|
Operating Revenues | $4,322,913 |
| $750,372 |
| $149,476 |
| ($26,224) |
| $5,196,537 |
Equity in earnings (loss) of |
|
|
|
|
| ||||
unconsolidated equity affiliates | $16,325 |
| $- |
| ($4,255) |
| $- |
| $12,070 |
Income Taxes (Benefit) | $170,749 |
| $94,248 |
| ($23,265) |
| $- |
| $241,732 |
Net Income | $319,375 |
| $144,908 |
| $11,263 |
| ($115) |
| $475,431 |
Total Assets | $24,763,451 | $5,138,175 | $3,127,773 | ($2,465,726) | $30,563,673 |
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. Almost all of Entergy's goodwill is related to the Utility segment.
In April 2006, Entergy sold the retail electric portion of the Competitive Retail Services business operating in the ERCOT region of Texas, and now reports this portion of the business as a discontinued operation. Entergy realized a $26.3 million gain ($17.1 million net-of-tax) on the sale.50
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.
Following are significant terms in Entergy New Orleans and report it under the equity methodOrleans' plan of accounting. Entergy's income statement for the three and nine months ended September 30, 2006 includes $48 million and $177 million, respectively, in operating revenues and $19 million and $30 million, respectively, in purchased power expenses from transactions between reorganization:
(Entergy Corporation)
As discussedWith confirmation of the plan of reorganization, Entergy reconsolidated 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 Orleansreconsolidation does not affect the amount of net income that Entergy records resulting from Entergy New Orleans' operations.operations for any current or prior period, but does 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.
49(Entergy New Orleans)
Reorganization items reported as operating expenses in 2006 in the Entergy New Orleans income statement primarily consist of professional fees associated with the bankruptcy case.
51
NOTE 10. ACCOUNTING POLICY UPDATE
Revenue and Fuel CostsINCOME TAXES
Entergy recognizes revenueor one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. With few exceptions, as discussed below, 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 entered into an agreement with the IRS Appeals Division in the second quarter 2007 to partially settle tax years 1999 - 2001. Entergy will litigate the following issues that it is not settling:
The U.K. Windfall Tax and street lighting issues are already docketed in U.S. Tax Court for tax years 1997 and 1998 with a trial date set in the first quarter of 2008.
The IRS completed its examination of the 2002 and 2003 tax returns and issued an Examination Report on June 29, 2007. During the examination, Entergy agreed to adjustments related to its method of accounting for income tax purposes related to 1) its wholesale electric power contracts and gas sales when it delivers2) the simplified method of allocating overhead or "mixed service costs" provided for under IRS regulations, which affects the amount of cost of goods sold related to the production of electricity.
Entergy's agreement with the IRS on electric power or gascontracts involved an adjustment to reduce Entergy Louisiana Holdings' deduction related to its customers. Toaccounting for the extentcontract to purchase power from the Vidalia hydroelectric project. The adjustment did not have a material impact on Entergy Louisiana Holdings' earnings. The agreement on overhead allocation methodology related to the Registrant Subsidiaries' 2003 filing of a change in tax accounting method for the allocation of "mixed service costs" to self-produced assets. Entergy reached a settlement agreement concerning the Registrant Subsidiaries' deductions related to the method change for the year ended December 31, 2003. As Entergy has a consolidated net operating loss for 2003, these adjustments have the effect of reducing the consolidated net operating loss carryover and do not require a payment to the IRS at this time. The settlement did not have a material impact on the Registrant Subsidiaries' earnings.
In the report for the 2002-2003 audit cycle, the IRS also proposed adjustments which Entergy did not agree to as follows: 1) the U.K. Windfall Tax foreign tax credit issue mentioned above; 2) the street lighting issue mentioned above; 3) certain repair deductions; 4) deductions claimed for research and experimentation (R&E) expenditures; 5) income tax credits claimed for R&E; and 6) a 2003 deduction associated with the revisions to the emergency plans at the Indian Point Energy Center. Regarding all of these issues, Entergy disagrees with the IRS Examination Division position and will file a formal protest with the IRS and will pursue administrative relief within the IRS Appeals Division.
Entergy believes that deliveries have occurred but a bill has not been issued, the domestic utility companies accrueprovisions recorded in its financial statements are sufficient to address these issues as well as other liabilities that are reasonably estimable, including 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. Changes are made to the inputs in the estimate as needed to reflect changes in billing practices. Modifications made to the billing system in the third quarter 2006 provide better information related to the amount of generation that remains unbilled at the end of each month. Accordingly, the domestic utility companies refined the calculation of unbilled revenue to reflect this additional information. This refinement added $25.7 million to unbilled revenue in the third quarter 2006. 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 reversed.probable interest expense, associated with all uncertain tax positions.
Prior52
Entergy has $202 million in deposits on account with the IRS 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.
Recently Issued Accounting Pronouncementscover its uncertain tax positions.
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for Entergy in the first quarter of 2007. The FASB's objective in issuing this interpretation is to increase comparability among companies in financial reporting of income taxes.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 doesand 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 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 interes t and penalties.
As of January 1, 2007, Entergy and the Registrant Subsidiaries had total balances of unrecognized tax benefits 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 included amounts that 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 |
53
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 adoptionnext twelve months.
NOTE 11. NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued Statement of FIN 48 will materially affect itsFinancial 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 position, resultsassets and liabilities to be accounted for at fair value with changes in the fair value of operations,those assets or cash flows.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 SeptemberJune 2006, FASB issued SFAS 158, "Employers' Accounting for Defined Benefit Pensionthe EITF reached a consensus on EITF Issue 06-3 "How Taxes Collected from Customers and Other Postretirement Plans,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 amendmentaccounting policy decision that should be disclosed. For any such taxes reported on a gross basis, the amounts of FASB Statements Nos. 87, 88, 106those taxes in interim and 132(R)," to be effective December 31, 2006. SFAS 158 requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet with the offset recorded to other comprehensive income. Entergy has previously disclosed its funded status in Note 10 to the consolidatedannual financial statements, in the Form 10-K. SFAS 158 also requires that changes in that funded statusfor each period for which an income statement is presented, should be recorded in other comprehensive income in the period in which the changes occur.disclosed if those amounts are significant. Entergy's Utility business, with the exception of the Louisiana jurisdictions which provide for recovery of other postretirement benefit costspol icy is to present such taxes on a pay as you gonet basis, is generally allowedunless required to recover pension and other postretirement benefit costs each period based upon costs calculated und er SFAS 87 and SFAS 106. Entergy's analysis, including the regulatory accounting requirements to support recording the majority of the effect of adoption of SFAS 158 asreport differently by a regulatory asset, isagency. EITF 06-3 did not yet complete. Entergy does not expect the implementation of this standard, however, to materially affect Entergy's financial position or results of operations.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.
5054
Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk
Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends- Market and Credit Risk Sensitive InstrumentsOF ENTERGY CORPORATION AND SUBSIDIARIES."
Part I, Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of June 30, 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 (each individually a "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 Commission 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.
55
ENTERGY ARKANSAS, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
Net Income
ThirdSecond Quarter 20062007 Compared to ThirdSecond Quarter 20052006
Net income decreased slightly$25.1 million primarily due to a higher effective income tax rate and higher other operation and maintenance expenses, lower net revenue, and lower other income, substantiallyexpenses. The decrease was partially offset by a lower effective income tax rate.higher net revenue.
NineSix Months Ended SeptemberJune 30, 20062007 Compared to NineSix Months Ended SeptemberJune 30, 20052006
Net income remained relatively unchanged, increasing $0.9decreased $25.2 million in 2006.primarily due to a higher effective income tax rate and higher other operation and maintenance expenses. The decrease was partially offset by higher net revenue.
Net Revenue
ThirdSecond Quarter 20062007 Compared to ThirdSecond Quarter 20052006
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 charges (credits).credits. Following is an analysis of the change in net revenue comparing the thirdsecond quarter of 20062007 to the thirdsecond quarter of 2005.2006.
|
| Amount |
|
| (In Millions) |
|
|
|
|
| $ |
Pass-through rider revenue |
| |
|
| |
Volume/weather | (5.4) | |
Other |
|
|
|
| $ |
The pass-through rider revenue variance is primarily due to a change in August 2006 in the accounting for city franchise tax revenues as directed by the APSC. The change results in an increase in rider revenue with a corresponding increase in taxes other than income taxes resulting in no effect on net income.
The net wholesaletransmission revenue variance is primarily due to an October 2006 FERC order requiring Entergy Arkansas to make a refund to a coal plant co-owner as a resulthigher rates and the addition of a contract dispute. Refer to Note 2new transmission customers in 2006.
The volume/weather variance is primarily due to the domestic utility companies and System Energy financial statements for further discussioneffect of less favorable weather compared to the FERC's decision.same period in 2006. Billed retail electricity usage decreased by a total of 110 GWh.
Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)56
Gross operating revenues increasedand fuel and purchased power expenses
Gross operating revenues decreased primarily due to:
51
The increase was partially offset by:
Fuel and purchased power expenses increased primarily due to an increase in the recovery from customers of deferred fuel costs.
Other regulatory charges decreased primarily due to:
NineSix Months Ended SeptemberJune 30, 20062007 Compared to NineSix Months Ended SeptemberJune 30, 20052006
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 charges (credits).credits. Following is an analysis of the change in net revenue comparing the ninesix months ended SeptemberJune 30, 20062007 to the ninesix months ended SeptemberJune 30, 2005.2006.
|
| Amount |
|
| (In Millions) |
|
|
|
|
| $ |
Pass-through rider revenue |
| |
|
| |
|
| |
Deferred fuel | 8.6 | |
| 3.9 | |
Net wholesale revenue | (7.9) | |
Other |
|
|
|
| $ |
The pass-through rider revenue variance is primarily due to a change in August 2006 in the accounting for city franchise tax revenues as directed by the APSC. The change results 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 nine months ended September 30, 2006 compared to the nine months ended September 30, 2005. Billed electricity usage increased a total of 552 GWh in all sectors.
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 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.
52The transmission revenue variance is due to higher rates and the addition of new transmission customers in 2006.
Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)
Gross operating revenues increased primarily due to:
Fuel and purchased power expenses increasedvariance is primarily due to an increase in the recoverydecreased results from customers of deferred fuel costs.wholesale contracts and lower wholesale prices.
Other regulatory charges decreased primarily due to:
Other Income Statement Variances
ThirdSecond Quarter 20062007 Compared to ThirdSecond Quarter 20052006
Other operation and maintenance expenses increased primarily due to:
57
Taxes other than income taxes increased primarily due to an increase in city franchise tax expense due to a change in August 2006 in 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.
Other income decreased primarily due to proceeds of $4.9 million received in 2005 from the radwaste settlement which is discussed in "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - - Central States Compact Claim" in the Form 10-K.
53
NineSix Months Ended SeptemberJune 30, 20062007 Compared to NineSix Months Ended SeptemberJune 30, 20052006
Other operation and maintenance expenses increased primarily due to:
Partially offsetting the increase in customer write-offs;
Taxes other than income taxes increased primarily due to an increase in city franchise tax expense due to a change in August 2006 in 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.
Other income decreasedincreased primarily due to proceeds of $4.9 million received in 2005 from the radwaste settlement which is discussed in "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - - Central States Compact Claim"a revision in the Form 10-K.first quarter of 2007 to the allowance for equity funds used during construction related to removal costs.
Interest and other charges increased primarily due to interest expense of $3.6 million recorded in the six months ended June 30, 2007 on advances from independent power producers per a FERC order, partially offset by a revision to the estimate of allowance for borrowed funds used during construction related to removal costs.
Income Taxes
The effective income tax ratesrate was 36.8% for the third quarterssecond quarter of 20062007 and 2005 were 13.8% and 37.4%, respectively. The effective income tax rates41.3% for the ninesix months ended SeptemberJune 30, 2006 and 2005 were 19.7% and 36.9%, respectively.2007. The difference in the effective income tax rate for the thirdsecond quarter of 2006 and the nine months ended September 30, 20062007 versus the federal statutory rate of 35.0% is primarily due to the flow-through of a pension item. The difference in the effective incomebook and tax rate for the third quarter of 2005 versus the federal statutory rate of 35.0% is primarily duedifferences related to utility plant items and state income taxes, partially offset by book and tax differences related to utility plant items and the amortization of investment tax credits.allowance for equity funds used during construction. The difference in the effective income tax rate for the ninesix months ended SeptemberJune 30, 20052007 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 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 equity funds used during construction.depreciation.
54The effective income tax rate was 8.9% for the second quarter of 2006 and 25.0% for the six months ended June 30, 2006. The differences in the effective income tax rate for the second quarter of 2006 and the six months ended June 30, 2006 versus the federal statutory rate of 35.0% are primarily due to the flow through of an income tax benefit related to the steam generator removal cost.
58
Liquidity and Capital Resources
Cash Flow
Cash flows for the ninesix months ended SeptemberJune 30, 20062007 and 20052006 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 |
| 379,580 |
| 361,952 | Operating activities |
| 225,125 |
| 225,953 |
| Investing activities |
| (205,230) |
| (312,096) | Investing activities |
| (159,165) |
| (147,364) |
| Financing activities |
| (164,843) |
| (124,746) | Financing activities |
| (33,937) |
| (68,931) |
Net increase (decrease) in cash and cash equivalents |
| 9,507 |
| (74,890) | ||||||
Net increase in cash and cash equivalents | Net increase in cash and cash equivalents |
| 32,023 |
| 9,658 | |||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $18,900 |
| $14,854 | Cash and cash equivalents at end of period |
| $66,838 |
| $19,051 |
Operating Activities
Cash flow from operations increased $17.6 millionwas practically unchanged for the ninesix months ended SeptemberJune 30, 20062007 compared to the ninesix months ended SeptemberJune 30, 2005 primarily due2006. Income tax payments of $18.6 million in 2007 compared to increasedincome tax refunds of $23.5 million in 2006, along with decreased recovery of deferred fuel costs, and income tax refunds of $23.9 million in 2006 compared to income tax payments of $33.8 million in 2005. These increases were partiallyalmost entirely offset by an increasethe timing of $110.5 million in pension contributions.collection of receivables from 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 $106.9increased $11.8 million for the ninesix months ended SeptemberJune 30, 20062007 compared to the ninesix months ended SeptemberJune 30, 20052006 primarily due to a decrease of $107.5 millionincreased construction expenditures resulting from an increase in transmission spending for additional costs for substation and transmission lines. The increase was partially offset by other regulatory investments that resultedin 2006 resulting from fuel cost under-recoveries that have been deferred and are expected to be recovered over a period greater than twelve months.
Financing Activities
Net cash flow used in financing activities increased $40.1decreased $35 million for the ninesix months ended SeptemberJune 30, 20062007 compared to the ninesix months ended SeptemberJune 30, 20052006 primarily due to:
The increase was partially offset by the net retirement of $54.8 million of long-term debt in 2005.
See "Uses and Sources of Capital" below for the details of Entergy Arkansas' preferred stock activity in 2006.
55
Capital Structure
Entergy Arkansas' capitalization is balanced between equity and debt, as shown in the following table.
|
| June 30, |
| December 31, |
|
|
|
|
|
Net debt to net capital |
| 46.3% |
| 47.5% |
Effect of subtracting cash from debt |
| 1.2% |
| 0.6% |
Debt to capital |
| 47.5% |
| 48.1% |
|
| September 30, |
| December 31, |
|
|
|
|
|
Net debt to net capital |
| 46.8% |
| 47.4% |
Effect of subtracting cash from debt |
| 0.3% |
| 0.1% |
Debt to capital |
| 47.1% |
| 47.5% |
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.
59
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.
See the table in the Form 10-K under "Uses of Capital" which sets forth the amounts of Entergy Arkansas' planned construction and other capital investments for 2007 through 2009. In March 2006,July 2007, Entergy Arkansas issued 3,000,000 shares of $25 par value 6.45% Series Preferred Stock. The dividends are cumulativesigned an agreement to purchase for $210 million the Ouachita Power Facility, a 789 MW natural gas-fired, combined-cycle, load-following generating facility located in north Louisiana 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,owned by Ouachita Power, LLC. Entergy Arkansas usedplans to invest approximately $43 million in reliability upgrades. The Ouachita plant will be 100 percent owned by Entergy Arkansas, and the proceedsacquisition is expected to close in 2008. Entergy Arkansas expects to sell to Entergy Gulf States, under a separate agreement, approximately one-third of the output of the Ouachita plant on a long-term basis. The purchase of the plant is contingent upon obtaining necessary approvals, including full cost recovery, from various federal and state regulatory and permitting agencies. The planned capital investments estimate in the Form 10-K included $190 million in 2008 for the estimated cost of an acquisition of this issuance to redeem the following preferred stock:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
type.
In April 2006,2007, Entergy Arkansas renewed its $85 million credit facility through April 30, 2007. The facility is no longer subject to a combined borrowing limit with Entergy Louisiana's credit facility. The $85 million2008 and increased the amount of the credit facility requires that Entergy Arkansas maintain total shareholders' equity of at least 25% of its total assets.to $100 million. There were no outstanding borrowings under the Entergy Arkansas credit facility as of SeptemberJune 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.2007.
Entergy Arkansas' receivables from or (payables to) the money pool were as follows:
September 30, |
| December 31, |
| September 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$19,659 |
| ($27,346) |
| $31,277 |
| $23,561 |
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$26,450 |
| $16,109 |
| $15,567 |
| ($27,346) |
56
The Pension Protection Act of 2006
The Pension Protection Act of 2006 was signed bySee Note 4 to the President on August 17, 2006. The intentfinancial statements in the Form 10-K for a description of the legislation is to require companies to fund 100% of their pension liability; and then for companies to fund, on a going-forward basis, an amount generally estimated to be the amount that the pension liability increases each year due to an additional year of service by the employees eligible for pension benefits. The legislation requires that funding shortfalls be eliminated by companies over a seven-year period, beginning in 2008.
The Pension Protection Act also extended the provisions of the Pension Funding Equity Act that would have expired in 2006 had the Pension Protection Act not been enacted, which increased the allowed discount rate used to calculate the pension funding liability. Entergy Arkansas is in the process of evaluating the effects of the new legislation, but expects that the implementation of the Pension Protection Act will not result in annual pension contributions going-forward that are materially higher than the levels required in 2005 and 2006.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
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 Note 2 to the financial statements in the Form 10-K, along with the investigation that the APSC commenced concerningJune 2007, after hearings on Entergy Arkansas' interim energy cost rate. TheAugust 2006 rate filing requesting an adjusted annual increase inof $106.5 million, 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 railroad 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 did 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 filereduce its annual rates by $5 million, and set an ROE of 9.9% with a costhypothetical common equity level lower than Entergy Arkansas' actual capital structure. For the purpose of service study by June 8, 2006.setting rates, the APSC disallowed a portion of costs associated with incentive compensation based on financial measures and all costs associated with Entergy's stock-based compensation plans. In addition, under the terms of the APSC's order, recovery of storm restoration costs in the future will be limited to a fixed annual amount of $14.4 million, regardless of the actual annual amount of future restoration costs. The APSC's order also directedthreatens Entergy Arkansas' ability to recover $52 million of costs previously accumulated in Entergy Arkansas' storm reserve and $18 million of removal costs associated with the termination of a lease. Management believes, however, that Entergy Arkansas is entitled to file testimonyrecover these prudently incurred costs and will vigorously pursue its right 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.
In June 2006, Entergy Arkansas filed a motion with therecover them. The APSC seeking again to implement the redetermined energy cost rate of $0.02827 per kWh. After a hearing, the APSC approvedrejected 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.
On June 7, 2006, Entergy Arkansas filed a cost of service study and testimony supporting the redetermined energy cost rate and testimony addressing the prospective elimination of the energy cost recovery rider as ordered by the APSC. A hearing was held in the APSC energy cost recovery investigation on October 12, 2006 and post-hearing briefs were filed by Entergy Arkansas, the APSC General Staff, the Arkansas Attorney General, and the Arkansas Electric Energy Consumers. No party recommended termination of the energy cost recovery rider in the fuel cost investigation proceeding. The timing of a decision in this proceeding is uncertain.
57
In August 2006, Entergy Arkansas filed with the APSC a request for a change in base rates. Entergy Arkansas requested a general base rate increase of $150 million (using an ROE of 11.25%), as well as recovery of FERC-allocated costs pursuant to the FERC decision on the System Agreement. Entergy Arkansas also requested a capacity management rider to recover incremental capacity costs. A procedural schedule has been established with hearings expectedcosts, but directed Entergy Arkansas and the other parties in the case to begin in April 2007.develop an annual earnings review process that may address this issue.
60
See Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends -Federal Regulation -System Agreement Litigation" for a discussion of Entergy's compliance filing in that proceeding. IfIn its June 2007 decision on Entergy Arkansas' rate filing, 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 settingAPSC approved through December 31, 2008 a production cost allocation rider for recovery from customers of 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 proposed in the August 2006 base rate case an alternative to the energy cost recovery rider for recoveryportion of the costs allocated to itEntergy Arkansas as a result of the System Agreement litigation shouldlitigation.
Entergy Arkansas filed in July 2007 for rehearing of the APSC's June 2007 order.
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 APSC has taken no action in this proceeding since its March 2007 order.
In its June 2007 order regarding Entergy Arkansas' rate case, the APSC approved the continuation of Entergy Arkansas' energy cost recovery rider be lawfully terminated by the APSC. A separate exact recovery rider, sim ilar to the energy cost recovery rider, would ensure that Entergy Arkansas customers pay only the amount allocated by the FERC.through December 31, 2008.
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 at the FERC,APSC System Agreement Investigation, andMPSC System Agreement Inquiry" for updates regarding proceedings involving the System Agreement.
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"for an update regarding Entergy's ICT proposal.
Available Flowgate Capacity (AFC) Proceeding
See Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -Available Flowgate Capacity Proceeding"Analysis for updates regardingto the AFC proceeding atdiscussion in the FERC.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 Arkansas' accounting for nuclear decommissioning costs, unbilled revenue, and qualified pension and other 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 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.
5861
In September 2006, FASB issued SFAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements Nos. 87, 88, 106 and 132(R)," to be effective December 31, 2006. SFAS 158 requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet with the offset recorded to other comprehensive income. Entergy Arkansas has previously disclosed its funded status in Note 10 to the domestic utility companies and System Energy financial statements in the Form 10-K. SFAS 158 also requires that changes in that funded status be recorded in other comprehensive income in the period in which the changes occur. Entergy Arkansas is generally allowed to recover pension and other postretirement benefit costs each period based upon costs calculated under SFAS 87 and SFAS 106. Entergy Arkansas' analysis, including the regulatory accounting requirements to support recording the majority of the effect of the adoption of this standard as a regulatory asset, is not yet complete. Entergy Arkansas does not expect the implementation of this standard, however, to materially affect its financial position or results of operations.
ENTERGY ARKANSAS, INC. | ||||||||
INCOME STATEMENTS | ||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Six Months Ended | |||||||
2007 | 2006 | 2007 | 2006 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING REVENUES | ||||||||
Electric | $434,027 | $504,223 | $936,765 | $951,845 | ||||
OPERATING EXPENSES | ||||||||
Operation and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | (17,191) | 84,806 | 120,847 | 187,277 | ||||
Purchased power | 193,089 | 167,981 | 309,495 | 286,911 | ||||
Nuclear refueling outage expenses | 7,260 | 7,371 | 14,274 | 14,726 | ||||
Other operation and maintenance | 115,203 | 105,895 | 215,058 | 197,650 | ||||
Decommissioning | 8,134 | 7,608 | 16,134 | 15,091 | ||||
Taxes other than income taxes | 16,251 | 8,982 | 36,234 | 18,602 | ||||
Depreciation and amortization | 56,764 | 54,143 | 112,829 | 106,961 | ||||
Other regulatory credits - net | (9,462) | (8,359) | (14,491) | (13,886) | ||||
TOTAL | 370,048 | 428,427 | 810,380 | 813,332 | ||||
OPERATING INCOME | 63,979 | 75,796 | 126,385 | 138,513 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 1,800 | 1,916 | 7,396 | 3,818 | ||||
Interest and dividend income | 4,150 | 3,998 | 11,733 | 11,673 | ||||
Miscellaneous - net | (601) | (687) | (1,805) | (1,572) | ||||
TOTAL | 5,349 | 5,227 | 17,324 | 13,919 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 19,776 | 19,361 | 39,130 | 38,339 | ||||
Other interest - net | 1,918 | 1,328 | 6,815 | 2,868 | ||||
Allowance for borrowed funds used during construction | (767) | (822) | (3,510) | (1,679) | ||||
TOTAL | 20,927 | 19,867 | 42,435 | 39,528 | ||||
INCOME BEFORE INCOME TAXES | 48,401 | 61,156 | 101,274 | 112,904 | ||||
Income taxes | 17,809 | 5,421 | 41,799 | 28,246 | ||||
NET INCOME | 30,592 | 55,735 | 59,475 | 84,658 | ||||
Preferred dividend requirements and other | 1,718 | 2,085 | 3,437 | 4,123 | ||||
EARNINGS APPLICABLE TO | ||||||||
COMMON STOCK | $28,874 | $53,650 | $56,038 | $80,535 | ||||
See Notes to Financial Statements. | ||||||||
5962
ENTERGY ARKANSAS, INC. | ||||||||
INCOME STATEMENTS | ||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | �� | Nine Months Ended | ||||||
2006 | 2005 | 2006 | 2005 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING REVENUES | ||||||||
Domestic electric | $660,885 | $556,445 | $1,612,730 | $1,373,902 | ||||
OPERATING EXPENSES | ||||||||
Operation and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 130,942 | (25,857) | 318,219 | 57,558 | ||||
Purchased power | 186,758 | 249,023 | 473,669 | 496,554 | ||||
Nuclear refueling outage expenses | 7,509 | 7,256 | 22,235 | 20,592 | ||||
Other operation and maintenance | 120,140 | 91,719 | 317,790 | 283,275 | ||||
Decommissioning | 7,737 | 7,566 | 22,828 | 23,925 | ||||
Taxes other than income taxes | 38,489 | 9,465 | 57,091 | 29,353 | ||||
Depreciation and amortization | 54,547 | 52,022 | 161,508 | 151,822 | ||||
Other regulatory charges (credits) - net | (907) | 8,121 | (14,793) | 4,737 | ||||
TOTAL | 545,215 | 399,315 | 1,358,547 | 1,067,816 | ||||
OPERATING INCOME | 115,670 | 157,130 | 254,183 | 306,086 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 2,242 | 511 | 6,060 | 7,961 | ||||
Interest and dividend income | 4,972 | 9,490 | 16,645 | 18,860 | ||||
Miscellaneous - net | (784) | (598) | (2,356) | (1,277) | ||||
TOTAL | 6,430 | 9,403 | 20,349 | 25,544 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 19,394 | 19,002 | 57,733 | 59,752 | ||||
Other interest - net | 650 | 2,947 | 3,518 | 5,171 | ||||
Allowance for borrowed funds used during construction | (960) | (2,943) | (2,639) | (6,679) | ||||
TOTAL | 19,084 | 19,006 | 58,612 | 58,244 | ||||
INCOME BEFORE INCOME TAXES | 103,016 | 147,527 | 215,920 | 273,386 | ||||
Income taxes | 14,204 | 55,159 | 42,450 | 100,797 | ||||
NET INCOME | 88,812 | 92,368 | 173,470 | 172,589 | ||||
Preferred dividend requirements and other | 1,718 | 1,944 | 5,841 | 5,832 | ||||
EARNINGS APPLICABLE TO | ||||||||
COMMON STOCK | $87,094 | $90,424 | $167,629 | $166,757 | ||||
See Notes to Respective Financial Statements. | ||||||||
60
ENTERGY ARKANSAS, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Nine Months Ended September 30, 2006 and 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $173,470 | $172,589 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Reserve for regulatory adjustments | 21,323 | - - | ||
Other regulatory charges (credits) - net | (14,793) | 4,737 | ||
Depreciation, amortization, and decommissioning | 184,336 | 175,747 | ||
Deferred income taxes and investment tax credits | (105,087) | 38,755 | ||
Changes in working capital: | ||||
Receivables | (70,335) | (79,907) | ||
Fuel inventory | (5,389) | (4,728) | ||
Accounts payable | (28,836) | 29,891 | ||
Taxes accrued | 168,985 | 23,821 | ||
Interest accrued | 3,521 | 1,814 | ||
Deferred fuel costs | 144,778 | 1,537 | ||
Other working capital accounts | 11,967 | 3,088 | ||
Provision for estimated losses and reserves | (1,396) | (2,749) | ||
Changes in other regulatory assets | (58,208) | 51,251 | ||
Other | (44,756) | (53,894) | ||
Net cash flow provided by operating activities | 379,580 | 361,952 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (183,878) | (196,591) | ||
Allowance for equity funds used during construction | 6,060 | 7,961 | ||
Nuclear fuel purchases | (49,269) | (62,404) | ||
Proceeds from sale/leaseback of nuclear fuel | 49,027 | 62,404 | ||
Proceeds from nuclear decommissioning trust fund sales | 84,126 | 156,167 | ||
Investment in nuclear decommissioning trust funds | (91,168) | (163,923) | ||
Change in money pool receivable - net | (19,659) | (7,716) | ||
Other regulatory investments | (469) | (107,994) | ||
Net cash flow used in investing activities | (205,230) | (312,096) | ||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of long-term debt | - - | 272,702 | ||
Retirement of long-term debt | - - | (327,516) | ||
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 | (128,900) | (64,100) | ||
Preferred stock | (6,067) | (5,832) | ||
Net cash flow used in financing activities | (164,843) | (124,746) | ||
Net increase (decrease) in cash and cash equivalents | 9,507 | (74,890) | ||
Cash and cash equivalents at beginning of period | 9,393 | 89,744 | ||
Cash and cash equivalents at end of period | $18,900 | $14,854 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid/(received) during the period for: | ||||
Interest - net of amount capitalized | $48,682 | $56,332 | ||
Income taxes | ($23,883) | $33,766 | ||
See Notes to Respective Financial Statements. |
61
ENTERGY ARKANSAS, INC. | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
September 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $10,095 | $9,393 | ||
Temporary cash investments - at cost, | ||||
which approximates market | 8,805 | - - | ||
Total cash and cash equivalents | 18,900 | 9,393 | ||
Accounts receivable: | ||||
Customer | 146,871 | 115,321 | ||
Allowance for doubtful accounts | (14,237) | (15,777) | ||
Associated companies | 73,967 | 30,902 | ||
Other | 70,025 | 63,702 | ||
Accrued unbilled revenues | 75,944 | 68,428 | ||
Total accounts receivable | 352,570 | 262,576 | ||
Deferred fuel costs | 59,873 | 153,136 | ||
Accumulated deferred income taxes | 5,002 | - - | ||
Fuel inventory - at average cost | 17,731 | 12,342 | ||
Materials and supplies - at average cost | 95,105 | 87,875 | ||
Deferred nuclear refueling outage costs | 17,076 | 30,967 | ||
Prepayments and other | 8,296 | 9,628 | ||
TOTAL | 574,553 | 565,917 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 11,206 | 11,206 | ||
Decommissioning trust funds | 422,887 | 402,124 | ||
Non-utility property - at cost (less accumulated depreciation) | 1,447 | 1,449 | ||
Other | 2,976 | 2,976 | ||
TOTAL | 438,516 | 417,755 | ||
UTILITY PLANT | ||||
Electric | 6,481,944 | 6,344,435 | ||
Property under capital lease | 5,969 | 9,900 | ||
Construction work in progress | 166,567 | 139,208 | ||
Nuclear fuel under capital lease | 104,859 | 92,181 | ||
Nuclear fuel | 21,519 | 22,616 | ||
TOTAL UTILITY PLANT | 6,780,858 | 6,608,340 | ||
Less - accumulated depreciation and amortization | 2,974,167 | 2,843,904 | ||
UTILITY PLANT - NET | 3,806,691 | 3,764,436 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 115,187 | 61,236 | ||
Other regulatory assets | 465,152 | 461,015 | ||
Deferred fuel costs | - - | 51,046 | ||
Other | 45,202 | 46,605 | ||
TOTAL | 625,541 | 619,902 | ||
TOTAL ASSETS | $5,445,301 | $5,368,010 | ||
See Notes to Respective Financial Statements. | ||||
62 | ||||
ENTERGY ARKANSAS, INC. | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
September 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Accounts payable: | ||||
Associated companies | $66,376 | $135,357 | ||
Other | 129,454 | 120,090 | ||
Customer deposits | 48,691 | 45,432 | ||
Taxes accrued | 25,623 | - - | ||
Accumulated deferred income taxes | - - | 56,186 | ||
Interest accrued | 22,728 | 19,207 | ||
Obligations under capital leases | 48,295 | 46,857 | ||
Other | 26,024 | 21,836 | ||
TOTAL | 367,191 | 444,965 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 1,265,659 | 1,105,712 | ||
Accumulated deferred investment tax credits | 60,876 | 64,001 | ||
Obligations under capital leases | 62,290 | 55,224 | ||
Other regulatory liabilities | 90,229 | 76,507 | ||
Decommissioning | 464,943 | 442,115 | ||
Accumulated provisions | 27,677 | 29,073 | ||
Long-term debt | 1,304,155 | 1,298,238 | ||
Other | 220,869 | 306,034 | ||
TOTAL | 3,496,698 | 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 | 876,063 | 838,219 | ||
TOTAL | 1,581,412 | 1,546,141 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $5,445,301 | $5,368,010 | ||
See Notes to Respective Financial Statements. | ||||
ENTERGY ARKANSAS, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $59,475 | $84,658 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Reserve for regulatory adjustments | 658 | 6,789 | ||
Other regulatory credits - net | (14,491) | (13,886) | ||
Depreciation, amortization, and decommissioning | 128,963 | 122,052 | ||
Deferred income taxes and investment tax credits, and non-current taxes | ||||
accrued | 76,124 | (44,980) | ||
Changes in working capital: | ||||
Receivables | 49,691 | (41,738) | ||
Fuel inventory | (10,150) | (1,659) | ||
Accounts payable | 198,752 | (44,275) | ||
Taxes accrued | (37,161) | 95,543 | ||
Interest accrued | (2,962) | (804) | ||
Deferred fuel costs | 46,850 | 85,047 | ||
Other working capital accounts | (245,647) | 8,588 | ||
Provision for estimated losses and reserves | (29) | (829) | ||
Changes in other regulatory assets | (23,273) | (15,484) | ||
Other | (1,675) | (13,069) | ||
Net cash flow provided by operating activities | 225,125 | 225,953 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (150,285) | (121,269) | ||
Allowance for equity funds used during construction | 7,396 | 3,818 | ||
Nuclear fuel purchases | (40,129) | - - | ||
Proceeds from sale/leaseback of nuclear fuel | 42,220 | - - | ||
Proceeds from nuclear decommissioning trust fund sales | 14,075 | 74,895 | ||
Investment in nuclear decommissioning trust funds | (20,290) | (79,353) | ||
Change in money pool receivable - net | (12,152) | (15,567) | ||
Other regulatory investments | - - | (9,888) | ||
Net cash flow used in investing activities | (159,165) | (147,364) | ||
FINANCING ACTIVITIES | ||||
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 | (30,500) | (34,800) | ||
Preferred stock | (3,437) | (4,255) | ||
Net cash flow used in financing activities | (33,937) | (68,931) | ||
Net increase in cash and cash equivalents | 32,023 | 9,658 | ||
Cash and cash equivalents at beginning of period | 34,815 | 9,393 | ||
Cash and cash equivalents at end of period | $66,838 | $19,051 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid/(received) during the period for: | ||||
Interest - net of amount capitalized | $41,895 | $36,185 | ||
Income taxes | $18,643 | ($23,543) | ||
Noncash financing activities: | ||||
Proceeds from long-term debt issued for the purpose | ||||
of refunding other long-term debt | - - | $54,700 | ||
See Notes to Financial Statements. |
63
ENTERGY ARKANSAS, INC. | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 265 | $ 217 | $ 48 | 22 | ||||
Commercial | 144 | 107 | 37 | 35 | ||||
Industrial | 140 | 108 | 32 | 30 | ||||
Governmental | 6 | 5 | 1 | 20 | ||||
Total retail | 555 | 437 | 118 | 27 | ||||
Sales for resale | ||||||||
Associated companies | 70 | 52 | 18 | 35 | ||||
Non-associated companies | 29 | 58 | (29) | (50) | ||||
Other | 7 | 9 | (2) | (22) | ||||
Total | $ 661 | $ 556 | $ 105 | 19 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 2,550 | 2,550 | - | - - | ||||
Commercial | 1,792 | 1,773 | 19 | 1 | ||||
Industrial | 2,112 | 2,046 | 66 | 3 | ||||
Governmental | 81 | 86 | (5) | (6) | ||||
Total retail | 6,535 | 6,455 | 80 | 1 | ||||
Sales for resale | ||||||||
Associated companies | 1,680 | 901 | 779 | 86 | ||||
Non-associated companies | 714 | 1,077 | (363) | (34) | ||||
Total | 8,929 | 8,433 | 496 | 6 | ||||
Nine Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 554 | $ 476 | $ 78 | 16 | ||||
Commercial | 315 | 257 | 58 | 23 | ||||
Industrial | 323 | 264 | 59 | 22 | ||||
Governmental | 15 | 13 | 2 | 15 | ||||
Total retail | 1,207 | 1,010 | 197 | 20 | ||||
Sales for resale | ||||||||
Associated companies | 253 | 157 | 96 | 61 | ||||
Non-associated companies | 113 | 158 | (45) | (28) | ||||
Other | 40 | 49 | (9) | (18) | ||||
Total | $ 1,613 | $ 1,374 | $ 239 | 17 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 6,052 | 5,921 | 131 | 2 | ||||
Commercial | 4,462 | 4,327 | 135 | 3 | ||||
Industrial | 5,727 | 5,430 | 297 | 5 | ||||
Governmental | 209 | 220 | (11) | (5) | ||||
Total retail | 16,450 | 15,898 | 552 | 3 | ||||
Sales for resale | ||||||||
Associated companies | 5,977 | 3,877 | 2,100 | 54 | ||||
Non-associated companies | 2,245 | 3,249 | (1,004) | (31) | ||||
Total | 24,672 | 23,024 | 1,648 | 7 | ||||
ENTERGY ARKANSAS, INC. | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
June 30, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $5,571 | $2,849 | ||
Temporary cash investments - at cost, | ||||
which approximates market | 61,267 | 31,966 | ||
Total cash and cash equivalents | 66,838 | 34,815 | ||
Accounts receivable: | ||||
Customer | 81,647 | 105,347 | ||
Allowance for doubtful accounts | (15,110) | (15,257) | ||
Associated companies | 61,092 | 57,554 | ||
Other | 79,122 | 114,108 | ||
Accrued unbilled revenues | 81,923 | 66,876 | ||
Total accounts receivable | 288,674 | 328,628 | ||
Deferred fuel costs | - - | 2,157 | ||
Accumulated deferred income taxes | 3,042 | 19,232 | ||
Fuel inventory - at average cost | 33,123 | 22,973 | ||
Materials and supplies - at average cost | 105,130 | 100,061 | ||
Deferred nuclear refueling outage costs | 29,013 | 23,678 | ||
System agreement cost equalization | 215,800 | - - | ||
Prepayments and other | 25,623 | 6,368 | ||
TOTAL | 767,243 | 537,912 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 11,205 | 11,206 | ||
Decommissioning trust funds | 456,084 | 439,408 | ||
Non-utility property - at cost (less accumulated depreciation) | 1,444 | 1,446 | ||
Other | 5,390 | 2,976 | ||
TOTAL | 474,123 | 455,036 | ||
UTILITY PLANT | ||||
Electric | 6,705,522 | 6,599,348 | ||
Property under capital lease | 3,779 | 5,260 | ||
Construction work in progress | 123,886 | 113,069 | ||
Nuclear fuel under capital lease | 108,607 | 124,850 | ||
Nuclear fuel | 19,138 | 21,044 | ||
TOTAL UTILITY PLANT | 6,960,932 | 6,863,571 | ||
Less - accumulated depreciation and amortization | 3,057,635 | 2,986,576 | ||
UTILITY PLANT - NET | 3,903,297 | 3,876,995 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 83,340 | 93,682 | ||
Other regulatory assets | 566,389 | 542,052 | ||
Other | 37,918 | 35,359 | ||
TOTAL | 687,647 | 671,093 | ||
TOTAL ASSETS | $5,832,310 | $5,541,036 | ||
See Notes to Financial Statements. | ||||
64 | ||||
ENTERGY ARKANSAS, INC. | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
June 30, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Accounts payable: | ||||
Associated companies | $269,257 | $64,546 | ||
Other | 110,482 | 117,655 | ||
Customer deposits | 53,403 | 49,978 | ||
Taxes accrued | - - | 37,161 | ||
Interest accrued | 16,617 | 19,579 | ||
Deferred fuel costs | 44,693 | - - | ||
Obligations under capital leases | 55,704 | 56,265 | ||
Other | 10,141 | 15,372 | ||
TOTAL | 560,297 | 360,556 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 1,295,353 | 1,243,855 | ||
Accumulated deferred investment tax credits | 57,844 | 59,834 | ||
Obligations under capital leases | 56,682 | 73,845 | ||
Other regulatory liabilities | 113,811 | 103,350 | ||
Decommissioning | 488,944 | 472,810 | ||
Accumulated provisions | 14,510 | 14,539 | ||
Pension and other postretirement liabilities | 259,932 | 259,147 | ||
Long-term debt | 1,310,595 | 1,306,201 | ||
Other | 98,529 | 96,623 | ||
TOTAL | 3,696,200 | 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 | 870,466 | 844,928 | ||
TOTAL | 1,575,813 | 1,550,276 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $5,832,310 | $5,541,036 | ||
See Notes to Financial Statements. | ||||
6465
ENTERGY ARKANSAS, INC. | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2007 | 2006 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 126 | $ 138 | ($ 12) | (9) | ||||
Commercial | 83 | 91 | (8) | (9) | ||||
Industrial | 81 | 95 | (14) | (15) | ||||
Governmental | 4 | 4 | - | - - | ||||
Total retail | 294 | 328 | (34) | (10) | ||||
Sales for resale | ||||||||
Associated companies | 70 | 106 | (36) | (34) | ||||
Non-associated companies | 36 | 33 | 3 | 9 | ||||
Other | 34 | 37 | (3) | (8) | ||||
Total | $ 434 | $ 504 | ($ 70) | (14) | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 1,523 | 1,591 | (68) | (4) | ||||
Commercial | 1,383 | 1,391 | (8) | (1) | ||||
Industrial | 1,799 | 1,836 | (37) | (2) | ||||
Governmental | 67 | 63 | 4 | 6 | ||||
Total retail | 4,772 | 4,881 | (109) | (2) | ||||
Sales for resale | ||||||||
Associated companies | 1,578 | 2,432 | (854) | (35) | ||||
Non-associated companies | 586 | 674 | (88) | (13) | ||||
Total | 6,936 | 7,987 | (1,051) | (13) | ||||
Six Months Ended | Increase/ | |||||||
Description | 2007 | 2006 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 307 | $ 289 | $ 18 | 6 | ||||
Commercial | 182 | 171 | 11 | 6 | ||||
Industrial | 183 | 183 | - | - - | ||||
Governmental | 9 | 9 | - | - - | ||||
Total retail | 681 | 652 | 29 | 4 | ||||
Sales for resale | ||||||||
Associated companies | 148 | 183 | (35) | (19) | ||||
Non-associated companies | 70 | 84 | (14) | (17) | ||||
Other | 38 | 33 | 5 | 15 | ||||
Total | $ 937 | $ 952 | ($ 15) | (2) | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 3,555 | 3,501 | 54 | 2 | ||||
Commercial | 2,711 | 2,670 | 41 | 2 | ||||
Industrial | 3,520 | 3,615 | (95) | (3) | ||||
Governmental | 132 | 128 | 4 | 3 | ||||
Total retail | 9,918 | 9,914 | 4 | - - | ||||
Sales for resale | ||||||||
Associated companies | 3,571 | 4,297 | (726) | (17) | ||||
Non-associated companies | 1,255 | 1,531 | (276) | (18) | ||||
Total | 14,744 | 15,742 | (998) | (6) | ||||
66
ENTERGY GULF STATES, INC.
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 isare updates to that discussion.
Entergy reached an update to the discussionagreement with one of its excess insurers under which Entergy received $69.5 million in the Form 10-K.
second quarter 2007 in settlement of its Hurricane Katrina claim with that insurer. Entergy Gulf States currently estimates that its total restoration costs forwas allocated $2.1 million of 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.
proceeds. Entergy Gulf States has received $18.9a total of $33.2 million thus faras of June 30, 2007 on its Hurricanes Katrina and Rita insurance claims.
As discussedclaims, including $6.1 million in 2007. Refer to Note 8 to the financial statements in the Form 10-K for 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 timingdescription of such decisions is also uncertain. In September 2006, Entergy Gulf States presented a revised CDBG request to the Louisiana Recovery Authority's Infrastructure Committee. The updated request of $183 million includes estimated spending necessary to complete restoration in Louisiana net of estimatedEntergy's non-nuclear property insurance proceeds.The Louisiana Recovery Authority did not act on Entergy Gulf States' request at its October 2006 meeting, and as discussed below, Entergy Gulf States continues to pursue other means of recovering its storm costs.coverage.
Storm CostsCost Recovery Filings with Retail Regulators
OnIn 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. In June 2007, Entergy Gulf States Reconstruction Funding I, LLC, a company wholly-owned and consolidated by Entergy Gulf States, issued $329.5 million of senior secured transition bonds (securitization bonds). With the proceeds, Entergy Gulf States Reconstruction Funding purchased from Entergy Gulf States the transition property, which is the right to recover from customers though a transition charge amounts sufficient to service the securitization bonds. Entergy Gulf States began cost recovery through the transition charge in July 31, 2006,2007, and the transition charge is expected to remain in place over a 15-year period. See Note 4 to the financial statements for additional information regarding the securitization bonds.
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 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, including carrying 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 E ntergy 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 suchcertain debt retirement 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-relatedupfront and ongoing 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 are scheduled for March 2007. Entergy Gulf States and Entergy Louisiana also intend to pursue securitization options for the storm cost recovery as well, whichsecuritized debt issued. Securitization is authorized by a law signed by the Governor of Louisiana in May 2006.
65
In July 2006, The filing updates actual storm-related costs through January 2007 and estimated future costs, including carrying charges, declaring that Entergy Louisiana's costs are $561 million and Entergy Gulf States' costs are $219 million. The filing also updates the requested storm reserve amounts, requesting $141 million for Entergy Louisiana and $87 million for Entergy Gulf States. Hearings on the quantification of the amounts eligible for securitization began in late-April 2007. At the start of the hearing, a stipulation among Entergy Gulf State s, 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, filed an application withand sets the PUCT with respect to the $393.2storm reserve amounts at $152 million of Hurricane Rita reconstruction costs incurred in its Texas retail jurisdiction through March 31, 2006.for Entergy Louisiana and $87 million for Entergy Gulf States. 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 approve the mannerstorm reserves in which Entergy Gulf States allocates those costs among its Texas 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 recoverysame amounts. Hearings on authorization of costs through a specific rider on customer bills or through any other means at this time. This is the first of two filings authorized by a law passed earlier this year in a special sessionsecuritization of the Texas Legislature. A hearing beforestorm costs and reserves were held in June 2007. On August 1, 2007, the PUCT on the filing was scheduled for November 1-3, 2006, but at the commencement of the hearing all of the parties in attendance announced that they had reached a unanimous agreement in principleLPSC voted to settle the issues in the proceeding. The parties are developing the documentation to formalize the settlement. The parties intend to submit the settlement documents to the PUCT prior to Thanksgiving 2006 so that the PUCT can approve them by early December 2006. A second filing will request securitization andissue an order approving recovery of the stipulated storm cost recovery and storm reserve amounts plus certain debt retirement and upfront and ongoing costs eligible forthrough securitization through retail rates and tariffs. Entergy Gulf States expects to make the second filing following the conclusion of the reconstruction cost case.financing.
67
Results of Operations
Net Income
ThirdSecond Quarter 20062007 Compared to ThirdSecond Quarter 20052006
Net income decreased $34.7 million$19.7 primarily due to lower net revenue, higher other operation and maintenance expenses, and higher taxes other than income taxes, lowerpartially offset by higher other income, and higher interest and other charges.income.
NineSix Months Ended SeptemberJune 30, 20062007 Compared to NineSix Months Ended SeptemberJune 30, 20052006
Net income decreased slightly by $5.5$37.2 million primarily due to lower net revenue, higher other operation and maintenance expenses, higher taxes other than income taxes, and higher interest and other charges, substantiallypartially offset by higher net revenue.other income.
Net Revenue
ThirdSecond Quarter 20062007 Compared to ThirdSecond Quarter 20052006
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 thirdsecond quarter of 20062007 to the thirdsecond quarter of 2005.2006.
|
| Amount |
|
| (In Millions) |
|
|
|
|
| $ |
|
| |
Volume/weather |
|
|
|
| |
|
| |
|
| |
|
| |
Purchased power capacity |
| |
Regulatory credits | (4.4) | |
Other |
|
|
|
| $ |
66
Base revenues increased due to increases in both the Louisiana and Texas jurisdictions. The increases in the Louisiana jurisdiction were effective in 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 in September 2006 for the 2005 formula rate plan filing that includes the recovery of incremental deferred and ongoing capacity requirement. The increases in the Texas jurisdiction are related to an incremental purchased capacity recovery rider that began in December 2005 and a transition to competition rider that began in March 2006. Refer to Note 2 to the domestic utility companies and System Energy financial statements and "State and Local Rate Regulation" herein for further discussion of the rate increases.
The volume/weather variance is primarily due to an increase in electricity usage, primarily during the unbilled sales period. The increase in usage was slightly offset by less favorable weather compared to the same period in 2005.
The net wholesale revenue variance is primarily due to increased volume2006 in both the Louisiana and higher margins on sales to municipal and co-op customers.
The reserve equalization variance is due to lower payments in 2006 as a result of resource plan capacity purchases effective February 2006 which reduced the amount of system-wide capacity allocated to Entergy Gulf States.
The price applied to unbilled electric 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 a decrease in net revenue of approximately $40 million in 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 fuel recovery variance resulted primarily from the under-recovery in the third quarter of 2006 of fuel costs from retail customers compared to the over-recovery in the third quarter of 2005.Texas jurisdictions.
Gross operating revenues, fuel and purchased power expenses, andThe variance in other regulatory charges (credits)
Gross operating revenues increasedcredits is primarily due to an increase in fuel cost recovery revenuesa regulatory credit recorded during the second quarter of $88 million due to higher fuel rates.
Fuel and purchased power expenses increased primarily2006 as a result of higher fuel rates partially offset by decreasesEntergy Gulf States reinstating the application of regulatory accounting principles to its wholesale business. Refer to "Application of SFAS 71" in Note 1 to the financial statements in the average market prices of natural gas and purchased power.Form 10-K for further discussion.
Other regulatory charges
Other regulatory charges increased primarily due to:
6768
NineSix Months Ended SeptemberJune 30, 20062007 Compared to NineSix Months Ended SeptemberJune 30, 20052006
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 ninesix months ended SeptemberJune 30, 20062007 to the ninesix months ended SeptemberJune 30, 2005.2006.
|
| Amount |
|
| (In Millions) |
|
|
|
|
| $ |
|
| |
|
| |
|
| |
Fuel recovery |
| |
|
| |
|
| |
Purchased power capacity | (11.1) | |
Volume/weather |
| |
Other |
|
|
|
| $ |
Base revenues increased due to increases in both the Louisiana and Texas jurisdictions. The increases in the Louisiana jurisdiction were effective in 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 in September 2006 for the 2005 formula rate plan filing that includes the recovery of incremental deferred and ongoing capacity requirement. The increases in the Texas jurisdiction are related to an incremental purchased capacity recovery rider that began in December 2005 and a transition to competition rider that began in March 2006. Refer to Note 2 to the domestic utility companies and System Energy financial statements and "State and Local Rate Regulation" herein for further discussion of the rate increases.
The volume/weather variance is due to increased weather-adjusted electricity usage on billed sales in addition to an increase in usage during the unbilled sales period. Weather-adjusted usage increased a total of 402 GWh in the residential and commercial sectors and decreased 202 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 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.
The reserve equalization variance is due to lower payments in 2006 as a result of resource plan capacity purchases effective February 2006 and power purchases from the Perryville generating station effective July 2005 both of which reduced the amount of system-wide capacity allocated to Entergy Gulf States.
The price applied to unbilled electric sales variance is duePUCT ruling related to the exclusionapplication of past PUCT rulings addressing transition to competition 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 expects that the effect of this factor will be a decrease in net revenue of approximately $40 million in 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.
68Texas.
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 purchased power contracts in 2006. A portion of the increase in purchased power capacity costs is offset in base revenues due tobeing recovered through base rate increases implemented to recover incremental deferred and ongoing purchased power capacity charges, ascharges. The base rate increases are discussed above.in Note 2 to the financial statements in the Form 10-K.
The volume/weather variance is primarily due to increased electricity usage, including increased usage during the unbilled sales period. See Note 1 to the financial statements in the Form 10-K for a discussion of the accounting for unbilled revenues.
Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)
Gross operating revenues increaseddecreased primarily due to an increase of $356 milliona decrease in fuel cost recovery revenues of $106.1 million due to higherlower fuel ratesrates. The decrease was partially offset by more favorable volume/weather as discussed above, and higher volume.an increase in gross wholesale revenues.
Fuel and purchased power expenses increaseddecreased primarily due to an increasea decrease in the recovery from customers of deferred fuel expense due to higher fuel ratescosts. The decrease was partially offset by decreasesan increase in the average market pricesprice of natural gas andnon-associated purchased power.power coupled with an increase in generation requirements.
Other regulatory charges increased primarily due to:
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"Application of SFAS 71"71" in Note 71 to the domestic utility companies and System Energy financial statements in the Form 10-K for further discussion.
69
Other Income Statement Variances
ThirdSecond Quarter 20062007 Compared to ThirdSecond Quarter 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 higher gross revenues as discussed above.
Other income decreased primarily due to proceeds of $3.4 million received July 2005 from the radwaste settlement which is discussed in "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - - Central States Compact Claim" in the Form 10-K. Also contributing to the decrease was a decrease of $2.0 million in allowance for equity funds used during construction as a result of lower storm-related construction work in progress in 2006.
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.
69
Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005
Other operation and maintenance expenses increased primarily due to:
Taxes other than income taxes increased primarily due to higher Louisiana locala payment in June 2007 for Texas corporate franchise taxes primarily due tofor amended returns filed for the years 1997-2001 as a result of an IRS audit settlement, along with higher gross revenues as discussed above.Texas city franchise taxes.
Other income which remained relatively unchanged includesincreased primarily due to carrying charges on storm restoration costs approved by the following:PUCT, in addition to interest earned on money pool investments. The PUCT approval and the securitization filing for the recovery of reconstruction costs are discussed in Note 2 to the financial statements in the Form 10-K and Note 2 to the financial statements herein.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Other operation and maintenance expenses increased primarily due to:
The increase was partially offset by a decrease of $2.9 million due to a fossil plant maintenance outage in construction workthe spring 2006, reducing the scope of 2007 maintenance.
Other income increased primarily due to carrying charges on storm restoration costs approved by the PUCT, in progress as a resultaddition to interest earned on money pool investments. The PUCT approval and the securitization filing for the recovery of storm-related construction work in progress in 2005;
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 rate was 41.6% for the second quarter of 2007 and 40.8% for the six months ended June 30, 2007. The differences in the effective income tax rates for the third quarterssecond quarter of 2007 and the six months ended June 30, 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 flow-through book and tax timing differences related to a pension payment, book and tax differences related to allowance for equity funds used during construction, and the amortization of investment tax credits.
70
The effective income tax rate was 39.1% for the second quarter of 2006 and 2005 were 37.5% and 35.8%, respectively.34.2% for the six months ended June 30, 2006. The difference in the effective income tax rate for the thirdsecond quarter of 2006 versus the federal statutory rate of 35%35.0% is primarily due to state income taxes and book and tax differences related to utility plant items, partially offset by the amortization of investment tax credits andcredits. The difference in the flow-through of a pension item.
The effective income tax rates for the nine months ended September 30, 2006 and 2005 were 35.7% and 34.6%, respectively. The effective income tax rate for the ninesix months ended SeptemberJune 30, 2006 includes increases relatedversus the federal statutory rate of 35.0% is primarily due to state income taxes and book and tax differences related to utility plant items partially offset by the amortization of investment tax credits and book and tax differences related to the allowance for equity funds used during construction, and the flow-through of a pension item.partially offset by state income taxes.
70
Liquidity and Capital Resources
Cash Flow
Cash flows for the ninesix months ended SeptemberJune 30, 20062007 and 20052006 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 |
| 514,774 |
| 102,311 | Operating activities |
| 245,575 |
| 291,171 |
| Investing activities |
| (323,392) |
| (305,177) | Investing activities |
| (246,690) |
| (220,594) |
| Financing activities |
| (172,158) |
| 199,406 | Financing activities |
| 272,290 |
| (87,268) |
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents |
| 19,224 |
| (3,460) | Net increase (decrease) in cash and cash equivalents |
| 271,175 |
| (16,691) |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $44,597 |
| $3,514 | Cash and cash equivalents at end of period |
| $451,556 |
| $8,682 |
Operating Activities
Cash flowNet cash provided in operating activities decreased $45.6 million primarily due to the timing of the collection of receivables from operations increased $412.5customers, decreased recovery of deferred fuel costs, and income tax payments of $9.6 million for the ninesix months ended SeptemberJune 30, 20062007 compared to the nine months ended September 30, 2005 primarily due to:
The increase2006. This decrease was 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 $18.2$26.1 million for the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005 primarily due to an increase in construction expenditures of $100.8 million due to storm-related projectsmoney pool activity, partially offset by a decrease in under-recovered fuel and purchased power expensesconstruction expenditures of $86.9$129.4 million due to storm-related projects in Texas that have been deferred and are expected to be collected over a period greater than twelve months.2006.
Financing Activities
Entergy Gulf States used $172.2 million in financingFinancing activities for the nine months ended September 30, 2006 compared to providing $199.4provided $272.3 million for the ninesix months ended SeptemberJune 30, 20052007 compared to using $87.3 million for the six months ended June 30, 2006 primarily due to:
dividends. See Note 4 to the financial statements for details of the securitization bond issuance.
71
Capital Structure
Entergy Gulf States' capitalization is balanced between equity and debt, as shown in the following table. The increase in the debt to capital percentages as of June 30, 2007 is primarily due to the issuance of securitization bonds in 2007.
71
|
| September 30, |
| December 31, |
| June 30, |
| December 31, | |
|
|
|
|
|
|
|
|
|
|
Net debt to net capital |
| 51.3% |
| 51.4% |
| 50.5% |
| 50.1% |
|
Effect of subtracting cash from debt |
| 0.5% |
| 0.3% |
| 4.4% |
| 1.9% |
|
Debt to capital |
| 51.8% |
| 51.7% |
| 54.9% |
| 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.
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:
September 30, |
| December 31, |
| September 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$62,356 |
| $64,011 |
| ($112,857) |
| ($59,720) |
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$192,747 |
| $75,048 |
| $2,982 |
| $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 establishedhad in place as of June 30, 2007, a $25$50 million line of credit and increased the capacity of the credit facility to $50 million in August 2006.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 SeptemberJune 30, 2006,2007, and no borrowings were outstanding. The line of credit terminates in February 2011.
The Pension Protection Act of 2006
The Pension Protection Act of 2006 was signed by the President onOn August 17, 2006. The intent of the legislation is to require companies to fund 100% of their pension liability; and then for companies to fund, on a going-forward basis, an amount generally estimated to be the amount that the pension liability increases each year due to an additional year of service by the employees eligible for pension benefits. The legislation requires that funding shortfalls be eliminated by companies over a seven-year period, beginning in 2008.
The Pension Protection Act also extended the provisions of the Pension Funding Equity Act that would have expired in 2006 had the Pension Protection Act not been enacted, which increased the allowed discount rate used to calculate the pension funding liability.2, 2007, Entergy Gulf States is in the process of evaluating the effects ofentered into a new, five-year, $200 million credit facility, and expects to downsize its previously existing facility to $2 million. See Part II, Item 5 herein for additional information on the new legislation, but expects that the implementationcredit facility, under which there were no borrowings or letters of the Pension Protection Act will not result in annual pension contributions going-forward that are materially higher than the levels required in 2005 and 2006.credit outstanding as of August 8, 2007.
72
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.
Transition to Retail Competition
Texas
As discussed inSee the Form 10-K Entergy Gulf States madefor a January 2006 filing regardingdiscussion of the identification of power region(s) required by the 2005current Texas legislation and based on the statutory requirements for the certification of a qualified power region (QPR), previous PUCT rulings, and Entergy Gulf States' geographical location,proposed transition to competition plan.
As required by the June 2005 legislation, Entergy Gulf States identified three potential power regions:
Based on previous rulings of the PUCT, and absent reconsideration of those rulings,filed its proposed transition to competition plan in December 2006. The plan provides that to achieve full customer choice, Entergy Gulf States believesshould join ERCOT because ERCOT already has all of the prerequisites for retail choice. Pursuant to PUCT order, on June 4, 2007 Entergy Gulf States filed a restatement of the plan, in which Entergy Gulf States requested that the third alternative - an ICT operating in Entergy's market area -PUCT approve a "Financial Stability Provision" that is not likelydesigned to be a viable QPR alternative at this time. Accordingly, while noting this alternative,ensure that Entergy Gulf States' filing focuses onproposed integration with ERCOT will not, during the first two alternatives, which are expected to meet the statutory requirements for certification so long asnecessary construction period, cause certain key implementation issues can be resolved. Entergy Gulf States' credit metrics and rating to decrease. The June 4,
72
2007 filing enumeratedalso proposes a rule making process and discussedrecognizes that legislative action might be needed to accomplish the corresponding steps and a high-level schedule associated with certifying either of these two power regions.
required infrastructure improvements. Under Entergy Gulf States' filing did not make a recommendation between ERCOT and the SPPplan, retail open access could commence as a power region. Rather, the filing discussed the major issuesearly as 2013. Entergy Gulf States' plan includes an estimate that must be resolveddirect construction costs for either of those alternatives to be implemented. In the case of ERCOT, the major issue is the cost and time related to the construction of facilities to interconnect Entergy Gulf States' Texas operations with ERCOT whilecould be approximately $1 billion. The Texas Legislature did not pass legislation addressing the interest of Entergy Gulf States' retail customers and certain wholesale customers in access to generation outside of Texas. With respect to the SPP, the major issue is the development of protocols that would ultimately be necessary to implement retail open access.
transition plan before adjourning its 2007 session. PUCT hearings on Entergy Gulf States recommended that theStates' plan began in May 2007, were abated, and were then completed in July 2007. A PUCT open a project for the purpose of involving stakeholdersdecision on Entergy Gulf States' plan is expected in the selection of the single power region that Entergy Gulf States should request for certification. Entergy Gulf States notes that House Bill 1567 also directs Entergy Gulf States to make a transition to competition filing no later than January 1,third quarter 2007. In August 2006, the PUCT staff recommended that Entergy Gulf States be required to provide the information on both the ERCOT option and the SPP option. The PUCT accepted the PUCT staff's recommendation and stated the need for a "robust record" to make a decision on the applicable power region. Entergy Gulf States is working with both ERCOT and the SPP concerning both options, and plans to make another filing with the PUCT before January 2007.
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.PUCT (ETI). The FERC approved the application in July 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 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 i n Louisiana. The Louisiana utilityoutstanding long-term debt. Under one or more debt assumption agreements with EGS-LA, ETI would own allassume a portion of
73
this long-term debt primarily 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, purchasebasically, grant 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, basically, from the Louisiana utility pursuantdate of separation to a life-of-the unit purchased 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. Under 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 was held in September 2006
Entergy Gulf States has also filed with the FERC an application, on behalf of ETI, for authority from the end of 2007 through March 31, 2010 to issue up to $200 million of short-term debt, up to $300 million of tax-exempt bonds, and thisup 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 is expectedup 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.
In May 2007 Entergy Gulf States filed with the NRC an application for transfer of the River Bend operating license. Additional FERC filings will also be addressed bymade before the separation can occur. In addition, under the LPSC at its November 29, 2006 meeting. Approvals of the FERC and the NRC may also be required for certain matters before any implementation oforder approving the jurisdictional separation ofplan, jurisdictional separation will not occur if Entergy Gulf States. Although formal approval ofStates cannot obtain reasonable assurances from the PUCT israting agencies that upon the separation there will not requiredbe a downgrade in ETI's or EGS-LA's credit ratings from Entergy Gulf States' credit ratings. Entergy Gulf States' current target for implementation ofcompleting the jurisdictional separation Entergy Gulf States will seek input fromis projected to be the PUCT and continue to keep it informedend of the status of the proceedings.2007.
State and Local Rate Regulation
As discussedIn March 2007, Entergy Gulf States filed a request with the PUCT to refund $78.5 million, including interest, of fuel cost recovery over-collections through January 2007. In June 2007, the PUCT approved a unanimous stipulation and settlement agreement that updated the over-collection balance through April 2007 and established a refund amount, including interest, of $109.4 million. The refund will be made over a two-month period beginning with the first billing cycle in July 2007. Amounts refunded through the Form 10-K,interim fuel refund are subject to final reconciliation in August 2005,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. A hearing was conducted before administrative law judges (ALJs) in April 2007. On July 24, 2007, the ALJs issued a proposal for decision recommending that Entergy Gulf States be authorized to reconcile all of its requested Texas fixed fuel factor expenses and recommending a minor adjustment to the incremental
73
purchased capacity recovery calculation. The ALJs also recommend granting an applicationexception to PUCT rules to allow for recovery of its transition to competition costs. Entergy Gulf States requested recovery of $189an additional $11.4 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 Texas 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 tran sition to competition costs over a 15-year period. Entergy Gulf States implemented interim rates based on this revenue level on March 1, 2006.Texas-jurisdictional purchased power capacity costs. The PUCT approvedis scheduled to consider the settlement agreement in June 2006.
In March 2006, the LPSC approved an uncontested stipulated settlement in Entergy Gulf States' formula rate plan filingproposal 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 $0.7 million to capacity deferrals. The refund liability pertained to the periods 2004-2005 as well as the interim period in which a $37.2 million revenue increase was in place.decision during its August 16, 2007 open meeting.
In May 2006, Entergy Gulf States made its formula rate plan filing with the LPSC for the 2005 test year. Entergy Gulf States modified the filing in August 2006 to reflect an 11.1% return on equity which is within the allowed bandwidth. The modified filing includes a formula rate plan increase of $17.2 million whichannually that provides for 1) interim recovery of $10.5 million of storm costs from Hurricanes Katrina and Rita and 2) recovery of $6.7 million of LPSC-approved incremental deferred and ongoing capacity costs. The increase was implemented, subject to refund, with the first billing cycle of September 2006. In May 2007 the LPSC approved a settlement between Entergy Louisiana and the LPSC Staff, affirming the rates that were implemented in September 2006.
In May 2007, Entergy Gulf States made its formula rate plan filing with the LPSC for the 2006 test year. The filing reflected a 10.0% return on equity which is within the allowed bandwidth. The filing includes three adjustments that result in a formula rate plan decrease of $23 million annually: 1) cessation of interim Hurricanes Katrina and Rita cost recovery, in anticipation of securitized storm cost recovery; 2) reduction of the storm cost accrual, in anticipation of a securitized storm reserve; and 3) reduced capacity costs compared to the 2005 test year.
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.
Federal Regulation
See "
System Agreement Proceedings
See Entergy Corporation", "Independent Coordinator of Transmission", and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Available Flowgate Capacity Proceeding" in the "Significant Factors and Known Trends - Federal Regulation -System Agreement Litigation,APSC Complaint at the FERC,APSC System Agreement Investigation, andMPSC System Agreement Inquiry" for updates regarding proceedings involving the System Agreement.
74
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" for an update regarding Entergy's ICT proposal.
Available Flowgate Capacity (AFC) Proceeding
See Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -Available Flowgate Capacity Proceeding"Analysis for updates regardingto the AFC proceeding atdiscussion in the FERC.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.
In September 2006, FASB issued SFAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans", an amendment of FASB Statements Nos. 87, 88, 106 and 132(R)," to be effective December 31, 2006. SFAS 158 requires employers to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability in its balance sheet with the offset recorded to other comprehensive income. Entergy Gulf States has previously disclosed its funded status in Note 10 to the domestic utility companies and System Energy financial statements in the Form 10-K. SFAS 158 also requires that changes in that funded status be recorded in other comprehensive income in the period in which the changes occur. The Texas jurisdiction of Entergy Gulf States is generally allowed to recover pension and other postretirement benefit costs each period based upon costs calculated under SFAS 87 and SFAS 106. The Louisiana jurisdiction of Entergy Gulf States recovers other postretirement benefit costs on a pay as you go basis. Entergy Gulf States' analysis including the regulatory accounting requirements to support recording the majority of the effect of the adoption of this standard as a regulatory asset is not yet complete. Entergy Gulf States does not expect the implementation of this standard, however, to materially affect its financial position or results of operations.74
ENTERGY GULF STATES, INC. | ||||||||
CONSOLIDATED INCOME STATEMENTS | ||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Six Months Ended | |||||||
2007 | 2006 | 2007 | 2006 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING REVENUES | ||||||||
Electric | $864,568 | $867,504 | $1,659,822 | $1,723,294 | ||||
Natural gas | 17,090 | 13,611 | 55,018 | 51,027 | ||||
TOTAL | 881,658 | 881,115 | 1,714,840 | 1,774,321 | ||||
OPERATING EXPENSES | ||||||||
Operation and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 192,623 | 215,255 | 432,190 | 500,130 | ||||
Purchased power | 376,395 | 337,834 | 683,199 | 650,926 | ||||
Nuclear refueling outage expenses | 3,816 | 4,427 | 7,472 | 9,101 | ||||
Other operation and maintenance | 141,275 | 123,996 | 267,129 | 245,553 | ||||
Decommissioning | 2,902 | 2,676 | 5,745 | 5,297 | ||||
Taxes other than income taxes | 34,830 | 31,663 | 66,142 | 67,688 | ||||
Depreciation and amortization | 53,060 | 52,484 | 105,475 | 101,179 | ||||
Other regulatory charges - net | 3,986 | 1,369 | 12,344 | 1,638 | ||||
TOTAL | 808,887 | 769,704 | 1,579,696 | 1,581,512 | ||||
OPERATING INCOME | 72,771 | 111,411 | 135,144 | 192,809 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 1,999 | 1,755 | 6,430 | 7,801 | ||||
Interest and dividend income | 15,920 | 6,366 | 32,294 | 14,469 | ||||
Miscellaneous - net | 659 | 510 | 659 | (402) | ||||
TOTAL | 18,578 | 8,631 | 39,383 | 21,868 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 34,797 | 34,339 | 69,690 | 67,992 | ||||
Other interest - net | 3,122 | 1,901 | 8,466 | 3,997 | ||||
Allowance for borrowed funds used during construction | (1,285) | (1,093) | (4,173) | (4,401) | ||||
TOTAL | 36,634 | 35,147 | 73,983 | 67,588 | ||||
INCOME BEFORE INCOME TAXES | 54,715 | 84,895 | 100,544 | 147,089 | ||||
Income taxes | 22,755 | 33,191 | 40,987 | 50,336 | ||||
NET INCOME | 31,960 | 51,704 | 59,557 | 96,753 | ||||
Preferred dividend requirements and other | 929 | 1,009 | 1,891 | 2,031 | ||||
EARNINGS APPLICABLE TO COMMON STOCK | $31,031 | $50,695 | $57,666 | $94,722 | ||||
See Notes to Financial Statements. |
75
ENTERGY GULF STATES, INC. | ||||||||
INCOME STATEMENTS | ||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Nine Months Ended | |||||||
2006 | 2005 | 2006 | 2005 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING REVENUES | ||||||||
Domestic electric | $1,043,264 | $959,498 | $2,766,558 | $2,358,881 | ||||
Natural gas | 12,495 | 12,342 | 63,521 | 51,729 | ||||
TOTAL | 1,055,759 | 971,840 | 2,830,079 | 2,410,610 | ||||
OPERATING EXPENSES | ||||||||
Operation and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 342,828 | 212,135 | 842,959 | 579,980 | ||||
Purchased power | 348,318 | 399,904 | 999,244 | 932,012 | ||||
Nuclear refueling outage expenses | 4,199 | 4,778 | 13,299 | 13,374 | ||||
Other operation and maintenance | 121,560 | 91,044 | 367,113 | 324,165 | ||||
Decommissioning | 2,731 | 2,395 | 8,028 | 7,038 | ||||
Taxes other than income taxes | 40,624 | 32,660 | 108,312 | 92,135 | ||||
Depreciation and amortization | 53,802 | 51,851 | 154,981 | 151,192 | ||||
Other regulatory charges (credits) - net | 608 | (2,199) | 2,246 | (7,901) | ||||
TOTAL | 914,670 | 792,568 | 2,496,182 | 2,091,995 | ||||
OPERATING INCOME | 141,089 | 179,272 | 333,897 | 318,615 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 1,697 | 3,670 | 9,498 | 12,675 | ||||
Interest and dividend income | 6,336 | 8,469 | 20,805 | 15,318 | ||||
Miscellaneous - net | (477) | 1,353 | (876) | 1,979 | ||||
TOTAL | 7,556 | 13,492 | 29,427 | 29,972 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 35,004 | 28,397 | 102,997 | 84,835 | ||||
Other interest - net | 1,992 | 2,907 | 5,989 | 7,288 | ||||
Allowance for borrowed funds used during construction | (1,027) | (2,134) | (5,428) | (7,637) | ||||
TOTAL | 35,969 | 29,170 | 103,558 | 84,486 | ||||
INCOME BEFORE INCOME TAXES | 112,676 | 163,594 | 259,766 | 264,101 | ||||
Income taxes | 42,268 | 58,534 | 92,604 | 91,405 | ||||
NET INCOME | 70,408 | 105,060 | 167,162 | 172,696 | ||||
Preferred dividend requirements and other | 1,009 | 1,050 | 3,041 | 3,176 | ||||
EARNINGS APPLICABLE TO | ||||||||
COMMON STOCK | $69,399 | $104,010 | $164,121 | $169,520 | ||||
See Notes to Respective Financial Statements. | ||||||||
(Page left blank intentionally)
76
ENTERGY GULF STATES, INC. | ENTERGY GULF STATES, INC. | ENTERGY GULF STATES, INC. | ||||||
STATEMENTS OF CASH FLOWS | ||||||||
For the Nine Months Ended September 30, 2006 and 2005 | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
For the Six Months Ended June 30, 2007 and 2006 | For the Six Months Ended June 30, 2007 and 2006 | |||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||
2006 | 2005 | 2007 | 2006 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING ACTIVITIES | ||||||||
Net income | $167,162 | $172,696 | $59,557 | $96,753 | ||||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||||||
Reserve for regulatory adjustments | 6,305 | (65,526) | 11,534 | 5,947 | ||||
Other regulatory charges (credits) - net | 2,246 | (7,901) | ||||||
Other regulatory charges - net | 12,344 | 1,638 | ||||||
Depreciation, amortization, and decommissioning | 163,009 | 158,230 | 111,220 | 106,476 | ||||
Deferred income taxes and investment tax credits | (59,744) | 72,183 | ||||||
Deferred income taxes, investment tax credits, and non-current taxes accrued | (11,844) | 68,469 | ||||||
Changes in working capital: | ||||||||
Receivables | 89,178 | (213,039) | (171,125) | 121,874 | ||||
Fuel inventory | (8,996) | (210) | (14,410) | (11,349) | ||||
Accounts payable | (94,479) | 66,491 | 40,920 | (75,267) | ||||
Taxes accrued | 223,610 | 30,295 | (12,913) | 40,836 | ||||
Interest accrued | 706 | 1,178 | 58 | (772) | ||||
Deferred fuel costs | 151,118 | (81,043) | 25,258 | 55,433 | ||||
Other working capital accounts | 7,854 | (17,127) | 133,953 | 16,861 | ||||
Provision for estimated losses and reserves | (4,252) | (929) | (1,163) | (2,856) | ||||
Changes in other regulatory assets | (117,618) | (41,488) | 10,539 | (124,690) | ||||
Other | (11,325) | 28,501 | 51,647 | (8,182) | ||||
Net cash flow provided by operating activities | 514,774 | 102,311 | 245,575 | 291,171 | ||||
INVESTING ACTIVITIES | ||||||||
Construction expenditures | (311,255) | (210,484) | (139,892) | (269,310) | ||||
Allowance for equity funds used during construction | 9,498 | 12,675 | 6,430 | 7,801 | ||||
Insurance proceeds | 6,580 | - | ||||||
Nuclear fuel purchases | (38,357) | (371) | (7,542) | (38,233) | ||||
Proceeds from sale/leaseback of nuclear fuel | 37,647 | 481 | 9,923 | 37,523 | ||||
Proceeds from nuclear decommissioning trust fund sales | 39,344 | 27,477 | 29,533 | 35,710 | ||||
Investment in nuclear decommissioning trust funds | (49,217) | (37,013) | (36,404) | (42,406) | ||||
Change in money pool receivable - net | 1,655 | - | (117,699) | 61,028 | ||||
Changes in other investments - net | 915 | 2,629 | 2,381 | 915 | ||||
Other regulatory investments | (13,622) | (100,571) | - | (13,622) | ||||
Net cash flow used in investing activities | (323,392) | (305,177) | (246,690) | (220,594) | ||||
FINANCING ACTIVITIES | ||||||||
Proceeds from the issuance of long-term debt | - | 581,037 | 321,938 | - | ||||
Retirement of long-term debt | - | (366,229) | ||||||
Redemption of preferred stock | (3,450) | (3,450) | (2,250) | (2,250) | ||||
Change in money pool payable - net | - | 53,137 | ||||||
Dividends paid: | ||||||||
Common stock | (165,700) | (61,900) | (45,500) | (83,000) | ||||
Preferred stock | (3,008) | (3,189) | (1,898) | (2,018) | ||||
Net cash flow provided by (used in) financing activities | (172,158) | 199,406 | 272,290 | (87,268) | ||||
Net increase (decrease) in cash and cash equivalents | 19,224 | (3,460) | 271,175 | (16,691) | ||||
Cash and cash equivalents at beginning of period | 25,373 | 6,974 | 180,381 | 25,373 | ||||
Cash and cash equivalents at end of period | $44,597 | $3,514 | $451,556 | $8,682 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid/(received) during the period for: | ||||||||
Interest - net of amount capitalized | $101,059 | $85,109 | $73,694 | $68,007 | ||||
Income taxes | ($54,920) | $14,450 | $9,559 | ($60,096) | ||||
See Notes to Respective Financial Statements. | ||||||||
See Notes to Financial Statements. |
77
ENTERGY GULF STATES, INC. | ENTERGY GULF STATES, INC. | ENTERGY GULF STATES, INC. | |||||||||
BALANCE SHEETS | |||||||||||
CONSOLIDATED BALANCE SHEETS | CONSOLIDATED BALANCE SHEETS | ||||||||||
ASSETS | ASSETS | ASSETS | |||||||||
September 30, 2006 and December 31, 2005 | |||||||||||
June 30, 2007 and December 31, 2006 | June 30, 2007 and December 31, 2006 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||||
2006 | 2005 | 2007 | 2006 | ||||||||
(In Thousands) | (In Thousands) | ||||||||||
CURRENT ASSETS | |||||||||||
Cash and cash equivalents: | |||||||||||
Cash | $5,873 | $7,341 | $4,241 | $2,923 | |||||||
Temporary cash investments - at cost, | |||||||||||
which approximates market | 38,724 | 18,032 | 447,315 | 177,458 | |||||||
Total cash and cash equivalents | 44,597 | 25,373 | 451,556 | 180,381 | |||||||
Accounts receivable: | |||||||||||
Customer | 207,986 | 203,205 | 157,494 | 146,144 | |||||||
Allowance for doubtful accounts | (2,027) | (4,794) | (1,826) | (1,618) | |||||||
Associated companies | 99,085 | 90,223 | 325,702 | 106,990 | |||||||
Other | 42,032 | 50,445 | 94,873 | 50,811 | |||||||
Accrued unbilled revenues | 87,697 | 186,527 | 91,081 | 79,538 | |||||||
Total accounts receivable | 434,773 | 525,606 | 667,324 | 381,865 | |||||||
Deferred fuel costs | 86,773 | 254,950 | |||||||||
Accumulated deferred income taxes | 12,487 | 20,352 | |||||||||
Fuel inventory - at average cost | 69,192 | 60,196 | 83,621 | 69,211 | |||||||
Materials and supplies - at average cost | 118,421 | 112,544 | 125,031 | 120,245 | |||||||
Deferred nuclear refueling outage costs | 6,083 | 12,971 | |||||||||
Prepayments and other | 17,683 | 36,996 | 24,218 | 16,725 | |||||||
TOTAL | 771,439 | 1,015,665 | 1,370,320 | 801,750 | |||||||
OTHER PROPERTY AND INVESTMENTS | |||||||||||
Decommissioning trust funds | 331,452 | 310,779 | 359,298 | 344,911 | |||||||
Non-utility property - at cost (less accumulated depreciation) | 94,038 | 91,589 | 95,037 | 94,776 | |||||||
Other | 22,700 | 22,498 | 29,335 | 25,218 | |||||||
TOTAL | 448,190 | 424,866 | 483,670 | 464,905 | |||||||
UTILITY PLANT | |||||||||||
Electric | 8,869,375 | 8,569,073 | 8,941,273 | 8,857,166 | |||||||
Natural gas | 89,266 | 86,375 | 95,832 | 92,368 | |||||||
Construction work in progress | 156,423 | 526,017 | 164,630 | 149,392 | |||||||
Nuclear fuel under capital lease | 70,326 | 55,155 | 63,755 | 73,422 | |||||||
Nuclear fuel | 12,433 | 11,338 | 8,481 | 10,821 | |||||||
TOTAL UTILITY PLANT | 9,197,823 | 9,247,958 | 9,273,971 | 9,183,169 | |||||||
Less - accumulated depreciation and amortization | 4,136,512 | 4,075,724 | 4,339,792 | 4,263,307 | |||||||
UTILITY PLANT - NET | 5,061,311 | 5,172,234 | 4,934,179 | 4,919,862 | |||||||
DEFERRED DEBITS AND OTHER ASSETS | |||||||||||
Regulatory assets: | |||||||||||
SFAS 109 regulatory asset - net | 479,013 | 459,136 | 464,606 | 465,259 | |||||||
Other regulatory assets | 774,004 | 604,419 | 971,050 | 1,001,016 | |||||||
Deferred fuel costs | 100,124 | 69,443 | 100,124 | 100,124 | |||||||
Long-term receivables | 12,937 | 16,151 | 6,840 | 9,833 | |||||||
Other | 30,029 | 41,195 | 35,769 | 23,928 | |||||||
TOTAL | 1,396,107 | 1,190,344 | 1,578,389 | 1,600,160 | |||||||
TOTAL ASSETS | $7,677,047 | $7,803,109 | $8,366,558 | $7,786,677 | |||||||
See Notes to Respective Financial Statements. | |||||||||||
See Notes to Financial Statements. | 78 | ||||||||||
ENTERGY GULF STATES, INC. | ENTERGY GULF STATES, INC. | ENTERGY GULF STATES, INC. | |||||||||
BALANCE SHEETS | |||||||||||
CONSOLIDATED BALANCE SHEETS | CONSOLIDATED BALANCE SHEETS | ||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
September 30, 2006 and December 31, 2005 | |||||||||||
June 30, 2007 and December 31, 2006 | June 30, 2007 and December 31, 2006 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||||
2006 | 2005 | 2007 | 2006 | ||||||||
(In Thousands) | (In Thousands) | ||||||||||
CURRENT LIABILITIES | |||||||||||
Accounts payable: | |||||||||||
Associated companies | $93,817 | $100,313 | |||||||||
Associated companies | $131,860 | $79,584 | |||||||||
Other | 166,785 | 479,232 | 181,794 | 200,746 | |||||||
Customer deposits | 66,652 | 57,756 | 72,818 | 68,844 | |||||||
Taxes accrued | 68,055 | - - | 14,868 | 27,781 | |||||||
Accumulated deferred income taxes | 19,423 | 71,196 | |||||||||
Nuclear refueling outage costs | 4,791 | 15,548 | |||||||||
Interest accrued | 35,044 | 34,338 | 34,541 | 34,483 | |||||||
Deferred fuel costs | 51,520 | 26,262 | |||||||||
Obligations under capital leases | 24,935 | 33,516 | 24,769 | 24,769 | |||||||
Pension and other postretirement liabilities | 7,809 | 7,662 | |||||||||
System agreement cost equalization | 102,900 | - - | |||||||||
Other | 31,353 | 14,945 | 63,959 | 31,933 | |||||||
TOTAL | 510,855 | 806,844 | 686,838 | 502,064 | |||||||
NON-CURRENT LIABILITIES | |||||||||||
Accumulated deferred income taxes and taxes accrued | 1,777,795 | 1,619,890 | 1,852,073 | 1,803,461 | |||||||
Accumulated deferred investment tax credits | 128,629 | 132,909 | 124,349 | 127,202 | |||||||
Obligations under capital leases | 45,391 | 20,724 | 38,986 | 48,653 | |||||||
Other regulatory liabilities | 46,708 | 37,482 | 64,663 | 53,648 | |||||||
Decommissioning and retirement cost liabilities | 187,029 | 175,480 | |||||||||
Decommissioning and asset retirement cost liabilities | 199,295 | 191,036 | |||||||||
Transition to competition | 79,098 | 79,098 | 79,098 | 79,098 | |||||||
Regulatory reserves | 15,916 | 16,153 | |||||||||
Accumulated provisions | 67,133 | 67,747 | 22,508 | 21,245 | |||||||
Pension and other postretirement liabilities | 126,990 | 141,834 | |||||||||
Long-term debt | 2,358,269 | 2,358,130 | 2,688,414 | 2,358,327 | |||||||
Preferred stock with sinking fund | 10,500 | 13,950 | 8,250 | 10,500 | |||||||
Other | 180,473 | 203,665 | 209,381 | 196,731 | |||||||
TOTAL | 4,896,941 | 4,725,228 | 5,414,007 | 5,031,735 | |||||||
Commitments and Contingencies | |||||||||||
SHAREHOLDERS' EQUITY | |||||||||||
Preferred stock without sinking fund | 47,327 | 47,327 | 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 | |||||||||
shares; issued and outstanding 100 shares in 2007 and 2006 | 114,055 | 114,055 | |||||||||
Paid-in capital | 1,457,486 | 1,457,486 | 1,457,486 | 1,457,486 | |||||||
Retained earnings | 651,999 | 653,578 | 666,090 | 653,924 | |||||||
Accumulated other comprehensive loss | (1,616) | (1,409) | (19,245) | (19,914) | |||||||
TOTAL | 2,269,251 | 2,271,037 | 2,265,713 | 2,252,878 | |||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $7,677,047 | $7,803,109 | $8,366,558 | $7,786,677 | |||||||
See Notes to Respective Financial Statements. | |||||||||||
See Notes to Financial Statements. |
79
ENTERGY GULF STATES, INC. | ENTERGY GULF STATES, INC. | ENTERGY GULF STATES, INC. | ||||||||||||||||||
STATEMENTS OF RETAINED EARNINGS AND COMPREHENSIVE INCOME | ||||||||||||||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||||||||||||||
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS AND COMPREHENSIVE INCOME | CONSOLIDATED STATEMENTS OF RETAINED EARNINGS AND COMPREHENSIVE INCOME | |||||||||||||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | For the Three and Six Months Ended June 30, 2007 and 2006 | |||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||
2006 | 2005 | 2007 | 2006 | |||||||||||||||||
(In Thousands) | (In Thousands) | |||||||||||||||||||
RETAINED EARNINGS | ||||||||||||||||||||
Retained Earnings - Beginning of period | $665,300 | $553,092 | $646,959 | $703,129 | ||||||||||||||||
Add: Net Income | 70,408 | $70,408 | 105,060 | $105,060 | 31,960 | $31,960 | 51,704 | $51,704 | ||||||||||||
Deduct: | ||||||||||||||||||||
Dividends declared on common stock | 82,700 | 36,300 | 11,900 | 83,000 | ||||||||||||||||
Preferred dividend requirements and other | 1,009 | 1,009 | 1,050 | 1,050 | 929 | 929 | 1,009 | 1,009 | ||||||||||||
83,709 | 37,350 | 12,829 | 84,009 | |||||||||||||||||
Retained Earnings - End of period | $651,999 | $620,802 | $666,090 | $670,824 | ||||||||||||||||
ACCUMULATED OTHER COMPREHENSIVE | ||||||||||||||||||||
INCOME (LOSS) (Net of Taxes): | ||||||||||||||||||||
LOSS (Net of Taxes): | ||||||||||||||||||||
Balance at beginning of period: | ||||||||||||||||||||
Pension and other postretirement liabilities | ($19,580) | $ - | ||||||||||||||||||
Other accumulated comprehensive income items | ($2,233) | $786 | - | (1,354) | ||||||||||||||||
Net derivative instrument fair value changes | ||||||||||||||||||||
arising during the period | 617 | 617 | 8 | 8 | ||||||||||||||||
Pension and other postretirement liabilities (net of tax expense of $326) | 335 | 335 | - | |||||||||||||||||
Net unrealized investment gains | - | - | (879) | (879) | ||||||||||||||||
Balance at end of period: | ||||||||||||||||||||
Pension and other postretirement liabilities | (19,245) | - | ||||||||||||||||||
Other accumulated comprehensive income items | ($1,616) | $794 | - | (2,233) | ||||||||||||||||
Total | ($19,245) | ($2,233) | ||||||||||||||||||
Comprehensive Income | $70,016 | $104,018 | $31,366 | $49,816 | ||||||||||||||||
Nine Months Ended | Six Months Ended | |||||||||||||||||||
2006 | 2005 | 2007 | 2006 | |||||||||||||||||
(In Thousands) | (In Thousands) | |||||||||||||||||||
RETAINED EARNINGS | ||||||||||||||||||||
Retained Earnings - Beginning of period | $653,578 | $513,182 | $653,924 | $659,102 | ||||||||||||||||
Add: Net Income | 167,162 | $167,162 | 172,696 | $172,696 | 59,557 | $59,557 | 96,753 | $96,753 | ||||||||||||
Deduct: | ||||||||||||||||||||
Dividends declared on common stock | 165,700 | 61,900 | 45,500 | 83,000 | ||||||||||||||||
Preferred dividend requirements and other | 3,041 | 3,041 | 3,176 | 3,176 | 1,891 | 1,891 | 2,031 | 2,031 | ||||||||||||
168,741 | 65,076 | 47,391 | 85,031 | |||||||||||||||||
Retained Earnings - End of period | $651,999 | $620,802 | $666,090 | $670,824 | ||||||||||||||||
ACCUMULATED OTHER COMPREHENSIVE | ||||||||||||||||||||
INCOME (LOSS) (Net of Taxes): | ||||||||||||||||||||
Balance at beginning of period: | ||||||||||||||||||||
LOSS (Net of Taxes): | ||||||||||||||||||||
\ | ||||||||||||||||||||
Pension and other postretirement liabilities | ($19,914) | $ - | ||||||||||||||||||
Other accumulated comprehensive income items | ($1,409) | $714 | - | (1,409) | ||||||||||||||||
Pension and other postretirement liabilities (net of tax expense of $652) | 669 | 669 | - | |||||||||||||||||
Net unrealized investment gains | (824) | - | - | - | (824) | (824) | ||||||||||||||
Net derivative instrument fair value changes | ||||||||||||||||||||
arising during the period | 617 | 617 | 80 | 80 | ||||||||||||||||
Balance at end of period: | ||||||||||||||||||||
Pension and other postretirement liabilities | (19,245) | - | ||||||||||||||||||
Other accumulated comprehensive income items | ($1,616) | $794 | - | (2,233) | ||||||||||||||||
Total | ($19,245) | ($2,233) | ||||||||||||||||||
Comprehensive Income | $164,738 | $169,600 | $58,335 | $93,898 | ||||||||||||||||
See Notes to Respective Financial Statements. | ||||||||||||||||||||
See Notes to Financial Statements. | ||||||||||||||||||||
80
ENTERGY GULF STATES, INC. | ENTERGY GULF STATES, INC. | ENTERGY GULF STATES, INC. | ||||||||||||||
SELECTED OPERATING RESULTS | SELECTED OPERATING RESULTS | SELECTED OPERATING RESULTS | ||||||||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | For the Three and Six Months Ended June 30, 2007 and 2006 | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Three Months Ended | Increase/ | Three Months Ended | Increase/ | |||||||||||||
Description | 2006 | 2005 | (Decrease) | % | 2007 | 2006 | (Decrease) | % | ||||||||
(Dollars In Millions) | (Dollars In Millions) | |||||||||||||||
Electric Operating Revenues: | ||||||||||||||||
Residential | $375 | $330 | $45 | 14 | $238 | $258 | ($20) | (8) | ||||||||
Commercial | 249 | 214 | 35 | 16 | 208 | 212 | (4) | (2) | ||||||||
Industrial | 288 | 257 | 31 | 12 | 284 | 284 | - | - - | ||||||||
Governmental | 13 | 11 | 2 | 18 | 12 | 11 | 1 | 9 | ||||||||
Total retail | 925 | 812 | 113 | 14 | 742 | 765 | (23) | (3) | ||||||||
Sales for resale | ||||||||||||||||
Associated companies | 46 | 49 | (3) | (6) | 39 | 21 | 18 | 86 | ||||||||
Non-associated companies | 57 | 61 | (4) | (7) | 52 | 48 | 4 | 8 | ||||||||
Other | 15 | 37 | (22) | (59) | 32 | 34 | (2) | (6) | ||||||||
Total | $1,043 | $959 | $84 | 9 | $865 | $868 | ($3) | - - | ||||||||
Billed Electric Energy | ||||||||||||||||
Sales (GWh): | ||||||||||||||||
Residential | 3,393 | 3,455 | (62) | (2) | 2,210 | 2,352 | (142) | (6) | ||||||||
Commercial | 2,553 | 2,526 | 27 | 1 | 2,160 | 2,158 | 2 | - - | ||||||||
Industrial | 3,920 | 3,772 | 148 | 4 | 3,918 | 3,831 | 87 | 2 | ||||||||
Governmental | 118 | 120 | (2) | (2) | 109 | 110 | (1) | (1) | ||||||||
Total retail | 9,984 | 9,873 | 111 | 1 | 8,397 | 8,451 | (54) | (1) | ||||||||
Sales for resale | ||||||||||||||||
Associated companies | 1,073 | 785 | 288 | 37 | 481 | 567 | (86) | (15) | ||||||||
Non-associated companies | 918 | 936 | (18) | (2) | 693 | 678 | 15 | 2 | ||||||||
Total | 11,975 | 11,594 | 381 | 3 | 9,571 | 9,696 | (125) | (1) | ||||||||
Nine Months Ended | Increase/ | Six Months Ended | Increase/ | |||||||||||||
Description | 2006 | 2005 | (Decrease) | % | 2007 | 2006 | (Decrease) | % | ||||||||
(Dollars In Millions) | (Dollars In Millions) | |||||||||||||||
Electric Operating Revenues: | ||||||||||||||||
Residential | $874 | $700 | $174 | 25 | $480 | $498 | ($18) | (4) | ||||||||
Commercial | 671 | 520 | 151 | 29 | 402 | 422 | (20) | (5) | ||||||||
Industrial | 889 | 725 | 164 | 23 | 539 | 601 | (62) | (10) | ||||||||
Governmental | 37 | 30 | 7 | 23 | 23 | 24 | (1) | (4) | ||||||||
Total retail | 2,471 | 1,975 | 496 | 25 | 1,444 | 1,545 | (101) | (7) | ||||||||
Sales for resale | ||||||||||||||||
Associated companies | 95 | 96 | (1) | (1) | 66 | 48 | 18 | 38 | ||||||||
Non-associated companies | 157 | 136 | 21 | 15 | 102 | 99 | 3 | 3 | ||||||||
Other | 44 | 152 | (108) | (71) | 48 | 31 | 17 | 55 | ||||||||
Total | $2,767 | $2,359 | $408 | 17 | $1,660 | $1,723 | ($63) | (4) | ||||||||
Billed Electric Energy | ||||||||||||||||
Sales (GWh): | ||||||||||||||||
Residential | 7,841 | 7,734 | 107 | 1 | 4,532 | 4,448 | 84 | 2 | ||||||||
Commercial | 6,681 | 6,452 | 229 | 4 | 4,184 | 4,128 | 56 | 1 | ||||||||
Industrial | 11,430 | 11,632 | (202) | (2) | 7,502 | 7,510 | (8) | - - | ||||||||
Governmental | 340 | 334 | 6 | 2 | 221 | 222 | (1) | - - | ||||||||
Total retail | 26,292 | 26,152 | 140 | 1 | 16,439 | 16,308 | 131 | 1 | ||||||||
Sales for resale | ||||||||||||||||
Associated companies | 2,225 | 2,080 | 145 | 7 | 1,234 | 1,153 | 81 | 7 | ||||||||
Non-associated companies | 2,213 | 2,200 | 13 | 1 | 1,544 | 1,295 | 249 | 19 | ||||||||
Total | 30,730 | 30,432 | 298 | 1 | 19,217 | 18,756 | 461 | 2 | ||||||||
81
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 update to the discussion in the Form 10-K.
Entergy Louisiana currently estimates that total restoration costs for the repair and/or replacement of its electric facilities damaged by Hurricanes Katrinaterritory, and Rita and business continuity costs will be $541 million.
Entergy Louisiana has received $9.9 million thus far on its insurance claims.
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. In September 2006, Entergy Louisiana presented a revised CDBG request to the Louisiana Recovery Authority's Infrastructure Committee. The request of $539 million includes estimated spending necessary to complete restoration net of estimated insurance proceeds. The Louisiana Recovery Authority did not act on Entergy Louisiana's request at its October 2006 meeting, and as discussed below, Entergy Louisiana continuesefforts to pursue other means of recovering itsrecover storm restoration costs.
Storm Costs Recovery Filing with Retail Regulator
On July 31, 2006,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 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, including carrying 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 suchcertain debt retirement 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-relatedupfront and ongoing 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 Ent ergy Gulf States. Hearings are scheduled for March 2007. Entergy Gulf States and Entergy Louisiana also intend to pursue securitization options for the storm cost recovery as well, whichsecuritized 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, including carrying charges, declaring that Entergy Louisiana's costs are $561 million and Entergy Gulf States' costs are $219 million. The filing also updates the requested storm reserve amounts, requesting $141 million for Entergy Louisiana and $87 million for Entergy Gulf States. Hearings on the quantification of the amounts eligible for securitization began in late-April 2007. At the start of the hearing, a stipulation among Entergy Gulf State s, 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, 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. Hearings on authorization of securitization of the storm costs and reserves were held in June 2007. On August 1, 2007, the LPSC voted to issue an order approving recovery of the stipulated storm cost recovery and storm reserve amounts plus certain debt retirement and upfront and ongoing costs through securitization financing.
82Entergy reached an agreement with one of its excess insurers under which Entergy received $69.5 million in the second quarter 2007 in settlement of its Hurricane Katrina claim with that insurer. Entergy Louisiana was allocated $9.7 million of the proceeds. Entergy Louisiana has received a total of $24.8 million as of June 30, 2007 on its Hurricanes Katrina and Rita insurance claims, including $12.0 million in 2007. Refer to Note 8 to the financial statements in the Form 10-K for a description of Entergy's non-nuclear property insurance coverage.
Results of Operations
Net Income
ThirdSecond Quarter 20062007 Compared to ThirdSecond Quarter 20052006
Net income increased $28.9decreased $7.2 million primarily due to higher net revenue partially offset by higher other operation and maintenance expenses and lower other income.
NineSix Months Ended SeptemberJune 30, 20062007 Compared to NineSix Months Ended SeptemberJune 30, 20052006
Net income increased $8.4 million primarily due toremained relatively unchanged as higher net revenue lower taxes other than income taxes, lower depreciation and amortization expenses, and higher other income, partiallywas offset by higher other operation and maintenance expenses.expenses, higher depreciation and amortization expenses, lower other income, and higher interest and other charges.
82
Net Revenue
ThirdSecond Quarter 20062007 Compared to ThirdSecond Quarter 20052006
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 thirdsecond quarter of 20062007 to the thirdsecond quarter of 2005.2006.
|
| Amount |
|
| (In Millions) |
|
| |
|
| $ |
|
| |
Base revenues |
| |
|
| |
|
| |
Purchased power capacity |
| |
Other |
|
|
|
| $ |
The price applied to unbilled electric 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 an increase in net revenue of approximately $10 million 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 base revenues variance is primarily due to increases effective September 2006 for the 2005 formula rate plan filing to recover LPSC-approved incremental deferred and ongoing capacity costs and for the interim recovery of storm costs. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - - State and Local Regulation" hereinNote 2 to the financial statements in the Form 10-K for a discussion of the formula rate plan filing.
The volume/weather variance is primarily due to an increase in electricity usage. Billed electricity usage increased a total of 431 GWh in all sectors.
The reserve equalization variance is primarily due to a revision made in 2005 of reserve equalization payments among Entergy companies due to a FERC ruling regarding the inclusion of interruptible loads in reserve equalization calculations.
83
The purchased power capacity variance is primarily due to higher purchased power capacity charges and the amortization of capacity charges effective September 2006 as a result of the formula rate plan filing in May 2006. A portion of the purchased power capacity costs is offset in base revenues due to a base rate increasesincrease implemented to recover incremental deferred and ongoing purchased power capacity charges, as mentioned above. See Note 2 to the financial statements in the Form 10-K for a discussion of the formula rate plan filing.
Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)
Gross operating revenues increased primarily due to an increase of $67.2 million in fuel cost recovery revenues due to higher fuel rates and an increase of $28.0 million in base revenues, as discussed above.
Fuel and purchased power expenses and other regulatory credits
Fuel and purchased power expenses decreasedincreased primarily due to decreasesincreases in the average market prices of natural gas and purchased power partially offset byand an increase in the recovery from customers of deferred fuel costs.
Other regulatory credits decreased primarily due to the deferral of capacity charges in 2005. The decrease was also due2006 in addition to the amortization of these capacity charges in 20062007 as a result of the May 2006 formula rate plan filing in May 2006(for the 2005 test year) with the LPSC to recover such costs through base rates effective September 2006. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - - State and Local Regulation" herein for a discussion of the formula rate plan filing.
Nine
83
Six Months Ended SeptemberJune 30, 20062007 Compared to NineSix Months Ended SeptemberJune 30, 20052006
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 ninesix months ended SeptemberJune 30, 20062007 to the ninesix months ended SeptemberJune 30, 2005.2006.
|
| Amount |
|
| (In Millions) |
|
| |
|
| $ |
Base revenues |
| |
|
| |
|
| |
|
| |
Volume/weather |
| |
|
| |
Other |
|
|
|
| $ |
The base revenues variance is primarily due to increases effective September 2006 for the 2005 formula rate plan filing to recover LPSC-approved incremental deferred and ongoing capacity costs and for the interim recovery of storm costs. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - - State and Local Regulation" hereinNote 2 to the financial statements in the Form 10-K for a discussion of the formula rate plan filing.
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 power purchase agreement.
The rate refund provisions variance is primarily due to provisions recorded in 2005 as a result of the March 2005 Global Settlement with the LPSC.
The reserve equalization variance is primarily due to a revision made in 2005 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 decreasedincreased electricity usage in all sectors, including electricity sales during the unbilled sales period and decreasedservice period. Billed retail electricity usage increased a total of 570 GWh in all sectors. See Note 1 to the financial statements in the industrial sector of 181 GWh. The decrease in usage in the industrial sector is primarily a result of Hurricane Katrina.
84
The price applied to unbilled electric 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 an increase in net revenue of approximately $10 million for its annual results for 2006. 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 higher purchased power capacity charges and the amortization of capacity charges effective September 2006 as a result of the formula rate plan filing in May 2006. A portion of the purchased power capacity costs is offset in base 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 financial statements in the Form 10-K for a discussion of the formula rate plan filing.
Gross operating revenues, fuel and purchased power expenses, and other regulatory creditscharges (credits)
Gross operating revenues decreasedincreased primarily due to:
The decrease was partially offset by:
The increase was partially offset by a decrease of $26.8 million in gross wholesale revenue due to decreased sales to affiliated systems.
Fuel and purchased power expenses decreasedincreased primarily due to a decreasean increase in the average market pricesprice of natural gas and purchased power, partially offset byan increase in net area demand, and an increase in the recovery from customers of deferred fuel costs.
Other regulatory credits decreased primarily due to the LPSC order fordeferral of capacity charges in 2006 in addition to the interim recoveryamortization of storm costs effective March 2006. Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - - State and Local Regulation"these capacity charges in 2007 as a result of the Form 10-K for a discussion of Entergy Louisiana'sMay 2006 formula rate plan filing (for the 2005 test year) with the LPSC regarding storm cost recovery.to recover such costs through base rates effective September 2006.
84
Other Income Statement Variances
ThirdSecond Quarter 20062007 Compared to ThirdSecond Quarter 2005
Other operation and maintenance expenses increased primarily due to:
Other income decreased primarily due to:
85
Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005
Other operation and maintenance expenses increased primarily due to:
The increase was partially offset by the following:
Taxes other than income taxes decreased primarily due to decreased franchise taxes as a result of the merger-by-division that created Entergy Louisiana, LLC.
Depreciation and amortization expenses decreased primarily due to a change in the depreciation rate for Waterford 3 as approved by the LPSC effective April 2005 and revisions in 2005 of estimated depreciable lives involving certain intangible assets.
Other income increased primarily due to:
The increase was partially offset by the following:
The increase was partially offset by a decrease of $1.0 million in customer service costs, including a decrease in customer write-offs.
Other income decreased primarily due to a decrease in interest earned on deferred capacity charges as a result of the recovery of deferred capacity charges. Also contributing to the decrease was a decrease in the allowance for equity funds used during construction due to more construction work in progress in 2006 as a result of Hurricanes Katrina and Rita.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Other operation and maintenance expenses increased primarily due to:
The increase was partially offset by a decrease of $2.9 million in customer service costs, including a decrease in customer write-offs.
Depreciation and amortization expenses increased primarily due to a revision made in the first quarter of 2006 of estimated depreciable lives involving certain intangible assets and an increase in plant in service.
Other income decreased primarily due to:
85
Interest and other charges increased primarily due to a higher allowance for borrowed funds used during construction in 2006 as a result of Hurricanes Katrina and Rita.
Income Taxes
The effective income tax ratesrate was 39.7% for the third quarterssecond quarter of 20062007 and 2005 were 39.1% and 44.6%, respectively. The effective income tax rates38% for the ninesix months ended SeptemberJune 30, 2006 and 2005 were 39.0% and 41.6%, respectively.2007. The difference in the effective income tax rate for the thirdsecond quarter of 20062007 and the six months ended June 30, 2007 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.items and state income taxes, partially offset by book and tax differences related to the allowance for equity funds used during construction and the amortization of investment tax credits and excess deferred income taxes.
The effective income tax rate was 38.4% for the second quarter of 2006 and 38.9% for the six months ended June 30, 2006. The difference in the effective income tax rate for the ninesecond quarter of 2006 and the six months ended SeptemberJune 30, 2006 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 and the amortization of investment tax credits. The difference in the effective income tax rates for the third quarter 2005 and the nine months ended September 30, 2005 versus the federal statutory r ate of 35.0% is primarily due to state income taxes, book and tax differences related to utility plant items, and a federal tax reserve estimate revision necessary to provide additional reserves for income tax audit matters.
86
Liquidity and Capital Resources
Cash Flow
Cash flows for the ninesix months ended SeptemberJune 30, 20062007 and 20052006 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 |
| $105,285 |
| $146,049 | Cash and cash equivalents at beginning of period |
| $2,743 |
| $105,285 |
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used in): | Cash flow provided by (used in): |
|
|
|
| Cash flow provided by (used in): |
|
|
|
|
| Operating activities |
| 245,122 |
| 86,149 | Operating activities |
| 141,156 |
| 231,532 |
| Investing activities |
| (362,824) |
| (370,975) | Investing activities |
| (130,609) |
| (287,995) |
| Financing activities |
| 16,365 |
| 141,943 | Financing activities |
| (10,548) |
| (45,983) |
Net decrease in cash and cash equivalents | Net decrease in cash and cash equivalents |
| (101,337) |
| (142,883) | Net decrease in cash and cash equivalents |
| (1) |
| (102,446) |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $3,948 |
| $3,166 | Cash and cash equivalents at end of period |
| $2,742 |
| $2,839 |
Operating Activities
Cash flow from operations increased $159.0decreased $90.4 million for the ninesix months ended SeptemberJune 30, 20062007 compared to the ninesix months ended SeptemberJune 30, 20052006 primarily due to an increasetiming of collections of receivables from customers and payments to vendors, including the catch-up in fuel cost recoveriesreceivable collections in 2006 due to delays caused by the hurricanes in 2005, and the effect that Hurricane Katrina had on September 2005 collections,income tax payments of $29.7 million in 2007, partially offset by an increaseincreased recovery of $54 million in pension contributions.
deferred fuel costs.
Investing Activities
Cash flow
The decrease of $157.4 million in net cash used by investing activities decreased $8.2 million for the ninesix months ended SeptemberJune 30, 20062007 compared to the ninesix months ended SeptemberJune 30, 20052006 is primarily due to the purchase of the Perryville plantto:
86
Financing Activities
The decrease of $125.6$35.4 million in net cash provided byused for financing activities for the ninesix months ended SeptemberJune 30, 20062007 compared to the ninesix months ended SeptemberJune 30, 20052006 is primarily due to:
The decrease was partially offset by the following:
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, | |
|
| |||
Net debt to net capital |
| 45.1% | 46.4% | |
Effect of subtracting cash from debt |
| 0.1% | - | |
Debt to capital |
| 45.2% | 46.4% |
87
|
| September 30, | December 31, | |
|
| |||
Net debt to net capital |
| 45.8% | 49.2% | |
Effect of subtracting cash from debt |
| 0.1% | 2.1% | |
Debt to capital |
| 45.9% | 51.3% |
Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable, capital lease obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and members' equity. Net capital consists of capital less cash and cash equivalents. Entergy Louisiana uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Louisiana's financial condition.
Uses and Sources of Capital
See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Liquidity and Capital Resources" in the Form 10-K for a discussion of Entergy Louisiana's uses and sources of capital.
In April 2007, Entergy Louisiana announced that it plans to pursue the self-build solid fuel repowering of a 538 MW unit at its Little Gypsy plant. Petroleum coke will be the unit's primary fuel source. In July 2007 Entergy Louisiana filed with the LPSC for approval of the repowering project, and stated that it expects to spend $1.55 billion on the project. In addition to seeking a finding that the project is in the public interest, the filing with the LPSC asks that Entergy Louisiana be allowed to recover a portion of the project's financing costs during the construction period. Entergy Louisiana expects the project to be completed in 2011-2012. The planned capital investment estimate in the Form 10-K included capital required for a project of this type, although Entergy Louisiana now expects to spend approximately $100 million more through 2009 than the amounts included in the Form 10-K for the project.
Entergy Louisiana's receivables from or (payables to)payables to the money pool were as follows:
September 30, |
| December 31, |
| September 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
| |
($104,952) |
| ($68,677) |
| ($124,936) |
| $40,549 |
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
($46,968) |
| ($54,041) |
| ($90,879) |
| ($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,On August 2, 2007, Entergy Louisiana's $85Louisiana entered into a five-year, $200 million credit facility expired and was not renewed. Also, Entergy Louisiana's $15 millionfacility. See Part II, Item 5 herein for additional information on the new credit facility, expired in May 2006 and was not renewed.under which there were no borrowings or letters of credit outstanding as of August 8, 2007.
87
In June 2006, Entergy Louisiana redeemed, prior to maturity, $25 million of 5.95% Series of St. Charles Parish bonds.
The Pension Protection Act of 2006
The Pension Protection Act of 2006 was signed by the President on August 17, 2006. The intent of the legislation is to require companies to fund 100% of their pension liability; and then for companies to fund, on a going-forward basis, an amount generally estimated to be the amount that the pension liability increases each year due to an additional year of service by the employees eligible for pension benefits. The legislation requires that funding shortfalls be eliminated by companies over a seven-year period, beginning in 2008.
The Pension Protection Act also extended the provisions of the Pension Funding Equity Act that would have expired in 2006 had the Pension Protection Act not been enacted, which increased the allowed discount rate used to calculate the pension funding liability. Entergy Louisiana is in the process of evaluating the effects of the new legislation, but expects that the implementation of the Pension Protection Act will not result in annual pension contributions going-forward that are materially higher than the levels required in 2005 and 2006.
88
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. Following are updates to the information provided in the Form 10-K.
State and Local Rate Regulation
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 at the FERC,APSC System Agreement Investigation, and"MPSC System Agreement Inquiry" 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"for an update regarding Entergy's ICT proposal.
Available Flowgate Capacity (AFC) Proceeding
See Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant FactorsSubsidiaries Management's Financial Discussion and Known Trends - Federal Regulation -Available Flowgate Capacity Proceeding"Analysis for updates regardingto the AFC proceeding atdiscussion in the FERC.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 Louisiana's accounting for nuclear decommissioning costs, unbilled revenue, and qualified pension and other postretirement costs. Following is an update to that discussion.
89
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
See "New Accounting Pronouncements" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for a discussion of new accounting pronouncements.
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for Entergy Louisiana in the first quarter 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.88
In September 2006, FASB issued SFAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans", an amendment of FASB Statements Nos. 87, 88, 106 and 132(R)," to be effective December 31, 2006. SFAS 158 requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet with the offset recorded to other comprehensive income. Entergy Louisiana has previously disclosed its funded status in Note 10 to the domestic utility companies and System Energy financial statements in the Form 10-K. SFAS 158 also requires that changes in that funded status be recorded in other comprehensive income in the period in which the changes occur. Entergy Louisiana recovers other postretirement benefit costs on a pay as you go basis. Entergy Louisiana's analysis including the regulatory accounting requirements to support recording the majority of the effect of the adoption of this standard as a regulatory asset is not yet complete. Entergy Louisiana does not expect the implementation of this standard, however, to materially affect its financial position or results of operations.
90
ENTERGY LOUISIANA, LLC | ENTERGY LOUISIANA, LLC | ENTERGY LOUISIANA, LLC | ||||||||||||||
INCOME STATEMENTS | INCOME STATEMENTS | INCOME STATEMENTS | ||||||||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | For the Three and Six Months Ended June 30, 2007 and 2006 | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||
2006 | 2005 | 2006 | 2005 | 2007 | 2006 | 2007 | 2006 | |||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | |||||||||||||
OPERATING REVENUES | ||||||||||||||||
Domestic electric | $762,840 | $760,916 | $1,865,477 | $1,889,337 | ||||||||||||
Electric | $656,299 | $550,580 | $1,273,778 | $1,102,637 | ||||||||||||
OPERATING EXPENSES | ||||||||||||||||
Operation and Maintenance: | ||||||||||||||||
Fuel, fuel-related expenses, and | ||||||||||||||||
gas purchased for resale | 253,915 | 300,865 | 563,389 | 566,206 | 172,762 | 105,470 | 366,718 | 309,474 | ||||||||
Purchased power | 215,682 | 243,423 | 604,349 | 641,420 | 226,165 | 212,053 | 423,928 | 388,667 | ||||||||
Nuclear refueling outage expenses | 3,766 | 4,234 | 12,263 | 11,055 | 4,418 | 4,263 | 8,615 | 8,497 | ||||||||
Other operation and maintenance | 96,699 | 74,155 | 279,263 | 262,310 | 104,694 | 98,462 | 196,161 | 182,564 | ||||||||
Decommissioning | 4,350 | 3,921 | 12,817 | 14,793 | 4,591 | 4,271 | 9,099 | 8,467 | ||||||||
Taxes other than income taxes | 16,075 | 18,390 | 47,254 | 55,047 | 14,962 | 15,173 | 28,776 | 31,179 | ||||||||
Depreciation and amortization | 48,366 | 45,776 | 137,868 | 141,229 | 49,214 | 47,417 | 98,192 | 89,502 | ||||||||
Other regulatory credits - net | (11,474) | (19,761) | (39,518) | (50,168) | ||||||||||||
Other regulatory charges (credits) - net | 10,949 | (11,906) | 22,292 | (28,044) | ||||||||||||
TOTAL | 627,379 | 671,003 | 1,617,685 | 1,641,892 | 587,755 | 475,203 | 1,153,781 | 990,306 | ||||||||
OPERATING INCOME | 135,461 | 89,913 | 247,792 | 247,445 | 68,544 | 75,377 | 119,997 | 112,331 | ||||||||
OTHER INCOME | ||||||||||||||||
Allowance for equity funds used during construction | 2,572 | 1,189 | 11,749 | 5,566 | 2,309 | 3,590 | 6,257 | 9,177 | ||||||||
Interest and dividend income | 63 | 7,983 | 9,315 | 16,123 | 1,861 | 3,810 | 5,455 | 9,252 | ||||||||
Miscellaneous - net | (782) | 100 | (2,200) | (6,749) | (456) | (620) | (1,688) | (1,418) | ||||||||
TOTAL | 1,853 | 9,272 | 18,864 | 14,940 | 3,714 | 6,780 | 10,024 | 17,011 | ||||||||
INTEREST AND OTHER CHARGES | ||||||||||||||||
Interest on long-term debt | 18,658 | 18,878 | 59,661 | 53,569 | 20,350 | 20,625 | 40,583 | 41,003 | ||||||||
Other interest - net | 2,692 | 3,764 | 7,023 | 8,587 | 2,359 | 2,623 | 5,719 | 4,331 | ||||||||
Allowance for borrowed funds used during construction | (1,906) | (865) | (8,419) | (3,354) | (1,554) | (2,662) | (4,300) | (6,513) | ||||||||
TOTAL | 19,444 | 21,777 | 58,265 | 58,802 | 21,155 | 20,586 | 42,002 | 38,821 | ||||||||
INCOME BEFORE INCOME TAXES | 117,870 | 77,408 | 208,391 | 203,583 | 51,103 | 61,571 | 88,019 | 90,521 | ||||||||
�� | ||||||||||||||||
Income taxes | 46,068 | 34,548 | 81,239 | 84,789 | 20,305 | 23,617 | 33,453 | 35,171 | ||||||||
NET INCOME | 71,802 | 42,860 | 127,152 | 118,794 | 30,798 | 37,954 | 54,566 | 55,350 | ||||||||
Preferred dividend requirements and other | 1,738 | - - | 5,213 | - - | 1,737 | 1,737 | 3,475 | 3,475 | ||||||||
EARNINGS APPLICABLE TO | ||||||||||||||||
COMMON EQUITY | $70,064 | $42,860 | $121,939 | $118,794 | $29,061 | $36,217 | $51,091 | $51,875 | ||||||||
See Notes to Respective Financial Statements. | ||||||||||||||||
See Notes to Financial Statements. |
91
89
(Page left blank intentionally)
92
90
ENTERGY LOUISIANA, LLC | ENTERGY LOUISIANA, LLC | ENTERGY LOUISIANA, LLC | ||||||
STATEMENTS OF CASH FLOWS | STATEMENTS OF CASH FLOWS | STATEMENTS OF CASH FLOWS | ||||||
For the Nine Months Ended September 30, 2006 and 2005 | ||||||||
For the Six Months Ended June 30, 2007 and 2006 | For the Six Months Ended June 30, 2007 and 2006 | |||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||
2006 | 2005 | 2007 | 2006 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING ACTIVITIES | ||||||||
Net income | $127,152 | $118,794 | $54,566 | $55,350 | ||||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||||||
Reserve for regulatory adjustments | 255 | (15,301) | (179) | 1,369 | ||||
Other regulatory credits - net | (39,518) | (50,168) | ||||||
Other regulatory charges (credits) - net | 22,292 | (28,044) | ||||||
Depreciation, amortization, and decommissioning | 150,685 | 156,022 | 107,291 | 97,969 | ||||
Deferred income taxes and investment tax credits | 13,329 | 55,050 | ||||||
Deferred income taxes, investment tax credits, and non-current taxes accrued | 5,252 | (126,577) | ||||||
Changes in working capital: | ||||||||
Receivables | 49,810 | (228,031) | (108,934) | 142,012 | ||||
Accounts payable | (35,973) | 294,319 | (51,003) | (24,674) | ||||
Taxes accrued | 74,499 | 52,406 | 48,577 | 47,037 | ||||
Interest accrued | (2,904) | 3,420 | (23) | (4,294) | ||||
Deferred fuel costs | (81,410) | (87,290) | 24,968 | (75,432) | ||||
Other working capital accounts | 25,146 | (41,426) | 62,853 | 151,929 | ||||
Provision for estimated losses and reserves | 4,281 | 154 | (3,299) | 5,164 | ||||
Changes in other regulatory assets | 3,899 | (258,267) | 2,466 | (2,634) | ||||
Other | (44,129) | 86,467 | (23,671) | (7,643) | ||||
Net cash flow provided by operating activities | 245,122 | 86,149 | 141,156 | 231,532 | ||||
INVESTING ACTIVITIES | ||||||||
Construction expenditures | (343,938) | (216,209) | (153,715) | (273,527) | ||||
Allowance for equity funds used during construction | 11,749 | 5,566 | 6,257 | 9,177 | ||||
Insurance proceeds | 10,065 | - - | ||||||
Nuclear fuel purchases | (44,819) | (54,498) | (3,103) | - - | ||||
Proceeds from the sale/leaseback of nuclear fuel | 44,819 | 54,498 | 14,279 | - - | ||||
Payment for purchase of plant | - - | (162,075) | ||||||
Proceeds from nuclear decommissioning trust fund sales | 13,013 | 93,072 | 6,423 | 11,739 | ||||
Investment in nuclear decommissioning trust funds | (19,233) | (100,212) | (10,815) | (16,415) | ||||
Change in money pool receivable - net | - - | 40,549 | ||||||
Other regulatory investments | (24,415) | (31,666) | - - | (18,969) | ||||
Net cash flow used in investing activities | (362,824) | (370,975) | (130,609) | (287,995) | ||||
FINANCING ACTIVITIES | ||||||||
Proceeds from the issuance of long-term debt | - - | 253,016 | ||||||
Proceeds from the issuance of preferred membership interests | 50,013 | - - | ||||||
Additional equity from parent | 1,119 | - - | ||||||
Retirement of long-term debt | (25,000) | (219,374) | - - | (25,000) | ||||
Change in money pool payable - net | 36,275 | 124,936 | (7,073) | 22,202 | ||||
Changes in credit borrowing, net | (40,000) | 40,000 | ||||||
Dividends paid: | ||||||||
Common stock | - | (51,600) | ||||||
Preferred stock | (4,923) | (5,035) | ||||||
Net cash flow provided by financing activities | 16,365 | 141,943 | ||||||
Changes in short-term borrowings | - - | (40,000) | ||||||
Distributions paid: | ||||||||
Preferred membership interests | (4,594) | (3,185) | ||||||
Net cash flow used in financing activities | (10,548) | (45,983) | ||||||
Net decrease in cash and cash equivalents | (101,337) | (142,883) | (1) | (102,446) | ||||
Cash and cash equivalents at beginning of period | 105,285 | 146,049 | 2,743 | 105,285 | ||||
Cash and cash equivalents at end of period | $3,948 | $3,166 | $2,742 | $2,839 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for: | ||||||||
Interest - net of amount capitalized | $66,605 | $56,194 | $44,328 | $47,609 | ||||
Income taxes | $17,230 | $11,114 | $29,736 | $0 | ||||
See Notes to Respective Financial Statements. | ||||||||
See Notes to Financial Statements. |
91
ENTERGY LOUISIANA, LLC | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
June 30, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents | $2,742 | $2,743 | ||
Accounts receivable: | ||||
Customer | 105,959 | 97,207 | ||
Allowance for doubtful accounts | (2,160) | (1,856) | ||
Associated companies | 110,514 | 28,621 | ||
Other | 20,665 | 22,652 | ||
Accrued unbilled revenues | 85,484 | 69,628 | ||
Total accounts receivable | 320,462 | 216,252 | ||
Deferred fuel costs | 21,342 | 46,310 | ||
Materials and supplies - at average cost | 105,742 | 98,284 | ||
Deferred nuclear refueling outage costs | 15,975 | 23,639 | ||
Prepayments and other | 17,034 | 5,769 | ||
TOTAL | 483,297 | 392,997 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Decommissioning trust funds | 219,497 | 208,926 | ||
Non-utility property - at cost (less accumulated depreciation) | 1,579 | 1,670 | ||
Note receivable - Entergy New Orleans | 9,353 | - - | ||
Other | 4 | 4 | ||
TOTAL | 230,433 | 210,600 | ||
UTILITY PLANT | ||||
Electric | 6,801,677 | 6,693,633 | ||
Property under capital lease | 252,972 | 252,972 | ||
Construction work in progress | 213,670 | 190,454 | ||
Nuclear fuel under capital lease | 64,525 | 82,464 | ||
TOTAL UTILITY PLANT | 7,332,844 | 7,219,523 | ||
Less - accumulated depreciation and amortization | 3,046,904 | 2,959,422 | ||
UTILITY PLANT - NET | 4,285,940 | 4,260,101 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 159,006 | 157,789 | ||
Other regulatory assets | 486,595 | 539,309 | ||
Deferred fuel costs | 67,998 | 67,998 | ||
Long-term receivables | 5,986 | 5,986 | ||
Other | 25,120 | 20,062 | ||
TOTAL | 744,705 | 791,144 | ||
TOTAL ASSETS | $5,744,375 | $5,654,842 | ||
See Notes to Financial Statements. | ||||
92 | ||||
ENTERGY LOUISIANA, LLC | ||||
BALANCE SHEETS | ||||
LIABILITIES AND MEMBERS' EQUITY | ||||
June 30, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Accounts payable: | ||||
Associated companies | $120,695 | $160,555 | ||
Other | 161,983 | 203,076 | ||
Customer deposits | 75,831 | 72,579 | ||
Taxes accrued | 54,814 | 6,237 | ||
Accumulated deferred income taxes | 22,538 | 32,026 | ||
Interest accrued | 30,466 | 30,489 | ||
Obligations under capital leases | 39,067 | 39,067 | ||
Pension and other postretirement liabilities | 8,460 | 8,276 | ||
System agreement cost equalization | 78,000 | - - | ||
Other | 21,603 | 30,425 | ||
TOTAL | 613,457 | 582,730 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 1,819,369 | 1,827,900 | ||
Accumulated deferred investment tax credits | 87,643 | 89,242 | ||
Obligations under capital leases | 25,457 | 43,397 | ||
Other regulatory liabilities | 70,636 | 50,210 | ||
Decommissioning | 247,635 | 238,536 | ||
Accumulated provisions | 20,499 | 23,798 | ||
Pension and other postretirement liabilities | 150,931 | 146,646 | ||
Long-term debt | 1,147,654 | 1,147,647 | ||
Other | 89,554 | 86,428 | ||
TOTAL | 3,659,378 | 3,653,804 | ||
Commitments and Contingencies | ||||
MEMBERS' EQUITY | ||||
Preferred membership interests without sinking fund | 100,000 | 100,000 | ||
Members' equity | 1,396,213 | 1,344,003 | ||
Accumulated other comprehensive loss | (24,673) | (25,695) | ||
TOTAL | 1,471,540 | 1,418,308 | ||
TOTAL LIABILITIES AND MEMBERS' EQUITY | $5,744,375 | $5,654,842 | ||
See Notes to Financial Statements. |
93
ENTERGY LOUISIANA, LLC | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
September 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents | $3,948 | $105,285 | ||
Accounts receivable: | ||||
Customer | 160,657 | 176,169 | ||
Allowance for doubtful accounts | (2,260) | (6,141) | ||
Associated companies | 50,951 | 24,453 | ||
Other | 11,948 | 12,553 | ||
Accrued unbilled revenues | 85,836 | 149,908 | ||
Total accounts receivable | 307,132 | 356,942 | ||
Deferred fuel costs | 35,297 | 21,885 | ||
Accumulated deferred income taxes | - - | 3,884 | ||
Materials and supplies - at average cost | 98,971 | 92,275 | ||
Deferred nuclear refueling outage costs | 2,807 | 15,337 | ||
Prepayments and other | 8,600 | 173,055 | ||
TOTAL | 456,755 | 768,663 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Decommissioning trust funds | 199,348 | 187,101 | ||
Non-utility property - at cost (less accumulated depreciation) | 1,715 | 1,852 | ||
Other | 4 | 4 | ||
TOTAL | 201,067 | 188,957 | ||
UTILITY PLANT | ||||
Electric | 6,533,596 | 6,233,711 | ||
Property under capital lease | 250,610 | 250,610 | ||
Construction work in progress | 228,291 | 415,475 | ||
Nuclear fuel under capital lease | 76,229 | 58,492 | ||
TOTAL UTILITY PLANT | 7,088,726 | 6,958,288 | ||
Less - accumulated depreciation and amortization | 2,848,357 | 2,805,944 | ||
UTILITY PLANT - NET | 4,240,369 | 4,152,344 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 70,041 | 104,893 | ||
Other regulatory assets | 611,969 | 599,451 | ||
Deferred fuel costs | 67,998 | - - | ||
Long-term receivables | 6,302 | 8,222 | ||
Other | 27,570 | 32,523 | ||
TOTAL | 783,880 | 745,089 | ||
TOTAL ASSETS | $5,682,071 | $5,855,053 | ||
See Notes to Respective Financial Statements. | ||||
94 | ||||
ENTERGY LOUISIANA, LLC | ||||
BALANCE SHEETS | ||||
LIABILITIES AND MEMBERS' EQUITY | ||||
September 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Notes payable | $- | $40,000 | ||
Accounts payable: | ||||
Associated companies | 182,912 | 121,382 | ||
Other | 174,958 | 398,507 | ||
Customer deposits | 70,563 | 66,705 | ||
Taxes accrued | 77,641 | 88,548 | ||
Accumulated deferred income taxes | 21,878 | - - | ||
Interest accrued | 25,538 | 28,442 | ||
Obligations under capital leases | 33,463 | 22,753 | ||
Other | 28,154 | 8,721 | ||
TOTAL | 615,107 | 775,058 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 1,868,777 | 2,055,083 | ||
Accumulated deferred investment tax credits | 90,041 | 92,439 | ||
Obligations under capital leases | 42,766 | 35,740 | ||
Other regulatory liabilities | 47,662 | 58,129 | ||
Decommissioning | 234,108 | 221,291 | ||
Accumulated provisions | 97,446 | 93,165 | ||
Long-term debt | 1,147,644 | 1,172,400 | ||
Other | 95,870 | 146,576 | ||
TOTAL | 3,624,314 | 3,874,823 | ||
Commitments and Contingencies | ||||
MEMBERS' EQUITY | ||||
Preferred membership interests without sinking fund | 100,000 | 100,000 | ||
Members' equity | 1,342,650 | 1,105,172 | ||
TOTAL | 1,442,650 | 1,205,172 | ||
TOTAL LIABILITIES AND MEMBERS' EQUITY | $5,682,071 | $5,855,053 | ||
See Notes to Respective Financial Statements. |
ENTERGY LOUISIANA, LLC | ||||||||
STATEMENTS OF MEMBERS' EQUITY AND COMPREHENSIVE INCOME | ||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | ||||||||
2007 | 2006 | |||||||
(In Thousands) | ||||||||
MEMBERS' EQUITY | ||||||||
Members' Equity - Beginning of period | $1,367,152 | $1,186,436 | ||||||
Add: | ||||||||
Net income | 30,798 | $30,798 | 37,954 | $37,954 | ||||
Deduct: | ||||||||
Distributions declared: | ||||||||
Preferred membership interests | 1,737 | 1,737 | 1,737 | 1,737 | ||||
Other | - | 50 | ||||||
1,737 | 1,787 | |||||||
Members' Equity - End of period | $1,396,213 | $1,222,603 | ||||||
ACCUMULATED OTHER COMPREHENSIVE | ||||||||
INCOME (Net of Taxes): | ||||||||
Balance at beginning of period: | ||||||||
Pension and other postretirement liabilities | ($25,184) | $- | ||||||
Pension and other postretirement liabilities (net of tax expense of $466) | 511 | 511 | - | - | ||||
Balance at end of period: | ||||||||
Pension and other postretirement liabilities | ($24,673) | $- | ||||||
Comprehensive Income | $29,572 | $36,217 | ||||||
Six Months Ended | ||||||||
2007 | 2006 | |||||||
(In Thousands) | ||||||||
MEMBERS' EQUITY | ||||||||
Members' Equity - Beginning of period | $1,344,003 | $1,105,172 | ||||||
Add: | ||||||||
Net income | 54,566 | $54,566 | 55,350 | $55,350 | ||||
Additional equity from parent | 1,119 | 65,703 | ||||||
55,685 | 121,053 | |||||||
Deduct: | ||||||||
Distributions declared: | ||||||||
Preferred membership interests | 3,475 | 3,475 | 3,475 | 3,475 | ||||
Other | - | 147 | ||||||
3,475 | 3,622 | |||||||
Members' Equity - End of period | $1,396,213 | $1,222,603 | ||||||
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 $932) | 1,022 | 1,022 | - | - | ||||
Balance at end of period: | ||||||||
Pension and other postretirement liabilities | ($24,673) | $- | ||||||
Comprehensive Income | $52,113 | $51,875 | ||||||
See Notes to Financial Statements. | ||||||||
94
ENTERGY LOUISIANA, LLC | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
�� | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2007 | 2006 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $185 | $163 | $22 | 14 | ||||
Commercial | 137 | 116 | 21 | 18 | ||||
Industrial | 217 | 177 | 40 | 23 | ||||
Governmental | 11 | 9 | 2 | 22 | ||||
Total retail | 550 | 465 | 85 | 18 | ||||
Sales for resale | ||||||||
Associated companies | 70 | 53 | 17 | 32 | ||||
Non-associated companies | 2 | 3 | (1) | (33) | ||||
Other | 34 | 30 | 4 | 17 | ||||
Total | $656 | $551 | $105 | 19 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 1,854 | 1,947 | (93) | (5) | ||||
Commercial | 1,375 | 1,382 | (7) | (1) | ||||
Industrial | 3,268 | 3,175 | 93 | 3 | ||||
Governmental | 109 | 105 | 4 | 4 | ||||
Total retail | 6,606 | 6,609 | (3) | - - | ||||
Sales for resale | ||||||||
Associated companies | 610 | 571 | 39 | 7 | ||||
Non-associated companies | 26 | 25 | 1 | 4 | ||||
Total | 7,242 | 7,205 | 37 | 1 | ||||
Six Months Ended | Increase/ | |||||||
Description | 2007 | 2006 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $381 | $324 | $57 | 18 | ||||
Commercial | 273 | 235 | 38 | 16 | ||||
Industrial | 442 | 370 | 72 | 19 | ||||
Governmental | 22 | 19 | 3 | 16 | ||||
Total retail | 1,118 | 948 | 170 | 18 | ||||
Sales for resale | ||||||||
Associated companies | 107 | 133 | (26) | (20) | ||||
Non-associated companies | 4 | 5 | (1) | (20) | ||||
Other | 45 | 17 | 28 | 165 | ||||
Total | $1,274 | $1,103 | $171 | 16 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 3,807 | 3,718 | 89 | 2 | ||||
Commercial | 2,674 | 2,628 | 46 | 2 | ||||
Industrial | 6,496 | 6,069 | 427 | 7 | ||||
Governmental | 224 | 216 | 8 | 4 | ||||
Total retail (1) | 13,201 | 12,631 | 570 | 5 | ||||
Sales for resale | ||||||||
Associated companies | 952 | 1,295 | (343) | (26) | ||||
Non-associated companies | 58 | 39 | 19 | 49 | ||||
Total | 14,211 | 13,965 | 246 | 2 | ||||
(1) 2006 billed electric energy sales includes 96 GWh of billings related to 2005 deliveries that were billed in 2006 because of billing delays following Hurricane Katrina, which results in an increase of 666 GWh in 2007, or 5.3%. | ||||||||
95
ENTERGY LOUISIANA, LLC | ||||
STATEMENTS OF MEMBERS' EQUITY | ||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||
(Unaudited) | ||||
Three Months Ended | ||||
2006 | 2005 | |||
(In Thousands) | ||||
MEMBERS' EQUITY | ||||
Members' Equity - Beginning of period | $1,222,603 | $1,080,780 | ||
Add: | ||||
Net income | 71,802 | 42,860 | ||
Additional equity from parent | 50,000 | - | ||
121,802 | 42,860 | |||
Deduct: | ||||
Distributions declared: | ||||
Common equity | - - | 27,100 | ||
Preferred membership interests | 1,738 | - - | ||
Other | 17 | - - | ||
1,755 | 27,100 | |||
Members' Equity - End of period | $1,342,650 | $1,096,540 | ||
Nine Months Ended | ||||
2006 | 2005 | |||
(In Thousands) | ||||
MEMBERS' EQUITY | ||||
Members' Equity - Beginning of period | $1,105,172 | $1,029,346 | ||
Add: | ||||
Net income | 127,152 | 118,794 | ||
Additional equity from parent | 115,703 | - | ||
242,855 | 118,794 | |||
Deduct: | ||||
Distributions declared: | ||||
Common equity | - - | 51,600 | ||
Preferred membership interests | 5,213 | - - | ||
Other | 164 | - - | ||
5,377 | 51,600 | |||
Members' Equity - End of period | $1,342,650 | $1,096,540 | ||
See Notes to Respective Financial Statements. | ||||
96
ENTERGY LOUISIANA, LLC | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $286 | $283 | $3 | 1 | ||||
Commercial | 160 | 159 | 1 | 1 | ||||
Industrial | 219 | 225 | (6) | (3) | ||||
Governmental | 10 | 10 | - | - - | ||||
Total retail | 675 | 677 | (2) | - - | ||||
Sales for resale | ||||||||
Associated companies | 50 | 112 | (62) | (55) | ||||
Non-associated companies | 5 | 5 | - | - - | ||||
Other | 33 | (33) | 66 | 200 | ||||
Total | $763 | $761 | $2 | - - | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 2,924 | 2,802 | 122 | 4 | ||||
Commercial | 1,697 | 1,605 | 92 | 6 | ||||
Industrial | 3,353 | 3,146 | 207 | 7 | ||||
Governmental | 112 | 101 | 11 | 11 | ||||
Total retail | 8,086 | 7,654 | 432 | 6 | ||||
Sales for resale | ||||||||
Associated companies | 665 | 980 | (315) | (32) | ||||
Non-associated companies | 50 | 43 | 7 | 16 | ||||
Total | 8,801 | 8,677 | 124 | 1 | ||||
Nine Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $610 | $620 | ($10) | (2) | ||||
Commercial | 396 | 396 | - | - - | ||||
Industrial | 589 | 612 | (23) | (4) | ||||
Governmental | 30 | 30 | - | - - | ||||
Total retail | 1,625 | 1,658 | (33) | (2) | ||||
Sales for resale | ||||||||
Associated companies | 183 | 159 | 24 | 15 | ||||
Non-associated companies | 10 | 10 | - | - - | ||||
Other | 47 | 62 | (15) | (24) | ||||
Total | $1,865 | $1,889 | ($24) | (1) | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 6,642 | 6,625 | 17 | - - | ||||
Commercial | 4,325 | 4,252 | 73 | 2 | ||||
Industrial | 9,422 | 9,603 | (181) | (2) | ||||
Governmental | 328 | 327 | 1 | - - | ||||
Total retail | 20,717 | 20,807 | (90) | - - | ||||
Sales for resale | ||||||||
Associated companies | 1,960 | 1,410 | 550 | 39 | ||||
Non-associated companies | 89 | 89 | - | - - | ||||
Total | 22,766 | 22,306 | 460 | 2 | ||||
97
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 in late 2005 and early 2006 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. In March 2006, the Governor of Mississippi signed a law that established a mechanism by which the MPSC could authorize and certify an electric utility financing order and the state could issue general obligation bonds to finance 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 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 a review of Entergy Mississippi's total storm restoration costs in an Application for an Accounting Order proceeding. The Stipulation stated that the procedural schedule of Entergy Mississippi's December 2005 filing seeking recovery of hurricane costs through an existing Entergy Mississippi storm damage rider 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 Hurricane Katrina 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 included the $89 million of Hurricane Katrina restoration costs plus $80 million to build Entergy Mississippi's storm damage reserve for the future. Entergy Mississippi's filing stated that the amount actually financed through the state bonds would be net of any CDBG funds that Entergy Mississippi received.
In October 2006, the Mississippi Development Authority approved for payment and Entergy Mississippi received $81 million in CDBG funding for Hurricane Katrina costs. The MPSC then issued a financing order authorizing the issuance of $48 million of state general obligation bonds, with $8 million for the remainder of Entergy Mississippi's certified Hurricane Katrina restoration costs and $40 million for the increase in Entergy Mississippi's storm damage reserve. $30 million of the storm reserve will be set aside in a restricted account. Entergy Mississippi expects to forward the financing order to the state bond commission, as per the March 2006 law, and expects to receive the proceeds from the state general obligation bond issuance in the first quarter of 2007.
98
Results of Operations
Net Income
Third
Second Quarter 20062007 Compared to ThirdSecond Quarter 20052006
Net income decreased $2.1remained relatively unchanged, decreasing $0.4 million.
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Net income increased slightly by $1.7 million primarily due to higher net revenue, higher other operationincome, and maintenancelower interest expense, higher taxes other than income taxes, and higher interest charges, partiallysignificantly offset by higher net revenue.
Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005
Net income decreased $4.0 million primarily due to higher other operation and maintenance expense, higher taxes other than income taxes,expenses and higher interest charges, partially offset by higher net revenue.depreciation and amortization expenses.
Net Revenue
Third
Second Quarter 20062007 Compared to ThirdSecond Quarter 20052006
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 charges (credits). Following is an analysis of the change in net revenue comparing the thirdsecond quarter of 20062007 to the thirdsecond quarter of 2005.2006.
Amount | ||
(In Millions) | ||
| $ | |
Price applied to unbilled electric sales |
| |
|
| |
|
| |
Other |
| |
| $ |
The deferral of Attala costs variance is primarily due to a decline for the under-recovery ofquarter in the Attala power plant costs that will beare recovered through the power management rider. The net income effect of this cost deferral is partially offset by Attala costs in other operation and maintenance expenses, depreciation expense, and taxes other than income taxes.
The volume/weather variance is primarily due to an increase in electricity usage, including the effect of more favorable weather during the third quarter of 2006 compared to the third quarter of 2005. Billed electricity usage increased a total of 133 GWh in the service territory.
Gross operating revenues, fuel and purchased power expenses, and other regulatory charges (credits)
Gross operating revenues increaseddecreased primarily due to an increasea decrease of $24.3$96.1 million in fuel cost recovery revenues due to lower fuel rates, partially offset by higher fuel rates.power management rider revenue of $34 million and an increase of $20.6 million in gross wholesale revenue primarily as a result of increased sales to affiliated systems.
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, partially offset by a decreasean increase in the market pricesprice of natural gas and purchased power and a decrease in demand.gas.
9996
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 decreased recovery of Attala costs, as discussed above. There is no material effect on net income due to quarterly adjustments to the power management recovery rider.
NineSix Months Ended SeptemberJune 30, 20062007 Compared to NineSix Months Ended SeptemberJune 30, 20052006
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 charges (credits). Following is an analysis of the change in net revenue comparing the ninesix months ended SeptemberJune 30, 20062007 to the ninesix months ended SeptemberJune 30, 2005.2006.
Amount | ||
(In Millions) | ||
| $ | |
|
| |
Volume/weather |
| |
|
| |
Attala costs | (9.8) | |
Other |
| |
| $ |
The deferralvolume/weather variance is primarily due to increased usage primarily during the unbilled sales period. See Note 1 to the financial statements in the Form 10-K for a discussion of the accounting for unbilled revenues.
The price applied to unbilled electric sales variance is due to the exclusion in 2007 of the power management rider component in the unbilled calculation in addition to the effect of the decrease in the power management rider included in the unbilled calculation in 2006.
The Attala costs variance is primarily due to a decline for the under-recovery ofyear-to-date period in the Attala power plant costs that will beare recovered through the power management rider. The net income effect of this cost deferral is partially offset by Attala costs in other operation and maintenance expenses, depreciation expense, and taxes other than income taxes.
The volume/weather variance is primarily due to an increase in electricity usage, including the effect of more favorable weather during the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005. Billed electricity usage increased a total of 326 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 charges (credits)
Gross operating revenues increaseddecreased primarily due to an increasea decrease of $263.2$243.4 million in fuel cost recovery revenues due to lower fuel rates, partially offset by higher fuel rates.power management rider revenue of $66 million and an increase of $24.1 million in gross wholesale revenue primarily as a result of increased sales to affiliated systems.
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.
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 decreased recovery of Attala costs, as discussed above. There is no material effect on net income due to quarterly adjustments to the power management recovery rider.
10097
Other Income Statement Variances
ThirdSecond Quarter 20062007 Compared to ThirdSecond Quarter 20052006
Other operation and maintenance expense increased primarily due to:
Taxes other than income taxes increased primarily due to higher franchise taxes in 2006 due toassessed values and higher revenues.
Interest charges increased primarily due to additional long-term debt issued to finance the Attala power plant purchase.millage rates for ad valorem tax purposes.
NineSix Months Ended SeptemberJune 30, 20062007 Compared to NineSix Months Ended SeptemberJune 30, 20052006
Other operation and maintenance expenseexpenses increased primarily due to:
The increase was partially offset by a decrease of $4.0$3.7 million in customer service costs, including an increaseloss reserves for storm damage in customer write-offs;
The increase was partially offset by a decrease of $5.1 million in plant maintenance costs at certain fossil plants and a decrease of $3.0 million due to a planned decrease in vegetation maintenance in 2006.MPSC.
Taxes other than income taxesDepreciation and amortization expenses increased primarily due to an increase in plant in service. The increase is also due to a revision made in the first quarter of 2006 of estimated depreciable lives involving certain intangible assets.
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 2006 due to higher revenues.
Interest charges increased primarily due to additional long-term debt issued to finance the Attala power plant purchase.January 2007.
Income Taxes
The effective income tax ratesrate was 29.1% for the third quarterssecond quarter of 20062007 and 2005 were 36.9% and 37.4%, respectively.30.6% for the six months ended June 30, 2007. The difference in the effective income tax rates for the ninesecond quarter of 2007 and the six months ended SeptemberJune 30, 2007 versus the federal statutory rate of 35% is primarily due to the amortization of investment tax credits and excess deferred income taxes and a federal tax reserve adjustment, partially offset by state income taxes and book and tax differences related to utility plant items. The decrease for the six months ended June 30, 2007 is also due to book and tax differences related to the allowance for equity funds used during construction.
The effective income tax rate was 35.1% for the second quarter of 2006 and 2005 were 34.8% and 35.8%, respectively.31.7% for the six months ended June 30, 2006. The difference in the effective tax ratesrate for the third quarters ofsix months ended June 30, 2006 and 2005 versus the federal statutory rate of 35.0% areis 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.
Hurricane Katrina Storm Cost Recovery
In October 2006 the MPSC issued a financing order authorizing the issuance of state income taxes.bonds to finance $8 million of Entergy Mississippi's certified Hurricane Katrina restoration costs and $40 million for an increase in Entergy Mississippi's storm damage reserve. $30 million of the storm damage reserve will be set aside in a restricted account. A Mississippi state entity issued the bonds in May 2007, and Entergy Mississippi
10198
received proceeds of $48 million. Entergy Mississippi will not report the bonds in its balance sheet because the bonds are the obligation of the state entity, and there is no recourse against Entergy Mississippi in the event of a bond default. To service the bonds, Entergy Mississippi will collect a system restoration charge on behalf of the state, and will remit the collections to the state. By analogy to and in accordance with Entergy's accounting policy for collection of sales taxes, Entergy Mississippi will not report the collections as revenue because it is merely acting as the billing and collection agent for the state.
Liquidity and Capital Resources
Cash Flow
Cash flows for the ninesix months ended SeptemberJune 30, 20062007 and 20052006 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 |
| 297,417 |
| 56,441 | Operating activities |
| 64,936 |
| 221,502 |
| Investing activities |
| (272,823) |
| (100,644) | Investing activities |
| 16,619 |
| (200,314) |
| Financing activities |
| 8,180 |
| (25,236) | Financing activities |
| (107,814) |
| 12,293 |
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents |
| 32,774 |
| (69,439) | Net increase (decrease) in cash and cash equivalents |
| (26,259) |
| 33,481 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $37,297 |
| $10,957 | Cash and cash equivalents at end of period |
| $47,158 |
| $38,004 |
Operating Activities
Cash flow from operations increased $241.0decreased $156.6 million for the ninesix months ended SeptemberJune 30, 20062007 compared to the ninesix months ended SeptemberJune 30, 20052006 primarily due to increased collectiondecreased recovery of deferred fuel and purchased power costs and the income tax refund in 2006, discussed below, partially offset by an increase of $15 million in pension contributions.
In the first quarter of 2006, Entergy Corporation received an income tax refund as a resultreceived in 2006, partially offset by the timing of net operating loss carryback provisions contained in the Gulf Opportunity Zone Actpayments to vendors and securitization proceeds 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.$48 million.
Investing Activities
NetInvesting activities provided $16.6 million in cash used in investing activities increased $172.2flow for the six months ended June 30, 2007 compared to using $200.3 million for the ninesix months ended SeptemberJune 30, 2006 compared to the nine months ended September 30, 2005 primarily due to:
Financing Activities
Entergy Mississippi provided $8.2 million of cash forMississippi's financing activities used $107.8 million for the ninesix months ended SeptemberJune 30, 20062007 compared to using $25.2providing $12.3 million for financing activities for the ninesix months ended SeptemberJune 30, 20052006 primarily due to the issuanceredemption, prior to maturity, of $100 million of first mortgage bonds duringin January 2007, and the issuance of $100 million of long-term debt in 2006, and a decrease of $17 million in common stock dividends, partially offset by money pool activity.
10299
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 SeptemberJune 30, 20062007 is primarily due to the issuanceredemption of $100 million of First Mortgage Bonds in January 2006.2007.
|
| June 30, |
| December 31, |
|
|
|
|
|
Net debt to net capital |
| 48.6% |
| 51.9% |
Effect of subtracting cash from debt |
| 1.8% |
| 2.4% |
Debt to capital |
| 50.4% |
| 54.3% |
|
| September 30, |
| December 31, |
|
|
|
|
|
Net debt to net capital |
| 53.0% |
| 52.6% |
Effect of subtracting cash from debt |
| 1.2% |
| 0.1% |
Debt to capital |
| 54.2% |
| 52.7% |
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.
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 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 facility upgrades at the Attala plant plus $3 million in other costs, bringing the total capital cost of the project to approximately $111 million.The planned construction and other capital investments line includes the majority of the estimated cost of the Attala acquisition as a 2006 capital commitment.
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.
As a consequence of the events surrounding Entergy Mississippi's ongoing efforts to recover storm restoration costs associated with Hurricane Katrina, in October 2006, the MPSC approved a revision to Entergy Mississippi's power management rider. The revision has the effect of allowing Entergy Mississippi to recover the annual ownership costs of the Attala plant until such time as there has been a resolution of Entergy Mississippi's recovery of its storm restoration costs and a general rate case can be filed.
103
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 sources of capital. Following are updates to the information presented in the Form 10-K.
Entergy Mississippi's receivables from or (payables to) the money pool were as follows:
September 30, |
| December 31, |
| September 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$73,137 |
| ($84,066) |
| $24,015 |
| $21,584 |
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$19,057 |
| $39,573 |
| $30,499 |
| ($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 $25 millionhas two separate credit facility to $30facilities in the aggregate amount of $50 million and renewed itboth facilities through May 2007. Entergy Mississippi also entered into a new $20 million credit facility through May 2007.2008. Borrowings on theseunder the credit facilities may be secured by a security interest in Entergy Mississippi's accounts receivable. No borrowings were outstanding onunder either facility as of SeptemberJune 30, 2006.2007.
In January 2006,2007, Entergy Mississippi issuedredeemed, prior to maturity, its $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.
The Pension Protection Act of 2006
The Pension Protection Act of 2006 was signed by the President on August 17, 2006. The intent of the legislation is to require companies to fund 100% of their pension liability; and then for companies to fund, on a going-forward basis, an amount generally estimated to be the amount that the pension liability increases each year due to an additional year of service by the employees eligible for pension benefits. The legislation requires that funding shortfalls be eliminated by companies over a seven-year period, beginning inApril 2008.
The Pension Protection Act also extended the provisions of the Pension Funding Equity Act that would have expired in 2006 had the Pension Protection Act not been enacted, which increased the allowed discount rate used to calculate the pension funding liability. Entergy Mississippi is in the process of evaluating the effects of the new legislation, but expects that the implementation of the Pension Protection Act will not result in annual pension contributions going-forward that are materially higher than the levels required in 2005 and 2006.
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 showed that an increase of $3.1$12.9 million in annual electric revenues is warranted. TheIn June 2007 the MPSC approved a settlement providingjoint stipulation between Entergy Mississippi and the Mississippi Public Utilities Staff that provides for a $1.8$10.5 million rate increase, which was implemented in August 2006.effective beginning with July 2007 billings.
104100
Federal Regulation
See "
System Agreement Proceedings
See Entergy Corporation", "Independent Coordinator of Transmission", and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Available Flowgate Capacity Proceeding" in the "Significant Factors and Known Trends - Federal Regulation -System Agreement Litigation,APSC Complaint at the FERC,APSC System Agreement Investigation, andMPSC System Agreement Inquiry" for updates regarding proceedings involving the System Agreement.
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"for an update regarding Entergy's ICT proposal.
Available Flowgate Capacity (AFC) Proceeding
See Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -Available Flowgate Capacity Proceeding"Analysis for updates regardingto the AFC proceeding atdiscussion in the FERC.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.
In September 2006, FASB issued SFAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans", an amendment of FASB Statements Nos. 87, 88, 106 and 132(R)," to be effective December 31, 2006. SFAS 158 requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet with the offset recorded to other comprehensive income. Entergy Mississippi has previously disclosed its funded status in Note 10 to the domestic utility companies and System Energy financial statements in the Form 10-K. SFAS 158 also requires that changes in that funded status be recorded in other comprehensive income in the period in which the changes occur. Entergy Mississippi is generally allowed to recover pension and other postretirement benefit costs each period based upon costs calculated under SFAS 87 and SFAS 106. Entergy Mississippi's analysis including the regulatory accounting requirement s to support recording the majority of the effect of the adoption of this standard as a regulatory asset is not yet complete. Entergy Mississippi does not expect the implementation of this standard, however, to materially affect its financial position or results of operations.101
105
ENTERGY MISSISSIPPI, INC. | ENTERGY MISSISSIPPI, INC. | ENTERGY MISSISSIPPI, INC. | ||||||||||||||
INCOME STATEMENTS | INCOME STATEMENTS | INCOME STATEMENTS | ||||||||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | For the Three and Six Months Ended June 30, 2007 and 2006 | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||
2006 | 2005 | 2006 | 2005 | 2007 | 2006 | 2007 | 2006 | |||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | |||||||||||||
OPERATING REVENUES | ||||||||||||||||
Domestic electric | $429,460 | $406,765 | $1,190,543 | $946,255 | ||||||||||||
Electric | $345,916 | $387,849 | $616,441 | $761,083 | ||||||||||||
OPERATING EXPENSES | ||||||||||||||||
Operation and Maintenance: | ||||||||||||||||
Fuel, fuel-related expenses, and | ||||||||||||||||
gas purchased for resale | 169,458 | 49,886 | 532,616 | 123,177 | 101,101 | 184,001 | 172,075 | 363,158 | ||||||||
Purchased power | 117,316 | 199,029 | 357,076 | 459,313 | 109,286 | 115,334 | 205,121 | 239,760 | ||||||||
Other operation and maintenance | 53,475 | 39,497 | 144,487 | 128,228 | 52,593 | 50,047 | 97,708 | 91,012 | ||||||||
Taxes other than income taxes | 17,080 | 15,254 | 49,303 | 43,920 | 16,875 | 14,707 | 31,890 | 32,223 | ||||||||
Depreciation and amortization | 19,698 | 18,089 | 55,768 | 54,008 | 19,942 | 19,074 | 40,211 | 36,070 | ||||||||
Other regulatory charges (credits) - net | (6,717) | 22,095 | (63,625) | 20,129 | 9,489 | (36,266) | 19,284 | (56,908) | ||||||||
TOTAL | 370,310 | 343,850 | 1,075,625 | 828,775 | 309,286 | 346,897 | 566,289 | 705,315 | ||||||||
OPERATING INCOME | 59,150 | 62,915 | 114,918 | 117,480 | 36,630 | 40,952 | 50,152 | 55,768 | ||||||||
OTHER INCOME | �� | |||||||||||||||
Allowance for equity funds used during construction | 747 | 106 | 2,861 | 2,167 | 717 | 873 | 2,393 | 2,114 | ||||||||
Interest and dividend income | 1,979 | 947 | 2,934 | 2,275 | 1,193 | 726 | 2,641 | 955 | ||||||||
Miscellaneous - net | (289) | (324) | (1,321) | (1,015) | (60) | (470) | 2,192 | (1,032) | ||||||||
TOTAL | 2,437 | 729 | 4,474 | 3,427 | 1,850 | 1,129 | 7,226 | 2,037 | ||||||||
INTEREST AND OTHER CHARGES | ||||||||||||||||
Interest on long-term debt | 11,474 | 9,881 | 34,081 | 29,554 | 10,437 | 11,492 | 20,819 | 22,607 | ||||||||
Other interest - net | 1,194 | 962 | 4,063 | 2,407 | 1,247 | 757 | 2,482 | 2,869 | ||||||||
Allowance for borrowed funds used during construction | (499) | (443) | (1,896) | (1,787) | (461) | (583) | (1,580) | (1,397) | ||||||||
TOTAL | 12,169 | 10,400 | 36,248 | 30,174 | 11,223 | 11,666 | 21,721 | 24,079 | ||||||||
INCOME BEFORE INCOME TAXES | 49,418 | 53,244 | 83,144 | 90,733 | 27,257 | 30,415 | 35,657 | 33,726 | ||||||||
Income taxes | 18,232 | 19,917 | 28,914 | 32,465 | 7,926 | 10,668 | 10,917 | 10,682 | ||||||||
NET INCOME | 31,186 | 33,327 | 54,230 | 58,268 | 19,331 | 19,747 | 24,740 | 23,044 | ||||||||
Preferred dividend requirements and other | 707 | 909 | 2,121 | 2,609 | 707 | 707 | 1,414 | 1,414 | ||||||||
EARNINGS APPLICABLE TO | ||||||||||||||||
COMMON STOCK | $30,479 | $32,418 | $52,109 | $55,659 | $18,624 | $19,040 | $23,326 | $21,630 | ||||||||
See Notes to Respective Financial Statements. | ||||||||||||||||
See Notes to Financial Statements. | ||||||||||||||||
102
ENTERGY MISSISSIPPI, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $24,740 | $23,044 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Other regulatory charges (credits) - net | 19,284 | (56,908) | ||
Depreciation and amortization | 40,211 | 36,070 | ||
Deferred income taxes, investment tax credits, and non-current taxes accrued | (9,601) | 46,752 | ||
Changes in working capital: | ||||
Receivables | (51,782) | (6,727) | ||
Fuel inventory | (796) | (5,295) | ||
Accounts payable | 25,687 | (23,111) | ||
Taxes accrued | 3,390 | (2,960) | ||
Interest accrued | 1,166 | (377) | ||
Deferred fuel costs | (49,507) | 207,786 | ||
Other working capital accounts | 25,726 | 70,785 | ||
Provision for estimated losses and reserves | 39,016 | (31) | ||
Changes in other regulatory assets | 19,764 | (36,761) | ||
Other | (22,362) | (30,765) | ||
Net cash flow provided by operating activities | 64,936 | 221,502 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (72,305) | (82,229) | ||
Payment for purchase of plant | - | (88,199) | ||
Allowance for equity funds used during construction | 2,393 | 2,114 | ||
Changes in other temporary investments - net | 100,000 | (1,501) | ||
Change in money pool receivable - net | 13,915 | (30,499) | ||
Proceeds from sale of assets | 2,616 | - - | ||
Payment to storm reserve escrow account | (30,000) | - - | ||
Net cash flow provided by (used in) investing activities | 16,619 | (200,314) | ||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of long-term debt | - | 99,173 | ||
Retirement of long-term debt | (100,000) | - - | ||
Change in money pool payable - net | - | (84,066) | ||
Dividends paid: | ||||
Common stock | (6,400) | (1,400) | ||
Preferred stock | (1,414) | (1,414) | ||
Net cash flow provided by (used in) financing activities | (107,814) | 12,293 | ||
Net increase (decrease) in cash and cash equivalents | (26,259) | 33,481 | ||
Cash and cash equivalents at beginning of period | 73,417 | 4,523 | ||
Cash and cash equivalents at end of period | $47,158 | $38,004 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid/(received) during the period for: | ||||
Interest - net of amount capitalized | $21,050 | $24,777 | ||
Income taxes | $7,160 | ($52,278) | ||
See Notes to Financial Statements. | ||||
103
ENTERGY MISSISSIPPI, INC. | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
June 30, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $3,016 | $2,128 | ||
Temporary cash investment - at cost, | ||||
which approximates market | 44,142 | 71,289 | ||
Total cash and cash equivalents | 47,158 | 73,417 | ||
Accounts receivable: | ||||
Customer | 67,302 | 61,216 | ||
Allowance for doubtful accounts | (732) | (616) | ||
Associated companies | 59,354 | 45,040 | ||
Other | 8,548 | 9,032 | ||
Accrued unbilled revenues | 43,007 | 32,550 | ||
Total accounts receivable | 177,479 | 147,222 | ||
Accumulated deferred income taxes | 4,777 | - - | ||
Fuel inventory - at average cost | 8,441 | 7,645 | ||
Materials and supplies - at average cost | 30,655 | 28,607 | ||
Other special deposits | - - | 100,000 | ||
Prepayments and other | 10,877 | 7,398 | ||
TOTAL | 279,387 | 364,289 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 5,531 | 5,531 | ||
Non-utility property - at cost (less accumulated depreciation) | 5,209 | 6,061 | ||
Storm reserve escrow account | 30,000 | - - | ||
Note receivable - Entergy New Orleans | 7,610 | - - | ||
TOTAL | 48,350 | 11,592 | ||
UTILITY PLANT | ||||
Electric | 2,776,370 | 2,692,971 | ||
Property under capital lease | - - | 17 | ||
Construction work in progress | 59,204 | 79,950 | ||
TOTAL UTILITY PLANT | 2,835,574 | 2,772,938 | ||
Less - accumulated depreciation and amortization | 975,949 | 945,548 | ||
UTILITY PLANT - NET | 1,859,625 | 1,827,390 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 29,528 | 26,378 | ||
Other regulatory assets | 154,985 | 186,986 | ||
Long-term receivables | 2,288 | 2,288 | ||
Other | 24,033 | 21,968 | ||
TOTAL | 210,834 | 237,620 | ||
TOTAL ASSETS | $2,398,196 | $2,440,891 | ||
See Notes to Financial Statements. | ||||
104 | ||||
ENTERGY MISSISSIPPI, INC. | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
June 30, 2007 and December 31, 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Accounts payable: | ||||
Associated companies | $53,542 | $59,696 | ||
Other | 68,052 | 38,097 | ||
Customer deposits | 54,260 | 51,568 | ||
Taxes accrued | 49,077 | 45,687 | ||
Accumulated deferred income taxes | - - | 3,963 | ||
Interest accrued | 14,229 | 13,063 | ||
Deferred fuel costs | 45,729 | 95,236 | ||
System agreement cost equalization | 34,800 | - - | ||
Other | 11,385 | 17,624 | ||
TOTAL | 331,074 | 324,934 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 512,431 | 516,558 | ||
Accumulated deferred investment tax credits | 10,397 | 11,047 | ||
Asset retirement cost liabilities | 4,378 | 4,254 | ||
Accumulated provisions | 49,052 | 10,036 | ||
Pension and other postretirement liabilities | 65,060 | 64,604 | ||
Long-term debt | 695,234 | 795,187 | ||
Other | 45,626 | 46,253 | ||
TOTAL | 1,382,178 | 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 | 435,927 | 419,001 | ||
TOTAL | 684,944 | 668,018 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $2,398,196 | $2,440,891 | ||
See Notes to Financial Statements. | ||||
105
ENTERGY MISSISSIPPI, INC. | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2007 | 2006 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 113 | $ 137 | ($ 24) | (18) | ||||
Commercial | 105 | 128 | (23) | (18) | ||||
Industrial | 48 | 64 | (16) | (25) | ||||
Governmental | 10 | 12 | (2) | (17) | ||||
Total retail | 276 | 341 | (65) | (19) | ||||
Sales for resale | ||||||||
Associated companies | 36 | 15 | 21 | 140 | ||||
Non-associated companies | 9 | 11 | (2) | (18) | ||||
Other | 25 | 21 | 4 | 19 | ||||
Total | $ 346 | $ 388 | ($ 42) | (11) | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 1,141 | 1,144 | (3) | - - | ||||
Commercial | 1,144 | 1,128 | 16 | 1 | ||||
Industrial | 695 | 720 | (25) | (3) | ||||
Governmental | 101 | 100 | 1 | 1 | ||||
Total retail | 3,081 | 3,092 | (11) | - - | ||||
Sales for resale | ||||||||
Associated companies | 303 | 183 | 120 | 66 | ||||
Non-associated companies | 119 | 114 | 5 | 4 | ||||
Total | 3,503 | 3,389 | 114 | 3 | ||||
Six Months Ended | Increase/ | |||||||
Description | 2007 | 2006 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 214 | $ 282 | ($ 68) | (24) | ||||
Commercial | 195 | 258 | (63) | (24) | ||||
Industrial | 89 | 132 | (43) | (33) | ||||
Governmental | 19 | 25 | (6) | (24) | ||||
Total retail | 517 | 697 | (180) | (26) | ||||
Sales for resale | ||||||||
Associated companies | 52 | 23 | 29 | 126 | ||||
Non-associated companies | 15 | 19 | (4) | (21) | ||||
Other | 32 | 22 | 10 | 45 | ||||
Total | $ 616 | $ 761 | (145) | (19) | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 2,393 | 2,329 | 64 | 3 | ||||
Commercial | 2,213 | 2,168 | 45 | 2 | ||||
Industrial | 1,348 | 1,421 | (73) | (5) | ||||
Governmental | 195 | 193 | 2 | 1 | ||||
Total retail | 6,149 | 6,111 | 38 | 1 | ||||
Sales for resale | ||||||||
Associated companies | 449 | 254 | 195 | 77 | ||||
Non-associated companies | 203 | 182 | 21 | 12 | ||||
Total | 6,801 | 6,547 | 254 | 4 | ||||
106
ENTERGY MISSISSIPPI, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Nine Months Ended September 30, 2006 and 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $54,230 | $58,268 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Other regulatory charges (credits) - net | (63,625) | 20,129 | ||
Depreciation and amortization | 55,768 | 54,008 | ||
Deferred income taxes and investment tax credits | (59,855) | 28,915 | ||
Changes in working capital: | ||||
Receivables | (18,458) | (98,392) | ||
Fuel inventory | (3,033) | 793 | ||
Accounts payable | (39,966) | 170,044 | ||
Taxes accrued | 146,098 | (6,793) | ||
Interest accrued | 2,185 | 4,494 | ||
Deferred fuel costs | 222,177 | (100,646) | ||
Other working capital accounts | 17,470 | (3,530) | ||
Provision for estimated losses and reserves | (7) | (3,221) | ||
Changes in other regulatory assets | (39,436) | (67,012) | ||
Other | 23,869 | (616) | ||
Net cash flow provided by operating activities | 297,417 | 56,441 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (112,847) | (100,380) | ||
Payment for purchase of plant | (88,199) | - | ||
Allowance for equity funds used during construction | 2,861 | 2,167 | ||
Changes in other temporary investments - net | (1,501) | - | ||
Change in money pool receivable - net | (73,137) | (2,431) | ||
Net cash flow used in investing activities | (272,823) | (100,644) | ||
FINANCING ACTIVITIES | ||||
Proceeds from the issuance of: | ||||
Proceeds from the issuance of long-term debt | 99,167 | (55) | ||
Proceeds from the issuance of common stock | - | 226 | ||
Proceeds from the issuance of preferred stock | - | 29,229 | ||
Redemption of preferred stock | - | (30,269) | ||
Change in money pool payable - net | (84,066) | - | ||
Dividends paid: | ||||
Common stock | (4,800) | (21,900) | ||
Preferred stock | (2,121) | (2,467) | ||
Net cash flow provided by (used in) financing activities | 8,180 | (25,236) | ||
Net increase (decrease) in cash and cash equivalents | 32,774 | (69,439) | ||
Cash and cash equivalents at beginning of period | 4,523 | 80,396 | ||
Cash and cash equivalents at end of period | $37,297 | $10,957 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid/(received) during the period for: | ||||
Interest - net of amount capitalized | $34,367 | $16,186 | ||
Income taxes | ($65,803) | $4,446 | ||
See Notes to Respective Financial Statements |
107
ENTERGY MISSISSIPPI, INC. | ||||
BALANCE SHEETS | ||||
ASSETS | ||||
September 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT ASSETS | ||||
Cash and cash equivalents: | ||||
Cash | $4,324 | $4,523 | ||
Temporary cash investments - cost, | ||||
which approximates market | 32,973 | - - | ||
Total cash and cash equivalents | 37,297 | 4,523 | ||
Accounts receivable: | ||||
Customer | 110,076 | 102,202 | ||
Allowance for doubtful accounts | (1,030) | (1,826) | ||
Associated companies | 80,473 | 5,415 | ||
Other | 8,711 | 9,254 | ||
Accrued unbilled revenues | 42,122 | 33,712 | ||
Total accounts receivable | 240,352 | 148,757 | ||
Deferred fuel costs | - - | 113,956 | ||
Accumulated deferred income taxes | 3,003 | - - | ||
Fuel inventory - at average cost | 6,120 | 3,087 | ||
Materials and supplies - at average cost | 27,939 | 21,521 | ||
Prepayments and other | 5,077 | 62,759 | ||
TOTAL | 319,788 | 354,603 | ||
OTHER PROPERTY AND INVESTMENTS | ||||
Investment in affiliates - at equity | 5,531 | 5,531 | ||
Non-utility property - at cost (less accumulated depreciation) | 6,096 | 6,199 | ||
TOTAL | 11,627 | 11,730 | ||
UTILITY PLANT | ||||
Electric | 2,673,995 | 2,473,035 | ||
Property under capital lease | 30 | 50 | ||
Construction work in progress | 79,434 | 119,354 | ||
TOTAL UTILITY PLANT | 2,753,459 | 2,592,439 | ||
Less - accumulated depreciation and amortization | 922,280 | 886,687 | ||
UTILITY PLANT - NET | 1,831,179 | 1,705,752 | ||
DEFERRED DEBITS AND OTHER ASSETS | ||||
Regulatory assets: | ||||
SFAS 109 regulatory asset - net | 20,266 | 17,073 | ||
Other regulatory assets | 210,379 | 186,197 | ||
Long-term receivable | 2,443 | 3,270 | ||
Other | 30,670 | 32,418 | ||
TOTAL | 263,758 | 238,958 | ||
TOTAL ASSETS | $2,426,352 | $2,311,043 | ||
See Notes to Respective Financial Statements. | ||||
108 | ||||
ENTERGY MISSISSIPPI, INC. | ||||
BALANCE SHEETS | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
September 30, 2006 and December 31, 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
CURRENT LIABILITIES | ||||
Accounts payable: | ||||
Associated companies | $ 50,949 | $ 158,579 | ||
Other | 39,856 | 83,306 | ||
Customer deposits | 49,385 | 44,025 | ||
Taxes accrued | 39,775 | 33,121 | ||
Accumulated deferred income taxes | - - | 13,233 | ||
Interest accrued | 15,836 | 13,651 | ||
Deferred fuel costs | 108,221 | - - | ||
Obligations under capital leases | 15 | 40 | ||
Other | 15,936 | 2,739 | ||
TOTAL | 319,973 | 348,694 | ||
NON-CURRENT LIABILITIES | ||||
Accumulated deferred income taxes and taxes accrued | 540,401 | 491,857 | ||
Accumulated deferred investment tax credits | 11,375 | 12,358 | ||
Obligations under capital leases | - - | 11 | ||
Other regulatory liabilities | - - | 34,368 | ||
Retirement cost liabilities | 4,193 | 4,016 | ||
Accumulated provisions | 9,429 | 9,436 | ||
Long-term debt | 795,168 | 695,146 | ||
Other | 74,943 | 91,588 | ||
TOTAL | 1,435,509 | 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 | 421,853 | 374,544 | ||
TOTAL | 670,870 | 623,569 | ||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $2,426,352 | $2,311,043 | ||
See Notes to Respective Financial Statements. |
109
ENTERGY MISSISSIPPI, INC. | ||||||||
SELECTED OPERATING RESULTS | ||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 189 | $ 171 | $ 18 | 11 | ||||
Commercial | 133 | 122 | 11 | 9 | ||||
Industrial | 56 | 52 | 4 | 8 | ||||
Governmental | 12 | 11 | 1 | 9 | ||||
Total retail | 390 | 356 | 34 | 10 | ||||
Sales for resale | ||||||||
Associated companies | 13 | 30 | (17) | (57) | ||||
Non-associated companies | 12 | 12 | - - | - - | ||||
Other | 15 | 9 | 6 | 67 | ||||
Total | $ 430 | $ 407 | $ 23 | 6 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 1,905 | 1,822 | 83 | 5 | ||||
Commercial | 1,443 | 1,397 | 46 | 3 | ||||
Industrial | 768 | 772 | (4) | (1) | ||||
Governmental | 125 | 117 | 8 | 7 | ||||
Total retail | 4,241 | 4,108 | 133 | 3 | ||||
Sales for resale | ||||||||
Associated companies | 143 | 269 | (126) | (47) | ||||
Non-associated companies | 161 | 171 | (10) | (6) | ||||
Total | 4,545 | 4,548 | (3) | - - | ||||
Nine Months Ended | Increase/ | |||||||
Description | 2006 | 2005 | (Decrease) | % | ||||
(Dollars In Millions) | ||||||||
Electric Operating Revenues: | ||||||||
Residential | $ 471 | $ 366 | $ 105 | 29 | ||||
Commercial | 391 | 298 | 93 | 31 | ||||
Industrial | 188 | 143 | 45 | 31 | ||||
Governmental | 37 | 29 | 8 | 28 | ||||
Total retail | 1,087 | 836 | 251 | 30 | ||||
Sales for resale | ||||||||
Associated companies | 36 | 47 | (11) | (23) | ||||
Non-associated companies | 31 | 29 | 2 | 7 | ||||
Other | 36 | 34 | 2 | 6 | ||||
Total | $ 1,190 | $ 946 | $ 244 | 26 | ||||
Billed Electric Energy | ||||||||
Sales (GWh): | ||||||||
Residential | 4,235 | 4,078 | 157 | 4 | ||||
Commercial | 3,611 | 3,475 | 136 | 4 | ||||
Industrial | 2,189 | 2,171 | 18 | 1 | ||||
Governmental | 318 | 303 | 15 | 5 | ||||
Total retail | 10,353 | 10,027 | 326 | 3 | ||||
Sales for resale | ||||||||
Associated companies | 397 | 390 | 7 | 2 | ||||
Non-associated companies | 342 | 348 | (6) | (2) | ||||
Total | 11,092 | 10,765 | 327 | 3 | ||||
110
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 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. The U.S. Department of Housing and Urban Development has allocated approximately $10.4 billion for Louisiana, $5.5 billion for Mississippi, and $0.5 billion for Texas. The states, in turn, will administer the grants. In March 2006,2007, the City Council certified that Entergy New Orleans provided a justification statement tohas incurred $205 million in storm-related costs through December 2006 that are eligible for CDBG funding under the state action plan, and local officials. The statement included all thecertified Entergy New Orleans' estimated costs of Hurricane Katrina damage, as well as a lost customer base component intended to help offset$465 million for the need for storm-related rate increases. The statement included justification for a request for $718 million in CDBG funding.gas system rebuild. In September 2006,April 2007, Entergy New Orleans presented a revised CDBG request toexecuted an agreement with the Louisiana Recovery Authority's Infrastructure Committe e. The updated requestOffice of $592 million takes into account the sale of output of Entergy New Orleans's share of Grand Gulf nuclear power into the wholesale market for a period of time longer than originally anticipated, lower operation and maintenance expenses, and the cessation of interest payments on long-term debt for an agreed-upon period of one year. In October 2006, the Louisiana Recovery Authority Board endorsed a resolution proposing to allocateCommunity Development under which $200 million inof CDBG funds will be made available to Entergy New Orleans to defray gas and electric utility system repair costs in an effort to provide rate relief forOrleans. Entergy New Orleans customers. The proposal will now be developed as an action plan amendment and published for public comment. Once public input is reviewed and considered,submitted the final plan will come before the Louisiana Recovery Authority Board, the Governor, and the Louisiana Legislature for approval before submission of the planagreement to the U. S. Department of Housing and Urban Development for its approval. The City Council will certify the amount of Entergy New Orleans' repair costs before they are submitted for funding.
In the first quarter 2006, Entergy New Orleans reduced its accrued accounts payable for storm restoration costs by $97.4 million, with corresponding reductions of $88.7 million in construction work in progress and $8.7 million in regulatory assets, basedbankruptcy 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. Although Entergy New Orleans reduced its accrual for restoration spending by these amounts, it continues to expect to incur the related costs over time and Entergy New Orleans still expects its storm restoration and business continuity costs to total approximately $275 million. As discussed further in the Form 10-K, in addition to the estimated storm restoration costs, it will be necessary for Entergy New Orleans to rebuild the gas distribution system in New Orleans due to the massive salt water intrusion into the system caused by the flooding. Entergy New Orleans currentl y expects the cost of the gas system rebuilding to be $355 million, with the project beginning in 2008 and extending for many years thereafter.
As discussed more fully in the Form 10-K, Entergy New Orleans is pursuing insurance recovery for its covered losses caused by Hurricane Katrina.April 25, 2007. Entergy New Orleans has received $7.2$176.8 million thus far on its insurance claims.of the funds as of June 30, 2007, and the remainder will be paid to Entergy New Orleans currently expects to receive payment for the majorityas it incurs and submits additional eligible costs.
Entergy reached an agreement with one of its estimated insurance recovery related toexcess insurers under which Entergy received $69.5 million in the second quarter 2007 in settlement of its Hurricane Katrina through 2009.
See "State and Local Rate Regulation"below for a discussion of rate filings made byclaim with that insurer. Entergy New Orleans directed towards recoverywas allocated $53.8 million of the proceeds. Entergy New Orleans has received a total of $70.7 million as of June 30, 2007 on its storm lossesHurricanes Katrina and restoration costs.
111
Rita insurance claims, including $60.4 million in 2007. Refer to Note 8 to the financial statements in the Form 10-K for a description of Entergy's non-nuclear property insurance coverage.
Bankruptcy Proceedings
See Note 14 to the domestic utility companies and System Energy financial statements in the Form 10-K for a discussion of the Entergy New Orleans bankruptcy proceeding. Following are updates to that discussion.
As discussed in the Form 10-K,On May 7, 2007, the bankruptcy court issued itsjudge entered an order in December 2005 giving final approval for the $200 million debtor-in-possession credit facility, and the indenture trustee forconfirming Entergy New Orleans' first mortgage bonds appealedplan of reorganization. With the order. On March 29, 2006receipt of CDBG funds, and the bankruptcy court approved a settlement amongagreement on insurance recovery with one of its excess insurers, Entergy New Orleans Entergy Corporation, andwaived the indenture trustee, and the indenture trustee dismissedconditions precedent in its appeal.
On October 23, 2006 Entergy New Orleans filed a plan of reorganization, and a disclosure statement with the bankruptcy court. Objections to the disclosure statement must be filed by November 29, 2006, and a hearing regarding its adequacy is scheduled for December 7, 2006. The period within which plan became effective on May 8, 2007. Following are significant terms in Entergy New Orleans' plan of reorganization:
The bankruptcy court also extended the time within whichallowed third-party prepetition accounts payable (approximately $29 million, including interest). Entergy New Orleans has an exclusive right to file a planpaid interest from September 23, 2005 at the Louisiana judicial rate of reorganization until November 15, 2006. Financial Guaranty Insurance Company (FGIC)interest for 2005 (6%) and 2006 (8%), and at the insurerLouisiana judicial rate of two series totaling $75 millioninterest plus 1% for 2007. The Louisiana judicial rate of Entergy New Orleans' first mortgage bonds, filed a motion to terminate the exclusive period within which Entergy New Orleans has an exclusive right to file and solicit acceptances of a plan of reorganization. FGIC asks the court to allow itself or other stakeholders the right to file an alternative and competing plan of reorganization and to solicit acceptancesinterest for such a proposed plan. FGIC's motion to terminate exclusivity2007 is set for hearing on November 15, 2006.
The plan of reorganization reflects Entergy New Orleans' continuing effort to work with 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. The plan of reorganization also provides full compensation to Entergy New Orleans' creditors whose claims are allowed by the bankruptcy court. Conditions precedent proposed in the plan of reorganization, as currently filed, before it can become effective include:
In addition, key factors that will continue to influence the timing and outcome of Entergy New Orleans' recovery efforts include the level of economic recovery of New Orleans and the number of customers that return to New Orleans, including the timing of their return.pool. Entergy New Orleans currently estimates that approximately 85,000 electric customersincluded in the principal amount of the notes accrued interest from September 23, 2005 at the Louisiana judicial rate of interest for 2005 (6%) and 65,000 gas customers have returned2006 (8%), and are taking service. Prior to Hurricane Katrina,at the Louisiana judicial rate of interest plus 1% for 2007 through the date of issuance of the notes. The Louisiana judicial rate of interest is 9.5% for 2007. Entergy New Orleans had approximately 190,000 electric customers and 145,000 gas customers.
112
The bankruptcy judge set awill pay interest on the notes from their date of April 19, 2006 by which creditors with prepetition claims against issuance at the Louisiana judicial rate of interest plus 1%.
107
Municipalization is one potential outcome of Entergy New Orleans' recovery effort that may be pursued by a stakeholder or stakeholders, either in the reorganization process or afterterms, and Entergy New Orleans exits from bankruptcy. In June 2006, the Louisiana Legislature passed a law that establishes a governance structure for a public power authority,paid its unpaid preferred dividends in arrears (approximately $1 million).
Results of Operations
Net Income
ThirdSecond Quarter 20062007 Compared to ThirdSecond Quarter 20052006
Net income increased slightly$1.2 million in the second quarter 2007 compared to the second quarter 2006 primarily due to higher net revenue, lower taxes other than income taxes, and lower interest charges, substantiallypartially offset by higher other operation and maintenance expense.expenses and higher interest charges.
NineSix Months Ended SeptemberJune 30, 20062007 Compared to NineSix Months Ended SeptemberJune 30, 20052006
Net income increased $3.3decreased $1.2 million for the six months ended June 30, 2007 compared to the six months ended June 30, 2006 primarily due to lowerhigher other operation and maintenance expense, lowerexpenses and higher interest charges, lower taxes other than income taxes, and higher other income, partially offset by lowerhigher net revenue.
Net Revenue
ThirdSecond Quarter 20062007 Compared to ThirdSecond Quarter 20052006
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 (credits). Following is an analysis of the changes in net revenue comparing the third quarter of 2006 to the third quarter of 2005.
| ||
| ||
|
| |
| ||
|
| |
|
| |
|
| |
|
| |
|
|
113
The fuel revenue 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 all Grand Gulf costs through Entergy New Orleans' fuel adjustment clause, without a corresponding change in base rates (a significant portion of Grand Gulf costs was previously recovered through base rates). In June 2006, the City Council also approved the return of Grand Gulf output to serve Entergy New Orleans' retail load effective July 1, 2006, as discussed further below in the nine months ended discussion.
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 206 GWh compared to the third quarter of 2005, a decline of 15%. Entergy New Orleans currently estimates that approximately 85,000 electric customers and 65,000 gas customers have returned and are taking service. Prior to Hurricane Katrina, Entergy New Orleans had approximately 190,000 electric customers and 145,000 gas customers.
The price applied to unbilled electric sales variance is primarily 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 a decrease in sales volume as a result of the discontinuance of sales of Grand Gulf output to third parties. In June 2006, the City Council approved the return of Grand Gulf output to serve Entergy New Orleans' retail load effective July 1, 2006.
Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 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 nine months ended September 30, 2006second quarter of 2007 to the nine months ended September 30, 2005.second quarter of 2006.
Amount | ||
(In Millions) | ||
| $ | |
Fuel recovery | 21.5 | |
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 primarily in the service territory caused by customer losses following Hurricane Katrina.residential sector in 2007 compared to the same period in 2006. Billed retailresidential electricity usage decreased a total of 1,283increased 51 GWh compared to the nine months ended September 30, 2005, a declinesecond quarter of 32%2006, an increase of 25%. Entergy New Orleans currently estimates that approximately 85,000 electric customers and 65,000 gas customers have returned and are taking service. Prior to Hurricane Katrina, Entergy New Orleans had approximately 190,000 electric customers and 145,000 gas customers.
The price applied to unbilled electric salesstorm reserve rider variance is primarily 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 decreasestorm rider effective March 2007 as a result of the City Council's approval of a settlement agreement in October 2006. The approved storm reserve will be created over a ten-year period through the average cost of generation due torider and the funds will be held in a changerestricted escrow account. The settlement agreement is discussed in the generation mix from natural gas to solid fuel resources. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Critical Accounting Estimates" in the
114
Form 10-K and Note 12 to the domestic utility companies and System Energy financial statements in the Form 10-K for further discussion of the accounting for unbilled revenues.10-K.
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.108
The net wholesale revenue variance is due to an increase inmore energy available for sales for resale in 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 Entergy New Orleans' retail customer demandusage caused by Hurricane Katrina and to provide revenue support for the costs of Entergy New Orleans' share of Grand Gulf. In
Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
Net revenue 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 City Council approvedchanges in net revenue comparing the return of Grand Gulf outputsix months ended June 30, 2007 to serve Entergy New Orleans' retail load effective July 1,the six months ended June 30, 2006.
Amount | ||
(In Millions) | ||
2006 net revenue | $91.6 | |
Fuel recovery | 42.6 | |
Volume/weather | 13.7 | |
Net wholesale revenue | (41.3) | |
Other | 5.5 | |
2007 net revenue | $112.1 |
The fuel revenuerecovery 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 all Grand Gulf costs through Entergy New Orleans'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 an increase in electricity usage in the service territory in 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 increased a total of 300 GWh compared to the same period in 2006, an increase of 19%.
The net wholesale revenue variance is due to more energy available for resale in 2006 due to the decrease in retail usage caused by customer losses following Hurricane Katrina. In 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 Entergy New Orleans' retail customer usage caused by Hurricane Katrina and to provide revenue support for the costs of Entergy New Orleans' share of Grand Gulf.
Other Income Statement Variances
ThirdSecond Quarter 20062007 Compared to ThirdSecond Quarter 20052006
Taxes other than income taxes decreasedOther operation and maintenance expenses increased primarily due to lower franchise taxesthe return to normal operations work in 2007 versus storm restoration activities in 2006 as a result of Hurricane Katrina and increased loss reserves.
Other income increased due to lower revenues.carrying costs related to the Hurricane Katrina storm costs regulatory asset.
Interest and other charges decreasedincreased primarily due to the cessation of interest accruals on the first mortgage bonds as a result of the bankruptcy filing, partially offset by interest accrued on the DIP credit facility.bonds. On September 23, 2006, when the one-year interest moratorium agreed to by the bondholders expired, Entergy New Orleans resumed interest accrualaccruals on its outstanding first mortgage bonds. In addition, beginning May 8, 2007, Entergy New Orleans began accruing interest on third-party and affiliate accounts payable as a result of its plan of reorganization filed with the First Mortgage Bonds.bankruptcy court, as discussed above.
109
NineSix Months Ended SeptemberJune 30, 20062007 Compared to NineSix Months Ended SeptemberJune 30, 20052006
Other operation and maintenance expenses decreasedincreased primarily due to shifts in costs fromthe return to normal operations and maintenance work toin 2007 versus storm restoration workactivities in 2006 as a result of Hurricane Katrina.Katrina and increased loss reserves.
Taxes other thanOther income taxes decreased primarilyincreased due to lower franchise taxes in 2006 duecarrying costs 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 bonds as a result of the bankruptcy filing, partially offset by interest accrued on the DIP credit facility.bonds. On September 23, 2006, when the one-year interest moratorium agreed to by the bondholders expired, Entergy New Orleans resumed interest accrualaccruals on its outstanding first mortgage bonds. In addition, beginning May 8, 2007, Entergy New Orleans began accruing interest on third-party and affiliate accounts payable as a result of its plan of reorganization filed with the First Mortgage Bonds.bankruptcy court, as discussed above.
Income Taxes
The effective income tax ratesrate was 42.0% for the third quarterssecond quarter of 20062007 and 2005 were 40.9% and 41.5%, respectively.40.3% for the six months ended June 30, 2007. The effective income tax ratesrate for the nine months ended September 30, 2006 and 2005 were 39.1% and 40.7%, respectively. The differences in the effective income tax rates for the periods presented versussecond quarter of 2007 was higher than the federal statutory rate of 35.0% are35% primarily due to state income taxes and book and tax differences related to utility plant items. The effective income tax rate for the six months ended June 30, 2007 was higher than the federal statutory rate of 35% primarily due to state income taxes and book and tax differences related to utility plant items, partially offset by the amortization of deferred income taxes and book and tax differences related to the allowance for equity funds used during construction.
115
Preferred Dividends
No preferred dividends were declared duringThe effective income tax rate was 38.6% for the firstsecond quarter of 2006. Due to its bankruptcy, Entergy New Orleans did not pay the preferred stock dividends due October 1, 2005; January 1, 2006; or April 1, 2006.
As discussed further in the Form 10-K, if dividends with respect to the 4.75% preferred stock were 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,38.3% for the matter would be heard by the bankruptcy court. Entergy New Orleans declared and paid the dividend due on July 1 and October 1, 2006, and intends to declare and pay the dividends on the 4.75% preferred shares each quarter pending resol ution of its plan of reorganization.six months ended June 30, 2006.
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.
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 September 30, 2006, Entergy New Orleans had approximately $32 million of outstanding borrowings under the DIP credit facility. Management currently expects the bankruptcy court-authorized funding level to be sufficient to fund Entergy New Orleans' expected level of operations.
As discussed in the Form 10-K, borrowings under the DIP credit facility would be due in full, and the agreement would terminate, at the earliest of several times or events, which included August 23, 2006. Entergy Corporation and Entergy New Orleans agreed to an amendment to the DIP credit agreement that extends the August 23, 2006 maturity date to August 23, 2007.
Cash Flow
Cash flows for the ninesix months ended SeptemberJune 30, 20062007 and 20052006 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 |
| 96,197 |
| (33,652) | Operating activities |
| 131,477 |
| 78,453 |
| Investing activities |
| (57,952) |
| (31,641) | Investing activities |
| 30,804 |
| (47,845) |
| Financing activities |
| (73,344) |
| 104,025 | Financing activities |
| (53,345) |
| (50,343) |
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents |
| (35,099) |
| 38,732 | Net increase (decrease) in cash and cash equivalents |
| 108,936 |
| (19,735) |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $12,957 |
| $46,686 | Cash and cash equivalents at end of period |
| $126,029 |
| $28,321 |
116
Operating Activities
Net cash provided by operating activities increased $53 million for the six months ended June 30, 2007 compared to the six months ended June 30, 2006 primarily due to the receipt of CDBG funds of $176.8 million. The increase was partially offset by Entergy New Orleans provided $96.2 million of cash in operating activities for 2006 compared to using $33.7 millionOrleans' use of cash for 2005 primarily due to:
These increases were partially offset by increased payments to vendors.
other bankruptcy-related items. In the first quarter of 2006,addition, Entergy CorporationNew Orleans received an income tax refund as a result of net operating loss carryback provisions contained$60 million in the Gulf Opportunity Zone Act of 2005, as discussed in Note 3 to the domestic utilities companies and System Energy financial statements in the Form 10-K. In accordance with Entergy's intercompany tax allocation agreement, in April 2006, Entergy Corporation distributed $71 million of the refund to Entergy New Orleans. Entergy New Orleans used the income tax refund to repay a portion of the borrowings outstanding under the DIP credit facility.2006.
110
Investing Activities
Net cash used in investing activities increased $26.3 million for the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005 primarily due to capital expenditure activity related to Hurricane Katrina.
Financing Activities
Entergy New Orleans investing activities used $73.3$47.8 million in financing activitiesof cash for the ninesix months ended SeptemberJune 30, 2006 compared to providing $104$30.8 million of cash for the ninesix months ended SeptemberJune 30, 20052007 primarily due to:
The increases above were partially offset by a decrease in dividends paid of $5.3 million.service since 1984.
Capital Structure
Entergy New Orleans' capitalization is shown in the following table. The decrease in the net debt to net capital ratio is primarily due to the increase in cash as a result of the receipt of CDBG funding and insurance proceeds.
|
| September 30, |
| December 31, |
|
|
|
|
|
Debt to capital |
| 57.3% |
| 66.4% |
|
| June 30, |
| December 31, |
|
|
|
|
|
Net debt to net capital |
| 48.6% |
| 60.4% |
Effect of subtracting cash from debt | 13.1% | 1.5% | ||
Debt to capital |
| 61.7% |
| 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.
117 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.
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:
September 30, |
| December 31, |
| September 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
($37,166) |
| ($37,166) |
| ($37,166) |
| $1,413 |
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$ - |
| ($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. As discussed above inBankruptcy Proceedings, Entergy New Orleans remains a participantissued notes due 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 isthree years in bankruptcy proceedings. The money pool borrowings reflected on Entergy New Orleans' balance sheet as of September 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 authorized by the bankruptcy judge, in July 2006, Entergy New Orleans set off $15 millionsatisfaction of its cash held byaffiliate prepetition accounts payable, including its indebtedness to the lender against the outstanding debt on the credit facility.Entergy System money pool.
The Pension Protection Act of 2006
The Pension Protection Act of 2006 was signed by the President on August 17, 2006. The intent of the legislation is to require companies to fund 100% of their pension liability; and then for companies to fund, on a going-forward basis, an amount generally estimated to be the amount that the pension liability increases each year due to an additional year of service by the employees eligible for pension benefits. The legislation requires that funding shortfalls be eliminated by companies over a seven-year period, beginning in 2008.
The Pension Protection Act also extended the provisions of the Pension Funding Equity Act that would have expired in 2006 had the Pension Protection Act not been enacted, which increased the allowed discount rate used to calculate the pension funding liability. Entergy New Orleans is in the process of evaluating the effects of the new legislation, but expects that the implementation of the Pension Protection Act will not result in annual pension contributions going-forward that are materially higher than the levels that would have been required prior to passage of the Pension Protection Act.
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
111
Federal Regulation
See "System Agreement Proceedings", "Independent Coordinator of Transmission", and "Available Flowgate Capacity Proceeding" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis for updates to the discussion in the Form 10-K.
State and Local Rate Regulation
In June 2006, Entergy New Orleans made its annual formula rate plan filings with the City Council. The filings presented 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 during the rate-effective period (a significant portion of Grand Gulf costs was previously recovered through base rates).
118
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 sought to recover the electric and gas restoration costs that it had 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 sought to establish a storm reserve to provide for the risk of another storm.
In October 2006, the City Council approved a settlement agreement that resolves Entergy New Orleans' rate and storm-related rider filings by providing for phased-in rate increases, while taking into account with respect to storm restoration costs the anticipated receipt of CDBG funding as recommended by the Louisiana Recovery Authority. The settlement provides for a 0% increase in electric base rates through December 2007, with a $3.9 million increase implemented in January 2008. Recovery of all Grand Gulf costs through the fuel adjustment clause will continue. Gas base rates will increase by $4.75 million in November 2006, an additional $1.5 million in March 2007, and an additional $4.75 million in November 2007. The settlement calls for Entergy New Orleans to file a base rate case by July 31, 2008. Any storm costs in excess of CDBG funding and insurance proceeds will be addressed in that base rate case. A storm cost recovery rider is authorized but initially set at $0 because o f the anticipated receipt of CDBG funding. The settlement also authorizes a $75 million storm reserve for damage from future storms, which will be created over a ten-year period through a storm reserve rider beginning in March 2007. These storm reserve funds will be held in a restricted escrow account.
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 at the FERC,APSC System Agreement Investigation, andMPSC System Agreement Inquiry" for updates regarding proceedings involving the System Agreement.
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.
Available Flowgate Capacity (AFC) Proceeding
See Entergy Corporation and Subsidiaries' "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS -Significant Factors and Known Trends - Federal Regulation -Available Flowgate Capacity Proceeding"for updates regarding the AFC proceeding at the FERC.
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.
119postretirement 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.
In September 2006, FASB issued SFAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans", an amendment of FASB Statements Nos. 87, 88, 106 and 132(R)," to be effective December 31, 2006. SFAS 158 requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet with the offset recorded to other comprehensive income. Entergy New Orleans has previously disclosed its funded status in Note 10 to the domestic utility companies and System Energy financial statements in the Form 10-K. SFAS 158 also requires that changes in that funded status be recorded in other comprehensive income in the period in which the changes occur. Entergy New Orleans is generally allowed to recover pension and other postretirement benefit costs each period based upon costs calculated under SFAS 87 and SFAS 106. Entergy New Orleans' analysis including the regulatory accounting requirements to support recording the majority of the effect of the adoption of this standard as a regulatory asset is not yet complete. Entergy New Orleans does not expect the implementation of this standard, however, to materially affect its financial position or results of operations.112
120
ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ||||||||||||||
(DEBTOR-IN-POSSESSION) | ||||||||||||||||
INCOME STATEMENTS | INCOME STATEMENTS | INCOME STATEMENTS | ||||||||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | For the Three and Six Months Ended June 30, 2007 and 2006 | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||
2006 | 2005 | 2006 | 2005 | 2007 | 2006 | 2007 | 2006 | |||||||||
(In Thousands) | (In Thousands) | (In Thousands) | (In Thousands) | |||||||||||||
OPERATING REVENUES | ||||||||||||||||
Domestic electric | $146,105 | $169,823 | $363,181 | $459,794 | ||||||||||||
Electric | $137,668 | $117,827 | $259,287 | $217,076 | ||||||||||||
Natural gas | 15,538 | 19,770 | 70,678 | 110,993 | 25,820 | 18,128 | 72,843 | 55,140 | ||||||||
TOTAL | 161,643 | 189,593 | 433,859 | 570,787 | 163,488 | 135,955 | 332,130 | 272,216 | ||||||||
OPERATING EXPENSES | ||||||||||||||||
Operation and Maintenance: | ||||||||||||||||
Fuel, fuel-related expenses, and | ||||||||||||||||
gas purchased for resale | 56,098 | 54,460 | 107,199 | 190,399 | 54,162 | 16,433 | 131,593 | 51,101 | ||||||||
Purchased power | 46,504 | 79,915 | 173,952 | 202,699 | 46,196 | 67,211 | 86,355 | 127,448 | ||||||||
Other operation and maintenance | 22,193 | 21,592 | 54,135 | 72,582 | 22,247 | 16,279 | 46,795 | 30,089 | ||||||||
Taxes other than income taxes | 9,164 | 11,497 | 25,853 | 32,869 | 9,028 | 8,089 | 18,802 | 16,689 | ||||||||
Depreciation and amortization | 8,775 | 8,634 | 24,747 | 25,779 | 7,987 | 8,508 | 16,110 | 15,972 | ||||||||
Reorganization items | 4,853 | - - | 6,793 | - - | - - | 2,115 | - - | 3,793 | ||||||||
Other regulatory charges (credits) - net | 1,040 | (455) | 3,120 | 2,054 | ||||||||||||
Other regulatory charges - net | 1,032 | 1,037 | 2,065 | 2,080 | ||||||||||||
TOTAL | 148,627 | 175,643 | 395,799 | 526,382 | 140,652 | 119,672 | 301,720 | 247,172 | ||||||||
OPERATING INCOME | 13,016 | 13,950 | 38,060 | 44,405 | 22,836 | 16,283 | 30,410 | 25,044 | ||||||||
OTHER INCOME | ||||||||||||||||
Allowance for equity funds used during construction | 540 | 286 | 2,528 | 814 | 268 | 909 | 1,459 | 1,988 | ||||||||
Interest and dividend income | 768 | 631 | 2,357 | 1,157 | 3,292 | 786 | 6,025 | 1,589 | ||||||||
Miscellaneous - net | (123) | (208) | (255) | (585) | (188) | 20 | (367) | (132) | ||||||||
TOTAL | 1,185 | 709 | 4,630 | 1,386 | 3,372 | 1,715 | 7,117 | 3,445 | ||||||||
INTEREST AND OTHER CHARGES | ||||||||||||||||
Interest on long-term debt | 455 | 3,237 | 824 | 10,241 | 3,245 | 185 | 6,490 | 369 | ||||||||
Other interest - net | 1,603 | 678 | 4,741 | 1,546 | 2,426 | 997 | 6,735 | 3,138 | ||||||||
Allowance for borrowed funds used during construction | (428) | (217) | (2,034) | (634) | (199) | (743) | (1,097) | (1,606) | ||||||||
TOTAL | 1,630 | 3,698 | 3,531 | 11,153 | 5,472 | 439 | 12,128 | 1,901 | ||||||||
INCOME BEFORE INCOME TAXES | 12,571 | 10,961 | 39,159 | 34,638 | 20,736 | 17,559 | 25,399 | 26,588 | ||||||||
Income taxes | 5,141 | 4,544 | 15,312 | 14,111 | 8,718 | 6,785 | 10,231 | 10,171 | ||||||||
NET INCOME | 7,430 | 6,417 | 23,847 | 20,527 | 12,018 | 10,774 | 15,168 | 16,417 | ||||||||
Preferred dividend requirements and other | 93 | - - | 185 | 482 | 241 | 92 | 482 | 92 | ||||||||
EARNINGS APPLICABLE TO | ||||||||||||||||
COMMON STOCK | $7,337 | $6,417 | $23,662 | $20,045 | $11,777 | $10,682 | $14,686 | $16,325 | ||||||||
See Notes to Respective Financial Statements. | ||||||||||||||||
See Notes to Financial Statements. | ||||||||||||||||
121113
(Page left blank intentionally)
122114
ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ||||||
(DEBTOR-IN-POSSESSION) | ||||||||
STATEMENTS OF CASH FLOWS | STATEMENTS OF CASH FLOWS | STATEMENTS OF CASH FLOWS | ||||||
For the Nine Months Ended September 30, 2006 and 2005 | ||||||||
For the Six Months Ended June 30, 2007 and 2006 | For the Six Months Ended June 30, 2007 and 2006 | |||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||
2006 | 2005 | 2007 | 2006 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING ACTIVITIES | ||||||||
Net income | $23,847 | $20,527 | $15,168 | $16,417 | ||||
Adjustments to reconcile net income to net cash flow provided by (used in) operating activities: | ||||||||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||||||
Other regulatory charges - net | 3,120 | 2,054 | 2,065 | 2,080 | ||||
Depreciation and amortization | 24,747 | 25,779 | 16,110 | 15,972 | ||||
Deferred income taxes and investment tax credits | (3,154) | 14,216 | ||||||
Deferred income taxes, investment tax credits, and non-current taxes accrued | 4,240 | 61,464 | ||||||
Changes in working capital: | ||||||||
Receivables | 11,147 | (46,993) | 5,310 | 8,438 | ||||
Fuel inventory | 4,494 | (2,816) | 856 | 6,068 | ||||
Accounts payable | (6,045) | 102,935 | (27,401) | (3,613) | ||||
Taxes accrued | 73,000 | 16,426 | 3,856 | 5,510 | ||||
Interest accrued | 1,098 | (2,197) | (13,205) | 549 | ||||
Deferred fuel costs | 2,202 | (38,698) | (9,864) | (3,022) | ||||
Other working capital accounts | (4,245) | (10,428) | (7,017) | (6,533) | ||||
Provision for estimated losses and reserves | 98 | (1,467) | 2,455 | (81) | ||||
Changes in pension liability | 4,393 | (10,694) | ||||||
Changes in other regulatory assets | (45,320) | (113,109) | 179,753 | (32,658) | ||||
Other | 6,815 | 10,813 | (40,849) | 7,862 | ||||
Net cash flow provided by (used in) operating activities | 96,197 | (33,652) | ||||||
Net cash flow provided by operating activities | 131,477 | 78,453 | ||||||
INVESTING ACTIVITIES | ||||||||
Construction expenditures | (60,480) | (34,095) | (34,837) | (49,833) | ||||
Allowance for equity funds used during construction | 2,528 | 814 | 1,459 | 1,988 | ||||
Change in money pool receivable - net | - - | 1,640 | ||||||
Net cash flow used in investing activities | (57,952) | (31,641) | ||||||
Insurance proceeds | 55,406 | - - | ||||||
Proceeds from the sale of assets | 10,046 | - - | ||||||
Change in other investments - net | (1,270) | - - | ||||||
Net cash flow provided by (used in) investing activities | 30,804 | (47,845) | ||||||
FINANCING ACTIVITIES | ||||||||
Borrowings on DIP credit facility | - - | 60,000 | ||||||
Repayment on DIP credit facility | (58,159) | - - | ||||||
Proceeds from the issuance of long-term debt | - - | 29,783 | ||||||
Retirement of long-term debt | - - | (30,065) | ||||||
Changes in money pool payable - net | - - | 35,331 | ||||||
Changes in short-term borrowing | (15,000) | 15,000 | ||||||
Repayment of DIP credit facility | (51,934) | (50,251) | ||||||
Dividends paid: | ||||||||
Common stock | - - | (5,300) | ||||||
Preferred stock | (185) | (724) | (1,411) | (92) | ||||
Net cash flow provided by (used in) financing activities | (73,344) | 104,025 | ||||||
Net cash flow used in financing activities | (53,345) | (50,343) | ||||||
Net increase (decrease) in cash and cash equivalents | (35,099) | 38,732 | 108,936 | (19,735) | ||||
Cash and cash equivalents at beginning of period | 48,056 | 7,954 | 17,093 | 48,056 | ||||
Cash and cash equivalents at end of period | $12,957 | $46,686 | $126,029 | $28,321 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid/(received) during the period for: | ||||||||
Interest - net of amount capitalized | $3,914 | $13,404 | $10,684 | $2,589 | ||||
Income taxes | ($59,062) | ($18,000) | $92 | ($59,730) | ||||
See Notes to Respective Financial Statements. | ||||||||
See Notes to Financial Statements. |
123
115
ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ||||||
(DEBTOR-IN-POSSESSION) | ||||||||
BALANCE SHEETS | BALANCE SHEETS | BALANCE SHEETS | ||||||
ASSETS | ASSETS | ASSETS | ||||||
September 30, 2006 and December 31, 2005 | ||||||||
June 30, 2007 and December 31, 2006 | June 30, 2007 and December 31, 2006 | |||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||
2006 | 2005 | 2007 | 2006 | |||||
(In Thousands) | (In Thousands) | |||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $12,957 | $48,056 | ||||||
Cash | $1,608 | $3,886 | ||||||
Temporary cash investments - at cost | ||||||||
which approximates market | 124,421 | 13,207 | ||||||
Total cash and cash equivalents | 126,029 | 17,093 | ||||||
Accounts receivable: | ||||||||
Customer | 61,631 | 82,052 | 51,142 | 58,999 | ||||
Allowance for doubtful accounts | (10,781) | (25,422) | (7,402) | (10,563) | ||||
Associated companies | 5,065 | 17,895 | 10,175 | 17,797 | ||||
Other | 6,933 | 6,530 | 8,312 | 8,428 | ||||
Accrued unbilled revenues | 30,758 | 23,698 | 30,882 | 23,758 | ||||
Total accounts receivable | 93,606 | 104,753 | 93,109 | 98,419 | ||||
Deferred fuel costs | 28,391 | 30,593 | 28,860 | 18,996 | ||||
Fuel inventory - at average cost | 3,554 | 8,048 | 4,185 | 5,041 | ||||
Materials and supplies - at average cost | 6,905 | 8,961 | 8,430 | 7,825 | ||||
Prepayments and other | 6,880 | 61,581 | 10,435 | 5,641 | ||||
TOTAL | 152,293 | 261,992 | 271,048 | 153,015 | ||||
OTHER PROPERTY AND INVESTMENTS | ||||||||
Investment in affiliates - at equity | 3,259 | 3,259 | 3,259 | 3,259 | ||||
Non-utility property at cost (less accumulated depreciation) | 1,107 | 1,107 | 1,016 | 1,107 | ||||
Other property and investments | 1,270 | - - | ||||||
TOTAL | 4,366 | 4,366 | 5,545 | 4,366 | ||||
UTILITY PLANT | ||||||||
Electric | 745,271 | 691,045 | 734,311 | 698,081 | ||||
Natural gas | 193,642 | 189,207 | 198,344 | 186,932 | ||||
Construction work in progress | 53,759 | 202,353 | 14,648 | 21,824 | ||||
TOTAL UTILITY PLANT | 992,672 | 1,082,605 | 947,303 | 906,837 | ||||
Less - accumulated depreciation and amortization | 437,717 | 428,053 | 500,324 | 446,673 | ||||
UTILITY PLANT - NET | 554,955 | 654,552 | 446,979 | 460,164 | ||||
DEFERRED DEBITS AND OTHER ASSETS | �� | |||||||
Regulatory assets: | ||||||||
Other regulatory assets | 175,389 | 166,133 | 119,802 | 295,440 | ||||
Long term receivables | 1,022 | 1,812 | 936 | 936 | ||||
Other | 21,883 | 31,266 | 10,535 | 7,230 | ||||
TOTAL | 198,294 | 199,211 | 131,273 | 303,606 | ||||
TOTAL ASSETS | $909,908 | $1,120,121 | $854,845 | $921,151 | ||||
See Notes to Respective Financial Statements. | ||||||||
See Notes to Financial Statements. | ||||||||
124 | ||||||||
116 | 116 | |||||||
ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ||||||
(DEBTOR-IN-POSSESSION) | ||||||||
BALANCE SHEETS | BALANCE SHEETS | BALANCE SHEETS | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
September 30, 2006 and December 31, 2005 | ||||||||
June 30, 2007 and December 31, 2006 | June 30, 2007 and December 31, 2006 | |||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||
2006 | 2005 | 2007 | 2006 | |||||
(In Thousands) | (In Thousands) | |||||||
CURRENT LIABILITIES | ||||||||
DIP credit facility | $31,841 | $90,000 | $ - | $51,934 | ||||
Notes payable | - - | 15,000 | ||||||
Accounts payable: | ||||||||
Associated companies | 42,254 | 55,923 | 26,374 | 94,686 | ||||
Other | 44,809 | 228,496 | 23,475 | 76,831 | ||||
Customer deposits | 13,137 | 16,930 | 16,232 | 14,808 | ||||
Taxes accrued | 2,781 | - - | 5,942 | 2,086 | ||||
Accumulated deferred income taxes | 5,915 | 1,898 | 8,125 | 2,924 | ||||
Interest accrued | 2,022 | 1,195 | 4,799 | 18,004 | ||||
Other | 4,304 | 2,018 | 2,183 | 6,154 | ||||
TOTAL CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE | 147,063 | 411,460 | ||||||
TOTAL CURRENT LIABILITIES | 87,130 | 267,427 | ||||||
NON-CURRENT LIABILITIES | ||||||||
Accumulated deferred income taxes and taxes accrued | 123,750 | 125,653 | 98,525 | 98,884 | ||||
Accumulated deferred investment tax credits | 3,253 | 3,570 | 2,981 | 3,157 | ||||
SFAS 109 regulatory liability - net | 60,009 | 52,229 | 72,180 | 71,870 | ||||
Other regulatory liabilities | - - | 591 | 9,522 | - - | ||||
Retirement cost liability | 2,547 | 2,421 | 2,680 | 2,591 | ||||
Accumulated provisions | 2,185 | 2,119 | 10,840 | 8,385 | ||||
Pension liability | 40,087 | 35,694 | ||||||
Pension and other postretirement liabilities | 29,822 | 60,033 | ||||||
Long-term debt | 304,080 | 229,875 | ||||||
Gas system rebuild insurance proceeds | 44,819 | - - | ||||||
Other | 5,378 | 5,730 | 3,812 | 5,161 | ||||
TOTAL NON-CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE | 237,209 | 228,007 | ||||||
TOTAL NON-CURRENT LIABILITIES | 579,261 | 479,956 | ||||||
LIABILITIES SUBJECT TO COMPROMISE | 332,264 | 310,944 | ||||||
TOTAL LIABILITIES | 716,536 | 950,411 | ||||||
Commitments and Contingencies | ||||||||
SHAREHOLDERS' EQUITY | ||||||||
Preferred stock without sinking fund | 19,780 | 19,780 | 19,780 | 19,780 | ||||
Common stock, $4 par value, authorized 10,000,000 | ||||||||
shares; issued and outstanding 8,435,900 shares in 2006 | ||||||||
and 2005 | 33,744 | 33,744 | ||||||
shares; issued and outstanding 8,435,900 shares in 2007 | ||||||||
and 2006 | 33,744 | 33,744 | ||||||
Paid-in capital | 36,294 | 36,294 | 36,294 | 36,294 | ||||
Retained earnings | 103,554 | 79,892 | 98,636 | 83,950 | ||||
TOTAL | 193,372 | 169,710 | 188,454 | 173,768 | ||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $909,908 | $1,120,121 | $854,845 | $921,151 | ||||
See Notes to Respective Financial Statements. | ||||||||
See Notes to Financial Statements. |
125117
ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ENTERGY NEW ORLEANS, INC. | ||||||||||||||
(DEBTOR-IN-POSSESSION) | ||||||||||||||||
SELECTED OPERATING RESULTS | SELECTED OPERATING RESULTS | SELECTED OPERATING RESULTS | ||||||||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | For the Three and Six Months Ended June 30, 2007 and 2006 | |||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Three Months Ended | Increase/ | Three Months Ended | Increase/ | |||||||||||||
Description | 2006 | 2005 | (Decrease) | % | 2007 | 2006 | (Decrease) | % | ||||||||
(Dollars In Millions) | (Dollars In Millions) | |||||||||||||||
Electric Operating Revenues: | ||||||||||||||||
Residential | $41 | $56 | $ (15) | (27) | $30 | $22 | $8 | 37 | ||||||||
Commercial | 51 | 43 | 8 | 19 | 43 | 37 | 6 | 16 | ||||||||
Industrial | 14 | 12 | 2 | 17 | 11 | 10 | 1 | 10 | ||||||||
Governmental | 16 | 18 | (2) | (11) | 17 | 14 | 3 | 21 | ||||||||
Total retail | 122 | 129 | (7) | (5) | 101 | 83 | 18 | 22 | ||||||||
Sales for resale | ||||||||||||||||
Associated companies | 19 | 26 | (7) | (27) | 26 | 4 | 22 | 550 | ||||||||
Non-associated companies | 0 | 3 | (3) | (100) | - | 18 | (18) | (100) | ||||||||
Other | 5 | 12 | (7) | (58) | 11 | 13 | (2) | (15) | ||||||||
Total | $146 | $170 | $ (24) | (14) | $138 | $118 | $20 | 17 | ||||||||
Billed Electric Energy | ||||||||||||||||
Sales (GWh): | ||||||||||||||||
Residential | 349 | 538 | (189) | (35) | 257 | 206 | 51 | 25 | ||||||||
Commercial | 501 | 475 | 26 | 5 | 419 | 402 | 17 | 4 | ||||||||
Industrial | 162 | 156 | 6 | 4 | 134 | 141 | (7) | (5) | ||||||||
Governmental | 166 | 215 | (49) | (23) | 176 | 161 | 15 | 9 | ||||||||
Total retail | 1,178 | 1,384 | (206) | (15) | 986 | 910 | 76 | 8 | ||||||||
Sales for resale | ||||||||||||||||
Associated companies | 205 | 468 | (263) | (56) | 225 | 6 | 219 | 3,650 | ||||||||
Non-associated companies | 2 | 43 | (41) | (95) | 4 | 369 | (365) | (99) | ||||||||
Total | 1,385 | 1,895 | (510) | (27) | 1,215 | 1,285 | (70) | (5) | ||||||||
Nine Months Ended | Increase/ | Six Months Ended | Increase/ | |||||||||||||
Description | 2006 | 2005 | (Decrease) | % | 2007 | 2006 | (Decrease) | % | ||||||||
(Dollars In Millions) | (Dollars In Millions) | |||||||||||||||
Electric Operating Revenues: | ||||||||||||||||
Residential | $80 | $123 | ($43) | (35) | $55 | $39 | $16 | 41 | ||||||||
Commercial | 123 | 117 | 6 | 5 | 81 | 72 | 9 | 13 | ||||||||
Industrial | 33 | 28 | 5 | 18 | 21 | 19 | 2 | 11 | ||||||||
Governmental | 40 | 47 | (7) | (15) | 32 | 24 | 8 | 33 | ||||||||
Total retail | 276 | 315 | (39) | (12) | 189 | 154 | 35 | 23 | ||||||||
Sales for resale | ||||||||||||||||
Associated companies | 30 | 107 | (77) | (72) | 59 | 11 | 48 | 436 | ||||||||
Non-associated companies | 45 | 4 | 41 | 1,025 | - | 45 | (45) | (100) | ||||||||
Other | 12 | 34 | (22) | (65) | 11 | 7 | 4 | 57 | ||||||||
Total | $363 | $460 | ($97) | (21) | $259 | $217 | $42 | 19 | ||||||||
Billed Electric Energy | ||||||||||||||||
Sales (GWh): | ||||||||||||||||
Residential | 693 | 1,384 | (691) | (50) | 491 | 344 | 147 | 43 | ||||||||
Commercial | 1,263 | 1,546 | (283) | (18) | 815 | 762 | 53 | 7 | ||||||||
Industrial | 405 | 463 | (58) | (13) | 271 | 244 | 27 | 11 | ||||||||
Governmental | 433 | 684 | (251) | (37) | 340 | 267 | 73 | 27 | ||||||||
Total retail | 2,794 | 4,077 | (1,283) | (31) | 1,917 | 1,617 | 300 | 19 | ||||||||
Sales for resale | ||||||||||||||||
Associated companies | 331 | 1,474 | (1,143) | (78) | 575 | 126 | 449 | 356 | ||||||||
Non-associated companies | 778 | 54 | 724 | 1,341 | 6 | 776 | (770) | (99) | ||||||||
Total | 3,903 | 5,605 | (1,702) | (30) | 2,498 | 2,519 | (21) | (1) | ||||||||
126118
SYSTEM ENERGY RESOURCES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS
Results of Operations
System Energy's principal asset consists of a 90% ownership and leasehold interest in Grand Gulf. The capacity and energy from its 90% interest is sold under the Unit Power Sales Agreement to its only four customers, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. System Energy's operating revenues are derived from the allocation of the capacity, energy, and related costs associated with its 90% interest in Grand Gulf pursuant to the Unit Power Sales Agreement. Payments under the Unit Power Sales Agreement are System Energy's only source of operating revenues. Net income remained relatively unchangeddecreased by $2.6 million for the thirdsecond quarter of 2007 compared to the second quarter of 2006 compared to the third quarter of 2005. Net income increased by $8.0 million for the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005 primarily due to an increasea decrease in rate base in 2006the second quarter of 2007 resulting in higherlower operating income. Net income combined with higher interest income earned on money pool inv estments.decreased by $6.1 million for the six months ended June 30, 2007 compared to the six months ended June 30, 2006 primarily due to a decrease in rate base in 2007 result ing in lower operating income.
Liquidity and Capital Resources
Cash Flow
Cash flows for the ninesix months ended SeptemberJune 30, 20062007 and 20052006 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 |
| 14,387 |
| 188,312 | Operating activities |
| 87,053 |
| (83,809) |
| Investing activities |
| 91,895 |
| (215,743) | Investing activities |
| (26,960) |
| 162,738 |
| Financing activities |
| (129,889) |
| (108,790) | Financing activities |
| (74,235) |
| (92,989) |
Net decrease in cash and cash equivalents | Net decrease in cash and cash equivalents |
| (23,607) |
| (136,221) | Net decrease in cash and cash equivalents |
| (14,142) |
| (14,060) |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period |
| $52,097 |
| $80,134 | Cash and cash equivalents at end of period |
| $120,870 |
| $61,644 |
Operating Activities
The decrease of $173.9Operating activities provided $87.1 million in net cash provided by operating activitiesflow for the ninesix months ended SeptemberJune 30, 20062007 compared to using $83.8 million in cash flow for the ninesix months ended SeptemberJune 30, 2005 was2006 primarily due to an increasea decrease of $183.6$194.8 million in income tax payments.
Investing Activities
Investing activities provided $91.9used $27 million in cash flow for the ninesix months ended SeptemberJune 30, 20062007 compared to using $215.7providing $162.7 million in cash flow for the ninesix months ended SeptemberJune 30, 20052006 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.
127
Financing Activities
The increasedecrease of $21.1$18.8 million in net cash used in financing activities for the ninesix months ended SeptemberJune 30, 20062007 compared to the ninesix months ended SeptemberJune 30, 20052006 was primarily due to an increasea decrease of $26.9$19.1 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.
119
Capital Structure
System Energy's capitalization is balanced between equity and debt, as shown in the following table.
|
| September 30, |
| December 31, |
| June 30, |
| December 31, |
|
|
|
|
|
|
|
|
|
Net debt to net capital |
| 48.9% |
| 49.0% |
| 47.4% |
| 46.4% |
Effect of subtracting cash from debt |
| 1.5% |
| 2.1% |
| 3.7% |
| 4.2% |
Debt to capital |
| 50.4% |
| 51.1% |
| 51.1% |
| 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 updateare updates to the Form 10-K.
See the table in the Form 10-K under "Uses of Capital" which sets forth the amounts of System Energy's planned construction and other capital investments for 2007 through 2009, and the accompanying discussion. System Energy now expects to spend $73 million more through 2008 than the amount included in the Form 10-K planned capital investment estimate for initial development costs for potential new nuclear development at the Grand Gulf and River Bend sites, including licensing and design activities.
System Energy's receivables from the money pool were as follows:
September 30, |
| December 31, |
| September 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$147,349 |
| $277,287 |
| $244,323 |
| $61,592 |
June 30, |
| December 31, |
| June 30, |
| December 31, |
(In Thousands) | ||||||
|
|
|
|
|
|
|
$50,865 |
| $88,231 |
| $88,331 |
| $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.
The Pension Protection Act of 2006
The Pension Protection Act of 2006 was signed by the President on August 17, 2006. The intent of the legislation is to require companies to fund 100% of their pension liability; and then for companies to fund, on a going-forward basis, an amount generally estimated to be the amount that the pension liability increases each year due to an additional year of service by the employees eligible for pension benefits. The legislation requires that funding shortfalls be eliminated by companies over a seven-year period, beginning in 2008.
The Pension Protection Act also extended the provisions of the Pension Funding Equity Act that would have expired in 2006 had the Pension Protection Act not been enacted, which increased the allowed discount rate used to calculate the pension funding liability. System Energy is in the process of evaluating the effects of the new legislation, but expects that the implementation of the Pension Protection Act will not result in annual pension contributions going-forward that are materially higher than the levels required in 2005 and 2006.
128
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 pension and other retirement benefits.
Recently Issued Accounting Pronouncements
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for System Energy in the first quarter of 2007. The FASB's objective in issuing this interpretation is to increase comparability among companies in financial reporting of income taxes. FIN 48 establishes a "more-likely-than-not" recognition threshold that must be met before a tax benefit can be recognized in the financial statements. If a tax deduction is taken on a tax return, but does not meet the more-likely-than-not recognition threshold, an increase in income tax liability, above what is payable on the tax return, is required to be recorded. System Energy does not expect that the adoption of FIN 48 will materially affect its financial position, results of operations, or cash flows.
In September 2006, FASB issued SFAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans", an amendment of FASB Statements Nos. 87, 88, 106 and 132(R)," to be effective December 31, 2006. SFAS 158 requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet with the offset recorded to other comprehensive income. System Energy has previously disclosed its funded status in Note 10 to the domestic utility companies and System Energy financial statements in the Form 10-K. SFAS 158 also requires that changes in that funded status be recorded in other comprehensive income in the period in which the changes occur. System Energy is generally allowed to recoverqualified pension and other postretirement benefit costs each period based upon costs calculated under SFAS 87 and SFAS 106. System Energy's analysis including the regulatory accounting requirements to support recor ding the majority of the effect of the adoption of this standard as a regulatory asset is not yet complete. System Energy does not expect the implementation of this standard, however, to materially affect its financial position or results of operations.
129
SYSTEM ENERGY RESOURCES, INC. | ||||||||
INCOME STATEMENTS | ||||||||
For the Three and Nine Months Ended September 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Nine Months Ended | |||||||
2006 | 2005 | 2006 | 2005 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING REVENUES | ||||||||
Domestic electric | $146,577 | $140,583 | $407,407 | $391,737 | ||||
OPERATING EXPENSES | ||||||||
Operation and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 11,400 | 8,753 | 32,781 | 28,611 | ||||
Nuclear refueling outage expenses | 4,548 | 3,059 | 12,083 | 9,078 | ||||
Other operation and maintenance | 29,535 | 28,235 | 79,350 | 78,717 | ||||
Decommissioning | 6,032 | 6,354 | 17,776 | 18,722 | ||||
Taxes other than income taxes | 5,938 | 6,685 | 17,944 | 19,056 | ||||
Depreciation and amortization | 33,561 | 33,563 | 83,049 | 84,265 | ||||
Other regulatory credits - net | (3,073) | (3,100) | (8,819) | (11,611) | ||||
TOTAL | 87,941 | 83,549 | 234,164 | 226,838 | ||||
OPERATING INCOME | 58,636 | 57,034 | 173,243 | 164,899 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 462 | 419 | 1,920 | 1,046 | ||||
Interest and dividend income | 3,533 | 5,402 | 13,433 | 11,919 | ||||
Miscellaneous - net | (98) | (78) | (296) | (299) | ||||
TOTAL | 3,897 | 5,743 | 15,057 | 12,666 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 17,144 | 16,951 | 41,673 | 42,619 | ||||
Other interest - net | 22 | 7 | 76 | 15 | ||||
Allowance for borrowed funds used during construction | (146) | (132) | (605) | (331) | ||||
TOTAL | 17,020 | 16,826 | 41,144 | 42,303 | ||||
INCOME BEFORE INCOME TAXES | 45,513 | 45,951 | 147,156 | 135,262 | ||||
Income taxes | 18,816 | 19,031 | 60,103 | 56,185 | ||||
NET INCOME | $26,697 | $26,920 | $87,053 | $79,077 | ||||
See Notes to Respective Financial Statements. |
130
SYSTEM ENERGY RESOURCES, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Nine Months Ended September 30, 2006 and 2005 | ||||
(Unaudited) | ||||
2006 | 2005 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $87,053 | $79,077 | ||
Adjustments to reconcile net income to net cash flow provided by operating activities: | ||||
Other regulatory credits - net | (8,819) | (11,611) | ||
Depreciation, amortization, and decommissioning | 100,825 | 102,987 | ||
Deferred income taxes and investment tax credits | 88,518 | (15,023) | ||
Changes in working capital: | ||||
Receivables | (378) | (2,264) | ||
Accounts payable | 4,232 | 890 | ||
Taxes accrued | (250,687) | 36,484 | ||
Interest accrued | (15,414) | (13,762) | ||
Other working capital accounts | 3,027 | (4,190) | ||
Provision for estimated losses and reserves | 10 | 22 | ||
Changes in other regulatory assets | (1,607) | (810) | ||
Other | 7,627 | 16,512 | ||
Net cash flow provided by operating activities | 14,387 | 188,312 | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (20,994) | (16,712) | ||
Allowance for equity funds used during construction | 1,920 | 1,046 | ||
Nuclear fuel purchases | (370) | (48,262) | ||
Proceeds from sale/leaseback of nuclear fuel | 370 | 48,262 | ||
Proceeds from nuclear decommissioning trust fund sales | 59,342 | 71,233 | ||
Investment in nuclear decommissioning trust funds | (78,311) | (88,579) | ||
Changes in money pool receivable - net | 129,938 | (182,731) | ||
Net cash flow provided by (used in) investing activities | 91,895 | (215,743) | ||
FINANCING ACTIVITIES | ||||
Retirement of long-term debt | (22,989) | (28,790) | ||
Dividends paid: | ||||
Common stock | (106,900) | (80,000) | ||
Net cash flow used in financing activities | (129,889) | (108,790) | ||
Net decrease in cash and cash equivalents | (23,607) | (136,221) | ||
Cash and cash equivalents at beginning of period | 75,704 | 216,355 | ||
Cash and cash equivalents at end of period | $52,097 | $80,134 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid during the period for: | ||||
Interest - net of amount capitalized | $52,804 | $52,042 | ||
Income taxes | $216,134 | $32,522 | ||
See Notes to Respective Financial Statements. | ||||
131
SYSTEM ENERGY RESOURCES, INC. | ||||||
BALANCE SHEETS | ||||||
ASSETS | ||||||
September 30, 2006 and December 31, 2005 | ||||||
(Unaudited) | ||||||
2006 | 2005 | |||||
(In Thousands) | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents: | ||||||
Cash | $384 | $204 | ||||
Temporary cash investments - at cost, | ||||||
which approximates market | 51,713 | 75,500 | ||||
Total cash and cash equivalents | 52,097 | 75,704 | ||||
Accounts receivable: | ||||||
Associated companies | 198,551 | 327,454 | ||||
Other | 2,628 | 3,285 | ||||
Total accounts receivable | 201,179 | 330,739 | ||||
Materials and supplies - at average cost | 59,317 | 55,183 | ||||
Deferred nuclear refueling outage costs | 9,618 | 17,853 | ||||
Prepayments and other | 2,773 | 1,878 | ||||
TOTAL | 324,984 | 481,357 | ||||
OTHER PROPERTY AND INVESTMENTS | ||||||
Decommissioning trust funds | 264,284 | 236,003 | ||||
UTILITY PLANT | ||||||
Electric | 3,251,075 | 3,212,596 | ||||
Property under capital lease | 467,005 | 467,005 | ||||
Construction work in progress | 27,733 | 47,178 | ||||
Nuclear fuel under capital lease | 63,624 | 87,500 | ||||
TOTAL UTILITY PLANT | 3,809,437 | 3,814,279 | ||||
Less - accumulated depreciation and amortization | 1,971,099 | 1,889,886 | ||||
UTILITY PLANT - NET | 1,838,338 | 1,924,393 | ||||
DEFERRED DEBITS AND OTHER ASSETS | ||||||
Regulatory assets: | ||||||
SFAS 109 regulatory asset - net | 92,534 | 92,883 | ||||
Other regulatory assets | 293,281 | 292,968 | ||||
Other | 16,394 | 18,435 | ||||
TOTAL | 402,209 | 404,286 | ||||
TOTAL ASSETS | $2,829,815 | $3,046,039 | ||||
See Notes to Respective Financial Statements. | ||||||
132 | ||||||
SYSTEM ENERGY RESOURCES, INC. | ||||||
BALANCE SHEETS | ||||||
LIABILITIES AND SHAREHOLDER'S EQUITY | ||||||
September 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 | 2,858 | - | ||||
Other | 24,144 | 22,770 | ||||
Taxes accrued | 10,018 | 228,168 | ||||
Accumulated deferred income taxes | 3,508 | 6,678 | ||||
Interest accrued | 29,695 | 45,109 | ||||
Obligations under capital leases | 30,236 | 27,716 | ||||
Other | 1,632 | 1,811 | ||||
TOTAL | 125,426 | 355,241 | ||||
NON-CURRENT LIABILITIES | ||||||
Accumulated deferred income taxes and taxes accrued | 323,454 | 267,913 | ||||
Accumulated deferred investment tax credits | 69,529 | 72,136 | ||||
Obligations under capital leases | 33,389 | 63,307 | ||||
Other regulatory liabilities | 247,302 | 224,997 | ||||
Decommissioning | 336,703 | 318,927 | ||||
Accumulated provisions | 2,409 | 2,399 | ||||
Long-term debt | 799,893 | 819,642 | ||||
Other | 17,929 | 27,849 | ||||
TOTAL | 1,830,608 | 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 | 84,431 | 104,278 | ||||
TOTAL | 873,781 | 893,628 | ||||
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY | $2,829,815 | $3,046,039 | ||||
See Notes to Respective Financial Statements. |
133
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 CONTINGENCIESbenefits.
Entergy New Orleans Bankruptcy (Entergy New Orleans)
Accounting Pronouncements
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" section 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.
134
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, including carrying 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 Ent ergy Gulf States. Hearings are scheduled for March 2007. Entergy Gulf States and Entergy Louisiana also intend to pursue securitization options for the storm cost recovery as well, which is authorized by a law signed by the Governor of Louisiana in May 2006.
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 allocates those costs among its Texas 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. This is the first of two filings authorized by a law passed earlier this year in a special session of the Texas Legislature. A hearing before the PUCT on the filing was scheduled for November 1-3, 2006, but at the commencement of the hearing all of the parties in attendance announced that they had reached a unanimous agreement in principle to settle the issues in the proceeding. The parties are developing the documentation to formalize the settlement. The parties intend to submit the settlement documents to the PUCT prior to Thanksgiving 2006 so that the PUCT can approve them by early December 2006. A second filing will request securitization and recovery of the costs eligible for securitization through retail rates and tariffs. Entergy Gulf States expects to make the second filing following the conclusion of the reconstruction cost case.
In March 2006, the Governor of Mississippi signed a law that established a mechanism by which the MPSC could authorize and certify an electric utility financing order and the state could issue general obligation bonds to finance 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 restoration costs, in March 2006, the MPSC issued an order approving a Joint Stipulation between Entergy Mississippi
135
and the Mississippi Public Utilities Staff that provided for a review of Entergy Mississippi's total storm restoration costs in an Application for an Accounting Order proceeding. The Stipulation stated that the procedural schedule of Entergy Mississippi's December 2005 filing seeking recovery of hurricane costs through an existing Entergy Mississippi storm damage rider 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 Hurricane Katrina 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 included the $89 million of Hurricane Katrina restoration costs plus $80 million to build Entergy Mississippi's storm damage reserve for the future. Entergy Mississippi's filing stated that the amount actually financed through the state bonds would be net of any CDBG funds that Entergy Mississippi received.
In October 2006, the Mississippi Development Authority approved for payment and Entergy Mississippi received $81 million in CDBG funding for Hurricane Katrina costs. The MPSC then issued a financing order authorizing the issuance of $48 million of state general obligation bonds, with $8 million for the remainder of Entergy Mississippi's certified Hurricane Katrina restoration costs and $40 million for the increase in Entergy Mississippi's storm damage reserve. $30 million of the storm reserve will be set aside in a restricted account. Entergy Mississippi expects to forward the financing order to the state bond commission, as per the March 2006 law, and expects to receive the proceeds from the state general obligation bond issuance in the first quarter of 2007.
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 Note 2 to the financial statements 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 railroad del ivery 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 did 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.
136
In June 2006, Entergy Arkansas filed a motion with the APSC seeking again 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.
On June 7, 2006, Entergy Arkansas filed a cost of service study and testimony supporting the redetermined energy cost rate and testimony addressing the prospective elimination of the energy cost recovery rider as ordered by the APSC. A hearing was held in the APSC energy cost recovery investigation on October 12, 2006 and post-hearing briefs were filed by Entergy Arkansas, the APSC General Staff, the Arkansas Attorney General, and the Arkansas Electric Energy Consumers. No party recommended termination of the energy cost recovery rider in the fuel cost investigation proceeding. The timing of a decision in this proceeding is uncertain.
Entergy Gulf States
In March 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 on 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. Entergy Gulf States has since entered into a joint agreement with several parties, which was approved by the PUCT, to remove the first interim fuel surcharge (the January 2006 surcharge) effective with the first billing cycle in November 2006. That surcharge was to be in effect until the end of 2006. Additionally, Entergy Gu lf States requested that the PUCT remove the second interim surcharge (the June 2006 surcharge) as of November 2006 as well, which the PUCT has approved. Both of these requests are the result of over-recoveries in recent months. 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)
In August 2006, Entergy Arkansas filed with the APSC a request for a change in base rates. Entergy Arkansas requested a general base rate increase of $150 million (using an ROE of 11.25%), as well as recovery of FERC-allocated costs pursuant to the FERC decision on the System Agreement. Entergy Arkansas also requested a capacity management rider to recover incremental capacity costs. A procedural schedule has been established with hearings expected to begin in April 2007.
137
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" in the Form 10-K and hereinAnalysis 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 proposed in the August 2006 base rate case 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 separa te exact recovery rider, similar to the energy cost recovery rider, would ensure that Entergy Arkansas customers pay only the amount allocated by the FERC.
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 Texas 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.
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 $37.2 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. Entergy Gulf States modified the filing in August 2006 to reflect an 11.1% return on equity which is within the allowed bandwidth. The modified filing includes a formula rate plan increase of $17.2 million which provides for interim recovery of storm costs from Hurricanes Katrina and Rita and recovery of LPSC-approved incremental deferred and ongoing capacity costs. The increase was implemented, subject to refund, 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. Entergy Louisiana modified the filing in August 2006 to reflect a 9.45% return on equity which is within the allowed bandwidth. The modified filing includes an increase of $24 million fornew accounting pronouncements.
138120
SYSTEM ENERGY RESOURCES, INC. | ||||||||
INCOME STATEMENTS | ||||||||
For the Three and Six Months Ended June 30, 2007 and 2006 | ||||||||
(Unaudited) | ||||||||
Three Months Ended | Six Months Ended | |||||||
2007 | 2006 | 2007 | 2006 | |||||
(In Thousands) | (In Thousands) | |||||||
OPERATING REVENUES | ||||||||
Electric | $129,471 | $129,176 | $255,628 | $260,830 | ||||
OPERATING EXPENSES | ||||||||
Operation and Maintenance: | ||||||||
Fuel, fuel-related expenses, and | ||||||||
gas purchased for resale | 10,333 | 10,168 | 18,721 | 21,381 | ||||
Nuclear refueling outage expenses | 3,691 | 3,962 | 8,226 | 7,535 | ||||
Other operation and maintenance | 28,304 | 26,563 | 52,541 | 49,815 | ||||
Decommissioning | 6,369 | 5,925 | 12,624 | 11,744 | ||||
Taxes other than income taxes | 4,594 | 5,817 | 13,005 | 12,006 | ||||
Depreciation and amortization | 24,026 | 23,811 | 49,988 | 49,488 | ||||
Other regulatory credits - net | (2,650) | (3,766) | (4,610) | (5,746) | ||||
TOTAL | 74,667 | 72,480 | 150,495 | 146,223 | ||||
OPERATING INCOME | 54,804 | 56,696 | 105,133 | 114,607 | ||||
OTHER INCOME | ||||||||
Allowance for equity funds used during construction | 364 | 775 | 780 | 1,458 | ||||
Interest and dividend income | 4,770 | 4,271 | 10,585 | 9,900 | ||||
Miscellaneous - net | 657 | (91) | 578 | (198) | ||||
TOTAL | 5,791 | 4,955 | 11,943 | 11,160 | ||||
INTEREST AND OTHER CHARGES | ||||||||
Interest on long-term debt | 11,336 | 11,996 | 23,689 | 24,529 | ||||
Other interest - net | 36 | 26 | 52 | 54 | ||||
Allowance for borrowed funds used during construction | (120) | (244) | (255) | (459) | ||||
TOTAL | 11,252 | 11,778 | 23,486 | 24,124 | ||||
INCOME BEFORE INCOME TAXES | 49,343 | 49,873 | 93,590 | 101,643 | ||||
Income taxes | 22,379 | 20,265 | 39,329 | 41,287 | ||||
NET INCOME | $26,964 | $29,608 | $54,261 | $60,356 | ||||
See Notes to Financial Statements. | ||||||||
121
interim recovery of storm costs from Hurricanes Katrina and Rita and a $120 million rate increase to recover LPSC-approved incremental deferred and ongoing capacity costs. The filing requested recovery of approximately $50 million for the amortization of capacity deferrals over a three-year period, including carrying charges, and approximately $70 million for ongoing capacity costs. The increase was implemented, subject to refund, with the first billing cycle of September 2006. Comments were provided by the LPSC Staff, which Entergy Louisiana is currently reviewing. Entergy Louisiana subsequently updated its formula rate plan rider to reflect adjustments proposed by the LPSC Staff with which it agrees. The adjusted return on equity of 9.56% remains within the allowed bandwidth. Ongoing and deferred incremental capacity costs were reduced to $119 million. The updated formula rate plan rider was implemented, subject to refund, with the first billing cycle of October 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 approved a settlement providing for a $1.8 million rate increase, which was implemented in August 2006.
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 presented 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 during the rate-effective period (a significant portion of Grand Gulf costs was previously recovered through base rates).
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 sought to recover the electric and gas restoration costs that it had 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 sought to establish a storm reserve to provide for the risk of another storm.
In October 2006 the City Council approved a settlement agreement that resolves Entergy New Orleans' rate and storm-related rider filings by providing for phased-in rate increases, while taking into account with respect to storm restoration costs the anticipated receipt of CDBG funding as recommended by the Louisiana Recovery Authority. The settlement provides for a 0% increase in electric base rates through December 2007, with a $3.9 million increase implemented in January 2008. Recovery of all Grand Gulf costs through the fuel adjustment clause will continue. Gas base rates will increase by $4.75 million in November 2006, an additional $1.5 million in March 2007, and an additional $4.75 million in November 2007. The settlement calls for Entergy New Orleans to file a base rate case by July 31, 2008. Any storm costs in excess of CDBG funding and insurance proceeds will be addressed in that base rate case. A storm cost recovery rider is authorized but initially set at $0 because of the anticipated receipt of CDBG funding. The settlement also authorizes a $75 million storm reserve for damage from future storms, which will be created over a ten-year period through a storm reserve rider beginning in March 2007. These storm reserve funds will be held in a restricted escrow account.
139
Customer-Initiated Proceeding at the FERC (Entergy Arkansas)
As discussed in Part I, Item 1 of the Form 10-K, in September 2004, East Texas Electric Cooperative (ETEC) filed a complaint at the FERC against Entergy Arkansas relating to a contract dispute over the pricing of substitute energy at the co-owned Independence coal unit. In October 2004, Arkansas Electric Cooperative (AECC) filed a similar complaint at the FERC against Entergy Arkansas, addressing the same issue with respect to Independence and another co-owned coal unit, White Bluff. FERC consolidated these cases, ordered a hearing in the consolidated proceeding, and established refund effective dates. The main issue in the consolidated case relates to the consequences under the governing contracts when the dispatch of the coal units is constrained due to system operating conditions. In August 2005, Entergy Arkansas and ETEC filed a settlement at the FERC that resolved all issues in dispute between ETEC and Entergy Arkansas. As part of the settlement, ETEC dismissed its complaint. A hearing was held on the AECC complaint and an ALJ Initial Decision was issued in January 2006 in which the ALJ found AECC's claims to be without merit. On October 25, 2006, the FERC issued an order on the ALJ's Initial Decision. In the order, the FERC reversed the ALJ's findings. Specifically, the FERC found that the governing contracts do not recognize the effects of dispatch constraints on the co-owned units. The FERC explained that for over twenty-three years the course of conduct of the parties was such that AECC received its full entitlement to the two coal units, regardless of any reduced output caused by system operating constraints. Based on the order, Entergy Arkansas is required to refund to AECC all excess amounts billed to AECC as a result of the system operating constraints. Entergy Arkansas estimates currently that this will result in a refund to AECC of approximately $26 million, although Entergy Arkansas is still refining the estimate. Requests for rehearing of the F ERC's decision are due on November 24, 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 and System Energy as of September 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 Entergy New Orleans) and System Energy as of September 30, 2006:
|
| Authorized |
| Borrowings |
|
| (In Millions) | ||
|
|
|
|
|
Entergy Arkansas |
| $250 |
| - |
Entergy Gulf States |
| $350 |
| - |
Entergy Louisiana |
| $250 |
| $105.0 |
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 $37.2 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 September 30, 2006 are classified as a pre-petition obligation subject to compromise.
140
Entergy Arkansas, Entergy Gulf States, and Entergy Mississippi, each has credit facilities available as of September 30, 2006 as follows:
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
|
|
|
| |||
|
|
|
|
|
|
|
|
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 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. In July 2006, the bankruptcy judge authorized Entergy New Orleans to set off $15 million of its cash held by the lender against the outstanding debt on the credit facility, and the setoff occurred in September 2006.
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.
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 September 30, 2006, Entergy New Orleans had approximately $32 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, which included August 23, 2006. Entergy Corporation 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.
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.
141
Long-term Debt
The following long-term debt has been issued by the domestic utility companies and System Energy in 2006:
|
| ||
| |||
| |||
|
|
| |
| |||
|
|
|
The following long-term debt was retired by the domestic utility companies and System Energy in 2006:
|
| ||
| |||
| |||
|
|
| |
|
|
| |
|
|
| |
|
|
|
Entergy Mississippi used the proceeds from the January 2006 issuance to purchase the Attala power plant from Central Mississippi Generating Company, LLC and to repay short-term indebtedness.
Entergy Arkansas used the proceeds from the June 2006 issuance to redeem, prior to maturity, the $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 September 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:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
142
(Entergy New Orleans)
Since the filing of the bankruptcy proceedings, Entergy New Orleans had 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 have the right to elect a majority of the Entergy New Orleans board of directors. Entergy New Orleans filed a motion in the bankruptcy court seeking authority to recommence paying dividends to the holders of the 4.75% preferred shares. After a hearing on the motion on May 3, 2006, the court granted Entergy New Orleans the authority to pay dividends to the holders of the 4.75% preferred shares, beginning with the dividend due on July 1, 2006, and thereafter, unless objections are filed by creditors forty-five days in advance of a dividend payment date. If any objections are filed, the matter would be heard by the bankruptcy court. Entergy New Orleans declared and paid the dividends due on July 1 and October 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 third 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 |
| $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 |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2005 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $3,117 |
| $2,619 |
| $1,899 |
| $945 |
| $462 |
| $867 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 9,951 |
| 7,863 |
| 6,129 |
| 3,312 |
| 1,290 |
| 1,437 |
Expected return on assets |
| (8,910) |
| (10,005) |
| (6,675) |
| (3,579) |
| (972) |
| (1,452) |
Amortization of transition asset |
| - |
| - |
| - |
| - |
| - |
| (69) |
Amortization of prior service cost |
| 417 |
| 240 |
| 120 |
| 129 |
| 57 |
| 9 |
Amortization of (gain)/loss |
| 2,331 |
| (390) |
| 1,611 |
| 597 |
| 750 |
| 207 |
Net pension cost |
| $6,906 |
| $327 |
| $3,084 |
| $1,404 |
| $1,587 |
| $999 |
143
The domestic utility companies' and System Energy's pension cost, including amounts capitalized, for the nine months ended September 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 |
| $10,878 |
| $8,979 |
| $6,547 |
| $3,231 |
| $1,503 |
| $3,093 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 29,745 |
| 23,743 |
| 18,155 |
| 9,756 |
| 3,845 |
| 4,813 |
Expected return on assets |
| (29,501) |
| (30,527) |
| (21,341) |
| (11,050) |
| (2,651) |
| (5,326) |
Amortization of prior service cost |
| 1,246 |
| 926 |
| 422 |
| 385 |
| 169 |
| 37 |
Amortization of loss |
| 7,313 |
| 1,919 |
| 4,527 |
| 2,175 |
| 1,527 |
| 500 |
Net pension cost |
| $19,681 |
| $5,040 |
| $8,310 |
| $4,497 |
| $4,393 |
| $3,117 |
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System |
2005 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $9,775 |
| $8,026 |
| $5,814 |
| $2,956 |
| $1,336 |
| $2,755 |
Interest cost on projected |
|
|
|
|
|
|
|
|
|
|
|
|
benefit obligation |
| 28,181 |
| 22,333 |
| 17,179 |
| 9,309 |
| 3,587 |
| 4,262 |
Expected return on assets |
| (26,927) |
| (29,422) |
| (20,008) |
| (10,712) |
| (2,435) |
| (4,099) |
Amortization of transition asset |
| - |
| - |
| - |
| - |
| - |
| (208) |
Amortization of prior service cost |
| 1,248 |
| 996 |
| 445 |
| 386 |
| 170 |
| 43 |
Amortization of loss |
| 5,556 |
| 2,035 |
| 3,072 |
| 1,649 |
| 1,052 |
| 666 |
Net pension cost |
| $17,833 |
| $3,968 |
| $6,502 |
| $3,588 |
| $3,710 |
| $3,419 |
The domestic utility companies recognized the following pension cost for their non-qualified pension plans in the third quarters of 2006 and 2005:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
(In Thousands) | ||||||||||
Non-Qualified Pension Cost |
|
|
|
|
|
|
|
|
|
|
Non-Qualified Pension Cost |
|
|
|
|
|
|
|
|
|
|
The domestic utility companies recognized the following pension cost for their non-qualified pension plans for the nine months ended September 30, 2006 and 2005:
|
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
|
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
(In Thousands) | ||||||||||
Non-Qualified Pension Cost Nine |
|
|
|
|
|
|
|
|
|
|
Non-Qualified Pension Cost Nine |
|
|
|
|
|
|
|
|
|
|
144
Components of Net Other Postretirement Benefit Cost
The domestic utility companies' and System Energy's other postretirement benefit cost, including amounts capitalized, for the third 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 |
|
|
|
|
|
|
|
|
|
|
|
|
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 |
| $1,167 |
| $1,017 |
| $789 |
| $369 |
| $210 |
| $447 |
Interest cost on APBO |
| 2,688 |
| 2,313 |
| 1,764 |
| 918 |
| 840 |
| 390 |
Expected return on assets |
| (1,626) |
| (1,269) |
| - |
| (669) |
| (579) |
| (390) |
Amortization of transition obligation |
| 204 |
| (48) |
| 96 |
| 87 |
| 396 |
| 3 |
Amortization of prior service cost |
| (642) |
| - |
| (66) |
| (228) |
| 9 |
| (198) |
Amortization of loss |
| 1,629 |
| 657 |
| 840 |
| 675 |
| 336 |
| 168 |
Net other postretirement benefit cost |
| $3,420 |
| $2,670 |
| $3,423 |
| $1,152 |
| $1,212 |
| $420 |
The domestic utility companies' and System Energy's other postretirement benefit cost, including amounts capitalized, for the nine months ended September 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 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost on APBO |
| 8,531 |
| 8,242 |
| 5,569 |
| 2,833 |
| 2,569 |
| 1,220 |
Expected return on assets |
| (5,390) |
| (4,466) |
| - |
| (2,127) |
| (1,832) |
| (1,263) |
Amortization of transition obligation |
| 616 |
| 453 |
| 287 |
| 263 |
| 1,247 |
| 7 |
Amortization of prior service cost |
| (1,223) |
| - |
| (73) |
| (410) |
| 29 |
| (903) |
Amortization of loss |
| 5,013 |
| 3,006 |
| 2,682 |
| 1,931 |
| 1,028 |
| 620 |
Net other postretirement benefit cost |
| $11,557 |
| $10,996 |
| $11,026 |
| $3,746 |
| $3,737 |
| $923 |
145
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| Entergy |
| System | |
2005 |
| Arkansas |
| Gulf States |
| Louisiana |
| Mississippi |
| New Orleans |
| Energy |
|
| (In Thousands) | ||||||||||
Service cost - benefits earned |
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
| $3,481 |
| $4,284 |
| $2,167 |
| $1,096 |
| $595 |
| $1,278 |
Interest cost on APBO |
| 7,865 |
| 8,162 |
| 5,110 |
| 2,584 |
| 2,417 |
| 1,178 |
Expected return on assets |
| (4,899) |
| (4,001) |
| - |
| (2,010) |
| (1,737) |
| (1,163) |
Amortization of transition obligation |
| 615 |
| 1,847 |
| 287 |
| 263 |
| 1,267 |
| 11 |
Amortization of prior service cost |
| (988) |
| - |
| (30) |
| (320) |
| 28 |
| (477) |
Amortization of loss |
| 4,181 |
| 2,196 |
| 2,221 |
| 1,619 |
| 758 |
| 459 |
Net other postretirement benefit cost |
| $10,255 |
| $12,488 |
| $9,755 |
| $3,232 |
| $3,328 |
| $1,286 |
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 |
| $114,544 |
| $22,102 |
|
|
| $16,357 |
| $ - |
| $13,609 |
The Pension Protection Act of 2006 was signed by the President on August 17, 2006. The intent of the legislation is to require companies to fund 100% of their pension liability; and then for companies to fund, on a going-forward basis, an amount generally estimated to be the amount that the pension liability increases each year due to an additional year of service by the employees eligible for pension benefits. The legislation requires that funding shortfalls be eliminated by companies over a seven-year period, beginning in 2008. The Pension Protection Act also extended the provisions of the Pension Funding Equity Act that would have expired in 2006 had the Pension Protection Act not been enacted, which increased the allowed discount rate used to calculate the pension funding liability. Entergy is in the process of evaluating the effects of the new legislation, but expects that the implementation of the Pension Protection Act will not result in annual pension contributions going-fo rward that are materially higher than the levels required in 2005 and 2006.
146
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Medicare Act)
Based on actuarial analysis, the estimated effect of future Medicare subsidies reduced the December 31, 2005 Accumulated Postretirement Benefit Obligation (APBO), the third quarters 2006 and 2005 other postretirement benefit cost, and the nine months ended September 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 third quarter 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in third quarter 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in nine months ended |
|
|
|
|
|
|
|
|
|
|
| |
Reduction in nine months ended |
|
|
|
|
|
|
|
|
|
|
| |
Medicare subsidies received in the |
|
|
|
|
|
|
|
|
|
|
|
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.
On October 23, 2006 Entergy New Orleans filed a plan of reorganization and a disclosure statement with the bankruptcy court. Objections to the disclosure statement must be filed by November 29, 2006, and a hearing regarding its adequacy is scheduled for December 7, 2006. The period within which Entergy New Orleans has the exclusive right to solicit acceptance of its plan of reorganization will expire on December 22, 2006, unless it is further extended by the bankruptcy court.
The bankruptcy court also extended the time within which Entergy New Orleans has an exclusive right to file a plan of reorganization until November 15, 2006. Financial Guaranty Insurance Company (FGIC), the insurer of two series totaling $75 million of Entergy New Orleans' first mortgage bonds, filed a motion to terminate the exclusive period within which Entergy New Orleans has an exclusive right to file and solicit acceptances of a plan of reorganization. FGIC asks the court to allow itself or other stakeholders the right to file an alternative and competing plan of reorganization and to solicit acceptances for such a proposed plan. FGIC's motion to terminate exclusivity is set for hearing on November 15, 2006.
147
The plan of reorganization reflects Entergy New Orleans' continuing effort to work with 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. The plan of reorganization also provides full compensation to Entergy New Orleans' creditors whose claims are allowed by the bankruptcy court. Conditions precedent proposed in the plan of reorganization, as currently filed, before it can become effective include:
In addition, key factors that will continue to influence the timing and outcome of Entergy New Orleans' recovery efforts include the level of economic recovery of New Orleans and the number of customers that return to New Orleans, including the timing of their return. Entergy New Orleans currently estimates that approximately 85,000 electric customers and 65,000 gas customers have returned and are taking service. Prior to Hurricane Katrina, Entergy New Orleans had approximately 190,000 electric customers and 145,000 gas customers.
The bankruptcy judge set a date of April 19, 2006 by which creditors with pre-petition claims against Entergy New Orleans, with certain exceptions, had to file their proofs of claim in the bankruptcy case. Approximately 550 claims, including amending 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. Several of the filed claims have been withdrawn. Entergy New Orleans currently estimates that the pre-petition claims that will be allowed in the bankruptcy case will approximate the pre-petition liabilities that have been classified as liabilities subject to compromise in Entergy New Orleans' Balance Sheet as of September 30, 2006. The following table summarizes the components of liabilities subject to compromise as of September 30, 2006 and December 31, 2005:
September 30, 2006 | December 31, 2005 | |||
(In Thousands) | ||||
Accounts payable - Associated companies | $66,820 | $46,815 | ||
Accounts payable - Other | 26,000 | 25,000 | ||
Taxes accrued | 2,027 | 2,027 | ||
Interest accrued | 1,744 | 1,473 | ||
Accumulated provisions | 5,802 | 5,770 | ||
Long-term debt | 229,871 | 229,859 | ||
Total Liabilities Subject to Compromise | $332,264 | $310,944 |
The plan of reorganization proposes to pay the third party accounts payable in full in cash, to issue two-year notes in satisfaction of the affiliate accounts payable, and proposes that the first mortgage bonds will remain outstanding with their current maturity dates and interest terms. The plan of reorganization proposes that Entergy New Orleans' preferred stock will also remain outstanding on its current dividend terms.
148
Reorganization items on Entergy New Orleans' Income Statements for the three and nine months ended September 30, 2006 primarily consists of professional fees associated with the bankruptcy case.
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 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 wi ll have.
NOTE 7. ACCOUNTING POLICY UPDATES
Revenue and Fuel Costs
Entergy recognizes revenue from electric power and gas sales when it delivers power or gas to its customers. To the extent that deliveries have occurred but a bill has not been issued, the domestic utility companies accrue an estimate of the revenues for energy delivered since the latest billings. Entergy calculates the estimate based upon several factors including billings through the last billing cycle in a month, actual generation in the month, historical line loss factors, and prices in effect in the domestic utility companies' various jurisdictions. Changes are made to the inputs in the estimate as needed to reflect changes in billing practices. Modifications made to the billing system in the third quarter 2006 provide better information related to the amount of generation that remains unbilled at the end of each month. Accordingly, the domestic utility companies refined the calculation of unbilled revenue to reflect this additional information. This refinement added to unbilled revenue in the third quarter 2006 the following amounts: $9.1 million for Entergy Arkansas, $2.7 million for Entergy Gulf States, $4.7 million for Entergy Louisiana, $5.5 million for Entergy Mississippi, and $3.6 million for Entergy New Orleans. 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 reversed.
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 SF AS 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.
149
Recently Issued Accounting Pronouncements
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) was issued in July 2006 and is effective for Entergy in the first quarter of 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 does not expect that the adoption of FIN 48 will materially affect its financial position, results of operations, or cash flows.
In September 2006, FASB issued SFAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements Nos. 87, 88, 106 and 132(R)," to be effective December 31, 2006. SFAS 158 requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet with the offset recorded to other comprehensive income. Entergy has previously disclosed its funded status in Note 10 to the consolidated financial statements in the Form 10-K. SFAS 158 also requires that changes in that funded status be recorded in other comprehensive income in the period in which the changes occur. The domestic utility companies, with the exception of the Louisiana jurisdictions which provide for recovery of other postretirement benefit costs on a pay as you go basis, is generally allowed to recover pension and other postretirement benefit costs each period based upon costs calculated under SFAS 87 and SFAS 106. Entergy's analysis, including the regulatory accounting requirements to support recording the majority of the effect of adoption of SFAS 158 as a regulatory asset, is not yet complete. Entergy does not expect the implementation of this standard, however, to materially affect Entergy's financial position or results of operations.
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 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 September 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 C ommission 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.
150(Page left blank intentionally)
122
SYSTEM ENERGY RESOURCES, INC. | ||||
STATEMENTS OF CASH FLOWS | ||||
For the Six Months Ended June 30, 2007 and 2006 | ||||
(Unaudited) | ||||
2007 | 2006 | |||
(In Thousands) | ||||
OPERATING ACTIVITIES | ||||
Net income | $54,261 | $60,356 | ||
Adjustments to reconcile net income to net cash flow provided by (used in) operating activities: | ||||
Other regulatory credits - net | (4,610) | (5,746) | ||
Depreciation, amortization, and decommissioning | 62,612 | 61,231 | ||
Deferred income taxes, investment tax credits,and non-current taxes accrued | 37,139 | (9,784) | ||
Changes in working capital: | ||||
Receivables | 6,305 | 5,111 | ||
Accounts payable | (4,089) | (901) | ||
Taxes accrued | (43,461) | (180,094) | ||
Interest accrued | (33,345) | (31,520) | ||
Other working capital accounts | (21,355) | (602) | ||
Provision for estimated losses and reserves | (22) | 1 | ||
Changes in other regulatory assets | (1,400) | (9,921) | ||
Other | 35,018 | 28,060 | ||
Net cash flow provided by (used in) operating activities | 87,053 | (83,809) | ||
INVESTING ACTIVITIES | ||||
Construction expenditures | (29,101) | (14,557) | ||
Allowance for equity funds used during construction | 780 | 1,458 | ||
Nuclear fuel purchases | (56,155) | (370) | ||
Proceeds from sale/leaseback of nuclear fuel | 56,475 | 370 | ||
Proceeds from nuclear decommissioning trust fund sales | 41,964 | 52,562 | ||
Investment in nuclear decommissioning trust funds | (55,761) | (65,681) | ||
Changes in money pool receivable - net | 14,838 | 188,956 | ||
Net cash flow provided by (used in) investing activities | (26,960) | 162,738 | ||
FINANCING ACTIVITIES | ||||
Retirement of long-term debt | (23,335) | (22,989) | ||
Dividends paid: | ||||
Common stock | (50,900) | (70,000) | ||
Net cash flow used in financing activities | (74,235) | (92,989) | ||
Net decrease in cash and cash equivalents | (14,142) | (14,060) | ||
Cash and cash equivalents at beginning of period | 135,012 | 75,704 | ||
Cash and cash equivalents at end of period | $120,870 | $61,644 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
Cash paid during the period for: | ||||
Interest - net of amount capitalized | $54,241 | $53,199 | ||
Income taxes | $25,667 | $220,423 | ||
See Notes to Financial Statements. |
123
SYSTEM ENERGY RESOURCES, INC. | ||||||
BALANCE SHEETS | ||||||
ASSETS | ||||||
June 30, 2007 and December 31, 2006 | ||||||
(Unaudited) | ||||||
2007 | 2006 | |||||
(In Thousands) | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents: | ||||||
Cash | $602 | $56 | ||||
Temporary cash investments - at cost, | ||||||
which approximates market | 120,268 | 134,956 | ||||
Total cash and cash equivalents | 120,870 | 135,012 | ||||
Accounts receivable: | ||||||
Associated companies | 96,051 | 142,121 | ||||
Other | 2,668 | 3,301 | ||||
Total accounts receivable | 98,719 | 145,422 | ||||
Materials and supplies - at average cost | 63,079 | 61,097 | ||||
Deferred nuclear refueling outage costs | 21,527 | 5,060 | ||||
Prepayments and other | 4,386 | 1,480 | ||||
TOTAL | 308,581 | 348,071 | ||||
OTHER PROPERTY AND INVESTMENTS | ||||||
Decommissioning trust funds | 303,778 | 281,430 | ||||
Note receivable - Entergy New Orleans | 25,560 | - | ||||
TOTAL | 329,338 | 281,430 | ||||
UTILITY PLANT | ||||||
Electric | 3,257,384 | 3,248,582 | ||||
Property under capital lease | 471,933 | 471,933 | ||||
Construction work in progress | 50,225 | 38,088 | ||||
Nuclear fuel under capital lease | 97,998 | 55,280 | ||||
Nuclear fuel | 9,359 | 10,222 | ||||
TOTAL UTILITY PLANT | 3,886,899 | 3,824,105 | ||||
Less - accumulated depreciation and amortization | 2,047,476 | 2,000,320 | ||||
UTILITY PLANT - NET | 1,839,423 | 1,823,785 | ||||
DEFERRED DEBITS AND OTHER ASSETS | ||||||
Regulatory assets: | ||||||
SFAS 109 regulatory asset - net | 84,284 | 92,600 | ||||
Other regulatory assets | 300,081 | 293,292 | ||||
Other | 12,819 | 14,062 | ||||
TOTAL | 397,184 | 399,954 | ||||
TOTAL ASSETS | $2,874,526 | $2,853,240 | ||||
See Notes to Financial Statements. | ||||||
124 | ||||||
SYSTEM ENERGY RESOURCES, INC. | ||||||
BALANCE SHEETS | ||||||
LIABILITIES AND SHAREHOLDER'S EQUITY | ||||||
June 30, 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 | 1,555 | 1,634 | ||||
Other | 22,626 | 26,636 | ||||
Taxes accrued | 4,527 | 47,988 | ||||
Accumulated deferred income taxes | 8,188 | 1,828 | ||||
Interest accrued | 12,790 | 46,135 | ||||
Obligations under capital leases | 33,142 | 33,142 | ||||
TOTAL | 179,529 | 250,698 | ||||
NON-CURRENT LIABILITIES | ||||||
Accumulated deferred income taxes and taxes accrued | 335,588 | 304,691 | ||||
Accumulated deferred investment tax credits | 66,922 | 68,660 | ||||
Obligations under capital leases | 64,855 | 22,138 | ||||
Other regulatory liabilities | 275,710 | 242,029 | ||||
Decommissioning | 355,470 | 342,846 | ||||
Accumulated provisions | 2,400 | 2,422 | ||||
Pension and other postretirement liabilities | 30,050 | 32,060 | ||||
Long-term debt | 703,255 | 729,914 | ||||
Other | - | 396 | ||||
TOTAL | 1,834,250 | 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 | 71,397 | 68,036 | ||||
TOTAL | 860,747 | 857,386 | ||||
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY | $2,874,526 | $2,853,240 | ||||
See Notes to Financial Statements. |
125
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 $ |
|
|
|
|
|
|
|
|
|
4/01/2007-4/30/2007 |
| 925,000 |
| $113.93 |
| 925,000 |
| $958,279,199 |
5/01/2007-5/31/2007 |
| 995,000 |
| $116.08 |
| 995,000 |
| $861,252,400 |
6/01/2007-6/30/2007 |
| 420,500 |
| $110.33 |
| 420,500 |
| $820,347,531 |
Total |
| 2,340,500 |
| $114.20 |
| 2,340,500 |
|
|
(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 4. Submission of Matters to a Vote of Security Holders
Texas Power Price LawsuitElection of Board of Directors
Entergy Corporation
See "Texas Power Price Lawsuit"The annual meeting of stockholders of Entergy Corporation was held on May 4, 2007. The following matters were voted on and received the specified number of votes for, abstentions, votes withheld (against), and broker non-votes:
126
Name of Nominee |
| Votes For |
| Votes Against | Abstentions | |
Maureen S. Bateman |
| 176,550,212 |
| 991,271 | 1,587,298 | |
W. Frank Blount |
| 173,980,124 |
| 3,538,833 | 1,609,824 | |
Simon D. deBree |
| 176,556,624 |
| 940,183 | 1,631,974 | |
Gary W. Edwards | 176,570,878 | 952,666 | 1,605,237 | |||
Alexis M. Herman |
| 175,459,653 |
| 1,991,324 | 1,677,804 | |
Donald C. Hintz |
| 176,657,434 |
| 942,524 | 1,528,823 | |
J. Wayne Leonard |
| 175,834,352 |
| 1,741,656 | 1,552,773 | |
Stuart L. Levenick | 176,549,336 | 957,752 | 1,621,693 | |||
James R. Nichols |
| 175,657,308 |
| 1,834,046 | 1,637,427 | |
William A. Percy, II |
| 176,555,609 |
| 992,171 | 1,581,002 | |
W. J. "Billy" Tauzin |
| 176,077,573 |
| 1,459,606 | 1,591,602 | |
Steven V. Wilkinson |
| 176,575,005 |
| 954,258 | 1,599,518 |
Entergy Arkansas
A consent in lieu of a meeting of common stockholders was executed on April 2, 2007. 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 Gary J. Taylor.
Entergy Gulf States
A consent in lieu of a meeting of common stockholders was executed on June 20, 2007. 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 Gary J. Taylor.
Entergy Louisiana
A consent in lieu of a meeting of members was executed on May 14, 2007. The consent was signed on behalf of Entergy Louisiana Holdings, Inc., the holder of all issued and outstanding common membership interests. The holder of the common membership interests by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Louisiana: E. Renae Conley, Chair, Leo P. Denault, Mark Savoff, and Gary J. Taylor.
127
Entergy Mississippi
A consent in lieu of a meeting of common stockholders was executed on April 2, 2007. 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, Chair, Leo P. Denault, Mark Savoff, and Gary J. Taylor.
Entergy New Orleans
A consent in lieu of a meeting of common stockholders was executed on June 20, 2007. 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, Tracie L. Boutte, and Roderick K. West.
System Energy
A consent in lieu of a meeting of common stockholders was executed on April 2, 2007. 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: Michael R. Kansler, Chairman, Steven C. McNeal, and Leo P. Denault.
Item 5. Other Information
Entry Into New and Termination of Previously Existing Credit Facilities
Entergy Corporation
On August 2, 2007, Entergy Corporation entered into a $3.5 billion, 5-year bank credit facility (the "$3.5 Billion Facility") by and among Entergy Corporation as borrower, Citibank, N.A., as bank, LC issuing bank and administrative agent ("Citibank"), ABN AMRO Bank N.V., as LC issuing bank and bank ("ABN AMRO"), The Bank of Nova Scotia as LC issuing bank and bank ("Bank of Nova Scotia") and the following banks:
BNP Paribas, Barclays Bank PLC, Calyon New York Branch, Credit Suisse First Boston, acting through its Cayman Islands Branch, JPMorgan Chase Bank, N.A., KeyBank National Association, Lehman Brothers Bank, FSB, Mizuho Corporate Bank, Ltd., Morgan Stanley Bank, Regions Bank, Societe Generale, The Bank of New York - Mellon, The Bank of Tokyo - Mitsubishi UFJ, Ltd., The Royal Bank of Scotland PLC, Union Bank of California, N.A., Wachovia Bank, National Association, William Street Commitment Corporation,and certain banks who will become parties from time to time (collectively, the "$3.5 Billion Facility Banks," and, with Entergy, Citibank and ABN AMRO, the "$3.5 Billion Facility Parties").
Entergy Corporation has the ability to issue letters of credit against the facility. The credit agreement executed by the $3.5 Billion Facility Parties is also dated as of August 2, 2007. The credit agreement requires Entergy Corporation to maintain a consolidated debt ratio of 65% or less of its total capitalization. The facility has a variable interest rate, which is currently 5.785%. The facility fee is currently 0.09% of the commitment amount. The facility fee and interest rate can fluctuate depending on the senior unsecured debt ratings of Entergy.
Also on August 2, 2007, Entergy Corporation terminated its two previously existing credit facilities: its $2.0 billion, 5-year bank credit facility, dated as of May 25, 2005, among Entergy as borrower, Citibank as bank and administrative agent and LC Issuing Bank, ABN AMRO Bank, N.V., as LC Issuing Bank, and several banks party thereto; and its $1.5 billion, 3-year bank credit facility, dated as of December 7, 2005, among Entergy, Citibank, N.A., as Administrative Agent and several banks party thereto.
128
As of August 8, 2007, amounts outstanding under the $3.5 Billion Facility are:
|
| Letters | Capacity | |||
(In Millions) | ||||||
$3,500 | $2,176 | $71 | $1,253 |
Entergy Gulf States Inc.
On August 2, 2007, Entergy Gulf States entered into a $200 million, 5-year bank credit facility (the "EGS $200 Million Facility") by and among Entergy Gulf States as borrower, Citibank as bank and administrative agent and the following banks:
ABN AMRO, BNP Paribas, Barclays Bank PLC, Calyon New York Branch, Credit Suisse First Boston, acting through its Cayman Islands Branch, JPMorgan Chase Bank, N.A., KeyBank National Association, Mizuho Corporate Bank, Ltd., Morgan Stanley Bank, The Bank of New York - Mellon, The Royal Bank of Scotland PLC, Wachovia Bank, National Association, and certain banks who will become parties from time to time (collectively, the "EGS Credit Facility Banks," and, with Entergy Gulf States and Citibank, the "EGS Credit Facility Parties").
Entergy Gulf States has the ability to issue letters of credit against the facility. The credit agreement executed by the EGS Credit Facility Parties is dated as of August 2, 2007. The credit agreement requires Entergy Gulf States to maintain a consolidated debt ratio of 65% or less of its total capitalization. The facility has a variable interest rate that would currently be approximately 5.8%, and has a facility fee that is currently 0.125% of the commitment amount. The facility fee and interest rate can fluctuate depending on the senior unsecured debt ratings of Entergy Gulf States.
As of August 8, 2007, there were no borrowings or letters of credit outstanding under the EGS $200 Million Facility.
Entergy Louisiana, LLC
On August 2, 2007, Entergy Louisiana entered into a $200 million, 5-year bank credit facility (the "ELL $200 Million Facility") by and among Entergy Louisiana as borrower, Citibank as bank and administrative agent and the following banks:
ABN AMRO, BNP Paribas, Barclays Bank PLC, Calyon New York Branch, Credit Suisse First Boston, acting through its Cayman Islands Branch, JPMorgan Chase Bank, N.A., KeyBank National Association, Mizuho Corporate Bank, Ltd., Morgan Stanley Bank, The Bank of New York - Mellon, The Royal Bank of Scotland PLC, Wachovia Bank, National Association, and certain banks who will become parties from time to time (collectively, the "ELL Credit Facility Banks," and, with Entergy Louisiana and Citibank, the "ELL Credit Facility Parties").
Entergy Louisiana has the ability to issue letters of credit against the facility. The credit agreement executed by the ELL Credit Facility Parties is dated as of August 2, 2007. The credit agreement requires Entergy Louisiana to maintain a consolidated debt ratio of 65% or less of its total capitalization. The facility has a variable interest rate that would currently be approximately 5.7%, and has a facility fee that is currently 0.09% of the commitment amount. The facility fee and interest rate can fluctuate depending on the senior unsecured debt ratings of Entergy Louisiana.
As of August 8, 2007, there were no borrowings or letters of credit outstanding under the ELL $200 Million Facility.
129
Other Generation Resources
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, which is still pending. The Texas Supreme Court requested full briefing from the parties before consideration of whether to exercise its discretion to grant review of this matter.
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 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 submittedRiver Bend purchased power agreement (rather than just Entergy Louisiana and Entergy New Orleans) and the LPSC's jurisdictional arguments related thereto.
The LPSC has appealed this decision to the City Council in March 2006. In April 2006, the City Council unanimously approved a resolution dismissing with prejudice the plaintiffs' claims.D.C. Circuit Court of Appeals. 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 was appealed to the U.S. District Court for the Eastern District of Louisiana, and the district court affirmed the dismissal in October 2006, but on different grounds, concluding that the lawsuit was premature. 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 bothUtility operating companies, the City Council, and class action proceedings. The plaintiffsthe APSC have intervened in the Entergy New Orleans rate of return 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 (Entergy Corporation and Entergy Louisiana)
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, Entergy Louisiana, and others for injuries they allegedly suffered as a result of an explosion at the refinery in June 1995. Claiborne P. Deming, who became a director of Entergy 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.appeal.
151
Environmental Regulation and Proceedings
(Entergy Corporation)
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.
(Entergy Corporation and Entergy Gulf States)
The Texas Commission on Environmental Quality (Commission) has notified Entergy Gulf States that the Commission believes, based on a preliminary investigation, that Entergy Gulf States is a potentially responsible party (PRP) concerning contamination existing at the Spector Salvage Yard proposed state superfund site in Orange County, Texas. The Commission currently is proposing soil removal activities at the site. Entergy Gulf States is communicating with the Commission and investigating its possible past involvement with this site. Current estimates for remediation costs and for allocation of that cost among PRPs are not available.
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 Ri ta, the $1.5 billion program was temporarily suspended, and the Board extended authorization for its completion through 2008. 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. Entergy Corporation did not repurchase any shares of common stock during the nine months ended September 30, 2006, but began repurchasing shares again in the fourth quarter 2006.
152
Item 5. Other Informationstate enforcement action regarding NSR.
GenerationFuture 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 Supreme 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 Appeals for the D.C. Circuit (Coke Oven Environmental Task Force v. EPA) considering the same question under a similar Clean Air Act provision in the context of CO2 emissions from electric generating units. Although Entergy cannot predict how the D.C. Circuit or the EPA will react to the Supreme Court decision, one outcome could be a decision to regulate, under the Clean Air Act, emissions of CO2 and other "greenhouse gases" from motor vehicles or from power plants. Entergy is participating as a friend of the court in both of these cases in support of reasonable market-based regulation of CO2 as a pollutant under the Clean Air Act.
130
Other Environmental Matters
Entergy New Orleans
As discussed in Part I, Item 1the Form 10-K, in March 2004 agents of the Form 10-K,PropertyUnited States Fish and Other Generation Resources,Wildlife Service conducted an inspection of Entergy LouisianaNew Orleans' Michoud power plant and found a number of dead brown pelicans near the facility's water intake structure and fish-return trough. Brown pelicans are an endangered species in Louisiana. Pursuant its plan of reorganization that became effective in May 2007, Entergy New Orleans currently have three long-term contractsmade donations of $150,000 to procure electric power from affiliates,the Louisiana Wildlife and Fisheries Foundation and $100,000 to the United States Fish and Wildlife Service as follows: (a)part of a life-of-unit purchased power agreement with Entergy Gulf States for approximately 200 MW (Entergy Louisiana) and 100 MW (Entergy New Orleans) of capacity and associated energy from Entergy Gulf States' River Bend nuclear station (the "RB PPAs"); (ii) a life-of-unit purchased power agreement with Entergy Arkansas for 110 MW each of capacity and associated energy from a portion of Entergy Arkansas' wholesale base load coal and nuclear generating resources (the "WBL PPAs"); and (iii) a life-of-unit purchased power agreement for approximately 50 MW each of capacity and associated energy from Entergy Power's sharesettlement of the Independence plant (the "ISES PPAs").matter. The contracts were filed withdonations are to be used to protect the FERC,eastern brown pelican species and the FERC had established a hearing process to review the justness and reasonablenessother species of migratory birds. Also as part of the agreements. After hearings were held, the FERC ALJ issued an initial decision generally recommending approval of the PPAs.
In September 2006, the FERC issued an order in the proceeding that: (1) affirmed the ALJ's initial decision that the RB PPAs, WBL PPAs, and the ISES PPAs were just, reasonable, and not unduly discriminatory; however, the FERC did limit the term of the ISES PPAs to ten years to coincide with the ten-year analysis used to justify those contracts; (2) determined that the domestic utility companies improperly used information obtained through their 2002 Request For Proposals (RFP) process to price the WBL PPAs, which FERC found to be a violation of Entergy's code of conduct, and ordered Entergy Arkansas' retained share of Grand Gulf be removed from the WBL PPAs, but approved the remaining portion of the WBL PPAs; (3) indicated that Entergy Arkansas' retained share of Grand Gulf could be separately contracted for by Entergy Louisiana andsettlement, Entergy New Orleans "atshall maintain the cost-based price of $46 per MWh;" (4)water intake cell cover that it constructed in order to protect the pelicans. The United States has agreed withto take no further action in the ALJ that "the design and implementation of Entergy's RFP process, while not w ithout flaws, worked inmatter after Entergy New Orleans has maintained the cover for one ad ditional year or has otherwise successfully petitioned for this instance;" (5) ordered the domestic utility companiesprobationary period to consider transmission costs "as a price factor" and that future analysis compare the delivered cost of the resource when evaluating RFP bids; and (6) approved the Entergy System's allocation of the PPAs among the domestic utility companies. On October 26, 2006, the domestic utility companies filed with the FERC a request for rehearing/clarification on the issues of the shortening of the term of the ISES PPAs, the finding of a violation of Entergy's code of conduct, and the finding that the cost-based rate for Entergy Arkansas' retained share of the Grand Gulf capacity is $46 per MWh.end.
Other Customer-Initiated Proceedings at the FERCIndian Point Emergency Notification System
The LouisianaPursuant to federal law and an NRC order, Non-Utility Nuclear's Indian Point Energy and Power Authority ("LEPA") filedCenter located in Buchanan, New York is required to install a Petition and Application for Order Directing Transmission Service under Section 211new siren emergency notification system with certain back up power capabilities. Due to the complexity of the Federal Power Act againsttechnology employed in this system, among other things, Entergy Services (as agent forNuclear Operations, Inc., the domestic utility companies) and Cleco Power LLC. LEPA's petition requestsoperator of Non-Utility Nuclear's power plants, was unable to meet the April 15, 2007 deadline previously approved by the NRC. The NRC fined Entergy Nuclear Operations $130,000; but, nonetheless, the NRC acknowledged in its notice of violation that the FERC requirecurrent siren emergency notification system is capable of notifying the domestic utility companies and Clecopublic in the event of an emergency. In Entergy Nuclear Operations' response to allow LEPA to use its existing pre-FERC Order No. 888 transmission service to transmit power from new generating resources. LEPA argued thatthe notice of violation, it should not be held responsible for the cost of any transmission upgrades on either the Entergy or Cleco transmission system that are necessarycommitted to make the new generation resources deliverable undersystem operable by August 24, 2007, based on its understanding of the Open Access Transmission Tariff (OATT). In September 2006,operability requirements as of the FERC issued an order dismissingdate of its response. If Entergy Nuclear Operations is unable to meet the August 2 4, 2007 commitment, it may be subject to additional fines by the NRC. The Indian Point Energy Center will continue to operate and denying the complaint filed by LEPA. Specifically, the FERC denied LEPA's request to convert or roll overmaintain its existing pre-FERC Order No. 888 transmission service. Instead, the FERC explained that in effe ct, LEPA requested new service and that the domestic utility companies properly considered this new transmission service request under the OATT. The FERC pointed out that the domestic utility companies' studies showed thatsiren emergency notification system until the new service requires transmission upgrades and LEPAsystem is required to pay the higher of either the domestic utility companies' embedded costs (rolled-in rate) or the incremental costs of the system upgrade if it wants the OATTplaced into service. LEPA has requested rehearing of the FERC's decision.
153
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 | |||||||||||
Twelve Months Ended | |||||||||||
December 31, | June 30, | ||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | 2007 | ||||||
Entergy Arkansas | 2.79 | 3.17 | 3.37 | 3.75 | 3.37 | 3.17 | |||||
Entergy Gulf States | 2.49 | 1.51 | 3.04 | 3.34 | 3.01 | 2.63 | |||||
Entergy Louisiana | 3.14 | 3.93 | 3.60 | 3.50 | 3.23 | 3.16 | |||||
Entergy Mississippi | 2.48 | 3.06 | 3.41 | 3.16 | 2.54 | 2.64 | |||||
Entergy New Orleans | (a) | 1.73 | 3.60 | 1.22 | 1.52 | 1.31 | |||||
System Energy | 3.25 | 3.66 | 3.95 | 3.85 | 4.05 | 3.95 |
Ratios of Earnings to Fixed Charges | |||||||||||
Twelve Months Ended | |||||||||||
December 31, | September 30, | ||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | ||||||
Entergy Arkansas | 3.29 | 2.79 | 3.17 | 3.37 | 3.75 | 3.34 | |||||
Entergy Gulf States | 2.36 | 2.49 | 1.51 | 3.04 | 3.34 | 3.04 | |||||
Entergy Louisiana | 2.76 | 3.14 | 3.93 | 3.60 | 3.50 | 3.43 | |||||
Entergy Mississippi | 2.14 | 2.48 | 3.06 | 3.41 | 3.16 | 2.73 | |||||
Entergy New Orleans | (a) | (b) | 1.73 | 3.60 | 1.22 | 1.95 | |||||
System Energy | 2.12 | 3.25 | 3.66 | 3.95 | 3.85 | 4.06 | |||||
131
Ratios of Earnings to Combined Fixed Charges | Ratios of Earnings to Combined Fixed Charges | |||||||||||||||||||||
Twelve Months Ended | Twelve Months Ended | |||||||||||||||||||||
December 31, | September 30, | December 31, | June 30, | |||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||
Entergy Arkansas | 2.99 | 2.53 | 2.79 | 2.98 | 3.34 | 3.01 | 2.53 | 2.79 | 2.98 | 3.34 | 3.06 | 2.73 | ||||||||||
Entergy Gulf States | 2.21 | 2.40 | 1.45 | 2.90 | 3.18 | 2.92 | 2.40 | 1.45 | 2.90 | 3.18 | 2.90 | 2.49 | ||||||||||
Entergy Louisiana | 2.76 | 3.14 | 3.93 | 3.60 | 3.50 | 3.15 | - | - | - | - | 2.90 | 2.70 | ||||||||||
Entergy Mississippi | 1.96 | 2.27 | 2.77 | 3.07 | 2.83 | 2.52 | 2.27 | 2.77 | 3.07 | 2.83 | 2.34 | 2.34 | ||||||||||
Entergy New Orleans | (a) | (b) | 1.59 | 3.31 | 1.12 | 1.80 | (a) | 1.59 | 3.31 | 1.12 | 1.35 | 1.18 |
(a) |
|
| 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 *
|
| |
|
|
|
10(c) - | Credit Agreement ($200,000,000), dated as of August 2, 2007, among Entergy Gulf States, the Banks (Citibank, N.A., ABN AMRO Bank N.V., Barclays Bank PLC, BNP Paribas, Calyon New York Branch, Credit Suisse (Cayman Islands Branch), J. P. Morgan Chase Bank, N.A., KeyBank National Association, Mizuho Corporate Bank, Ltd., Morgan Stanley Bank, The Bank of New York, The Royal Bank of Scotland plc, and Wachovia Bank, National Association), Citibank, N.A., as Administrative Agent and LC Issuing Bank. | |
+ | 10(d) - | Rescission Agreement effective July 26, 2007 between Richard J. Smith and Entergy Services, Inc. |
12(a) - | Entergy Arkansas' Computation of Ratios of Earnings to | |
12(b) - | Entergy Gulf States' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. | |
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. | |
132 | ||
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. | |
133 | ||
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. | |
|
| |
|
| |
|
+ Management contracts or compensatory plans or arrangements.
99(c) -
Entergy Louisiana, LLC's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Distributions, as defined.
99(d) -
Entergy Mississippi's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.
99(e) -
Entergy New Orleans' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined.
99(f) -
System Energy's Computation of Ratios of Earnings to Fixed Charges, as defined.
___________________________
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.
* | 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. |
156134
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/ |
Date: NovemberAugust 8, 20062007
157
135