ML041550262

2003 Annual Report, and, Securities and Exchange Commission Form 10-K Submittal for All Entergy Nuclear Operations, Inc. Plants. Financial Results Through Investor Information

ML041550262
Person / Time
Site:	Indian Point, Pilgrim, Vermont Yankee, FitzPatrick
Issue date:	05/25/2004
From:	Kansler M Entergy Nuclear Northeast, Entergy Nuclear Operations
To:	NRC/FSME
References
BVY 04-049, ENO 2.04.047, JPN-04-012, NL-04-064
Download: ML041550262 (92)

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ENTEROY CORPORATION AND SUBSIDIARIES 2003 Entergy Corporation: All About Performance 2003 was a year of strong performance at Entergy. In this report, we measure how Entergy performed in 2003 against the goals and aspirations advanced in last year's annual report. We also update our goals and outline steps we're taking to maintain a high standard of performance.

For a company that calls New Orleans home, the word "performance" also evokes the rich musical heritage of this region, where a host of musical styles were born or nourished. So, we're highlighting a number of popular musical styles that were contemporary with important milestones in our company's 90-year history.

Since we refocused our strategy in 1998, Entergy has consistently performed for customers, investors, and all Entergy stakeholders.

As we look to the future, we're committed to delivering the performance our stakeholders count on - reliable service, steady growth, unfailing integrity - year after year after year.

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ENTEROY CORPORATION AND SUBSIDIARIES 2003 Productivity Improvement A critical near-term initiative is to reduce total annual operation and maintenance expense by

$145 million, and to reduce maintenance capital outlays by $350 million, by 2006. The increase in productivity improvements, combined with planned uprates to expand the capacity of our nuclear plants, will move us closer to achieving consistent 10 percent returns on total invested capital.

We took a significant step toward this operation and maintenance expense goal with the completion of our Voluntary Severance Program in December 2003. The VSP was well designed, targeting specific processes or functions where best practices or technology enhancements have been proven. We are eliminating work, and the VSP aligns the workforce with the remaining business needs. A total of 1,100 employees participated in the program. The long-term value of effective and efficient processes will clearly exceed the initial costs, which resulted in an after-tax charge of $123 million. The initiative will produce annual savings of about $70 million after tax, resulting in a three-year net present value of $90 million.

"s Entergy was honored as the top performer in the Edison Electric Institute's Index of Shareholder-Owned Electric Utilities, with a total return of 110.7 percent for the five-year period ended September 30, 2003. 11 In our benchmarking efforts, we've found that the safest, most reliable operations are also the lowest cost over the long run, and we firmly believe these productivity increases are sustainable.

U.S. capital-intensive industries have achieved 5 percent productivity improvements year after year for decades. That doesn't mean that everybody can do it - high-performing companies break from the pack. For example, ten years ago we honestly could not see how we could get nuclear costs below $25JMWh. But at the same time we knew that if we didn't, we'd face a huge competitive disadvantage. Now we're operating plants at $15/MWh, and we've identified more room for reducing inefficiencies, without compromising safety and reliability standards.

Innovative Regulatory Initiatives Over the coming year, we'll continue to focus on advancing creative regulatory solutions that are good for all our stakeholders.

This is what we did in our New Orleans rate case last year. Entergy New Orleans obtained a

$30 million base rate increase, but the customers' retail bill was less as we implemented an innovative plan to acquire generation supplies at the lowest cost, replacing more expensive power purchases and less-reliable, less-efficient generation. In addition, we gained the opportunity to earn a higher return on equity through a performance-based incentive plan.

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ENTEROY CORPORATION AND SUBSIDIARIES 2003 We have rate filings being considered this year for both Entergy Louisiana and Entergy Gulf States -

Louisiana, and our expectation is that they can be resolved in much the same way. That is, we believe that savings from the generation supply plan can mitigate base rate increases, and that performance-based ratemaking mechanisms can align the economic interests of shareholders and customers, giving us the opportunity to earn a higher ROE by achieving superior performance for customers.

We've also been active in developing an efficient transmission grid. In December, however, Entergy and other sponsors suspended efforts to form the SeTrans Regional Transmission Organization, as it became clear that state and federal regulators were unlikely to reach consensus on jurisdictional issues and approve the RTO.

A key initiative for 2004 is to receive approval for our interim transmission solution in lieu of SeTrans. The interim structure provides for grid operator independence with substantial duties assigned to an outside expert. It also provides more efficient pricing through a transition from rolled-in prices - which simply allocate transmission costs among everyone who uses the grid - to participant funding - which assigns costs to the users who are actually causing them. Over the long term, we still support a transmission structure that incorporates locational marginal pricing, but we must demonstrate to our state regulators that the transaction costs do not outweigh the efficiency benefits to be gained.

C; Over the coming year, we'll continue to focus on advancing creative regulatory solutions that are good for all our stakeholders.

A Note on Entergy-Koch Trading In last year's annual report, we said that EKT was one of the only large trading companies with an "unblemished record" with regard to market manipulation or simultaneous trading activities designed to inflate volumes and revenues. Later in the year, however, the U.S. Commodity Futures Trading Commission conducted an investigation of EKT's trading and reporting of natural gas transactions.

We were surprised and disappointed, along with Entergy-Koch management, that a handful of traders had not taken reporting as seriously as they do, for example, managing risk or other duties.

While many of the companies in the industry have found themselves in less than perfect compliance with changing rules and standards, we expect more. It was a fundamental breakdown in the way Entergy-Koch does business. We have taken very serious steps internally to ensure that accuracy in reporting is never again an issue, and that similar breakdowns don't occur in other areas.

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-ENTEY: CORPORATION AND SUBSIDIAROES 2 0 0 3-,

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raisgodtnug2 safe jo~bst-

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ENTERGY CORPORATION AND SUBSIDIARIES 2003 We will continue to evaluate other mechanisms to deploy cash such as stock buybacks and, of course, dividends, consistent with our acquisition opportunities and successes. We will not sit on excess cash earning very low interest. At the same time, we know that liquidity is an advantage.

With the market in turmoil, we don't know which opportunities will open first, or when, and being able to move quickly to put cash on the table could be decisive to seizing the best opportunities.

It is worth emphasizing here that we are not about "break-out" investments. Markets tend to be fairly efficient in this regard. We do seek "break-out" performance in the combination of diversity, synergy, price risk management, operational excellence, locational advantage, and a host of other daily blocking and tackling that adds up over time to consistently superior results.

As we celebrate the 90th anniversary of the founding of our company, we recognize and appreciate those who built a great company, and acknowledge the serious responsibility to maintain that legacy for investors, customers, and employees. A Thanks for Great Performances Before closing we want to recognize Don Hintz, who will retire as a full-time employee in April 2004. Don has been the driving force behind the turnaround in the performance of Entergy's legacy nuclear fleet, and the adoption and successful execution of our nuclear growth strategy, and he has served with distinction as president of Entergy since 1999. Over the last few years Don has made personal sacrifices to hold off on retirement until he could assemble the right team to carry on his legacy of operational excellence and continuous improvement in nuclear and other operations. Don has been nominated to the Board of Directors, and we're grateful for his willingness to serve Entergy in this new role.

We welcome Leo Denault to his new role as Executive Vice President and Chief Financial Officer.

As a key member of Entergy's finance team for the past five years, Leo is deeply prepared for the role of CFO, and he has extensive knowledge of the utility industry and of commodity markets.

We also want to recognize Admiral George Davis, who is retiring from the Board, for the valuable contribution he has made to our company over the past six years. And we welcome Steven Wilkinson, who was elected to the Board this past October.

We owe special thanks to our employees, who not only continued to improve service, reliability, and efficiency day after day, and who not only rose to the challenge once again of a major tropical storm in our service area, but who also contributed an unprecedented effort to power restoration in Maryland and Virginia in the wake of massive damage caused by Hurricane Isabel last September.

As we celebrate the 90th anniversary of the founding of our company, we recognize and appreciate those who built a great company, and acknowledge the serious responsibility to maintain that legacy for investors, customers, and employees.

And we thank you, our audience, for your attention and support.

ROBERT V.D. LUFT, J. WAYNE LEONARD, CHAIRMAN CHIEF EXECUTIVE OFFICER

,d for il

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utage Frequency uutage Duratlon t

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per customer (megawatt.

er ~

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not servead tDe-,Aemonstrated Commitment to Reliability

-Overthe past five years, Entergy has Invested $1.

-our electric distribution system."This investment h 4-d' ti it' cs w

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rms u 9 e- ;-><

4 ~,- -L -ffi..--r;:. ~v..service we provide our utility customers In terms of outages per customer per year. We ve also signi 3

system as measured by the transmission service rDailyrfor Customers 5i;ntergy business remains focused on the customer, J f

i ;-ow-cost energy service every day.In 2003 we made progre 9

low-cost generating resources and continued to improve sy pendable, Economical Power Supply A.

tergy has developed imnovative approaches to save money for cusk rn meetiteirneeds n'2003,~we held down thie cost of powerfor our customers, m spite tural gas we use for 26 percent of our electric generation'. We also.

.g-term and short-term power resources at competitive rates, throu n we crafted with regulators.

nosts associated with the SupplyPlan'-;'new generation resources a reements acquired to meet customer.needs '- are offset by fuel savi

)ensive purchased power and generation from less efficient source Most notably, we reached agreement in January.2004 to'acquire a r nt in.

err.

y

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Jj,,, -U 'It, nt iiPerryville,-Louisianaj from Cleco Corporation The acquisitio

,hly' efficient generation to serve our.Louisiana customers.-l-The pui pected to be completed by late 2004, contingent on necessary legal Blu'ding full cost recoverynfor Entergy --

avala

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'he Supply.Plan,was designed to meet the need for additional powe 300 MW between 2003 and 2012 to serve our,.utility customers. Our

-as# p ~9.:

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5 stomers'the benefits 'available fronm a'competitive wholesale pOwverT Lability a~nd limitling exposure to fuel pirice and market risks...'..4>,:

• csrl 1r.2~r

iervi rdrk t-zrgy's utilities oa:

,ov. *l.,abilt.y,.r rove reliability, SE and I

I i 34 in 2002 iting plants

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it 7.38 LL to re it Amerid jPBthe serO relat NI The customers Performance Review sujet to rfia

Federal g

whc we anti Club Utility A solid performance that combined perennial crowd-pleasers (cutting costs) with some new numbers (at Entergy New Orleans) and creative renditions (generation supply plans).

2003 Goals (in 2002 Annual Report) 2003 Performai One Uni A~rkonsa Make significant progress towards Realized significa achieving top-quartile cost efficiencies such t performance by identifying and severance prograj implementing process efficiencies.

250 utility emplo, Gain approval for a rate increase at Obtained a $30.2 Entergy New Orleans that allows increase and an ]

the company to earn a fair return 11.25 percent un on its investment.

formula rate plai at Move our generation supply plan Generation supp]

in Louisiana forward and introduce incorporated in I performance incentives into the settlement and in rate of return formulas by year-end.

Entergy Louisian ncee nt process that our voluntary m resulted in over 7ee reductions.

million retail rate ROE midpoint of der a two-year ly plan Tew Orleans i rate case filed by a in January 2004.

Rating:

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I II Performance Review

E Club E-K The trading business delivered a stellar performance while Gulf South was out of the groove - a mixed review for a combo whose past performances have raised audience expectations.

2003 Goals 2003 Performance (in 2002 Annual Report)

Obtain new customers, primarily by Increased physical optimization advancing the physical optimization earnings by 27 percent; added business with a goal of doubling 3,640 MW under management; on over the next two years.

track to double business by year-end 2005.

( _

r.=

is'0 0 Achieve global growth in the weather business by developing distribution channels.

Continued efforts on distribution channels; growth-to-date has been slower than expected.

Continue to improve productivity at Gulf South Pipeline.

Recorded higher production costs Complete the Magnolia Gas Storage facility on time and on budget.

due in part to higher fuel costs and k0 \\ - 0 legal expenses.

Completed on time and on budget in October 2003, but subsequent problems have delayed operations.

Rating:

• d>EUSyS 00i*o

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Selected

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SUMMARY

OF SELECTED FINANC a>

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omercial Governmental. -

'~Totaletf Sales for rele

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='=g-1,878s363

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• 209417_

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.7,244 827

$ 7 219,686

$ 6271,41 4 3,896 9

94;',7j

NEtYCORPORATION AND S 113 SID I A R 200 MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS Entergy Corporation is an investor-owned public utility

_RESULTS OF OPERATIONS holding company that operates primarily through three Earnings applicable to common stock for the years ended business segments.

December 31, 2003,'2002, and 2001 by operating segment

-U.S. UTILITY generates, transmits, distributes, and are as follows (in thousands):.

sells electric power, with a small amount of natural gas distribution.

Operating Segment 2003' 2002 2001

• NON-UTILITY NUCLEAR Owns and operates five nuclear US.tity$6,5

$8321 5024 power plants and sells the electric power produced by

-NoUtiyNula30,9 20,5 17,8 ths lnt owoesl utmes hsbuies~Energy Commodity Services 180,454 (145,830) 105,939

-Parent

& Other (23,360)

(38,566)

(57.866)

,provides services to other nuclear power plant owners.

$2,4 5930

$2,9 iENERGY COMMODITY SERVICES provides energy commdit traingand as ranporttio andstoage Entergy's income before taxes is discussed according to seviestroghEtegyKch L negyCmmdiy the business segments listed above. Earnings for 2003 Services also includes Entergy's non-nuclear wholesale icuete$3.

ilo e-ftxcmltv feto asses bsinsswhih sllseletri poer rodcedby.

changes in accounting principle that increased earnings: in thos asetsto wolealecustmer whle I fouse on the first quarter of 2003, almost entirely resulting from the selling the majority of those assets.

imiplementation. of Statement of, Financial Accounting Standards (SFAS) 143. Earnings were negatively affected in

'Following are the percentages of Entergy's consolidated thforhqaero203bvluaysvrncpogm revenues and net income generated by these segments and the ercntag oftota asets eldby tem:expenses of $122.8 million net-of-tax. As part of an initia-tive to achieve productivity improvements with a goal of reducing costs,- primarily in the Non-Utility Nuclea n

f ReenueU.S.

Utility businesses, in the second half of 2003 Entergy Segment

-2003.

'2002 2001 US.Utiity-'

2' 8

77~.offered a voluntary severance program to employees in Non.UiltyNucea',

4 1

.8 vrious, departments. Approximately' 1,100 employees,.

Energy Commodity Services

.2 4-14

,including 650 employees in nuclear operations from the.

Pen&Ote2 1

No-Utility Nuclear and U.S Utility businesses, accepted the offers.'

% of Net Income Earnings for 2002 were negatively affected by net Segrment

~

2003 2002

'2001-U.S Utl~t 52 97 77 charge ($238.3 million net-of-tax).reflecting the effect Of No-tltyNcer 3

3 Entergy's decision to 'discontinue additional greenfield Energy Commodity Services 19 (23)

"14

-power plant development and asset impairments resulting Parent & Other:'()

()

(

from the. deterioratin economics of hlsl oe markets'principally in the United States and the United

% ofTotl AsetsKingdom.

The net charges are discussed more fully below Segment 2003 2002 2001 In the Energy Commodity Services discussion. See Note 12

-U.S. Utilty

'79 79 78 Non-tilty uclar 15 16 13 to the consolidated financial statements for further discussion Enery Cmmodty ervies 7

5of Entergy's business segments and their financi~al results Parent & Other (1)

(3) in 2003, 2002, and 2001..

.1.. I I.

r I

. ENTERGY CORPORATION AND SUBSIDIARIES 2003

MANAGEMENT'S FINANCIAL DISCUSSION AND ANALI CSIS continued U.S. UTILITY The asset retirement obligation variance is due to the The decrease in earnings for the U.S. Utility for 2003 from implementation of SFAS 143, "Accounting for Asset

$583 million to $469 million was primarily due to a Retirement Obligations," adopted in January 2003. See

$107.7 million ($65.6 million net-of-tax) accrual of the loss

'Critical Accounting Estimates" for more details on SFAS that would be associated with a final, non-appealable decision 143. The increase is offset by increased depreciation and

• disallowing abeyed River Bend plant costs; $99.8 million decommissioning expenses and has no effect on net income.

($70.1 milion net-of-tax) of charges recorded in connection The increase in net wholesale revenue is primarily due with the voluntary severance program; and the $21.3 million to an increase in sales volume to municipal and cooperative net-of-tax cumulative effect of a change in accounting customers.

principle that reduced earnings at Entergy Gulf States in The March 2002 settlement agreement variance reflects the first quarter of 2003 upon implementation of SFAS 143.

the absence in 2003 of the effect of recording the ice storm See "Critical Accounting Estimates - SFAS 143" below for settlement approved by the Arkansas Public Service discussion of the implementation of SFAS 143. Partially Commission (APSC) in 2002. This settlement resulted in offsetting the decrease in earnings were decreased interest, previously deferred revenues at Entergy Arkansas per the charges and increased net revenue.

transition cost account mechanism being recorded in net The increase in earnings for the U.S. Utility for 2002 from revenue in the second quarter of 2002. The decrease is offset

$550 million to $583 million was primarily due to an by a corresponding decrease in other operation and mainte-increase in net revenue and a decrease in interest charges.

nance expenses and has a minimal effect on net income.

partially offset by increases in depreciation and amortization expenses and other operation and maintenance expenses.

Gross Operating Revenues and Regulatory Credits Gross operating revenues include an increase in fuel cost Net Revenue recovery revenues of $682 million and $53 million in electric 2003 COMPARED TO 2002 and gas sales, respectively, primarily due to higher fuel rates Net revenue, which is Entergy's measure of gross margin, in 2003 resulting from increases in the market prices of pur-consists of operating revenues net of: 1) fuel, fuel-related, chased power and natural gas. As such, this revenue increase and purchased power expenses; and 2) other regulatory is offset by increased fuel and purchased power expenses.

credits. Following is an analysis of the change in net revenue Other regulatory credits decreased primarily due to the comparing 2003 to 2002 (in millions): -

March 2002 settlement agreement mentioned above, which increased other regulatory credits in 2002 to offset other operation and maintenance expenses of $159.9 million related 2002 net revenue

$4,209.6 to the December 2000 Ice storms. The decrease was partially Baserateincreases

.66.2 offset by the asset retirement obligation mentioned above, Base rate decreases' (23.3) which increased other regulatory credits in 2003 to offset the

• Fuel price

.56.2 Fuset prticeet increases in depreciation and decommissioning expenses.

Asset retirement nblisanton 42.9 I

Net wholesale revenue March 2002 Arkansas settlement agreement Other 2003 net revenue

• 23.2 (154.0)

(6.3)

'$4.214.5

-2002 COMPARED TO 2001 Following is an analysis of the change in net revenue comparing 2002 to 2001 (in millions):

Base rates increased net revenue due to base rate increases at Entergy Mississippi and Entergy New Orleans -that became effective in January 2003 and June 2003, respec-tively. Entergy Gulf States implemented base rate decreases in its Louisiana jurisdiction effective June 2002 and January 2003. The January 2003 base rate decrease of

$22.1 million has a minimal impact on net income due to a corresponding reduction in nuclear. depreciation and decommissioning expenses associated with the change in accounting estimate to reflect an assumed extension of River Bend's useful life.

The fuel price variance is due to a revised estimate made in December 2002 of the fuel cost component of the price; applied to unbilled sales and further revision of that estimate in the first quarter of 2003.

.2001 net revenue.

-3.873.1 March 2002 Arkansas settlement agreement 180.7 Volumetweather-155.7 Fuel price 94.3 System Energy refund in 2001 (128.9)

Other 34.7 2002 net revenue

$4,209.6

--The March 2002 settlement agreement is discussed above and is offset by an increase in other operation and maintenance expenses. The effect on net income in 2002 is a decrease of $2.2 million.

The volume/weather variance is due to increased electricity usage in the service territories. Billed usage increased a total of 2,149 GWh in the residential and commercial sectors.

ENTEROY CORPORATION AND SUBSIDIARIES.2003 The fuel price variance is due to an increase in the Depreciation and amortization expenses increased primarily price applied to unbilled sales partially offset by a revised due to an increase in plant in service. The increase was also estimate made in December 2002 to the fuel component due to the implementation of SFAS 143. The increase in of that price.

depreciation and amortization expense'due to SFAS 143 The effect of the System :Energy refund resulted from implementation is offset by increases in other regulatory System Energy's application to the Federal Energy credits and interest and dividend income and has an' Regulatory Commission (FERC) in May 1995 for a rate insignificant effect on net income.

increase, which it implemented in December 1995, subject Other income decreased primarily due to a' decrease in to refund. The request sought changes to System Energy's "miscellaneous - net" as a result of a $107.7 million accrual I -i

.I I-i 4

rate schedule, including increases n t associated with decommissioning rate, and the rate of return on comna FERC approved a lower rate of sought by System Energy. Upon r(

order in July 2001, Entergy 'Ai Louisiana recorded entries to spread order to the various revenue, exper accounts affected, as if the order h commencement of the case in 1995.'

necessary to 'record the effects purchased power expenses in 2001 corresponding increase in net reveni Energy refund proceeding is'discu consolidated financial statements.

GROSS OPERATING REVENUES Gross operating revenues include E recovery revenue of $897.4 million ai to electric sales and gas sales, respec lower fuel recovery factors resulting market prices of natural gas and piu As such, this revenue decrease is o and purchased power expenses.

Other Income Statement Varlanc 2003 COMPARED TO 2002 Other operation and maintenance

'primarily due to decreased expenses The March 2002 settlement agreeme the second quarter of 2002, allowini recover a large majority of 2000 anc expenses through the previously-cc account amounts, increased Entergy

$159.9 million in 2002. This increa.

was offset by a regulatory credit re net income: The decrease was partial of $99.8 million in benefit costs as severance program accruals in 2003 Decommissioning expense increas implementation 'of SFAS 143, "A Retirement Obligations." The increa.

expense is offset by increases in ot and interest and dividend income an effect on net income.

he revenue requirement

'in the second quarter 2003 for the loss that would be asso-costs, the depreciation ciated with a final, non-appealable decision disallowing on equity.'In July 2000, abeyed River Bend plant costs. See Note 2 to the consolidated return than the rate financial statements for more details regarding the River 3ceipt of a final FERC' Bend abeyed plant costs.' The decrease was partially offset

-kansas and Entergy by an increase in interest and dividend income as a result of the impacts of FERC's the implementation of SFAS 143.

ise, asset, and liability Interest charges decreased primarily due to a decrease of ad been in place'since

$28.5 million in interest on long-term 'debt due to the The accounting entries redemption and refinancing of long-term debt. -Refer to of -the order reduced Note 5 to the consolidated 'financial statements for detail which resulted in a' of long-term debt outstanding as of December 31, 2003 ae in 2001. The System and 2002.

ssed in Note 2 tio the 2002 COMPARED TO 2001 In addition to the effect of the March 2002. settlement agreement at Entergy Arkansas, the increase in other a decrease In fuel cost operation and maintenance expenses was primarily due to:

id $60.5 million related

• an increase of $51.2 million in benefit costs; tively, primarily due to -

increased expenses of $24.5 million at Entergy from decreases in the

'Arkansas due to the reversal in 2001 of ice storm costs rchased power in 2002.

previously charged to expense in December 2000; ffset by decreased fuel

• an increase of $14.6 million in fossil plant expenses due to maintenance outages and turbine inspection costs at various plants; es

• an increase of $10.9 million to reflect the current esti-mate of the liability for the future disposal of low-level 3 expenses decreased radioactive waste materials; and i at Entergy Arkansas..

lower nuclear insurance refunds of $6.7 million.

!nt that became final in Y Entergy Arkansas to"_

Depreciation and amortization expenses increased primarily 1 2001'ice 'storm repair.

due to the effects in 2001 of the final FERC order addressing fllected transition cost System Energy's 1995 rate filing.

Arkansas' expenses by se in expenses in 2002

'Other income decreased primarily due to:

sulting in no effect on

• interest recognized in 2001 on Grand Gulf i's decom-ly offset by an increase

'missioning trust funds resulting from the final order-a result of voluntary addressing System Energy's rate proceeding; '

interest recognized in 2001 at Entergy Mississippi and ed primarily due to the Entergy New Orleans' on the deferred System Energy Lccounting 'for Asset '

- costs related to its 1995 rate filing that were not being se in decommissioning recovered through rates; and her regulatory credits

• lower interest earned on declining deferred fuel balances.

id has an insignificant i

i

-- I

ENTERGY CORPORATION AND SUBSIDIARIES 2003 MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS continued The decrease was partially offset by an increase in 'miscel-ENERGY COMMODITY SERVICES

.' laneous - net" of $26.7 million due to the cessation of amor-Earnings for Energy Commodity Services in 2003 were tization of goodwill in January 2002 upon implementation primarily driven by Entergy's investment in Entergy-Koch.

of SFAS 142 and settlement of liability insurance coverage

' Following are key performance measures for Entergy-at Entergy Gulf States.

Koch's operations for 2003 2002, and 2001:

Interest and other charges decreased primarily due to:

2003

2002 2001

• a decrease of $31.9 million in interest on long-term debt Entergy-Koch Trading

primarily due to the retirement of long-term debt in late, Gas volatility 62%

61%

72%

2001 and early 2002; and Electricity volatility 59%

48%

78%

a decrease of $76.0 million in other interest expense Gas marketed (BCF/D)"'

6.5 5.8 4.5 primarily due to interest recorded on System Energy's Electricty marketed (GWb) 445.979 408.038 180,893 provision for rate refund in 2001 resulting from the ays 1.5 1.8 2.8 Gulf South Pipeline, effects of the final FERC order addressing System 1

2

• -..-:.-..r.-Throughput (B8CF/D)

-1.99

.2.40

- 2.45 Energy's 1995 rate filing. The refund was made in Dcme201

-Production cost ($/MMABtu)

$0.146

$0.094 S0.093 December 2001 (1) Previously reported volumes, which included only U.S. trading, have been adjusted to reflect both U.S. and Europe volumes traded.

J 2003 COMPARED TO 2002

'-The increase in earnings for Energy Commodity Services in a2003 from a $145.8 million loss to $180.5 million in earnings was primarily due to $428.5 million ($238.3 million net-of-

.tax) of charges recorded in 2002, as discussed in the 2002 to' 2001 comparison below. Higher earnings from Entergy's NON-UTILITY NUCLEAR investment in Entergy-Koch also contributed to the increase e

inearnings. The income 'from Entergy's investment in Following are key performance measures:

2-0 2

Entergy-Koch was $73 million higher in 2003 primarily as a

- 20032 2002 2001 result of higher earnings at Entergy-Koch Mrading (EK7).'

Net MW in operation at December31 4.001 3,955 3,445 Volatility was slighty up and trading earnings reflected ",

-Average realized price per MWh

'$38.54

$40.49 solid point-of-view trading results. In addition, EKrs phys-

--Generation in GWh for the year 32.379 29,953

-22,614 ical optimization business continued to contribute earings, Capacity factor for the year 92.4%

92.8%

92.7%96

,'t;

~and its European business earnings increased as trading 2003. COMPARD TO 2002

-activities continued to expand beyond the United Kingdom.

~s atGulf South Pipeline were lower due to lower

,T~he increase in earnings,for. Non-Utility Nuclear, from"--ErmsaufSuhPpln eelwrdet oe

$200.5 million to $300.8 million was primarily due to the throughput and higher production costs. The decreased

$154.5 million net-of-tax cumulative effect of a change in throughput was due to shifting gas flow patterns in a accountingprincipleecognized inthefirstquarterof2003 sustained high gas price environment that led to higher upon implementation of SFAS 143. See "Critical Accounting fuel costs Producton costs were higher as the result of Esimates-SFAS 143" below for discussion of the impl-incremental legal and consultant expenses incurred primarily, mentation of SFAS 143. Income before the cumulative effect n connecton with Gulf South's defense of a lawsuit which it of accounting change decreased by $54.2 million. The believes ha n it.

decrease was primarily due to $83.0 million ($50.6 million Entergy accounts for its 50% share in EntergyKoch of recorded i c

Under the equity method of accounting. Earnings from net-of-tax) o charges rcdeinconnection with the

,fthef Entergy-Koch are reported as equity in earnings of uncon-

• Voluntary severance program. Except for teeffect of the

-solidated equity affiliates in the financial statements.

voluntary severance program, operation and maintenance expenses in 2003 per MWh of generaton were ine with Certain terms of the partnership arrangement allocated income from various sources, and the taxes on that income, 2002 operatio and m c e on a significantly disproportionate basis through 2003.

'2002 COMPARED TO 2' Losses and distributions from operations are allocated to

'The 'increase in earnings for Non-Utility Nuclearfrom the:partners equally. Substantially all of. Entergy-Koch's

$127.9 million to $200.5 million was primarily due to profits were allocated to Entergy in 2003, 2002, and 2001.'

the acquisitions of Indian Point 2, purchased in September Effectve January 1,2004, a revaluation of Entergy-Koch's 2001, and Vermont Yankee, purchased in July 2002."Aso' asets for legal capital account purposes occurred, and contributing to the increase in earnings was higher pricing future profit allocations changed after the revaluation.

under certain purchase power contracts.

The profit allocations other than for weather trading and unde ceti puch s

po e

.con.tr..ac.-ts...

ENTEROY CORPORATION AND SUBSIDIARIES 2003 international trading became equal. Profit allocations for weather trading and international trading remain dispro-portionate to the ownership interests. The weather trading and international trading allocations are unequal only within a specified range, such that the overall earnings allocation should not materially differ from 50150. Earnings allocated under the terms of the partnership agreement constitute equity, not subject to reallocation, for the partners.

2002 COMPARED TO 2001 The decrease in earnings for Energy Commodity Services in 2002 from $105.9 million to a $145.8 million loss was primarily due to the charges to reflect the effect of Entergy's decision to discontinue additional greenfield power plant development and to reflect asset impairments resulting from the deteriorating economics of wholesale power markets principally in the United States and the United Kingdom. Entergy recorded net charges of

$428.5 million ($238.3 million net-of-tax) to operating

-expenses. The net charges consist of the following:

The power development business obtained contracts in October 1999 to acquire 36 turbines from General Electric.

Entergy's rights and obligations under the contracts for 22 of the turbines were sold to an independent special-purpose entity in May 2001. $178.0 million of the charges, including an offsetting net-of-tax benefit of $18.5 million related to the subsequent sale of four turbines to a third party, is a provision for the net costs resulting from cancellation or sale of the turbines subject to purchase commitments with the special-purpose entity;

$204.4 million of the charges results from the write-off of Entergy Power Development Corporation's equity

'investment in the Damhead Creek project and the impairment of the values of its Warren Power power plant and its Crete and RS Cogen projects. This portion of the charges reflects Entergy's estimate of the effects of reduced spark spreads in the United States and the United Kingdom. Darnhead Creek was sold in December 2002, resulting in net income of $31.4 million;

• $39.1 million of the charges relates to the restructuring of the non-nuclear wholesale assets business, which is comprised of $22.5 million of impairments of adminis-,

trative fixed assets, $10.7 million of estimated sublease losses, and $5.9 million of employee-related costs;

• $32.7 million of the charges results from the write-off of capitalized project development costs for projects that will not be completed; and

• a gain of $25.7 million ($15.9 million net-of-tax) realized on the sale in August 2002 of an interest in projects under development in Spain.

Also, in the first quarter of 2002, Energy Commodity Services sold its interests in projects in Argentina, Chile, and Peru for net proceeds of $135.5 million. After impairment provisions recorded for these Latin American interests in 2001, the net loss realized on the sale in 2002 was insignificant.

Revenues and fuel and purchased power expenses

-decreased for Energy Commodity Services by $1,075.8 million and $876.9 million, respectively, in 2002 primarily due to:

• a decrease of $542.9 million in revenues and $539.6 million in fuel and purchased power expenses resulting from the sale of Highland Energy in the fourth quarter of 2001;

• a decrease of $161.7 million in revenues resulting from the sale of the Saltend plant in August 2001; and

• a decrease of $139.1 million in revenues and $133.5 million in purchased power expenses due to the contribution

- of substantially all of Entergy's power marketing and trading business to Entergy-Koch in February 2001.

Earnings from Entergy-Koch are reported as equity in earnings of unconsolidated equity affiliates in the financial statements. The net income effect of the lower revenues was more than offset by the income from Entergy's investment in Entergy-Koch. The income from Entergy's investment in Entergy-Koch was $31.9 million higher in 2002 primarily as a result of earnings at Entergy-Koch Trading (EKT) and higher earnings at Gulf South Pipeline due to more favorable transportation contract pricing. Although the gain/loss days ratio-reported above declined in 2002, EKT made relatively more money on the gain days than the loss days, and thus had an increase in earnings for the year.

PARENT & OTHER The loss from Parent & Other decreased in 2003 from

$38.6 million to $23.4 million primarily due to lower income tax expense.

The loss from Parent & Other decreased in 2002 from

$57.9 million to $38.6 million primarily due to:

• a decrease in income tax expense of $12.1 million resulting from the allocation of intercompany tax benefits; and

• a decrease in interest charges of $6.0 million.

INCOME TAXES The effective income tax rates for 2003, 2002, and 2001 were 37.9%, 32.1%, and 38.3%, respectively. See Note 3 to the consolidated financial statements for a reconciliation of the federal statutory rate of 35.0% to the effective income tax rates.

=

ENTEROY CORPORATION AND SUB5IDIARIE S 2003 MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS continued LIQUIDITY AND CAPITAL RESOURCES Following are Entergy's long-term debt maturities as This section discusses Entergy's capital structure, capital of December 31, 2003 and 2002 by operating segment spending plans and other uses of capital, sources of capital, (in millions):

and the cash flow activity presented in the cash flow statement.

Long-term 2007-after Debt Maturities 2003 2004 2005 2006 2008 2008

.~

. -~

-'As of December 31, 2002 CAPITAL STRUCTUREAofcebrl20-C U.S. Utility

$1,111

$855

$470

$68 $ 654

$3,718 Entergy's capitalization is balanced between equity and 87

$ 9

$ 95

$98 $ 119 $

193 debt, as shown in the following table. The reduction in the Energy Commodity percentage for 2003 is the result of reduced debt outstanding Services 79 in the U.S. Utility and Non-Utility Nuclear businesses, and an Parent and Other

$595 267 increase in shareholders' equity, primarily due to increased As of December 31, 2003 retained earnings. The reduction in the percentage for 2002 U.S. Utility

$450

$355

$28. $1,254

$4-,345 is primarily the result of the sale of Damhead Creek in Non-UtilityNuclear

$ 74

$ 72

$76

$ 100 $ 193 December 2002. Debt outstanding on the Damhead Creek Energy Commodity facility was $458 million as of December 31, 2001.

-Parent and Other 60 272 5 68 2003 2002 2001 Net debt to net capital

.Capital lease obligations, including nuclear fuel leases, at the end of the year

'453%

47.7%

511%

are a minimal part of Entergy's overall capital structure,

'Effect of subtracting cash and are discussed further in Note 10 to the consolidated from gross debt

'22%

4.1%

2.2%

financial statements. Following are Entergy's payment obli-Debt to capital at the end of the year 47.5%

51.8%:

-i53.3%

gations under those leases (in millions):

Net debt consists of gross debt less cash and cash equiva-2007-after lents. Gross debt consists of notes. payable, capital lease 2004 2005 2006 2008 2008 obligations, preferred stock with sinking fund, and long-Capitalleaepayments, term debt, iin including nuclear fuel leases $165

$142

$6

$5

$3 including the currently maturing portion. -Net capital consists of net debt, common shareholders' equity, N

w i

b o

on

*Notes payable, which include borrowings outstanding on and preferred stock without sinking fund. The preferred

'-credit facilities with' original 'maturities 'of less than one stock with sinking fund is included in gross debt pursuant year, were less than $1 million as of December 31,2003.

to SFAS: 150, which Entergy implemented, in the "third quarter of 2003. The 2002 and 2001 ratios do not reflect Entergy Corporation, Entergy Arkansas, Entergy

-'Louisiana, and Entergy,Mississippi each' have 364-day that type of security as debt, but do include it in' net 'L a

E M

capital, which is how Entergy presented those securities credit facilities available as follows prior to implementation of SFAS 150. Entergy uses the net

• Expiration Amount of.Amount Drawn as debt to net capital ratio in analyzing its financial condition Company-Date Faclity of Dec. 31, 2003 and believes it provides useful information to its investors: Entergy Corporation May 2004 $1.450 billion and creditors in evaluating Entergy's financial condition.

Entergy Arkansas April 2004 $ 63 million Long-term debt, including the currently maturing portion, Entergy Bouisiana

- May 2004 $ :15 million makes up over 90% of Entergy's total debt outstanding.

Entergy Miassippi May2004 $

25 million See below for Entergy's long-term debt principal maturities' as of December3, 2003 and 2002 by operating segment.

- Although the Entergy Corporation 'credit line expires in A significant factor in the change from 2002 to 2003 is over May 2004, Entergy has the discretonary option to extend

$2 billion of debt refinancing or retirement activity in the the period to repay the amount then outstanding for an U.S. Utility business in 2003. These figures include principal additional 364-day term. Because of this option, which payments on the Entergy Louisiana and System Energy saie- -Entergy intends to exercise if it does not renew the credit easack transactions, which are included in lon' line or obtain an alternative source of financing, any debt on the 'balance sheet. Note 5 to the consolatedm db outstanding on the credit line is reflected in long-term debt onth blaceshe. Noe t

teconsolidated oninabalanc statements provides more detail concerning long-term debt.

th e

sheet. Entergy Corporation's facility requires it to maintain a consolidated debt ratio of 65% or less of its total capitalization, and maintain an interest coverage ratio of 2 to 1. If Entergy fails to meet these limits, or if Entergy

- or the domestic utility companies default on other indebted-ness or are in bankruptcy or insolvency proceedings, an acceleration of the facility's maturity date may occur.

ENTEROY CORPORATION AND SUBSIDIARIES 2003 Operating Lease Obligations and Guarantees of

-Capital Funds Agreement Unconsolidated Obligations Pursuant to an agreement with certain creditors, Entergy In addition to the obligations listed above that are reflected Corporation has agreed to supply System Energy with.

on the balance sheet, Entergy has a minimal amount of sufficient capital to:

operating leases and guarantees in support of unconsolidated

• maintain System Energy's equity capital at a minimum obligations that are not reflected as liabilities on the balance

-of 35% of its total capitalization (excluding short-term debt);

sheet. These items are not on the balance sheet in accor-

• permit the continued commercial operation'of Grand dance with generally accepted accounting principles.'

Gulf 1;:

Following are Entergy's payment obligations as of

• pay in fullall System Energy indebtedness for borrowed December 31, 2003 on non-cancelable operating leases with money when due; and a term over one year (in millions):

• enable System Energy to make payments on specific.

2007-after System Energy.debt, under supplements to the 2004 2005 2006. 2008 2008 agreement assigning System Energy's rights in Operating lease payments -

$99

$89

$70

-$93

$245-the agreement as security for the specific debt.

The operating leases are discussed more thoroughly in Note 10 CAPITAL EXPENDITURE PLANS AND

.to the consolidated financial statements.

OTHER USES OF CAPITAL Entergy's guarantees of unconsolidated obligations out-,7-Following are the amounts of Entergy's planned construction standing as of December 31 2003 total a maximum amount a

o c

i b o a

s for of$4 ilodt ie s fo.os and other, capital investments by operating segment for of $249 million, detailed as follows:

2004 through 2006 (in millions):

• In August 2001, EntergyShaw entered into a turnkey-

- construction agreement with an Entergy subsidiary, Panned construction Entergy Power Ventures, L.P. (EPV), and with Northeast and capital investment 2004 2005 2006 Texas Electric Cooperative, Inc. (NTEC), providing for Maintenance Capital:

the construction by EntergyShaw of a 550 MW electric U.S. Utility

$ 767

$ 767

$759 generating station to be located in Harrison County Non-Utility Nuclear

.73 68 76 Texas. Entergy has guaranteed the obligations of Energy Commodity Services 7

2 2

EntergyShaw to construct the plant, which is 70%

Parent an Other 7

10

.4 854 847 851 owned by EPV. Entergy's maximum liability on the a

'om'.tments:

. ~~Capital Commitments:

guarantee is $232.5 million, and the guarantee is U.S. U 569 295 112 expected to remain outstanding through June 2004 Non-Utility Nuclear 123

• PS Cogen has an interest rate swap agreement that Energy Commodity Services

73.

• hedges the interest rate on a portion of its debt. Entergy-Parent and Other 32 guaranteed PS Cogen's obligations under the interest 797 295 112 rate swap agreement. The guarantee is for $16.5 million bta

$1.651

$1,142

$963 and terminates in October 2017.

Maintenance Capital refers to amounts Entergy plans to Summary of Contractual Obligations

,spend on routine capital projects that are necessary to of Consolidated Entities (in millions) support reliability of its service, equipment, or systems and to support normal customer growth; 2005-2007-after, Capital Commitments refers to non-routine capital Contractual Obligations 2004 2006 2008 2008. Total' investments that Entergy. is either contractually obligated Long-term debt"'

$524 $ 591 $1,626

$5,106

$7,847 or otherwise'required to make pursuant to a regulatory Capital lease bligationse

$165 $ 148 $

5 $

3

.8 321

.- agreement or existing rule or la w

with which Entergy is Operating leases "'

$ 99 8 159 $

93

$ 245

$ 596 required to comply. Amounts reflected in' this category Purchase obligations

$925 $1.007 $ -907 $1,446 64.285 include the following:

() Long-term debt is discussed in Note 5 to the consolidated financial statements.

R o t A

N O

(2) Capital kase obligations include nuclear fuel klases. Lease obligations are discussed RlacementoftheArkansasNuclear OneUnit

.in Aote 10 to the consolidated rinancial statements.

(ANO 1) steam generators and reactor vessel closure (3) As defined by SEC rule. For Entergy, it includes unconditional fuel and purchased power obligations and other purchase obligations. Approximately 97% of the totaI head. Entergy estimates the cost of the ANO 1 project to pertainstofueland purchased powerobligationsthatarerecoveredinthe be approximately $235 million, of which approximately normal course of business through carious fuel cost recovery mechanisms in

- the U.S. Utility business.

$135 million will be incurred through 2004. Entergy expects the replacement to occur during a planned refueling outage in 2005. Entergy Arkansas filed in

'.January 2003 a request for a declaratory order by the i

I

.i I

ENTEROY CORPORATION AND SUBSIDIARIES 2003 MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS continued APSC that the investment in the replacement is in the Estimated capital expenditux public interest analogous to the order received in 1998 review and modification and prior to the replacement of the Arkansas Nuclear One ongoing effects of business Unit 2 (ANO 2) steam generators. The APSC found that constraints, environmental reg the replacement is in the public interest in a declaratory nities, market volatility, econon order issued in May 2003.

access capital.

Purchase of the Perryville power plant in Louisiana. In January 2004, Entergy Louisiana signed an agreement Dividends and Stock Repurc to acquire the 718 MW Perryville power plant for

-Declarations of dividends on E

$170 million. The plant is owned by a subsidiary of made at the discretion of the E Cleco Corporation, which subsidiary submitted a bid in the Board evaluates the level c response to Entergy's Fall 2002 request for proposals dividends based upon Ente:

for supply-side resources. The signing of the agreement strength, and future investmer followed a voluntary Chapter II bankruptcy filing by 2003 meeting, the Board inc the plant's owner. Entergy expects that Entergy dividend per share by 29%, to Louisiana will own 100 percent of the Perryville plant, next review of a potential di, and that Entergy Louisiana will sell 75 percent of the in October 2004. Given the cl output to Entergy Gulf States under a long-term cost-of-common shares outstanding, service purchased power agreement. The purchase of 2003 dividend increase to resul the plant, expected to be completed by December 2004, increase in cash used of app is contingent upon obtaining necessary approvals from 2003, Entergy paid $363 millii the bankruptcy court and from state and federal common stock.

regulators, including approval of full cost recovery, In accordance with Entergy's giving consideration to the need for the power and the periodically grants stock optio prudence of Entergy Louisiana and Entergy Gulf States may be exercised to obtain sh for engaging in the transaction. In addition, Entergy stock. According to the plans, Louisiana and Entergy Gulf States executed a purchased issued shares, treasury stock, e power agreement with the plant's owner through the open market. Entergy's manag date of the acquisition's closing (as long as that occurs to repurchase on the open mar]

by September 2005) for 100 percent of the output of the sufficient to fund the exercise o Perryville plant.

2003, Entergy repurchased 1

• Nuclear power plant uprates.

stock for a total purchase price

• Entergy's obligation in the Energy Commodity Services business to make a $72.7 million cash contribution to Public Utility Holding Comp Entergy-Koch in January 2004. Entergy made the Restrictions on Uses of Capi contribution on January 2, 2004.

Entergy's ability to invest in el and foreign utility companies is From time to time, Entergy considers other capital invest-tions under PUHCA. As author ments as potentially being necessary or desirable in the allowed to invest earnings in el future, including additional nuclear plant power uprates, and foreign utility companies i generation supply assets, various transmission upgrades, of its average consolidated environmental compliance expenditures or investments in December 31, 2003, Entergy's new businesses or assets. Because no contractual obligation rule totaled $2.59 billion consi or commitment exists to pursue these investments, they are average consolidated retained e; not included in Entergy's planned construction and capital Entergy's ability to guarant investments. These potential investments are also subject non-utility subsidiaries is also to evaluation and approval in accordance with Entergy's Exchange (SEC) regulations i policies before amounts may be spent. In addition, Entergy's 2000, the SEC issued an order, capital spending plans do not include spending for trans-31, 2005, that allows Entergy mission upgrades requested by merchant generators, other guarantees for the benefit of than projects currently underway, because Entergy's Entergy currently has sufficier contracts with the generators require the generators to for its foreseeable needs.

fund the upgrades, which Entergy then repays through Under PUHCA, the SEC impx credits against billings to the generators.

consolidated capitalization on res are subject to periodic may vary based on the restructuring, -regulatory ulations, business opportu-Aic trends, and the ability to' hases rntergy's common stock are Board. Among other things,'

of Entergy's common stock rgy's earnings, financial it opportunities.- At its July reased Entergy's quarterly

$0.45.' Entergy expects the vidend increase will occur urrent number of Entergy Entergy expects the July It in an incremental annual' roximately $90 million.' In ion in cash dividends on its stock option plans, Entergy

ns to its employees, which ares of Entergy's common these shares can be newly or shares purchased on the

• ement has been authorized ket shares up to an amount f grants under the plans. In 55,000 shares of common of $8.1 million.

pany Act (PUHCA) ital ectric wholesale generators subject to the SEC's regula-ized by the SEC, Entergy is ectric wholesale generators in an amount equal to 100%

retained earnings.':As of investments subject to this:

ituting 58.3% of Entergy's arnings.

ee obligations of Entergy's

-limited by Securities and Lnder 'PUHCA. In August effective through December to issue up to $2 billion of its non-utility companies.

it capacity under this order oses a limit equal to 15% of the amount that may be

ENTEROY CORPORATION AND 'SUBSIDIARIES 2 0 03 invested in "energy-related" businesses without specific SEC CASH FLOW ACTIVITY approval. Entergy has made investments in energy-related As'shown in Entergy's Statements of Cash Flows, cash businesses,: including,- power marketing and, trading.,.

flows for the years ended December 31,.2003,'2002, and Entergy's available capacity to make additional investments 2001 were as follows (in millions):

at December 31, 2003 was approximately $1.6 billion.

-2003 2002

'2001 SOURCES OF CAPITAL Cash and cash equivalents Entergy's sources to meet its capital requirements andto a

eingofpid$1,3

$72

$138 fund potential investments include:

Cs lwpoie y(sdI)

Operating activities 2.006 2,181

.2,216

• ntraygeeaefud;Investing activities (1,783)

(1,388)

(2.224) 4

• cash on hand ($692 million as of December 31,:2003);

,-igatvte 89 23 securitiesitis (issuances622

-Effect of exchange rates on.

financing under new or existing facilities. nd and an ahequivalents 3

sales of assets.

Net increase (decrease) in cash and cash equivalents (643) 583

.(630).

The majority of Entergy's internaliy generated funds come Cahndcseuilnt-from the domestic utility companies and System Energy.

atedopri

$62 1,3

$75 Crusaces such as weather patterns, price fluctution, and

'te expnse, ici dn uscheule

~t Operating Cash Flow Activity and-unanticipatd-xes, icudigunceldpat outages,couldaffect the level of internallygenerated funds'200 CO-AS T-20 In the future. In. the following section Entergy's cash.-flow Etryscs lwpoie yoeaigatvte actiityforthe revousthre yers s

~'decreased in 2003 primarily due to the following.'

Provisions within the Articles of Incorporation or pertinent ThUS.tityrode$165ilonnopaig indentures and various other agreements relating, to the cahfoin20cmprdtpovig$,31iulo ong-term debt and preferred stock *of certain of. Entergy I

02 h

eraepiarl eutdfo h

a Corporation's subsidiaries restrict the payment -of. cash

conigeecinmd yEteg oiina discussed below: Also contributing to the decrease were' dividends or, other distributions on their common 'and prefrre stck.As f Dcembr 3, 203,Entrg

-higher payments for fuel during the period, which also, Arkansas'and Entergy. Mississippi had restricted retained, sinfcnl nrae h

mon fdfre ul

• eaning unvailble or istrbutin t

Entrgy costs. Management expects that the deferred fuel costs'2 Corporation of $309.4 million and $41.9 million, respectively, will be recovered through regulatory recovery mecha-,

Additionally, PUHCA -prohibits Entergy Corporation's nisms25ciurrently in place:.

subsdiaiesfro maingloas o adancs t Energ The non-nuclear wholesale assets business used $70 million,

• opratin l

etadcmonadpeerdsok in operating cash flow in 2003 compared to providing issuances by -the domestic utility companies and System

$3mlinI 02piaiydet eraeo Enery rquie pior-reulatry pprval an thir:

$64 million in the income tax refund received in 2003 preferred'stock and debt issuances are also subject: to cmaeto22.AscntribuigtthinraeI issuance tests set forth in corporate charters, bond inden-ahue asaoetm $3mlinpamn eae tures, and other agreements. The domestic utility compa-oagnrto otati h

o-ula hlsl nies and System Energy have sufficient capacity under ast uies

'these tests to meet foreseeable capia ned.*The Non-Utility Nuclear segment providd$8milo Short-term borrowings by the domestic utility companies Inoeaigcs lwi 00 oprdt rvdn and System Energy, including borrowings under the intra-

$8 ilo n20 rmrl u

ohge a

company money pool, are limited to amounts authorized by pamnsndulnedotg.

'the SEC. Under the SEC order authorizing the short-term Oeaigcs lwue yteivsmn nEtry

• borowng imis, te dmesic tiliy cmpaiesand Koch, LP decreased by $6 million in 2003. This decrease Systm Enrgycannt Inur ew sort-ermIndetednss in cash flow used was due to the receipt of $100 million.

if the issuer's common equity would comprise less thandvdnsnrmEtryKohI 03 lms niey

-30% of its capital. See Note 4 to the consolidated fiaca offsetting the dividedrcivdwsaineseIta

• statements for further discussion of Entergy's'short-term pyet eae oEtrysIvsmn nEtry borrwing~

-Koch due to increased income from the investment.

borowng imts

ENTEROY CORPORATION AND SUBSIDIARIES 2003 MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS continued Partially offsetting the decrease was an increase due to the proposed treatment of the regulatory impact of the tax

- parent company providing $209 million in operating cash accounting election. In general, the settlement permits flow in 2003 compared to using $439 million in 2002 prima-Entergy Louisiana to keep a portion of the tax benefit in rily due to the payment that Entergy Corporation made to exchange for bearing the risk associated with sustaining Entergy Louisiana in 2002 pursuant to the tax accounting the tax treatment. The LPSC settlement divided the term of election made by Entergy Louisiana that is discussed below.

the'Vidalia contract into two segments: 2002-2012 and 2013-2031. During the first eight years of the 2002-2012 2002 COMPARED TO 2001 segment, Entergy Louisiana agreed to credit rates by flowing Entergy's cash flow 'provided by operating activities' through its fuel adjustment calculation $11 million each decreased in 2002 primarily due to:

year, beginning monthly in October 2002. Entergy

• The U.S. Utility provided $2,341 million in operating cash Louisiana must credit rates in this way and by this amount flow, an increase of $693 million compared to 2001. The even if Entergy Louisiana is unable to sustain the tax increase primarily resulted from the tax accounting eleo-deduction. Entergy Louisiana also must credit rates by

-tion made by Entergy Louisiana that is discussed below.

$11 million each year for an additional two years unless

• The parent company used $439 million in operating' either the tax accounting method elected is 'retroactively cash flow compared to providing $407 million in 2001.

repealed 'or the Internal Revenue Service denies the entire The decrease primarily resulted from the payment deduction related to the tax accounting method. Entergy that Entergy Corporation made to Entergy Louisiana "Louisiana agreed to credit ratepayers additional amounts pursuant to the tax accounting election made by. "

unless the' tax accounting election is not sustained if it is Entergy Louisiana that is discussed below.

challenged. During 2013-2031, Entergy Louisiana and its

• The Non-Utility Nuclear business provided $282 million ratepayers would share the remaining benefits of this tax in operating cash flow, an increase of $18 million accounting election.

compared to 2001.

• Entergy's investment in Entergy-Koch used $47 million Investing Activities in operating cash flow in 2002, a decrease of $8 milion 2003 COMPARED TO 2002 compared to 2001. The use of cash primarily relates to Net cash used in investing activities -increased in 2003 tax payments on Entergy's share of the partnership primarily due'to the following:

income. Entergy did not receive a dividend from

• The non-nuclear wholesale assets business realized Entergy-Koch in 2002 or in 2001 because the joint

$215 million in net proceeds from sales of businesses venture was retaining capital for business opportunities.

in 2002.

• The non-nuclear wholesale assets business provided Temporary investments of $150 million matured in

$43 million in operating cash flow in 2002, compared 2002, which provided cash flow in 2002.

to using $73 milion in 2001.

• Temporary'investments of $50 million were made in 2003, which used cash flow in 2003..

TAx ELECTION

• Entergy Gulf States has $77 million and Entergy In 2001 Entergy Louisiana changed its method of accounting.

Mississippi has $73 minion of other regulatory invest-for tax purposes related to the contract to purchase power ments in 2003 as a result of fuel cost under-recoveries.

from the Vidalia project (the contract is discussed in Note 9 See Note 1 to the consolidated financial statements for' to the consolidated financial statements). The new tax

discussion of the accounting treatment of these fuel cost

'accounting method has provided a cumulative cash flow under-recoveries. See Note 2 to the consolidated financial benefit of approximately $805 million through 2003,' which statements for discussion of the change in Entergy

'is expected to reverse in'the years 2005 through 2031.

Mississippi's energy cost recovery rider.

The election did not reduce book income tax expense. The timing of the reversal of this benefit depends on-several Partially offsetting these uses of cash, approximately variables, including the price of power. Approximately half

$172 million of the cash collateral for a letter of credit that of the consolidated cash flow benefit of the election occurred secures the installment obligations -owed to New York in 2001 and the remainder occurred in 2002. In accordance Power 'Authority (NYPA) for the. acquisition of the with Entergy's intercompany tax allocation agreement, the FitzPatrick and Indian Point 3 nuclear power plants was cash flow benefit for Entergy Louisiana occurred in the "released to Entergy during 2003. There is approximately fourth quarter of 2002.

$60 million of cash collateral remaining that Entergy In a September 2002 settlement of a Louisiana Public expects to be released in March 2004 as a result of the Service Commission (LPSC) proceeding that concerned the regularly scheduled payment on the note payable to NYPA.

Vidalia contract, the LPSC approved Entergy 'Louisiana's

ENTEROY CORPORATION AND SUBSIDIARIES 2003 2002 COMPARED To 2001 Net cash used in investing activities decreased in 2002 primarily due to the following:

Entergy used $420 million less cash in its 2002 nuclear power plant purchase than it used in its 2001 purchase.

In July 2002, Entergy's Non-Utility Nuclear business purchased the Vermont Yankee nuclear power plant for

$180 million in cash. In September 2001, Entergy's Non-Utility Nuclear business purchased the Indian Point 2 nuclear power plant for $600 million in cash. The liabilities to decommission both plants, as well as related decommissioning trust funds, were also transferred to Entergy. These decommissioning trust transfers are reflected in the non-cash activity section of the cash flow statements.

• Entergy made cash contributions of approximately

$414 million in 2001 in connection with the formation of Entergy-Koch.

• Entergy made a $272 milion cash investment in 2001 to provide the collateral, discussed above, for the letter of credit that secures the instalment obligations owed to NYPA. Approximately $40 million of this collateral was released to Entergy in 2002.

• Entergy used $150 million to invest in temporary investments with a maturity of greater than 90 days in 2001 and those investments matured in 2002. This resulted in a net decrease of $300 million in cash used in 2002.

Partially offsetting the decrease in net cash used in investing activities were the following:

• Entergy received less cash from sales of businesses in 2002 than it received in 2001. The sale of the Saltend plant in August 2001 provided approximately $810 million in cash, while the sale of various projects in 2002 provided approximately $215 million in cash.

• Entergy spent approximately $150 million more on construction in 2002 than in 2001, primarily for construction of the Harrison County project.

Financing Activities 2003 COMPARED To 2002 Net cash used in financing activities increased in 2003 primarily due to the following:

• Net long-term debt retirements by the U.S. Utility segment were approximately $470 million in 2003 compared to net issuances of approximately $76 million in 2002. See Note 5 to the consolidated financial statements for the details of Entergy's long-term debt outstanding.

• The net borrowings under Entergy Corporation's credit facilities decreased $500 million in 2003 compared to an increase of $244 million in 2002.

The items causing cash used to increase in 2003 were partially offset by the following:

• Entergy Corporation issued $538 million of long-term notes in 2003 compared to $267 million in 2002.

• The non-nuclear wholesale assets business retired

$268 million of long-term debt in 2002 related to the repurchase of the rights to acquire turbines discussed in Results of Operations above. Partially offsetting this

,.was the retirement of the $79 milion Tbp of Iowa wind project debt at its maturity in January 2003.

• Entergy repurchased $8 million of its common stock in 2003 compared to $118 million in 2002.

p 2002 COMPARED TO 2001 Net cash used in financing activities decreased in 2002 primarily due to:

• Entergy increased the net borrowings under Entergy Corporation's credit facilities by $295 million in 2002.

• Entergy Corporation issued $267 million of long-term notes in 2002.

The non-nuclear wholesale assets business used

$196 million less cash in 2002 to retire debt than it did

-in 2001. This primarily resulted from two transactions.

The non-nuclear wholesale assets business retired

$268 million of long-term debt in April 2002 related to the acquisition of the rights to purchase turbines from a special-purpose financing entity. In 2001, the non-nuclear wholesale assets business retired the

$555 million outstanding on the Saltend credit facility when the plant was sold.

• Issuances of long-term debt net of retirements by the U.S. Utility segment provided $113 million less cash in 2002 than in 2001. Net issuances were $76 million in 2002 compared to $189 million in 2001.

• Entergy repurchased $81.6 million more of its common stock in 2002 than in 2001.

r In a non-cash transaction in 2002, long-term debt was reduced by $488 million in the sale of the Darnhead Creek plant when the purchaser assumed the Damhead Creek debt along with the acquisition of the plant.

='

ENTERGY CORPORATION AND SUBS1IDIARIES 2003 MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS continued SIGNIFICANT FACTORS AND KNOWN TRENDS RATE REGULATION AND FUEL-COST RECOVERY The rates that the domestic utility companies and System Energy charge for their services are an important item influencing

-Entergy' nncial position, results of operations,,and liquidity. These companies are closely regulated and the rates charged to their customers are determined in regulatory proceedings, except for a portion of Entergy Gulf States' operations. Governmental agencies, including the APSC, the Council of the City of New Orleans, Louisiana (City Council or Council), the LPSC, the Mississippi Public Service Commission (MPSC), the Public Utility Commission of lTxas (PUCT); and*

FERC, are primarily responsible for approval of the rates charged to customers. The status of material retail rate proceedings are summarized below and described in more detail in Note 2 to the consolidated financial statements. -

Company Authorized ROE Pending Proceedings/Events Entergy Arkansas 11.0%

No cases are pending. Transition cost account mechanism expired on December 31, 2001. It is likely that a rate filing will be made in mid-2005 in connection with the steam generator

. *replacement at ANO.'

Entergy Gulf 10.95%

. Base rates have been frozen since settlement order issued in June 1999. Freeze will likely extend States

-nto the start of retail open access, given management's current expectations as to the start date of retail open access.'

Entergy Gulf 11.1%

The LPSC approved a settlement resolving the 4th - 8th post-merger earning reviews resulting in States - Louisiana*

a $22.1 million prospective rate reduction effective January 2003 and a refund of $16.3 million.

-In December 2003, the LPSC staff recommended a $30.6 million rate refund and a prospective rate reduction of approximately $50 million as a result of the 9th earnings analysis (2002). Hearings are set for April 2004. With the LPSC staff, Entergy Gulf States continues to pursue the development of a generation incentive structure.

Entergy Louisiana 9.7%-11.3%"'

In January 2004, Entergy Louisiana filed with the LPSC for a $167 million bane rate increase and an ROE of 11.4%. The current ROE midpoint is 10.5%. Hearings are currenily set for September 2004. With the LPSC staff, Entergy Louisiana continues to pursue the development of a generation incentive structure.

Entergy Mississippi 10.6496-12.86%"

- An annual formula rate plan is in place. The MPSC approved a $48.2 million rate increase effective January 2003 and an ROE midpoint of 11.75%. Entergy Mississippi will make a formula rate plan filing in March 2004.

Entergy New Orleans 10.2596-12.25%'

'The City Council approved an agreement in May 2003 allowing for a $30.2 million increase in base rates effective June 1, 2003 and approved the implementation of formula rate plans for the electric and gas service that will be evaluated annually until 2005. An appeal of the approval by intervenors is pending, but the rates remain in effect. The midpoint ROE of both plans Is 11.25%,

with a target equity component of 42%. Entergy New Orleans will make a formula rate plan filing in May 2004.

System Energy 10.94%

ROE approved by July 2001 FERC order. No cases pending before FERC.

(I) Entergy Louisiana's formula rate plan expired with the 2001 test year. Under the expired formula, if Entergy Louisiana earned outside of the bandwidth range, rates would be adjusted on a prospective basis. If earnings were above the bandwidth range, rates would be reduced by 60 percent of the overage, and if below, increased by 60 percent of the shortfall (2) Under Mississippi law and Entergy Mississippi's formula rate plan, if Entergy Mississippi's earned ROE is above the top of the range-of-no-change at the top of the bandwidth.

then Entergy Missssippi's rates are reduced by 50percent of the difference between the earned ROE and the top of the bandwidth. In such circumstance. Entergy Mississippis

'Allowed ROE'for the next twelve-month period is the point halfway between such earned ROE and the top of the bandwidth -Entergy Mississippi's retail rates are set at that halfway-point ROE kvel. (Before the comparison is made of the earned ROE to the bandwidth, the bandwidth can be adjusted for performance measures by as much as1%.

Rates are adjusted pursuant to the company's formula rate plan on a prospective basis only )In the situation where Entergy Mississippi's earned ROE is not above the top of the range-of-no-changeatthe top of the bandwidth, then Entergy Mississippi's 'Allouwd ROE'for the next twelve-month period is the top of the range-of-no-changeat the top of the bandwidth. If earnings are below the bandu'idth range, rates are increased by 50 percent of the difference between the earned ROE and the bottom of the bandwidth. Under the provisions of the company's formula rate plan, each annual formula rate plan filing incorporates a revised calculation of the benchmark ROE. The benchmark ROE set out

' in the March 15, 2004 formula rate plan filing likely will differfrom the last approved ROE. The company anticipates the March 15,2004 raing will show an allowed regulatory earnings range of 9.3% to 12.2/, The company does not anticipate a reduction in revenues going forward.

(3) If Entergy New Orleans earns outside of the bandwidth range, rates wau be adjusted on a prospective basis. Under the gas formula rate plan, if earnings are above the bandwidth range, rates are reduced by 100 percent of the overage, and if below, increased by 100 percent of the shortfall. In addition, if the ROE falls between 115% and 12.25X, rates are

• reduced by 60 percent of the difference, and if the ROE falls between 10.25% and 11%, rates are increased by 40 percent of the differential. Under the electric formula rate plan, rates are adjusted accordingly by 100 perent of the amount of any overage orshortfalL EntergyNew Orleans may earn up to 13.25% undr the eletri forma rate plan provided that the increase is caused by its share of energy cost savings under the generation performance-based recovery plan discussed below.

In addition to the regulatory scrutiny connected with base rate proceedings, the domestic utility companies' fuel and

-purchased power costs recovered from customers are subject to regulatory scrutiny. The domestic utility companies' significant fuel and purchased power cost proceedings are described in Note 2 to the consolidated financial statements.

I.-

I U

ENTEROY CORPORATION AND -SUBIDIARIES 2003 System Agreement Litigation Therefore, management does not believe that this proceeding The domestic utility companies historically have engaged in 'will have a material effect on the financial condition of any of the coordinated planning, construction, and operation of the domestic utility companies, although the outcome of the generating and transmission facilities under the terms of an proceeding at FERC cannot be predicted at this time.

agreement called the System Agreement that has been In February 2004 a FERC ALJ issued an Initial Decision approved: by FERC. Litigation involving the System, - in the proceeding. The Initial Decision decided some issues Agreement is being pursued by the LPSC at both FERC and in favor of the relief sought by the LPSC, and decided some before itself. These proceedings include challenges to the issues against the relief sought by the LPSC. Entergy allocation of costs as defined by the System'Agreement, raise continues to assess the potential effects of the ALT's Initial questions of imprudence by the domestic utility companies in Decision, and how it will respond to the decision. It appears their execution of the System Agreement, and seek support that the shift in total production costs under the terms of for local regulatory authority over System Agreement issues.'

the ALJs Initial-.Decision would not 'be as great as that Regarding the proceeding at the LPSC, Entergy believes that sought in the LPSCs complaint, but would still be sub-state and local regulators are pre-empted by federal law from ;. stantial. As an Initial Decision, it is not a FERC order, and reviewing and deciding System Agreement issues for. them-Entergy and the other parties in the proceeding will have selves.- An unrelated case between the LPSC and Entergy '

additional opportunities to explain their positions in the Louisiana raised the question of whether a state regulator is proceeding prior to the issuance of a FERC decision. FERC preempted by federal law from reviewing and interpreting

-does not have a deadline by which it has to decide the FERC rate schedules that are part of the System Agreement,'

proceeding and management does not expect a FERC and from subsequently enforcing that interpretation. The decision before the fourth quarter 2004.

LPSC interpreted a System Agreement rate schedule in the On February. 10, 2004, the APSC issued an "Order of.

unrelated case, and then sought to enforce its interpretation.

Investigation," in which it discusses the negative effect that The Louisiana Supreme Court affirmed. In 2003, -the U.S.

implementation of the FERC ALlrs Initial Decision would have Supreme Court ruled in Entergy Louisiana's favor and on Entergy Arkansas'customers. The APSC order includes a

,reversed the decisions of the LPSC and the Louisiana preliminary estimate that the FERC ALls Initial Decision:

-Supreme Court. -

would shift approximately $125 million of costs for the' year In the proceeding at FERC, the LPSC alleges that the 2003 to Entergy Arkansas' retail customers, and would shift domestic utility companies'annual production costs over the an average of approximately $113* million per year for the period 2002 to 2007 will be over or (under) the average for years 2004-2011 to Entergy Arkansas' retail customers. The, the domestic utility companies by the following amounts:

APSC order establishes an investigation into whether Entergy Arkansas' continued participation in the System Agreement is Entergy Arkansas

$(130) to (278) million in the best interest of its customers, and whether there are

.Entergy Gulf States - Louisiana 11 to 87 milion steps that Entergy Arkansas or the APSC can take "to protect Entergy Louisiana 39 to 132 minlion

:Entergy Mississippi (27) to

[Entergy Arkansas' customers] fro future attempts by Enterg New Orlens-

-7 to 46i o

'Louisiana, or any other Entergy retail regulator, to shift its

.high costs to Arkansas." Entergy Arkansas' initial testimony This range of results is a function of assumptions regarding In the p ing is due in April 2004.

such things as future natural gas prices, the future market In addition to the APSC's Order of Investigation, Entergy's retail regulators have and, may, continue to price of electricity, and other factors. If FERC grants the r

relief requested by the LPSC,' the relief :may result in a question the prudence and other aspects of Entergy System material increase in production costs allocated to companies or domestic utility company contracts or assets that may whose costs currently are projected to be less than the

- not be subject to their respective'jurisdictions. For instance average and a material decrease in production costs 'ocatec' in its Order of Investigation, the APSC discusses aspects of to companies whose costs currently are projected to exceed Entergy Louisianas power purchases from the Vdalia m-.the average. M gement believes that any changes in the project, and the APSC has publicly announced its intention allocation of production costs resulting from a FERC decision to initiate an inquiry into the idalia purchase power' should result in similar rate changes for retail customers contract. Entergy believes that any such inquiry would have to occur at FERC.

ENTERGY CORPORATION AND SUBSIDIARIES 2003 MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS continued MARKET AND CREDIT RIsxS Under the PPAs with NYPA for the output of power from Market risk is the risk of changes in the value of commodity Indian Point 3 and FitzPatrick, the Non-Utility Nuclear and financial instruments, or in future operating results or business is obligated to produce at an average capacity cash flows, in response to changing market conditions.

factor of 85% with a financial true-up payment to NYPA Entergy is exposed to the following significant market risks:

should NYPA's cost to purchase power due to an output.

• The commodity price risk associated with Entergy's shortfall be higher than the PPAs' price. The calculation of Non-Utility Nuclear and Energy Commodity Services any true-up payments is based on two two-year periods. For segments.

'the first period, which ran through November 20, 2002,

• The foreign currency exchange rate risk associated Indian Point 3 and FitzPatrick operated at 95% and 97%,

with certain of Entergy's contractual obligations.

respectively, under the true-up formula. Credits of up to 5%

• The interest rate and equity price risk associated with reflecting period one generation above 85% can be used to Entergy's investments in decommissioning trust funds.

offset any output shortfalls in the second 'period,- which runs through the end of the PPAs on December 31, 2004.

Entergy is also exposed to credit risk. Credit risk is the risk Included in the planned < generation sold forward of loss from nonperformance by suppliers, customers, or percentages are contracts entered into in 2003 that are not financial counterparties to a contract or agreement. Where unit contingent but are firm contracts containing liquidated.

it is a significant consideration, counterparty credit risk is damages provisions. These firm contracts are for 1% of addressed in the discussions that follow.

Non-Utility Nuclear's planned generation in 2005, 4% in 2006, 2% in 2007, and 0% in 2008.

Commodity Price Risk' In addition to selling the power produced by its plants, POW E R G ENER ATION the Non-Utility Nuclear business sells installed capacity to The sale of electricity from the power generation plants load-serving distribution companies in order for those owned by Entergy's Non-Utility. Nuclear business and companies to meet requirements placed on them by the Energy Commodity Services,'unless otherwise contracted, Independent System Operators in their area. Following is is subject to the fluctuation of market power prices.

'a summary of the amount of the Non-Utility Nuclear busi-Entergy's Non-Utility Nuclear business has entered' into ness' installed capacity that is currently sold forward, and power purchase agreements (PPAs) and other contracts to the 'blended amount of the Non-Utility Nuclear business' sell the power produced by its power plants at prices planned generation 6utput and installed capacity that is established in the PPAs. Entergy continues to pursue oppor-currently sold forward:

tunities to extend the existing PPAs and to'enter into new PPAs with other parties. Following is a summary of 2004 2005 2006 2007 2008 the amount of the Non-Utility Nuclear business' output Non-UtlityNuclear that is currently sold forward under physical or financial Percentofcapadtysoldforward contracts at fixed prices:

Bundled capacity and energy contracts 55%

15%

- 12%

13%

13%

Capacity contracts 28%

15%

6%

• 3%

2004 2005 2006 2007 2008

' 83%

30%

18%:

16%

13%

Non-Utlllty Nuclear:

Planned MW in operation 4,111 4,203 4,203 4,203 4,203

% of planned generation

% ofPlaned efleratoflAverage capacity contract sold forward 100%

62%

32%

16%

'4%

price per kW per month

$2.4

$1.3

$0.8

$0.7 N/A Planned generation (GWh) 32,787 34,164 34,853 34.517, 34,513

• leded Capt d E Average price per h "I5

$38

$37

$35

$34

$38 (based on revenues)

% of planned generation and The Vermont Yankee acquisition included a 10-year PPA, capacity sold forward 99%

.49%

28%

13%

.4%

which is through the expiration of the current operating Average contract license for the plant, under which the former owners will revenue per MWh 39

$ 37

$ 35

$ 34

$ 38 buy the power produced by the plant. The PPA includes an adjustment clause under which 'the prices specified in the PPA will 'be adjusted downward annually, beginning in November 2005, if power market prices drop below PPA prices. Accordingly, because the price is not fixed, the table above does not report power from that plant as sold forward after October 2005. Approximately 2% of Non-Utility Nuclear's planned generation in 2005, 13% in 2006, 12% in 2007, and 13% in 2008 is under contract from Vermont Yankee after October 2005.

As of December 31, 2003,'approximately 99% of Entergy's counterparties to Non-Utility Nuclear's energy and capacity contracts have investment grade credit ratings.

ENTEROY CORPORATION AND SUBSIDIARIES 2003 Floigiasumrofthe mun fEneg Chrceistics of EK~rs value-at-risk method and the use Commodity Services' output and installed capacity that, of that method are as follows:

is currently sold. forward under physical or financial

• Value-at-risk is used in conjunction with stress testing,'..

• .contracts at fixed pie:.

position reporting, and profit n osrprigi order to measure and control the risk inherent in the, 2004 2005 2006 2007 2008 trading and mark-to-market portfolios..

Energ Comodit

~

• EKT estimates its value-at-risk using a model based on J.P. Morgan's Risk Metrics methodology combined with Planned MW in operation 1.911.

1,911

'1,911

-1,911 1,911

%of apaitysol fowar

• ~

a Monte Carlo simulation approach..

% f apctysodfowad 43%

43%

34%

31%

26%-

.*EKT estimates its daily value-at-risk for natural gas-Planedgenraton O~h 3.21

,34 3.37

,~4 4.15 and power using a 97.5% confidec level. EKT's daily

%6 of planned gene ration value-at-risk is a measure that indicates that, if prices sold forward 64%

'67%

52%

42%

39%

moved against the positions, the loss in neutralizing the Blended Capacity and Energy

-portfolio would not be expected to exceed the calculated (based on revenues)'

value-at-risk.

% of planned energy andEKsektolmttediyvlearsknaygvn capacity sold forward 612%

66%

50%

41%

35%

• ETsest ii h

al au-trs nay ie

~day to a certain dollar amount approved by the trading Average contract revenue per MWh

$6 25

.$7

$31

.$28 EKTs value-at-risk measures, which it calls Daily Earnings The increase in the planned generation. sold forward percntaes rom he ercntags i th 200 Anual at Risk (DE@R), for its trading portfolio were as follows Report is attributableto Entergy Louisiana and Entergy (nmlin)'20 02 20 New Orleans

'contracts involving RS Cogen' and-'$

$15.2 Independence 2 entered into in' 2003. These contract AergDERfoteyar

$36 108 6.

still subject to a FERC review proceeding scheduled for Low DE@R for the year

.$ 5.9

$ 6.6

$3.6 hearing later in 2004.

ihD@

o h

er,,$52

$16.9'-

$8.0.

Entergy continually monitors industry trends in order to determine whether asset impairments or other losses could EKTs DE@R at the end of the year was lower in 2003 result from a decline in' value, or cancellation, of merchant compared to 2002 as a result of reduced strength of point-of-power projects, and records provisions for impairments and view during the second half of 2003. EK~s average DE@R losses accordingly.

'increased in 2003 compared to 2002 as a result of an increase in the size of the position held, particularly during the first MARKETING AND TRADING ure f20.ETsaeaeDE@aR increased in 2002 The'earnings of Entergy's Energy 'Commodity Services,

'compared to -2001 as 'a result of an incre'ase in the size of the" segment are exposed to cmoiypce arket isk position held and an increase in the volatility of natural gas primarily through Entergy's 50%-owned, unconsolidated prices in the latter part of the year.

investment in Entergy-Koch. Entergy-Koch Trading (EKT)

For'all derivative and contractual'transactions, EKT is uses value-at-risk models as one measure of the market risk exposed to losses in the event of nonperformance by counter-of a loss in fair value for EKTs'snatural gas and power, parties to these transactions. Relevant considerations when

-trading portfolio. Actual future gains and losses in portfolios assessing EK'rs credit risk exposure include:

will differ from those estimated based upon actual fluctua-

• EK~s operations are primarily concentrated in the tions in market rates, operating exposures, and the timinfg energy industry.

thereof, and changes in the portfolio of derivative finanil EKT's trade rciales and other finaclintues instruments during the year.

'are predominantly with energy, utilityand financial Tob manage its portfolio, EKT enters into 'various services related companies, as well as other trading derivative and contractual transactions in accordance with

'companies in the U.S., UK, and Western Europe.

the policy approved by the trading commuittee of the governing

• EKT maintains credit policies, which its management

• board of Entergy-Koch. The trading portfolio consists of believes minimize overall credit risk.

physical and financial natural gas and power as well as other~.Prospective and existing customers are reviewed for energy and weather-related contracts. These contracts take creditworthiness based upon pre-established standards, many forms, including futures, forwards, swaps, and options.'

with customers not meeting'minimurn standards providing various secured payment terms, including the posting of cash collateral.

lv V

ENTERGY CORPORATION AND SUBSIDIARIES 2003 MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS continued-EKT also has master netting agreements in place.

was a net 'asset of $50 million. 'The oounterparty banks These agreements allow EKT to offset cash and obligated on these agreements are rated by Standard &._

non-cash gains and losses arising from derivative '

.Poor's Rating Services at AAon their senior debt obligations instruments with the same counterparty. EKTs policy as of December 31, 2003.

is to have such master netting agreements' in place with significant counterparties:

-Interest Rate and Equity Price Risk -

Decominissioning Trust Funds '

Based on EKrs policies, 'risk exposures, and valuation'-

Entergy's nuclear 'decommissioning trust funds,are adjustments related to credit; EKT. does not anticipate' a

-,exposed to fluctuations in equity prices and interest rates. :

material adverseeffect on its financial position as a result, The Nuclear Regulatory Commission (NRC) requires of counterparty nonperformance.'As of December 31,'2003, Entergy to maintain trusts to fund the costs of decomm0s-.

approximately 91% of EKT's counterparty credit exposure. sioning ANO 1, ANO 2, River Bend, Waterford'3, Grand

-is associated with companies that have at least investment Gulf 1,Pilgrim, Indian Point 1 and 2, and Vermont Yankee grade credit ratings.

(NYPA currently retains the decommissioning trusts and Following are EKT's mark-to-market assets (liabilities) liabilities for Indian Point 3 and FitzPatrick). The funds are and the period within which the assets (liabilities) would be invested primarily in equity securities; fixed-rate, fixed-realized (paid) in cash if they are -held to maturity'and income securities; and cash and cash. equivalents.'

market prices are unchanged (in millions):

Management believes that exposure of the various funds to -

market fluctuationis will not affect Entergy's financial Maturities and Sources results of operations as it relates to the ANO 1 and 2, River:

for Fair Value 0ffadlng 0-12.-

13-24

. 25+.

'Bend, Grand Gulf 1, and Waterford 3 trust funds because of Contracts at December 3I,2003 months months months Total -

the application'of regulatory accounting principles. The Pricasactively uoted:

$126.3

$(57.1)

$C'4-6)

$24.6

-Pilgrim, Indian Point 1 and 2, and Vermont Yankee trust Prices provided by u c s c l e t v l 8 5o er sces 0

-funds collectively hold approximately $895 million of fixed-:

other sources 4.8-.

.(.1).

.5.6 *..0.3...-...*-.---*:

rate, fixed-income securities as of December 31, 2003. These:

Prices based on models (28.0) 14.2 4.9 (5.9) otal

$103.1-

• 53.O)'

-$ (4.1).$16.0

-securities have an average coupon rate of approximately.'

.- 5.6%, an average duration of approximately 5.2 years, and Following is a roll-forward of the change in the fair value -

an-average maturity of approximately.7.9 years. The' of EXT's mark-to-market contracts during 2003 (in millions):

Pilgrim, Indian Point 1 and 2, and Vermont Yankee trust funds also collectively hold equity securities worth

-2003 approximately $450 million as of December 31, 2003. These Fair value of contracts outstanding.

securities are generally held in funds that are designed to at December 31. 2002 after implementation approximate or somewhat exceed the return of the Standard of Emerging Issues Task Force (EITF) 02-03

$ 90.9

& Poor's 500 Index, and a relatively small percentage of the

(anYlos from contracts securities are held in a fund intended to replicate the return realized/settled during the year

.,--.(580.0)

• of the Wilshire 4500 Index. The decommissioning trust Net option premiums received during the year

.275.7-funds are discussed more thoroughly in Notes 1 and 9 to Change in fair value Of contracts attributable

.. 1.

... I.

^

Chan e I fai vaue f co trats ttri uta le the consolidated financial statem ents.

to market movements during the year 229.4 Net change in contracts outstanding during the year (74.9)

UTILITY RESTRUCTURING

'Fair value of contractsatDecember 31,2003 -.

6 16.0 ;In Entergy's U.S. Utility service territory, movement to

retail competition' either has 'not occurred or has been' Foreign Currency Exchange Rate Risk abandoned, with the exception of TIxas, where it has been Entergy Gulf States, System Fuels, and Entergy's Non-significantly delayed. At FERC, the pace of restructuring at-Utility Nuclear business enter into foreign currency forward the wholesale level has begun but has also been delayed. It contracts to hedge the Euroidenominated payments due -

is too early to predict the ultimate effects of changes in U.S.

under certain purchase contracts. The notional amounts of.:energy markets. Restructuring issues are complex and are the foreign currency forward contracts are 142.8 million

'continually. affected by events at the national, regional, Euro and the forward currency rates range from.8641 to - state, and local levels. These changes may result, in the 1.085. The maturities of these forward contracts depend on, long-term, in fundamental changes in the way traditional.

the purchase contract payment dates and range in time integrated utilities and holding company systems, like the from January 2004 to January.2007. The mark-to-market

. Entergy system, conduct their business. Some of these' valuation of the'forward contracts at December 31, 2003 changesmay be positive'for Entergy, while others may not be.

,.: ' ', '.,,.,,=',

.ENTEROY CORPORATION AND SUBSIDIARIES 2003 In the long-term, these changes may result in increased will submit to FERC for its approval the proposed contract costs associated with utility unbundling of services or funa-setting forth the independent entity's duties and obligations tions and transitioning in new organizational structures as well as other-documnents necessary to implement this and ways of conducting business. It is possible that the new proposed structure. The proposed 'structure does not organizational structures that may be'required will result transfer control of Entergy's transmission system to the in lost economies of scale, less beneficial cost sharing' independent entity, but rather will vest with the independent arrangements within utility holding company systems, entity broad oversight authority over transmission planning and, in some cases, greater difficulty and cost in accessing and operations.

capital. Furthermore, these changes could result in early.-

refinancing of debt, the reorganization of debt, or other.

obligations between newly formed companies and Entergy.

As a result of federal and state "codes of conduct" and affiliate transaction rules, adopted as part of restructuring, new non-utility affiliates in Entergy's system may 'be precluded from, or limited in,'doing business with affiliated electric market participants, or have prices set at the lower of cost or market. In addition, regulators may impose, limits on (price caps), rather than have the market set, wholesale energy prices. There are a number of other changes that may result from electric business competition

'and unbundling, including, but not limited to, changes to labor relations, management and staffing, structure of Entergy also intends that the independent transmission operations, environmental compliance responsibility, and

-entity will administer a transition to participant funding other aspects of the utility business.

that should increase the efficiency of transmission pricing on the Entergy system. Entergy intends for the independent Transmission transmission entity to determine whether' transmission In 2000, FERC issued an order encouraging utilities to.'

upgrades associated with new requests for service should be voluntarily place their transmission facilities under the funded directly by the party requesting such service or by

-control of independent RTOs (regional transmission a broader group of transmission customers. This determi-organizations) by December 15,2001. Delays in implementing nation would be made in accordance with protocols-'

the FERC order have occurred due to a variety of reasons, approved by FERC and any party contesting such determi-including the fact that utility companies, other stakeholders, nation, including Entergy, would be required to seek review' and federal and state regulators continue to work to resolve at FERC.

various issues related to the establishment of such RTOs. -

On February 13,'2004, a group of ten market participants Entergy's domestic utility companies were participating filed with FERC a response to the announcement that'the with other transmission owners within the southeastern SeTrans sponsors had suspended further development United States to establish an-RTO, the proposed SeTrans efforts. In their response, the participants allege that absent RTO, but the sponsors determined that the regulatory.

the SeTrans RTO, the dominant utilities in the southeastern approvals necessary for the development of the SeTrans United States (Entergy and Southern Company) will RTO were unlikely to be obtained at the present time and in continue to maintain control over the transmission system December 2003 suspended further development activity.

and will continue to have the ability to exercise market Although SeTrans development is suspended, Entergy power in the wholesale market. The market participants continues to focus its efforts on reforms that can further urge FERC to: (1) order Entergy and Southern to immediately the core objectives of FERCrs 2000 order: achieving greater turn over control of their OASIS system to an independent independence in the provision of transmission service and a entity; (2) initiate a formal investigation into competitive' more efficient method of pricing that service. Entergy

-conditions in the'southeastern United States; (3) issue a intends to work with FERC and Entergy's retail regulators -

show cause order regarding revocation of Entergy's and on certain voluntary steps to further those objectives.

Southern's market-based rate authority; and (4) either order As currently contemplated, and assuming applicable Entergy and Southern into an RTO or initiate proceedings regulatory support and approvals can be obtained, Entergy to appoint a market monitor and conduct various audits of plans to contract with an independent transmission entity-Entergy's and Southern's practices and procedures related to oversee the granting of transmission service on the

' to the granting of transmission service and the planning of Entergy system as well as the implementation of the weekly, the transmission system. Entergy believes that the allegations, procurement process that Entergy has proposed. Entergy contained in the response are without merit and plans'to'

ENTEROY CORPORATION AND SUBSIDIARIES 2003

-7
--

I MANAGEMENT'S FINANCIAL DISCUSSION AND ANA]

vigorously defend itself. See additional discussion related to this issue in FER's Supply Margin Assessment section below.

In September 2001, the LPSC ordered Entergy Gulf States and Entergy Louisiana to show cause as to why these companies should not be enjoined from transferring their transmission assets, or control of those transmission assets, to an ITC (independent transmission company),

RTO, or any similar organization, asserting that FERC does not have jurisdiction to mandate an ITC or RTO. This proceeding is pending.

FERC's SUPPLY MARGiN ASSESSMENT In November 2001, FERC issued an order that established a new generation market power screen (called Supply Margin Assessment) for purposes of evaluating a utility's request for market-based rate authority, applied that new screen to the Entergy System (among others), determined that Entergy and the others failed the screen within their respective control areas, and ordered these utilities to implement certain mitigation measures as a condition to their continued ability to buy and sell at market-based rates.

Among other things, the mitigation measures would require that Entergy transact at cost-based rates when it is buyingor selling in the hourly wholesale market within its control area. Entergy requested rehearing of the order, and FERC has delayed the implementation of certain mitigation measures until such time as it has had the opportunity to consider the rehearing request. In June 2003, FERC proposed and ultimately adopted new market behavior rules and tariff provisions that would be applied to any market-based sale. Entergy modified its market-based rate tariffs to reflect the new provisions but has requested rehearing of FERC's order. Additionally, during December 2003, FERC announced it was holding additional technical conferences on proposed modifications to its Supply Margin Assessment screen. Two technical conferences were held during January 2004. Entergy has filed comments in this proceeding urging FERC to rely on an "uncommitted capacity" version of any market screen in order to reflect a utility's native load obligations. It is Entergy's belief that cost-based regu-lation effectively mitigates both the ability and the incentive to exercise market power to the extent of the native load obligations. A FERC rule on Supply Margin Assessment could be issued by the end of March 2004.

Separately, Entergy-Koch Trading filed its triennial market power update on January 26, 2004. Three market participants intervened and urged FERC to reject Entergy-Koch Trading's triennial update and terminate Entergy-Koch Trading's, the domestic utility companies',

and their affiliates' market-based rate authority for sales within the Entergy control area unless and until adequate mitigation measures have been implemented. If FERC were to revoke Entergy-Koch Trading's, the domestic utility companies', and their affiliates' market-based rate authority LYSIS continued for wholesale sales within the Entergy control area, these entities would be limited to making wholesale sales pursuant to cost-based rate schedules approved by FERC.

Entergy's wholesale sales within its control area could be cost-justified and the wholesale electricity sales of Entergy-Koch Trading within Entergy's control area are of a limited amount; therefore, management does not believe that the revocation of market-based rate authority would have a material effect on the financial results of Entergy. In spite of this, Entergy intends to vigorously defend its market-based rate authority.

In a separate, but related proceeding, in December 2003, FERC determined that the acquisition by Oklahoma Gas &

Electric (OG&E) of a generating facility within its control area from a, non-affiliated entity would undermine competition and was, accordingly, not consistent with the public interest. Based on this -conclusion, FERC then set the.matter for hearing to determine what mitigation remedies would be necessary to address the market power issues. FERC's determination that the acquisition would raise market power concerns was premised on an analysis that relied on OG&E's total capacity, not its uncommitted capacity.

This proceeding, and FER's ultimate ruling, could significantly affect a utility's ability to acquire needed non-affiliated generation resources in its service territory, such as the pending purchase of the Perryville power plant by Entergy Louisiana.

ILL=* S*.

I, I

INTERCONNECTION ORDERS In January 2003, FERC issued two orders in proceedings involving Interconnection Agreements between each of the domestic utility companies (except Entergy New Orleans) and certain generators interconnecting to the domestic utility companies' transmission system. In the orders, FERC authorized the generators to abrogate certain provisions of the interconnection agreements in order to avail themselves of new FERC policies developed after the generators' execution of the agreements. Under FERCOs orders, capital costs that the generators had agreed to bear will now be shifted to Entergy's native load and other transmission customers.

Other generators that previously had executed interconnection agreements agreeing to bear similar costs have also filed complaints to obtain the same or similar relief against the domestic utility companies.- In the event that the generators that have interconnected to, the Entergy transmission system are successful in obtaining such relief, it is estimated iI4 1

I i

ENTEROY CORPORATION that approximately $280 million of costs will be shifted' from the interconnecting generators to the domestic utility companies' other transmission customers, including the domestic utility companies' bundled-rate retail customers.

Entergy intends to pursue all regulatory and legal avenues available to it in order to have these orders reversed, and the affected interconnection agreements reinstated as agreed to by the generators. The domestic utility companies had appealed previously to the Court of Appeals for the D.C.

Circuit the FERC orders initially establishing the new FERC policy that was applied retroactively in the January orders.

In the orders currently pending before the D.C. Circuit, FERC had applied the new policy on a prospective basis. In an opinion issued in February 2003, the D.C. Circuit denied Entergy's petition for review in one proceeding, concluding that FERC had not acted in an arbitrary and capricious manner when it changed its policy from that of directly assigning certain interconnection costs to the generator to a policy in which those costs are borne by all customers on' the domestic utility companies' transmission system. A related proceeding concerning a similar change in policy for another segment of interconnection costs is still pending before the D.C. Circuit.

In July 2003, FERC issued its final rule on the standard-ization of generation interconnection agreements and procedures (Order 2003). Among other things, Order 2003 incorporates pricing policies that require the transmission' provider's other customers to bear the vast majority of costs required when a new generator interconnects to its transmission system or requests transmission' upgrades necessary for the generator to be considered a network resource for load serving entities within the transmission provider's control area. Order 2003 also requires that generators that fund upgrades receive their money back, with interest in no more than five years. Order 2003, which FERC has indicated is to be'applied only to prospective interconnection agreements, became effective on January 20, 2004. Consistent with their past practices, the generators that had previously executed interconnection agreements with Entergy and that have transmission credits outstanding have filed complaints at FERC seeking to avail themselves of the more beneficial crediting aspects of FERC's final rule. Entergy has opposed such relief and the proceedings are pending. On March 5, 2004, FERC issued an order on rehearing responding to certain issues raised with respect to Order 2003. While management is still analyzing the order on rehearing, it appears that FERC has modified Order 2003 to, among other things, eliminate the requirement that the generators receive their money back in no more than five years and include a requirement that the generators receive credits only when transmission service is taken from the specific generating facility served by the interconnection or upgrade. Because the order on rehearing was just issued,'

however, management's analysis of the effects of the order is ongoing.

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AND SUBSIDIARIES :2003 Retail Only in the Texas portion of Entergy Guif States' service territory has there been significant movement toward retail open access, but implementation has been delayed in that territory. Entergy does not expect that retail open access is likely to begin for Entergy Gulf States before the first quarter of 2005. Entergy Gulf States' Texas-jurisdictional base rates remain unchanged as a result of a base rate freeze implemented in connection with the delay in implementation of retail open access in its Texas service territory. While the PUCT has approved, on an interim basis, a business separation plan for Entergy Gulf States in Texas, and has approved market protocols to implement an interim solution (retail open access without a FERC-approved RTO),

several other proceedings necessary to implement retail open access are still pending in Texas. In'addition, the LPSC has not approved certain matters needed for retail 'open access to begin in Texas. Delay in 'the start of retail open access may delay or jeopardize the regulatory approvals required for retail open access. Retail open access legisla-tion has not been enacted in the other jurisdictions in Entergy's service territory, except for in Arkansas, where

'it was repealed in February 2003. The status of electric industry restructuring in Entergy's U.S. Utility service territory is more thoroughly discussed in Note 2 to the consolidated financial statements.

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Federal Legislation, Federal legislation intended to facilitate wholesale competition in the electric power industry has been seriously considered by the United States Congress, in both the House of Representatives and the Senate. In 2003, both the'House and Senate passed separate versions of comprehensive energy legislation. The bills contain electricity provisions that would, among other things, repeal PUHCA, repeal or modify the Public Utility Regulatory Policies Act of 1978 (PURPA), enact a mechanism for 'establishing enforceable reliability standards, 'provide FERC with new authority over utility mergers and acquisitions, and codify FERCs authority over market-based rates. Late in 2003, a conference committee approved a bill reconciling the differences between; the two bills, but that bill has not been brought up for a vote in the Senate.

NUCLEAR MATTERS The domestic utility companies, System Energy, and Non-Utility Nuclear subsidiaries own and operate ten nuclear power generating units and the shutdown Indian Point 1 nuclear reactor. Entergy is, therefore, subject to the risks.

related to' owning and operating nuclear plants. These include risks from the use, storage, handling, and disposal of high-level and low-level radioactive materials, limitations on the amounts and types of insurance commercially available for losses in connection with nuclear operations, and technological and financial uncertainties related to'

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ENTERGY CORPORATION AND SUBSIDIARIES 2003 MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS continued decommissioning nuclear plants at the end of their licensed is working with New York state and county officials, lives, including the sufficiency of funds in decommissioning FEMA, the NRC, and other federal agencies to make addi-trusts. In the event of an unanticipated early shutdown of tional improvements to the plans that may be warranted any of Entergy's nuclear plants, Entergy may be required and to assure them as to the adequacy of the plans.

to provide additional funds or credit support to satisfy In July 2003, FEMA issued its notice of certification of the regulatory requirements for decommissioning.

Indian Point Emergency Plan. The NRC followed soon there-Concerns are being expressed in public forums 'about after with its endorsement. In August 2003, Westchester the safety of nuclear generating units and nuclear fuel, in County filed an administrative appeal of the FEMA ruling particular in the area where Entergy's Indian Point units

.'that the emergency plans are adequate to protect the public are located, which are discussed in more detail below. These health and safety. FEMA regulations on emergency plans concerns have led to various proposals to federal regulators provide for appeals in only two situations: (1) FEMAs as well as governing bodies in some' localities where approval or disapproval of a radiological emergency Entergy owns nuclear plants for legislative and regulatory response plan (REEP) for a nuclear power facility;and changes that could lead to the shut-down of nuclear units, (2) FEMI s determination to withdraw approval for a state denial of license extension applications, municipalization of

'or local RERP, In both cases, the appeal process is the same.

nuclear units, restrictions on nuclear units as a result of '

unavailability of sites for nuclear fuel disposal, or other LITIGATION adverse effects on owning and operating nuclear power' Entergy and its subsidiaries are involved in the ordinary plants. Entergy believes that its generating units are in

'course of business in a substantial amount of employment.

compliance with NRC requirements and intends to vigor-

-'asbestos, hazardous material, and other environmental and ously respond to these concerns and proposals.

rate-related proceedings and litigation. Entergy uses legal Groups of concerned citizens and local public officials and appropriate means to contest vigorously litigation have raised concerns about safety issues associated with threatened or filed against it, but litigation poses a significant Entergy's Indian Point power plants located in New York.

business risk to Entergy.

They argue that Indian Point's security measures and emergency plans do not provide reasonable assurance to -

CRITICAL ACCOUNTING ESTIMATES protect the public health and safety. The NRC has original The preparation of Entergy's financial statements in jurisdiction over these matters. In a decision that became conformity with generally accepted -accounting principles final on December 13,2002, the NRC denied a petition filed' (GAAP) requires management to make estimates and by Riverkeeper, Inc. asking the NRC to order Entergy to judgments that can have a significant effect on -reported suspend operations, revoke the operating license, or adopt financial position, results of operations,' and cash flows.

other measures, including a temporary shutdown of Indian.

Management has identified the following estimates as Point 2 and Indian Point 3. The-NRC noted that after critical accounting estimates because they are based on September 11,2001, it ordered enhanced security measures assumptions and measurements that involve an unusual at all nuclear facilities and found that as a result of the degree of uncertainty, and there is the potential that collective measures taken since September 11, 2001, the different assumptions and measurements could produce, security at Indian Point provides adequate protection of

'estimates that are significantly different than those recorded public health and safety. The NRC further found that the in Entergy's financial statements.

existing emergency response plans are flexible enough to.

respond to a wide variety of adverse conditions, including a NUCLEAR DE'OMlISSIONINO COST-s terrorist attack; and that the current spent fuel storage Entergy owns a significant number of nuclear generation system adequately protects the public health and safety.

facilities in both its U.S. Utility and Non-Utility Nuclear Riverkeeper petitioned the United States Court of Appeals business units. Regulations require that these facilities be for the Second Circuit for review of this final action of the decommissioned after the facility is taken out of service, NRC, and, in February 2004, the Second Circuit affirmed and funds are collected and deposited in trust funds during the NRC and dismissed the petition for review, the facilities' operating lives in order to provide for this In addition, certain concerns are being raised regarding obligation. Entergy conducts periodic decommissioning the adequacy of the emergency evacuation plans for Indian:

cost studies (typically updated every three to five years) to Point. These matters initially must be reviewed by the

-estimate the costs that will be incurred to decommission the Federal Emergency Management Agency (FEMA).

facilities. Note 9 to the consolidated financial statements Jurisdiction as to the overall adequacy of emergency contains details regarding Entergy's most recent studies planning and preparedness for Indian Point lies with the and the obligations recorded by Entergy related to decom-NRC. Entergy believes that the emergency evacuation plans-missioning. The following key assumptions have a signify-for Indian Point are adequate to ensure the public health cant effect on these estimates:

and safety in compliance with NRC requirements. Entergy

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-ENTERGY CORPORATION

• COST ESCALATION FACTORS -Entergy's deoommis-sioning revenue requirement studies include an assumption that decommissioning costs wilfl escalate over present cost

-levels by annual f actors ranging from approximately CPI-U to 5.5%. A 50 basis point change in this assumption could change the ultimtate cost of decommissioning a facility by asmuch as 11.0%.

TIMING'- In projecting decommissioning costs, two*

assumptions must be made to estimate the timing of plant decommissioning. First, the date of the plant's retirement must be estimated. The expiration of the plants operating license is typically uised for ti purpose, or an assumption could be made that the plant will be relicensed and operate for some time beyond the original license term. Second, an assumption must be made whether decommissioning will begin immediately upon plant retirement, or whether the plant will be held in -safestore" status for later decommissioning,"as permitted by applicable regulations. While the impact of these assumptions cannot be determined with precision, assuming either license extension or use of a "safestore".

status can significantly decrease the pr-esent value of these obligations.,

SPENT FURL-DISPOSAL - Federal regulations require the Department of Energy to provide a permanent repository for. the storage of spent nuclear fuel, and recent legislation has been passed by Congress t develop this repository at Yucca Mountain, Nevada.

However, until this site is available, nuclear plant, operators must provide for interim spent fuel 6torage on the nuclear plant site, which can' require the' construction and maintenance of dry Cask storage sBites or other facilities.'

The costs of developing and maintaining these facilities can have a significant impact (as much as 16% of estimated decommissioning costs).Entergy's decommis-sioning studies include cost estimates. for spent fuel storage. However; these estimates could change in the future based on the timing of the opening of the Yucca, Mountain facility, the schedule for shipments to that facility when it is opened, or other factors.

ECIINOLOGY AND REGULATION -To date, there is limited practical experience in the U.S. with actual decommissioning of large nuclear facilities. As experi-ence is gained and technology changes, cost estimates could also change. If regulations regarding nuclear decommissioning were to change, this could have a potentially significant impact on cost estimates. The impact of these potential changes is not presently determinable. Entergys decommissioning cost studies assume current technologies and regulations.

ftND SUBSIDIARIES

'2003 The implications of these estimates vary significantly betweeni En'tergy's 'U.S. Utility and Non-Utility. NucleaIr businesses. Separate discussions of these implications by*

business segment follow.

,U.S. Utility Entoergy collects substantially all of the projected costs of decommissioning the nuclear facilities -in its U.S. Utility business segment through rates charged -to customers';

except for portions of River Bend, which is discussed in more detail below. The amounts cllected'through rates, which are based upon decomnmissionngcost studies, are deposited 'in decommissioning trust funds. These collec-1

-tions plus earnings on the trust fund investments'are generally estimated to be sufficient to fund the future decomimissioning costs., For -the U.S. Utility segment,' if.

'decommissioning cost study estimates were changed and.

approved by regulators, collections from customers would also change.

Approximaeyhalf of River Bend is not currently suaelbject:-

to cost-based ratemaking. When Entergy Gulf States obtained the'30% share of River Bend formerly owned by Cajun, Entergy Gulf States obtained decommissioning trust funds of $132 million, which have since grown to almost

$150 million. Entergy, Gulf States believes that these funds

.will be sufficient to cover the costs of decommissioning this portion of River Bend, and no further collections or deposits, are being miade for these costs.'Additionally, under-the Deregulated As6set Plan in the Louisiana jurisdiction of.

Entergy Gulf States, a portion of River Bend (approximately.

16% of its total capacity) is excluded from rate base, and no amounts have been or are being collected for decommissioning for this portion of the plant.

Non-Utility Nuclear In 'conjunction with the purchase of Entergy's Non-Utility Nuclear facilities, Entergy assumed the decommissioning obligations and received the related decommissioning trust

'funds (except for. the NYPA acquisition, in which NYPA retained the decommissioning obligations for the Indian Point 3 and FitzPatrick units). Based on decommissioning cost studies and expected plant operation lives, Entergy believes' that the amounts in the trust funds will be

-sufficient to fund fuiture decommissioning costs without additional deposits from Entergy.

As Entergy has assumed these decommissioning obliga-tions without any -further external source of funding, changes in estimates of decommissioning costs for these units will have a direct imp~act'on Entergy's financiial position and results of operations.

ENTERGY CORPORATION AND SUB8IDIARIES 2003

• MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS continued SFAS 143 retirement obligations at their Entergy 'implemented SFAS 143, "Accounting for Asset as determined under SFAS 14 Retirement Obligations," effective January 1, 2003. Nuclear by $288 million, reducing acc decommissioning costs comprise substantially all of Entergy's

$361 million and recording tl asset retirement obligations, and the -measurement and of $422 million. The implemei recording of Entergy's decommissioning obligations changed portion of River Bend not subj(

significantly with' the implementation of SFAS 143. The decreased earnings by approx most significant differences in the measurement of these -

tax ($0.09 per share) as a resu obligations are outlined below:

effect of accounting change. 1 REcORDING OF PULL OBLIGATION - SFAS 143 requires ratemaking treatment and as that the fair value of an asset retirement obligation be depreciation provisions for Er recorded when it is incurred. This caused the recorded include a component for remo decommissioning obligation in Entergy's U.S. Utility retirement obligations under' business to increase significantly, as Entergy had 6% of the U.S. Utility's curren previously only recorded this obligation as the related weighted-average basis, repre costs were collected from customers, and as earnings net of salvage value and remo were recorded on the related trust funds.

For the Non-Utility Nuclear bu

• FAIR VALUE APPROACH - SFAS 143 requires that these of SFAS 143 resulted in a dec]

obligations be measured using a fair value approach.

of approximately $595 millior

- Among other things, this entails the assumption that decommissioning liabilities, a the costs will be incurred by a third party and will approximately $340 million, i therefore include appropriate profit margins and risk electric plant in service of $31 premiums. Entergy's decommissioning studies to date' in earnings of approximately have been based on Entergy performing the work, and-($0.67 per share) as a result o have not included any such margins or premiums.

effect of accounting change.

Inclusion of these Items increased cost estimates..

DISCOUNT RATE -' SFAS 143 requires that these Also, Entergy's 2003 earnings I obligations be discounted using a credit-adjusted, business increased by approxitr risk-free rate. This resulted in significant decreases over 2002 because of the changE in Entergys decommissioning obligations in the Non-and depreciation of the adjusted Utility Nuclear business, as this discount rate is higher gradually decrease over future y than the implicit rates utilized by Entergy in accounting

• liability increases. Management for these obligations through December 31, 2002.

143 post-implementation will ongoing earnings for the U.S. U The net effect on Enteray's financial statements of imrnle-fair values of $1.1 billion 3, increasing utility plant umulated depreciation by ie related regulatory assets ritation of SFAS 143 for the jct to cost-based ratemaking imately $21 million net-of-It of a one-time cumulative n accordance with required by SFAS 71, the itergy's utility subsidiaries oval costs that are not asset EFAS 143. Approximately t depreciation rates, on a sents a component for the val costs.

Lsiness, the implementation rease in liabilities in 2003 n due to reductions in:

decrease in assets of ncluding a decrease in 15 million, 'and an increase-

$155 million net-of-tax

,f the one-time cumulative

[or the Non-Utility Nuclear lately $18 million after-tax in accretion of the liability plant costs. This effect will rears as the accretion of the expects that applying SFAS have a minimal effect on

'tility business.

menting SFAS 143 for the U.S. Utility and Non-Utility ImPAIRMENT OF LONG-LIVED ASSETS Nuclear businesses follows:

Entergy has significant investments in long-lived assets in For the U.S. Utility business, the implementation of all of its segments, and Entergy evaluates these assets SFAS 143 for the rate-regulated business of the domestic against the market economics and under the accounting utility companies and System Energy was recorded as a*

rules.'for impairment whenever there are indications that regulatory asset, with no resulting impact on Entergy's -

impairments may exist. This evaluation involves a signifi-

- net income. Entergy recorded these regulatory assets cant degree of estimation and uncertainty, and these 'esti-because existing rate mechanisms in each jurisdiction mates are particularly important in Entergy's U.S. Utility are based on the original or historical cost standard that and Energy Commodity Services segments. In the U.S.

allows Entergy to recover all ultimate costs of decom-Utility segment, portions of River Bend and Grand Gulf are missioning existing assets from current and future not included in rate base, which could reduce the revenue customers. As a result of this treatment, SFAS 143 is that' would otherwise be recovered for, the applicable expected to be earnings neutral to'the rate-regulated

' portions of those units' generation. In the Energy business of the domestic utility companies and System Commodity Services segment,' Entergy's -investments in' Energy. Assets and liabilities increased by approximately

-merchant generation assets are subject to impairment if

$1.1 billion in 2003 for the domestic utility companies adverse market conditions arise.

and System Energy as a result of recording the asset

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ENTERGY CORPORATION AND 8UB81DIARiES 2003

.-. E E -.

7 In order to determine 'if Entergy should recognize an Due totheoversupply of power that existed throughout impairment of a long-lived asset that is to be held and used, the U.S. and the UK in 2002, and the resulting decreases accounting standards require that the sum of the expected in spark spreads, consistent with Entergy's point of view, undiscounted future cash flows from the asset be compared Entergy's impairment tests indicated that a number of to the asset's carrying value. If the expected undiscounted

- impairments were required to be recognized in 2002 in the future cash flows exceed the carrying value, no impairment Energy Commodity Services segment. These impairments, is recorded; if such cash flows are less than the carrying which were also accompanied by other charges related to value, Entergy is required to record an impairment charge the restructuring of Entergy's independent power busi-to write the asset down to its fair value. If an asset is held ness, are further detailed in Note 12 to the consolidated for sale, an impairment is required to be recognized if

-financial statements.

the fair value (less costs to sell) of the asset is less than carrying value.

These estimates are based on a number of key assun tions, including:

FUTURE POWER AND FUEL PRICES

.~-Electricity and gas prices have been very volatile in recent years, and this volatility is expected to continue for some time:.'

This volatility necessarily increases the imprecision inhere nt in the long-term forecasts of commodit prio that are a key determinant of estimated future cash.

flows. There is currently an oversuplyof electricity throughout the U.S., and it is necessary to project economic growth and other macroeconomic factors in order to project when this oversupply will Cease and' prices will rise. Similarly, gas prices have been volatilE

• as a result of recent fluctuations in both supply and demand, and projecting future trends in these prices is difficult..

• MARKCET VALUE OF GENERATION ASSETS

-Valuing' assets held for sale requires estimating the current.

market value of generation assets. While market transactions provide evidence for this valuation, the'-

• market for such assets is volatile and the value of individual assets is impacted by factors unique to those assets.

FUTURE OPERATING COSTS - Entergy assumes rela minor annual increases in operating costs.

-:chnologic or regulatory changes that have a significant impact on operations could cause a significant change in these assumptions.

Its MARK-TO-MARKET ACCOUNTING

- The EITF reached a consensus to rescind Issue No. 98-10 effective January 1, 2003. Rescinding Issue No. 98-10' resulted in some energy-related contracts being accounted for on an accrual basis that were previously accounted for on a mark-to-market basis. Contracts that meet the provisions of SFAS 133 to qualify as derivatives are marked-to-market in accordance with the guidance in SFAS 133. Contracts such as capacity, transportation, storage, tolling, and full requirements contracts that are

• based on physical assets and do not meet the provisions of

. SFAS 133 to qualify as derivatives are' accounted for using ip-accrual accounting. Energy commodity inventories held by trading companies such as physical natural gas are accounted for at the lower of cost or market. The adoption of the consensus had minimal cumulative and ongoing earnings

- effects for Entergy's Energy Commodity Services business.

As required by generally accepted accounting principles, es Entergy and Entergy-Koch mark-to-market commodity instruments held by them for trading and risk management purposes that are considered derivatives under SFAS 133.

Because of the significant estimates and uncertainties inherent in mark-to-market accounting, this method is considered a critical accounting estimate for the Energy Commodity Services segment. Examples of commodity instruments that are marked to market include:

• commodity futures, options, swaps, and forwards that are expected to be net settled; and power sales agreements that do not involve delivery of power from Entergy's power plants.

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ENTEROY CORPORATION AND SUBSIDIARIEB 2003

- MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS continued Conversely, commodity contracts that are not considered Entergy reviews these assumptions on an annual basis derivatives, generally, because they -involve physical and adjusts them as necessary. The falling interest rate -

delivery of a commodity to the purchaser, are not marked environment and poor performance of the financial equity to market. Examples. of commodity contracts that are markets over the past several years have impacted not marked to market include:-:'

Entergy's funding and reported costs for these benefits. In'

- the PPAs for Entergy's Non-Utility Nuclear plants; addition, these trends have caused Entergy to make a

. capacity purchases and sales by the U.S. Utility.

number of adjustments to its assumptions..

companies; and

.In selecting an assumed'discount rate, Enterg reviews.:

• forward contracts that will result in physical delivery, market yields on high-quality corporate debt.: Based on recent market trends, Entergy reduced its discount rate Fair value estimates of the commodity instruments that from 7.5% in 2001 and 6.75% in 2002 to 6.25% in 2003.'-

are marked to market are made at discrete points in time -Entergy reviews actual recent cost trends and projected based on relevant market information. Market quotes are future trends in establishing health care cost trend rates.

used in determining fair value whenever they are available..

Based on this review, Entergy increased its health care cost When market quotes are not available (e.g., long-dated trend rate assumption used in calculating'the,2003 commodity contract), other information is used, including accumulated postretirement benefit obligation. The assumed transactional data and internally developed models. Fair, health care cost trend rate is a 10% increase in health care value estimates based on these other methodologies are costs in 2004 gradually decreasing each successive year' necessarily subjective in nature and involve uncertainties until it reaches a 4.5% annual increase in health care costs and matters of significant judgment. These uncertainties in 2010 and beyond.

include projections of macroeconomic trends and future In determining its expected long-term rate of return on commodity prices, including supply and demand levels and plan assets, Entergy reviews past long-term performance.,

future price volatility. The impact of these uncertainties, asset

'allocations,

'and long-term inflation assumptions..

however, is lessened by the relatively short-term nature of

'.Entergy targets an asset allocation for its pension plan

the mark-to-market positions held by Entergy and ET.

assets of roughly 66

% equity securities, 30% fixed income securities, and 4% other investments. The target allocation PENSION AND OTEER POSTRETIREMENT BENEFITS for Entergy's. other postretirement benefit assets is Entergy

-sponsors defined benefit pension plans which 45% equity-securities and 55% fixed income securities.

cover substantially all employees. Additionally. Entergy Based on recent market trends, Entergy decreased its provides postretirement health care and life insurance expected long-term rate of return on plan assets from 9% in benefits for substantially all employees who reach retirement

.2001 to 8.75% for 2002 and 2003. The trend of reduced.

age while still working for Entergy Entergy's reporte c

inflation caused Entergy to reduce its assumed rate of.

of providing these benefits, as described in Note I 1 to the increase in future compensation levels from 4.6%

In 2001 to consolidated financial statements, are impacted by numerous 3.25% in 2002 and 2003.

factors including the provisions of the plans, changing employee demographics and various actuarial calculations, Cost Sensitivity, assumptions, and accounting mechanisms. Because of the The following chart reflects the sensitivity of pension cost complexity of these calculations, the long

-term nature of to changes in certain actuarial assumptions (in thousands):'

these obligations, and the importance of the assumptions

'cto:

utilized, Entergy's estimate of these costs is a critical Actuarial Change in Impact on 2003 Impact on Proiected accounting estimate for the U.S. Utility and Non-Utility Assumption Assumption

'pension cost Beneit obligation Nuclear segments.

-,8 651re Disoount rate (0.25%)

$4,882

$83,651 aof return.

• A ssumptions on plan assets (0.25%)

46 34-Key actuarial assumptions utilized in determining these Rateofn-e-costs include:

$4033 0

$4,038 i

- Discount rates used in determining the future benefit obligations;

Projected health care cost trend rates;.

Expected long-term rate of return on plan assets; and

• Rate of increase in future compensation levels.

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ENT'EROY CORPORATION AND SUBSIDIARIES 2003 I

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7 I-The following chart reflects the sensitivity of postretire-Costs and Funding ment benefit cost to changes in certain actuarial assumptions In 2003, Entergy's total pension cost was $108 million, (in thousands):

including a $47 million charge related to the voluntary Impact on severance program. Entergy anticipates 2004 pension cost Impact on 2003 Acwnulated to increase to $87 million due to a decrease in the discount Actuarial Change In Potretrement.

Postretrement

rate from 6.75% to 6.25% and the phased-in effect of poor Assumption Assumption Benefit Cost Beneft Obligation asset performance. Pension funding was $35 million for Increcase/ecrease)

Helthcare 2003 and in 2004 is projected to be $110 million due to the cost trend 0.25%

$5,206

$25,979 poor performance of the financial equity markets.

Discount rate (0.2596)

$3,278

$29,500 Due to negative pension plan asset returns from 2000 to 2002, Entergy's accumulated benefit obligation 'at

-Each fluctuation aboveassumes that the other components December 31, 2003 and 2002 exceeded plan assets. As a of the calculation are held constant.

result, Entergy was required to recognize an additional minimum liability as prescribed by SFAS 87. At December Accounting Mechanisms 31, 2003 Entergy reduced its additional minimum liability In accordance with SFAS No. 87. "Employers' Accounting to $180.2 million ($149.4 million net of related pension for Pensions," Entergy utilizes a number of accounting assets) from $208.1 million ($175 million net'of related mechanisms that reduce the volatility of reported pension pension assets) at December 31, 2002. This reduced the costs. Differences between actuarial assumptions and actual charge to other comprehensive income to $9.3 million at plan results are deferred and are amortized into cost only December 31,2003 from $11 million at December 31,2002, when the* accumulated differences exceed 10% of the after reductions for the unrecognized prior service cost, greater of the projected benefit obligation or the market-amounts recoverable in rates, and taxes. Net income for related value of plan assets. If necessary, the excess is 2003 and 2002 were not affected.'

amortized over the average remaining service period of

'Tbtal postretirement health care and life insurance-active employees.

benefit costs for Entergy in 2003 were $165 million, Additionally, Entergy smoothes the impact of asset

'including a' $64 million charge related'to the voluntary performance on pension expense over a twenty-quarter

-severance program. In December 2003, the Medicare phase-in period through a "market-related" value of asets Prescription Drug, Improvement and Modernization Act of calculation. Since. the market-related value of assets 2003 became law. The Act introduces a prescription drug recognizes investment gains or losses -over a twenty-' - benefit under Medicare (Part D) as well as a federal subsidy quarter period, the future value of assets will be impacted to employers who provide a retiree prescription drug as previously deferred gains or losses are recognized. As a benefit that is at least actuarially equivalent to Medicare result, the losses that the pension plan assets experienced Part D. Currently, specific authoritative guidance on the in -2002 may have an adverse impact on pension cost in accounting for the'federal subsidy is pending. Entergy' future years depending on whether the actuarial losses expects 2004 post-retirement health care and life insurance at each measurement date exceed the 10% corridor in benefit costs to approximate $102 million.

accordance with SFAS 87.

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ENTEROY CORPORATION AND SUBnSD MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS concluded OTHER CONTINGENCIES Sales Warra:

Entergy, as a company with multi-state domestic utility Entergy's opei operations, and which also had investments in international require Enter projects, is subject to a number of federal, state, and inter-effects of a tr national laws and regulations and other factors and with such a conditions in the areas in which it operates, which adequately as potentially subject it to environmental, litigation, and where applica other risks. Entergy periodically evaluates its exposure for issues, howev such risks and records a reserve for those matters which such as clain are considered probable and estimable in accordance with additional tr generally accepted accounting principles.

completion o:

transactions c Environmental not expect a n Entergy must comply with environmental laws and regula-tions applicable to the handling and disposal of hazardous waste. Under these various laws and regulations, Entergy could incur substantial costs to restore properties consistent with the various standards. Entergy conducts studies to determine the extent of any required remediation and has recorded reserves based upon its evaluation of the likelihood of loss and expected dollar amount for each issue. Additional sites could be identified which require environmental remediation for which Entergy could be liable. The amounts of environmental reserves recorded can be significantly affected by the following external events or conditions:

• Changes to existing state or federal regulation by governmental authorities having jurisdiction over air quality, water quality, control of toxic substances and hazardous and solid wastes, and other' environmental matters.

. The identification of additional sites or the filing of other complaints in which Entergy may be asserted to be a potentially responsible party.

• The resolution or progression of existing matters through the court system or resolution by the EPA.

Litigation Entergy has been named as defendant in a number of Xlawsuits invoiving employment, ratepayer, and injuries and damages issues, among other matters. Entergy period-ically reviews the cases in which it has been named as defendant and assesses the likelihood of loss in each case as probable, reasonably estimable, or remote and records reserves for cases which have a probable likelihood of loss and can be estimated. Notes 2 and 9 to the consolidated financial statements include more detail on ratepayer and

• other lawsuits and management's assessment of the adequacy of reserves recorded for these matters. Given the environmiient in which Entergy operates, and the unpre-dictable nature of many of the cases in which Entergy is named as a defendant, however, the ultimate outcome of the litigation Entergy is exposed to has the potential to materially'affect the results of operations of Entergy, or its operating company subsidiaries.

IARIES 2003 nty and Tax Reserves

• ations, including acquisitions and divestitures, gy to evaluate risks such as the potential tax ansaction, or warranties made in connection transaction. Entergy believes that it has sessed and provided for these types of risks, ble. Any reserves recorded for these types of

'er, could be significantly affected by events is made by third parties under warranties, ransactions contemplated by Entergy,. or f reviews of the tax treatment of certain or issues by taxing authorities. Entergy does material adverse effect from these matters.

i I

I:I I

I I

ENTEROY CORPORATION AND SUBSIDIARIES 2003 REPORT OF MANAGEMENT INDEPENDENT AUDITORS' REPORT Management of Entergy Corporation and its subsidiaries To the Board of Directors and Shareholders of Entergy Corporation:

has prepared and is responsible for the financial statements T

We have audited the accompanying consolidated balance and related financial information included herein. The I I

ad r sheets of Entergy Corporation and subsidiaries as of December I'

'financial statements are based on accounting principles-*--

fi a s t

a31, 2003 and 2002, and the related consolidated statements of generally accepted in the United States of America.

.income; of retained earnings, comprehensive inoome, and paid-'

Financial information included elsewhere in this report is' n wh t in capital; and of cash flows for each of the three years in the

-consistent with the finanicial statements."'

'lb

• et tperiod ended December 31, 2003. These financial statements, lb meet'their responsibilities with respect to financial are the responsibility of the Corporation's management. Our information, management maintains and enforces a system r

i t e

a o

-responsibility is to express an opinion on these financial of internal-accounting 'controls designed to provide f i l a n statements based on our audits. We did not audit the financial reasonable assurance, on a cost-effective basis, as to the o

-f t

'statements of Entergy-Koch, LP for the year ended December integrity, objectivity, and reliability of the financial records, 3

2 t

t 31, 2003, the Corporation's investment in which is accounted and as to the protection of assets. This system includes for by the use of the equity method. The Corporation's equity communication through written pohlces and procedures, commu o t

-in earnings of unconsolidated equity affiliates for the year an employee Code of Entegrity, and an organizational struc>-

ended December 31,2003 includes $180,110,000 for Eney ture that provides for appropriate division of responsibility K

Koch, LP, which earnings were audited by other-auditors -'

and the training of personnel. This system is also tested by

-whose report has been furmished to us, and our opinion,'-

a comprehensive internal audit program.

-insofar as it relates to the amount audited by other auditors TheAuditCommttee of the Board of Directors, composed The Audit Com t

f included for such company, is based solely on the report of solely of independent Directors, meets with the independent s

oh auditors

.such other auditors.

auditors, internal auditors, management, and internal W

c ou a i

o a

-We conducted our audits in accordance -with auditing accountants periodically to discuss internal accounting standards generally accepted in the United States of America.,

controls and auditing and financial reporting matters. The Those standards re I-Thos stndars rquire that we plan and perform the audit Audit Committee appoints the independent auditors t

e a s t i

to obtain reasonable assurance about whether the financial annually and reviews with the independent auditors the statements are free of material misstatement. 'An audit scope and results of the audit effort. The Audit Committee n

includes examining, on a test basis, evidence supporting the also meets periodically with the independent auditors and a

~amounts and disclosures in the financial statements. An audit--

the chief internal auditor without management, providing' te calso includes assessing the accounting principles used and i-free access to the Committee.:

f a

significant estimates made.by management, as well as Independent public accountants regularly evaluate the-n c

t r l

e evaluating the overall financial statement presentation. We system of internal accounting controls and perform e

obelieve that our audits and the report of other auditors provide such tests and other procedures as they deem necessary a reasonable basis for our opinion.

to reach and express an opinion on the fairness Of.-'-

o h a

In our opinion, based on our audits and the report of other

the fniancial statements. They also-:provide the Auditt auditors, such consolidated financial statements present fairly, Committee their judgments about the quality of accounting i

t f

c o

fn in all material respects,- the financial position of.Entergy policies and disclosures.--

e ad d Corporation and subsidiaries as of December 31, 2003 and Management believes that these policies and procedures 2002, and the results of their operations and their cash flows provide reasonable assurance that its operations are carried f

for each of the three years in the period ended December 3t, out with a high standard of business conduct.

2003 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 1 and 9 to the consolidated financial kSlbjA

<6..

7

/i statements, Entergy Corporation adopted the provisions of Statement of Financial Accounting Standards (SFAS) No.

J. WAYNE LEONARD LEO P. DENAULT 143, "Accounting for Asset Retirement Obligations," and Chief Executive Officer Executive Vice President f

e r E

• Financial Accounting Standards Board Interpretation No. 46, and Chief Financial Officer d

e F "Consolidation of Variable Interest Entities," in 2003, SFAS No. 142, "Goodwill and Other Intangible Assets," in 2002, and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," in 2001.

DELO=ITE & TOUCHE LLP New Orleans, Louisiana March 9, 2004

',, =."-',".,. I

ENTEROY CoIpor0tATION.AND SUBSIDIARIES -2 0 03 CONSOLIDATED STATEMENTS OF, INCOME In thouands. except share data, for the years ended Deoemnber~l

-2 0 08 2002 2001 o

OPERATING REVENUES:

Domestic'electric 7,397,175.

$6,646,414

$7,244,827'%'

Natural gas 186,176 125,353 '

8,0 Competitive businesses

'1,611,569 i 1, 533,268 2,190,170.

-V

,14,208,305,035 9,620,899 K OPERATING EXPENSES:

Operating and maintenance:

Fuel, uel-related expnean a

urchased for resale 1,987,217; 2,154,596 3,681 677 Purchased power,.

-1697,959 832,334 1,021,432 Nula euln outage expenses.

-,159,995' 0,928,4 Provision for turbine commitments, asset impairments and r-estructuring charges

(7,743) 428,456 Otherope'ration and maintenance

'2,484,436: :

2,488,12

.2,5,4

-Decomxnissioning.

146,100:

641.'

28,586 Taxes other than income taxes

-405,659, 380,462 -

399,849

'Depreciation and amortization 85,0 3,8 721,033 Other regulatory credits - net

":(13,761)

(141,836)

(20,510),

71 1

,710,365

'7,163,314 8,072,954 OPERATING INCOME 14455111711,547,945 OTHER INCOME:-

Aloanefor equt funds usled duigcnstructio 4,1 1,5

'2,0 Interest and dividend income -

K 8,36'118,325:..

159,805 Equityi in earning ofucnoiaesqiyaflae

.~-

271,647

183,878.*

162,882 NEET

-e 7:,3505 34173,82-

. -349,353

-ITRETAND OTHER CHARGES:

Interest on long-term debt 12 485,964' 526,442 563,758.

Other interest - net :--

53553.,

70,560 172,241 Allowance for borrowed funds used during construction (33;191)

.(24,538)

-(21,419)

'ibotal.'

506,326-572,464

.714,580

-INCOME BEFORE INCOME TAXES AND

'CUMULATIVE EFFECT OF ACCOUNTING -CHANGES' 1,303,467,-

-917,010

-1,182,718 Income taxes 40042398455,693 INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 1

813,393

'623,072 -

727,0'25 CUMULATIVE EFFECT OF ACCOUNTING:

CHANGES (NET OF INCOME TAXES OF $88,925 IN' 2003 AND $10,064 IN 2001)

-..CONSOLIDATED NET INCOME

-950,467 2,02.750,507'.

Preferred dividend requirements and other 3,2'-2372 24,311 EARNINGS APPLICABLE TOCMO TC

$926,943

$ 599,360 2,9 Earnings per average common share before cuulative effect of accounting Changs Basic 7.38$

269 1

Diluted 4

264 3.13 Diuedj

.420

$2.64...

32 Eavraige numer ofeag commonsha~res usadn Basic 226,804,370.

223,047,431

'.. 220,944,270 Diluted J 23114;00:

227,303,103'L 224,733,662 See Notes go Consolidated Financial Statements.

ENTEROY C0~OAIN.

ANDSU IDA E

20 7

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS,.COMPREHENSIVE INCOME, AND PAID-IN.CAPITAL In thousands, for the years ended December 31.

20 20 0 1

-RETAINED EARNINGS Retained Earnings - Beginning of pro

$3,938,693'

$3,638,448

$3,190,639 Add: Earnings applicable to common stock 92.4 926,943

'599,360. $599,360 ~.726,16$2,9 Deduct:;:

Dividends decaedo omo to6k'

'-362.941299,031

-27834 Capital stokiad other expanse

• 187 84.5 TIbtal 363,128 7:

299,115 278,387 Retained Earnings - End of period t $4,502,508

$3,938,693

':$3,638,448 ACCUMULATED OTHER Balance at beginning of period:1

..,j

-Accumulated derivative instrument

~-

fair value changes:

$ "17 313 -

.(17,973)

Other accumulated conmprehensive (icss) Ies

-39,673)

• .(70,821' (75,033)

'ibta1:-

-`

(22,360)'

(88,794)"

(75,033)

Cumulative effect to January 1,2001 of accountig Change regarding fair value of derivative instruments (18,021)

'Net derivative instrument fair value changes arising during the period

,(43,124)

(43.124)"

35,286 35,286.

48 48

-Foreign currency tranlation adjustments

-'4,169 4,1691 65,948 (1,8).

.4,615' 4,615 Minimum pension liability adjustment:

1,133 1,153' (10,489). '(10,489)

Net unrealized investment gains (loss) 52,367 ~~52,37 2,i)(24,311)

(0) 7 (4'03)

Balance atend ofperiod:,

Accumulated derivative'

' I instrumentifair value changes (2,1)'733;(17,973)

IOther accmriulated comnprehensive income (loss) itemis -"-18,016('

(39,673):

(70,821)

'ba (7,795)

(22,360)

$'(874

'Comprehensive Income I-$4 0

5439'.$730,456 PAID-IN CAPITAL

-.Paid-in Capital Beginning of pro

$,6,0

$4,660,483

'Common stock issuances related to stock plans

f.

100,862' 4,049 p'2,221

'Pald-in Capital -End of period t$4,767,615-

.-. $4,666,753,

$4,662,704 See Notes to C onaoldated Financial Statements.

7=

ENTEROY CORPORATION AND SUBSIDIARIES 2 00 3 CONSOLIDATED BALANCE SHEETS In thousands, as ofDeoemnber 3 1,

.200 20'0 2 ASSETS[

CURRENT ASSETS:

Cash and cash equivalents:

Cash 115,112 169,788 Tebmporary cash investments-at cost, which approximates market

[

576,813; 1.-165,260 Special deposits

.308' 280 Total cash and cash equivalents 1

692,233 1,335,328 Other temporary investments 50,000 Notes receivable Accounts receivable:

Customer Al1lowance for doubtful accounts Other

. 1,730

-,:398.091' 1I-(25.976) 11~246,824 2,078

.1 323,215

'(27:285)

Accrued unbilled revenues 384,860 319.133

-Total receivables 1.003,799'

'859,684 Deferred fuel costs

.245,973 55,653 Fuel inventory-at average cost "11'0,482 96,467, Materials and supplies-at average cost 548,921

.525,900 Deferred nuclear refueling outage costs 138,836 163,646 Prepayments and other 127,270 166,827 Total 2,919,244 3,205,583

.OTHER PROPERTY AND INVESTMENTS:

f Investment in affiliates--at equity 1,053,328

~

.824,209 Decommissioning trust funds 2,278,533 2,069,198 Non-utility property-at cost (less accumulated depreciation) 262,384 297,294 Other V

152,681 277,539 Total 3,746,926

'3,468,240 X-zF6 rZ,1%

-A JrA LI L

A cm A J~Ur,1mu AX;rM-Electric

• Property under capital lease

• Natural gas Constru6tion work in progress Nuclear fuel under capital lease

, 28,035,899.,

751,815

.. K~- 236,622-1,380,982

.I 278,683.-

26,789,538 746,624 209,969 1,232,891 I 259,433 Nuclear fuel 234,421 263,609 Tobtal property, plant and equipment 1

30,918,422

.29,502,064 Less-accumulated depreciation and amortization'I 12,619,625 11,837,061 Property, plant and equipment-net

.1S1,298.797 17,665.003 DEFERRED DEBITS AND OTHER ASSETS:

Regulatory assets:

SFAS 109 regulatory asset-net

.830,539' 844,105 Other regulatory assets.,

1,425,145:

Goodwill

• .377,172; 377,172 Other 935,501

• • 946,375 Total 3,589,243

.3,165,540 TOTAL ASSETS

$28,554,210

.$27,504,366 See Notes to Consolidated Financial Statemenft.

I i

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.ENTEROY CORPORATION AND SUBSIDIARIES 2003 ICONSOLIDATED BALANCE SHEETS In thousands. as of Deoember 31, 2 0 02 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:

Currently maturin long-term debt'

-Notes payable Accounts payable Customer deposits

• Taxes accrued Accumulated deferred income taxes Nuclear refueling outage costs Interest accrued Obligations under capital leases Other

..2003 524,372 K 351 796,572:~

199,620 224,926 22,963 V 8,238 159:978.

205,600

$ 1,191,320 351 855,446

• 198,442 385,315.

• 26,468 14,244,

• 175,440 153,822 171,341, I

I TOtW

.~

I I.

2,282,223 -!-

3,172,189 NON-CURRENT LIABILITIES:

Accumulated deferred income taxes and taxes accrued, Accumulated deferred investment tax credits Obligations under capital leases Other regulatory liabilities Deconmmissioning and retirement cost liabilities Transition to competition Regulatory reserves Accumulated provisions Long-term debt Preferred stock with sinking fund 4,779,513

-,~.20,248-153,898 291,239 2,242,312

• .79,098

.69,528

-.06,960

.7,322,940 20,852 4,250,800 447,925 155,943

-185,579 2,115,744 79,098 56,438 389,868 7,308,649 I

Other I

1,347,404 1,145,232-Total 17,233,992 16,135,276 Preferred stock with sinking fund 24,327 Preferred stock without sinking fund 334,337 334,337 SHAREHOLDERS' EQUITY:

Common stock, $.01 par value, authorized 500,000,000

• shares; Issued 248,174,087 shares in 2003andin 2002 2,48'2-2,482 Paid-in capital 0,

4,767,615 4.4666,753 Retained earnings

,.4,502,508!

3,938,693 Accumulated other comprehensive loss

-(7,795):

.(22,360)

Less-treasury stock, at cost (19,276,445 shares in 2003 and 25,752,410 shares in 2002)

~-

561,152

.747,331 Total

.*8,703,658

.7,838,237 I

f,I, 5

r i

..I.

tI II I

I I.

I

Au alUITY

'$28,554,210

$27,504,366

.TOTAL LIABILITIES AND SHAREHOLDERS' El See Notes to Consolidated Financial Statements.

ENTERGY CORPORATION,,AND UBUD5IDIARZIR5 2 00 3.

CONSOLIDATED STATEMENTS OF CASH FLOWS:

in thousands, for the years ended December 31,

'2 00a 2002-2001

-OPERATING ACTIVITIES Consolidated het income

$ 9047$623,072

$70,507 Noncash items included in net income:

Reserve for regulatory adju'stment

'1,01888..(359,199),

Othe rgltrcrdt ne-(13,761)

(141,836);

(20,510 Depreciation, amortization, and decommissioning

-996,603

-.- 915,597 749.619 Deferred income taxes and investment tax credits

.8,31.,

(256,664)

-8.5 llwanice for~equity funds used during construction.'

42.710)

~

(31,658)

-'2629 iCumulative effect of accountinge canges (137.074)'

-(23,482)'

Equity in undistributed earning's of unconsolidate euity, affilae

-[

(703)(181,878)

(150,799)'

~Provision for turbine commitments,

.i' asset impairments, and restrctuing hre 773 2,5 Changes in working capital

~

iV 497 Receivables

,'(140,612)

_J397:

0 3

• Fuel inventory J

(405~.

,3 3,419)

Accounts payable (60,f 64) 286,230.

,(415,160),:

¶lxs accrued

-(828,539) 462,956

.486,676 Interest accrue

~

3,3),7,209.1728 Deferred fuel '.j 387) 1681495,007 Other working capital accounts,.16,809

. (286,232)

(39,978),:

Provision for estimated losses and reserves t,

196,619 10,533:.

19,093 Changes in other regulatory assets f

2,7 71,132 119,215.

Other 1035-1264226,918I,'

-Net cash flow provided by operating activities'1

,0,2 2,181,703 2,215,548.

'INVESTING ACTIVITIES:.'

Construction/capital expenditures,(.6,93 (1,530,301)

(1,380,417)

Allowance for equity funds used. during construction, j

-42,710 31,658.26,209 Nuclear fuel purchases

'~*2438'*(250,309)

.(130,670).

Proceeds fro sae eaeb of nuclear fuel 15,3 183,664 7196 Proceeds from sale of assets and businesses 59721.8 784,282 Investment in non-utility properties

.(71 438)

(216,956)

((47,'015)

Decrease (increase) ini other investment 1

728738,964 (631,975)

Changes in other temporary investments'(.'00 150,000 (150,000)

Decommissioning trust contributions..

and realized change in trust asset (9,1)(494.-

(95,571)

-Other regulatory investments

-156,446).

(39,390) 3460)

Ot

r 11,496)!1403 (68,067)

• -Net cash flow used in investing activities f "(1,783,130)"'

(1,388,463)

(2,224,720)

See'Notes to Consolidated Financial State'ment.

-I-.

~ENTEROY CORPORATION ~AND S UBSIDIA RIES 2003:"

CONSOLIDATED -STATEMENTS OF CASH FLOWs 7 n thoisands, for the yearsended December 31, 2003 s2002

.20061 FINANCING ACTIVITIES:,*

Proceeds from the issuance of:

Long-term. debt 2,221,164 J

.1,197,3306840

%Common stc and treasury stock, 217.521' -

130,061 6434 Retirement of long-term debt

.0.1)i

(,4 7)(962,112)

Rpurbhase of common stock

-(8.135).,;

'(1 18,499)

(36,895)

Redemption of preferred stock.,340 185)(954 Chne nshort-termnorowng net (499,975) 24433

. (37,004)

Dividends pald:,.

Common stock,'

- (362,814)'

(298,991)

(269,122)

Preferred stock

.'2,2):

(372)

(24,044)

Net cash flow used in financing activities

.(869,130)-

(212,610)

(622,004)

Effect of exchange rates on cash and cash equivalents V

.35,15325 2

Net increase (decrease) in cash and cash equivalents f'(6309)583,755 (630,851) 1 Cash and cash equivalents at beginning of periol,3,2 7153 1,382,424 K

Cash and cash equivalents at end of period

- 692,233

$ 1-3 3875$

7 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid (received) during the period for

Interest - net of amount capitalized

$5207$

3,3 708,748 Income taxes

'*$1879$

57,856

$(1346.

Noncash investing and financing activities:

Debt assumed by the Darnhead Creek purchaser

$ 48432 Decommissioning trust. fund acured in nuclear power plant acquisitions'

$ 3000$

430,000

'lon-tem det isuedin riorperod (470-00).

Long-term debt refunded with proceeds from, A

Proceeds from long-term. debt issued for the purpose of refunding prior long et ternideb K

I 47,00 Notes to Consolidated FinaneWi Staements.

ENTERGY CORPORATION AND SUBSIDIARIES 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENT NOTE 1.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements include the accounts of Entergy Corporation and its direct and indirect subsidiaries. As required by generally accepted accounting principles, all significant intercompany trans-actions 'have been eliminated In the consolidated financial' statements. The domestic utility companies (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, collectively) and System Energy maintain accounts in accordance with

'Federal Energy Regulatory Commission (FERC) and other regulatory guidelines. Certain previously reported amounts have been reclassified to conform to current classifications, with no effect on net income or shareholders' equity.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of Entergy Corporation's consolidated financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Adjustments to the reported amounts of assets and liabilities may be necessary in the future to the extent that future estimates or actual results are different from-the estimates used.

REVENUES AND FUEL COSTS The domestic utility companies generate, transmit, and distribute electric power primarily to retail customers in Arkansas, Louisiana, including the City of New Orleans, Mississippi, and Ibxas. Entergy Gulf States distributes gas to retail customers in and around Baton Rouge, Louisiana and Entergy New Orleans distributes gas to retail customers in the City of New Orleans. Entergy's Non-Utility Nuclear and Energy Commodity Services segments derive almost all of their revenue from sales of electric power generated by plants owned by them.

Entergy recognizes revenue from electric power and gas sales when it delivers power or gas to its customers. 'Tb the extent that deliveries have occurred but a bill has not been issued, the domestic utility companies accrue an estimate of the revenues for energy delivered since the latest billings.

Entergy calculates the estimate based upon several factors

- including billings through the last billing cycle in a month, actual generation in the month, historical line loss factors, and prices in effect in -the domestic utility companies' various jurisdictions. Each month the estimated unbilled revenue amounts are recorded as revenue and a 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.

' The domestic utility companies' rate schedules include either fuel adjustment clauses or fixed fuel factors, both of which allow either current recovery in billings to customers or deferral of fuel costs until the costs are billed to customers.

Because the fuel adjustment clause mechanism allows monthly adjustments to recover fuel costs, Entergy Louisiana, Entergy New Orleans, and the Louisiana portion of Entergy Gulf States include a component of fuel cost recovery in their unbilled revenue calculations. Where the fuel component of revenues is billed based on a pre-determined fuel cost (fixed fuel factor), the fuel factor remains in effect until changed as part of a general rate case, fuel reconciliation, or fixed fuel factor filing. Entergy Mississippi's fuel factor includes an energy cost rider that is adjusted quarterly.

Entergy Mississippi has deferred until 2004 the collection of fuel under-recoveries for the first and second quarters of 2003 that would have been collected in the third and fourth' quarters of 2003, respectively. The deferred amount plus carrying charges will be collected over twelve months beginning January 2004. In the case of Entergy Arkansas and the Tlbxas portion of Entergy Gulf States, their fuel under-recoveries are treated as regulatory investments in the cash flow statements because those companies are allowed by their regulatory jurisdictions to recover the' fuel cost regulatory asset over longer than a twelve-month period, and the companies earn a carrying charge on the under-recovered balances.

System Energy's operating revenues are intended to recover from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans operating expenses and capital costs attributable to Grand Gulf 1. The capital costs are computed by allowing a return on System Energy's common equity funds allocable to its net investment in Grand Gulf 1, plus System Energy's effective interest cost for its debt allocable to its investment in Grand Gulf 1.

PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment is stated at original cost.

For the domestic utility companies and System Energy, the original cost of plant retired or removed, plus the applicable removal costs, less salvage, is charged to accumulated depreciation. Normal 'maintenance, repairs, and minor replacement costs are -charged, to operating expenses.

Substantially all of the domestic utility companies' and' System Energy's plant is subject to mortgage liens.

Electric plant includes the portions of Grand Gulf 1 and Waterford 3 that have been sold and leased back. For financial reporting purposes, these sale and leaseback arrangements are reflected as financing transactions.

M'. ---

ENTEROY CORPORATION 'AND SUBSIDIARIES 2 00 3 Net property, plant, and equipment by business segment and functional category, as of December 31,' 2003 'and 2002, IS shown below (in millions):

Non-Energ PaetNon-Energy ~Parent U.S.

Utility commodity and U.S.-

Utility commodity and 2003 Enterg" Utility Nuclear Services Other

'2002 Entergy Utility Nuclear' Services Other Production Production Nuclear$

7,056 $ 6,112$

944 Nuclear 7,472 $ 6.314

$1,158 S

Other 1,816 1,359

-457 Other 1,616 1,382 234 Trnmission 2,67 2,067 Transmission 1,851 1.851 Distribution 4.3

,3 Distributin4,3 407 Other

-1,079 1,069 10 Other

'933 929 4

Construction work Construction work in progress 1,381 954 398 29 in progress 1,233*

797 216

192 28 Nuclear fuel Nuclear fuel (leased and owned) 513 298 215 (lease~d and'owned) 523

-284

239, Asset retirement obligationt 0)'156 155 I

Property, plant, Property, plant, a n d q ui m e n - n e

_ _4 andcilpen-nt

$18,299 $16,245

$1,557

$458'

$39 and equipment-net. $17,665 $15,594

$1,613

$426

$32

(1) This is reflected in electric preperty, plant, and equipment and accumulated depreciation and amortization on the balance sheet.

Depreciation is computed on the str8.ight-line basis at rates based on the estimated service lives of the various classes of property. Depreciation rates on average depreciable property approximated 2.8% in 2003 and 2.9% in 2002 and 2001. Included in these rates are the depreciation rates on average depreciable utility property of 2.8% in 2003; 2002, and 2001 and the' depreciation rates on average depreciable non-utility property of 3.3% in 2003, 4.0% in 2002, and 4.8% in 2001.'

JOIN-TLY-OWNEDGENERATING STATIONS Certain Entergy subsidiaries jointly own electric generating facilities with third parties. Thbe investments and'expenses associated with these generating stations are recorded by the Entergy subsidiaries to the extent of their respective undivided ownershipinterests. Asof Decemiber'31, 2003, the subsidiaries' Investment and accumulated depreciatio-n in each of these-.

generating stations were as follows ($ in millions):

Tobtal Megawatt

'Accumulated Generating Stations Fuel-Type Capability4' Onrsi Investment Depreciation Grand Gulf Unit 1

-Nuclear 1,207 90.00%m

$3,672

$1,673 Independence Units I and 2 Coal 1,630

.,47.90%

459 240 White Bluff Units 1 and 2coal 1,635 57.00%

42325 Roy S. Nelson Unit 6

-Coal 550 70.00%

404 234 Big Cajun 2Unit 3 coal

-575 42.00%

233 123 Harrison County Gas' 550' 70.00%

203 (1) 'Total Megauatt Capability is the dependable lead carr-ingecapability asdemonstrated under actual operating conditions based on the primary fuel (assuming no curtailments) that each station was designed to utilize.

(2) Includes an Il.5% leasehold interest held by System Energy. System Energy's Grand Guflf lease obligations are discussed in Note 10 to the consolidatedrfinancial statements.

EN T ER GY CO0R POR A T ION: A ND SU BSI D IA ItI ES 2 00 3 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued GOODWILL

-NUCLEAR REFUELING OUTAGE COSTS Entergy implemented SFAS. 142, "'Goodwill an ter.

Entergy records nuclear refueling outage costs in accordance Intangible Assets," effective January 1,2002.IThead'option,',with regultory treatment and the matching principle. These

• of SFAS 142 required an initial'impairment ase'ss -en't rfeigoteexnesaeincurred to prepare the units to involving a comparison of the fair value 'of. good iland, oetefr the nexrt operating cycle. without having to-be other intangible, assets to' the currn carrying value.,

tknofln.Ecpo the River'1Bend plant, thecot are Goodwill and other int~angible assets determined to hve deferred during the outage~ and amortized over the periodt idfntusfllvsaentarrortized, whera odil the next outage. Iri accordance with'the regulatory ttreatmnt adother intangible assets determined to -have'definit

'of the River Bend plant, River Bend's costs are accrued in useful lives are' amortized. over their useful. lives'.

advance and included in the cost of service used to establish'

.Goodwill and other intanigible assets are Subject to anniual retail rte."Entergy Gulf Statesx reivsteacre iblt impairment testing.,.

when it incurs costs durngthe next River Bend 'outage.

The irmplemen'ta'tion of SFS12rsle nthe cessation of Entergy's amortization of the remainin pat custion ALWNEFRFNSUE adjustment recorded in cortjunction with its acquisition of

'DURING CONSTRUCTION, Entergy. Gulf States. The following table is a reconciliation, AFUDC represents theapoiaentcmoieitrs of reported' earnings applicable to" common.'stock to

'.cost of borrowed funds -and a reasonable return on the earnings applicable to common stock without goodwill equity 'funds used for construction in the' U.S. Utility amortization for the years ended December 31. 2003, 2002, ~'segment. Although AFUDC increases both the plant balance and 2001 (in thousands, except share data):,

ad eannsi

-srealized in cash through 'depreciation For the years ended December 31,'

-'2003 2002 2001 poiin nlue nrts Reported earnings applicable

'NC ETA S

to common stock A$926,943 $599,360: $726,196'

• Enterg Corporation and its subsidiaries file a U.S. consoll-Add back: Goodwill amortization gy 1,6 dated federal income tax return. Income taxes are alloc-ated' Adjusted earnings applicable to mo sokwihu to the subsidiaries',in propor-tion-to their contr-ibution to gowlamriaon

$926,943

-$599,360 $742,461' consolidated taxable 'income. 'Securities andExchange, Commssio (SE)areulatonsaequientatnod neg Basic earnings per ii' gy average common share:'

subsidiiary

-7pay, more taxes than -it would have. pald if a' Reotderig plcbe-.separate income tax return had been filed In accordance

-to common stock

"$4.09

.$2.69.

$3.29.

ihSA 0,"conigfrIcm lxs" eerd GoodwiJJ amortization 0.07 Auseeannsacaiincome taxes are recorded for all temporary 'differences p

ebetween

-the book and tax basis of assets and liabilities,

• to common stock without goowil motiaton

'$409

$269

$336

'and for Cer'tain credits available for carryorward:

Diluted earnings per.

.. "Deferred tax assets a-re reduced by a valuation allowance averae comon shre:

'hen, in the opinion of management, it' is more likely ta not that some portion of the deerdtxast ilnot be Reported earnings applicable realized. Deferred tax assets and liabilities are adjusted for to common stock

$4.01,

$2.64 -,$3.23 theeffects of changes i a

asadrtsi h

eidi Goodwill amortization' "0.07 wihte rt wihtetax or raewas enacted.

'Adjusted earnings applicable'anbse L -

i I~ -I T:nvest~ment. tax credits are'deferred adamortizedbae gowlamriaoi

"$40

'$26

$.0'upon the average useful life of the -related. property, in accomrdanice with ratemaling treatment.

During 2001, Entergy acquired certain intangible assets.K in connection with the formation of Entergy-Koch, LP, anuconsolidated 50/50, limited prnsh..betwe susiirisofEteg KochIndustries, In.Because whih crrepon'toth' usfullives of Entergy-Koch'

'fixed assets, Entergy is amortizing them on' a straight-line' basis over a period of. :30 years. Entergy's consolidated

'balance sheet at December 31, 2003 includes $53 million of~.

I'6

-unamortized intangible-'assets 'acquired. 'in frming Entergy-Koch.

~ENTERGY -CORPORATION'AND -SUBSIDIARIES 2003 EARN1-INS PER SHARE'~

applied the fair value based method of amcounting to stock-based The following table ~pr-esents Entergy's basic and diluted

-employee compensation. (In thousands, except per share data) erigs per share (EPS) calculation included on the consol-idated income statement (ini millions, except per share' data):

'-For the years ended December 31,.

-2003 2002 2001 Earnings applicable..

Fo h er ne eebr3.20 02 20 to common stock S926,943

$599,360.$726,196

~Add back: Stock-based compensation

'expense included in earnings effect of asomunting change

,$789.9

$5994

$702.7 Iapial ocomnsok e

nube bf.c mmon of related tax effects

.2,818 shroutstanding - basic 228.8 $3.48230$.9 2.9318 Deduct: Total stock-based employee Avraediuiv ffc of:

compensation expense determined Stock options "'

4.1 (0.062).3.9 (0.046) 3.8 (0.052) ndrfair value method for all Eqluity awards 0.2 (0.004)', 0.4 (0.005)

- '0.2 (0.002)

-awards, net of related tax effects 24.518 ~28,110

.- 19,472

-.Average number of common Pro forinaaearnings applicable shrsai ndltd 211$.2273$.4247$.3 to common stock-, %,

'$905,243.- $571,250 S706.724 Earnngs pplishle~

Earnings per average common share:

comnmon stock

$926.9

. $599.4

$726.2 Bsc$0 26 32 Aversge number ofomnmon Basic -pro forma

$3.99

-$2.56

.$3.20 shares outstanding -basic

-226.8

$4.09 223.0 $2.69 220.9 $3.29 Thte

.$01

• 264

$33 Average dilutive effect of.

Diluted-pro forma

-'$3.92

$2.51

.$3.14 Stock optims W 4.1 (0.073)'

3.9 (0.646) 3.6 (0.05-4).

Equ~ityawards

.0.2 (0.004) 0.4 (0.005)'

0.2 (0.002)

APPLICATION or SPAS 71, Average number of common The domestic utility companies and System Energy currently' shares outstanding -diluted

.231.1$4.01' 227.3.$2.64 224.7 $3.23 account for the effects of regulation pursuant to SFAS,71, (1) ~,u~ ~

gp~mat& 15~31189897.~ ~~ ~"Accounting for the Effects'of Certain Ty~pes of Regulation."

stock at various prices were outstanding at the end of2003,2002, and 2001.

repcively, that were not included in the comptto fdlte annspr

.This statement applies to the ~fnancial satemet Ofarte shar because the exercs prices were greater than the average mnarket price af rgltdetrrs htmestreciei.Teetrrs thecomonshaes t

he nd f achof heyeas pesntei

.,-must have rates that (i) are approved by a boody empowered STC-AE OPNAINPASto set rates that bind customers (its regulator);(i reot-Enery astw pan tatgrntstckopioswhch~

based; and (iii) can be charged to and collectedfom dsrbed mrfulInNt8totecnoiad cstomers. These criteria may also be applied to separable:

portions of a'u t'

u' sc ttegnrto r

statements. Prlor to 2003, Entergy applied the reontonutly'bsieschategnrtonr and easremnt runiple ofAPE Opiion25, transmissilon functions', or to specific classes of customers.

"Accuntng or SockIssed t Emloyes,"andrelted if an enterprise meets these criteria, it capitalizes costs that Int~rpetaion inaccuntng or hos plns.No ~k-would otherwise be charged to expense if the rateA actions of baked employee compensation expenise is reflected 'in 2002 tsrgulator mk tpoal httoecsswl ercv and 200 net ered in future reveriue: Such capitalized costs are reflected

-::--'and200 inctmome as all options granted 'under those plans hve an exercise prce equal to the market value of the srgltr sesi h

copnigfnnilsae undelyig cmmonstok o thedat ofgran. Efecive ments. A.significant mnajority of.Entergy's regulatory,

• ., anury,

203, ntegy rospctielyadoped he air assets, net of related regulatory and deferred tax liabilities, value based' method 'of. accounting for stock opin anartrno netetdrigterrcvr periods.

presribd b SFS 13, Accontig, or toc-Baed FAS 71 requires that rate-regulated enterprises assess the Compnsaion" Aard uner Etery'splas vst ver probability of recovering their: regulatory assets -at each

'three years. Thrfrthe cost related to -stock-based

'balance sheet date. When an enterprise conclides that recov-employee compensation included in the determination of net erofaegltyastisnlnerpbbeheeuaoy income for 2003 is less than that which would have been astms ermvdfo h niysblneset rcg ize fth fair vaubse SFAS: 101, '"Accutin for the Discontinuation 'of

~d th aluebasedmethod had been applied to'

-all awards since the original effective date of WFAS 123. The Apiaino iaca conigtnad or following table illustrates the effect 'on, net *income and (AB ttmn o

1"seiishwa nepieta earnings per share if Entergy would have historically cae ome h rtrafrapiaino FS7 o

l

=J

ENTEROY CORPORATION AND SUBSIDIARIES 2003 3.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued or part of its operations should report that event in its implementation of SFAS 143, the offsetting amount of financial statements. In general, SFAS 101 requires that the unrealized gains/(losses) on investment securities was enterprise report the discontinuation of the application of recorded in accumulated depreciation for Entergy SFAS 71 by eliminating from its balance sheet all regulatory

'Arkansas, Entergy Gulf States (for the regulated portion of -

assets and liabilities related to the applicable segment.

'River Bend), and for Entergy Louisiana. For the non-Additionally, if it is determined that a regulated enterprise regulated portion of River Bend, Entergy Gulf States has is no longer recovering all of its costs and therefore no -- recorded an offsetting amount of unrealized gainis/(losses) longer qualifies for SFAS 71 accounting, it is possible that" in other deferred credits. Decommissioning trust funds for an impairment may exist that could require further write-Pilgrim, Indian Point 2, and Vermont Yankee do not receive offs of plant assets.

regulatory treatment. Accordingly, unrealized gains and Emerging Issues Task Force (EITF) 97-4: "Deregulation losses recorded on the assets 'in these trust funds are of the Pricing of Electricity - Issues Related to the recognized in the accumulated other income component of Application of FASB Statements No. 71 and 101" specifies shareholders' equity because these assets are classified 'as that SFAS 71 should be discontinued at a date no later than available for sale.,

when the effects of a transition to competition plan for all oraportion of the entity subject to such plan are reasonably EQUITY METHOD INVESTEES

'determinable. Additionally, EITF 97-4 promulgates that Entergy owns investments that are accounted for under the regulatory assets to be recovered through cash flows equity method of accounting because Entergy's ownership derived from another portion of the entity that continues to level results in significant influence, but not control, over apply SFAS 7i should not be written off; rather, they should the investee and its operations. Entergy records its share of be considered regulatory assets of the segment that will earnings or losses of the investee based on the change continue to apply SEAS 71.

'during the period in the estimated liquidation value of the See Note 2 to the consolidated financial statements for investment, assuming that the investee's assets were to be discussion of transition to competition activity in the retail liquidated at book value. The equity earnings for Entergy-regulatory jurisdictions served by. the domestic utility Koch, LP recorded by Entergy are dictated by the terms of companies. Only Ibxas has a currently enacted retail open the partnership; agreement 'in accordance 'with the access law, but Entergy believes that significant issues hypothetical liquidation at book value (HLBV) method. In remain to be addressed by regulators, and the enacted law accordance with the HLBV method, earnings are allocated does not provide sufficient detail to reasonably determine to members based on what each partner would receive from the impact on Entergy Gulf States' regulated operations.

'their capital account if, hypothetically, liquidation were to occur at the balance sheet date and amounts distributed CASH AND CASH EQUIVALENTS were based on recorded book values. Entergy discontinues Entergy considers all unrestricted highly ;liquid debt the recognition of losses on equity investments when its instruments with an original or remaining maturity of share of losses equals or exceeds its carrying amount of three months or less at date of purchase to be cash equivalents... investee plus any advances. made or commitments to Investments with original maturities of more than three provide additional financial support. See Note 13 to the months are classified as other temporary investments on consolidated financial statements for additional information the balance sheet.

regarding Entergy's equity method investments.

INVESTMENTS DERIVATIVE FINANCIAL INSTRUMENTS AND Entergy applies the provisions of SFAS 115, "Accounting COMMODITY DERIVATIVES for Investments for Certain Debt and Equity Securities," in Entergy implemented SFAS 133, "Accounting for Derivative accounting for investments in.'decommissioning trust Instruments and Hedging Activities" on January 1, 2001.

funds. As a result, Entergy records the decommissioning The statement'requires that all derivatives be recognized in trust funds at their fair value on the consolidated balance the balance sheet, either as assets or liabilities, at fair value, sheet. As of December 31,' 2003 and 2002, the fair value of ' unless they meet the normal purchase, normal sales criteria.

the securities held in such funds differs from the amounts The changes in the fair'value of recognized derivatives are -

deposited plus the earnings on the deposits by $94 million

'recorded each period in current earnings or other compre--

and ($24) million, respectively. Because of the ability of the hensive income, depending on whether 'a derivative is domestic utility companies and System Energy to recover designated as part of a hedge transaction and the type of' decommissioning costs in rates and in accordance with the' hedge transaction.

regulatory treatment for decommissioning trust funds, the Contracts for commodities that will be delivered in quantities

/domestic utility companies and System Energy have recorded

expected to be used or sold in the ordinary course of busi-an offsetting amount of unrealized gainsHloes) on investment ness, including certain purchases and sales of power and securities in other regulatory liabilities/assets. Prior to the fuel, are not classified as derivatives. These contracts are

/

3

e

-; ENTEROi CORPORATION AND SUBSIDIARIES 2 0 0 3

-1I I

i I

exempted under the normal purchase, normal sales criteria.

Revenues and'expenses from these contracts are reported on a gross basis in the appropriate'revenue and expense categories as the commodities are received or delivered.

Other contracts for commodities in which Entergy is hedging the variability of cash flows related to a variable-rate asset, liability, or forecasted transaction qualify as cash flow hedges. The changes in the fair value of such derivative instruments are reported in other comprehensive income. To qualify for hedge accounting, the relationship between the hedging instrument and the hedged item must be documented to include the risk management objective and strategy, and at inception and on a ongoing basis the effectiveness of the hedge in offsetting the changes in the cash flows of the item being hedged. Gains or losses accumulated in other compre-hensive income are reclassified as earnings in the periods in which earnings are affected by the variability of the cash flows of the hedged item. The ineffective portions of all hedges are recognized in current-period earnings.,

Effective January 1, 2001, Entergy recorded a net-of-tax cumulative-effect-type adjustment of approximately

$18.0 million reducing accumulated other comprehensive income to recognize, at fair value, all derivative instruments that are designated as cash-flow hedging instruments,

.primarily interest rate swaps and foreign currency forward contracts related to Entergy's competitive businesses.

Effective October 1, 2001, Entergy recorded an additional net-of-tax cumulative-effect-type adjustment that increased net income by approximately $23.5 million. This adjust-ment resulted from the implementation of an interpretation

,.of SFAS 133 that requires fuel supply agreements with volumetric optionality to be classified as derivative instru-ments. The agreement that resulted in the adjustment is in the Energy Commodity Services segment and was disposed of in the Damhead Creek sale in December 2002.

IMPAIRMENT OF LONG-LIVED ASSETS Entergy periodically reviews long-lived assets held in all of its business segments whenever events or changes in circumstances indicate that recoverability of these assets is uncertain. Generally, the determination of recoverability is based on the undiscounted net cash flows expected to result from such operations and assets. Projected net cash

'lows depend on the future operating costs associated with the assets, the efficiency and availability of the assets and generating units, and the future market and price for energy over the remaining life of the assets. See Note 12 to the consolidated financial statements for discussion of asset impairments recognized in 2002 in the Energy Commodity Services segment..

RIVER BEND AFUDC The River Bend AFUDC gross-up is a regulatory asset that represents the incremental difference imputed by the Louisiana Public Service Commission aLPSC) between the AFUDC actually recorded by Entergy Gulf States on a net-of-tax basis during the construction of River Bend and what the AFUDC would have been on a pre-tax basis. The imputed amount was only calculated on that portion of River Bend that' the LPSC allowed in rate -base and is being amortized over the estimated remaining economic life of River Bend.'

TRANSITION TO COMPETITION LIABILITIES In conjunction with electric utility industry restructuring activity in Texas, regulatory mechanisms were established to mitigate potential stranded costs. Tbxas restructuring legislation allowed depreciation on transmission and distri-bution assets to be directed toward generation assets. The liability recorded as a result of this mechanism is classified as "transition'to competition" deferred credits.

REACQUIRED DEBT The premiums and costs associated with reacquired debt of the domestic utility companies and System Energy (except that portion allocable to the deregulated opera-tions of Entergy Gulf States) are being amortized over the life of the related new issuances, in accordance with ratemaking treatment.

FOREIGN CURRENCY TRANSLATION All assets and liabilities of Entergy's foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the end of the period. Revenues and expenses are translated at average exchange rates prevailing during the period. The resulting translation adjustments are reflected in a separate component of shareholders' equity. Current exchange rates are used for U.S. dollar disclosures of future obligations denominated in foreign currencies.

NEW ACCOUNTING PRONOUNCEMENTS During 2003, Entergy adopted the provisions of the following accounting standards: SFAS 143, "Accounting for Asset Retirement Obligations," which is discussed further in Note 9; FIN 46, "Consolidation of Variable Interest'Entities,"

which is 'discussed further in Note 6; and SFAS 150, "Accounting-for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS 150, which became effective July 1, 2003, requires mandatorily redeemable financial instruments tobe classified and treated as liabilities in the presentation of financial position and results of operations. The only effect of implementing SFAS 150 for Entergy is the inclusion of long-term debt and preferred stock with sinking fund under the liabilities caption in Entergy's balance sheet. Entergy's results of operations and cash flows were not affected by this standard.

During 2003, Entergy also adopted the provisions of the following accounting' standards: EITF 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy I

. I I

I I

I I

I r

I I i

I

-.1 I I

. I I

I i

ENTEROY CORPORATION AND SUBSIDIARIES 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Trading and Risk Management Activities; SFAS 149, a FERC-approved regional transmission organization (RTO)

"Amendment'of Statement 133 on Derivative Instruments

- if it appeared by January 15, 2003 that a FERC-approved and 'Hedging Activities", and related interpretations by RTO would not be functional by January 1, 2004. On the Derivatives Implementation Group, and FIN 45; January '24, 2003, Entergy Gulf States filed its proposal, "Guarantors Accounting and Disclosure Requirements for which among other elements, included:

Guarantees Including Indirect Guarantees of Indebtedness

• the recommendation that retail open access in Entergy of Others." The adoption of these standards did not have a

'Gulf States' Texas service territory, including corporate material effect on Entergy's financial statements.

-unbundling, occur by January 1,2004, or else be delayed until at least January 1, 2007. If retail open:

NOTE 2. RATE AND REGULATORY MATTERS access is delayed past January 1, 2004, Entergy Gulf

.-ELECTRIC INDUSTRY RESTRUCTURING AND THE States seeks authorization to separate into two bundled CONTINUED APPLICATION OF SFAS 71.

utilities, onesubjecttotheretail jurisdiction ofthePUCTr Although Arkansas and Texas enacted 'retail open access and one subject to the retail jurisdiction of the LPSC.

laws,- the retail open access law in Arkansas has now been '

the recommendation that Entergy's transmission repealed. Retail open access in Entergy Gulf States' service organization, possibly with the oversight of another.

territory in Texas has been delayed. Entergy believes that entity, will continue to serve as the transmission significant issues remain to be addressed by regulators, and' authority for purposes of retail open access in Entergy the enacted law in Texas does not provide sufficient detail to' Gulf States' service territory.,

lallow Entergy Gulf States to-reasonably determine the,'

• the recommendationthatthedecisionpointsbeidentified impact on Entergy Gulf States' regulated operations.

that would require prior to January 1, 2004, the PUCrs Entergy therefore continues to apply regulatory accounting determination, based upon objective criteria, whether to principles to the retail operations of all of 'the domestic proceed with further efforts toward retail open access in utility companies. Following is a summary of the 'status of

-'Entergy Gulf States' Texis service territory. -

retail open access in the domestic utility companies' retail Th c

the pos a a Mr 2003 service territories.

-The PUCT considered the-proposal at aMarch 2003

% of Entergy's hearing, and issued an 'order in -April 2003. -The order set 2003 Revenues Derived

' forth a sequence of proceedings and activities designed to

Status of Retai

- from Retail Electric Utility initiate an interim solution. These proceedings and activities Jurisdiction Open Access Operatons In the Jurisdiction' i

o mk a pr'--- d

-'g I

include ruling on market protoools;' initiating a proceeding Arkansas

-Retail open access was.-" '-:'

~

~

.'-'reeleinerur~o3.'

146

-to certify an independent,organization to administer the,i,'

Impl-entti de d-market protocols and ensure nondiscriminatory access to

, Texas

-Implementation delayed in Entergy Gulf States' service area in a settlement transmission and distribution systems; resuming business approved by Public Utility Commission separation proceedings; re-invigorating the.pilot project; of Texas (PUCIT). In light of regulatory '

and initiating a market-readiness proceeding. The PUCT proceedings and approvals required,'

issued an order on rehearing in late-July 2003 in which it retail open access is not likely before the identified December 2004 as the target date for the begin-

'.'first quarter Of 2005.

'14.4%

. ning of the interim solution. Consistent with the order, and Louisiana The LPSC has deferred pursuing retail after negotiations with other parties and following a series o-3 pen aess, pending developments at

-of contested hearings and the PUCT approval of a settlement the federal level and in other states. -

. - 43.9%

' -agreement on the market protoools,-Entergy, Services made.;

Mississippi The Mississippi Public Service Commission.

a o t m

, E S

made (MPSC) has recommended not pursuing a filing at FERC and has received approval on an expedited open aocess at this time.

13.0%6 basis of the market protocols subject to FERC jurisdiction.

New Orleans The Council of the City of New Orleans,

'This' ruling, when final and appealable,' will -allow for the Louisiana (Council or City Council) has

- reinvigorated pilot to begin upon the PUCTr approval of, taken no action on Entergy New Orleans' '

'Entergy Gulf States' independent organization request. The proposal filed in 1997.

PUCT is currently scheduled to conduct a hearing on this request in June 2004.

,Retail open access commenced in portions of Texas on In September 2003, the PUCT issued a written order that January 1, 2002. The staff of the PUCT filed a petition to approved the Price to Beat (PTB) fuel factor for Entergy-delay retail open access in Entergy Gulf States' service area, Gulf States, which is to be implemented upon the and Entergy Gulf States reached a settlement agreement commencementof retailopen access in its xas service approved by the PUCT to delay retail open access until at territory. This PTB fuel factor is subject to revisionbased on least September 15, 2002. In September 2002, the PUCT PUCT rules. The PUCT declined consideration of a request ordered Entergy Gulf States to fie on January 24, 2003 a for rehearing sought by certain cities in Tbxas served by.

propiosal for an interim solution - retail open access without Entergy Gulf States and the Office of Public Utility Counsel.

k.

. r - AL

-.~

=

-I;

L

• ENTERGY :CORFO RATION AND -SUBSIDIARIES 2 00 3

-The'Office of Public Utility Counsel ha peld-i efere uel co'sts decision to the 'lbxas courts. Management cannot predict The domestic utility companies are allowed to recover certain the ultimate outcome of the proceeding at this time..

fuiel and piurchased power costs through Ifuel mechanisms In November 2003, Entergy Gulf States initiated 'a included in electric rates that are recorded as fuel cost recovery proceeding to certify the Entergy: Transmission revenues. Th6 difference between revenues collected and the Organization as the independent organization. The PUCT.

current fuel and purchased power costs is' recorded as' is scheduled to conduct a hearing on the certification appli-

"Deferred fuel costs" on the domestic utility companies'filnan-caini ue20.cial statements. The table below shows the aount of.

-deferred fuel costs, as of December 31, 2003 and 2002 that has REGULATORY -AssETS beno-ilb recovered or (refunded) through "the 'fuel Other Regulatory Assets mechanisms of the domestic utility companies (inmxillions):

_.The domestic utility companies and System Energy are,..

subject to the provisions of WFAS 71, "Accounting for the 2003 2002 Effects of Certain T1ypes of Regulation.".Regulatory assets EftryAkna

.$1.

$42)

'represent probal ftrrenusassociated with certain Entergy Gulf States

$118.4

$100.6'

costs that are 'expected to be recovered from customers.'

ntr ousaa$3.

$(26)-

truhthe'ratemaking process. In addition to the regula-negYMsisiP.$9.

3.

truhEntergy Ne~worleansa (2.7)'

'$(14.9) tory assets that are specificll isclosed on the face of the balance sheets', 'the table below prvdsdti o Ohr ETRy ARKANSAS

.regulatory assets" that are included on the balance sheets.

Entergy.Arkansas' aeshdlsicuea nrycs as of Doeember 31, 2003 and 2002 (in millions):

recovery rider to recover fuel and purchased energy costs in, 2003 2002 monthly bills. The rider utilizes prior calendar year energy

-DEoeostsinsg and projected energy sales. for the'twelve-month*

costs omm<:1nin andDecntainaionFee 329

$40.3 period commencing on Apri~l1 of each year, to develop an recovered through fuel rates annual energy cost rate. The energy cost'rate includes a until December 2006 (Note 9)

,true-up adjustment reflecting the over-recover-y or under-Asset Retirement Ob~ligation46.-

reoeydpnetu~nrecovey including carrying charges, of the ergy cost for timing of decommissionn (Note 9)

.thprocaedryr-Remoal ost-7.4 9.6 In arc 203, Entergy Arkansas filed with the APSC its,'

recovered through depreciation rates e erg cotrecovery rdrfrtepro pi 03 Provisions for storm damages-123.3

_93.9 through: March 2004. The, energy cost rate filed was recovred hrouh cot of ervie -

approximately the same as the interim energy cost rate'ta Poetetiemnnt bnefta

21.

3.9 was in effect since October 2002. The current energy cost recoere though201 (Nte 1) rate'is designed to eliminate the over-recovery during the, Pension costs (Note 1 1).

134.0 >

• 157.8 ana ie eid Depreciation re-direct

79.1, 79.1 recovery begins at start of

.ETEG GUFSA S

K--

retail open access (Note 1) 3Inte'xaEnegGufSts'rescdls Rver Bend AFUDC.-

41.3 jurisdictioncheule recoveredtruhAgs 2025 (Note '1) include a fixed fuel factor to recover fuel and purchased power Spidleop as torge eas.

3.0 5.0 costs, including carrying charges, not recovered in base rates.

rcvrdtruhDcme202.

Under, current methodology, semi-annual reiin fte Low-level radwaste -.

-19.4

.19.4

-b I

.I I

recoerytimng dpenentfixed fuel factoi;rrmay be made in March and September based uponpencinglawsit-on the market price of natural gas.-Entergy Gulf States will

• 1994 vraC Settlement -

~<

4O-<

21 li~~kelonitinuieto use this methodology untilthe start of'retail recovered through June 2004 (Note 2) open access. The amounts collected under Entergy Gulf States'

-Sale-leseb~ack deferral -

131.7,

'123.9 fie ue ator and any interim surchiarge implemented until recveedthouh une204 Noe 0)the date retail open access commences -are'subject to fuel Deferred fuel -'non-current. -

28.2 17.3' reoerdthoghrterdes, reconciliation prceigs, before the PIUCTI'.In the 'Thxas:

redetrmine ~

-jurisdiction, Entergy Gulf States' deferred electric fuel costs Unmotiedlos n eaqure dbt-64.4' 4 55.2 are $116.6 million as of December 31,- 2003, which icue recovered over term of debt

'the fo.

-wi g: '

Other -various

-71.9 94.4,.

'Ibtal

$1,425.1

$973.2 Interim surcharge

$87.0 Items to be addressed as part of unbundling

$29.0 Other (includes over-recovery from 9/03 -12/03)

$(8.7).-

PZ 'r ir 11?QV rn1T1PnT? ArTnW AWn A"1%R1rnTA1Z1rVQ n n.-%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The'PUCT has ordered that the imputed capacity charges be excluded from fuel rates and therefore recovered through base rates. It is uncertain, however, as to 'when and if Entergy Gulf States will initiate a base rate proceeding before the PUCT. The current PUCT-approved settlement agreement delaying retail open access in Texas requires a rate freeze during the delay period. If Entergy Gulf States

'implements retail open access without a Texas base rate proceeding, it is possible that Entergy dulf States will not be allowed to recover imputed capacity charges in Texas retail rates in the future.

In January 2001, Entergy Gulf States filed a fuel reconcil-iation case covering the period from March 1999 through August 2000. Entergy Gulf States was reconciling approxi-mately $583 million of fuel and purchased power costs. As part of this filing, Entergy Gulf States requested authority to collect $28 million, plus interest, of under-recovered fuel and purchased power costs. The PUCT decided in August 2002 to reduce Entergy Gulf States' request to approximately

$6.3 million,-including interest through July 31, 2002.

-Approximately $4.7 million'of the total reduction.to the requested surcharge relates to nuclear fuel costs that the PUCT.deferred ruling on at this time. In October 2002, Entergy Gulf States appealed the PUCTrs final order in Texas

'District Court. In its appeal, Entergy Gulf States is challenging the PiUCT's disallowance of approximately $4.2 million related to imputed capacity costs and its disallowance related to costs for energy delivered from' the 30% non-regulated share of River Bend. The case was argued before the Travis County "Texas District Court in August 2003 and the Travis County District Court judge'affirmed the PUCT's order. In October 2003, Entergy Gulf States appealed this decision to the Court of Appeals.

In September 2003, Entergy Gulf States filed an applica-tion with the PUCT to implement an $87.3 million interim fuel surcharge, including interest, to collect under-recovered fuel and purchased. power expenses incurred from September 2002 through August 2003. Hearings were held in October 2003 and the PUCT issued an order in December 2003 allowing for the recovery of $87 million. The surcharge will be 'collected over a twelve-month period that began in January 2004.

In March 2004, Entergy Gulf States filed with the PUCrT a fuel reconciliation case covering the period September 2000 through August 2003. Entergy'Gulf States is reconciling

$1.43 billion of fuel and purchased power costs on a Tbxas retail basis. The reconciliation includes $8.6 million of under-recovered costs that Entergy Gulf States is asking to roll into its fuel over/under-recovery balance to be addressed in the next appropriate fuel proceeding. Hearings are expected to occur in the third quarter of 2004 with a final PUCT decision expected in early 2005.

ENTERtaY GULF STATES (LOUISIANA)

AND ENTEROY LOUISIANA The 'Louisiana jurisdiction of Entergy Gulf States and Entergy Louisiana recover electric fuel 'and.purchased power costs for the upcoming month based upon the level of such costs from the prior month. Entergy Gulf States' gas rate schedules include estimates for -the billing month adjusted by a surcharge or credit for deferred fuel expense arising from monthly reconciliations.

In August 2000, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of,

• Entergy Louisiana pursuant to a November 1997 LPSC

- general order. The time period that is the subject of the_

. audit is January 1, 2000 through December 31, 2001. In..

September 2003, the LPSC staff issued its audit report and recommended a disallowance with regard to one item. The issue relates to the alleged failure to uprate Waterford 3 in a timely manner. The LPSC staff has quantified the possible disallowance as between $7.6 and $14 million. Entergy Louisiana is currently evaluating the LPSC staff report and expects to contest the recommendation.-A procedural schedule has been adopted and hearings, which also will address issues relating to the reasonableness of transmission planning and purchases of power from affiliates, the potential value of which issues cannot yet be quantified, are scheduled to begin in September 2004, but the LPSC staff has requested a delay until April 2005.

In January 2003, the LPSC authorized its staff to initiate a proceeding to audit the fuel adjustment clause filings of..

Entergy Gulf States and its affiliates pursuant to. a November 1997 LPSC general order. The audit will include

-a review of the reasonableness of charges collected by Entergy Gulf States through its fuel adjustment clause in Louisiana for the period January 1, 1995 through December 1, 2002. The discovery process is underway, but a detailed procedural schedule extending beyond the discovery-stage has not yet been established and the LPSC staff has not yet issued its audit report.

ENTEROY MISSISSIPPI -

Entergy Mississippi's rate schedules include an energy cost recovery rider which is adjusted quarterly to reflect accumu-lated over-or under-recoveries from the second prior quarter.

In May 2003,. Entergy Mississippi filed and the MPSO approved a change in Entergy Mississippi's energy cost recovery rider. Under the MPSCs order, Entergy Mississippi has deferred until 2004 the collection of fuel under-recoveries for the first and second quarters of 2003 that would have been collected in the third and fourth quarters of 2003,.

respectively. The deferred amount of $77.6 million plus carrying charges will be collected through the energy cost.

recovery rider over a twelve-month period beginning January 2004.

I, -

1

. 1 I

I I

ENTEROY. CORPORATION AND SUBSIDIARIES 2003 ENTERGY NEW ORLEANS Effective June 2003, Entergy New Orleans electric rate schedules include a fuel adjustment tariff designed to reflect no more than targeted fuel and purchased power costs adjusted by a surcharge or credit for deferred fuel expense

-arising from monthly reconciliations, including carrying charges. Entergy New Orleans' gas rate schedules include estimates for the billing month adjusted by a surcharge or credit for deferred fuel expense arising from monthly recon-ciliations, including carrying charges.

RETAIL RATE PROCEEDINGS Filings with the APSC (Entergy Arkansas)

RETAIL RATES No significant retail rate proceedings are pending in Arkansas at this time.

Filings with the PUCT and Texas Cities (Entergy Gulf States)

RETAIL RATES Entergy Gulf States is operating in Texas under the terms of a June 1999 PUCT-approved settlement agreement. The settlement provided for a base rate freeze that has remained in effect during the delay in implementation of retail open access in Entergy Gulf States' Texas service territory.

RECOVERY OF RIVER BEND COSTS

-In March 1998, the PUCT disallowed recovery of $1.4 billion of company-wide abeyed River Bend plant costs, which have been held in abeyance since 1988. Entergy Gulf States appealed the PUCTrs decision on this matter to the Travis County District Court in Texas. A 1999 settlement agree-ment limits potential recovery of the remaining plant asset to $115 million as of January 1,' 2002, less depreciation after that date. Entergy Gulf States accordingly reduced the value of the plant asset in 1999. Entergy Gulf States has also agreed that it will not seek recovery of the abeyed plant costs through any additional charge to Texas ratepayers.

In an interim order approving this agreement, however, the PUCT recognized that any additional River Bend investment found prudent, subject to the $115 million cap, could be used as an offset against stranded benefits, should legislation be passed, requiring Entergy Gulf States to return stranded benefits to retail customers.

In April 2002, the Travis County District Court issued an order affirming the PUCTrs order on remand disallowing I

recovery'of the abeyed plant costs. Entergy Gulf States appealed this ruling to the Third District Court of Appeals.

In July 2003, the Third District Court of Appeals unani-mously affirmed the judgment of the Travis County District Court. After considering the progress of the proceeding in light of the decision of the Court of Appeals, management has concluded that it is prudent to accrue for the loss that would be associated with a final, non-appealable decision of the abeyed plant costs was $107.7 million as of June 30,

'2003, and after this accrual Entergy Gulf States provided for all potential loss related to current or past contested costs of construction of the River Bend plant. Accrual of the loss was recorded in the second quarter 2003 and reduced net income by $65.6 million. In January 2004, the Texas Supreme Court asked for full briefing on the merits of the case in response to Entergy Gulf States' petition for review.

Filings with the LPSC ANNUAL EARNINGS REVIEWS (ENTERGy GULF STATES)

In December 2002, the LPSC approved a settlement between Entergy Gulf States and the LPSC staff pursuant to which Entergy Gulf States agreed to make a base rate refund of

$16.3 million, including interest, and. to implement a

'$22.1 million prospective base rate reduction effective January 2003. The settlement discharged any'potential liability for claims that relate to Entergy Gulf States' fourth, fifth, sixth, seventh, and eighth post-merger earnings reviews. Entergy Gulf States made the refund in February 2003. In addition to resolving and discharging all liability associated with the fourth through eighth earnings reviews, the settlement provides that Entergy Gulf States shall be authorized to continue to reflect in rates a ROE of '11.1% until a different ROE is authorized by a final resolution disposing of all issues in the proceeding that was commenced with Entergy Gulf States' May 2002 filing.

In May 2002, Entergy Gulf States filed its ninth and last required post-merger analysis with the LPSC. The filing included an earnings review filing for the 2001 test year

'that resulted in a rate decrease of $11.5 million, which was implemented effective June 2002. In April 2003, the LPSC staff filed testimony in which it recommended that the LPSC require a rate refund of $30.3 million and a prospective rate reduction of $75.9 million, before taking into account the

$11.5 million rate reduction that Entergy Gulf States imple-mented effective June 2002. In July 2003, Entergy Gulf States filed testimony rebutting the LPSC stafrs testimony and supporting the filing. During discovery, the LPSC staff requested that Entergy Gulf States provide updated cost of service data to reflect changes in costs,'revenues,'and rate base: through December 31, 2002. In September 2003, Entergy Gulf States supplied the updated data. In December 2003, the LPSC staff recommended a rate refund of

$30.6 million and a prospective rate reduction of approxi-mately $50 million. Hearings are scheduled to begin in April 2004. Entergy Gulf States cannot predict the ultimate outcome of this proceeding.

RETAIL RATES (ENTERGY LOUISIANA)

In January 2004, Entergy Louisiana made a rate filing with the LPSC requesting a base rate increase of approximately

$167 million. In that filing, Entergy Louisiana noted that approximately $73 million of the base rate increase was attributable to certain power purchase agreements, the disallowing the abeyed plant costs. The net carrying value I

ENTEROY CORPORATION AND SUBSIDIARIES 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued implementation of which would, based on current natural Mississippi filed notice of the change with FERC and FERC gas prices, produce fuel savings for customers that approved the filing on July 30, 2003. Entergy Mississippi substantially mitigate the impact 'of the requested base accelerated a total of $168.4 million of Grand Gulf rate increase. The filing also requested an allowed ROE of purchased power obligation under the GGART over the 11.4%. Entergy Louisiana's previously authorized ROE period October 1, 1998 through June 30, 2003.

midpoint currently in effect is 10.5%. Hearings are currently set for September 2004.

Filings with the Council (Entergy New Orleans)

RATE PROCEEDINGS Filings with the MPSC (Entergy Mississippi)

In May 2002, Entergy New Orleans filed a cost of service FORMULA RATE PLAN FILINGS study and revenue requirement filing with the City Council In December 2002, the MPSC issued a final order approving for the 2001 test year. The filing indicated that a revenue defi-a joint stipulation entered into by Entergy Mississippi and ciency existed and that a $28.9 million electric rate increase the Mississippi Public Utilities Staff in October 2002. The and a $15.3 million gas rate increase were appropriate.

final order results in a $48.2 million rate increase, or about Additionally, Entergy New Orleans proposed a $6 million a 5.3% increase in overall retail revenues, which is based on public benefit fund.- In March 2003, Entergy New Orleans an ROE of 11.75%. The rate increase began in January and the Advisors to the City Council presented to the City 2003.- The order endorsed a new power management rider Council an agreement in principle and the City Council schedule designed to more efficiently collect capacity approved that agreement in May 2003 allowing for a total portions of purchased power costs. Also, the order increase of $30.2 million in electric and gas base rates effec-provides for improvements in the return on equity formula tive June 1, 2003. Certain intervenors have appealed the City and more robust performance measures for Entergy Council's approval to Civil District Court for the Parish of Mississippi's formula rate plan. Under the provisions of.

Orleans. Entergy New Orleans and the City Council will Entergy Mississippi's formula rate plan, a bandwidth is oppose the appeal, but the outcome'cannot be predicted.

placed around the benchmark ROE, and. if Entergy Mississippi earns outside of the bandwidth -(as well as FUEL ADJUSTMENT CLAUSE LITIGATION outside of a range-of-no-change at each edge of the band-In April 1999, a group of ratepayers filed a complaint width), then Entergy Mississippi's rates will be adjusted, against Entergy New Orleans, Entergy Corporation, though on a prospective basis only. Under the provisions of Entergy Services, and Entergy Power in state court in the order, Entergy Mississippi will make its next formula Orleans Parish purportedly on behalf of all Entergy. New rate plan filing during March 2004. The "benchmark ROE" Orleans ratepayers. The plaintiffs seek treble damages for set out in Entergy Mississippi's March'2004 annual formula alleged injuries arising from the defendants' alleged rate plan filing likely will differ from the last approved violations of Louisiana's antitrust laws in connection with ROE. Under Mississippi law and Entergy Mississippi's formula certain costs passed on to ratepayers in Entergy New rate plan, however, if Entergy Mississippi's earned ROE is,.. Orleans' fuel adjustment filings with the City Council. In above the top of the range-of-no-change at the top of the

- particular, plaintiffs allege that Entergy New Orleans formula rate plan bandwidth, then Entergy Mississippi's improperly included certain costs In the 'calculation of fuel "Allowed ROE" for the next twelve-month period is the charges and that Entergy New' Orleans imprudently point halfway between such' earned ROE and the top of the purchased high-cost fuel 'from other Entergy affiliates.

bandwidth; and Entergy Mississippi's retail rates are set at Plaintiffs allege that Entergy New Orleans and the other that halfway-point ROE level. In the situation where defendant Entergy companies conspired to make these Entergy Mississippi's earned ROE is not above the top of the

-purchases to the detriment of Entergy 'New Orleans' range-of-no-change at the top of the bandwidth, then ratepayers and to the benefit of Entergy's shareholders, in Entergy Mississippi's "Allowed ROE" for the next twelve-violation of Louisiana's antitrust laws. Plaintiffs 'also seek month period is the top of the range-of-no-change at the top to recover interest and attorneys' fees. Entergy filed excep-of the bandwidth.

tions to the plaintiffs' allegations, asserting, among other things, that jurisdiction over these issues rests with the GRAND GULF ACCELERATED RECOVERY TARIFF City Council and FERC. If necessary, at the appropriate (GGART) time, Entergy will also raise its defenses to the antitrust In September 1998, FERC approved the GGART for Entergy

-claims. The suit in state court has been stayed by stipulation.'

Mississippi's allocable portion of Grand Gulf, which was of the parties pending a decision by the City Council in the filed with FERC in August 1998. The GGART provided for proceeding discussed in the next paragraph.

the acceleration of Entergy Mississippi's Grand Gulf

- Plaintiffs also filed this complaint with the City Council purchased power over the period October 1, 1998 through in order to initiate a review by the City Council of the June 30, 2004. In May 2003, the MPSC authorized the plaintiffs' allegations and to force restitution to ratepayers cessation of the GGART effective July 1, 2003. Entergy of all costs they allege were improperly and imprudently

ENTEROY CORPORATION AND SUBSIDIARIES 2003 included in the fuel adjustment filings. Testimony was flled on behalf of the plaintiffs in this proceeding asserting, among other things, that Entergy New Orleans and other defendants have engaged in fuel procurement and power purchasing practices and included costs in Entergy New Orleans' fuel' adjustment that could have resulted in New Orleans customers being overcharged by more than

$100 million over a period of years. Hearings were held in February and March 2002. In February 2004, the City.

Council approved a resolution that results in a refund to customers of $11.3 million, including interest, during the months of June through September 2004. Entergy New Orleans has accrued for this liability as of December 31, 2003. The resolution concludes, among other things, that the record does not support an allegation that Entergy New Orleans' actions or inactions, either alone or in concert with Entergy or any of its affiliates, constituted a misrepresentation or a suppression of the truth made in order to obtain an unjust advantage of Entergy New Orleans, or to cause loss, inconvenience, or harm to its ratepayers. The plaintiffs have appealed the City Council resolution to the state court FERC SETTLEMENT In November 1994, FERC approved an agreement settling a long-standing dispute involving income tax allocation procedures of System Energy. In accordance with the agreement, System Energy has been refunding a total of approximately $62 million, plus interest, to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans through June 2004. System Energy also reclassified from utility plant to other deferred debits approximately $81 million of other Grand Gulf 1 costs.

Although such costs are excluded from rate base, System

.'Energy is amortizing and recovering these costs over a 10-year period. Interest on the $62 million refund and the loss of the return on the $81 million of other Grand Gulf 1 costs is reducing Entergy's and System Energy's net.

income by approximately $10 million annually.

NOTE 3. INCOME TAXES Income tax expenses for 2003,2002, and 2001 consist of the following (in thousands):

2003 2002 2001 in Orleans Parish. -

Current Federal )

SYSTEM ENERGY'S 1995 RATE PROCEEDING Foreign System Energy applied to FERC in May 1995 for a rate State increase, and implemented the increase in December 1995.

Tot Deferred - net, The request sought changes to System Energy's rate schedule, Investment tax credit including increases In the revenue requirement associated adjustments - net with decommissioning costs, the depreciation rate, and the Recorded income tax expense rate of return on common equity. The request proposed a (a) The actual cash taxes paidl(receivec

($113,466) in 2001. Entergy Louisaia 13% return on common equity. In July 2000, FERC signifiwartly reduced taxes paid in 2 approved a rate of return of 10.58% for the period December changed its method of accounting fo apprveda rte f reurnof 0.5% fo th peiodpurchase powe~r from the VIdalia pec 1995 to the date of FERCs decision, and prospectively consolidated financial statements).

-cumulativ'e cash flow benefit of app?

adjusted the rate of return to 10.94% from the date of FERC's expected to reverse in the years 2005 income tax expense. The timing of th decision. FERC~s decision also changed other aspects of variables, including the price ofpow System Energy's' proposed rate schedule, including the

'fow benefit of the eletion occurred i depreciation rate and decommissioning costs and their

-Ibtal income taxes diffei methodology. FERC accepted System Energy's compliance applying the statutory. in tariff in November 2001. System Energy made refunds to taxes. The reasons for the the domestic utility companies in December 2001.

.2002, and 2001 are (in tho In accordance with regulatory accounting principles, during the pendency of the case, System Energy recorded reserves for potential refunds against its revenues. Upon Computed at statutory rate (35' Increases (reductions) In tax the order becoming final, Entergy Arkansas, Entergy.Ireasun from:

Louisiana, Entergy Mississippi, Entergy New Orleans, and t

'State income taxes net Ofr System Energy recorded entries to spread the impacts of federal income tax effect FERCrs order to the various revenue, expense, asset, and Regulatory differences-liability accounts affected, as if the order had been in place utility plant items since commencement of the case in 1995. System Energy -

Amortization of investment also recorded an additional reserve amount against its' tax credits revenue, to adjust its estimate of the impact of the order,

'low-throughlpermanent and recorded additional interest expense on that reserve.

differences System Energy also recorded reductions in its depreciation thr net and its decommissioning expenses to reflect the lower levels i

• Total income taxes in FERCs order, and reduced tax expense affected by the order Effective income tax rate

$ (731.129) $ 510,109 $321,085 8,284 (3,295) 3,355 23,396

'43,788' 53,565 (699,449) 550,602 378,005 1.307,092 (233,532) 110.944 (27.644)

(23,132)

(23,192)

$ 579,999 $ 293,938 $465,757 w) were $188,709 in 2003, $57,856 in 2002, and w'a's mark-to-market ta accountingelection

!001 and 2002. In 2001, Entergy Louisiana r tax purposes related to the contract to rject (the contract is discussed in Note 9 to the rhe new tax accounting method has provided a aximately $805 million through 2003, which is through 2031. The election did not reduce book

!e reversal of this benefit depends on several wer.

Approximately half of the consolidated cash

!n 2001 and the remainder occurred in 2002.

- from the amounts computed by come tax rate to income before differences for the years 2003, iusands):

2003 2002 2001 I

I i

i6)

$535,663

$320,9' I4 $425,692

• 54,024

' 44,835 45,124 52,638

, 29,774

' 11,890 (24,364)

(22,294)

(22,488)

(30,221)

(38,197) 7,888 (28,416)

(20,698) 21,422 I

(15,629)

(12,718).

4,815

• $579,999

$293,938 $465,757 37.9%

32.1%

38.3%

ENTEROY CORPORATION AND SUBSIDIARIES 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Significant components of net deferred and noncurrent NOTE 4. LINES OF CREDIT AND RELATED accrued tax liabilities as of December 31, 2003 and 2002 are SHORT-TERM BORROWINGS as follows (in thousands):

Entergy Corporation has in place a 364-day bank credit facility with a borrowing capacity of $1.45 billion, none of 2003 2002 which was outstanding as of December 31, 2003. The Deferred and Noncurrent commitment fee for this facility is'currently 0.20% of the

-Accrued 1a Liabilties:

line amount. Commitment fees and interest rates on loans Net regulatory liabilities

• $(1l072,898) $(1.085,287) under the credit facility can fluctuate depending on the Plant-related basis differences (3,574,593)

(3.064,130) debt (860,976) senior debt ratings of the domestic utility companies.

Power purchase agreements (945,495)

(866,976)

-Although the Entergy Corporation credit facility expires Nuclear decommissioning (624,429)

(237,944) in May 2004, Entergy has the discretionary option to Other (379,875)

(406.703) 20,hstet T1otal (6,597,290)

(5,661,040) extend the period to repay the amount then outstanding for Deferred Tax Assets:

'an additional 364-day term. Because of this option; which Accumulated deferred investment Entergy intends to exercise if it does not renew the credit tax credit 141,723

.-151,930

. line or obtain an alternative source of financing, the credit

-Capital loss carryforWards 92,423

-6,378 line is reflected in long-term debt on the balance sheet.

Net operating loss carryforwards 129,122 23,086 Entergy Corporation's facility requires it to maintain a con-

-Sale and leaseback 223,134 232,228-.

solidated debt ratio of 65% or less of its total capitalization, Unbilled/deferred revenues 18.983 309,346

'Pension-related items 204,083'-

139,058 and maintain an interest coverage ratio of 2 to 1. If Entergy Reserve for regulatory adjustments

- 138,933 103,843

'fails to meet these limits, or if Entergy or the :domestic Customer deposits 108,591

.58,165 utility companies default on other indebtedness or are in Nuclear decommissioning 377,952 104,555 bankruptcy or insolvency proceedings, an acceleration of Other 399,080 229,555 the facility's maturity date may occur.

Valuation allowance (39,210)

(36,372).

The short-term borrowings of Entergy's subsidiaries are Total 1,794,814 1,383,772 limited to amounts authorized by the SEC. The current Net deferred and noncurrent trued ad n limits authorized are effective through November 30, 2004.

-accrued tax liability

$(4,802,476)

$(4,277,268)

Also, under the SEC order authorizing the short-term bor-

'rowing limits, the domestic utility companies and System'

~~At December 31, 2003, Entergy had $192 million in net t D r 3, 2

, E Energy cannot incur new short-term indebtedness if the realized federal capital loss carryforwards that will expire ws: $12 million in 2006, $163 million in 2007 and issuer's common equity would comprise less than 30% of its capital. In addition to borrowing frombcommercial banks,

'$17 million in 2008.

t D r 3, 2

Entergy's subsidiaries are authorized to borrow from the At December 31, 2003, Entergy had state net operain Entergy System Money Pool (money pool). The money pool loss carryforwards of $1.9 billion, primarily resulting from i a i

b K 'is an inter-company borrowing arrangement designed to Entergy Louisiana's mark-to-market tax election. If the reduce Entergy's subsidiaries' dependence on external state net operating loss carryforwards are not utilized, they s

b B

f short-term borrowings. Borrowings from the money pool i

~~winl expire in the years 2010 through 2016.-

willexpre n te yars 010thrugh201.

'and external borrowings combined may riot exceed the SEC The 2003 and 2002 valuation allowances are provided authorized limits. 'As of December 31, 2003, Entergy's 1;

-~against UK capital loss and UK net operating loss carryfor---'--

t U-

-l l

a-subsidiaries' authorized limit was $1.6 billion and the out-wards, which can be utilized against future UK taxable income.

t m

p w

-standing borrowing from the money pool was $147.1 million.

For UK tax purposes, these carryforwards do not expire.

s b

f o

There were no borrowings outstanding from external At December 31, 2003, Entergy had $9.8 million of l r e

sources. There is further discussion of commitments for indefinitely reinvested undistributed earnings from sub-.

long-term financing arrangements in Note 5 to the consol-sidiary companies outside the U.S. Upon distribution of these earnings in the form of dividends or otherwise,

d nts.

i Entergy Arkansas, Entergy Louisiana, and Entergy Entergy could be subject to U.S. income taxes (subject to E

c b s t

Mississippi each have 364-day credit facilities available foreign tax credits) and withholding 'taxes payable to a follows:

^

as follows:

various foreign countries.'

Expiration Amount of Amount Drawn as Company Date Facility of Dec. 31,2003 Entergy Arkansas April 2004

$63 million "Entergy Louisiana "May 2004. '$15 million -

Entergy Mississippi May 2004

$25 million The facilities have variable interest rates and the average

/

'commitment fee is 0.14%.

(t

/ :

' " A ,"=.

I

ENTERGY CORPORATION AND -SUBSIDIARIES :2003 NOTE 5. LONG-TERM DEBT Long-term debt as of December 31, 2003 and 2002 consisted of (in thousands):

2002 Entergy Corporation Mortgage Bands:

IMaturity Date 2003.

6.25% Series 67.75% Series

.7.75% Series 7.72% Series 8.5% Series Libor +~ 1.2% Serii II 6.0% Series 6.625% Series 6.65% Series 8.25% Series 6.2% Series Libor + 0.65% Sex

.8.25% Series Libor + 1.3% Serii 6.125% Series 8.125% Series 6.65% Series.

6.65%

Series.

7.5%

Series 4.8 7 5 % S e rie0 S e 75.% Series 64.5%5 Series 4.35% Series

• 6.45% Series 43.6% Series' 7.05% Series 3.87% Series 6.0% Series 5.175% Series 5.25% Series 5.25% Series 6.75% Series 5.4% Series 4.95% Series 5.0% Series' 8.94% Series 8.0% Series 7.7% Series 7.55% Series

.7.0% Series 8.7%Series 6.7% Series 7.6% Series 6.0% Series 6.0% Series.

.7.25% Series 5.9% Series 6.2% Series'

'Ibtal mortgage I Governmental Bond Entergy Mississippi Entergy Mississippi Entergy Gulf States Entergy Arkansas Entergy Louisiana es Entergy Gulf States Entergy Arkansas Entergy Mississippi Entergy New Orleans Entergy Gulf States*

Entergy Mississippi ties Entergy Mississippi Entergy Mississippi as Entergy Gulf States Entergy Arkansas Entergy New Orleans

-Entergy Arkansas Entergy Gulf States Entergy New Orleans iles Entergy Gulf States Entergy Arkansas System Energy Entergy Gulf States Entergy Louisiana Entergy Mississippi Entergy Mississippi EntergyGulf States*

Entergy New Orleans Entergy New Orleans Entergy Gulf States Entergy Mississippi Entergy New Orleans Entergy Gulf States Entergy New Orleans Entergy Arkansas Entergy Mississippi Entergy Arkansas Entergy Gulf States Entergy New Orleans~

Entergy Mississippi Entergy New Orleans Entergy Arkansas'

• Entergy Gulf States Entergy Arkansas Entergy Louisiana

• Entergy Arkansas

• En'tergy Mississippi

-Entergy Mississippi Entergy Arkansas Enterev Gulf States.

February 2003 February 2003 March 2003 March 2003 June 2003 June 2003 October 2003 Novemnber '2003 March 2004

• April 2004 May 2004 i

May 2004 July.2004 September 2004 July 2005 July 2005 August, 2005 August 2005 March 2006 June 2007 August 2007 October 2007 December 2007 Mapril 2008 April 2008 June 2008,

-'July.2008 August 2008 December 2012 February 2013'.

'August.2013 August 2015

• October 2017 May 2018 June 2018 July.2018, January 2022 March 2023,

• July.2023

" September 2023 October 2023

• April 2024 April 2032 April 2032 November 2032 November. 2032 December 2032 June,2033 Julv 2033 29,000

.75,000 100.000 30.000 98.000 275,000 70,000 200,000.

115,000 100.000 80.000 325,000

.30.000 140,000 100.000 70,000 200,000 25,000

'150.000 95,000 115.000 45,000 60,000 30.000 175.000 100,000.

150,000 100.000

.75.000

• 100.000 100,000 240.000

$.70,000 33,000 100,000 150,000 260,000 155,000 65,000 30.000 292,000 75,000 50,000

.25,000 300,000 100,000 30.000 115,000 98,000 40,000 100,000 70,000

.200,000 115.000 80.000 30.000 140,000 25.000 150.000 60.000

.30,000 175.000 294.950 100.000 150.000 100,000

.7500 100,000,

- I..

Julv,2033

__ 240.000 '

5onds

$3,860,000

$4,147,950 S (11 Maturity Date

.2003 2002 Calcasieu Parish - Louisiana 2010 22.095 22,100.

5.45% Series 6.75% Series 6.7% Series 5.7% Series 7.7% Series 5.8% Series.

7.0%~ Series'.

7.5% Series 9.0% Series-

.5.8% Series w__

Calcasieu Parish - Louisiana-Pointe Coupee Parish - Louisiana Iherville Parish - Louisiana West Feliciana Parish - Loulsiana West Feliciana Parish - Louisiana WVest Feliciana Parish - Louisiana West Feliciana Parish - Louisiana West Feliciana Parish - Louisiana West Feliciana Parish - Louisiana 2012

2013, 2014 2014.

2015

.2015.

2015-2016 48,285 17,450,

-21,600 I94,0600 28,400

.: -39,000 41,600 45,000 20,000 48,280 I

17,450

11.

21,600 I

94,000

-28,400.

I 39,000 IL 41,600

..45,000

.20,000

ENTEROY CORPORATION AND SUBsIDIARIEsE 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Maturity Date

- Governmental Bonds 'continued:

6.3% Series 5.6% Series 6.3% Series 6.3% Series 6.25% Series 7.5% Series 5.875% Series 5.9% Series 7.0% Series

'7.0% Series 7.0% Series 7.05% Series Auction Rate 5.95% Series 6.2% Series 6.875% Series 6.375% Series 7.3% Series 6.2% Series 5.05% Series 5.65% Series 6.6% Series 5.35% Series Auction Rate Pope County - Arkansas Jefferson County - Arkansas Jefferson County - Arkansas Pope County -'Arkansas Independence County Arkansas St. Charles Parish - Louisiana Mississippi Business Finance Corp.

Mississippi Business Finance Corp.

Warren County - Mississippi Washington County - Mississippi St. Charles Parish - Louisiana St. Charles Parish - Louisiana Independence City - Mississippi St. Charles Parish -Louisiana St. Charles Parish - Louisiana St. Charles Parish - Louisiana-St. Charles Parish -Louisiana Claiborne County -Mississippi Claiborne County - Mississippi Pope County - Arkansas ()

West Feliciana Parish - Louisiana "',

West Feliciana Parish - Louisiana St. Charles Parish'- Louisiana d).

St. Charles Parish -'Louisiana 2016 2017 2018 2020 2021 2021 2022 2022 2022

• 2022 2022

• 2022 2022 2023 2023 2024 2025 2025 2026 2028 2028 2028 2029 2030 2003 19,500 45,500 9,200 120,000 45,000 50,000 216,000 102,975 8,095

• 7,935

-24,000 20,000 30,000 25,000 33,000 20,400

. *.16,770 2002 19,500 45,500 9,200 120,000.

45,000 50,000 216,000 102,975 8,095 7,935 24,000 20,000 30,000 25,000

-33,000 20,400 16,770 7,625 90,000 47,000 62,000 40,000 110,950 60,000 7,625 90,000.

47,000 62,000 40,000

.- 60,000:

'i.we Series

i. %,narles rarsn - 1ousIanaUXI z--u aUuD Tbtal governmental bonds

$1,532.430

$1,643,380 Other Long-Term Debt:

2003 2002 Note Payable to NYPA, non-interest bearing, 4.8% implicit rate

$ 514,708

$ 683,640.

Bank Credit Facility (Entergy Corporation and Subsidiaries, Note 4)

5.

535,000 Bank Term Loan, Entergy Corporation, avg rate 2.98%, due 2005 60,000 60,000 Bank Term Loan, Entergy Corporation, avg rate 3.08%, due 2008

.35,000.

6.17% Notes due March 2008, Entergy Corporation 72,000.

6.23% Notes due March 2008, Entergy Corporation 15,000 6.13% Notes due September 2008, Entergy Corporation 150,000 7.75% Notes due December 2009, Entergy Corporation

.267,000 267,000 6.58% Notes due May 2010, Entergy Corporation 75,000 6.9% Notes due November 2010, Entergy Corporation

.140,000 7.06% Notes due March 2011, Entergy Corporation 86,000 Long-term DOE Obligation

. -154,409 152,804 Waterford 3 Lease Obligation, 7.45% (Entergy Corporation and Subsidiaries, Note 10)

'262,534

.297,950 Grand Gulf Lease Obligation, 7.02% (Entergy Corporation and Subsidiaries, Note 10) 403,468 6 414,843 Unamortized Premium and Discount - Net -

(11,853)

- (13,741)

Top of Iowa Wind Project Debt, avg rate 3.15% due 2003 79,029 8.5% Junior Subordinated Deferrable Interest Debentures, Due 2045 - Entergy Arkansas 61,856 61,856 8.75% Junior Subordinated Deferrable Interest Debentures, Due 2046 - Entergy Gulf States 87,629 87,629 9.0% Junior Subordinated Deferrable Interest Debentures, Due 2045 - Entergy Louisiana 72,165 72,165 Other

- 9,966

-10,464 Tbtal Long-Term Debt'

$7,847,312

$8,499,969 Less Amount Due Within One Year 524,372 1,191,320 Long-Term Debt Excluding Amount Due Within One Year

$7,322,940

$7,308,649 Fair Value of Long-Term Debt (MI

.$7,113,740

$7,546,996 (a) Consists of pollution control revenue bonds and environmental revenue bonds, certain series of which are secured by non-interest bearing first mortgage bonds.

(b) The bonds are subject to mandatory tender for purchase from the holders at l00i of the principal amount outstondi ng on September 1, 2005 and can then be remarketed (c) The bonds are subject to mandatory tender for purchase from the holders at 100% of the principal amount outstanding on September 1 2005 and can then be remarketed (d) The bonds had a mandatory tender date of October 1, 2003. Entergy Louisiana purchased the bonds from the holders, pursuant to the mandatory tender provision, and has -

not remarketed the bonds at this time. Entergy Louisiana used a combination of cash on hand and short-term borrowing to buy-in the bonds.

(e) On June 1, 2002, Entergy Louisiana remarketed $55 million St. Charles Parish Pollution Control Revenue Refunding Bonds due 2030, resetting the interest rate to 4.9%,

through Mfay 2005.

(fi The bonds are subject to mandatory tender for purchase from the holders at 100% of the principal amount outstanding on June 1.2005 and can then be remarketed-(g) Punrsuant to the Nuclear 14aste PolicyAct of 1982, Enterg's nuclear ownerilicensee subsidiaries have contracts with the DOEforspent nuclearfueldispoalservice. The contracts include a one-time fee forgeneration prior to April 7, 1983. Entergy Arkansas is the only Entergy company that generated electric power with nuclear fuel prior to that date and includes the one-time fee, plus accrued interest, in long-term debt.

(h) The fair value excludes lease obligations, long-term DOE obligations, and other long-term debt cnd includes debt due within one year. It is determined using bid prices reported by dealer ma' rkets and by nationally recognized investment banking frnms.

/

/ ',--..... -,

/...............

- ENTEROY CORPORATION AND SUBSIDIARIES 2003 The annual long-term debt maturities (excluding lease obligations) for debt outstanding as of December 31, 2003, for the next five years are as follows (in thousands):

2004 2005 2006 2007 2008

$503,215

$462,420

$75,896

$624,539

$941,625 In November 2000, Entergy's Non-Utility Nuclear busi-ness purchased the FitzPatrick and Indian Point 3 power plants in a seller-financed transaction. Entergy issued notes to New York Power Authority (NYPA) with seven annual installments of approximately $108 million commencing one year from the date of the closing, and eight annual installments of $20 million commencing eight years from the date of the closing. These notes do not have a stated interest rate, but have an implicit interest rate of 4.8%. In accordance with the purchase agreement with NYPA; the purchase of Indian Point 2 resulted in Entergy's Non-Utility Nuclear business becoming liable to NYPA for an additional

$10 million per year for 10 years, beginning in September 2003. This liability was recorded upon the purchase of Indian Point 2 in September 2001, and is included in the note payable to NYPA balance above. In July 2003,. a payment of $102 million'was made prior to maturity on the note payable to NYPA. Under a provision in a letter of credit supporting these notes, if certain of the domestic utility companies or System Energy were to default on other indebtedness, Entergy could be required to post collateral to support the letter of credit.

Covenants in the Entergy Corporation notes require it to maintain a consolidated debt ratio of 65% or less of its total capitalization.' If Entergy's debt ratio exceeds this limit, or if Entergy or certain of the domestic utility companies default on other indebtedness or are in bankruptcy or insolvency proceedings, an acceleration of the notes' maturity dates may occur.

CAPITAL FUNDS AoREEMENT Pursuant to an agreement with certain creditors, Entergy Corporation has agreed to supply System Energy with sufficient capital to:

• maintain System Energy's equity capital at a minimum of 35% of its total capitalization (excluding short-term debt);

• permit the continued commercial operation of Grand Gulf 1;

- pay in full all System Energy indebtedness for borrowed

'money when due; and

• enable System Energy to make payments on specific System Energy debt, under supplements to the agreement assigning System Energy's rights in the agreement as security for the specific debt.

NOTE 6. COMPANY-OBLIGATED REDEEMABLE PREFERRED SECURITIES Entergy implemented Financial Accounting Standards Board '(FASB)

Interpretation No. 46, 'Consolidation of Variable Interest Entities" effective December 31, 2003. FIN 46 requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among their investors. Variable interest entities (VIEs), generally, are entities that do not have sufficient equity to permit the entity to finance its operations without additional financial support from its equity interest holders and/or the group of equity interest holders are collectively not able to exercise control over the entity. The primary beneficiary is the party that absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both as a result of holding the variable interest. A company may have an interest in a VIE through ownership or other contractual rights or obligations.

Entergy Louisiana Capital I, Entergy Arkansas Capital I, and Entergy Gulf States Capital I (Trusts) were established as financing subsidiaries of Entergy Louisiana, Entergy Arkansas, and Entergy Gulf States, respectively, (the parent company or companies, collectively) for the purposes of issuing common and preferred securities. The Trusts issued Cumulative Quarterly Income Preferred Securities (Preferred Securities) to the public and issued common securities to their parent companies. Proceeds from such issues were used to 'purchase junior; subordinated deferrable interest debentures (Debentures) from the parent company. The Debentures held by each Trust are its only assets. Each Trust uses interest payments received on the Debentures owned by it to6make cash distributions on the Preferred Securities and common securities. The parent companies fully and unconditionally guaranteed payment of distributions on the Preferred Securities issued by the respective Trusts.'Prior to the application of FIN 46,'each parent company consolidated its interest in its Trust.

Because each parent company's share of expected losses of its Trust is limited to its investment in its Trust, the parent companies are not considered the primary beneficiaries and therefore de-consolidated their interest in the Trusts upon application of FIN 46 with no significant impacts to the financial statements. The parent companies' investment in the Trusts and the Debentures issued by each parent company are included in Other Property and Investments and Long-

`Ibrm Debt, respectively. -The financial statements as of December 31, 2002 have been reclassified to reflect the appli-cation of FIN 46 as of that date.

ENTEROY CORPORATION AND -;SUBSIDIARIES 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued NOTE 7. PREFERRED STOCK The number of shares authorized and outstanding and dollar value of preferred stock for Entergy Corporation subsidiaries as of December 31, 2003 and 2002 are presented below. Only the Entergy Gulf States series "With sinking fund" contain miandatory redemption requirements. All other series are redeemable at Entergy's option. ($ in thousands)

II Shares Authorized I -

I and Outstanding Ib71tal Dollar Value

'2003 2002 2003 2002 Entergy Corporation U.S. Utility Preferred Stock:

Without sinking fund Entergy Arkansas, 4.32% - 7.88% Serie 1,613,500 1,613,500

$116,350

$116,350 Entergy Gulf States, 4.20% - 7.56%~ Series 473,268 473,268 47,327 47,327 Entergy Louisiana, 4.16% - 8.00% Series 2,115,000 2,115,000 100,500 100,500 Entergy Mississippi, 4.36% - 8.36% Series 503,807 503,807 50,381 50,831 Entergy New Orleans, 4.36% - 5.56% Series 19.9 9,9 9701,8 Tobtal without sinking fund*

4.903,373 4,903,373

$334,337

$334,337 With sinking fund:-

Entergy Gulf States, Adjustable Rate 7.0%1' 0851 243,269.

$ 20,852

$ 24,327 Total with sinking fund.-

208,519 243,269

$ 20,852

$ 24,327 Fair Value of Preferred Stock with sinking fund"'

$ 15,354

$ 20.792 Totals may not foot due to rounding.-

(a)Represents weighted-average annualized rate for 2003.

(b) air values were determined using bid prices reported by dealer markets and by nationally recognized investment banking firms.

There is additional disclosure of fair value of financial instruments in Note15 to the consolidated financial statements.

All outstanding preferred stock is cumulative.

Changes in the preferred stock of Entergy during the past three years were:,

Number of Shares 2003 2002 2001 Preferred Stock Retirements Entergy Gulf States.

$100 par value (34,500)

(18,579).

(49,237)

Entergy Louisiana

$100 par value (350,000)

Entergy Gulf States has annual sinking fund requirements of $3.45 million, through 2008 for i,ts preferred stoc]l outstanding.

NOTE 8. COMMON EQUITY COMMON STOCK

'l'reasury stock activity for Entergy for 2003 and 202 in thousands):

2003 2002 Treasury Shares Cost Treasury Shares Cost Beginning Balance, January 1 25,752,410

$ 747.331 27,441,384

$ 758,8207 Repurchases 155,000 8,135 2,885,000 118,499 Issuances:

Equity Ownership/Equity Awards Plans (6,622,095)

(194.057)

(4,567,054)

(129,748)

Directors' Plan (8.870)

(257)

(6,920)

(240)

Ending Balance, December 31 19,276,445

$ 561,152 25,752,410

$ 747,331 Entergy Corporation reissues treasury shares to meet the requirements of the Stock Plan for Outside Directors (Directors' Plan), the Equity Ownership Plan of Entergy Corporation and Subsidiaries (Equity Ownership Plan), the Equity Awards Plan, and certain other stock benefit plans. The Directors' Plan awards to non-employee directors a portion of their compen-sation in the form of a fixed number of shares of Entergy Corporation Common stock.

'.ENTERGY CORPORATION AND SUBSIDIARIES 200 3 Equity Compensation Plan Information arsgvneither as company stock or performance Entergy has two plans that grant stock options, equity

,units, are charged to income over the period of the grant or awards, and incentive'awards to key employees of the restricted period, as appropriate. In 2003, 2002, and 2001, Eritergy subsidiaries. The Equity Ownership Plani is a

$45 million, $28 milllion,- and $14 million; respectively, was shareholder-approved stock-based compensation plan. The charged to compensation',expense.

• Equity Awards Plan is a Board-approved stock-based corn-Entergy was assisted by external valuation firms to deter-pensation plan. Stock options are granted at exercise prices mine the fair value of the stock option grants made in 2003.

.. not less than mairket value on the date of grant. The majority.

The fair value applied to the 2003 grants was an average of of options granted in 2003,- 2002, and 2001 will become

.two firms' option valuations, which included adjustments

• exercisable in equal amounts on each of the first three

.for factors such as lack of marketability, stock retention.

anniversaries of th~e date of grant. Options expire ten years -requirements, and regulatory restrictions on exercisability.

after the date of the grant if they are not exercised.'

In 2002 and 2001, the fair value of each option grant was

§ Beginninig in 2001, Entergy began granting most of the estimated on the date of gra~nt using the'Black-Scholes'

• equity awards and incentive awards earned under its stock.

option-pricing model, without any such adjustments. The

.benefit plans in the form of performance units, which are*

stock option weighted-average Iassumptions used in deter-equal to the cash value of shares of Entergy Corporation mining the fair values were as follows:

common stock at the time of payment. In addition to the poenia freqivletshare appreciation or depreciation.29003 2002

2001, performance units will earn the cash equivalent of the.

Stock price volatility 20.3%

27.2%

26.3%

dividends paid during the performance period applicable to xetdtr nyas 62 -50 each plan. The amount of performance units awarded wi ikfeeitrs rt 49 Dividend yield

.3.3%

~3.2%

3.4%

not reduce the amount of. securities remaining under the iiedpyet

$.0

$.2 12 currnt authorizations. The costs of equity and incentive Stock option transactions are summarized as follows:

'2003 I2002' II I2001 Number.

Average Number Average

,Number Average of Options Exercise Price of Options Exercise Price of Options Exercise Price' Beginning-of-year balance 199314$35.85

.17,316,816

$31.06 11,468,316

$25.52 Otnsgatd.2,936,236 44.88 8,168,025

.41.72 8,602.300,369 Options exercised

-(6,927,000) 33.12

,(4,877,688)

~

28.62'.

(2,407.783)..-

25.85 Options forfeited.

.(522,967) 40.98 (664,039) 36.36 (346,017) 30.35 Endofyea blane 5,49.83 3864 9.43,14$3585 17,318.816

.$31.06 Options exercisable at year-end 6,153,043

$34.82

.4.837,511

$31.39 2,923,452

$27.35 Weighted-average fair value of options at time of grant

.$6.86

$9.22

$8.14 The following table summarizes information about stock options outstanding as of December 31, 2003:

'Options Outstanding Options Exercisable Aso Weighted-Number',

Range of As of Average Remaining Weighted-Average

. Exercisable Weighted-Average

• • Exercise Prices 12/31/2003 Contractual Lie-Years Exercise Price at 12131103

.Exercise Price'

$18 - $30.99 2,310,500

• 5.9

$26.35..

• 2,258,750

• $26.30

$31 - $42.99.*

10,286.108 7.7

$39.65 2,048,780

$36.82,

$43 -$55.99

.3.7 4.2

.1,845,513

.$43.04

• $18 - $55.99 15,429,383 7.6

$38.64 6,153.043,

$34.82

=

_t.

.1 ENTERGY CORPORATION-AND. SUBSIDIARIES 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued RETAINED EARNINGS AND DIVIDEND estimated payments of approximately $116.5 million in RESTRICTIONS

.2004, and a total of $3.6 billion for the years 2005 Provisions within the Articles of Incorporation or pertinent' through 2031. Entergy Louisiana currently recovers the indentures and various other agreements relating to the costs of the purchased energy through its fuel adjustment long-term debt and preferred stock of certain of Entergy clause. In an LPSC-approved settlement related to tax Corporation's subsidiaries restrict the payment of cash benefits from the tax treatment of the Vidalia contract, dividends or other distributions on their common and pre-

' Entergy Louisiana agreed to credit rates by $11 million ferred stock. As of December 31, 2003, Entergy Arkansas each year for up to ten years, beginning in October 2002.

and Entergy Mississippi had restricted retained earnings unavailable for distribution to Entergy Corporation of NUCLEAR INSURANCE

$309.4 million and $41.9 million, respectively. Additionally, Third Party Liability Insurance PUHCA' prohibits Entergy Corporation's subsidiaries from The Price-Anderson Act provides insurance for the public in

'making loans or advances to Entergy Corporation. In2003, the event of a nuclear power plant accident. The costs of this Entergy Corporation received dividend payments totaling insurance are borne by the nuclear power industry.

$425 million from subsidiaries. -Originally passed by Congress in 1957 and most recently Investments in affiliates that' are not controlled by amended in 1988, the Price-Anderson Act requires nuclear Entergy Corporation, but over which'.it has significant power plants to show evidence of financial protection in the

-influence, are accounted for* using the equity method.

- event of a nuclear accident. This protection must consist of Entergy's retained earnings include undistributed earnings two levels:

of equity method investees of $472.0 million in 2003 and

1. The primary level is private insurance underwritten by

$304.1 million in 2002. Equity method investments are dis--'

- American Nuclear Insurers and provides liability cussed in Note 13 to the consolidated financial statements.

-insurance coverage of $300 million. If this amount is not sufficient to cover claims arising from the accident, NOTE 9. COMMITMENTS AND CONTINGENCIES the second level, Secondary Financial Protection, applies.

An industry-wide aggregate limitation of $300 million Entergy is involved in a number of legal, tax, and regulatory proceedings before various courts, regulatory commissions, n liita for foreign-sponsored terrorist acts.

no limitation for foreign-sponsored terrorist acts.

and governmental agencies in the ordinary course of its

'2. Within the Secondary Financial Protection level, each business. While management is unable to predict the outcome 2 W t

S nuclear plant must pay a retrospective premium, equal, of such proceedings, management does not believe that the t

r o

o to its proportionate share of the loss in excess of the utimate resolution of these matters will have amtra primary, level, up to a maximum of $100.6 million per adverse effect on Entergy's results of operations, cash flows, pe financia conditreactor per incident. This consists of a $95.8 million or financial condition.-

r

'maximum retrospective premium plus a five percent' S WE A surcharge that may be applied, if needed, at a rate that

-SALES WARRANTIES AND INDEMNITIES I*

i In te Slted saes trasacton

'i

',is presently set at $10 million per year per nuclear

-In the' Saltend sales transaction discussed further in-Y

$PY P

Not' te c

e fpower reactor. There are no domestically-or foreign-

'Note 14 to the consolidated financial statements, Entergy*-i 14 to statements, sponsored terrorism limitations.

or its subsidiaries made certain warranties to the pur--

chasers relating primarily to the performance of certain remedial work on the facility and the assumption of respon Codry ncl recton p ram-10operating sibility for certain contingent liabilities. Entergy believes recondaty closed tsat store use ner that it has provided adequately for the warranties as of December 31, 2003.

' -,fuel on site. The product of the maximum retrospective premium assessment to the nuclear power industry and the VDAA PRCASED POWER AGREEMENT

.' number of nuclear power reactors provides over $10 billion

'Louisiana has an agreement extending "in insurance coverage to compensate the public in the event Enterg eay t'ahrou of a nuclear power reactor accident.

the year 2031 to purchase energy' generated by a hydro-..

electric facility known as the Vdalia project. Entergy, "Entergy owns and operates ten of the nuclear power Louisiana made payments under the contract of approxi-

'-reactors, and owns the shutdown Indian Point 1 reactor (10%

mately$112.6 million in 2003, $104.2 million in 2002,

of Grand Gulf 1 is owned by a non-affiliated company which and $86.0 million in 2001. If the m m p would share on a pro-rata basisin any retrospective premium and$8.0 ilio in201. f hemaximum percentage (94%) of the energy, is made available to Entergy assessmentunderthePrice-AndersonAct).

Louisiana, current production projections would require, U

ENTEROY CORPORATION AND -SUBSIDIARIES 2003 An additional but temporary contingent liability exists In addition, the Non-Utility Nuclear plants are also for all nuclear power reactor owners because of a previous, covered under NEIL's Accidental Outage Coverage program.

Nuclear Worker. Tbrt (long-term bodily injury caused by -This coverage provides certain fixed indemnities in the' exposure to nuclear radiation while employed at a nuclear' event of an unplanned outage that results from a covered power plant) insurance program that was in place from NEIL property damage loss, subject to a deductible. The 1988 to 1998. The maximum premium assessment expo-,

following sumunarizes this coverage as of December 31,2003:

sure to each reactor is $3 million and will only be applied if

• Indian Point 2 and 3, FitzPatrick, and Pilgrim such claims exceed 'the program's accumulated reserve (each plant has an individual policy with the funds. This contingent premium assessment feature will noted parameters):

expire with the Nuclear Worker Ibrt program's expiration,

• $4.5 milion weekly indemnity which is scheduled for 2008.

$490 million maximum indemnity Deductible: 12 week waiting period Property Insurance -

Vermont Yankee:

Entergy's nuclear owner/licensee subsidiaries are members of '

. $4.0 million weekly indemnity certain mutual insurance companies that provide property

• $435 million maximum indemnity damage coverage, including decontamination and premature Deductible: 12 week waiting period decommissioning expense, to the members' nuclear generating plants. These programs are underwritten by Nuclear Electric Entergy's U.S. Utility nuclear plants have significantly Insurance Limited (NEIL). As of December 31,2003, Entergy

'less or no accidental outage coverage. Under the property.

was insured against such losses per the following structures:

damage and accidental outage insurance programs, Entergy nuclear plants could be subject to assessments U.S. UTILITY PLANTS (ANO 1 AND 2, GRAND GULF l should losses exceed the accumulated funds available from RIVER BEND, AND WATERFORD 3)

NEIL. As of December 31, 2003, the maximum amounts of

.* Primary Layer (per plant) - $500 million per occurrence

such possible assessments per occurrence were $77 million

• Excess Layer (per plant) - $100 million per occurrence for the Non-Utility Nuclear plants and $79.3 million for the

• Blanket Layer (shared among all plants) - $1.0 billion U.S. Utility plants.

per occurrence Entergy maintains property insurance for its nuclear

'Ibtal limit -$1.6 billion per occurrence units in excess of the Nuclear Regulatory Commission's Deductibles:

(NRC) minimum requirement of $1.06 billion per site for

.0 $1.0 million per occurrence - Equipment nuclear power plant licensees. NRC regulations provide breakdown/failure '

that the proceeds of this insurance must be used, first, to

$2.5 million per occurrence - Other than equipment -,

render the reactor safe and stable,'and second, to complete breakdown/failure decontamination operations. Only after proceeds are dedi-cated for such use and regulatory approval is secured Note: ANO 1 and 2 share in the Primary Layer with one would 'any remaining proceeds be made available for the policy in common.

benefiof plant owners or their creditors.

In the.event 'that one or more acts of 'domestically-NON-UTILITY NUCLEAR PLANTS (INDIAN POINT 2 AND 3,

- sponsored terrorism causes property damage under one FITZPATRICK, PILGRIM, AND VERMONT YANKEE) or more or all nuclear insurance policies issued by NEIL

' Primary Layer (per plant) - $500 million per occurrence.

(including, but not limited to. those described above) within

- Blanket Layer (shared among all plants) - $615 million.

12 months from the date the first property damage occurs, per occurrence the maximum recovery under all such nuclear insurance r Tbtal limit - $1.115 billion per occurrence' policies shall be an aggregate of $3.24 billion plus the addi-Deductibles:

tional amounts recovered for such losses from reinsurance,

• $1.0 million per occurrence - Equipment indemnity, and any other sources applicable to such losses.

breakdown/failure

' There is no aggregate limit involving one or more acts of;

• $1.0 million per occurrence (all plants except Vermont foreign-sponsored terrorism.:

Yankee which is $500,000) - Other than equipment breakdown/failure' Note: Indian Point 2 and 3 share in the Primary Layer with one policy in common.

ENTEROY CORPORATION AND SUBSIDIARIES 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued NUCLEAR DECOMMISSIONING COSTS assets of approximately $340 million, including a decrease SFAS 143, "Accounting for Asset Retirement Obligations,"

in electric plant in service of $315 million, and an increase which was implemented effective January 1, 2003, requires in earnings in the first quarter of 2003 of approximately the recording of liabilities for all legal obligations associated

$155 million net-of-tax ($0.67 per' share) as a result of a with the retirement of long-lived assets that result from the one-time cumulative effect of accounting change.

normal operation of those assets. For Entergy, these asset The cumulative decommissioning liabilities and expenses retirement obligations consist of its liability for decommis-recorded in 2003 by Entergy were as follows (in millions):

sioning its nuclear power plants.

These liabilities are recorded at their fair values (which Ias' of SAS 143 as of the present values of the estimated future cash outflows) in 3-Doe1.

2002 Adoption Aretlon Spending Dec. 31,2003 the period in which they areincurred, with an3accompanying10.7

$221.0 5-8 7.5.

p-y, a

icolpnig River Bend 237.0 41.2

'20.6 298.8 addition to the recorded cost of the long-lived asset. The.

3 125.3 179.4

'206 3253 asset retirement obligation is accreted each year through a d'OGf 1 153.5 17' 21.8 312.5 charge to expense, to reflect the time value of money for this

-.P.ii m 490.2 (292.8) 15.8 213.4 present value obligation. The amounts added to the carrying Indian Point ' & 2

456.9 (207.3) 19.9 11.8 257.7 amounts of the long-lived assets will be depreciated over the lvermont Yankee 316.7 (95.1) 17.7 239.3 useful lives of the assets. The net effect of implementing

$2,090.3

$ (16.2)

$152.2'-. $11.8

$2,214.5 this standard for the rate-regulated business of the domestic utility companies and System Energy was recordedas a 'In addition, an insignificant amount of removal costs regulatory asset, with no resulting impact on Entergy's net

,associated with non-nuclear power plants are also included income. Entergy recorded these regulatory assets because in the decommissioning line Item on the balance sheet existing rate mechanisms in each jurisdiction are based on Entergy periodically reviews and updates estimated decom-the principle that Entergy will recover all ultimate costs of missioning costs. The actual decommissioning costs may decommissioningfromcustomers.

vary from the estimates because of regulatory require-Assets and liabilities increased approximately $1.1 billion ments, changes in technology, and increased costs of labor, for the domestic utility companies and System Energy as a materials, and equipment.

result of recording the asset retirement obligations at their If Entergy had applied SFAS 143 during prior periods,

-fair values of $1.1. billion as determined under'SFAS 143, the following impacts would have resulted:

increasing utility plant by $287 million, reducing accumu For the years ended December 31, 2002 2001 lated depreciation by $361'million and recording the ssetretirementoblgatons related regulatory assets of $422 million. The implementation actually recorded

.$2,090,269

$1,679,738 of SFAS 143 for the portion 'of River Bend not subject to -

Pro forma effect ofSFS 43$

(46,041) 28,512 cost-based ratemaking decreased earnings by approximately Of SFAS 143

$21 million net-of-tax ($0.09 per share) as a result of a one-Ase rtrem ob,044,2o8.

pro forma

$2,044,228,

$1,708,250 time cumulative effect of accounting change. In accordance Earnings applicable to with ratemaking treatment and as required by SFAS 71, the common stock -as reported

-$ 599,360

$ 726,196 depreciation provisions for the domestic utility companies Pro forma effect and System Energy include a component for removal costs E

1 that are not asset retirement obligations under SFAS 143-'

common stock - pro ormp

$ 613,479

14.

omo tok rofria I6347.

$ 735,809 In accordance with regulatory accounting principles,.:

Basic earnings per average Entergy has recorded a regulatory asset-for certain of its common share - as reported

$2.69

$3.29 Pro formna effect domestic utility companies and System Energy of approxi-P fa 143 mately $72.4 million as of December 31, 2003 and approxi- 'Basc erg e avera$.

mately $79.6 million as of December 31, 2002 to reflect an -'

common share -pro forma

$2.75

$3.33 estimate of incurred but uncollected removal costs previous-Diluted earnings per average ly recorded as -a component of accumulated depreciation.

common share -'as reported

$2.64

$3.23 Pro formna effect The decommissioning and retirement cost liability for cer-of SFAS 143

$0.08

$0.04 tain of the domestic utility companies and System Energy Diluted earnings per average includes a regulatory liability of approximately $26.8 million common share - pro forma

$2.70

$3.27 as of December 31, 2003 and'approximately $25.5 million -

as of December 31,2002 representing an estimate of collected For the Indian Point 3 and FitzPatrick plants purchased but not yet incurred removal costs. 'For 'the' Non-Utility 2000, NYPA retained the decommissioning trusts and Nuclear business, the implementation of SFAS 143 resulted' the decommissioning liability. NYPA and Entergy executed in a decrease in liabilities of approximately $595 million due decommissioning agreements, which specify their decom-to reductions in decommissioning liabilities, a decrease in missioning obligations. NYPA has the right to require

ENTEROY CORPORATION AND. SUBSIDIARIES -2003 Entergy to assume the decommissioning liability provided Nevertheless, no assurance can be given as to the outcome that it assigns the corresponding decommissioning trust, of these cases.

up to a specified level, to Entergy. If the decommissioning liability is retained by NYPA, Entergy will perform the

'NOTE 10. LEASES decommissioning of the plants at a price equal to the lesser GENERAL-.'

of a pre-specified level or the amount in the decommissioning As of December 31, 2003, Entergy. had -non-cancelable trusts. Entergy believes that the amounts available to it operating leases for equipment, buildings, vehicles, and fuel under either scenario are sufficient to cover the future storage facilities (excluding'nuclear fuel leases and the decommissioning costs without any additional contribu-.

Grand Gulf 1 and Waterford3 sale and leaseback transactions) tions to the trusts, with minimum lease payments as follows (in thousands):

Entergy maintains decommissioning trust funds that are committed to meeting the costs of decommissioning the Operating C.

Capital nuclear power plants. The fair values of the decommissioning Leases Leases trust funds and asset retirement obligation-related regula-2004

$ 98,664

$18,695 2005 89,497 9,660 tory assets of Entergy as of December 31, 2003 are as 5;'24 follows (in millions):

200'

'52,528, 3,4

.0

-625283 439 D.

ILecommlSslonlng Trust.

Fair Values ANO 1 & ANO 2 River Bend Waterford 3 Grand Gulf 1 Pilgrim Indian Point 1 & 2 Vermont Yankee

$3, 2

1' I11 I. -

-41

.4,

.41 3

60.5 57.9 '

52.0 72.9

.Regulatory Assets.

$203.7.

3 36.2 -

132.3 92.7 Years thereafter 245,159 2,844 Minimum lease payments -

$596,250,

$42,115.

Less: Amount representing interest 9,149 Present value of net minimum lease payments

-$596,250

$32,966

$2,2' The Energy Policy Act of 1992 contai assesses domestic nuclear utilities with i amination and decommissioning (D&D) uranium enrichment operations. Annu 2003 dollars), which will be adjusted anr are for 15 years and were $4.3 mn Arkansas, $1.1 million for Entergy Gulf f for Entergy Louisiana, and $1.8 million in 2003. The Energy Policy Act calls for e D&D assessments not later than Octc December 31, 2003, three years of remaining. D&D fees are included in ot ties and other non-current liabilities an 31,'2003, recorded liabilities were $12.8 I Arkansas, $3.0 million for Entergy Gulf i for Entergy Louisiana, and $4.8 million J Regulatory assets in the financial state liabilities, with the exception of Enterg, non-regulated portion. These assessme through rates in the same manner as fur EMPLOYMENT LITIGATION Entergy Corporation and certain subsidia in numerous lawsuits filed by former er that they were wrongfully terminated an against on the basis of age, race, an Corporation and these subsidiaries are vii these suits and deny any liability D1.9 85.9 Total rental expenses for all leases (excluding nuclear fuel 47.4 leases and the Grand Gulf i and Waterford 3 sale and lease-78.5

$464.9 back transactions) amounted 'to $58.9 million in 2003,

-$60.1 million in 2002, and $65.1 million in 2001.

ns a provision that rees for the decont-NUCLEAR FUEL LEAsEs of the DOE'S past As of December 31,'2003, arrangements to lease nuclear al assessments (in fuel existed in an aggregate'amount up to $150 million Luallyforinfation,

...for Entergy'Arkansas, $80 million for each of System' ilion for Entergy -Energy' and 'Entergy Louisiana, and $105 million for States $1.6 million

'Entergy Gulf States. As of December 31,2003, the unrecovered for System Energy

• cost base of nuclear fuel leases amounted to approximately lessation of anal

$102.7 million for Entergy Arkansas, $63.7 million for

)ber 24, 2007. At Entergy Gulf States, $65.0'million for Entergy Louisiana, assessments were and $47.2 million for System Energy. The lessors finance

'her current liabill.

the acquisition and ownerseip ofEnuclear fuel through

.d, as of D6cembter lan aloans made under revolving credit agreements, the issuance million for Entergy Of commercial paper, and the issuance of intermediate-term States, $4.9 million notes. The' credit agreements for -Entergy Arkansas, for System Energy.

Entergy Gulf States, Entergy Louisiana', and System ments offset these Energy each have a termination date of October.30, 2006.

y Gulf States' 30%

The termination dates may be extended from time to time snts are recovered with the consent of the lenders. The' intermediate-term 81l costs.

notes issued pursuant to these fuel lease arrangements

-have varying maturities through December 15, 2008. It is expected'that additional financing under the'leases will ries are defendants be arranged as needed to acquire additional fuel, to pay ployees ssertig interest; and to' pay maturing debt. However, if such idlor discriminated additional financing cannot be. arranged, the lessee in d/or sex. Entergy each case must repurchase sufficient nuclear fuel to allow gorouslydefending the lessor to meet its obligations in accordance with the to the plaintiffs.

. Fuel Lease.

-~ ~

Fe Lea'

':s.e.

ENTEROY CORPORATION AND SUBS IDI ARIES: 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Lease payments are based on nuclear fuel use. The total NOTE 11. RETIREMENT, OTHER nuclear fuel lease payments (principal and interest) as well POSTRETIREMENT BENEFITS, AND as the separate interest component charged to operations, DEFINED CONTRIBUTION PLANS by the domestic utility companies and -Systemn Energy PENSION PLANS were $142.0 million (including interest of $11.8 million) in Entergy has seven pension'plans covering substantially all 2003,$137.8 milflon (including inter~est of$1.3 million) in

-of its employees: "~Entergy Corporation Retirement Plan' 2002, and $149.3 million (including interest of $17.2 million),

for Non-Bargaining Employees," "Entergy Corporation in 2001.

Retiremrent Plan -for Bargaining Employees,.. "..Entergy

-Corporation Retirement Plan.11I for 'Non-Bargaining SALE AND LEASEBAcK TRANSACTIONS Employees," "Entergy Corporation Retirement Plan II for In 1988 and 1989, System Energy and Entergy Louisiana, Bargaining Employees,.. ".Entergy Corporation'Retirement'

-respectively, sold and leased back portions of their owner-

'Plan III"' ¶EntergY Corporation Retirement Plan IV for ship interests in Grand Gulf 1 and Waterford 3 for 26 1/2-Non-Bargaining Employees," -and "Entergy Corporation year and 28-year lease terlns, respectively. Both companies.

Retirement Plan IV for Bargaining Employees." Except for Fhave options to terminate the leases, to repurchase the sold the Entergy Corporation Retirement Plan Ml, the pension interests, or to renew the leases at the end of their terms.

plans are noncontributory and provide pension benefits that Under System-Energy's sale and leaseback arrange-are based on employees' credited service and compensation ments, letters of credit are required -to be maintained to during. the, final years before'retirement. The Entergy secure certain amounts payable for the benefit otheqi Crpation Retirement Plan III includes, a mandatr ty investors by System Energy under the leases. The cur-employee contribution of 3% of earnings during the first 10 rent letters of credit are effective until March 20, 2003..

Years Of plan participation, and allows voluntary conitribu Entergy Louisiana did not exercise its option to repur-,

tin rm1 o1%o annsfralmtdgopOf chase the undivided interests in Waterford 3 in September employees. Entergy. Corporation and its subsidiaries fund 1994. As a result, Entergy Louisiana was required to provide Pension costs in accordance with' contributon guidelines collateral for the equity portion of certain amounts payable established by the Employee Retirement Income Security Act by Entergy Louisiana under the leases. 'Such collateral was of 1974, as amended, and the Internal Revenue Code of 1986, in the form of a new series of non-interest bearing first mnort-as amended. -The assets of the plans include common, and gage bonds in the aggregate principal amount of $208.2 mil.

preferre stocks, fixed-income securities, interest in a money

• lion issued by Entergy Louisiana in September. 1994.

market fund, and insurance contracts. 'As or December 31, In July 1997, Entergy Louisiana,caused the Waterford 3 2003 and December. 31, 2002, Entergy recognized an lessors to issue $307.6 aggregate principal amount of adiinlmnmmpninlaiiyfrteecs fthe Waterford 3 Secured Lease Obligation Bonds, 8.09% Series,

'accumulated benefit obligation over the fair market value' due 2017, to refinance the outstanding bonds Originally of plan assets. In accordance with FASB 87,. an offsetting issued to finance' the purchase of the undivided interests by' intangible asset, up to the amount of any unrecognized prior the lessors. The lease payments have been reduced to reflect service cost, was also recorded, with the' remaining offset to the lower interest costs.

the liabilit reodda a regulatory asset reflective of the As of December 31, 2003, System Energy and Entergy recovery mechanism for pension costs in Entergy's jurisdic-

• Louisiana had future minimum lease payments, recorded, tions. Entergy's domestic utility companies' and System as long-term debt,(reflecting an overall implicit rate of, Energy's pension costs are r~ecovered. from customers as a 7.02% and 7.45%, respectively) as follows (in thousands):

component of cost of service in each of its jurisdictions.

Entergy uses a Decemnber 31 measurement date for its Entergy System pension plans.

Louisiana Energy 2004

$31,739

$ 30,133 2005 4,554 52,253 2006 18,262.

52.253 2007 18,754 52,253 2008 22,606.

52,253 Years thereafter 366,514 365,176 Tobtal

$472,429

.$61o,321 Less: Amount representing interest 209,895 206,853 Present value of net minimum lease payments

$262,534

-$403,468

ENTERGY CORPORAT ION AND `SUBSIDIARIES 2 00 3 I

i COMPONENTS OF NET PENSION CS Other Postretirement Benefits Tobtal 2003, 2002, and 2001, pension costs ofEntergy Entergy. also provides health care and life -insurance Corporation and its subsidiaries, including amounts capital-benefits for retired employees. Substantially all domestic ized, included the following components (in thousands):

employees may become eligible for these benefits if they reach retirement age while still working for Entergy.

2003 2002 2001 Entergy uses a December 31 measurement date for its Servce cst

-beneitspostretirement benefit plans.

earnd drin thePerod 70.37 56947 49166 Effective January 1, 1993, Entergy adopted SFAS 106, Inteest ost n

~which required a change from a cash method to an accrual benefit obligation 134,403 128,387 118,448 Expected return on assets (155,460)

(158,202)

(157,889) m t o f a c u tn o

oteie e t b n ft t e Amortization of transition asset (6)

73)

(7,142) than pensions. At January 1, 1993, the actuarially determlined Amortization of prior service cost 5,886 5,993 5,735 accumulated postretirement benefit obligation, (APBO)

Recognized net (gainyloss 6,399 5,1504

-(6,573)'

earned by. retirees and active employees was estimated to be Curtailment loss 14,864--

approximately $241.4 million for Entergy (other than' Special termination benefits 32.006--

Entergy Gulf States) and $128 million for Entergy Gulf Net enson ost

$ 07,72 37866 1745 States. Such obligations'are being amortized over a 20-year I.

period that began in 1993. For the most part, the domestic PENSION OBLIGATIONS, PLAN ASSETS, FUNDED utlte n

ytmEeg eoe FS106 costs from K

STTUS AMUNT NO YE REOGNZEDANDcustomers and are required to fund postretirement beneflts RECOGNIZED IN THlE BALANCE SHEET AS OF cletdnaetaetratut DECEMBER 31, 2003 AND 2002 (IN-THOUSANDS):

203COMPONENTS

-or NET POSTRETIREMENT 202 BENEFIT COST Change in Projected Benefit Obiato('B)Ttal 2003, 2002, and 2001 other postretirement benefit Balance at beginning of year

$1,992,207

$1,720,492 costs of Entergy Corporation and its subsidiaries, including Sevc ot-7,3 697 amounts capitalized and deferred, included the following Interest cost 134,403

'128,387.

Amendents 27 components (in thousands):

Curtailments 10,951-Special termination benefits 32,006

-2003 2002 2001 Actuarial los's 207,008 144,531 Service cost - benefits earned Benefits paid' (97,574)

(9D1,548)..

during the period

$ 37,799

$ 29,199

$ 24,225 F Acquisition of subsidiary 33,398 Interest cost on APBO

,574 4489 381 Baac te do er8.4.6 19 22 7

Expected return on assets

-(15,810)

(14,066)

(12,578)

Change In Pla~n AssetsAmriaonf F rvau ofast at-transition obligation 15,193 17,874 17.874 beginning of year

$1,451,802

$1,6888,836 Am tiaon f-Actual return on plan assets 355,043

-(191,136)

Employer contributions 346512,857 prior service cost

-(959292 Employee contributions

-1,059

-1,125 Recognized net (galnyloss 12,369

,84 (1,506)

Acqiition of subsidiary-33,668

.-Curtailment loss 57.958 Benefits paid (97,574)

(91,548)

-Special termination benefits 5,444--

Fair value of assets Net postretirement benefit cost. $164,774

$ 80,692

$ 67,818 at end of year 17 49 5

$, 5, 0 Funded status

$ (604,590)

$ (540,405)

' Amounts not yet recognized in the balance sheet:

Unrecognized transition asset (1.426)

-(2,189)

Unrecognized prior service cost 30,467 37,351

-Unrecognized net (gainyloss 410,321 413,043 Accrued pension coat recognized I

I I3 I

i mn Uhe balance sheet Amounts recognized in the balance sheet:

Accrued pension cost Additional minimum pension liability Intangible asset Accumulated other comprehensive income Regulatory asset

$ (165,228)

$-(92,200)

(180,212).

(208,151) 30,832

~

33,346 15,359 17,016 134,021 167,789'

$(185,228)

$(92,200)

I~Net amount recognized

.. i ENTERGY CORPORATION AND, SUBSI:

NOTES TO CONSOLIDATED FINANCIAL STATEMEN~TS continued*

DIARI ES 2 00 3 OTHER POSTIRETIREMENT BE PLAN ASSETS, FUNDED STAT

~NOT'YET RECOGNIZED AND

• BALANCE SHEET AS OF DECE AND 2002 (IN THOUSANDS):

Change in APBO Balance at beginning of yea r Service cost Interest cost

• Actuarial loss Benefitis paid Plan amendmentsw' Plan participant contributions Curtailment Special termination benefits Acquisition of subsidiary Balance at end of year Change in Plan Assets Fair value of assets at beginning of year

• Actual return on plan assets

• Employer contributions Plan participant contributions Benefits paid' Acquisition of subsidiary

• Fair value of assets

• at end of year

• Funded status Amounts not yet recognized In the balance sheet:

• Unrecognized transition obligation

'Unrecognized prior service cost Uinrecoignized net loss Accrued other postretirement benef]

o ost recognized in the balance shee N EF IT OBLIGATIONS,

'confidence level ten years out. The mix of assets is based on US, AND A MOUNTS an optimization study; that identifies asset allocation targets EIECOGNIZED IN THE in order to achieve the maximum return for an acceptable

MBER 31, 2003 level of risk while minimizing the expected contributions

-and pension and postretirement expense.

Tob perform such an optimizationstudy, Enterg first makes 2003 2002

'assumptions about certain Market characteristicS, such'- as

$ 79,506expected asset class investment returns,, volatility (risk) and

$9071 correlation coefficients among the -various asset classes.-

3779En9.9 tergy does so by examining (or hi g a consultant to 52,746

'44,510 115,66

• 159143 provide such analysis) historical market characteristics of the (4,39 - (586) various asset classes -over all' of the 'different economic (8,2).'conditions that have existed. Entergy then examines and 7.074 projects the ecoronomic conditions expected to prevail over the 56,369 study period. Finally, the historical characteristics to reflect 5,444 the expechee d future conditions are adjusted to produce the 11 47 market characteristics that will be assumed in the study.

$ 4,0 9,0 The optimization analysis utilized in Entergy's latest study produced the following approved asset class target allocations.

$ 182,692' -

158,190' 22,794 (11.559) 6325 552 '

'Pension

'Postretirement 7,7

~

Domestic Equity Securities

,.54%

37%

(48,379)

(35,861)

International Equity Securities 12%

8%

230

-Fixed Income Securities

-30%

55%

Other (Cash and OACs)

~

4%

$ 227,446

$182,692

• (714,357)

$(616,814)

'These allocation percentages combined with each asset class' expected'investment return produced an aggregate return expectation of 9.59% for pension assets, 5.45% for 4485 14,2 aable postretirement assets, and 7.19% for non-taxable (20.746)

-3,522'Tee

-postretirement assets. -hs-returns are consistent with 36.005 245,795 Entergy's disclosed expected return on assets of 8.75% (non-*

taxable assets) and 5.5% (taxable assets).

A

$(354,283)

$(252.773) rage in Mhe participation assumption for Since precise. allocation targets are inefficient to Mariage 2003.

security investments, the following ranges were established to produce an acceptable economically efficient plan to ETIREMENT manage to targets:

tirement plans weighted-Pension Postretirement t category at December 31,

'.Domestic Equity Securities

-49%

to 59%'

32% to 42%

International Equity Securities 7% to 17%

3% to 12%

Fixed Income Securities 25% to 35%.

50% to 60%

Pension

'Postretirernent Oer096tolO0%

0t (a) Reflects plan design changes, including a che non-boargaining employees effective Augustl1, PENSION AND OTHER POSTRh PLANS' ASSETS Entergy's, pension and postrel average asset allocations by asse 2003 and 2002 axre as follows:

'Domnestic Equity Securities,

56% -

50%

International Equity Securities 14%

10%

37%

34%

ACCUMc 1%% The accu

-na

-at 5 AUJftaLUOiU Ua-PU9 IU S7V U1Ujidi bvd.

Other

'2%

• 3%

3 1%

'and 2004' Entergy's trust asset investment strategy is to invest the assets in a 'manner whereby long-term earnings 'on the assets (plus cash contributions) provide adequate funding for retiree benefit payments. Adequate funding is described as a 90% confidence that assets equal or exceed liabilities due five years. in the future, and a corresponding.75%

rLATED PENSION Lmulated benefit c s $2.1 billion an'd I

!, respectively.

BENEFIT OBLIGATION bligation for Entergy's pension

,1.7 billio at December 31, 2003

-ENTEROY CORPORATION AND SUBSIDIARIES 2003 ESTIMATED FUTURE BENEFIT PAYMENTS The significant actuarial assumptions used in determining Based upon the assumptions used to measure the company's the pension PBO and the SFAS 106 APBO for 2003, 2002, pension and postretirement benefit obligation at December and 2001 were as follows:

31, 2003, and including pension and postretirement benefits attributable to estimated future employee service, Entergy 2003

.2002 2001 expects that pension benefits to be paid over the next ten Weightedaverag discount rate:

years is as follows (in thousands):-Pesn6.5 6.%

7.%

50

.~~A S L~lfI

-7I

.T

• Estimated Future Benefits Payments Pension Postretirement 2004 S 96.764

$ 53,666 2005

$ 98,378

$ $ 57.271 2006

$100,411

$ 58,389 2007

$103,225

$ 61,171 2008

$107,120

$ 63,393 2009-2013

$631,594

$358,648 V. n V T T 1T Weighted-average rate of increase in future compensation levels 3.25%

3.25%

4.60%

Expected long-term rate of return on plan assets:

Taxable assets.

5.50%

5.50%-

5.50%

Non-taxable assets 8.75%

8.75%

9.00%

The significant actuarial assumptions used in determining the net periodic pension and other postretirement benefit costs for 2003, 2002, and 2001 were as follows:'

Entergy expects to contribute $110 million (which includes about $1 million in employee contributions) to its pension Weighted-average discount rate plans and $68.6 million to other postretirement plans in 2004.

Weighted-average rincrase

.Weighted-average rate Of increase

'in future compensation levels ADDITIONAL INFORMATION

-:-Expected long-term rate of The change in the minimum pension liability included in return on plan assets:

other comprehensive income and regulatory assets was as:'.. Taxable assets follows for 2003 and 2002 (in thousands):

Non-taxable assets 2003 2002 2001 6.75%

7.50%

7.50%

3.25%

4.60%

4.60%

5.50%

5.50%

- 5.50%

8.75%

9.00%

9.00%

Increasel(decrease) in the minimum pension liability included in:

Other comprehensive income Regulatory assets ACTUARIAL ASSUMPTIONS The assumed health care cost tren the APBO of Entergy was 10% for 2 each successive year until it reE beyond. The assumed health care measuring the Net' Other Postre Entergy was 10% for 2004, gr successive year until it reaches 4.5 one percentage point increase in cost trend rate for 2003 would 1 and the sum of the service cost an as of December 31, 2003 as follow 2003 2002 Entergy's remaining pension transition assets are being amortized over the greater of the remaining service period of active participants or 15 years, and its SFAS 106 transi-

$ (1,639)

$ 17,016 tionobligations are being amortized over 20 years.

$(23,768)

$157,789 o

o a

VOLUNTARY:SEVERANCE PROGRAM During 2003, Entergy offered a voluntary severance d rate used in'measuring-d r program to certain groups of employees. As a result of

'004. gradually decreasing 4 l d this program, Entergy recorded additional pension and aches 4.5% in 2010 and postretirement costs (including amounts capitalized) of*

ecost trend rate used in ct tn r$110.3 million for special termination benefits and plan tirement Benefft Cost of curtailment charges. These amounts are included in the adually decreasing each l

d n e net pension cost and net postretirement benefit cost for 5% in 2009 and beyond. A t the year ended December 31, 2003.

the assumed health care tave increased the APBO d interest cost of Entergy s (in thousands):

1 Percentage Point Increase Increase

.in the sum of Increase in service cost and 2003 the APBO Interest cost

-1 Percentage Point Decrease Decrease

' in the sum of Decrease in service cost and the APBO Interest cost Entergy Corporation

$14,619

$(90.274)

$(11,362)

$108,822

.j

-r ENTERGY CORPORATION AND SUBSIDIARIES 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued MEDICARE PRESCRIPTION DRUG, IMPROVEMENT

-EffectiveFebruaryl,2004,theemployingEntergysubsidiary AND MODERNIZATION ACT OF 2003-will make matching contributions to the Savings Plan in an In December 2003, the President signed the Medicare 'amount equal to 70% of the participants' basic contributions, Prescription Drug, Improvement and Modernization Act of up to 6% of their eligible earnings. The 70% match will be 2003 into law. The Act introduces a prescription drug allocated to investments as directed by the employee.

benefit 'under Medicare (Part D) as well as federal subsidy to Entergy also sponsors the Savings Plan of Entergy employers who provide a retiree prescription drug benefit Corporation and Subsidiaries II (began in 2001), the Savings that is at least actuarially equivalent to Medicare Part D.

Plan of Entergy Corporation and Subsidiaries HI (began in CurrenUy, specific authoritative guidance on the accounting 2002), and the Savings Plan of Entergy Corporation and for the federal subsidy is pending. As allowed by FASB Staff Subsidiaries V (began in 2002). The plans are defined contri-Position No. FAS 106-1, Entergy has elected to record an bution plans that cover eligible employees, as defined by estimate of the effects of the Act in accounting for its post-each plan, of Entergy and its subsidiaries. The employing retirement benefit plans under SFAS 106 and in providing Entergy subsidiary makes matching contributions equal to disclosures required by SFAS No. 132 (revised 2003),

50% of the participants' participating contributions for each Employers' Disclosures about Pensions and Other of these plans.

Postretirement Benefits.

Entergy's subsidiaries' contributions to the plans collec-Based on actuarial analysis of prescription drug benefits, tively were $31.5 million in 2003, $29.6 million in 2002, and estimated future Medicare subsidies are expected to reduce

$25.4 million in 2001 to these defined contribution plans.

the December 31,2003 Accumulated Postretirement Benefit The majority of the contributions were to the Savings Plan.

Obligation by $56 million.'For the year ended December 31, 2003 the impact of the Act on Net Postretirement Cost was

-immaterial, as it reflected only one month's impact of the Act. When specific guidance on accounting for federal subsidy is issued, these estimates could change.

DEFINED CONTRIBUTION PLAN Entergy sponsors the Savings Plan of Entergy Corporation and Subsidiaries (Savings Plan). The Savings Plan is a defined contribution plan covering eligible employees of Entergy and its subsidiaries. Through January 31, 2004,'

the Savings Plan provided that the employing Entergy subsidiary:

• make matching contributions to the Savings Plan in an amount equal to 75% of the participants basic contribu-tions, up to 6% of their eligible earnings, in shares of Entergy Corporation common stock if the employees direct their company-matching contribution to the purchase of Entergy Corporation's common stock; or make matching contributions in the amount of 50% of the participants basic contributions, up to 6% of their eligible earnings, if the employees direct their company-matching contribution to other investment funds.

I I I

.1. =

r

ENTERGY CORPORATION AND SUBSIDIARIES 2003 NOTE 12. BUSINESS SEGMENT INFORMATION wholesale power generation business in North America and Entergy's reportable segments as of December 31, 2003 are Europe. Results from Entergy-Koch are reported as equity

'U.S. Utility, Non-Utility Nuclear, and Energy Commodity in earnings of unconsolidated equity affiliates in the finan-Services. U.S. Utility generates, transmits, distributes, and cial statements. Entergy's operating segments are strategic sells electric power in portions of Arkansas, Louisiana business units managed separately due to their different Mississippi, and Tebxas, and provides natural gas utility

_operating and regulatory environments. Entergy's chief service in portions of Louisiana. Non-Utility Nuclear owns operating decision maker is its -Office of the Chief and operates five nuclear power plants and is primarily Executive, which consists of its highest-ranking officers.

focused on selling electric power produced by, those plants

'~All Other" includes the parent company, Entergy to wholesale customers. -Energy Commodity Services is Corporation, and other business activity, including earnings inldsnon-nuclear wholesale assets, a participant in the Etryssegment financial information is as follows (in thousands):

Energy EntrgyKoc, n pvidng negy ommdiy tadig, n he rocedsofsalsiolpetyuslCowedbusneses U.S. Utility Nuclear*

Services*

All Other* Eliminations Consolidated 2003 Operating Revenues

$ 7,584,857

$1,274,983

$ 184.888 188,228 (38,030)

$ 9,194.920 Deprec., amort. & decommn. -890,092 87,825 13.681 5,005

-996.603 Interest income 43.035 36,874

-18,128 27,575 (38,226) 87.386 Equity in earnings (loss) of unconsolidated equity affiliates (3)

-271,650 271,647 Interest charges 419.111 34,460 15,193 75,787 (38,225) 506,326 Income taxes (credits) 341,044 88,619

-105.903 (45.492),

-490,074 Cumulative effect of accounting change (21.333) 154.512 3,895 37,074, Net income (loss) 492,574 300.799 180,454 (23,360)

-950,467 Total assets 22,429,136 14,171,777

2,076,921 1.495,903 (1,619.527) 28,554,210

• Investments in affiliates - at equity 211 1,081.462

-(28.345) 1,053,328 Cash paid for long-lived asset additions 1.233.208 281,377 44,284 10,074 1,568,943 2002 Operating Revenues

$ 6.773.509

$1,200,238

$ 294,670 40,729 (4.111)

$ 8,305,035 Deprec.. anmort. & decommn.

-800.257 88,733 21.465.

5.143

-915.598 Interest income 23.231 71.262 26.140 35,433 (37,741) 118,325 Equity in earnings of

• unconsolidated equity affiliates (2)

-183.880 183,878 Interest charges 465,703 47.291

-61,632

.35,579 (37.741) 572,464 Income taxes (credits) 313,752

.132,726 (141,288)

(11,252) 293,938 Net income (loss) 606.963 200,505 (145,830)

.(38,586)

-623,072 Total assets 21.630,523 4,482,308 2.167.472 1,327.354 210.9)

-27,50.4,366,

• Investments in affiliates - at equity 214

-823,995

-824.209-Cash paid for long-lived asset additions 1.131,734 169,756 210,297 18,514 1,530,301 2001 Operating Revenues

.$ 7,432,920

$789,244

$1,370,485 34,603 (6,353)

$ 9,620.899 Deprec., amort. & decommi.

667.333 43,103 4674,516

-749,619 Interest income 79,702 54,053 23.169 37,235 (34,354) 159,805.

Equity in earnings of unconsolidated equity affiliates 1282--

162,882 Interest charges

.576,705 55,717 74,953 41,558 (34,353) 714,580 Income taxes 300,284 80,053 74,493 863

-455,693.

Cumulative effect of accounting change 23,482

-23,482 Net income (loss) 574,554 127,880 105,939 (57,866) 750.507 Total assets 20,309,695

.3.449,156.

2,377,733 863,906 (1,090,179) 25,910,311 investments in affiliates - at equity 214

-765,889 766,103

• Cash paid for long-lived asset additions 1,110,484 126,880 199,387 599,886

'2,036,637 Businesses marked with are referred to as the 'competitive businesses, with the exreption of the parent company, Entergy Corporation. ~Eliminat ions are primarily intersegment activity.

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I ENTERGY CORPORATION AND SUBSIDIARIES 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Energy Commodity Services' net loss for the year ended GEOGnAPHic AREAS December 31, 2002 includes net charges of $428.5 million to The following table shows Entergy's domestic and foreign operating expenses ($238.3 million net of tax). These operating revenues for the years ended December 31 charges reflect the effect of Entergy's decision to discontinue (in thousands):

additional greenfield power plant development and the asset 2003 2002 2001 impairments resulting from the deteriorating economics of Domestic

$9,122,827

$8,051,992

$9,098,861 wholesale power markets in the United States and the United Foreign 72,093 253,043 522,038 Kingdom. The net charges consist of the following:

Consolidated

$9,194,920

$8,305,035

$9,620,899

• The power development business obtained contracts in October 1999 to acquire 36 turbines from General Long-lived assets as of December 31 were as follows Electric. Entergy's rights and obligations under the (in thousands):

2003 2002 2001 contracts for 22 of the turbines were sold to an independent 2,3

20.

059 special-purpose entity in May 2001. $178.0 million of the Foreign 1.863 773 $

421,870 charges, including an offsetting benefit of $28.5 million:

Consolidated

$18,298,797 $17,665,003 $16,889,929

($18.5 million net of tax) related to the sale of four turbines to a third party, is a provision for the net costs NOTE 13. EQUITY METHOD INVESTMENTS

resulting from cancellation or sale of the turbines subject As of December.31, 2003, Entergy owns material invest-to purchase commitments with the special-purpose entity.

ments in the following companies that it accounts for unde

. $204.4 million of the charges result from the write-off

-the equity method of accounting:,

of Entergy Power Development Corporation's equity investment in the Damhead Creek project and the Company Ownership Descripton impairment of the values of the Warren Power power Entergy-Koch, LP 50% partnership Engaged in two major plant, the Crete project, and the RS Cogen project. This interest businesses: energy',

portion of the charges reflects Entergy's estimate of the commodity trading, which effects of reduced spark spreads in the United States includes power, gas, weather and the United Kingdom. These estimates are based on derivatives, emissions, and various sources of information, including discounted cross-commodities, and gas cash flow projections and current market prices.

transportation and storage 509 member Co-generation project that

• $39.1 million of the charges relate to the restructuring.

erest produces power and steam of the non-nuclear wholesale assets business, including o an industrial and impairments of administrative fixed assets, estimated merchant basis in the Lake sublease losses, and employee-related costs for approxi-Charles, Louisiana area mately 135 affected employees. These restructuring EntergyShaw LLC 50% member Provides management.

costs are included in the "Provision for turbine commit-interest engineering, procurement, ments, asset impairments, and restructuring charges" construction, and commis-in the accompanying consolidated statement of income sioning services for electric power plants were comprised of the following (in millions):

erete n0 rerhantp

.Crete Energy 50% member Own a merchant power s

P i

No-Cs

. Ventures, LLC interest plant located in Crete, estructuring Paid in Non-Cash Remainn Crete Turbine illinois' Costs Cash Portion Accrual Holding Ilo Fixed asset impairments

$22.5

$22.5 Sublease losses 10.7 5.6 5.1 Severance and related costs 59 Entergy sold its interest in the Crete project in January TLbtal

$39.1

$11.5

$22.5

$5.1 2004 and realized an insignificant gain on the sale.

Following is a reconciliation of Entergy's investments in

$32.7 million of the charges result from the write-off of equity affiliates (in thousands):

capitalized project development costs for projects that 2

2 200 will not be completed..

B20 0

00 wilntb opee.

Beginning of year 824,209

$ 766,103

$136,487 The net charges include a gain of $25.7 million Additional invetment 4,668 36,372 471,102

($15.9 million net of tax) on the sale of projects under

. Income from the investments 271.647 183.878 162,882 development in Spain in August 2002 and the after-tax Other income 45,583 21,462 18,074 gain of $31.4 million realized on the sale of Damhead Dividends received (105,142)

(73.902)

(21,191)

Creek in December 2002.

Currency translation adjustments 138 Dispositions and other adjustments 12,363 (109,704)

(1.389) i i

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i End Of year

$1,053,328

$ 824,209 * $766,103

ENTEROY CORPORATION AND SUBSIDIARIES 20 03 In accordance with the partnership agreement, Entergy NOTE 14. ACQUISITIONS AND contributed $72.7 million to Entergy-Koch in January 2004.

D ISPOSITIONS

'The following is -a summary of combined financial ASSET ACQUISITIONS information reported by Entergy's equity method investees Vermont Yankee (in thousands):

In July 2002, Entergy's Non-Utility Nuclear business purchased the 510 MW Vermont Yankee nuclear power

-2003

-2002 2001' plant located in Vernon, Vermont, from Vermont Yankee Income Statement Items P

m Operating revenues

$ 585404

$ 551.853

$693400 Corporation

$180 Operating income

$ 207,301

$ 159,342

$309,752 received the plant, nuclear fuel, inventories, and related real Netincome

$ 172,595 -'$

68,05

$226,039 estate. The liability to decommission the plant,'as well as Balance Sheet Items related decommissioning trust funds of approximately Current assets

$2,576,630

$2,334,133

$310 million, was also transferred to Entergy. The acquisition Noncurrent assets

$1,675,334

$1,490,355 included a 10-year power purchase agreement (PPA) under Current liabilities

$1,757,663

$1,782,38' which the former owners will buy the power produced by Noncurrent liabilities

$1.166,540

$ 729,817 the plant, which is through the expiration of the current operating license for the plant. The PPA includes an adjust-Two of the unconsolidated 50/50 joint ventures, Entergy-'

e 0 j v

s, ment clause which provides that the prices specified in the Koch and RS Cogen, have obtained debt financing for their P

w b

PPA winl be -adjusted downward annually, beginning in operations. As of December 31, 2003, the debt rmnancing n

As 2006, if power market prices drop below the PPA prices.

outstanding for those two entities totals $773.8 minion, tion was accounted for using the purchase w

~~~~The acquisihnwsacutdfruigteprhs which is included in the liability figures given above. This h is method. The results of operations of Vermont Yankee subse-debt is nonrecourse to Entergy.t

-s quent to the purchase date have been included in Entergy's consolidated results of operations. The purchase price has

.. RELATED-PARTY TRANSACTIONS AND GUARANTEES been allocated to the assets acquired and liabilities assumed 2003 2002 and 2001 Entergy procured various based on their estimated fair values on the purchase date.

services from Entergy-Koch consisting primarily of pipeline transportation services for natural gas and risk management s

s fIndian Point 2 management services for electricity and natural gas. The

'In September 2001, Entergy's Non-Utility Nuclear business

' total cost of such services in 2003, 2002, and 2001 was;

' tl acquired the 970 MW Indian Point 2 nuclear power plant approximately $15.9 million, $11.2 million and $7.8 million,

'-located in Westchester County, New York from Consolidated respectively. In 2003, Entergy Louisiana and Entergy New Ey Edison. Entergy paid approximately $600 minlion in cash at Orleans entered purchase power agreements with RS a

ethe closing of the purchase and received the plant, nuclear Cogen, and purchased a total of $26.0 million of capacitaty fuel, materials and supplies, a PPA, and assumed certain

' and energy from S Cogen in 2003. Entergy's operating liabilities. On the second anniversary of the Indian Point'2 transactions with its other equity method investees were a

n n

b w

a acqluistion, Entergy's nuclear business winl also begin to not material in 2003, 2002, or 2001.'

pay NYPA $10 million per year for up to 10 years in accor-EntergyShaw constructed the Harrison County project d

w t

I P

.dance with the Indian Point 3 purchase agreement. Under

'-for tntergy that was completed in 2003. Entergy guaran-r

• y t

the PPA, Consolidated Edison will purchase 100% of Indian teed EntergyShaw's obligation to construct the plant until Point 2's output through 2004 Consolidated Edison ts-approximatelyJune2004.Entergy'smaximumliabilityon ferred a'$430 million decommissioning trust fund, along the guarantee is $232.5 million.

-with the liability to decommission Indian Point 2 and Indian ES Cogen has an interest rate swap agreement that Point 1, to Entergy. Entergy acquired Indian Point 1 in the hedges the interest rate on a portion of its debt. Entergy

-ransaction, a plant that has been shut down and in safe guaranteed RS Cogen's obligations under the interest

-storage since the 1970s.-

rate swap agreement. The guarantee is in the amount of '

sn t

19705.

The acquisiton was accounted for using the purchase

$16.5 million'and terminates in October 2017.

m T

o

'-method.

The results of operations of Indian Point 2 subse-quent to the purchase date have been included in Entergy's consolidated results of operations. The purchase price has been allocated to the acquired assets, including identifiable intangible assets, and liabilities assumed based on their estimated fair values on the purchase date. Intangible assets are being amortized straight-line over the remaining life of the plant.

ENTEROY CORPORATION AND SUBSIDIARIES 2003 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS concluded Asset Dispositions management strategy. Except f In the first quarter of 2002, Entergy sold its interests in ties conducted by the Energy C projects in Argentina, Chile, and Peru for net proceeds of Entergy enters into derivatives c

$135.5 million. After impairment provisions recorded for inherent in its physical or finan these Latin American interests in 2001, the net loss realized Entergy's exposure to mark on the sale in 2002 is insignificant.

number of factors, including t In August 2002, Entergy sold its interest in projects and diversification of position under development in Spain for a realized gain on the sale volatility and liquidity. For inr of $25.7 million. In December 2002, Entergy sold its 800 the time period during which I MW Darnhead Creek power plant in the UK resulting in an and the relationship between t increase in net income of $31.4 million. The Darnhead Creek the underlying instrument an buyer assumed all market and regulatory risks associated strike or exercise price also affE with the facility.

A significant factor influencing In August 2001, Entergy sold its Saltend power plant in risk to which Entergy is expi the UK for a cash payment of approximately $800 million, techniques to mitigate such ris]

Entergy's gain on the sale was approximately $88.1 million risk by actively monitoring ca

($57.2 million after tax). In the sales transaction, Entergy management policies as well as or its subsidiaries made certain warranties to the purchasers of its hedging policies and relating primarily to the performance of certain remedial management policies limit the a work on the facility and the assumption of responsibility and rolling net exposure durin for certain contingent liabilities. Entergy believes that it policies, including related risk I has provided adequate reserves for the warranties as of to ensure their appropriateness E December 31, 2003.

-laedrInw Deorivatives for the energy trading activi-'

'mmodity Services segment, only to manage natural risks cial assets or liabilities.

et risk is determined by a, he size, term, composition,-

as held, as well as market struments such as options,

he option may be exercised he current market price of id the option's contractual

'ets the level of market risk.

g the overall level of market Dsed is its use of hedging

k. Entergy manages market xmpliance with stated risk monitoring the effectiveness strategies. Entergy's risk amount of total net exposure tg the stated periods. These imits, are regularly assessed given Entergy's objectives.

NOTE 15. RISK MANAGEMENT AND FAIR VALUES, MARKET AND COMMODITY RIsxs In the normal course of business, Entergy is exposed to a number of market and commodity risks. Market risk is the potential loss that Entergy may incur as a result of changes:

in the market or fair value of a particular instrument or commodity. All financial and commodity-related instru-ments, including derivatives, are subject to market risk.

Entergy is subject to a number of commodity and market risks, including:

7lype of Risk Power price risk I. -.

Fuel price risk Foreign currency exchange rate risk Primary Affected Segments All reportable segments All reportable segments AAU reportable segments Entergy classifies substantially all of the following types of derivative instruments held by its consolidated businesses as cash flow hedges:

Instrument Business Segment Natural gas and electricity Non-Utility Nuclear, futures and forwards Energy Commodity Services Foreign currency forwards U.S. Utility, Non-Utility Nuclear Cash flow hedges with net unrealized gains of approximately

$11 million at December 31, 2003 are scheduled to mature during 2004. Gains totaling approximately $27 million were realized during 2003 on the maturity of cash flow hedges.'

Unrealized gains or losses result from hedging power output at the Non-Utility Nuclear power stations and foreign currency hedges related to Euro-denominated nuclear fuel acquisitions. The related gains or losses from hedging power are included in revenues when realized. The realized gains or losses from foreign currency transactions are included in the cost of capitalized fuel. The maximum length of time over which Entergy is currently hedging the variability in future cash flows for forecasted transactions at December 31, 2003 is approximately five years. The ineffective portion of the change in the value of Entergy's cash flow hedges during 2003 was insignificant.

Equity price and interest rate risk - investments U.S. Utility. Non-Utility Nuclear Entergy manages these risks through both contractual arrangements and derivatives. Contractual risk manage-ment tools include long-term power and fuel purchase agreements, capacity contracts, and tolling agreements.

Entergy also uses a variety of commodity and financial derivatives, including natural gas and electricity futures, forwards, swaps, and options; foreign currency forwards; and interest rate swaps as a part of its overall risk I

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ENTERGY CORPORATION AND SUBSIDIARIE8 2003 Fair Values COMMODITY INSTRUMENTS Fair -.value estimates of Energy Commodity Services' commodity instruments are made at discrete points in time based on relevant market information. Market quotes are used in determining fair value whenever they are available. When market quotes are not available (e.g., in the case of a long-dated commodity contract), other infor-mation is used, including transactional data and internally developed models: Fair value estimates based on these other methodologies are necessarily subjective in nature' and involve uncertainties and matters of significant judgment. Therefore, actual results may differ from these estimates. At December 31, 2003 and 2002, the recorded values of Energy Commodity Services' energy-related commodity contracts were as follows (in thousands):

Entergy considers the carrying amounts of most of its financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments.

Additional information regarding financial instruments and their fair values is included in Notes 5 and 7 to the consolidated financial statements.

NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)

Operating results for the four quarters of 2003 and 2002 were (in thousands):

Operating Operating Income Net Income 2003 2002 Assets Liabilities Assets Liabilities Consolidated subsidiaries S

$ 4.071

$ 8,395 Equity method investees "'

$872,959

$8866,412

$754,678

$663,765 (1) As required by equity method accounting principles, only Entersgy' net investment in these investees is reflected in its balance sheet, and these assets and liabilities are not reflected in Entergy's balance sheet. See Note 13 to the consolidated financial statements for more information on Entergy's equity method investees.

Following are the cumulative periods in which Entergy-Koch Trading's net mark-to-market assets would be realized in cash if they are held to maturity and market prices are unchanged (in millions):

Revenues (Loss)

(Loss) 2003 First Quarter

$2,037,723

$383,403

$400,923'0 Second Quarter 2,353,909 481,576 211,517 Third Quarter 2,700,125 819,005 371,650 Fourth Quarter 2.103.183 40,571 (33,623) 2002 First Quarter

$1,860,834

$ (55.670)

$ (72.983)

Second Quarter 2.096,581 488,159 247,585

- Third Quarter 2,488,875 653,695 368,800 Fourth Quarter 1,878.745 57,537 81.670 (a) Net income before the cumulative effect of accounting change for the first quarter of 2003 was $258,001.

EARNINGS PER AVERAGE COMMON SHARE Maturities and Sources for Fair Value of rading Contracts at December 31. 2003 0-12 13-24

. 25+..

months months months Total 2003 2002 Pricesactivelyquoted

$128.3

$(87.1)

$(14.6)

$24.8 Prices provided by other sources 4.8 (10.1) 5.6 0.3 Prices based on models (28.0) 14.2 4.9 (8.9) 7btal

$ $103.1

$(83.0)

$ (4.1)

$16.0 Basic Diluted Basic Diluted First Quarter

$ 1.77

. $ 1.73'

$(0.36)

$(0.36)

Second Quarter

$ 0.91

$ 0.89

$ 1.08

$ 1.06 Third Quarter

$ 1.60 Fourth Quarter

$(0.19)

(b) Basic and diluted earnings per average common a of accounting change for the first quarter of 2003 FINANCIAL INSTRUMENTS The estimated fair value of Entergy's financial instruments is determined using bid prices reported by dealer markets and by nationally recognized investment banking firms.

The estimated fair value of derivative financial instruments is based on market quotes. Considerable judgment is required in developing some of the estimates of fair value.

Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange. In addition, gains or losses realized on financial instruments held by regulated businesses may be reflected in future rates and therefore do not necessarily accrue to the benefit or detriment of stockholders.

K 1.57

$ 1.61

$ 1.59 S(0.18)

$ 0.36

$ 0.35 share before the cumulatiue effect

> then 51.13 and Sl.10. nspecticety.

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i ENTERGY CORPORATION -AND SUB*

DIRECTORS AND OFFICERS DIRECTORS The business and affairs of Entergy Corporation are managed under.

Wi.

Cliff the direction of the Board of Directors, acting either as a body or Chairman o through its committees. In 2003, the Board met 9 times. The' Board Louisiana. A

-committees are as follows (number of meetings in 2003 indicated in parentheses): Audit (11). Corporate Governance (9),'Executive (0).

Bismark,

-Finance (5), Nuclear (6) Personnel (11).

'Chairman o1 Finan

)

N

r.

-e

(.

- -Texas.

An Maureen S. Bateman Special Senior Counsel, Bank of America, Boston, Massachusetts. An Steven V.

Entergy director since 2000. Age, 60 Former Aud Joined the E W. Frank Blount Chairman and Chief Executive Officer, JI Ventures, Inc., Atlanta, Georgia. An Entergy director since 1987. Age. 65 OFFICERI 811)IARIE:S 2003

'ord Smith' f the Board of T. Baker Smith & Son, Inc., Houma, An Entergy director since 1983. Age,' 68 A. Steinhagen r the Board of Steinhagen Oil Company, Inc.. Beaumont, catergy director since 1993. Age, 69 Wilkinson it Partner, Arthur Andersen LLZ Waterameet, Michigan.

Entergy Board in October 2003. Age, 62 I -.. 1..

I VADM. George W. Davis J.' Wayne Leonard U.S.: Navy (ret.); Retired Director, President and Chief Operating Chief Executive Officer. Joined Entergy in 1998 as President and Officer' of Boston Edison Company. Columbia South Carolina.

Chief Operating Officer; appointed CEO on January 1, 1999. Former An Entergy director since 1998. Age, 70 executive of Cinergy. Age, 53 Simon D. de Bree Donald C. Hintz Retired Director and Chief Executive Officer of DSM, The Netherlands.

President. Joined Entergy in 1989 and was Group President and Chief An Entergy director since 2001. Age, 66 Nuclear Operating Officer before being appointed President on January 1. 1999. In charge of nuclear power for another utility before Claiborne P. Deming j

Joining Entergy. Age, 61 President and Chief Executive Officer and Director of Murphy Oil Corporation, El Dorado, Arkansas. An Entergy director since 2002.

- Leo P. Denault

'Age. 49:

.Executive Vice President and Chief Financial OfMicer. Joined Entergy in 1999 as Vice President or corporate development. Former Vice Alexis Herman President of Cinergy. Age. 44 Chair and' Chief Executive Officer of New Ventures,' Inc., McLean, Virginia. Joined the Entergy Board in May 2003. Age, 56 Richard J. Smith Group President, Utility Operations. Joined Entergy in 2000. Former J. Wayne Leonard President of Cinergy Resources, Inc. Age, 52 Entergy Chief Executive Officer. Joined Entergy in April 1998 as President and Chief Operating Officer; appointed CEO and elected to Curtis L. H6bert.

the Board of Directors on January 1, 1999. New Orleans, Louisiana.-

Executive Vice President, External Affairs. Joined Entergy in 2001.. '

Age, 53 Former Chairman of the Federal Energy Regulatory Commission.

Age,41 Robert v.d. Luft Fntervv Chairman. Member nf Enterov Board of Directors since i g2A

- Joseph T. Henderson elected Chairman of the Board on May 26, 1998. Also se acting CEO from May 26 until December 31, 1998. Chadd Pennsylvania. Age, 68 Kathleen A. Murphy Former Senior Vice President and Chief Financial Officer, Limited Partnership, Stamford, Connecticut. An Entergy direct 2000. Age, 53

-Paul W. Murrill

-Professional Engineer, Baton Rouge, Louisiana. An Entergy since 1993. Age, 69 James R. Nichols Partner, Nichols & Pratt (family trustees), Attorney and Cl Financial Analyst, Boston, Massachusetts. An Entergy direct 1986. Age, 5 -6 William A. Percy, II President and Chief Executive Officer 'of Greenville Cc Company, Greenville, Mississippi. An Entergy director sinc

'Age, 64.

Dennis H. Reilley Chairman, President and Chief Executive Officer of Praxa Danbury, Connecticut. An Entergy director since 1999. Age, 5 rved as Senior Vice President and General Tax Counsel. Joined Entergy in 1999.

Is Ford, Former Associate General Tax Counsel for Shell Oil. Age, 46 Nathan E. Langston Senior Vice President and Chief Accounting Officer. Joined Entergy in Connell 1971 and advanced through various accounting and finance positions

,or since at Entergy Arkansas and Entergy before being promoted to VP & CAO in 1998. Age, 55 William E. Madison director Senior Vice President, Human Resources and Administration. Joined Entergy in 2001. Former Senior Vice President for Avis Group

-Holdings, Inc. Age, 57 I

Robert D. Sloan Senior Vice President, General Counsel and Secretary. Joined Entergy in 2003. Former Vice President and General Counsel at GE Industrial CJULCLefl.

alge,

.U.;;-

I Steven' C. McNeal Vice President and Treasurer. Joined Entergy in 1982 as a financial analyst and was given increased responsibility in areas of fmance, treasury, and risk management before being promoted to VP &

Treasurer in 1998. Age, 47 I

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ENTEROY CORPORATION A ND SU BS ID IA RI ES 2 00 3 INVESTOR INFORMATION The 2004 Annual Meeting of Shareholders will be held on DVDEDPY NT Friday, May 14, at the Hyatt Regency Hotel,'500 Poydras The entire amount of dividends paid during 2003 is taxable Plaza,. New Orleans, Louisiana. The meeting will begin as ordinary l ncome. The Board of -Directors -declares.

at 10 a.m. (CDI).

dividends quarterly and sets the record and payment dates.

Subject to Board discretion, those dates for 2004 are:

SHAREHOLDER NEWS Entergy's quarterly earnrings results, dividend action, Declaration Date Record Date Payment Date and other news and information of investor interest may January 30.

February I11' March I be obtained by canling Entergy Shareholder Direct at-April 7 May 12

'June 1 1-888-ENTERGY (368-3749). You may also use this service July 30 Augu'st 11 September 1 to receive a printed copy of the quarterly earnings release November 5

-November 17 December 1 by fax or mail. Updated quarterly -earnings results can be expected in late April. July, October, and early February.:

Quarterly dividend payments (in cents-per-share):*

Dividend information yrill be updated according to the declaration schedule.

Quarter 2004

20.

02

.2001...

2000 This and other information, including Entergy's -14

.5 3

1A3 Corporate Governance: Guidelines, Board-Committee' 2

35.

33

.31'A 30' Charters for the Corporate. Governance, Audit, and.

5 3

14-3 Personnel Commidttees, and Entergy's Code of Conduct may be accessed electronically by selecting the Entergy home 45 5

33 14 page on the Internet's World Wide Web at wwwentergycom.

DVDN ENETETSOKPRHS For copies of the above and copies of Entergy's 10-K fldwt*teScrteanExhne Entergyr offers an automatic Dividend Reinvestment and J

and 0-QreprtsStock Purchase. Plan administered -by 'Mellon Investor Commssin o fo othr ivesor nforatin, all Services. The plan is'designed to provide Entergy share-1-80-292996 or riteto:holders and other investors with a convenient and econom-,

Entegy Crportionical method to purchase shares of the company's common' stock. The plan also accommodates payments of up to InesorRlaios$3,000 per, month for the purchase of Entergy common P.O.Box 1000shanres.

F'irst-time investors nay make an -initial minimium New

rlens, A 7161purchase of $ 1,000. Contact Mellon by telephone or Internet Securities analysts and representatives of financial inti-foinrmtnadannoletfr.

DIRECT REGISTRATION SYSTEM nmorovi~,entergy~com regarding Entergy's. financial and pe gpe Entergy has elected to participate in a Direct Registration~~

• System that provides'investors with an alternative method for holding shares. DRS will permit investors., to move' SHRHLESACUTIFRAINshares between the company's records and the broker Mellon Investor Services, LL.C is Entergy's transfer agent, '

delrrfthircoie istrar, dividend disbursing agent, and dividend reinvestment Ti pinaalbet vr hrhle h

hoe and stock purchase plan agent. Shareholders of recor-d with quesion. abut ostcertfictes los ormising iviend have shares registered in his or her name on the books of the company, will be offered by broker dealers at the checks, or notifications of change of address should contact:

iea netrprhss hrsadrqet ht Melon nvsto Sevies

-they be registered. An additional feature of DRS enables

,eiting registered hoders to deposit physical shares into a

~~en~r "book account.

Ridgefield Park, NJ 07660

'Iblephone: 1-800-333-4368

• For Internet access: wwwninelloninvestor~com.ETIG OMNSOKPIE The high and low tx'ading' prices for each'quarterly period COMMN STCK IFORMTIONin 2003 and 2002 were as follows (in dollars):

• The-company's common stock is listed on the New York,.

Chicago, and Pacific exchanges under the symbol "ETR."

7-20

.*20 The Entergy. share price is reported -daily in the financial Quate

-ig ow Hih Lo press under'~'Entergy" in most listings of New York Stock 1

7 95 22 38 52 Exhnesecurities.. Entergy common stock is 'a compo-

.'~~4.0 4.5 10 nent of the following indices: S&P 500, S&P Utilities Index,

'.5.9 77 49 21 and the NYSE Composite Index, amnong others'.

72 10 64 65 At year-end -2003. there were 228,897,642 shares of Entergy common,- stock. outstanding. Shareholders of record totaled 54,738, and approximately 89,000 investors

• held Entergy stock in "street name" through a broker.

'E Entergy ENTEROY CORPORATION POST OFFICE BOX 61000 NEW ORLEANS, LA 70161 WWW.ENTER0Y.COM