ML061530426
| ML061530426 | |
| Person / Time | |
|---|---|
| Site: | Indian Point, Pilgrim, Vermont Yankee, FitzPatrick  |
| Issue date: | 12/31/2005 |
| From: | Entergy Nuclear Northeast |
| To: | NRC/FSME |
| References | |
| Download: ML061530426 (481) | |
Text
{{#Wiki_filter:UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF TIlE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2005 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF TIlE SECURITIES EXCHANGE ACT OF 1934 For the transition period from -to Registrant, State of Incorporation, Address of Registrant, State of Incorporation, Address of Commission Principal Executive Offices, Telephone Number, and ommission Principal Executive Offices, Telephone Number, and File Number IRS Employer Identification No. File Number IRS Employer Identification No. 1-11299 ENTERGY CORPORATION 1-32718 ENTERGY LOUISIANA, LLC a Delaware corporation) (a Texas limited liability company) 500 Clinton Center Drive 446 North Boulevard Clinton, Mississippi 39056 Baton Rouge, LA 70802 (Temporary Executive Office) Telephone (225) 381-5868 Telephone (504) 576-4000 75-3206126 72-1229752 1-10764 ENTERGY ARKANSAS, INC. 1-31508 NTERGY MISSISSIPPI, INC. an Arkansas corporation) (a Mississippi corporation) 425 West Capitol Avenue 308 East Pearl Street Little Rock, Arkansas 72201 Jackson, Mississippi 39201 Telephone (501) 377-4000 Telephone (601) 368-5000 71-0005900 64-0205830 1-27031 ENTERGY GULF STATES, INC. 0-5807 ENTERGY NEW ORLEANS, INC. a Texas corporation) (a Louisiana corporation) 350 Pine Street 1600 Perdido Street, Building 529 Beaumont, Texas 77701 New Orleans, Louisiana 70112 Telephone (409) 838-6631 Telephone (504) 670-3620 74-0662730 72-0273040 1-8474 ENTERGY LOUISIANA HOLDINGS, INC. 1-9067 SYSTEM ENERGY RESOURCES, INC. a Texas corporation) (an Arkansas corporation) 10055 Grogans Mill Road Echelon One Parkwood 1I Building 1340 Echelon Parkway Suite 500 Jackson, Mississippi 39213 The Woodlands, Texas 77380 Telephone (601) 368-5000 telephone (281) 297-3647 72-0752777 72-0245590 Former name and address: ENTERGY LOUISIANA, INC. a Louisiana corporation) 4809 Jefferson Highway Jefferson, Louisiana 70121
, Securitiesregisteredpursuant:to Section 12(b) of the Act: r~cii;,:inLli- ,'*"rf, ,,
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- b-u .(2.v q r* .,!Name of Each Exchange Re2istrant Title of Class on Which Reeistered' ..
Entergy Corporatioh:.'-.:.: ,. . Cominon StockS0.011Par Value -:207,846,657 1 , 1, -:New York Stock Exchange, Inc.
", '".,,1 ., ... , ,.V*-ishares'outstanding'atFebruary'28;2006,vi f : :, Chicago Stock Exchange Inc..
...: :,C:,Ivrw : . ;1-0! ,--,i ;,. P'.rS, ii -i f, :,i, ,Pacific Exchange Inc.I:r, --
Equity Units, 7.625% New York Stock Exchange, Inc. EntergyArkansas, Inc.. rmMortgage Bonds,'6.7% Series due April 2032,ý.-rT',- :New York StockExchange, Inc.
' i" £.d - i _,r101 Moi-tgige Bonds,'6.0% Seriesdud Nrvemberr 2032 ) New York StockExchange,, Inc.
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Entergy Gulf States, Inc. Preferred Stock, Cumulative, $100 Par Value:
$4.40 Dividend Series '1. I New York Stock Exchange, Inc.
$4.52 Dividend Series ! f,:;,., New York Stock Exchange, Inc.
- $5*08 Dividend Series New York Stock Exchange, Inc.
Adjustable Rate Series B (Depository Receipts) NewYork.Stock Exchange, Inc. Entergy Louisiana,?LLC Mortgage Bonds, 7.6% Series due April 2032 New York Stock Exchange, Inc. Entergy Mississippi, Inc. Mortgage Bonds, 6.0% Series due November 2032 New York Stock.Exchange, Inc. Mortgage Bonds, 7.25% Series due December 2032 NewYork Stock Exchange, Inc. W1 S*~'.7 r.;:L V'*i;"'",* Securities registered pursuant to Section 12(g) of the Act: Reeistrant Title of Class 'I t. .
, Entergy Arkansas, Inc. o4 , .. -Preferred ,Stock,9Cumulative, $100 Par YValue ,.-
' 'Preferred Stock, Cumulative,'$0.01 Par alue'i, , ',.! j .::.
Entergy Gulf StatesIn.r.c.;oi. I Preferred Stock,'Cunulative,;$100,Par. Yalue->,l ,: :; Entergy Louisiana Holdings, In !,Preferred Stock,' Cumulative, $100 Par Value "':,. .Ir . Preferred Stock, Cumulative, $25 Par Value Il111 ;; 4.1: / (Ylf,1503vi)/ e~ IK2~ PIJOk Entergy Mississippi, Inc. Preferred Stock, Cumulative, $100 Par Value Entergy New Orleans;,Inc. ) .. , -;.-Preferred Stoek.Gumulative, $10O Par Value! e ,. Indicate by check mark if the registrants are a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No "I Indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No __
Indicate by check mark whether the registrants (1) have filed alh reports required:tobe. filed by, Section13, or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants, were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes '_... No/:.'.; to r<-. Indicate, by, bheck, mark if dis-closure of delinquent filers pursuant toItem'405 of Regulation S-K- is. not-:-! contained, herein,; and, will not be contained;, to, the best' of the registrants' kniowledge, in definitive proxy or information statements ificorpbrated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
-Indicate by check mark whether the r'egistrant is a largeiacceleratedi.filer,ian accelerated filer,, or."a non-,
accelerated filer.: . See definition of "accelerated filer and large* acceleratedifiler", in Rule 12b-2 of the Securities Exchange Act of 1934. Large accelerated :- L'=.. - - . Non-accelerated filer 3-,,Acceleratedr filer filer Entergy Corporation ... - 4 .. .
- Entergy Arkansas, Inc. 4 S.Entergy Gulf States, In. .. ...... .. ..
Entergy Louisiana Holdings, Inc. 4
*Entergy Louisiana', LLC ' . -.. , " ...
Eritergy.Mississippi, Inc. . .4 Entergy New Orleans, Inc. 4 System Energy Resources, Inc. 4 Indicate by check mark whether any of the registrants are a shell company (as defined in Rule 12b-2 of the Act.) Yes No 4 . . The aggregate market value of Enteigy. Corporation Common Stock, $0.01 Par Value,; lield~by n6n-affiliates as of the end of the second quarter of,2005.) was, $15.9ý billion based on the reported last sale price of $75.55 per share for such stock on the New York Stock Exchange on June 30, 2005. Entergy Corporation is the sole holder of the common stock of Entergy Arkansas; In6.1 Entergy Gulf States, Inc., Entergy L6uisiana Holdings, fInc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. Entergy Louisiana Holdings, Inc. is the sole holder of the"cofimnbn membership interests'in Entergy Louisiana,'LLC,'." .. r *.- .
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DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement of Entergy Corporation to be filed in connection with its Annual Meeting of Stockholders, to be held May 12, 2006,:are-incoiporated by reference into Parts Iafid III lier'eof. .
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TABLE OF CONTENTS S-SECForm10-K "Page" Reference Nuimber .Number Definitions " .:-.,I*:1/ bi* ,,. r' . .vI 1 Entergy's Business Part I..tem1. 1 Financial Information for U.S. Utility and Non-Utility Nuclear , . 1.!- 2 Strategy .. , 3 Report of Management 4 Entergy Corporation and Subsidiaries :... / 1., Management's Financial Discussion and Analysis r.jcy, t. "jIl:SI ! Part IL Item 7.,: l Hurricane Katrina and Hurricane Rita. !,o:!Y " b.H ! , -Oi .2: .n. Results of Operations.:. .",mv' ! , r :ý..jY ; r! - '..- 1 (fý'2 ., ,,, -jý: 8 Liquidity and Capital Resources 16 o Significant Factors and Known Trends 1-00"bw. *',Y :'y,
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Critical Accounting Estimates .741. New Accounting Pronouncements ; , 42 Selected Financial Data - Five-Year Comparison "r' [ :Part II.rItem 6. ,i,= t,, .43
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Report of Independent Registered Public Accounting Firm . .:. "i:, ' .44 Consolidated Statements of Income For the Years Ended December. 31,.!2005, *. .*;Part II.-Item ,..:ri,,rl 45 2004, and 2003 cw ,! bi': !,Z*iT:;t I Consolidated Statements of Cash Flows For the Years Ended December 31, Part:II.,Item 8;, p,,;,jj;j'; 4 6 2005, 2004, and 2003 ., ;:,:, I;;:O iu " .: Consolidated Balance Sheets, December 31, 2005 and 2004 ',.'PartII.Item 8. . Consolidated Statements of Retained Earnings, Comprehensive Income, and .: Part II.JItem 8.,..j,ý,j0;-I,*50 Paid in Capital for the Years Ended December 31, 2005, 2004, and 2003 .j: ,r.;,oyui,-l 27.1 ,t ,,'oY 5 Notes to Consolidated Financial Statements * ,:,or, o/.rI*. -Pr IItem . 8 1 U.S. Utility 1:'I:rq . v-Li., ,':
- rrTyrJ, , ' . .. ,'Part-I.'Item .lJr;;', vr"l1:ll Entergy Louisiana restructuring Ai"'-r,(i b'3 zTU -Ail. , '.'-!i r1*V )o rmim, 1 1 Hurricane Katrina and Hurricane Rita rF(o, i;l12 Customers ..: '.. n.1 OO" b . , i;. : 2j.<C1 , - 3.
3 Electric Energy Sales i i . ( S .. .. /r r:t qrt ) L, j'.:*:: !,: i., o ;;1:v_,:- 2l.1 Retail Rate Regulation i:: ,4 1(, .UI mn(- by.*.l1 jj: 4 Property and Other Generation Resources no~iqrroi.) :--'Vi - m.tI r, ,rfi- .7.121' Fuel Supply "" . v-1II;3/4,t]i
'l'li t :: .0,io! $1 w- ihUo.l 426 :. x Federal Regulation .1ii ?i*,,ltf , ,i,'-'iC!h.U'::; 11? gIrmfl!P-1 2 8 1 33 1,i,11.1 Service Companies m
- r'.~;iJ v,.*1mi1 Earnings Ratios ....
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- 134 Non-Utility Nuclear Part I 4ten 1 :, -,v34 Property *.s'. , 5:it r:: ) ]r'r '( :.,; 135 13 5 Energy and Capacity Sales ,r;.>* ,;'rj; , [ .q*J:
Fuel Supply :22r lr l:. ,:.,/. I:;*; Other Business Activities,- . , . , Energy Commodity Services t t- , ):
... ,, iPart.LItem. L..zi -i13 7 .t.b 38 Non-Nuclear Wholesale Assets Business .vtj '_,,i,;ro~t. *id:v; :q :,I,_,'1 Li..IJ:,C:b'i lo rp*1 Entergy-Koch, L.P..i i'! .",w ;m : (i i'-h:r7i eiY i *., 1.,. , v'r; ir,( bvJib;*,- 138 Regulation of Entergy's Business Part L'Item,1. ! 1,n,,.*)39 PUHCA 2005 r,')1 I ht;[
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Federal Power Act _(A : . 3r'39 State Regulation ,.. ., : 7 " " " " "1 r .139
" 14 0 Regulation of the Nuclear Power Industry .. v.: .... I Environmental Regulation "f:f, .ý "1 .143 Litigation . * " i iro i*.t:*' . : , ; :t( ,i, , ,.4 Research Spending 152 Employees 153
Risk Factors., Part 1. Item IA. 154 UnAresolved S'faff Comments Part I. Item I B. 161 Entergy-Arkansas; Inc. Management's Financial Discussion and Analysis Part 1I. Item 7. Results of Operiti6ns' *.,, "162*;;- Liquidity and Capital Resources ,/ " . ~ i65
', ..tll Significant Factors and Known Trends '. 169 Critical Accounting Estimates New Accounting Pronouncements , *.... : ' : 1,75 Report of Independenti Registered Public Accounting Firmnn- 'I -, . '176 Income Statements For the Years Ended December 31, 2005, 2004, and 2003
- Part IT.Item 8. "177 Statements of Cash Flows For the Years Ended December 31, 2005, 2004, Part 1I. Item 8.:;.- 179
. and 2003 Balance Sheets, December 31, 2005 and 2004 - , Part, II. Item 8. 180 Statements of Retained Earnings for the Years Ended December 31, 2005, Part II. Item 8. 182 2004, and 2003 Selected Financial Data - Five-Year Comparison , ,.' Part II. Item 6. . 183 Entergy Gulf States, Inc. '.I ,
Management's Financial Discussion afid(Anal*'sis i; . . Part II. Item 7. Hurricane Rita and Hurricane Katrina . -,'184
' Results ofOperfti6ins - 185 Liquidity and Capital Resources 188 Significant Factors`;and Known Trends :23 I; 193'
'`Critical Accounting Estimates : , .,, ) .. :ur' . 199 New Accounting Pronouncements . b . .iu,'r.,. -203 Report of Independent Registered Public Accounting Firm :'.' . .1 204 fh'nome Statements'For the! Years Ended December 31, 2005, 2004, and 2003 Part 11. Item 8. ' 205.
Sthiements of Cash Flows For the Years Ended December 31, 2005, 2004, PartlIltem 8. ' 207 ihnd2003 Bailance Sheets, December 31, 2005 and 2004 Part II. Item 8. -208 Sthiements of Retained Earnings and Comprehensive Income for the Years Part II.-Item 8:. '210
- -Ended December 31, 2005, 2004, and 2003 SeI&cted Financial Data - Five-Year Comparison .PartHII.,Item 6.:
Ente'r'g'y Louisiana Holdings, Inc. and Entergy Louisiana, LLC Mahagement's Financial Discussion and Analysis Part II. Item 7. Entergy Louisiana Corporate Restructuring " , 212 Hurricane Rita and Hurricane Katrina 213 Results of Operati6ns., i ,, .- . 214
*.'- Liquidity and Capital Resources .218
(-Significant Factors and Known Trends 223 Critical Accounting Estimates 226 New Accounting Pronouncements '230 Entergjy Louisiana Holdings, Inc. and Subsidiaries Rilort of Independent Registered Public Accounting Firm 231! CO"Asolidated Income Statements For the Years Ended December 31, Part II. lteni 8.,- 232 2005,2004, and 2003 , Coiisolidated Statements of Cash Flows For the Years Ended December 31, Part II. Item 8.: /'233
",2005, 2004, and 2003 Of)
C6hsolidated Balance Sheets, December 31, 2005 and 2004 Part II. Item'8.' 234 Cbhisolidated Statements of Retained Earnings for the Years Ended December Part If. Itemi8;,, , 1 236 3'1, 2005, 2004, and 2003 S1&cted Financial Data - Five-Year Comparison Part I. Item6. *...- 237;
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Entergy Louisiana, LLC :, : Ai u;1,, p btr. 23 8 Report of Independent Registered Public Accounting Firm L29-8 .dj=,*or23 9 .,)J Income Statement Forthe Year Ended December 31, 2005 Part II. Item Statement of Cash'Flow;For the Year Ended December 31, 2005.*Tbjol1 im' IV) i Part II Item 8! Io n !1;'241 .hrr' Balance Sheet;December.31, 2005 n, nojit) .. -.;n,_) ŽrPart 11. Item i. P 242, i I, Statement of:Members' Equity for the YearEnded December3 1;,2005 '(P:];:,Part nr:n II.'Item 8;.!5i 1 244 e4/, Selected Financial Data fq Part ll:.Item 6 .omzrti'i i237.!2 Entergy Mississippi;Inc., mf 1q qo , b 1: iiLzoD ltr*.rwc-:VJ lsi'jmcrii~to v1~qrr.. !;r:. &I'Alrcn Management's Financial Discussion and Analysis Part II. Item 7. !,,oilirm';i Hurricane Katrina I .IIiic iq Aeim1 joiujlA !j:1UriC] iflLr.'() iodA bnr, 'i!1245;ti Results of Operations 1,6'! ciog *'mtr:.-'h~i Iti: 1246,ril hF)rnJLI(? Liquidity and Capital Resources Ii,*icrl bin !ir(tIoy*A no ocrljt:*alt'o , H/i. !rt'Arwjz.,;j( i tii p248 A,) Significant Factors and Known Trends j,-mruo!.252 Critical Accounting Estimates , i:jy:y, i bnm; -253 !o,) New AccountingiPronouncements rr f ,!l jtfroA l ii- t, , u,256,mA
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Report of Independent Registered Public Accounting Firm V()i Icr:w, ,ilf257 rI10 Income Statements For theYears Ended December 31, 2005, 2004i~and 2003:111) agPart 1I.Item 8.- fint; ..258, i(i Statements of Cash FlowsFor the Years Ended December 31, 2005, 2004, l::il Part 1I:Item 8.' .259z_]
ý,-rand 2003:1 t~ .iriatic!*
l.111t:*, ;~r / ?'tatlwtO n .lfiI "',*r;I a*rz" l'lT Balance Sheets,-December31, 2005 and 2004 IT "b ll. Item 8.',-ic1:c55260 i{:) IcPart 1,O1 Statements'of Retained Earnings for the Years Ended December 31, 2005, *,:i'rr, PartII'ltem 8.,oi-i. I'262 j;'t] E2004, and 2003, .VI J',01 ,.[hi-xitciif i*; bi id; zjiv Selected Financial Data - Five-Year Comparison Part II. Item 6. 1-263 *i-Entergy New Orleans, Inc. (Debtor-in-possession) ru.i 1tiniumo~oA ,rlt1 i. 9br ,r'i 'ic *Ir,;rio. Management's Financial Discussion and Analysis rM Isi*nrtitnuorj-A Dikd*i' fi-;-PartlII: Item 7. T,b'tlo 1 loip51 Hurricane Katrina w " ,.;- .,; a-64 Bankruptcy Proceedings -*,Y,1265 : 3 Results of Operations 266
,.oLiquidityand Capital Resources,*q',,&) ', .. ..
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'1V1. :qo *, *-01 i~rzo'l I 1df'n; £i~iT 269 2 73 ,iqSignificantFactors and 'KnowvnTrends 1..:.1 ,.' . ,.:.h!ol orci*.;oi '*vn3 .. r:l ,i "tl ,) v ,'
0* Critieal[A ecountingEstimatcsli*:m.,( ,,:' .[, . .,3 ,g .!-I fi',,-.; W 1 '1 *,. *:!* ,, ';,
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ýlnNew.Accounting Pronouncements fib, AIQA ir or, 5.. vfln~qrl no ...'lup
-71! ?i 'fJIrroý Lii i;R278nn
.,';Report ofindependent Registered Public Accounting Firm ,iiil or; z'::.',' ! s lE"*279 ,
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,t.,.Income Statements Forthe Years Ended December 3 l 2005, 2004;!and1 emd vldqqrPart IlI.tem 8.-roý v,*i;280 ,J 2 00 3 .DJ l_I,- . , o Statements of Cash Flows For the Years Ended December 31, 2005, 2004, Part II. Item 8. 281
*Ioniand 2003 o;f' .i lIivo'.,i!iq-, . iiti'jq to-?iltm. a2i ! -!)At
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,' Balance Sheets;December 31?.2005,and2004 jp:"!"1 '* .'-.*Ae,
-)PartIýI.rtem8. f t.d ;. "!> ,
if.;Statements of Retained Earnings for the YearsEnded December 3 1 p2005;, in o ., oPart'Il Item. 8, 1 n-I'r. 2004;.and 2 00 3 W, ý,,4t iol . .' . ... ,r , . ... ld d. ,
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.Selected Financial Data7-Five-Year Comparisont.t,; h. ,I 11 Fýljrui i .--5.t*' i Part IL Item 6:,T .b'yr285'v-.
System Energy Resources, Inc. Management's Financial Discussion and Analysis Part II. Item 7. Results of Operations 286 Liquidity and Capital Resources 286 Significant Factors and Known Trends 289 Critical Accounting Estimates 290 Report of Independent Registered Public Accounting Firm 295 Income Statements For the Years Ended December 31, 2005, 2004, and 2003 Part II. Item 8. 296 Statements of Cash Flows For the Years Ended December 31, 2005, 2004, Part II. Item 8. 297 and 2003 Balance Sheets, December 31, 2005 and 2004 Part II. Item 8. 298 Statements of Retained Earnings for the Years Ended December 31, 2005, Part II. Item 8. 300 2004, and 2003 Selected Financial Data - Five-Year Comparison Part II. Item 6. 301
Notes to Respective Financial Statements for the Domestic Utility Companies Part II. Item 8. 302 and System Energy _;.i,.i, '.stq Prop&*ties , . l,, i, Pai't I.Item 2.rt 1'-1 37.7 Legal Proceedings': ,: .11 '. !." '(i , , iPdrtjIItem3.:,. -,; 377. Subrhigsion of Matteri ti6 aVbte of Security Holders. - 0.. - ,.Y 'Part Iil 4ferrf" i,'*! *,377 Direit6rs and Eiecuti*,e Offlcers of Entergy Corporation I Part IIll Itein 10iJA 'j,',,377 Markdf for Registrants' Comrifion Equity and Related Stockholdei M'att&s:'- ;I , PirtII.Itenfi'5.' irýir:379 , Sele'ted Financifl Data, i Ii't Part I~lIte*m6.-H b'it*380 Management's Discussion and Analysis of Financial Condition and Results of Part IIlt-m 7/. ill' 385*."1 Operations .T .1- 11 t, : ,,-,'ri1A t I ,'.r .;i! " . (I,: . , r. Quanhitative and Qualitative Disclosures About Market Risk Part II. Item,7A' -ni',380 Finan'cial Statements and Supplementary Data Part IL,Item 8`1 .*1.380 1! Chafig6s in and Disagreements with Accountants on Accounting and Financial . : Part II.: Item 9;:1; '.:'i.380 DiMclosure AD::*dlT n*on;* 1,, ;*;,.* rsI,: Confrols and Procedures Part II. Item 9&,A 1!i,381f Attestation Report of Registered Public Accounting Firm .*-ffvPart IL Item 9A.,"-;,382 Othif.Ihformation . "1: Part Item:9BJ : 390 Direct6rs and E)xecutii,e'Offl*ers ofth6 Rigistranits,:'. .... '.1!..:"-:;*a'* Paj-t III{ Item10'i 2 .'391 :' Exec]tive Compensatiofil rin'l, :, !;.*-. ;l.:,(,, ;, PartIlL. IteffiI 1l.:'rri396 Security Ownership of Certain Beneficial Owners and Management Part III. Item 12)YI'.'1 )406 Certaiiii Relationships'arid Related Transactions , -'t5L Part!IIf Item 13'.1 *'nri 409 Prin~ipial AccoufitantlFe6esiad Services .tf,. I,-:I,- ,;' .* .,r PrtiV. Itefi- 14 u-410 Exhibits and Financial Statement Schedules Part IV. Ifemri 1511, .413 Sigifdtdres .i, , ..:,' -. .ii ""414 Consents of Independent Registered Public Accounting Firm - '4e i-." :v,,' '
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Report of IndepEndent R6gistf&ed Public Accounting Firm iA/r, tr <::*t 1I ;:" ,, i-h.,:,' Indeftb Financial Statement Schedules S-4 Exhibif Index , -;',:i*I E-i
* This combined Form 10-K is separately filed by Entergy Corporation, -Entei-gy)Arkansras,thic.,
Entlrgy Gulf States, Inc., Entergy Louisiana Holdings, Inc., Entergy Louliiana,ý LITC,. Enterg&r Mlssissijpl, Ine.Entergy New Orleans, Inc., and System Energy Resources, Inc. Information'contatined hereii i:elating to any i6dividual company is filed by such company on its own behalf. Each company makes fepresentations oidy as t6 itself and makes no other representations whatsoeVer as: to any'othe- 'company. Rifererc&'tol Entefgy Louiisiana are intend&! tocapply both tdo Enteigy Loduiiiiria:Holdings!on ai consblidated basis and 'to' Entergy Louisiana, LLC.
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The report should be read in its entirety as it pertains to each respective registrant. No 6iie'i~tlon of the'riport deals with ill asiiects of the subject matter. Separate Ite(i 6,'7,-aiid8 *s-ecti6nsair provided foi ch regisfi'ant, except'for1theNotes to the'fifiincial; statemihts.if The Eniteigy.CorpiorationNot6 to the: finaiiial statements are separately presented, but the Notes to the financial statements for the oth67registfitis are combined. These twoliets bf Notes are marked by headers. All other Items aiý coifibined'for the rigistrants. I'.4 .*1 .*l !)-A
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(h1,:;IFORWARD-LOOKING INFORMATIONb/ýI O( In this filing and from time to time, Entergy makes statements concerning its expectations, beliefs, plans, objectives, goals, strategies, and ffture events~or performance. Such Statemen are frward-lookig statements" within thefi e'anhgf thieP Private-SecutisliatiAion RRe'formfAct -tf995: -Altiough Entergy believes that these forward-looking statements and the underlying assumptions are reasonable,1 it cannot prowide assuraneth'tthey will prove correct. Except to the ext'*ii:'e' rtlre i.,,thg:fed'eirl ~ ' 6".bli"ati6n to ikcne pulhlibly-uidaf6 or,riseaniiy forward-o66king statements',,wh eleh aisa)result of new mformation 'futiiire eents, or ote ws . o lo vit l brj; ,i;0 l br.-c i'ilc .-l *1/4-:i' hI *r:i- . "iw'w :6..
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Forward-dooking statements involve a numiber of risks and uncertaimties, and there are factors that could cause actual results to differ materially from those expressed or imp ie"In th'e statements." Some of those factors (in addition'to others descrmibed esewnie iin s report and m suosequent securities imgs), mcfu'de': .
" resolution of pending and future rate cases and negotiations, including various performance-based rate o discussions and implementation of new Texaýs egislation,; and other regulatory proceedings,,including those related to Entergy's System Agreement, Entergy's utilityupply.rplan, -lrecovery of storm costs,
; . ; and ' recovery of fuel and purchased power costs
- Entergy's abilmty, manage its operation and maintenance costs , ,i1' , ii , ?".rt- ,
" the performance of Entergy's generating plants, and particularl 1 y the capacity factors at its nuclear generating facilities
- prices for power generated by Entergy's unregulated generating facilities, the ability to hedge, sell power forward or otherwise reduce the market price risk associated with those facilities, including the Non-Utility Nuclear plants, and the prices and availability of fuel and power Entergy must purchase for its utility customers, and Entergy's ability to meet credit support requirements for fuel and power supply contracts
" Entergy's ability to develop and execute on a point of view regarding prices of electricity, natural gas, and other energy-related commodities
" changes in the financial markets, particularly those affecting the availability of capital and Entergy's ability to refinance existing debt, execute its share repurchase program, and fund investments and acquisitions
- actions of rating agencies, including changes in the ratings of debt and preferred stock, changes in general corporate ratings, and changes in the rating agencies' ratings criteria
- changes in inflation, interest rates, and foreign currency exchange rates
- Entergy's ability to purchase and sell assets at attractive prices and on other attractive terms
- volatility and changes in markets for electricity, natural gas, uranium, and other energy-related commodities
" changes in utility regulation, including the beginning or end of retail and wholesale competition, the ability to recover net utility assets and other potential stranded costs, the establishment of a regional transmission organization that includes Entergy's utility service territory, and the application of market power criteria by the FERC
- changes in regulation of nuclear generating facilities and nuclear materials and fuel, including possible shutdown of nuclear generating facilities, particularly thosein the northeastern United States 0 uncertainty regarding the establishment of interim or permanent sites for spent nuclear fuel storage and disposal resolution of pending or future applications for license extensions or modifications of nuclear generating facilities
FORWARD-LOOKING INFORMATION'(C6nicIuded)
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i ,'.r ijt 0,1 ". ir~ m' "ii bnq: ".'rf*;l *..[ ii i changes in law resulting from the new federal.energy legislation, including e efcts of PUHCA repeal
., changes in environmental; tax, and other laws, including requirements for reduced emssions of sulfur, nimtrogen. carbon. mercury, and othe~rsubstances,; 'Fit
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associated with restoration including Entergy's ability to obtain financial assistance from governmental I- authorites fllr.P'. ;::rI )I;j'
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- of~~~~nte~i'iy statgiis o*reduce tax pa'y'ments,*! :.., :,v ',,:.* , .:.*
- the effects of litigation and government investigations I. F,;C.... .. Ut] bft 1.: i
- changes in accounting standards, corporatfe go6vernane anc secuntsrii aw req rements' ...
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- fEnteigyi~'s aathtyr to atract I Iantdtb I -,retain ,i[, ttalented
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;I',,;DEFINITIONS~ i'330 (
Certain abbreviations or acronyms used in the text and notes are defined below: Abbreviation or Acronym ,
' x.
- ,..: ti , TermqGrnnih:: .
Arkansas Electric Energy Consumersildijq "i "" AEEC AFUDC Allowance for Funds Used During Constru~tion Of'W', I ALJ Administrative Law Judge ,..' r '*n8rl3iffnrra ý,.; ANO I and 2 Units 1 and 2 of Arkansas Nuclear One!Steam Electric Generating Station (nuclear),,,' owned by Efitergy Arkansas
- i J.,(2))r v,,;. . Ii APSC Arkansas Public Service Commission )l,,,!I-J'?I,-*z .' .,/I A Boaid "oT .v, ",, , - ..'Ii'Boaid of Directors of Enteigy Corpoiati6n, .o,/,'J i- nop;,J'ý Cajun Cajun Electric Power Cooperative;'Inc? It.*) V-'bi 11 caliacityf~ictorwi . itqu:
- ., 'A&tual plant output divided by.nm-aximum'potehtial plant output for the period 6-Jh ia'-.
City Council or Council Council of the City of New Orleans;'Louiisiania* t bn; CPI-U Consumer Price Index -sUrbahr!1,': -Iirqr.) . wiImc*r1 r4 Vi, toll DOE1,, t,.f :._,.,,. -,,hUnited'!Statds Depafrtment,0f Energy .m.***;:;r-)*,:va*' domestic utility companies Entergy Arkansas, Entergy Gulf States;Entergy.LOuisiana, Entergy Mississippi, and
,.;. ,n ';:,-,.m.,,q m,-, ,:. '.,IEntergyNewOrleans, collectively -::ii.ud .. .. .
EITF FASB's Emerging Issues TaskForce,,oq oh "-" Energy Commodity Services Entergy's business segment rhtb-t \inclides TEnteigy-Koch, LP and Entergy's n6n- -I nuclear wholesale assets businessI/ -.. aoq o9 )a,,Y vit,'. Entergy Entergy-Corporation and its direct and indirect'subsidiaries -.I 2/-) Entergy Corporation Entergy Corporation, a Delaware corporati6n ..
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Entergy-Koch - -I .;', 'Entergy-Koch;,'LP,
!,;;a'j, 'a ijoint ' venture, e-*iallýbwined by subsidiaries ofJEntergy ahd rq *,;2I~i rI9r, '*I! '*d "'fr,r I:r;iKoch Industries, Inc. '.~;:q ',;ciiitiq~n ,dhlII:.,q Entergy Louisiana Entergy Louisiana Holdifhgs,'.Inc. and Enitergy Lbuisiana, LLC EPA United States Environffienital Pr6tectioiiAg~nLyiV 1:'4j',
EPDC '. 'Entergy PoWer.De',elopment Coi&rMioriii 'itwh6ll-owned subsidiary?6f'Eniter'&l
, . . Corporation .:* , .b1 vti:i1'J *!eo: :.,)'rtuq l
FASB Financial Accounting Standards Board ?,,ni,;i FEMA Federal Emergency Manag~ment'Agenry*-IiUiiT;J aý::'I .I5l!J(i FERC ( , i m,:)iTederal Energy Regulatory'Coinriiissibnf, " i,iIJ jri' Ii.IJ -,irlIi"i fnih'liquidated'darhidiges ',,;, .**;'Transactionf'that ,requires receiot or delivry. 1f -energy at a specified delivbry `oint:f (usually at a market hub not associated with a.spbcific asset); if a party fails to deliver or receive energy,, the defaultihgkpartyrmust'compensate the other party 'as'
- ,- *i .' , *specified in the c6htrac't i ;cni'i'o 41o, -r, .,;i- P.A .
FSPI'0 hrf':ý ) :,, FASB Staff Positi6n t .. .-- , iqqi :i6? i tri1-....... Grani Gulf, - ', Unit No. I of Grand Gilf Steam Electric Ginerating Station (nuclear), 90%-owxied !,: o r le a s ed b y S y s tem E n e r gy . , .-..,no, ;
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( . - GWh Gigawatt-hour(s), which'equals bne niillion kilowatt-hours Indepndeniee" ..d~eK'" ');rlA;
-11 ' - ,Jn-dependence :stem Electric Station(.oal),-owned 16% by EntergyrArkansas, r25%'.
ndpndr'e'timElcti'Satn
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kV Kilovolt kW Kilowatt kWh Kilowatt-hour(s)
DEFINITIONS (Continued) Abbreviation or Acronym Term LDEQ Louisiana Department of Environmental Quality LPSC Louisiana Public Service Commission Mcf 1,000 cubic: feet of gas MMBtu One million British Thermal Units MPSC Mississippi Public Service Commission MW Megawatt(s), which equals one thousand kilowatt(s) MWh Megawatt-hour(s) Nelson Unit 6 Unit No. 6 (coal) of the Nelson Steam Electric Generating Station, owned 70% by Entergy Gulf States Net debt ratio Gross.debt less. cash and cash, equivalents divided by total capitalization less cash and cash equivalents Net MW in operation Installed capacity owned or operated Net revenue Operating revenue net of fuel; fuel-related, and purchased power expenses; and other regulatory credits . " Non-Utility Nuclear Entergy's business segment that owns and operates five nuclear power plants and sells electric power. produced by those plants to wholesale customers NRC Nuclear Regulatory Commission NYPA New York Power Authority. OASIS Open Access Same Time Information Systems;. PPA Purchased power agreement production cost Cost in $/MMBtu associated with delivering gas,. excluding the cost of the gas PRP Potentially responsible party (a person, or entity that may be responsible for remediation of environmental contamination) PUCT Public Utility Commission of Texas PUHCA 1935 . Public Utility Holding Company Act of 1935, as amended PUHCA 2005 Public Utility Holding Company Act of 2005, which repealed PUHCA 1935, among other things PURPA Public Utility Regulatory Policies Act: of 1978 Ritchie Unit 2 Unit 2 of the R.E. Ritchie Steam Electric Generating Station (gas/oil) River. Bend River Bend Steam Electric Generating Station (nuclear), owned by Entergy Gulf States SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards as promulgated by the FASB SMEPA South Mississippi Electric Power Agency, which'owns a 10% interest in Grand Gulf-spark spread Dollar difference between electricity prices per unit and natural gas prices after assuming a conversion ratio for the number of natural gas units necessary to generate one unit of electricity System Agreement Agreement, effective -January 1, 1983, as; modified, among the domestic utility companies relating to the sharing of generating capacity and other power resources System Energy System Energy Resources, Inc. System Fuels System Fuels, Inc. ii
DEFINITIONS (Concluded) Abbreviation or Acronym Term TWh Terawatt-hour(s), which equals one billion kilowatt-hours unit-contingent Transaction under which power is supplied from a specific generation asset; if the specified generation asset is unavailable as i result of forced outage or unanticipated event or circumstance, the seller is not liable to the buyer for any damages resulting from the seller's failure to deliver power " unit-contingent with Transaction under which power is supplied from a specific generation asset; if the availability guarantees specified generation asset is unavailable as a result of forced outage or unanticipated event or circumstance, the seller is not liable to the buyer for any damages resulting from the seller's failure to deliver power unless the actual availability over a specified period of time is below an availability threshold specified in the contract Unit Power Sales Agreement Agreement, dated as of June 10, 1982, as amended and approved by FERC, among Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, relating to the sale of capacity and energy from System Energy's share of Grand Gulf UK The United Kingdom of Great Britain and Northern Ireland U.S. Utility Entergy's business segment that generates, transmits, distributes, and sells electric power, with a small amount of natural gas distribution Waterford 3 Unit No. 3 (nuclear) of the Waterford Steam Electric Generating Station, 100% owned or leased by Entergy Louisiana weather-adjusted usage Electric usage excluding the effects of deviations from normal weather White Bluff White Bluff Steam Electric Generating Station, 57% owned by Entergy Arkansas iii
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- ENTERGY'S BUSINE~&"SS Entergy Corporation is -an integrated energy company engaged primarily in electric power production and retail electric distribution operations. Entergy owns and operates powýerplantswvith approximately 30,000 MW of electric generating capacity;' and it is the'second-largest nuclear power generator in the United States. Entergy delivers electricity to 2.6;'Miiillion utility' c'ustomers in Arkansas, Louisiana, Mississippi, and Texas. Entergy generated annual revenues of S10.1 billion'in 2005 and had approximately 14,100 employees as of December 31, 2005. . -. ... ....
Entergy operates primarily through two business segments: U;SUtilify-i-and Non-Utility Nuclear.
- U.S. Utility generates, transmits, distributes, and sells electric power in a four-state service territory that inclu~des portions'f O rkansas, Mississippi, Texas, and Louisiana, including the City ofN&,&Oileans; and operates a small natural gas distribution business.,.. -' , - 1
" Non-Utility Nuclear owns and operates five nuclear power plants.located in the northeastern United States a'id 's*.i the electric.P*c*iwer produced by those plants primarily to wholesale customers.', This business also provides services to other nuclear power plant owners. , ,
In addition to pits two primary, reportable, operating segments, Entergy-also operates i.the Energy Commodity Services se'irnnt and th5'Cbipetitive Rtail Services business. Energy Commodiity .S.ewvi.ces',i.cludes. (i) Entergy-Koch, LP and (ii) Entergy's non-nuclear wholesale power marketing business. Entergy Koch is a non-operating entity, which prior to the fourth quarter of'2004, owned and operated an energy marketing/trading and gas transportation/storage business..,The Competitive Retail Services business markets and sells electricity, thermal energy, and related services in competitive markets, primarily in the ERCOT region in Texas. Entergy has decided to divest the retail electrie'pditifii1 of the Competitive Retail Services business oPerating in the ERCOT region of Texas, and now reports"this portion of' the business as a dis-o-ntinifi-id,.--periiti6-i.: -. Efit-r Ti4,r-ports Energy Commodity Ser:vices and Co.mpetitive Rktail Services as part of All Other in ts Segreft disel6s.ures.
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OPERATING INFORMATION For the Years Ended December 31, 2005,2004, and 2003 Non-Utility Entergy U.S. Utility Nuclear Consolidated (a) (In Thousands) 2005 Operating revenues $8,526,943 $1,421.547 $10,106,247 Operating expenses $7,186,035 $996,013 $8,314,258 Other income $111,186 $71,827 $211,451 Interest and other charges S364,665 $50,874 $475,604 Income taxes $405,662 $163,865 $559,284 Loss from discontinued operations S- S., ($44,794) Earnings applicable to commrn stock $659,760 $282,622 $898,331 2004 Operating revenues S8,142,808 $1,341,852 $9,685,521 Operating expenses $6,795,146 $978,688 $8,035,349 Other income $108,925 $78,141 $125,999 Interest and other charges. $383,032 $53,657 $477,776 Income taxes $406,864 $142,620 $365,305 Loss from discontinued operations S- S- ($41) Earnings applicable to comamon stock $643,408 $245,028 $909,524 2003 Operating revenues $7,584,857 $1,274.983 $9,032,714 Operating expenses $6,274,830 $1,039,614 $7,527,158 Other income ($35,965) $33,997 S325,315 Interest and other charges $419,111 S34,460 $505,641 Income taxes $341,044 $88,619 $497,433 Loss from discontinued operations S- $- ($14,404) Cumulative effect of accounting change ($21,333) $154,512 $137,074 Earnings applicable to common stock $469,050 $300,799 $926,943 CASH FLOW INFORMATION For the Years Ended December 31, 2005, 2004, and 2003 Non-Mtillty Enterly U.S. Utility Nuclear Consolidated (a) (In Thousands) 2005 Net cash flow provided by operating activities S973,692 $551.263 $1,467,808 Net cash flow used in investing activities ($1,709,175) ($368,497) ($1,992,608) Net cash flow provided by (used in) financing activities $646,588 ($110,482) $496,390 2004 Net cash flow provided by operating activities $2,207,876 $414,518 $2,929,319 Net cash flow used in investing activities ($1,198,009) ($386,023) ($1,143,225) Net cash flow used in financing activities ($824,579) ($37,894) ($1,671,859) 2003 Net cash flow provided by operating activities $1,675,069 $182.524 $2,005,820 Net cash flow used in investing activities ($1,441,992) ($184,913) ($1,967,930) Net cash flow used in financing activities ($919,983) ($6,672) ($869,130) FINANCIAL POSITION INFORMATION As or December 31, 2005 and 2004 Non-Utility Entergy U.S. Utility Nuclear Consolidated (a) (In Thousands) 2005 Current assets $3,182,160 $699,299 $4,056,294 Other property and investments $1,433,300 $1.473,450 $3,213,917 Property, plant and equipment - net S16,899,266 $2.001,727 $19,197,045 Defcerd debits and other assets $3,727,706 $713,096 $4,384,013 Current liabilities $2,341,601 $517,847 $3,127,914 Non-current liabilities $16,238,484 $2,254,827 $19,980,608 Sharoholders equity $6,662,347 $2,114,898 $7,742,747 2004 Current assets $2,292,959 $590,580 S3,077,276 Other property and investments $1,200,246 $1,403,222 $2,995,894 Property, plant and equipment - net $16,502,155 $1,850,481 $18,695,631 Deferred debits and other assets $2,941,877 $687,322 $3,541,976 Current liabilities $1,756,011 S649,281 $2,332,383 Non-current liabilities $15,214,095 $1,832,477 $17,681,707 Shareholders&equity $5,967,131 $2,049,847 $8,296,687 (a) Inaddition to the two operating segments presented here, Entergy Consolidated also includes Entergy Corporation (parent cosmpany), other business activity, and intercompany eliminations, including the Energy Commodity Services business, the Compietitive Retail Services business, and earnings on the proceeds of sales of previously-owreid businesses. The Energy Commodity Services business was presented as a reportable segment prior to 2005, but it did not meet the quantitative thresholds for a reportable segment in 2005 and 2004, and with the sale of Entergy-Koch's businesses in 2004, management does not expect the Energy Commodity Services business to meet the quantitative thresholds in the rorsecable future. The 2004 and 2003 inforsation in the tables above has been restated to include the Energy Commnodity Services business in the Entergy Consolidated column. As a result of the Entergy New Orleans bankruptcy filing, Entergy has discontinued the consolidation of Entcrgy New Orleans retroactive to January I, 2005, and is reporting Entergy New Orleans results under the equity nmsthod ofaccounting in the U.S. Utility segment. 2
The following shows the principal subsidiaries and affiliates within Entergy's business segments. Companies that file reports and other information with the SEC ini1&'.thiSedurities Exchange Act of 1934 are identified in bold-faced type. . .
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I ... , :. aJJ!:~ ~ I: 1 f~u xiI_,L U. S. Utili Non-Utility Nuclear Other Businesses Entergy Arkansas, Inc. -Entcrgy Nuclear Operations, Inc. Entergy Gulf States, Inc. -Entergy Nuclear Finance, Inc. 1Entergy Louislana lloldings, Inc. "EntergyNuclear Generation Co:. (Pilgrim) Entergy Lilslana, LLC >" Entiig'14uclear FitzPatrick LLC
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-Entergy Mississippi, Inc.' Entergy Nuclear Indian Point 2, LLC " rf; tu:v ,.J.,. . [ !'Entergy PowervDevelopment Corp.
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_Entergy New Orleans, Inc. Entergy Nuclear Indian Point 3, LLC
-EntcdgyN 6letrVermont Yankee, LLC I -. E'tii6'Poii~er,,Inc.
-System'En'ergy Resoure',esrIic. -Entergy Opcrations,. Inc. : uEntergy Nuclear, Inc. '.;
"e~l~f, -,i,i ') -DRetail , Entergy owerHlnc '
Entcrgy Services, Inc.,, . _Entergy Nuclear Fuels Company ..*,w~r,. ... ,i Competitive Services, . System Fuels, Inc._. Entergy Nuclear Nebraska LLC Solutions 1EEetergy Ltd. A a n, Strate vgy. . , .- .: . . . .. . , 't.t, l OJ I r+/-i I,.
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- Entergy aspires to achieve industry-leading total shareholderiretumrsjby, leveraging the scale and expertise inherent in its core nuclear and utility operations. Entergy's scope includes electricity, generation, ,transmission-and distributionwas well as natural gas :transportation and distribution.. ;Entergyrfocuses on operational ,excellence.with an emphasis on safety, reliability, customer service, sustainability,, cost, efficiency, and risk management. ,;Entergy also focuses on portfolio management to make periodic buy, build, hold, or sell decisions based upon its analytically-derived points of iie%" ývhich are'continuotisly updated asximarket 'cnditions-evolve. :,,
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Availability of SEC filings and other information on Entergy's website ., :.rw. ,,; .' Entergy's annual report on FormI 1O-K, quarterly reports on Form IO0Q, current reportson.Form 8-KAand aimendm'ents are available without charge 6i its w bsite', http://www.sbareholder.comlienterg/edgar.cfnm as soon as reasonably practicable after they are>filed .electronically with the SEC. Entergy is providing theaddress ?to,its Internet site solely, for the informationgf.investors. Entergy, does jnot intendthe address.to jbe an active link orto, otherwise incorporate the contents of the website into this report. .u-* ,* .
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. ;ENTERGY CORPORATION AND SUBSIDIARIES REPORT OF MANAGEMENT Management of Entergy Corporation and its subsidiaries-has prepared and is responsible for the financial statements and related financial information included in this document. To meet this responsibility, management establishes and maintains a system of internal control designed to provide reasonable assurance regarding the preparation and fair presentation of financial statements in accordance with generally accepted accounting principles.
This system includes communication through written policies and procedures, an employee Code of Entegrity, and an organizational structure that provides for appropriate division of responsibility and the training of personnel. This system is also tested by a comprehensive internal audit program. - Entergy management assesses the effectiveness of its internal control over financial reporting on an annual basis. In making -this assessment, management uses the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Manage'me&nt acknowledges, however, that all internal control systems, no matter how, well designed, have inherent limitations anrd can provide only reasonable assurance with respect to financial statement preparation and presentation.... As a supplement to management's assessment, Entergy'sr, independent auditors conduct an objective. assessment of the degree to which management meets its responsibility for. fairness of financial reporting and issue an; attestation report on the adequacy of management's assessment. They evaluate Entergy's internal control over' financial reporting and perform such tests and other procedures as they deem necessary to reach and express in opinion on the fairness of the financial statements. In addition, the Audit Committee of the Board of Directors, composed solely of independent Directors; meets with the independent auditors, internal auditors, management, and internal accountants periodically to discuss interfial controls, and auditing and 'financial reporting matters., The Audit' Committee appoints the independent auditoi§s annually, seeks shareholder ratification of the appointment, and.reviews' with the independent auditori'the keope ahd results of the audit effort. The Committee also meets periodicilly with the independent auditors and the chief internal auditor without management present, providing free access to the Committee. Based on management's assessment of internal controls using the COSO. criteria, management believes that Entergy maintained effective internal control over financial reporting as of December 31, 2005. Management further believes that this assessment, combined with the policies and procedures noted above provide reasonable assurance that Entergy's financial statements are fairly and accurately presented in accordance with generally accepted accounting principles. -. J. WAYNE LEONARD LEO P. DENAULT hief Executivý Officer of Entergy Corporation Executive Vice Preiident and Chief Financial Officer of Entergy Corporia ti HUGH T.'I MCDONALD" . .JOSEPH F. DOMINO' . ..-.. '. Chairman, Presidetit, and Chief Executive Officer of Entergy Chairman ofEnteigy GulfStaits, Inc." Presfdent and Chief - Arkansas, Inc. Executive Officer - Texas of Entergy Gulf States, Inc. E. RENAE CONLEY CAROLYN C. SHANKS Chair of the Board, President, and Chief Executive Officer of Chairman, President, and Chief Executive Officer of Entergy Entergy Louisiana, LLC; President and Chief Executive Officer-Mississippi, Inc. Louisiana of Entergy Gulf States, Inc. DANIEL F. PACKER GARY J. TAYLOR Chairman, President, and Chief Executive Officer of Entergy Chairman, President, and Chief Executive Officer of System New Orleans, Inc. Energy Resources, Inc. THEODORE H. BUNTING, JR. JAY A. LEWIS Vice President and Chief Financial Officer of System Energy Vice President and Chief Financial Officer of Entergy Arkansas, Resources, Inc. Inc., Entergy Gulf States, Inc., Entergy Louisiana, LLC, Enterg, Mississippi, Inc., and Entergy New Orleans, Inc. MICHAEL D. BAKEWELL ROBERT A. MALONE President of Entergy Louisiana Holdings, Inc. Treasurer of Entergy Louisiana Holdings, Inc. 4
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS S. Entergy operates primarily through two business segments: U.SJKtility and Non-Utility Nuclear.
- U.S. Utility generates, transmits, distributes, and sells electric power. in a four-state serviceterritory that.)I includes portions ,ofArkansas, Mississippi, Texas, and Louisiana, including the City of New Orleans; and
. :, -. -,: ": -i operates a small natural gas distribution business.
- Non-Utility Nuclear owns and operates five nuclear power plants located in the northeastern United States
. and sells the electric power produced by those plants primarilyto wholesale customers.; This business also provides services to other nuclear power plant owners. .::req *ni.t::&~':. .. . * , uj...
rln addition to its two primary, reportable,, operating segments, -Entergyalso operates the Energy, Commodity Services .segment and the Competitive Retail Services business. Energy Commodity.Services includesEntergy-Koch,, LP~and
- Entergy's .non-nuclear.. wholesale ;assets business. Entergy-Koch; ,LPengaged in :two.major:jbusinesses: energy commodity marketing, and trading through Entergy-Koch Trading, and gas transportation .and storage through Gulf South Pipeline.', Entergy-Koch sold both of these businesses in the fourth quarter of 2004,-,and Entergy-Koch is .no longer an operating entity. The non-nuclear wholesale assets business sells to wholesale customers the electric power produced by power plants that it owns while it focuses on improving %performance and rexploring sales,:or restructuring opportunities for its power plants. Such opportunities are evaluated consistent %;ith Entergy's market-based point-of-view., The Competitive Retail Services business markets .and sells electricity,, thermal :energy, and related services in competitive markets, primarily in the ERCOT, region in ;Texas. i-Entergy has,decided to divest the retail electric portion of the Competitive Retail Services business operating in the ERCOT1 region of-Texas,-and now reports this ,portion of the business as*a discontinued operation. -,Entergy, reports, Energy Commodity., Services .and Competitive Retail Services as part of All Other in its segment disclosures.'w:u' ,I.; , , , : ,' l,
,i -. , Following are.the percentages of Entergy's consolidated revenues and net income generated ,byits operating
'segments and thepercentage.of total assets held by them: . . ilidz~idrI,' .. :'r.U. ', ,'.! ro;,A,ii.,iri'
._. .. .. , ,,,. ,% ofRevenue .. %-of Net Income, ,%.of
.,-,, Total Assets ,r
.,,,Segment . , -. ,..2005 1:. 2004 2003 2005 ,.h,-)20 0 4 n; .;2003; ':,-,.2005 ,,:,,i2004 .j-a2003 U.S. Utility 84 84 84 74 72 52 82 80 79 Non-Utility Nuclear: ' ' 14 . -14 r. 14 30'ii'to !5-26, 1., '32 16 ,%l.,.-16 15
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Parent Company& * .. ' OtherBusiness Segments 2 2 : .2 . (4)frrwb -z2 16 . 22. *,. a Hurricane Katrina and Hurricane Rita
. In August and September 2005, Hurricanes Katrina:and Rita caused catastrophic damage tolarge portions of the U.S. Utility's service territory in Louisiana; Mississippi, and Texas;.including the effect of extensive flooding that, resulted from levee'breaks -in andaround the greater:New Orleans ,area.irThe storms, and flooding'resulted in widespread powerý outages,-I significant damage to 'electric: idistribhitiori, ltransmission; uand i:generation and 'gas rinfrastructure,- and the loss of sales and-customers due 'to ;mandatoryi evacuations -and the destruction iof homes and ,businesses.-,.Total restoration costs .for the repair and/orreplacement bf the U.S.- Utility's electric and gas Ifacilities damaged by (ljurricanes fKatrina and Rita, and business continuityCiostsi are.estimated to be $1.5 billion, .including .$835.2 million in !construction expenditures and $664!8 million recorded :as regulatory.assets.-" The cost estimates .do not include other. potential incremental losses,-Isuch as ,the inability to. recover, fixed costs scheduled-for recovery .through base rates,'.which base rate revenue was not recovered due to a floss of anticipated sales. ., For instance, !at Entergy New Orleans, the domestic utility -company .that ,vcontinues-to .have! significant lost revenue caused by Hurricane Katrina, Entergy estimates that lost net revenue duet-to jHurricane Katrina will total, approximately 5
Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis $320 million through 2007. In addition, Entergy estimates that the hurricanes caused $32 million of uncollectible U.S. Utility customer receivables. The estimated storm restoration costs also do not include the longer-term accelerated replacement of the gas distribution system in New Orleans that Entergy New Orleans expects will be necessary due to the massi*'e salt water intrusion into the system caused by the flooding in New Orleans. The salt water intrusion is expected to shorten the life of the gas distribution system, making' it necessary to replace that system over time. Ente'rgy Ne%' Orleans currently expects the cost of the gas system replacement to be $355 million, with the project beginning in 2008 and extending for many years thereafter. Entergy has recorded accruals for the portion of the estimated S$1.5 billion of storm restoration costs not yet paid. In accordance with its accounting policies, and based on historic treatment of such costs in the U.S. Utility's service territories and communications with local regulators, Entergy recorded assets because management believes that recovery of these prudently incurred costs through some form of regulatory mechanism is probable. In December 2005, Entergy Gulf States' Louisiana jurisdiction, Entergy Louisiana, and Entergy Mississippi filed with their respective retail regulators for recovery of storm restoration costs. The filings are discussed in Note 2 to the consolidated financial statements. Because Entergy has not gone through the regulatory process regarding these storm costs, however, there is an element of risk, and Entergy is unable to predict with certainty the degree of success it may have in its recovery initiatives, the amount of restoration costs and incremental losses it may ultimately recover, or the timing of such recovery. The temporary power outages associated with the hurricanes in the affected service territory caused Entergy Louisiana's and Entergy New Orleans' sales volume and receivable collections to be lower than normal beginning in September 2005. Revenues are expected to continue to be affected for a period of time that cannot be estimated asa result of customers at Entergy New Orleans and Entergy Louisiana that are unable to accept electric and gas service and as a result of changes in load patterns that could occur, including the effect of residential customers who'can accept electric and gas service not permanently returning to their homes. Restoration for many of the customers who are unable to accept service will follow major repairs or reconstruction of customer facilities, and will be contingent on validation by local authorities of habitability and electrical safety of customers' structures. Entergy estimates that lost non-fuel revenues in 2006 caused by the hurricanes will be approximately $123 million for Entergy New Orleans and $39 million for Entergy Louisiana. Entergy's estimate of the revenue impact is subject to change, however, because of a range of uncertainties, in particular the timing of when individual customers will recommence taking service. Entergy is pursuing a broad range of initiatives to recover storm restoration and business continuity costs and incremental losses. Initiatives include obtaining reimbursement of certain costs covered by insurance, obtaining assistance through federal legislation for damage caused by Hurricanes Katrina and Rita, and, as noted above, pursuing recovery through existing or new rate mechanisms regulated by the FERC and local regulatory bodies. Entergy's non-nuclear property insurance program provides coverage up to S400 million on an Entergy system-wide basis, subject to a $20 million per occurrence self-insured retention, for. all risks coverage for direct physical loss or damage, including boiler and machinery breakdown. Covered property generally includes power plants, substations, facilities, inventories, and gas distribution-related properties. Excluded property generally includes above-ground transmission and distribution lines, poles, and towers. The primary property program (excess of the deductible) is placed through Oil Insurance Limited ($250 million layer) with the excess program ($150 million layer) placed on a quota share basis through Underwvriters at Lloyds (50%) and Hartford Steam Boiler Inspection and Insurance Company (50%). Coverage is in place for Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans. There is an aggregation limit of $ I billion for all parties insured by OIL for any one occurrence, 'and Entergy has been notified by OIL that it expects claims'for Hurricane Katrina to materially exceed this limit. Entergy is currently evaluating the amount of the covered losses for'each of the affected domestic utility companies, working with insurance adjusters, and preparing proofs of loss for Hurricanes Katrina and Rita. Entergy currently estimates that its net insurance recoveries for the losses caused 6
Entergy Corporation and Subsidiaries
-Management's Financial Discussion and Analysis by the hurricanes, including the effect of the OIL aggregation limit libeing 'excieded, will be approximately,$382 million. . ,, 't
- In December 2005,,the U.S. Congress passed and the Presiderit'sighed the Katrina Relief Bill, 'a huirricane aid package that includes $11.5 billion in Community Development .BIocklGrahts (for the states affected by Hurricanes Katrina, Rita, and Wilma) that allows state and local leaders to fund individual recoery: priorities.',.The bill includes language that permits funding for infrastructure restoration. It isijuncertaiin -how much -funding; if' any,- will !be designated for utility reconstruction, and the timing of such decisions is also uncertain. Entergy is currently preparing applications to seek Community Development Block Grant funding.
Entergy New Orleans Bankruptcy Because of,the effects of Hurricane Katrina, on September 23, 2005, Entergy New Orleans filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of Louisiana seeking reorganization relief under the provisions of !Chapter 11 of the United States Bankruptcy Code (Case No. 05-17697). Entergy Corporation owns 100 percent of the common stock of Entergy New Orleans, has continued to supply general and administrative services, and has provided debtor-in-possession financing to Entergy New Orleans. Uncertainties surrounding the nature, timing, and specifics of the bankruptcy proceedings, however, 'have :caused, Entergy to deconsolidate Entergy New Orleans and reflect Entergy New Orleans' financial results under the equity method of accounting retroactive to January 1, 2005. Because Entergy owns all ofithe common stock' of Entergy New Orleans, this change did not affect the amount of net income Entergy records resulting from Entergy 'New Orleans' operations for any current or prior period, but did result in Entergy New Orleans'.:net income for;,2005 ,being. presented as "Equity in earnings (loss) of unconsolidated equity affiliates" rather than itsresults being included in each individual income statement line item, as is the-case for periods prior to 2005. Entergy:reviewed the carrying value of its equity investment inEntergy New Orleans '($149.9 million as of December 31, 2005) :to determine ,ifian'impairment had occurred as a result of the storm,",the flood, the power outages, restoration costs, and changes in customer load. Entergy determined -that as of December -31, 2005, no impairment had occurred because,,,as'idiscussed above, management believes that recovery is probable. In addition to Entergy's equity investment in EntergyNew Orleans, as of December 31, 2005 Entergy New Orleans owed Entergy and its subsidiaries a 'total of,approximately $47 million in prepetition accounts payable. Entergy will continue to assess the- carrying value.':of'its investment in Entergy New Orleans as developments occur in Entergy New Orleans'.recovery efforts: .:'ut*,i, tj ' ,, Entergy continues to work with the federal, state, and local authorities to resolve the bankruptcy in a manner that allows Entergy New Orleans' customers to be served by ,a financially viableeentity. as required by law. Key factors that will influence the timing and outcome of the Entergy New Orleans bankruptcy include:
- The amount of insurance recovery, if any, and the timing of receipt of proceeds; ,:w1'; ,,w'*"-:'l',
" The amount of assistance funding, if any, from the federal and state governments, and the timing of that funding, including Entergy's intended application for Community Development Block Grintfundiig;.:,-/
- The level of economic recovery of New Orleans;
.:,,. retu..
Thenuiinberof eustomersithat return to0N4w'Orleans,'ana the timingf their.u'id""'
- The amount and timing of any regulatory recovery approved by the City Council. :, :(N,'. '. u .f' The exclusivtyeriod for filing a final plan if reorganization by Enii...Ne.W Orleans"scurrently scheduled to end on April 21, 2006, with'solicitation of acceptances of the plan scheduled to be complete by June 20, 2006. If a party to the bankruptcy proceeding, including Entergy New Orleans, requests it, the bankruptcy court has the authority to extend these deadlines. JIn addition, the bankruptcy judge has set a date of April 19, 2006 by.,which-creditors with prepetition claims against Entergy New Orleans must, with certain exceptions, file,.their,,proofs ,of claim in the bankruptcy. case.-;
The deeonsolidation of Entergy New'"Orleans is retroactive to January 1, 2005, and its 2005 results of operations are presented as a component of "Equity in earnings (oss) of unconsolidated equity affiliates."
,7
Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis Transactions in 2005 between Entergy New Orleans and other Entergy subsidiaries are not eliminated in consolidation as they were in periods prior to 2005. The variance explanations for 2005 compared to 2004 in "Results of Operations" below reflect the 2004 results of operations of Entergy New Orleans as if it were deconsolidated in 2004, consistent with the 2005 presentation as "Equity, in earnings (loss) of unconsolidated equity affiliates." The variance explanations for 2004 compared to 2003 are based on as reported amounts. Entergy's as reported consolidated results for 2004 and the amounts included in those consolidated results for Entergy New Orleans, which exclude inter-company items, are set forth in the table below. For the Year Ended December 31. 2004 Entergy Corporation Amounts required and to deconsolidate Subsidiaries Entergy New (as reported) Orleans in 2004" (In Thousands) Operating Revenues $9,685,521 ($435,194) Operating Expenses: Fuel, fuel-related expenses, and gas purchased for resale and purchased power 4,189,818 (206,240) Other operation and maintenance 2,268,332 (102,451)
,Taxes other than income taxes 403,635 (43,577)
Depreciation and amortization 893,574 (29,657) Other regulatory credits - net (90,611) 4,670 Other operating expenses 370,601 Total Operating Expenses $8,035,349 ($377,255) Other Income $125,999 ($2,044) Interest and Other Charges $477,776 ($15,043) Income from Continuing Operations Before Income Taxes and Cumulative Effect of Accounting Changes $1,298,395 ($17,833) Income Taxes $365,305 ($16,868) Consolidated Net Income $933,049 ($965) Preferred Dividend Requirements and Other $23,525 ($965)
- Reflects the entry necessary to deconsolidate Entergy New Orleans for 2004. The column includes intercompany eliminations.
Results of Operations Earnings applicable to common stock for the years ended December 31, 2005, 2004, and 2003 by operating segment are as follows: Operating Segment 2005 , , 2004 2003. (In Thousands) U.S. Utility $659,760 $643,408 $469,050 Non-Utility Nuclear 282,623 245,029 300,799 Parent Company & Other Business Segments (44,052) 21,087 157,094 Total $898,331 $909,524 $926,943 8
Entergy Corporation and Subsidiaries 2iManagement's Financial Discussion andAnalygis Following is a discussion of Entergy's income before taxes according to the business segments listed 'above. Earnings for 2005 were negatively affected by $44.8 million net-of-tax of discontinued operations due to the planned sale of the retail electric portion of Entergy's Competitive Retail Services business operating in the ERCOT region bf Texas. This amount includes a net charge of $25.8 million, net-of-tax, related to the impairment reserve for the remaining net book value of the Competitive Retail Services business',informition technologysystems.. Earnings for 2004 include a $97 inillion tax benefit that resulted from-the'sale 'ofpreferred-st6ckand'less than 1% of the common stock in a subsidiary in the non-nuclear wholesale assets business; and a $36 million net-of-tax impairment charge in the non-nuclear wholesale assets business, both of which are discussed below. Earnings for 2003 include the $137.1 million net-of-tax cumulative effect of changes in accounting principle that increased earnings in the first quarter of 2003, almost entirely resulting-from the:implementation of SFAS 143. Earnings were negatively affected in the fourth quarter of 2003 by vbluntaiy :geverance'program expenses of $122.8 million net-of-tax. As part of an initiative to achieve productivity-irnprVferents vith a goal of reducing costs, primarily in the Non-Utility Nuclear and U.S. Utility businesses, in "thesecond half of 2003 Entergy offered a voluntary severance program to employees in various departments. Apprbxirriately lý,100 employees, including 650 employees in nuclear operations from the Non-Utility Nuclear and U.S. Utility businesses, accepted the offers. Refer to "SELECTED FINANCIAL DATA - FIVE-YEAR COMPARISON OF ENTERGY CORPORATION -AND SUBSIDIARIES", which accompanies:fEntergyLCorporation's, consolidated financial statements in this report for further information with respect to operating'statistics. r ',i: ...*-,r, i .
* . ..... .*.. 1 . ... .. '
".:. ... . . U.S. UTILITY ,r, r,t* lii' r' , . : . , ' i fill ; I -'! b10
. The increase in earnings!.for the U.S. Utility, from $643 riiUlionin ,,2004 to ,$660 million in,2005 was primarily due to higher net revenue and lower depreciation and amortization expenses;. partially offset by lower other income, including equity in earnings of unconsolidated equity affiliates related to Entergy New Orleans, and higher
'taxes other than income taxes. .. '. ,,. ,* .l)tII.-ni *,c:. l .'APti'/ 9it F The !increase in earnings for the U.S.- Utility, from ,S469 ,nillion:;in 3/42003 -to i5643,million in 12004,vwas primarily due to the following: ., ,t t, ;. :" ,i K.,;: I' r ,i io ;--he $107.7 million ($65.6 million net-of-tax) accrual in 2003jof.the lossthat would be associated with a final, non-appealable decision disallowing abeyed River'Bendplant costs., Refer to Note 2 to the -njh ; consolidated financial statements for more details regarding the River Bend abeyed plant costs; !nf.,,1,i*'l
- lower other operation and maintenance expenses primarily due to $99.8 million ($70.1 million net-of-tax) of charges recorded in 2003 in connection with the~voluntary seierance program;r.+c . ';. " .
- the $21.3 million net-of-tax cumulative effect of a change in accounting principle that reduced earnings at
'Entergy Gulf States in the first quarter of 2003 upon implemenitatioh6f SFAS 143: "See.'!Critieal D ,
', Accountint Estimates '-'Nuclear Decommissioning Costs",bblow1'for'discussi6n of the impldimefitationofJi
-a" -,'. SFAS 143*' ; 'j: ,. '"* -- .1 . + (,. !.: q'-' +,8a:"+I .*zfn:c1x* x.1,.' .... ' >J'8,., ,8 8f11 bIt.'l l*.r+:,r*
.miscellane 6us bthei'income of $27.7 million'(pre-tax) in2004 tesultiiný from a revision bf the'?ib ,*,.fiql~V
+- "dci~mmissio-ning lifibility for River Bend; as discu:ssed in Note'Sto'the "co8olidated "financial statements;)Ti
- higher net revenue; and "!
I,.. Jdr"dc V-
.1dIlir;t. " .
lower interest charges.
' " ,b' ', ".. !q. f.5YJ:*b *f~b ' , . :;..
3/4 .. r!,rh -) .. .,'(>- " 1;I. lo vl -A!
Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis Net Revenue 2005 Compared to 2004 Net revenue, which is Entergy's measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related expenses and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits. Following is an analysis of the change in net revenue comparing 2005 to 2004. Amount (In Millions) 2004 net revenue S4,010.3 Price applied to unbilled sales 40.8 Rate refund provisions 36.4 Volume/weather 3.6 2004 deferrals (15.2) Other (0.5) 2005 net revenue $4,075.4 The price applied to unbilled sales variance resulted primarily from an increase in the fuel cost component included in the price applied to unbilled sales. The increase in the fuel cost component is attributable to an increase in the market prices of natural gas and purchased power. See "Critical Accounting Estimates - Unbilled Revenue" and Note 1 to the consolidated financial statements for further discussion of the accounting for unbilled revenues. The rate refund provisions variance is due primarily to accruals recorded in 2004 for potential rate action at Entergy Gulf States and Entergy Louisiana. The volume/weather variance includes the effect of more favorable weather in 2005 compared to 2004 substantially offset by a decrease in weather-adjusted usage due to the effects of Hurricanes Katrina and Rita and a decrease in usage during the unbilled sales period. See "Critical Accountin! Estimates - Unbilled Revenue" and Note I to the consolidated financial statements for further discussion of the accounting for unbilled revenues. The 2004 deferrals variance is due to the deferrals related to Entergy's voluntary severance program, in accordance with a stipulation with the LPSC staff. The deferrals are being amortized over a four-year period effective January 2004. Gross operatingrevenues,fiuel and purchasedpower erpenses, and other regulator' credits Gross operating revenues include an increase in fuel cost recovery revenues of $586.3 million resulting from increases in the market prices of purchased power and natural gas. As such, this revenue increase is offset by increased fuel and purchased power expenses. The price applied to unbilled sales and the rate refund provisions variances, discussed above, and an increase in gross wholesale revenue also contributed to the increase in gross operating revenues. Gross wholesale revenues increased $84.2 million primarily due to an increase in the average price of energy available for resale. Other regulatory charges (credits) have no material effect on net income due to recovery and/or refund of such expenses. Other regulatory credits decreased primarily due to the following:
* $32.4 million due to the over-recovery of costs through the power management recovery rider at Entergy Mississippi as a result of gains recorded on gas hedging contracts; and
* $22.6 million due to the over-recovery of Grand Gulf costs through Grand Gulf riders at Entergy Arkansas and Entergy Mississippi.
10
Entergy Corporation and Subsidiaries Management's Financial Discussi6n and Analysis The decrease is partially offset by $24.8 million of higher -deferrals -of capacity charges that are not currently recovered through base rates but are expected to be recovered in the future. See Note 2 to the consolidated financial statements for a discussion of the formula rate plan filings .that will be effective in 2006 for the 2005 test year for Entergy Louisiana and the Louisiana jurisdiction of Entergy Gulf States',,--,". .,.... 2004 Compared to 2003 .... :. . - noi>i! '- Net revenue, which is Entergy's measure of gross margin, consists of operating revenues .net of- 1) fuel, fuel-related expenses and gas purchased for resale, 2) purchased.pow.erTexpenises, and 3) other regulatory credits. Following is an analysis of the change in net revenue comparing 2004 ,o 2003 Amount (In Millions) .. 2003 net revenue $4,214.5 ,. .- " , Volume/weather 68.3 Summer capacity charges . ': K...., .:tm..7.4 , ... .. Base rates :.ii,,-!i 10.6 - * . Deferred fuel cost revisions (46.3) Price applied to unbilled sales . . "'(19.3) ' : ',*' Other . . UO r. '(12) .A.. . ,, , 2004 net revenue .... $4244.0 .
.The volume/weather variance' resulted primarily from increriled iisaige,fpartially offset bythe-effect of milder weather on sales during 2004 compared to 2003. Billed usage increra*d'i t6tal of 2,261' GWh in' the iiiddistrial and
.; . * ; :: lUrI.;) NC r!, ., t. .. .
commercial sectors. The summer capacity charges variance was due to',the aii6rtization'.in 2003 <at Eiitergy:Gulf States and Entergy Louisiana of deferred capacity charges for the summer of 2001. Entergy Gulf Stafes',amoitization began in June 2002 and ended in May 2003,. Entergy Louisiana's amortization beghn ifi Auguist2002:and ended inJuly 2003. Base rates increased net revenue due to a base rate increase at Entergy New Orleans that became effective in .June 2003.::!" '... . - ; :: : . * :ie,*'* :.. ..- ! ,_. , o, I..< i The deferred fuel cost revisions variance resulted primarily from a revision in 2003 to an unbilled sales pricing estiniate t6 'more closely align the fuel component' of that pricing with expected, recoverable 1ful costs at Entergy'Louisiana'. Deferred fuel cost revisions also decreased -iet revenue -due to a revision in' 2004 to 'the'estimate of fuel costs filed for recovery at Entergy Arkansas in the March 2004 energy cost recovery rider.
,. *.. , ,to* unbilled The price applied ' ,, *sales
- variance
. ; resulted
. -* , . -- in ..fuel11price
..ý I,. I--aI decrease f 1. . from A *in 2004 caused . .
primarily by ihe'effect 6fnuiclear plant outages'in 2003 on average fuel costs See "CritiealcAccounitini Estimate6s- Unbilled Reveniie" and Note 1 'to the coisolidated financial 'siatemenis fo..'F "'iei'.i..cussi.'.f.t.. ... iicit.igfo. unbilled r Gross operatingrevenues,fuel andpurchasedpower expenses, and otherregulatori, cedits"- r "7 Gross 6perkting rev~iies' include an incdrease in fue~l.ot recovery cvenues of $475 'milliodn aid $18 million iii electric'and gas sales, respetively, primarily due~to hglier fuel"raf6ts i2004 resulting fr6m 'i'iireas*S irithe market prices of purchased power'and riatural gas. As such, this revenue inTrease is offset by'increased fuel and purchased power expenses. t.! ,... . ' . i .. 11
Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis Other regulatory charges (credits) have no material effect on net income due to recovery and/or refund of such expenses. Other regulatory credits increased primarily due to the following:
" cessation of the Grand Gulf Accelerated Recovery Tariff that was suspended in July 2003;
" the amortization in 2003 of deferred capacity charges for summer 2001 power purchases at Entergy Gulf States and Entergy Louisiana;
" the deferral in 2004 of $14.3 million of capacity charges related to generation resource planning as allowed by the LPSC;
- the deferral in 2004 by Entergy Louisiana of S 11.4 million related to the voluntary severance program, in accordance with a proposed stipulation entered into with the LPSC staff; and the deferral in August 2004 of $7.5 million of fossil plant maintenance and voluntary severance program costs at Entergy New Orleans as a result of a stipulation approved by the City Council.
Other Income Statement Variances 2005 Compared to 2004 Other operation and maintenance expenses increased slightly from S1.467 billion in 2004 to $ 1.471 billion in 2005. The variance includes the following:
" an increase of S9.5 million in nuclear expenses for contract and material costs associated with maintenance outages and nuclear refueling outage pre-work;
" an increase of $9.5 million in miscellaneous regulatory reserves;
- an increase of $7.6 million in storm reserves (unrelated to Hurricanes Katrina and Rita);
- an increase of S5.1 million in estimated loss provisions recorded for the bankruptcy of CashPoint, which managed a network of payment agents for the domestic utility companies;
- an increase of $4.7 million in payroll and benefits costs which includes higher pension and post-retirement benefit costs substantially offset by incentive compensation true-ups;
- a decrease of $18.2 million due to a shift in labor and material costs from normal maintenance work to storm restoration work; and
- a decrease of$15.7 million related to proceeds received from the radwaste settlement, which is discussed further in "Significant Factors and Known Trends - Central States Compact Claim."
Taxes other than income taxes increased from $300.7 million in 2004 to $321.9 million in 2005 primarily due to higher employment taxes and higher assessed values for ad valorem tax purposes in 2005. Depreciation and amortization expenses decreased from $794.1 million in 2004 to $783.8 million in 2005 primarily due to a change in the depreciation rate for Waterford 3 as approved by the LPSC effective April 2005. Other income decreased from $134 million in 2004 to $111.2 million in 2005 primarily due to:
- a revision in 2004 to the estimated decommissioning cost liability for River Bend in accordance with a new decommissioning cost study that reflected a life extension for the plant. For the portion of River Bend not subject to cost-based ratemaking, the revised estimate resulted in the elimination of the asset retirement cost that had been recorded at the time of adoption of SFAS 143 with the remainder recorded as miscellaneous income of $27.7 million;
- a decrease of $26.3 million in Entergy New Orleans earnings, which is now reported as an unconsolidated equity affiliate for 2005 in the "Equity in earnings (loss) of unconsolidated equity affiliates" line on the Income Statement. The decrease in Entergy New Orleans' earnings is primarily a result of lower net revenue and higher depreciation and amortization expenses, partially offset by lower other operation and maintenance expenses and lower interest charges; and
- a decrease of $ 10.1 million at Entergy Gulf States due to a reduction in 2004 in the loss ptovision for an environmental clean-up site.
12
,.Entergy Corporation and Subsidiaries
- Management's Financial Discussion and Analysis The decrease was partially offset by an increase of $35.3 million in interest and dividend income due to both the proceeds from the radwaste settlement, which is discussedfuirthr 'in' !'Significant-Factors. and uKnown -Trends'-
Central States Compact Claim," and increased interest on temporary cash investments. 2004 Compared to 2003 Other operation and *maintenanceexpenses decreased from.$1'.613 !billion in .20031to $1.5,69,billion in 2004 primarily due to voluntary severance program accruals of $99.8 million in 2003 partially offset by an increase of
$30.5 million as a result of higher customer senrice support costs in 2004 and an increase.ofapp.roximately $33 million as a result of higher benefits costs in 2004. See "Critical Accounting Estimates - Pension and Other
- ,Retirement Bnefits" "andNote 0 "tothe consolidated financial 'statements for further discussion of benefit roosts.
.p.-_."i':D..epreciation and .ambrtization expenses 'increased ifrom 3$77.6: million in 2003,.to *$823./million in .2004
.primarily ,due,to higheri depreciation*of..Grand -Gulf due. toga ,higher .scheduled sale-leaseback.principallpayment in addition to an increase in.plantin service.1 rzi> I -. u ;,:- 1.1:L , d 'J r.,Ii 10t,l . i-; T'i N' iIM II fj;),,i:.. Other.incpme (deductions):changed from ($36.0 million) in 2003. to.$108.9 million iin;2004 primarily due to the following:,. ,O..ti: 'M;,,,: ', ...... ... .. .;i,,.,, fuC. j 1-n ?.. othe$S107.7-,million accrual in.the pecondquarterof1 2003 for;the. oss that :would be;assocjated with a final, non-appealable decision disallowing abeyed River Bend plant costs.!'*See Note 2 to the consolidated financial statements for more details regarding the Piver Bend abeyedplant costs;; : 1 "o -.. ,
- a reduction in the decommissioning liability for River, Bend in 2004, asdiscussed in Note 8,to the .o
. . consolidated -financial statements; and a trrli,:, >i-Vj- 'rbi¶!i:: P.' ?I , it, ,vr,
.,uI',*.:Il...,*vr. '
- a $10 million reduction in theJoss provision for:an!Entergy GulfStates environmental clean-Up.site.
Interest on long-term debt decreased from $433.5 million in 2003:to $390.7. million in2004 primarily:dueto the net retirement and refinancing of long-term debt in 2003 and the first six months of 2004. See Note 5 to the consolidated.*financial statementsfordetalls-on long-term debt.',, ?:;&fO , .- , ,,J,, v:o~a -. ,, NON-UTILITY NUCLEAR r M,,; l J 0,3 ,,13lf Following are key.performpnce measures for Non,-Utility Nticlearn, O ) '""j 2005 2004:. .... 2003...*,"
,~ Net MW in operation at December 31 t, .4,105 -. ,4,058 4,001, L~. , .. Average realizedpriceyperfvn W , o $3938,
..416 4.
j.,.... j.. Generation in GWh fo theyear, . . 3 3 53 9 ._- , 3 2 ,524. . ui..: I132,379-,...,i 9 :'iit )~i'9 2~c-u 0 y Capaciy actonfor~th&,year1 ,. ,
-D!! W,,~;rf * %jfII! 6riy?
2005 Compared to 2004
*The~increase in earnings ;forNon-Utility Nuclear from.S245j million in 2004.,to,$282.6 million in 2005 ,was primarily due to the following:
- higher 'revenues, which increased from $1.342 billion in 2004 to $1.422 billion in 2005, primarily resulting fron~iigher pricing in its contracts to sell power. Also contributing to the increase in revenues was increased generation in 2005 due to power uprates at several plants completed in2004 and 2005 and fewer planned and unplanned outages in 2005; and
- miscellaneous income of $15.8 million net-of-tax resulting from a reduction in the decommissioning liability for a plani in 2005, as discussed in Note 8 to the consolidated financial statements.
M-13
' Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis The increase in earnings~was partially.offset by the following: . - ?.
" higher fuel and purchased power expenses, which increased from $125.7 million in 2004 to $147.9 million in 2005; and . :.. - (,- -
" miscellaneous income of $11.9 million net-of-tax resulting from a reduction in the decommissioning liability fobi a' plant iri 2004, ds discussed in.Note 8 to the consolidated financial statements.. '.
2004 Compared to 2003" - . " . . ivr- . .. "' . ,:' .
'The decrease in earnings for' Nbn-Utility Nuclear from, $300.8t million, in, 2003 t6 $245: milli6hnin 2004 WXas primarily due to the $154.5 million net-of-tax cumulative effect of a change in accounting principle that increased eafnings ,ii the' first' quarter of 2003 upownimplementation of SFAS 143:ý See "Critical Accountine Estimates -
Nuclear. Dicommissioning Costs!' below for discussion of the iniplementation:of. SFAS,143'"%'1Earinings blefore the cumulative effect of accounting change increased by $98.7 million primarily due to the fo11owving::'., 'r , I ,,. lower operation and'mainitenance'expenses; which decreafsed frbA1 $681:8 million'in 2003 to $595i7 million in 2004, primarily resulting from charges recorded in 2003 in connection with the voluntary severancet program;
. ;i higher revýenues; which increased from $1.275 billion in 2003 to $1.342 billion in 2004, priiarily resulting
. fromhligher con'tracf pricing. ,The additio f a suppori services contriict for the Cboper Nuclear Station and increased generation in 2004'due to power, ulirates 'completed in.2003and fewer planned and unllanned outages-in 2004 also contributed'to' the highde reveriuei; anidr I;i.,!,;i;. -. ,I, , -,, ? *-.,.i .3 1
- miscellaneous income of$11.9 million net-of-tax resulting from a reduction in the decommissioning liability for a plant,. asdiscussed in Note 8 td the consolidated financial statements;'-...
,Partially offsetting this increase were the follwi0ng: ' , '.* -
" higher income taxes, which increased from $88.6 million in 2003 to $142:6 million in 2004; aid, -J -
- higher depreciation expense, which increased from $34.3 million in 2003 to $48.9 million in 2004, due to additions to plant in service. Y i., .
PARENT COMPANY & OTHER BUSINESS SEGMENTS- ... . Sales of Entergy-Koih Businesses-" 0.- In the fourth quarter of 2004, Entergy-Koch sold its energy trading and piýeIie businesses to third parties. Entergy-Koch Mll iontnue m existence pending" final receipt of the purchase jprice." In 2004, Entergy received
$862 million of'the sales proceeds in the form of acash distribution by Enitergy-Kocfi. Eniergy ultimately expects to receive total net: cash distributions exceeding $ i billion. Entergy expects§to'record aniapproximate $60 million net-of-tax gain when the remainder of the proceeds are received in 2006.
Entergy Corporation has guaranteed up to 50% of Entergy-Koch's indemnification obligations to the purchis'rsi. However, Eintergy' does not e,"p'ect any material claims uinder these indemnification'obligationsi" 14
. Entergy Corporation and Subsidiaries
?.Management's Financial Discussion and Analysis
.Results of Operations, tr:iorP *;Ja* ,li' -;nc 2; 7;t ,ij:j*h .. rd '.: ;>. 71;: r,,j ,:*T;z 2005 Compared to 2004 The decrease in earnings for Parent Company & Other Business Segments from S21. million-in eaiiiings to ,a $44.1 million loss was:primarily..due to the foliowing:,;-: nn lLiqL: ?4-*t;..: . , "il I
- a tax benefit resulting from the sale in December 2004 of preferred stock and less than 1% of the common stock of Entergy Asset Management, an Entergy.subsidiaryj An Entergy subsidiary sold the stock to a-third party for $29.75 million. The sale resulted in a capital loss for tax purposes of $370 million, producing a net
)i l*f.J>ax*benefit.f $97:million that Entergyrecorded in the fourth quarter.of.2004;'and - k.*'s;5 2t,
* . a loss from discontinued operations :df.$44.8 million net-of-taxdue to the planned divestiture ofEntergy*s -it
- 'r' i ,.-iCompetitive Retail Services retail'electric business in the ERCOT~region of Texas.This amount includes af
..'.'. ,i net charge'of$39.8 million ($25.8 million net-of-tax), related to the impairment reserve for.the remaining net Lr~;v-.-,'book value of the Competitive Retail Services business' information technology systems.:l I:,fh. d.'IU"-j :.i.
*These decreases were partially.offset.by the following: ;w, mn ,ci ,; *. . O,<! sf8. Th:ti Il-- T .?"I!.!T.
**!, b~;jai,,* *2*JrH;-:,i * .:az ,'t; l~nf. (lb);2Jp Sl~l,-*Fi ir.n; C' :! ,:i;?iv b'2r, ;*rr,',i C,:r' .,. . - l .;*;3"'(;*,o
' i *"o IiV.J .*...'J
'Al lori a charge recorded in-2004 ofapproximitely $55 million ($36 itillion net-of-tax) asa result of an impairment o, -,of the value of the -Warren'Power.ilanit,-which is o~vned in the nonr-nuclearwholesale assets business:.-- noizi
.;*KJ-r: Entergy concluded that :the plant is impaired based on valmition studies prepared in connection vwith .the pjbr,
(ýa,:;r ;:Entergy Asset'vIanagehfient.st6eksale disciiss6d above;, l!* 1 -'r.;':i 1. ,8 (.A I: L ?l",,'i (! t ?*',,1;1
- a loss of $46.4 million in,2004 fromEntergy's investmeht in Enteigy-Koch, primarily resulting from'Entergy-Koch's trading business reporting a loss from its operations in 2004; and 1 Iri-tiscellahe inicorerfroiproc~edsof$18'9 million from the sale of SO 2-allowances.-,'1 't, r/,
init. ,P',! o a u.lit t I;iqt;'_ b:nr 'l ! ,i y ', ol k oibi:'p: , , . , . :t :; iob il it,;!,.r ',
'2004-Compared t6 2003'.-1 * !f1L1,'Jf; *rth .ti ;,; : :: . O' - J2:', ,;.: ;a. rw,*,: . :, J., e
<Ai A V .z., a i.,t'd
- i~,':* Iir*,*l *'ailibyrimoJ :*t L~r: r,2)L/t '0 vii,lfJ-heZ 'y-,fq* > ; ;":",u,lr; c I*rf'i,' t.. v. ..2!
-,Th6 A'creaseA'in"ea'hiig* 'for "P'fif Company' &' Othe" Biusiess Seginetit" froml$$1571,'Iriillioii to $21 ,l
,millionwasiirwas ilydie to' (E :v oiD' nl t ,irr ) .': .,1' rti'WId *. ? '*w:,tll ,;l 2. : ' J',, r' .
.'~ },*:, !r u: :*.:'; , rrno: j.- 1:I.'j:,o ,t;ihlt -:i',i r. v I, I'12,) vpjri 'to tc~iln.[:.IEQ ,. - .; ~ :1';,." - (E ;;A~it:a
';1.,2.:
- earnings from EntergpY's ffit'e*tht in Eiteigy-KochWere$254'inillidn loxer in 2004; primarily i'*sa ies'ult of Entergy-Koch's trading business reporting a loss from its operations in 2004; and
- a charge recorded in 2004 of approximately $55 million ($36 millii'fiet-b0f-t*a)as 'aresult of aii'ifipaitirieit of the value of the Warren Power plant, which is owned in the non-nuclear wholesale assets business.
, Enterrg~yco'neu'd* hat the plant isimpaired based onfilati6n stddies prepared i connection ith the
. . ('i '1) I: -.. " -'i. 2VK1 ,rf-t otw S':t"Enit:ergyAss't 'Ma"'gement .sock saledi~scussed belowV..
-Part'lly offsetting the decrease in earnings wia'ithe followig: .Ir212Q'fW/u fl:;.) qjIi i-.! Žrir ':Ti ',;' h:ffi
' atax benehJ resultgifromthesaile 6fpreferred st6kiantil6o
'rfit *'1%oifthe cry.6than iq
... .AssetManagemet,an Entergysubsidinry. "ii'Decemiber 2004, an Enteiry b'sid'iry sold thde stl toia04 third party for $29.-75 rAUilon. The sale result&l iaciapital loss for tax purposes dof $370 milhi6oin;prung a net tax benefit of $97 million that Entergy recorded in the fourth quarter of 2004; rrealization of $16.7 nulhon o tax"enefit's"rlated ito he Entergy-Kochh invest ment; ad'- " c-
'a ross from discoitiied perations of $14..million net-of-taxln 2003rom Enterys ompet tve Retail 74 .'h 'o" ,"" s; . I 1p rfl' ", * .
.uit . ..
. pc7). T l h i.1 1:0 4 ?.rIbL *IL "incomeTaxes . c',c . 3<n.::!"otOla'b**a::ln ' ~,r .[o ;*.t*
L, BI I lI* '! *1J1,I cri; "1"., '1J ,?Qf.r,.,,(1.I.4rr.. 'r;)(If.1:.U, " i') i!Ii'i ([t'* 1[;'! '..i;A., O
;.t:r . "l.','!: ic 3 /,:t 1'ic ftxy9i:*'
2;1.$.ll "T,, iI The effective icbme tax rates ;for:2005,;2004;,and 2003 .were36.7%;128.2%; and 37:9%,respectively. .See Note 3 to the consolidated financial statements for a reconciliation of the federal statutory rate.:of'35.0% to the r*1 5
`'Entergy 4orporation and Subsidinies SMiainagement'sFinancial Discussion and:Analysis effective income tax rates. The lower effective income tax rate in 2004 is primarily due to the 6ix: benefits r~ultiiig from the Entergy Asset Management stock sale discussed above. Liquidity and Capital Resources This section discusses Entergy's capital structure, capital'slnlnding plans an'd'other uses' of chpitfilirsoiifces of capital, and the cash flow activity presented in the cash flow statement. Liqidity Effects'of lurricanei'Katrina and Iurricani Rita' .:o:,:i' *'.::':'.. {,'2rHr . h, ; I1 9i,)ILlfj r~'. .101 :,-tx
*r :'itqwlol 2:rj
!T.ic- ; "ht .A m ?l d !
As discussed abo*'eV, Hufriiaines., Katrinh and'Rita! impacted Entery's iervke*:*tefrifoiy.li Ini addition to the diret;cost&aaused by. the 'stornis; HIurricafies' Katrinat and, Ritahhilehad- other., impacts thatkhave dffected the U.S. Utiliiy'g:liquidityipositi6n.ý.The Enteigy NV Orlearis bankruptcy caused; fuel:andpoWei suopliei',to. increase their scrutiny of the, iernaining domestic utility bomlanies~with the conceii'that 6rie'of them dould`suffer, similar impacts, particularly after Hurricane Rita., As'a result;-s6md suppliei'sbegan'Irfequi*ing accelerated pa'ymefits dnd decreased credit lines. In addition, the hurricanes damaged certain gas supply lines, thereby decreasing the number of potential suppliers. The hurricanes also exacerbated a market run-up in.natuifaF gas arid piiwerýprices; thereby; increising the U.S. Utility's ongoing costs, which consumed available credit lines more quickly and in some instances required the postifig'ofi additiohal collateral:-) The iU.S".Utility) managed throiUgh- these .evdnts' thus, far; 'adequately:supplied the Entergy Systen with fuel: and power; and! as a.'result of steps! taken byl it regarding itsgstorm costs, expects to have adequatef! liquidity,' and, credit to' continue,.supplying ther Entergy. System .withfuiel: and power.-) The! Non-Utility Nuclear business also has had to post increased collateral (principally in the form of Entergy. Corporation guarantees)
-due: torising' fuel and power prices, and it has had adequate liquidity, to'meet that demandUnr - , I,.r , r After the hurricanes;,: Entergy, implemented, a inew. financing! 3 sourcedj.$25- billion!jthrough a tplanthat combination of debt and equity units intended to provide adequate liquidity and capital resources to Entergy and its subsidiaries while storm restoration cost recovery is pursued. In addition, the plan is intended to provide, adequate liquidity and capital resources to support Non-Utility Nuclear and the Competitive Retail Services business. The plan; which'rEntergyt accomplished, primarily, in the! fourth: quarter) 2005; included 1J); increasing) Entergy's credit revolver capacity by establishing a new $1.5 billion Entergy Corporation facility; 2) issuing $0.5, billion of equity units; 3) issuing approximately $0.5 billion of new debt at various utility operating companies; and 4) providing capital inthe amount of $300 million from Entergy Corporation to Entergy Gulf Statesý.,.*-,,,' .Gi"-',..
Debtor,n-Possess ion, Credit.Agreemen I , ,... ,',,
ýld qOn,.September, 26; 2005,) Entergy] Ne v*,Orleans, as borrower,,and, Entergy C.rporation,.as.lender, entered into the Debtor-in-Possession (DIP) credit agreement, ,a, debtor-in-pssssion creditfacility, to, pro6ide funding to Entergy New Orleans during its business restoration efforts. On December 9, 2005, the bankruptcy court issued its final order approving the DIP Credit Agreement. The, indenturetrustee, o*f Entergy1 New, Orleans'. first mortgage bonds appealed the final order, and that appeal is pending. Subsequent to the indenture trustee'filing its i-otice of appeal,,. Entergy, New,,Orleans,. .Entergy Corporation, andnth. indenture trustee filed, withthebankruptcy 1 court a motion1 t settlement among the parties. ,The settlement )would result in. the dismissal, of the indenture
'!approveja trustee's, appeal. ,The settlement is, set, for hearing in the bankruptcy court on-.March 22-2006._ii The credit facilityproyides, foriup to $200 million in loafis., These funds were requested to, enable Entergy
... _mlyeae di. 1 .ý -- and t beeft...... and. paym t s dh!-1 New, Orleans to meet its liquidity needs, including emtployee es and benefits and payments under,power purchase and gas supply agreements, and to continue its efforts to repair and restore the facilities needed to serve its electric and gas customers. The facility enables Entergy New Orleans to request funding from Eniergy Corporation, but the decision to lend money is at the sole discretion of Entergy Corporation. As of December 31, 2005;,Entergy New Orleans had $90 million of outstanding borrowings under the DIP credit agreement. Management currently expects tlie binkruptcyi couift-ifuthorized- ffindiffg, level to- be sufficient' toý fundd; Entergy: New,. Orleans,, expected level of
,6perati6disthrough2006.::--,: !:.;./'FM ; !A ,.,, 1. ... .: ,- :.':: !:wi.;1: K -f"';:
I.;* -ol.
ý16
Entergy Corporation and Subsidiaries z Management's Financial Discussion and Analysis Borrowings under, the DIP.:credit agreement are due in full;,andthe agreement :Wvillteiminate, at the earliest of (i) August 23, 2006, or such later date as Entergy Corporation shall agree to in its sole discretion, (ii) the iad6eleratior of the loans and the terrmination'of the DIP,credit agreement in accordance withlits terms,,(iii) the date of ithe. losing of a isale 'of -all'or .substantially: all Lof,Entergy' New Orleans', assets*:putrsuant to :section, 363 of the .United rStates :Bankruptcy .Code or., a confiiied plari,0' ceqrganizationrb.or.(ii,) the.effective date of a-plan of reorganization in Entergy New Orleans' bankruptcy case. . +'H' ,:, :,,i!?,:
"(ili*,7i , ",-,
,'.A f1,i) ,v As s-ecurity for Entergy.Corporation'as the lender, the termsotoftheDecember 9 2005 bankruptc court order ru provide that all- borrowings ýby!Entergy:New Orleans :under the'DIP CrOedit Agreement are: (i) ed-ntitled to superpriority administrative claim status pursuant to section 364(c)(1) of the Bankruptcy Code; (ii) secured by a perfected first "priorityl lien oi ,all.,oroperty,-6: .EnteigyiNemV.Orleans pursuant to sections i364(c)(2): and 364(d)' of the Bankruptcy
',Code,, ýxcept ;ori anyproperty, 6f)EntergyjNew1Orleans fsubject*td6 V'lid,iperfcted;-and non-avoidable liens :of the lender on Entergy New Orleans' $15 million credit facility; and (iii) secured by a perfected junior ilien' pursuantto section 364(c)(3) of the Bankruptcy Code on all property of Entergy New Orleans subject to valid, perfected, and Inon-avoidable liens in favorIdf ithe ilender,'on Enterg&i ,New OrleanL'$15 )zillioh credit facility ,that :6xisted as of the date Entergy New Orleans filed its bankruptcy petition. ý.
, I i~dnro'.,,
The interest .,rate'on borrowings' under the DIP credit agreement will be the average interest rate of borrowings outstanding :under EntergyICorporations*.$2 ibillion revolving 'credit facili ty;;which was approximately 4.7% per annum at December 31, 2005. (*':iuli. ii!) Capital Structure 007, I P -0 vii '.i. -! F.1i lTo F.-Entere's bapitalizati6ntislb'alanced between-equityiand debt, ma§rThoivnin 'the'following table.m.TThe increase unitherdebt. to capital percentage'from!2004._o 2005 jis ,the result 6f increased 'debt..outstafiding due :to iadditional ib6rrowings on Enteigy Corporation's $2 'billion revolving creditfacility;, Additional 'debt issuances,' including Entergy Corporation's equity units issuance, along with a decrease in shareholders'.,equity, priinarily dubit6 fepcrchasestof common stock. rfwo~o 97; .;r**rJ*Je .;3**sdlL:*nblo¢ g,,_Tgl:: t?ri, ot n .2005 :.. .. 2004__...:: , ... 0~*1. 3 .... Net debt to net capital at the end of the year 51.5%oo*,*i J.0(145. 3 %i _
,',', 45 %
'90X,- .
Effect of subtracting cash from debt 1.6% 2.1% 1.6% oft i.,, to a, end of t 53.1% 47.4% 47.5% Net debt consists of debt less cash and cash equivalents. Debt consists of ndtes-payable,; pital leaseobligation§ pr6ferred stock with sinking fund, iird long-term debf, includingitlecurrently maturing portion. Capital consists of debt, shareholders' equity, and preferred stock without sinking fund. Net capital consists of capital less cash and tcash etuival6nts.:'Entergyluses"the'niet debfito'net capital !raiio 'in 'analyzing its'finahcial Ciondition and 'believes it
;proidds usefiil iiif6rfiation 40 its'ifivestdrs and crediior.* ih'evaluitifig Enter* s financial Zonditiori.. A,V " .
Long-term
.( 'ON',. N i.],including 0,r' 1-debt, Aj.*/{ M*~.:' I - + .I,. maturing portion, the,IF currently makes up substantially all of Entergy's total debt outstanding.. Following are Entergy's long-term debt principal maturities as of December 31, 2005 by operating segment--The figuires below -includeprimcijial Payments-on then-tergy Louisiana and -System Energy sale-leaseback transactions, which are included in long-term debt on the balance~rsheett. :-12rw2', iz,,-
Long-term debt maturities i,)i Htim 2006 2007., E'Al2008 2009-2010 i.i! after 2010: 1
)IJO2 *r 4(In Millions) in... rt '.....'i
-nolli:r! ?
U.S. Utility , .$23 $93 . $802 $746 .$4,705 .,.
..Non- 'tfi JNjuclear .. ... " 81 .80 . '" 20 '42 151 Parent Cormipany and Othe'"
Business Segments - - 272 1,327 586 Total $104 $173 $1,094 $2,115 $5,442 n17
Entergy Corporation and Subsidiaries - Management's Financial Discussion and Analysis Note 5 to the consolidated financial statements provides more detail concerniig lodjg-terrmt debt:,r -,ri, ,,
;In May 2005,ý Entergy Corporati6n; terminated! its tiol sep 'ate, revolving dredit; facilities, a) $500 million five-year Credit facility and a $965 million three-year credit facility.'( At, that time; Entergy Corporation' entered into; a S2,billion five-year revolving credit facility,' which expires in'May.2010., 'As of December 31, 2005;1,$785,millioný in borrowings were outstanding on this facility. : <-:'*, '. ., ,"i' ,-
- In December. 2005," Entergy Corporation entered into a' $1.5 billion three-year, revoing credit facility, which expires in December, 2008. -.As of Decembeb3 1,, 2005, no borrowings Were'outstanding bn this' facility,,:,'."; bi .'
- 'Entergy also. has the ability'to'issue1 letters of credit agairistfthe. t6tal borroing capacity of both; the'three-year and the: five-year credit, facilities,. and $239.5: million of letters, of credit hiad been, issued.: against the; five-year facility atDecember.31,'2005,i;; /:.;5 (
('.1 k..., ;q;y,
'.(h.." , lb, .ciIjrt 2b,, i "1 'v!! ; ",' ,"
- 1,.,O:
-,;Following is a summary of the boirowings outstanding, and' capacity. avhvilable, under: these facilities as: of December 31, 2005. . inr , r.otl, l h l.UI o. .(( '" v-,
. .. L..etters A nrCapacityir Jl; Facilitv': , Capacity .Borrowings !*.:orof Credit' ;:f . .Available ,:" . ,"o-(In M illions) .*i;it ,;01 :,.*A :, *., ,. .'
5-Year Facility $2,000 $785 $240 $975 3-Year Facility $1,500 S- $- $1,500 r.;:.' :- )
.i Entergy Corporation's credit! facilities requiie it to maintain awdonsolidted debt- rati .of 65% or, less of its
- total. capitalization. If Entergy fails to meet this debt ratio, or if Efitergy'br' the domestic utility'companies' (other~thah Entergy&New Orleans) default 6n'other: indebtedness or are in bankruptcy br. insolvency prdceedings', an acceleration of the credit facilities! maturity dates may occur.'., . ..- ii (,' , o rj9.i,.o".)
Capital lease obligations, including nuclear fuel leases, are a minimal part of Entergy's overall capital structure;--and are discu*sd: further. in -Nbte 9- to the consolidated financial statements. Following are Entergy's payment obligations under those leases:*. *', o b'1: :'r; r; I; :,;fi ( I ; r! v.,/ 3~~~~~WI
'~~ ~ - l o iJ'f~
- . "2006 2007 .i2008-. ,, 2009-2010.,,, after 2010 (In Millions)
Capital lease payments, including nuclear,-; i;,.i:,:.. .' 't .;;,;,-, I"o ,-1', e, , - :A' u,1 ;-- fuel leases, '; .c , . -,' i .,$133. $171 -S. L '11,:;
- . :$1; 1 i i, 1$- ,-:_;I. 'i q Notes payable, includes borrowings. outstanding 'on credit facilities with original maturities of.less! than' one year. Entergy Arkansas, Entergy Louisiana;' and Entergy Mississippi' each'have 364.day credit facilities available as follows:
* . .. "~ ' ' ': A'maiiit.o '1" '.' 'Am eiouint DraWn As oft Company" Explrafotibn Date acility.
Entergy Arkansas April 2006 ' $85 million (a)!f ri lr9n'!'- ýi~-sr.'.on~t Entergy Louisiana April 2006 $85 million (a) $40 million Entefgy Louisia.-- a'. ..... C'h May 20061 -$15 million (b)'h,,! ,' ,:i' -. Entergy Mississippi , : May2006 $25 million - (a) The combined amount borrowed by Entergy Arkansas and Entergy Louisiana under these flctilities at any one time' cannot exceed $85 million. Entergy Louisiana granted a security interest in ts recables to'secure its
$85 million facility. ,
"18
, Entergy Corporati6n and Subsidiaries
- Management's Financial Discussion and Analysis (b) The combined amount borrowed by Entergy Louisiana under its $15 million facility and by Entergy New Orleans under a $15 million facility that it has with the same'l6nder.cannot exceed SIS million at anyc.dneltime.
*.Because Entergy. New Orleans', facility is fully drawn, no capacity is currently available on Entergy Lorsetla's faallty. able. onE-n Operating Lease Obligations and Guarantees of Unconsolidated Obligations.
Entergy has a nlri'imal'amount of operating lease obligations and guarantees in support of unconsolidated obligations. Entergy's guarantees in support of unconsolidated obligations are not likely to have a material effect on Entergy's financial condition or. results of pperations. Following are Entergy's payment obligations. as of December 31, 2005 on non-cancelable operating leases with a term over one year: n" ., ,/, C -¶10() bill, 1:;,w 1:3't lT ,2006 2007 2008 2009-2010 after 2010 (In Millions),"' T~rTi ,) fCqD Operating lease payments EK£ $95 $77 $63 v.,$8' .. U $196 The operatinj leases are discussed more thoroughly in Note 9 to the consolidated financial itatements.` Summary-&fC6iifi6ifua'l ObliFii6fis 6 f Consolidated Entities if 91 _l,..Contractual Obligations_, ... ... ,2006 .? 2007-2008 .- 2009-2010 ,, after 2010 ..,Total i*6-ig'-'t'e'in'"dleb't-'(1)'..... I,"- [,q *,!,,: "$164 '"" ;`$'$1[,2'67-tk ý1-' 2*151 'I b'-$5 442'-*'ý "$8,928 ' Cap~tal lease payments (2) ..... $133 '$172"- v $- ! $2! .. Operating leakes`ý2)1 r I f. t:$ 95 h.fl$ 14 0 "
. .1 1"'11,f . "1;1i SIm88 i;Q .$i 9 6 , : ,5"9*' ls Purchase obligations (3) $1,012 $1,507 $1,109 $643 $4,271 all- k af6 6ilic:,is*- ;-i:Of[*.'lo o (1) Long-term d No6te5 to th conso'lidate'd financi'nta'rnsci irt's-dsussed*
(2) Capital lease payments include nuclear fuel leases. Lease obligations are discussed in Note 9 to the
- "'cons ha e nnclalssatements ,,.. !. ,h'n-;r ,;,:f- .r*,r zr::, '*,i:)
'ý *r"(ýurcna'se"notmljg'a't'onsl"r'elp'r~e'sent tme ~un'rmum prcnase -oougaiuon or canceuaion` lcharge for' conitractual obligations to purchase goods or services. Approximately 99%'of the jt6tal pertains to'6fueland purichased power obligations that are recovered in the normal course of business through various fuel cost recovery meahifiii'iiis ih6 U.S'. EUtilitYbifiii&6s. '..-:,rri . o4 b'-i. ,4, '. ,'o r i*" i m-~~iJ~ :'t.f ~;:~1.. I *r 'PliIU,*;,, v~filz.$t
) V*n f~ti;:ir'fl.flci?
Iniadditi6n- to theseco6ntraetual bblihations,. E1niergyrexpects 4t 6entfibiute $349 'million't6 tiiis'peision 'plais and $60 million to other postrketiremerit 'plans ,in 2006. $109 millionof the' p'ens16h plan contribhtion was madei January 2006. $107 million of this contribution was originally planned ]for 2005; h6wwvVer, it ý'vas delayed as'a' reult of the Katrina Emergency Tax Relief Act.
,Catital Funds'Agreement, ,! " . ;rnl, " l: '::.:: *,biI',; ,D'II
,,i,-Pursu1a r ant.agreement with.certain creditors, Entergy.Corporation,t",has agreed to supply.System Energy lth.sufficient capitalto'? o~h; .. ,, - .. , i...to:;,i' d. . '!v ;V.i: l,, ,"v: -r .. 3 lr I ... -c "~
...... - ' -L ' i'L- ~12 1 i.-. ' 1. 1 1 f h ; [ ( J ~ VI ~ ~ ' : j ~~ ~ : ; : ~ W i . a ~ m j j Smaintain System Energy's equity, capital at a minimum of 35% of its iotalfcapitalization (excluding short-rlI, term debt); .yi* '-iAbro' ,l'i nu'*
permit the continued commercial operation of Grand Gulf;
!)fi r.ý tpay in full all System Energy indebtedness for borrowed money~when due; and :." Iý: wm:u, i.*ie.,, Ienable System Energy to make payments on specific SystemEnergy debt; under supplements to the agreement assigning System Energy's rights in the agreement as security.for the specific debt. i ,-.
'il:i, 119
- Entergy Corporation and Subsidiaries
'Management's Financial Discussion and Analysis Capital Expenditure Plans and Other Uses' of.Capital. , :... fi- li2,l roi!Irr" "'I : :'., .ni:ThU Following are the amounts of Entergy's plained construction and other capital investments by operating segment for 2006 through 2008, excluding Entergy New Orleans: ." ' .',' Planned construction and capim investments 2006- -- 2007' --
'"2008
-(InMillions) lMainfteriance Capiial:t ~n ' i-.. ~ ~.;I A Non-Utility Nuclear .. . .. 62.1 ' r-i-, l64 50':"
Parent and Other 2 2 2
.. ,,, :- . ,.. " __668 779 771 Capital Comrmitments:.. .
U.S. Utility .. ,.. 277 203 . . 30L.,;f.. Non-Utility Nuclear 143 96 86 5 Parent and-Other ;. ' ,:. L,- "' r ii1:,i.H re '6',, *': h "' 6 i-i '1 . ; ' .'i 426 305 392 Total : " $1,094- - ": 0 ;. 1 . '.i:- I"
-- - In additonttdthe planned spending inrthe table above, the U.S .Utility, excluding Entergy New. Orleans, also expects to pay for $310 million of capital iivestments in 2006 related to Hurricane Katrina and Rita restoration work that have been accrued as of December 31, 2005.,Entergy New Orleans' planned capital expenditures for the years 20066-2008 total $93 million, and Entergy New Orleans expects to pay, for $46 million of capital investments in 2006 related to Hurricane Katrina and Rita restoration work that have been accrued as of December 31,.2005.,,,?
0..1 Maintenance Capital refers to amounts Entergy plans to spend'on routine capital projects that are necessary to support reliability of its service, equipment, orFsystes and to supportvnomal
. sup'.,ma to
ýms: an*b*q~ ...............
customer ut~mrgo growth.2
.... '-J: L ~ ;~~ jy. .A!~ .... h*lt ¶,.Af.TJ Ž_i,*.,I *.ff
' .,LC. 4, l ... .1[) I:
Capital Commitments refers to non-routine capital investments for, which, Entergy. is, either contractually obligated, has Board approval, or is otherwise, required to make pursuantto a regulatory agreement or, existing rule or law. Amounts reflected in this category include thefollowing: * ., ,, .i *.,,,., ,,, ; , IlO
..............-. 4,..
Transmission expansion designed to address immediate load growth needs and to provide improvedgm transmission flexibility for the southeastern Louisiana and Texas regions of Entergy's service territory.
,.). *., Pýurchase, of additional, generation supply, sgurcesýxwithin the U.S. Utility'st service territory, including Entergy
- i. Mississippi's January2006 purchase.of the 480 MW, natural gas-fired Attala powe* pant.1 V. '-,o r:",,,)l n
.i
- r 1Nuclear site dry cask spent, fuel storage and license renewals.,,, l t r .. '- , : Tfl12 *"'tJ From time to time, Entergy considers other capital investments as potentially being necessary or desirable in the future, including additional nuclear plant power uprates, generation supply assets, various transmission upgrades, environmental compliance expenditures, or investments in new businesses or assets. Because no contractual obhigati6oif'n;commitment; or Board. approVal, exists to, pursue'te &se investments, theyi are not -o'inluidd iiim Entergy's planned construction and capital investments. These potential investments are also siibjic-t"'t*t l-iiioh' ii6dl approval in accordance with Entergy's policies before amounts may be spent. In addition, Entergy's capital spending plans'do, 'o...iiclud spendinig'f~ frtrnsmissioni upgrades" requested' by .mercan'tgeneratorsi,'otlier* than projects currently underway. (Irl:h, m, Estimated capital expienditurbsl ar'esubject io periodic ieviec ,andImodification andziiiay. vAryi based on the ongoing effects, of business restructiiring;.regiblatory, doristraints,, environmentAl regulationsl business 'opportunities, market volatility; economic, trends,; and the ability to-access capital.,: -1'n& "r:,'--r.' -'-* ., r-p+/-
-20
, Entergy Corporation and Subsidiaries
*,Managements Financial Discussion and Analysis Dividends and Stock Repurchases :iyld ,,'J~ri: -' , ,,
-,Declarations of dividends on Entergy's common stock are made'at the discretion of the Board.-iAmong other
;things,* the Board evaluates .the level of Entergy's 'common stock dividends ibased upon Entergy's earnings, financial strength, ,and future investment opportunities. At its January 2006'meeting,-the Board declared a dividend of $0.54 per~share, In 2005, Entergy paid approximately $453.5 million in cash dividends b ,ii, *,2!... .
on its common,,1stock,,,!
.:-~O~l~ r;~~r ~
- .. , y -
- -In accordance with Entergy's stock-based compensation plan,-1Entergy periodically grants stock optionsto its
- employees, which may beexercised to obtain shares of Entergy's common'stock;: According.to.the plan,, these shares
'can be newly issued shares,, treasury stock, or shares purchased on the open: market... Entergy's management has been authorized by the ,Board ,to repurchase on the open market shares up to;an amount sufficient to fund the exercise of
- grants 7under -the plans..;.- In '1additionto ,this authority,, the Board ;approved a rprogram under vwhich !Entergy,,was
,authorized to repurchase up to $1.5 billion of its common stock through 2006.,!The.amount of repurchases,under the
.program :may,:vary as a result, of material changes in business results .,or;capital, spending, or 'as a -result of material new investment opportunities. As a result of Hurricanes Katrina and Rita, -the,$1.5 -billion share repurchase program was suspended, and the Board has extended authorization for completion of the plan through 2008. Entergy has $400 million of authority remaining under the $1.5 billion plan. In 2005, Entergy repurchased 12,280,500 shares-of common stock under both programs for a total purchase price of $878.2 million. - , *' * , /, ! .: " I," ' : ... . . " - .: -::. *, , - . . I " .:" ' 'ov-,rI~-- , :
Sources of Capital .f. v,)[ bLu/,' (0-. irI Entergy's sources to meet its capital requirements and to fund potential investments include: internally generated funds; cash on hand ($582.8 million as of December 31, 2005);
- securities issuances;
- bank financing under new or existing facilities; and.. O v;. ,,- '. ..... I -.
- sales of assets.
The majority of Entergy's internally generated funds come from the U.S.'iUtility. 'C-irumstances such as weather patterns, prie fluctuations, ind unanticipated expenses, including unscheduled plantI o ad "storms, could affect the level of internally generated funds in the future. In the following section, Enftrgy's cahi flow'activity for the previous three years is discussed. ' ' ' .'"[ 2fJr1V,1A
-'"- Provisions within the Articles (f Incorporation or pertmientdindentures and -various other agreements'relating to the long-term debt and preferred stock of certain of Entergy Corporation's subsidiaries restrict the payment of cash dividends or other distributions on their'common and preferred stocklA 'kb&sf December 3l1,'2005, EntergyAik'ansas and Entergy Mississippi had restricted retained earnings unavailable for distribution to Entergy Corporation of
$396.4 million and $68.5 million, respectively. All debt and common and preferred st6cklisiUanfes by'ihe domestic utility companies and System Energy require prior regulatory approval and their preferred stock and debt issuances are also subject to issuance tests set forth in corporate charters, bond indentures, and6"th~er agreemenf.*.UXTtie domestic utility companies and System Energy have sufficient capacity under these tests to meet foreseeable capital After'tA6 iepealbf PUHCA ,1935;Teffective Februariy8;;2006*ilih6'FERC,ýu'ider the Fekdral .Pb,&r Act, and not the;SEC,' has jiisdictiovnover:,aiithotizing secuirities issua~nces by:the:aomestic ýutility ,c6ffipariie!ifid System Energy (*xcep't.securities"with'rmturiiieý' longer than ione year iis-'edbg' ý(a) Eniergy Arkansas' ivhich jare subject to the jurisdiction of-Ihe )AP9G, and (b)"-Entergy New 'Orleans *hi'ch are ieurrenily subject 'to the:jurisdiction of the bankruptcy coutt).',',tnder' PUHCA .2005 and the Federal IPower:-Ac&t(no approvals', ari neessaiY for Entergy Corpo*ati6n' to' issue'securities., Under a savings' provisionin PUHCA'2005,:'each of-the domestic utilityt companies and System Energy 'may-rely 0fi ihe ;financing authorityiin'itS eisitinjgPUHCA' 1935 SEC. orderor:orders through December 31,',2007, or until the SEC authority is-supeieeded by FERGcauithorizatibn.'iLTht FERC has issued an order
'21
Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis ("FERC Short-Term Order") approving the short-term borrowing limits of the domestic utility companies (except Entergy New Orleans) and System Energy through March 31, 2008. Entergy New Orleans may rely on existing SEC PUHCA 1935 orders for its short-term financing authority, subject to bankruptcy court approval. In addition to borrowings from commercial banks, the FERC Short-Term Order authorized the domestic utility companies (except Entergy New Orleans which is authorized by an SEC PUHCA 1935 order) and System Energy to continue as participants: in the Entergy System money pool through February 8, 2007. Entergy Gulf States and Entergy Louisiana, LLC have obtained long-term financing authorization from the FERC. The money pool is an inter-company borrowing arrangement designed to reduce Entergy's subsidiaries' dependence on external short-term borrowings. Borrowings from the money pool and external short-term borrowings combined may not exceed authorized limits. As of December 31; 2005, Entergy's subsidiaries' aggregate money pool and external short-term borrowings authorized limit was $2.0 billion, the aggregate outstanding borrowing from the money pool was S379.7 million, and Entergy's subsidiaries' outstanding short-term borrowing from external sources was $40 million. To the extent that the domestic utility companies and System Energy wish to rely on SEC financing orders under PUHCA 1935 there are capitalization and investment grade ratings conditions that must be satisfied in connection with security issuances, other than money pool borrowings. See Note 4 to the consolidated financial statements for further discussion of Entergy's short-term borrowing limits. Cash Flow Activity As shown in Entergy's Statements of Cash Flows, cash flows for the years ended December 31, 2005, 2004, and 2003 were as follows: 2005 2004 2003 (In Millions) Cash and cash equivalents at beginning of period $620 S507 $1,335 Effect of deconsolidating Entergy New Orleans in 2005 (8) - - Cash flow provided by (used in): Operating activities 1,468 2,929 2,006 Investing activities (1,992) (1,143) (1,968) Financing activities 496 (1,672) (869) Effect of exchange rates on cash and cash equivalents (I) (I) 3 Net increase (decrease) in cash and cash equivalents (29) 113 (828) Cash and cash equivalents at end of period $583 $620 $507 Operating Cash Flow Activity 2005 Compared to 2004 Entergy's cash flow provided by operating activities decreased in 2005 primarily due to the following:
" The U.S. Utility provided $964 million in cash from operating activities compared to providing
$2,208 million in 2004. The decrease resulted primarily from restoration spending and lost net revenue caused by Hurricanes Katrina and Rita. Changes in the timing of fuel cost recovery compared to the prior period due to higher natural gas prices, which caused an increase in deferred fuel cost balances, also contributed to the decrease in cash from operating activities. Also contributing to the decrease in the U.S.
Utility segment were increases in income tax payments and in pension plan contributions, and a $90 million refund to customers in the Louisiana jurisdiction made as a result of an LPSC-approved settlement.
" Entergy received dividends from Entergy-Koch of S529 million in 2004 and did not receive any dividends 22
Entergy Corporation and Subsidiaries Pi Management's Financial Discussion and Analysis from Entergy-Koch in 2005.. .,',qO °hi,, Offsetting the decreases in those two businesses, the Non-Utility Nuclear business provided $551 million ini. cash from operating activities compared to providing $415 milliowin'2004. The increase resulted primarily
'from lower intercompany income tax payments and increases ,in generation and contract pricing that led to an increase in revenues. . :.
2004 Compared to 2003 *i *.f;Z,':'* , Entergy's cash flow provided by operating activities increased in 2004 primarily due to the following:
- The U.S. Utility provided $2,208 million in cash from operating activities compared to providing
$1,675 million in 2003. The increase resulted primarily from the receipt of intercomipany income tax irfunds from the parent company, Entergy Corporation. Income tax refunds/payments contributed approximately
$400 million of the increase in cash from operating activities'i 20*:*:Improved recovery of fuel costs and a reduction in interest paid also contributed to the increase in 2004.
- The Non-Utility Nuclear business provided $415 million in iashrfri6m operating activities compared to providing'$183 million in 2003. The increase resulted primai'frdm lower intercompany'incodme tax
.'payments and increases in generation' and contract pricing that led i6 *anincrease in revenues)'
- Entergy's investment in Entergy-Koch, LP provided $526 milliondin:1ash from operating activities06ompared to using $41 million in 2003. Entergy received dividends from Entergy--Koch of $529 million in 2004 compared to $100 million in 2003. In addition, tax paymenis"ri lted t6 the investment were higher in 2003
, because the irivestment had higher net income in 2003. * . . "i; - .: . ,:
- The non-nuclear wholesale asset business used $46 million in "eash'fro'moperating activities corripared to using $70 million in 2003. The decrease in cash used resulted primafily from a one-time $33 million payment in 2003 related to a generation contract in the non-nuclear Wholesale assets business: .. -
- The parent company, Entergy Corporation, used $146 millioriih cash;from operating activities'in 2004 compared to providing $209 million in 2003 primarily due to higher intercompany incoinie tax payments.
- In 2003, the domestic utility companies and System Energy-filed, 'vith the IRS, notification .of a change in tax accounting method for their respective calculations of cost, of'go6ds sold. The adjustment implemented a simplified method of allocation of overhead to the production of electricity, which is provided under the IRS capitalization regulations. The cumulative adjustment placing these comipinies on the new methodology'resulted in a
$2.8 billion deduction on Entergy's 2003 income tax return. There was no tax cash benefit from the method change in,2003. In addition,' on a consolidated basis, no cash tax benefit was realized in 2004 or.2005 , The Internal Revenue Service has issued new proposed regulations effective in 2005 that; may preclude a significant lportion of the benefit of this tax accounting method change. In 2005, the domestic -utility companies and System Energy filed a notice with the IRS of a new tax accounting method for their respective calculations of cost ofgoods sold.-.,This new method is also subject to IRS scrutiny. In 2005, Non-Utility Nuclear changed its method of accounting for income tax purposes related to its wholesale electric power contracts." The adjustment placing iithese !companies -on -the newv. mark-to-market methodology. is expected to result in a $3.8 billion deduction on Entergy's 2005 income tax return. The election did not reduce book income tax expense. This deduction is expected to reverse over the next four years.- The timing of the reversal of this deduction depends on several variables, including the price of power. On a consolidated basis, it is estimated that there was a $7 million cash tax benefit from the method change in 2005.
.-In Augiust of 2005, the Energy Policy Act of 2005 was 'enacted. .This Act contains provisions that enable the
.full accumulýtion -of.nuclear decommissioning funds ;on a tax deductible ,basis, shortens ;the depreciation recovery period, for certain transmission capital -expenditures, provides .a production credit for electricity generated by new nuclear plants, and expands the net operating loss carry-back period to five years for 2003, 2004, and 2005 losses to the extent of 20% of transmission capital expenditures incurred in 20035,2006, and 2007. 23
Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis In December of 2005, the Gulf Opportunity Zone Act of 2005 was enacted. The Act contains provisions that allow a public utility incurring a net operating loss as a result of Hurricane Katrina to carry back the casualty loss portion of the net operating loss ten years to offset previously taxed income. The Act also allows a five-year carry back of the portion of the net operating loss attributable to Hurricane Katrina repairs expense and first year depreciation deductions, including 50% bonus depreciation, on Hurricane Katrina capital expenditures. Entergy expects the above provisions to generate 2006 income tax refunds of approximately S300 million, including Entergy New Orleans. Investing Activities 2005 Compared to 2004 Net cash used in investing activities increased in 2005 primarily due to the following activity:
" Construction expenditures were $47 million higher in 2005 than in 2004, including an increase of S147 million in the U.S. Utility business and a decrease of $82 million in the Non-Utility Nuclear business.
U.S. Utility construction expenditures in 2005 include $302 million caused by Hurricanes Katrina and Rita.
- The non-nuclear wholesale assets business realized S75 million in net proceeds from sales of portions of three of its power plants in 2004.
- Entergy Louisiana purchased the 718 MW Perryville power plant in June 2005 for $162 million.
- Entergy received net returns of invested capital from Entergy-Koch of $49 million in 2005 compared to S284 million in 2004 after the sale by Entergy-Koch of its trading and pipeline businesses. This activity is reported in the "Decrease in other investments" line in the cash flow statement.
" Approximately $60 million of the cash collateral for a letter of credit that secured the installment obligations owed to NYPA for the acquisition of the FitzPatrick and Indian Point 3 nuclear power plants was released to Entergy in 2004.
" The U.S. Utility used S390 million in 2005 and S54 million in 2004 for other regulatory investments as a result of fuel cost under-recovery. See Note I to the consolidated financial statements for discussion of the accounting treatment of these fuel cost under-recoveries.
Offsetting these factors was the following:
" The non-nuclear wholesale assets business received a return of invested capital of $34 million in 2005 from the Top Deer wind power joint venture after Top Deer obtained debt financing.
2004 Compared to 2003 Net cash used in investing activities decreased in 2004 primarily due to the following:
- Construction expenditures were S158 million lower in 2004 than in 2003, including decreases of $81 million in the U.S. Utility business, $39 million in the Non-Utility Nuclear business, and S42 million in the non-nuclear wholesale assets business.
a Entergy received net returns of invested capital from Entergy-Koch of S284 million in 2004 after the sale by Entergy-Koch of its trading and pipeline businesses. This activity is reported in the "Decrease in other investments" line in the cash flow statement.
- Approximately $60 million of the cash collateral for a letter of credit that secures the installment obligations owed to NYPA for the acquisition of the FitzPatrick and Indian Point 3 nuclear power plants was released to Entergy in 2004. 'Approximately $172 million of this cash collateral was released to Entergy in 2003, and the letter of credit is no longer secured by cash collateral. This activity is reported in the "Decrease in other investments" line in the cash flow statement.
- The non-nuclear wholesale assets business realized $75 million in net proceeds from sales of portions of three 24
Entergy Corporation and Subsidiaries
-Minagement's Financial Discussion and Analysis
- -l - .. . : . .
of its power plants in 2004. 0 Entergy made temporary investments of $50 million in 2003, and these investments matured in the first
* - quarter of 2004. . iPb v.(t~i .
e 'TheU.S. Utility used $156 million for other regulatory investmehits iri22003 as a result of fuel cost under-recovery. In 2004; the U.S. Utility.used $54 million for othefr egulatory0investments related to fuel cost
-. under-recovery. ,.' '.'-
Financing Activities * * *' ,*h"'. 2005 Compared to 2004 Financing activities provided $496 hMillion of cash in 2005_compared to using $1,672 million of' cash in 2004 primarily due to the following activity: * ! o-,. . , . Net issuances of long-term debt by the U.S. Utility segmnent 'rovided $462 million of cash in 2005 compared to retirements of long-term debt net of issuances using $345 nilli6n ih 2004. See Note 5 to the consolidated financial statements for the detiiils of long-term debt outstandiii[',fIecember 31, 2005 and 2004.
- Entergy Corporation increased the net borrowings on its cieditl ýcility by $735 million in 2005 compared to
'$50 million 'during 2004. See Note 4 to the c'nsolidat~dfinari6ial stiatements for a description of the Entergy Corporation credit facility. . .
- Entergy Corporation repurchased $878 million of its common stock in 2005 compared to $1,018 million in 2004, as discussed above in the "Capital Expenditure Plans and Other Uses of Capital" section.
Entergy Corporation issued $500 million of long-term notes *ic~onn&tion with it equity units offering in O.*S it P) cD&mber 2005.
- Entergy Louisiana, LLC issued $100 million of preferred memersphi interests in December 2005.
2004 Compared to 2003 -:"y
, l,'*'-
]*;t..
Net cash used iiffinancing activities increased in 2004 primarily, dueTo the following:
" Entergy Corporation issued $538 million of long-tenr'notes in 2003:
- Entergy Corporation repurchased $1.018 billion of its common stock in 2004, as discussed above in the,.
"Capital Expenditure Plans and Other Uses of Capital section. .
Entergy Corporaiion paid $65 million more in common stock dividends in 2004 than in 2003. Offsettingthe factors that cused an increase in cash used in inancing activities in 2004 were the following:
"I*' " ,' . 9 ' *9, . ,. . "., .' -~':
,'2*3 ii",Oj Retirements of long-term debt net of issuances by the ,U.S.,Utility segment used $345 million in 2004 and
$359 million J.used in 2003. See Note 5 to the consolidated financial statements for the details of the long-term debt act.ivity in 2004. . . *, ' - ri::-, n] -
- In 2003, Entergy Corporation decreased the net borrow.,ings, onkts credit facility by $500 million, while in 2004? net borrowings on its credit facilities increased by $50 million.,.,
,The non-nuclear ,wholesaleassets business retired the $79 million Top of Iowa wind project debt at its maturity in January 2003. .Z2ulMi i
* ,." . . 9-,. .9 . . 9 ., : ( 7 Tt A -
Sianificant Factors and Known Trends ...... .... ::6j ' " 1 Following are discussions of significant factors and known trends affecting Entergy's business, including rate regulation and fuel-cost recovery, federal regulation, market and credit risks, and nuclear matters.
, ,, , : ',+ ~ ~ ln r!t+
25
Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis State and Local 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's financial 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 City Council, the LPSC, the MPSC, the PUCT, and the FERC, are primarily responsible for approval of the rates charged to customers. The status of material retail rate proceedings is summarized below and described in more detail in Note 2 to the consolidated financial statements. Authorized Company ROE Pendin2 Proceedinpgs/Events Entergy Arkansas ...... 11.0% - No base rate cases are pending.
- Base rates have been in effect since 1998. The timing of its next general rate case will depend on, among other factors, the ultimate resolution of the System Agreement case at the FERC involving rough production cost equalization.
- Entergy Arkansas completed recovery in January 2006 of transition to competition costs through an S8.5 million transition cost recovery rider that has been in effect since October 2004.
Entergy Gulf States- 10.95% - Base rates are currently set at rates approved by the PUCT in June 1999. Texas ...................... - In June 2005, a Texas law was enacted that provides for a base rate freeze until mid-2008, but allows Entergy Gulf States to seek before then recovery of certain incremental purchased power capacity costs and recover reasonable and necessary transition to competition costs. An $18 million annual capacity rider was implemented effective December 31, 2005. A S14.5 million annual transition cost recovery rider was implemented effective March 1, 2006, subject to finalization of a settlement among the parties and approval by the PUCT. Entergy Gulf States- 9.9%- A filing was made in December 2005 with the LPSC for interim recovery of Louisiana ................ 11.4% S141 million of storm costs. A hearing was held and the LPSC ordered recovery of up to $6 million of storm costs through the fuel adjustment clause during the period March 2006 to September 2006. Beginning September 2006, Entergy Gulf States will recover $0.85 million per month of interim storm costs through base rates. The filing included provisions for updating the surcharge to reflect actual costs incurred as well as the receipt of insurance or federal aid. In March 2005, the LPSC approved a settlement proposal to resolve various dockets covering a range of issues. The settlement resulted in credits of S76 million to retail electricity customers in Entergy Gulf States' Louisiana service territory. The credits were issued in connection with the April 2005 billings.
- A three-year formula rate plan is in place with an ROE mid-point of 10.65%
for the initial three-year term of the plan. Entergy Gulf States made it6 first formula rate plan filing in June 2005 for the test year ending December 31, 2004.
- A base rate increase of $37.2 million associated with the initial formula rate plan filing and the purchase of Perryville was effective in October 2005, subject to refund after consideration by the LPSC.
26
Entergy Corporation and Subsidiaries pManagement's Financial Discussion and Analysis Entergy Louisiana ..... 9.45%- - A filing was made in December 2005 with the LPSC.for interim recovery of 11.05% $355 million of storm costs. A hearing was held and the LPSC ordered recovery of up to $14 million jof!storm costs through the fuel,,adjustment clause Aduring the period, Marchi' 2 0 0 6 : to :September 2006. ,. Beginning September 2006, Entergy. Louisiana _will recover. $2 millionf per., month of
..- )interim storm costs,.through base~rates.::c;The filing included provisions for i updating the surcharge to reflectVactual:costs incurred as well as the receipt of insurance or federal aid.
- In March 2005, the LPSC.approved a isettlement proposalto-resolve various
.. dockets covering a range of issues.,t!The settlement resulted jncredits ,of$14 million to retail electricity customers which were issued in connection with the April 20.05 billings. ;r/y. . .m '[I A three-year formula rate plan is in place with an ROE mid-pointof 10.25%
. .. ,,. for.the initial three-year term ofthe"plan.., The initial formula rate plan filing will be in May 2006 based on a0w05,itis.yea, With rates effective September 2006. ., .. .,,.,, ,,
E Missssp!j pi.. Entergy Mississippi.,.. 9.1%,,. In December 2005,nEntergy Mississippi filed .with' the .MPSC a. Notice of 11.9% Intent to change rates by implementing, a St0rm Damage. Rider, to recover
.,!storm damage restorationcosts a ssciatedwith Hurricanes. Katrina.and Rita totaling approximately $84 million as of November,3 The notice T005.,
Oproposes recovery,;of approximately.,.$14.7., million, includigcarrng Scharges, annually, over a five-year A hearing, on this matter is
-period expected in April 2006. Entergy Mississippi plans to make a second filing in late spring of 2006 to recover additional restoration costs, associated with the hurricanes incurred after November,30, 2005.. , ,. , .,,,,
- An annual formula rate s place Entergy Mississippi made its annual 2 00 4 1test year.. There was formula rate plan filing in March,2005 based on a no change in rates based oan adjusted ROE mid-point'of 10. .50%.-
Entergy New Orleans 9.75%- - Entergy New Orleans made a formula rate plan filing in Apri 2005. The
,,, .11.75% . mid:point ROE of the electric,and gas plans is 10.75%.-, The ,CityCouncil
- Electric;
- ordered a.reduction in electrjc rates,.of.$2.5 million and no change in gas
. 10.25%- '. rates.: The City Council approved ,the- ontinuation of the formula rate plani 11.25% Gas .for.two more annual cycles including uty coponent of,the capital
- :structure of 45%. The ROE ,mid-point for, gas operations for the,2005,test yawith a zero basispointband-wdth System Energy ......... 10.94% - ROE. approved by July,2001 FERC order. No cases pending before FERC.
.. '.t'il' i .. . . ,r' . .. .. . .:'. !. .,;,,, i[i{;I. 21*.) 2*,I;.2 .:: .2 .-'.,,4L;O ,3C;a f i !:l ':b~rl
',.In addition to the regulatory scrutiny connected with baserate proceedings, the domestic. utilityFcompanies' fuel and ipurcbased power costs recovered from customers are subject toregulatory scrutiny. ,The.domestic utility
- companies' significant fuel and purchased, power. cost proceedi ngs.are described in Note-2, to the consolidated financial statements.. ... , . '* ,P.'! . -.. " , ,. ' n \ . ' . , . . ..;- " ,:
Federal Regulation ... .... .
* . f.. , d o .: , . - ".
The FERC regulates wholesale rates (including Entergy intrasystem salespursuant to the Sygtern Agreement) and interstate transmission of electricity, as well as rates for System Energy's sales of capacity and energy 'from Grand Gulf to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans pursuant to the Unit Power Sales Agreement.
-27
Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis System Agreement Proceedings SThe domestic, utility companies historically have engaged in the coordinated planning, construction, and operation of generating and bulk transmission facilities under the terms of the System Agreement, which is a rate schedule that has been approved by the FERC. The LPSC pursued litigation involving the System Agreement at the FERC.' The proceeding includes challenges to the allocation of costs as defined by the System Agreement and raises questions of imprudence by the domestic utility companies in their execution of the System Agreement. In June 2005, the FERC issued a decision in the System Agreement litigation, and essentially affirmed its decision in a December 2005 order on rehearing. The FERC decision concluded, among other things, that:
- The System Agreement no longer roughly equalizes total production costs among the domestic utility companies.
- In order to reach rough production cost equalization, the FERC will impose a bandwidth remedy by which each company's total annual production costs would have to be within +/- 11% of Entergy System average total annual production costs.
" When calculating the production costs for this purpose, output from the Vidalia hydroelectric power plant will not reflect the actual Vidalia price for that year but will be priced at that year's average price for the exchange of electric energy among the domestic utility companies under the System Agreement, thereby reducing the amount of Vidalia costs reflected in the comparison of the domestic utility companies' total production costs.
- The remedy ordered by FERC calls for no refunds and would be effective based on the calendar year 2006
'production costs with the first potential reallocation payments, if required, to be made in 2007.
The FERC's decision' would reallocate total production costs of the domestic utility companies whose relative total production costs expressed as a percentage of Entergy System aver1age production costs are outside an upper or lower bandwidth. This would be accomplished by payments from domestic utility companies whose production costs are more than 11% below Entergy System average production costs to domestic utility companies whose production costs are more than 11% above Entergy System average production costs. An assessment of the potential effects of the FERC's decision requires assumptions regarding the future ittal p -r6ductidncost of each domestic 'utility company, which assumptions include the mix of solid fuel and gas-fired gencriition available to each company and the costs of natural gas and purchased power. Entergy Louisiana, Entergy Gulf States,: 'and Entergy Mississippi are more dependent upon gas-fired generation source:s than Entergy Arkansas or Entergy New Orleans. Of these, Entergy Arkansas is the least dependent upoh gas-fired generation sources. Therefore, increases in natural gas prices likely will increase the amount by which Entergy Arkansas' total production costs are below the average total production costs of the domestic utility companies. Considerable uncertainty exists regarding future gas prices. Annual average Henry Hub gas prices (daily ,midpoint prices sourced from Platts Gas Daily) have varied significantly over recent years, ranging from
$2.007/mimBtul to $8.529/mmBtu for the 1996-2005 period, and averaging $4.098/mmBtu during the ten-year period 1996-2005 "iand s5:434/mmBtu during the five-year period 2001-2005. Recent market conditions have' resulted in gas p.i6es that averaged S8.529/mmBtu for the twelve months ended December 2005. During the twelve-month period January 1, 2005 to December 31, 2005 forward gas contracts for each of the next four years based on daily NYMEX close averaged S8.74/mmBtu (2006), $7.95/mmBtu (2007), $7.32/mmBtu (2008), and $6.83/mmBtu (2009). If, after pending appeals, the FERC's decision becomes final and if gas prices occur similar to the NYMEX 'average closing prices given, the following potential annual total production cost reallocations among the.domestic utility companies could result:
28
, Entergy Corporation and Subsidiaries PiManagement's Financial Discussion and Analysis v'rJ .f.'h;' y~ £ v,.,', tic .' .Jql-I *di ,,'d Lo':(,. -' . a.,&*.-b
;j*l. i:rt'm j.*du h'::: :J,:.'*l
' h'! ::i".;lm , ri 't.,
- 1i ";ail titi
- ! i ...i,,icý ý1PrAi .'*)li,1 trei oý:j loT' --")!bLn:t,! Average Annual Payment i i .
S.*rri:I~ 'Io .. ,rr,/ .T2I :d~l no *:bRange ofAn'nual Pafnehtsi t**ii- -J,.or(Reeipt), -,
':* ';:Hiji
,u *il*:nob :rl; no o~i'-rz, noir.i:qor.(Receipts) rmri9 () 11;,v 'ifoi" 2007-2010 period! '1i l/'J:
bn, z'rji'x: :o t. ',,Jq xo' obon ?,12AO ,,-1 . . V',,r i 1m(IfiMilli6ns)yi ; : £ , .. - ol w)oi Fgildo '?EntergyArkiiisas ii? 'ji dli,,! o'$293 to $385wmn3 t'lt, hitr b.iirý:t , ".i $328i , fri,)yv no ;;2t:Entergy Gulf States'lt )To il,-rfr)o'- t)($264)16tb($196) qolwlvý't (F) :v~i(20' r'.Jr:n ~c oI:i bý!)lol ",d tEntergyLouisiana [.itrW,;;,' " o0" o0($96) to ($51)iti }ri r..($77)I r!t i 111w)-r ihu*; IjtI! liv/i--rh nn; nrilljf;c 1o Entergy MississippL'itji ~;r,! : ($3l1)to ($3).Acr, v!i-iý?ifirr~r.it i (2)~vii ~lcro d (.) Ir :rr.:<i*,,'Entei6gyNew Orleans .'l t;it vfl Tbroo' ,'ri$0.l ci lJ -,; 1ctir, c f,, o; ori ý nidi Ifnitural'ghs Pricee deviate :by.$1/mmBttiuk or down-frdm the *NYMEX hvcdrage 'closing prices given above, lit is expected that iEniergy Arkansas' dnnual payments will chahge'in'the same directioin bfiipr6xifnately $70 to $80 nililion. '.......
-~~tt . ao; , ts grnl "tO flO* 3r[o~ iq*.'brgtril: o~1"[ lo oil* i,.,rln. c rsuj:P' co~l r..q:>rrl-cicb °l .*'(**ilt li.-riruloý;IThd6LPSC, APSC,'MPSC, tand therAEEC have fippeAdld the'FERC decision to'th6 C6urt of Appeals for the cID.C.,'Circit. oEntergy has'fiiteirened in' the'LPSCappeal aiidiifiter'ds ;to:ihtervene in-the other:appeals: .The City of MNew Orleans has'also intirvefi6d intheLPSC appealU ' "icj ni wt TAjooktj 1; m0 1 l 0 cv1 nor enHtcitjri *.uoi'm: 9roh of *,oqai e bolht .'miorit .K'D-i~ ,2 i*.nnuAt no0 *imq Lt~cm.o'n~~t '(d L'IiI cv;o, l~,rirr!,,o-lo'ilup LEntergy'willbe req7iiied'tbTilý-'vitli the FERC a co6ipli57nefilifig to impleinicnt the provisi6fisW6f the FERC's decision. Management believes that any changes in the allocation of production costs resulting from the FERC's decision and related retail proceedings should result in similar rate changes for retail iEntergy's customers. The timing of qr66oveiycof-thesi 6ostg iiinratds :c6uld, be thd !subject :.of additional -proediings'.bifo'e retail regulators. ?Althou&h the6 outtome rnd titiing'6fthe FERC and othei,,pioceedings cannot.bepi-edicted'at .thii titie,'Entergyrdoes not believe that the ultimate resolution of these:proceedings',willhavie trmite'ial effct'onlitg~fifiancial con*ditiofi or results of operations. "l o ood oti o oo bon Iioqoaq 'vwro.:ml ... ;ci o: c-tothcocmq o hj:1,1:1,1i :i)- / *(! .4 j- !1 (Aif (1,;
lfrfiorl Citing .itl ?c6sficerii thatliallie ýbenefits2 of., its' cohitinied ipkriicipatioiil in. the fcufrent :formh ;ofithe jSstem
,Agreementi have) b&ei'I s'ri6hsly,:er6ded,'Irin D1embei 20051i Entergy, rAkansai -,submitted iits lnotice '.thbi it ,'ill teihnfinate'its participation rift -the F6uridnt :Sy-§tem 'Agredheht"effective .96 months *from'D&emberl 19,'2005 6r', such t
fdarlier date as ,authorized by the FERC.'iEniefgyArkoifisds'indicatedplihowever, that a prh6i6ly structured replacement hgi'ement could be h viable altemative.unriesponse't6 an¶IAlJdnitiMl Decisiofi' in the:Sygtdii 'Agreement pr6cedifig r in , m2004,oi tlie APSC k-hidl prdvi6tislyo cbmm*nedd tian iifivestigati6ii uiintc; whethei', Entergy ,',Arkansas' '1contimtied
*piprticipati6f' inithe SystemAgrdementi§ iii~the bbst in ' tefdst'6fjts 6uiSt6mers;a*nd.had also 66minenced'irii,'egtigations
'"Cficerning iEntergyiL'ouisiaha's 'Vidalia ,purchased power contract. and,'Entergy. L6-iiiianh's ;thefi pending i*cqisition r crfrcipfj.1- v.'i.,-'l brl.j; ., 02 a'luloO oni L.i Sdfthe'Perryviln6ver.plant. I.ni *; [n?0r-:ncl TDI no
.fio!C!'.i*l, lcilihii 'L.I t.
Independent Coordinator of Transmission In 2000, the FERC issued an order encouraging utilities to voluntarily place their transmission facilities iufider',the cbntrol of ifideendi1nt RTOsi(regioniltransinissioniorganiztioiis) ,by'-Dec6emui"-15, 2001 :n(Delays in "fimplimentifig .the *FERC, 6rder ohave occiurred `dtia, t6 a: variety of~ieasons,,:including thl ;fact th.it utility. companies, rofher~gtakeh6lders-, arid federal i andl state irejiilaiors .contindie'ltb;iwdrkr'to'ires6lve wvaribus.issues ;related ito rthe cestablishment'ofsudhRTO-c':,ýioýb D51:c u tof;oll .':r:hnr 1;val f 1'"jI '.:' .i hIh; ft 'lo : "'i!)
.Lýnbilqlri A1iril12004;,Entergy filed haprojiosdal'with theFERC, to.domni-t voluntaril2 tbr-feain an independent entity (Independent Coordinator of Transmission or ICT) to oversee the granting of transmission or interconnection service ".on Entergy's transriission~system-:to inmplement .a ti'ansh in ~n-priiifig structure .that e'nsifes'that Enteigy's retail )native .load' ustom'ddis are.rqiuired to pay,for ily~thbse upgrades!neces~ary:to reliably serve their needs, *nd tohave I the ICT~serve asýtha ekurity cbordinatorfor the fEitergy.region.itThd pro60osal W%ýas structured to hot transfer control of IEntery's itransinission; systemr*to :th& ICTpbut rather (t6 ivest .with *the IICTibr6ad, oversight- auth6rity-iover Itransmission plarinifig and o~erati6ns.- b'-j, "*
D.i....i " c2! (29
Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis After additional filings and subsequent declaratory orders issued by the FERC, on May 27, 2005, the domestic utility, companies: filed an.enhanced ICT proposal with the FERC. Entergy believes that the filing is consistent with the FERC guidance received ini the FERC's declaratory orders on the ICT. Among other things, the enhanced ICT filing states that the ICT will (1)_ grant or deny transmission service on the domestic utility companies' transmission system; (2) administer the, domestic utility companies' OASIS node for purposes of processing and evaluating transmission service requests and ensuring compliance with the domestic utility companies' obligation to post transmission-related information; (3) develop a base plan. for the domestic utility companies&transmission system that will result in the ICT making the determination onwhether costs of transmission upgrades should be rolled into the domestic utility companies' transmission rates; or directly assigned to the customer.'requestingi or causing an upgrade to be constructed; (4) serve as the reliability coordinator for the Entergy transmission isystem; and (5) oversee the operation of the weekly procurement process. The enhanced ICT proposal clarifies the rights that customers receive when! they,fund a'supplemental upgrade and- alsoT contains a detailed methodology describing the process by which the !CT, will evaliate interconnection-related investments, alreadyi made on' theEntergy; System: for purposes of determining the future allocation of the uncredited portion of these investments. P'1,,rn
-,;On June,3; 2005,; a, group. of generatorsi filed with the, FERG' a' requestthati the. FERC schedule Wi technical conference on' the enhanced ICTI proposal in order for Entergy, to provide additional information on the enhanced ICT proposal. In response, a stakeholder meeting was held in New Orleans on'June 30;i 2005r- Interventions,; protests,' arid comments were filed by interested parties on August 5, 2005. Entergy filed a response to the various pleadings on
.August 22,2005. Entergy anticipates receiving a FERC order on the May 274,2005- filing during the second quarter
.2006.1, " .)r
.*:'Cl'.,;As' discussed belowv, in "Available Flowgate Capacity Proceedings,", on October,31; 2005, the do'mestic utility companies: notified parties j to, the ICT:, proceeding.: of, the: potential7 loss'. of Ihistorical data: related-) to: Entergy's calculation of available transfer capability. for. its transmission system.., i : itt(
oi ...-'. r':,: .ift *.;m,:,d icri In March 2004, the APSC initiated a proceeding to review Entergy's proposal and compare the benefits of such, a proposal to the alternative of Entergy joining the Southwest Power PooliRTOQ TheAPSC sought'comments from all interested parties' on this issue. i Various parties, including the APSC General Staff;, filed comments opposing the ICT proposal',. A public hearing has not been scheduled by the APSC at this time, although Entergy Arkansas has
,respondedi to: various APSC: data, requests., cIn!May, 2004, Entergy: Mississippi filed a petition for, review.withithe
'iIMPSCJ requesting- MPS'C support: for; the, ICTI proposal.!:. Ai hearing in that proceeding,was held lin;August:2004. Entergy New Orleans appeared before the,Utility Committee of the, City Council in June 2005 to provide information on the ICT proposal. rEntergy Louisiana and Entergy Gulf States have filedan application with theLPSC requesting thatithe LPSC find- that the: ICT. proposali is a, prudent and appropriate course 'of action.',. Al hearingin.,the LPSC proceeding on the ICT proposal was held in October 2005, and Entergy Louisiana and Entergy Gulf States await the AU's initial decision. Market-based Rate Authority
, -,On May 5, 2005, the FERC instituted, a iproceeding. under Section- 206 of the, FPA to, investigatdwhether Entergy' satisfies the: FERC's transmissiont market power., and, affiliate abuse/reciprocal, dealing, standards- f6r;.the ,granting of market-based rate authority,, and established a refund effective date pursuant. to the provisions'of Section 206, for purposes of the additional issues set for hearing. However, the FERC decided td6hold that investigation in abeyance pending the outcomes of the ICT proceeding and Entergy's affiliate purchased power agreements proceeding., On-June 6, 2005; Entergy'sought rehearingof the' May 5' Order and that request for rehearing is'pending. *:;i -' , On' 'Juily.22' 2005, Entergy, notified, the FERC that; it was,-withdrawing its;-request forn market-based rate 'authority for sales.within its control area.:i Instead,' the domestic utility- companies) anditheir; affiliates will, transact at cost-based rates, for' wholesale sales'.within the Entergy, control. area. -cOn:November,, I;-2005;1 Entergy: submitted proposed. cost-based, rates: fori both the domestic -utility companies, and Entergy's: non-regulated; entities.tjhat' sellt at wholesale within the Entergy control area. Separately, the FERC accepted for filing Entergy. Gulft States'ý proposed cost-based rates for wholesale sales to three separate municipalities. Additionally, Entergy reserves its right to 30
- -.Entergy Corporation and Subsidiaries
ý;Management's Financial Discussion and Analysis request market-based rate authority for sales within its control area in the future. The relinquishment of market-based rates for sales within the Entergy control area is not expected to have a material effect on the financial results ;,~of Entergy.'I'- it)?.
f; iiL h i.j :Q.i '~ .ittIJ',)~~'~: 21~
- h )~ITt~ i: ~r ~ -.'tc. ip(oDirth)) ?-2;Iiji::,j ri;s~!~:I~~~~n fl~id'.'I *93 I l'. * '
-**Aailable Flowgate Capacity Prbceeding,:-i.*;:.-;.,f '.,,,i-,Ir .r1i ol birI '," .I ". " . 'ao.;1':j!,On December 1.17;,2004,.;the .FERC,(issued an'order, initiating :'a ihearing.and investigation concerning .the 4justness land Ireasonableness 0f!the'%Available.-Flowgate1 Capacity (AFC)',!methodology, :the: methodology used' to "levaluate.short-terin transmissiongetvi e*,eqiiests' underthe idomesticrutilit,' bompanies' open access transmission *:tariff,'ahd establishing'a refund effective :date.r In' its :order': the ,FERC ,indicated, that' although it "appreciates that iEntergy is 'attemlptinglto explore aýY§,to improve transmission access:6fniits system,", it believed that an investigation *;was'warranted to' gather.more evidence-in light of the concerns'raised :by certain.transmission customers' and certain issues raised in a FERC audit report finding errors and problems with the predecessor methodology~used by Entergy for evaluating short-term transmission requests, the Generator Operating Limits methodology. The FERC order -difidieates thit the ,investigatiorfwillbinclude ari examination of (i) Entergy's implementation ofthe AFC program, (ii) v*/hetheii:Entergy's ',implementation nhas: complied with (prior tFERC Torders i and -iopen, access r*transmission', tariff Ipr6visions addressing the AFC pr6gram, and (iii) whether Entergy's provision of access'toshort-term.transmission on tits transmissi6n systemN-As'just;ifeasohable,,`hfid not unduly disdriminatbry.,,Efl o' i':n fIi ii u*i :!:, nr,.:
On March 22, 2005, the FERC issued an order that holds the AFC hearing in abeyance pending action on Entergy's ICT filing. The order holding the hearing in abeyance further indicated that-it would %cancel-the hearing when the ICT begins to perform its functions. On April 8, 2005, 'several intervenors filed Emergency Motions for
-IntemRelief aind Exp'edited CoMmmission Action requesting that, during the interim period before the ijmplementation of the ICT, the FERC (1) institute an audit process to examine and modify Entergy's curreritAtC pi~oce's',$!ind '(2) require the Southwest Power Pool (SPP) to become involved in the AFC stakeholder process and order certain moifiaionsS"1* r*rl, r1. 11-to I Entergy's t f' " I 1 z ,' ' f") If-iýprocess.
VstaKeoer y - i -) ne'auat
- 9V, " ",ýr?I;fl .,prcess,
' ;. r* proposea atimg r ,:'r,,' by,,rthe, 'intervenors
} ** ,' ,2 tfwould not invovean
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. '/trr (I I I independent
" *, I I *'I ,,*!5 . auditor, (T )..,I IfI , "-"
, but instead would be6an investigation performed'by'a'representatwe'from the j , J , 1, 1( "t¥" 1
_'" _....._ . "" I' l I (*f "Il - -* 11
- l" "*; . r' 4-i;
,,:,l!r imtervenors 'Entergy, and, possibly'SPP. On April'25, 2005, Entergy file'its response t6oth& emergency motion urging theTR *tK. o-rejec tne'imtervenors" requdest'for tne. "audit oeeause me type of investigation proposed by the in.tervenors wour enre "hepe I no 'a, awould only 'distract "from the impleentation Of the ICT.
Instead,+Enterg~r has proposed that he, ICT conduct'an 'independent review ofthe AFC,' processand procedures as Ii~~i. 7 - jmT Itkr. * **,.r*I ' 1',f --- .. '
. d.,," -1 i.... ,1- -1*"1,11 "1-1. ] i-4-lf":..t[',',
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- 11'.
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-'* [, *.,.*.*- I*
part of its transition to assuming theidentified ICTrlrespisibilites, inluig the calcutaLion of the Afts. ttergy subsequently retained SPP to conduct an audit of {heAFC processes and procedures.' The SPP released its audit report on the AFC processes in whilthe mSePP', among other tnlng§, idenuned an issue concerning limited instanceshas in w'transrmssion'servicewas . - * :,"e ,rl* *- * ,T i,gran , I ",;. ' "" ,
"I,[tl¢ , V' f-t J i
- ins ; " *aable:
rl3 c , !"' ,*ri '",tf , , Inight-of , , -1p.1'1trr this'the
'. -,",,SPP recomn*'dedO that !te' C- p'I'r cessTjJ Ib heifuriher' autoimeI to ens'- tIflheI11') crect prces fiof. everyi
%orv:s1 ' ransmiss'on service request. Entergy has advised the FtRC-.K* taiiiioo't'is' issue .....
lDil
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- 1. :'i I On April 21, 2005, the intervenors filed a separate request for rehearing arguing tha*athk FER*C jinust allow
'. , : I' 'j:' ' ' iW?)
th'CAFC l&a~rifii't5 .v'Iai irrn~j'n~t']g j'; jgii:o6'd i'~pia~illdi i~ir tlo h e'r*io:;]'i :i ;ji._*:.u' riqi~in "ofth'KiT. witli htheet"stblishhi6nt '{kql" o,' 'J5T-V! vI I ,R [: b.w *-'2 '.'l_'(q
*-h'OOn October 31,; 2005',I ttiedomestic utility companies noiifieid pariicipiants in'the*ICT proceedinigthat certain historie'data, 'elatedio the"houfrl; AFC:mddels'may have beetn inadVertently 'lst due to' errors in'the itriiplementation of a data archiving process. The data at issue is certain hourly AFC data for the nine-month period'Apt il'27, 2004 through ;Januiryr31 ;,"2005. ŽiAlthough IEntergy :is continuing ito:pursbeill. avenuedi for'iec'very -and'retrie*val 'tf the historic lhourly, data'"it lis idifficult bo predi& 'wtetler 'atd'to'whatlexterii these efforts willultimately be successful.
Since discoVeririg the~poteniialflos's of 'data*'the d6mdstie',itility b'oifpa~iies 'havetaken 'sfeps'to'ensure'that these errors cdnnot recur and to efisure'that -thecurrent 'AFC hourly data' including the hourly data from Februaiy 1 -2005 forward, is' adijuately.'protected ,and ietaindl .,i Entergy-iself-reportidd thei eVent to ,the iFERC's :Office "of Market Oversight and Investigations and is providing information to the investigation ;;staff fconcerning -'this event. Additionally, Entergyiwill request'that the ICT4eview th' cfrrentproeess ifor; retaining ,AFC-related data' as part of its independent'review discussed above., ,,-;T ri' *;,uŽ i~ic;' } . I'., : r-b r<'.-!,';*...)
- JIM'; t~l 'r, * -,:/,: ~ . ;f! .0iji!J1 *41) l nrg,;7'. L ,*l fl, bf,,L "iifirpi boo)0 . fl (,, ,:'1['17,;_':"i, ri. .*, ? ,
E31
- Entergy Corporation and Subsidiaries Managements Financial Discussion and Analysis Interconnection Orders -rli . :'..il ni f'olf; ' ..'i - .. . ,.c - .:i-){fIFr :,.;i i I
- ,::..*7~
,* t ,: '0.' ,,;::.J ,,z* ~~ j,: d ol LJ : ,.. ":r - ,*1 o'ro ":'v-1;J'r.'(l _,'1 rihifili"., 161*;3
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The domestic utility companies (except Entergy New Orleans) are currently defendants to several complaints and rehearing requests before the FERC in which independent generation entities (GenCos) are seeking a refund of monies that the GenCos had previously paid to the Entergy companiesf6) facilities. necefsary.to c-nniectftheir generation facilities to Entergy's transmission system. The FERC has issued orders in response to three complaints and in certain other dockets brdering'Enitergy.to refund'approximately $123' millioh, iriexCpenses and tax obligations previously paid by the GenCos; including $42,million(f6r) Entergy. Arkiiss;, $28 million for: Efitergy Gulf States;1 $24 million for. Entergy" Louisidinap, and $29: million i,for,- Enteigyi Mississippihiv Then refunds 'will ýbet in- thea form,, of transmission credits. that Will: b&utilized over tiffue as§ the GenCos'take' tiansfnission'seriice fromf Entergy.',Thdir are other'complaints that have beer filed with FERG in: an approximate amouht of $43 million; including $27 million for Entergy Arkansas, $8 million for,Enitergy Gfilf States; and $8 million'f6i" Enterg& Louisiana;. ihý which the FERC has not taken action..';:. . , , , " -'! " r%! i' ": I,'.fc,)..,,b, P-r l,,, il, ,;y )!! , .
,:,,. Toj the extent, the,i Entergy;. coinpanies::* dre&0rderedi to provide . uchi i'efunds;K;'these costs-`Will'qualifyI f6r inclusion ih:the Entergy companies.:;rategnmThe'¥6fovefy ofi thesd, costs' is notlaut6matic;i liowevei,. especially'at the retail level, where, the majority of the cost'recoy&ry would occurv Efitdrgy intends to-pOi'sud all iegulatory and legal avenues available to it in order to have thesd, orders reversed and had' the. affected interconnecti6n- agreements reinstated as agreed to originally by the generators.
Energy. Policy Act of 20051 ,i, 0 L*ibii ~ !r:il .. : ,i:i v;lt -:.l 'rihlrol .h.b,orl .ý,i' 1"') "iojrm
, ,.,,,h IrP licA ct ofv"o ,ii lrcv a!i . arw'tq
, i :-: / i() .a;,,:ilnrit ;i 2wit,'t EDI :_lz;
.(The Energy PolicyAct of2 law in August205 The gislation contains eletrcity, rovisions that, among other, things* , . - . A*qi, , * - . J .... ..
- ,,. :' '!,; r " '0 "1 :' '!'.'2i.'3? ,-Y"A 9{ ,r i'1 )c ',"'* , ' rrrrvo't c_ olA i'? 1 !"/'fI i';v~.*-, ~'.,' ', -,tr. ").jj yhfir_~,l Repealed PUHCA 1935,jthiroug enactment of PUHCA 2005, effetive February 8, 2006;PPUI-CA 05" and/or relatea amendments to Section 203(a) of the Federal Power.Act (a) remove various limitations on EEntergy Cororation as a registerea hlding company under PUHC'A,1935; (i) rjequire the maintenance and.
eenuo*nof ir books
* / I.'tl, I il andA)LCDrecords by certain olming company system(1t.companies fo inspection byFt e 'f"lOtt tRC"l"-1
'f,
'l,!,!l . I..i! " - ,) " 'I:
and state commissions, as appropriatel an (c) effectively' leave to the jurisdiction of the FERC (or state or
." localilx regulatorybodies,
-J,11 i;-l . _.. "*',- 1*11, ýJ,1,as ppropriate) (i) the', I*ýissuance
* .r**.* I d 1. ,..1 TI s ) J byL an 1) electric
,L'O utility i.* l'JliJ ;;** }of l- 'securitiles
" .° * , * :-.'~ the.
* .11(1ii)(A) -* ;-.,-. ,
disposiion r .t*l .l otjurisdictional i) ,,* ,;10it J :;J FERC i electric l'*. , . facuilites W ". .'.:? by (... an
*l electric i . *.A lJ.0 utuity;.I *, -
B), L
't'),
the acquisitionI byb an electric
.. iif. ,l OI /I It.j. (
utility of securities of'an electric utility; (C) the acisition by an electric. utility of' elctrcgenerating , faci ities (in each of the cases in (A), (B) and,(C.only, mntransactions in excess of $ 1Trillioni); (iv) electne_
., public utility, mergers; and I ") the'acquisition by an electric.pubhe, uihty hilding company of seuritiesofan
. electric public utility c'man or its holding company in excess of $10 rmilion or, the merger, oelectric public utiiyi holding company systems. POUhCA OA205 and, the related FERC rule-making also pr6ide a
!* , savings of PUH(A provision 1935._,nj* which permits continued renance on certain PUHWCA 1935 rules and orders after the repeal 1, , I f *, , **- * , :/-,*, i*:A z": flh; xm9i .... ... . . ..
- i:2n Jm.rl.,s:,:-;* 'i -:i ,7: :vis. :Jlm]9,P ri4 ..2 i} -*.u'i ~il, .,.{J& ,L* ,.1 ]lhlq nO
- Codifies the concepjt of participant funding, aforim of: cost,allocationfor transmission interconnections, and l upgrades, and allows the FERC to apply participant funding in alIregio of the country. Participant f'2 T ,:_ funding helps ensure that a utility's native load customers only bear.the costs, that!are necessary to. provide reliable transmission, service to them and not bear costs required by generators:who seektq, deliver, power, tOl t-t.-.. other regions., - - :;il ) Dl.A "i-i. ii ? , 1 , - i ,A,': Ih .'...,-:, 3:i micb t;ciiviil
*o I*' Provides financing benefits;:including loanguarantees and production tax credits, for new nuclear,plant.o0rl[i
- ;--construction, and reauthorizes the Price-Anderson'Act; the, law that provides an umbrella of insurance i.oj,.;,!
,I :;.'protection fore payment of public: liabilityclaims in the event of a major,nuclear power plant incident:.,-,;2 Revises' current tax law treatment'of nucleari decommissioning trust funds!by allowing regulated' and non*-;-i
., . regulated taxpayers to make deductible contributions to fundthe entire amount of estimated.future ,Ii6id idecommissioning costs. i; i!,i::,i ot :ri:',;::;; .!ii-,i n?1 i ;:n;I:2;iV:rIl Lnc b"Is-bv Provides a morerapid'tax depreciation scheduleO for transmissioii assets' to encourage investment.f,1::iihA o Creates mandatory electricity reliability guidelines with enforceable penalfiei to help'ensuire that the niti6n'si power transmission grid is kept in good repair and that disruptions in the electricity system are minimized.
- 32
Entergy Corporation and Subsidiaries
.Managerent's Financial Discussion and Analysis Entergy already voluntarily complies with National Electricityjleliability.Council standards, which are similar to the guidelines mandated by the. Energy Policy Act of 2005..,:...-),,.,
Establishes conditions for the elimination of the Public Utility.Regulatory Policy.Act's (PURPA) mandatory purchase obligation from qualifying facilities. ' . .. Significantly increased the FERC's authorization to impose criminal and civil penalties for violations of the provisions of the Federal Power Act. ;.,:: t.i-iD., . The Energy Policy Act requires several rulemakings by the FERC; and other government agencies in order. to implement its provisions ,and the FERC in its rule-makings has indicated t -plans, by February 8, 2007, for.fAurther review of, and possible changes to, its implementation of PUHCA 2005 and the repeal of PUHCA 1935. ,Thereifbre, it will be a period of time before a full assessment of its effects on Entergy and the energy industry can be completed. r1tarket and Credit Risks .. ... if.'~ ,l t)[7) 'v., 9 ! "1,It ' . I
. . . r . ,-l 2
' 'il ]:p, _,ri',; rl' Market risk is ihe' risk of changes in the value of commodity and fimncian l inistruments, or m futureoperating resuIlts or cash flows, in response to chaning' market conditions. Ente'rgy 's exposed to'the 'followig significant market risks:
The commodity price riskassociated wit Etn ; K..I.... .. .. " oatwth nergys Non-Utiiity Nucear and Engy CommodityServices segments.. f 1 Ol'
- The foreign currency exchange rate risk associated with certain of Entergy's contractual obligations.
. ( .. ,' F, "J *h, il."}.2" i!"-. ' ; , ', ..
The interest rate and equity price risk associated with Entergy's investments in decommissioning trust funds, particularly in the Non-UtilityNuclear business.,.,,, , 'lt,,oq , ", . : - .2
,. The interest rate risk associated with changes in interest rates asa "sl~tofEntergy's issuances of debt.i, Entergy manages its interest rate exposure by current interest rates and its debt 6uts1andingj.in-gonitoring relation to total capitalization. 'See Notes 4 and 5 to the consolidated financial statements for, the details of 7 Entergy's debt outstanding. *,3/4.
. b Imp :'1 b .,'-'. ,r . / ',,.
4 , , .
. .. '.*,, * .( .*
*¢t Ltr- ,.
Olr~~~i~ . Entergy is also, exposed ,to credit risk. Credit risk is the risk, of loss from nbnprformance by.,suppliers,
- customers, or financial counterparties to a contract or agreement.
- , ,,redi, risk also includes, potential, demand (on liquidity due to collateral requirements within supply or sales agreements.,.A)Vhere it is~a signif cant consideration, counterparty credit risk is addressed in the discussions that follow.', ,. *, , gi; '
Commodity Price Risk "' "" .' Power I-, ' Generation
. . ", .' .. ".. "JI~tX)CYIC '"'J',* i, "'
- 0d IJ- ('4 ,.!:JI!1!f'if !l
~'.'t The
*: sale of electricity from the power generation plants ovned-byiEntergy'g Noh-Utility:Nuclear business and 'Encigy Commodity Services; unless otherwise contracted, :is'subject to! the .fluctuati6nof market lowei'i'iHc6s.
Entergy's 'Non-Utility Nuclear business has entered into PPAs and otfie eohtra&ts to sell the "pbver jlroduced by. its power plants at prices established in the PPAs. Entergy continuesto' puirsue opportunitie's to*extend tlie!exigting PPAs and to enter into new PPAs with other parties. Following is a summary of the amount of the Non-Utility Nu*lear busin6ý' output thdit is currenily' sold fobrward under physical or financial contracts:
! '- ,1,*' ) j -I tO;'.
.-vi)}
2006 2007 1 2008 . 2009 .. 2010" Non-Utility Nuclear: ,* Percent of planned generation sold forward: Unit-contingent 34% 32% 25% 19% i;;112%
-ifUnit-contingentwith availability guarantees 53% 47% 32% .. 13%, ,.oy ,.Firm liquidated damages 4% : . 0% 0%.,, 0%
Total 91% p.j:,81l.! 34
.. 57. , 32%.,,, - . 7 '/
35 34 ' 35 31CfllL11 i . . 34 if Planned generation (TWh) Average contracted price per MWh $41 $45 $49. $54.,!, $45 33
Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis The Vermont Yankee acquisition included a 10-year PPA under which the former owners will buy the power produced by the plant, which is through the expiration in 2012 of the current operating license for the plant. The PPA includes an adjustment clause under which the prices specified in the PPA will be adjusted downward monthly, beginning in November 2005, if power market prices drop below PPA prices. A sale of power on a unit contingent basis coupled with an availability guarantee provides for the payment to the power purchaser of contract damages, if incurred, in the event the seller fails to deliver power as a result of the failure of the specified generation unit to generate power at or above a specified availability threshold. All of Entergy's outstanding availability guarantees provide for dollar limits on Entergy's maximum liability under such guarantees. Non-Utility Nuclear's purchase of the Fitzpatrick and Indian Point 3 plants from NYPA included value sharing agreements with NYPA. Under the value sharing agreements, to the extent that the average annual price of the energy sales from each of the two plants exceeds specified strike prices, the Non-Utility Nuclear business will pay 50% of the amount exceeding the strike prices to NYPA. These payments, if required, will be recorded as adjustments to the purchase price of the plants. The annual energy saI es subject to the value sharing agreements are limited to the lesser of actual generation or generation assuming an 85% capacity factor based on the plants' capacities at the time of the purchase. The value sharing agreements are effective through 2014. The strike prices for Fitzpatrick range from S37.51/MWh in 2005 increasing by approximately 3.5% each year to $51.30/MWh in 2014, and the strike prices for Indian Point 3 range from $42.26/MWh in 2005 increasing by approximately 3.5% each year to $57.77/MWh in 2014. Some of the agreements to sell the power produced by Entergy's Non-Utility Nuclear power plants and the wholesale supply agreements entered into by Entergy's Competitive Retail business contain provisions that require an Entergy subsidiary to provide collateral to secure its obligations under the agreements. The Entergy subsidiary may be required to provide collateral based upon the difference between the current market and contracted power prices in the regions where the Non-Utility Nuclear and Competitive Retail businesses sell power. The primary form of the collateral to satisfy these requirements would be an Entergy Corporation guaranty. Cash and letters of credit are also acceptable forms of collateral. At December 31, 2005, based on power prices at that time, Entergy had in place as collateral $1,630 million of Entergy Corporation guarantees for wholesale transactions, S237 million of which support letters of credit. The assurance requirement associated with Non-Utility Nuclear is estimated to increase by an amount up to $400 million if gas prices increase $1 per MMBtu in both the short- and long-term markets. In the event of a decrease in Entergy Corporation's credit rating to below investment grade, Entergy may be required to replace Entergy Corporation guarantees with cash or letters of credit under some of the agreements. In addition to selling the power produced by its plants, the Non-Utility Nuclear business sells installed capacity to load-serving distribution companies in order for those companies to meet requirements placed on them by the ISO in their area. Following is a summary of the amount of the Non-Utility Nuclear business' installed capacity that is currently sold forward, and the blended amount of the Non-Utility Nuclear business' planned generation output and installed capacity that is currently sold forward: 2006 2007 2008 2009 2010 Non-Utility Nuclear: Percent of capacity sold forward: Bundled capacity and energy contracts 12% 12% 12% 12% 12% Capacity contracts 77% 46% 36% 24% 3% Total 89% 58% 48% 36% 15% Planned net MW in operation 4,184 4,200 4,200 4,200 4,200 Average capacity contract price per kW per month $1.0 $1.1 SI.! $1.0 $0.9 Blended Capacity and Energy (based on revenues) % of planned generation and capacity sold forward 82% 71% 47% 27% 12% Average contract revenue per MWh $42 $46 $50 $55 $46 34
Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis ar ,u . As of December 31, 2005, approximately 96% of Non-Utility Nuclear's counterparty exposure from energy and capacity contracts is with counterparties with investment grade credit'ratings. Following is a summary of the amount of Energy Commodity Services' output and installed capacity that is currently sold forward under physical or financial contracts at fixed prices: --r , 2006 ,iripit2007 t 2008 .-2009 -'2010 Energy Commodity Services: ,i:rft',<) :. *, .., , . . ,* Capacity .rc1J'.,' i:..; , , Planned MW in operation 1,578 , *..1,578 1,578 .- 1,578, -1,578 % of capacity sold forward 33% --;.i29%- .. 29% /'." 19% ." .17% Energy ': Planned generation (TWh) 4 ':iw;4:9 .. '4 4 4 4',' %'of planned generation sold forward 47% ,`i-"41%1' 43% 1.36% ",36% Blended Capacity and Energy (based on revenues) % of planned energy and capacity sold forward 25% 1" .,23%'.; 26%.: 17%. 17% Average contract revenue per MWh $26
- A!r ,$28' $28 .,,"..... $21 ,
- .! .$20 Entergy continually monitors industry trends in order to determine whether asset impairments or other losses
.could result from a decline in value,- or cancellation, of merchant'power. .projects, and, records, provisions for impairments and losses accordingly. As discussed in "Results of Operations" above, in 2004 Entergy determined that the value of the Warren Power plant owned by the non-nuclear wholesale assets business' was -impaired, and recorded the appropriate provision for the loss.
Foreign Currency Exchange Rate Risk Entergy Gulf States, System Fuels, and Entergy's Non-Utility Nuclear business 'enter into foreign currency forward contracts to hedge the Euro-denominated payments due under: certain purchase 'contracts. .,Thenotional
'amounts of the foreign currency forward contracts are 16.7 million Euio arid'the forward currency' rates range from
..96370 to 1.32540. The maturities ofthese forward contracts depend bn the purchase contract payment dates'and range in time from January 2006 to January ,2007. The mark-to-market .valuation of the ,forward contracts at December 31, 2005 was a net asset of $3.5 million. The counterparty banks obligated on these agreements 'are rated by Standard & Poor's Rating Services at AA on their senior debt obligations as of December 31, 2005.
.','1 ;.. . '. ,
Interest Rate and Equity Price Risk - Decommissioning Trust Funds 1 Entergy's nuclear decommissioning trust funds are exposed t6 fluctuations in equity prices and interest rates. The NRC requires Entergy'to maintain trusts to fund the costs of decrmmiisioning.ANO ,1;. ANO 2, 'River Bend, XWaterford 3,; Grand' Gulf, Pilgrim, Indian Point 1 and 2, and-Vermont Yankee (NYPA' curfehtly' retainsthe decommissioning trusts and liabilities for Indian Point 3 and FitzPatrick).:;.The funds are invested primarily, in equity securities; fixed-rate, fixed-income securities; and cash and cash equivalents:iManagement believes thatexposure of the various funds to market fluctuations will not affect Entergy's financial results of operations as it relates to the ANO .I and 2, River 'Bend, 'Grand Gulf, and.Waterford 3 trust furids',because of, the application' of .regulatory accounting principles. The Pilgrim, Indian Point 1 and 2, and '-Vermont. Yankee ttrust -funds collectively hold approximately $952 million of fixed-rate, fixed-income securities as oftDecember31 , 2005. These securities have an average coupon rate of approximately 5.2%, an average duration ibf,;approximately 5.6 years;;and _an average 2 maturity. of approximately 9.2 years. The Pilgrim, Indian Point. I 1and. ; and .Vermont. Yankee trust, funds also collectively hold equity, securities worth approximately $519 million :as of December 31, 2005.-';These securities are generally held in 'funds that are designed to approximate or somewhat exceed the return of the Standard &Poor's 500 Index, -and a relatively small percentage of the securities are held in ;a,,fund intended to replicate the return of the 35
Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis Wilshire 4500 Index. The decommissioning trust funds are discussed more thoroughly in Notes 1, 8, and 15 to the consolidated financial statements. Central States Compact Claim The Low-Level Radioactive Waste Policy Act of 1980 holds each state responsible for disposal of low-level radioactive waste originating in that state, but allows states to participate in regional compacts to fulfill their responsibilities jointly. Arkansas and Louisiana participate in the Central Interstate Low-Level Radioactive Waste Compact (Central States Compact or Compact). Commencing in early 1988, Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana made a series of contributions to the Central States Compact to fund the Central States Compact's development of a low-level radioactive waste disposal facility to be located in Boyd County, Nebraska. In December 1998, Nebraska, the host state for the proposed Central States Compact disposal facility, denied the compact's license application for the proposed disposal facility. Several parties, including the commission that governs the compact (the Compact Commission), filed a lawsuit against Nebraska seeking damages resulting from Nebraska's denial of the proposed facility's license. After a trial, the U.S. District Court concluded that Nebraska violated its good faith obligations regarding the proposed waste disposal facility and rendered a judgment against Nebraska in the amount of S151 million. In August 2004, Nebraska agreed to pay the Compact $141 million in settlement of the judgment. In July 2005, the Compact Commission decided to distribute a substantial portion of the proceeds from the settlement to the nuclear power generators that had contributed funding for the Boyd County facility, including Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana. On August 1, 2005, Nebraska paid S 145 million, including interest, to the Compact, and the Compact distributed from the settlement proceeds $23.6 million to Entergy Arkansas, $19.9 million to Entergy Gulf States, and S 19.4 million to Entergy Louisiana. The proceeds caused an increase in pre-tax earnings of $28.7 million. Critical Accounting Estimates The preparation of Entergy's financial statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that can have a significant effect on reported financial position, results of operations, and cash flows. Management has identified the following accounting policies and estimates as critical because they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements that could produce estimates that would have a material effect on the presentation of Entergy's financial position or results of operations. Nuclear Decommissioning Costs Entergy owns a significant number of nuclear generation facilities in both its U.S. Utility and Non-Utility Nuclear business units. Regulations require Entergy to decommission its nuclear power plants after each facility is taken out of service, and money. is collected and deposited in trust funds during the facilities' operating lives in order to provide for this obligation. Entergy conducts periodic decommissioning cost studies (typically updated every three to five years) to estimate the costs that will be incurred to decommission the facilities. The following key assumptions have a significant effect on these estimates: 0 Cost Escalation Factors - Entergy's decommissioning revenue requirement studies include an assumption that decommissioning costs will escalate over present cost levels by annuhl factors ranging from approximately CPI-U to 5.5%. A 50 basis point change in this assumption could change the ultimate cost of decommissioning a facility by as much as 11%. e 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 plant's operating license is typically used for this purpose, but more often the assumption is 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 36
Entergy Corporation and Subsidiaries
.eloManagements Financial Discussion and Analysis held in "safestore" status for later decommissioning, as permitted by applicable regulations. While the effect of these assumptions cannot be determined with precision, a~sdiming either license extension or use of a
* "safestore" status can possibly change the present value of these bbligations. As discussed in Note 8 to the consolidated financial statements, Entergy recorded revisions'in 2004 and 2005 to its estimated
, decommissioning cost liability for certain of its nuclear power plants to reflect changes in assumptions regarding license renewal. Increases in the probability of decommissioning the plants at a date later than the original license expiration lowered the estimate of the decommissioning cost liability. Future revisions to appropriately reflect changes needed to the estimate of decommissioning costs will affect net income, only to the extent that the estimate of any reduction in the liability exceeds'the amount of the undepreciated asset retirement cost at the date of the revision, for unregulated portions of.Entergy's business. Any increases in the liability recorded due to such changes arc capitalized and depreciated over the asset's remaining'economic life in accordance with SFAS 143.
*. Spent Fuel 'Disposal - Federal regulations require the DOE'toprovide a permanent repository for the storage of spent nuclear fuel, and legislation has been passed by Congress io'develop this reposit~rn at'Yucca' Mountain, Nevada. Until this site is available, however,' nucleai plaht'odperators must provide for interim spent fuel storage on the nuclear plant site, which can requirerthe c6nstruction and nriaintenance of dry cask storage sites or other facilities. The costs of developing and maintaining these facilities can have a significant effect (as much as 16% of estimated decommissioning costs). ýEntergy's decommissioning studies include cost estimates for spent fuel storage. However,'thesee stimates could change in the future based 6n' the timing of the opening of the Yucca Mountain facility; the schedulefor shipments to that facility when it is opened, or other factors. [i.':r fit,:
- Technology and Regulation - To date, there is limited practical experience in the United States with actual decommissioning of large nuclear facilities. As experience is gained and technology changes, cogi ýstimate' could also change. If regulations regarding nuclear decommissioning were to change, this could have a potentially significant effect on cost estimates. The effectof 'tsee'potential changes is'niot presently determinable.' 'Entergy'decommiissioning cost studies cuiren technologies and regulations.'
"assume SFAS 143'..
Entergy implemented SFAS '143, "Accounting for Asset Retir~inain Obligations," effective January 1,:2003. Nuclear decommissioning costs comprise substantially all of Entergy's, asset retirement obligatioiis? The following revisions were made to Entergy's estimated decommissioning cost liabilities in'2004'and 2005. ' , . ' . , In the first quarter of 2004, Entergy Arkansas recorded a revision to its estimated decommissioining 'cost liability in accordance with a new decommissioning cost study for ANO I and 2 as a result of revised decommissioning costs and changes in assumptions regarding the timing of when the decommissioning:6f the phlirts will begin. The revised estimate resulted in a $107.7 million reduction in its decommissioning liability, along with a
$19.5 million reduction in utilityplant and an $88.2"million reductiorff nihe^i'ated regulatory asset.- '
In the 'third quarter of 2004, Entergy Gulf States recorded a rriesion to its estimated -decomimrnissioninfig'dst liability'in 'iccordance with a new decommissioning cost stu.dy . that r"fl;cted 'fn'&xpetedlife estimate resulted in ai $116.8 :*lli6A"reiiuction extension forthe jllant." 'The revised in'utility plant, a $40.1 ruillionreduetion in the related in decommissioning liability,a along with a $31:3 rillion'reduction regulato 'asset, and
-regulatory liability'of $17.7 million.' For the porti6n of River Bend6t 5subjdct to'cost-based'raietiaking; the revised estimate resulted in the elimination of the asset retirement cost that had been recorded at the time of adoption of SFAS 143 with the remainder recorded as miscellaneous income of $27.7 million (S17 million net-of-tax).
In the third quarter of 2004, Entergy's Non-Utility Nuclear busirms-sriecorded a reduction of $20.3 million in its 'decommissioning cost 'liability 'to reflect 'changes 'in assiiimptions; regarding the 'timing' of, when the
- decommissioning of a plant will begin. Entergy considered the assurimptio'n as part of recent studies: evaluating 'the economic effect of the plant in its region.' The revised estimate'sulted 'iiscellaneous ineome 6f,$20.3 'million
. 6 1o '. . '"'
($11.9 million net-of-tax).'
'37
Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis
. In the first quarter of 2005, Entergy's Non-Utility Nuclear business recorded a reduction of S26.0 million in its decommissioning cost liability in conjunction with a new decommissioning cost. study as a result of revised decommissioning costs and changes in assumptions regarding the timing of the decommissioning of a plant. The revised estimate resulted in miscellaneous income of S26.0 million ($15.8 million net-of-tax), reflecting the excess of the reduction in the liability over the amount of undepreciated assets.
In the second quarter of 2005, Entergy Louisiana recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for Waterford 3 that reflected an expected life extension for the plant. The revised estimate resulted in a $153.6 million reduction in its decommissioning liability, along with a $49.2 million reduction in utility plant and a S104.4 million reduction in the related regulatory asset. In the third quarter of 2005, Entergy Arkansas recorded a revision to its estimated decommissioning cost liability for ANO 2 in accordance with the receipt of approval by the NRC of Entergy Arkansas' application for a life extension for the unit. The revised estimate resulted in an $87.2 million reduction in its decommissioning liability, along with a corresponding reduction in the related regulatory asset. In the third quarter of 2005, System Energy recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for Grand Gulf. The revised estimate resulted in a $41.4 million reduction in the decommissioning cost liability for Grand Gulf, along with a $39.7 million reduction in utility plant and a $1.7 million reduction in the related regulatory asset. Unbilled Revenue As discussed in Note 1 to the consolidated financial statements, Entergy records an estimate of the revenues earned for energy delivered since the latest customer billing. Each month the estimated unbilled revenue amounts are recorded as revenue and a receivable, and the prior month's estimate is reversed. The difference between the estimate of the unbilled receivable at the beginning of the period and the end of the period is the amount of unbilled revenue recognized during the period. The estimate recorded is primarily based upon an estimate of customer usage during the unbilled period and the billed price to customers in that month, including fuel price. Therefore, revenue recognized may be affected by the estimated price and usage at the beginning and end of each period and fuel price fluctuations, in addition to changes in certain components of the calculation including changes to estimates such as line loss, which affects the estimate of unbilled customer usage, and assumptions regarding price such as the fuel cost recovery mechanism. Impairment of Long-lived Assets Entergy has significant investments in long-lived assets in all of its segments, and Entergy. evaluates these assets against the market economics and under the accounting rules for impairment whenever there are indications that impairments may exist. This evaluation involves a significant degree of estimation and uncertainty, and these estimates are particularly important in Entergy's U.S. Utility and Energy Commodity Services segments. In the U.S. Utility segment, portions of River Bend and Grand Gulf are not included in rate base, which could reduce the revenue that would otherwise be recovered for the applicable portions of those units' generation. In the Energy Commodity Services segment, Entergy's investments in merchant generation assets are subject to impairment if adverse market conditions arise. In order to determine if Entergy should recognize an impairment of a long-lived asset that is to be held and used, accounting standards require that the sum of the expected undiscounted future cash flows from the asset be compared to the asset's carrying value. If the expected undiscounted future cash flows exceed the carrying value, no impairment is recorded; if such cash flows are less than the carrying value, Entergy is required to record an impairment charge to write the asset down to its fair value. If an asset is held for sale, an impairment is required to be recognized if the fair value (less costs to sell) of the asset is less than its carrying value. 38
Entergy Corporation and Subsidiaries "INanagement's Financial Discussion and Analysis These estimates are based on a number of key assumptions, including:
- Future power and fuel prices - Electricity and gas prices have b1ei ve'ry4volAtile in recent years, and this volatility is expected to continue. This volatility necessarily increases the imprecision inherent in the long-term forecasts of commodity prices that are a key determinant 'fd tiriiAted future cash flows. There is * '
currently an oversupply of electricity throughout the U.S., inc..dii... . ii'ch'of Entergy's'service territory' "nd it is necessary to project economic growth and other macrocconomfiaictors in order to project when this oversupply will cease arid prices will rise. Similarly, gas pric6shýhlfViberi volatile as a'result of recent fluctuations in both supply and demand, and projecting future trends in these prices is difficult.' -
- Market value of generation assets - Valuing assets held for sale requires estimating the current market value of generation assets. While market transactions provide evidene' for this'valuation, the market for such assets is volatile and the'value of individual assets is impactedbý fai't&rs unique to thos assets.* '
- Future 6perating costs - Entergy assumes relatively minor annuil inrases in b'i'citin cdsts. Techniblogic'al or regulatory changes that have' a significant impact on operationis culd cause a significanit 6hange in th6ýý assum ptions.: .v,,' '.... *'
In the fourth quarter of 2005, Entergy recorded a charge of ;$39.8 -million '($258 'inilli6n'riet"6f-tai) 'sa result of the impairment of the Competitive Retail Services business' information technology systems. Entergy has decided to divest the retail electric portion of the Competitive Retail Services business operating the in' the ERCOT region of Texas and, in connection with that decision, management evaluated the carrying amount of Competitive Retail Services business' information technology systems and determined that an ,impairment provision should be recorded. In the fourth quarter of 2004, Entergy recorded a chbrg& of approximately $55 million ($36 million net-of-tax) as a 'result of an impairment of the value of the Warren Powei plant. Entergy conchided that the value of the plant, which is owned in the non-nuclear wholesale assets business, was impaired. Entergy reached this conclusion based on valuation studies prepared in connection with the Entergy Asset Management stock sale discussed above in "Results of Operations." Qualified Pension and Other Postretirement Benefits Entergy sponsors qualified, defined benefit pension plans which cover substantia ly all ..employees. Additionally, Entergy currently provides postretirement health care and life insurance benefits for substantially all emploees who rfdch:retirement age while still working for Entergy. Entergy's reported costs of providing these benefits, as described in'Note 10 to the 66nsolidated financial statements'afe imp*acted by numerous factors including the provisiohs*6f the plans, changing employee demographics, and .fafiii_'ua!ctarial calculations,, assbmptions,.and accounting mechanisms. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy's estimate of these costs is a critical accounting estimate for
! !;:,f:
the U.S. Utility and Non-Utility Nuclear segments. Assum ptions,... 1 , .. 41 :* fI 9 * : . . .. .. .I l . L : Key actuarial assumptions utilized in determining these costs include:
- Discount rates used in determining the future benefit obligations;.- ,
.0 Projected health care cost trend rates; "' ."... ',iov 5!1
*di , . . .
* ,Expected long-term rate of return on plan assets; and
- Rate of increase in future compensation levels.* bj , ,
Entergy reviews these assumptions on an annual basis and adjusts them as necessary. The falling interest rate environment and worse-than-expected performance of the'financialpquity markets, over the past, several years have impacted Entergy's funding and reported costs for these benefits. In addition, these trends have caused Entergy to make a number of adjustments to its assumptions. 39
Entergy Corporation and Subsidiaries Management's Financial Discussion and Analysis In selecting an assumed discount rate to calculate benefit obligations, Entergy reviews market yields on high-quality corporate debt and matches these rates with Entergy's projected stream of benefit payments. Based on recent market trends, Entergy reduced its discount rate used to calculate benefit obligations from 6.25% in 2003 to 6.00% in 2004 and to 5.90% in 2005. Entergy reviews actual recent cost trends and projected future trends in establishing health care cost trend rates. Based on this review, Entergy increased its health care cost trend rate assumption used in calculating the December 31, 2005 accumulated postretirement benefit obligation to a 12% increase in health care costs in 2006 gradually decreasing each successive year, until it reaches a 4.5% annual increase in health care costs in 2012 and beyond. In determining its expected long-term rate of return on plan assets, Entergy reviews past long-term performance, asset allocations, and long-term inflation assumptions. Entergy targets an asset allocation for its pension plan assets of roughly 65% equity securities, 31% fixed-income securities and 4% other investments. The target allocation for Entergy's other postretirement benefit assets is 51% equity securities and 49% fixed-income securities. Based on recent market trends, Entergy reduced its expected long-term rate of return on plan assets used to calculate benefit obligations from 8.75% for 2003 to 8.5% in 2004 and 2005. The assumed rate of increase in future compensation levels used to calculate benefit obligations was 3.25% in 2003, 2004, and 2005. Cost Sensitivity The following chart reflects the sensitivity of qualified pension cost to changes in certain actuarial assumptions (dollars in thousands): Impact on 2005 Impact on Qualified Change in Qualified Pension Projected Actuarial Assumption Assumption Cost Benefit Obligation Increase/(Decrease) Discount rate (0.25%) $10,564 S105,990 Rate of return on plan assets (0.25%) $4,705 Rate of increase in compensation 0.25% $5,510 S33,091 The following chart reflects the sensitivity of postretirement benefit cost to changes in certain actuarial assumptions (in thousands): Impact on Accumulated Change in Impact on 2005 Postretirement Benefit Actuarial Assumption Assumption Postretirement Benefit Cost Obligation Increase/(Decrease) Health care cost trend 0.25% $4,511 $24,536 Discount rate (0.25%) S3,082 $29,341 Each fluctuation above assumes that the other components of the calculation are held constant. Accounting Mechanisms In accordance with SFAS No. 87, "Employers' Accounting for Pensions," Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized into cost only when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. If necessary, the excess is amortized over the average remaining service period of active employees. Additionally, Entergy accounts for the effect of asset performance on pension expense over a twenty-quarter phase-in period through a "market-related" value of assets calculation. Since the market-related value of assets 40
Entergy Corporation and Subsidiaries a,,Management's Financial Discussion and Analysis recognizes investment gains or losses over a twenty-quarter period,itheifuture value of assets will be impacted as previously deferred gains or losses are recognized. As a result, the losses that the pension plan assets experienced in 2002 may have an adverse impact on pension cost in future years depending on'whether the actuarial losses at each measurement date exceed the 10% corridor in accordance with SFAS 87. Costs and Funding In 2005, Entergy's total qualified pension cost was $118!.3 millioin.' Eiite-rgy anticipates 2006 qualified pension cost to increase to'$131.6 million due to a decrease in the dicdunt rate '(from 6.00% to 5.90%),actualretiirn on plan assets less than 8.5%, and a plan amendment at Non-Utilt Nlicleart "Pension fuiiding'was $131.8'niilhion for 12005, and undei current law,' is projected to'be $349 iirilli6hon 'm2'0c06.-Ths'projecton 'may change-pending passage of pension reform legislation. In January 2006;-$109 mnillion wi'asftnded. $107 million'of this c6tribiutii6n was origiriallyrplanned for 2005j'hrwever, it vas delayed as 'a result'of iti6Kiti r a'EmiergencyTax Relief :Act., The rise in- pehsioni' funding requirements is due to declining interfest ratejsý'and the OhAsed-i nffe'o f asset underperformance from 2000 to 2002, offset by the Pension Funding Equity Act relief passed'ifiApril 2004:.1!l'"+, Entergy's qualified pension accumulated benefit obligation at December 31,'2005; 2004,*1nnd'2003 excce6d&1 plan assets. As a result, Entergy was required to recognize an additional minimum pension liability as prescribed by SFAS 87. At December 31, 2005, Entergy increased its qualifi"d pension . pla.s. 'dditi6iI "minim..um pension liability'to $406 million ($382 million net of related pension assets....6.F$244 million ($2i8
.i.illihnet 'o.f r.elated 'pension asets) at December 31, 2004.'Other comprehensive incom. in sed to $15 f"iilli-n.'at D..ib.3.*:2005 from '$6.6 "million 'at December 31, 2004, after reddctions for 'th'e&uinrecognized' prior"i'serce-&ost, amoni ts iecboverable miirates, and taxes. Net income'for 2005, 2004, and 2003w'asnoiitiaffected. * . "
Toial" postretir'ement hilth care and life insurance benefit *ost'fort Entergy iýn'2005 were' $83'.?7'mhillion, including $24.3 million in savings due to the estimated effect of future Medicare Part D subsidies.Eritei'gy !epi'etis 2006 postretirement health care and life insurance benefit costs to approximate $94.1 million, including a projected
$27.8 million in savings due to the estimated effect of future Medicare Pfrt"-D'Dsubsidi'.es'--L'Theincrease "'in postretirement health care and life insurance benefit costs is due to the decrease in the discount rate (from 6.00% to 5.90%6) and an increase in the health care cost trend rate used to calufe ienefit obiigations. '
Other Continge'nies
'As a company with'xImulti-state domestic utility operations and a history of internmaioni l fivestments,Entergy is subjec1ob a num'ler of federal, state, and international laws and reuia~tlo'ns and other factors and conditions in the areas *in which it operates, which potentially subject it to env3romental, ihtigation, rand other rss*i.'Entergy periodically 'evaluates its exposure for such risks and records a reserve f6r those matters whiciareconsldered probable andestimable in accordance with generally accepted accouýnt pnciples.p ...... I' ... "
tEtergy must comply' with environmental laws ana' regulations appcable to' tIe nan ispgoa Ag aa hazardousiwaste. Under these various laws and 'reguations, Entergy could incur suibstantial costs tor restore 0 V ' ,+
- t* 0 I
- 1. .+ , . i,, f,+, . l ji l * , r
, : ,, , , t , * , t\ s;. ' s+
ý: _ '"'.,. , -. - ' : Ii- I . .+
properties consistent with the various standards. Entergy conduct sýulcs'o determine the extent of any required n- " '. (1C '" remediation and has recorded reserves based upon its evaluation of the likelhhood of loss and expected do-lal 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: 0 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. 41
Entergy Corporation and Subsidiaries Managements Financial Discussion and Analysis
" 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 lawsuits involving employment, ratepayer, and injuries and damages issues, among other matters. Entergy periodically 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 8 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 environment in which Entergy operates, and the unpredictable 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. Sales Warranty and Tax Reserves Entergy's operations, including acquisitions and divestitures, require Entergy to evaluate risks such as the potential tax effects of a transaction, or warranties made in connection with such a transaction. Entergy believes that it has adequately assessed and provided for these types of risks, where applicable. Any reserves recorded for these types of issues, however, could be significantly affected by events such as claims made by third parties under warranties, additional transactions contemplated by Entergy, or completion of reviews of the tax treatment of certain transactions or issues by taxing authorities. Tax reserves not expected to reverse within the next year are reflected as non-current taxes accrued in the financial statements. Entergy does not expect a material adverse effect on earnings from these matters. New Accounting Pronouncements In December 2005, Entergy implemented FASB Interpretation 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143", (FIN 47), effective as of that date, which required the recognition of additional asset retirement obligations other than nuclear decommissioning which are conditional in nature. The obligations recognized upon implementation represent Entergy's obligation to remove and dispose of asbestos at many of its non-nuclear generating units if and when those units are retired from commercial service, and dismantled. For the U.S. Utility business, the implementation of FIN 47 for the rate-regulated business of the domestic utility companies was recorded as regulatory assets, with no resulting effect on Entergy's net income. Entergy recorded these regulatory assets because existing rate mechanisms in each jurisdiction allow for the recovery in rates of the ultimate costs of asbestos removal, either through cost of service or in rate base, from current and future customers. As a result of this treatment, FIN 47 is expected to be earnings neutral to the rate-regulated business of the domestic utility companies. Upon implementation of FIN 47 in December 2005, assets increased by $28.8 million and liabilities increased by S30.3 million for the U.S. Utility segment as a result of recording the asset retirement obligations at their fair values of $30.3 million as determined under FIN 47, increasing utility plant by $2.7 million, increasing accumulated depreciation by SI.8 million, and recording the related regulatory assets of $27.9 million. The implementation of FIN 47 for the portion of Entergy Gulf States not subject to cost-based ratemaking decreased earnings by $0.9 million net-of-tax. 42
ENTERGY CORPORATION AND SUBSIDIARIES SELECTED FINANCIAL IDATA'- FIVE-YEAR COMPARISON 2005 2004 . 2003 2062 2001 (In Thousands, Except Percentages and Per Share Amounts)
;6[o852o1 9,02, brnn *9,032,71,4
$9,685,521 Operating revenues $10,106,247 $8,299,052 , $9,620,561 Income from continuing operations before cumulative effect of accounting" . -fwft l?. IFýI," , 1 . - ',. . );, ,
changes - $968,552 S933,0901*) :$827*797' S $633,627 $739,062 Earnings per share from continuing operations bef6re cumulative effect of , ~ nIv,:,.c.. j3(: f ,1),, ' I, '...J; , accounting changes Basic $4.49 $4.01 PF: $2.73 ,!$3.24
- j $3.93j*io(erj EU$3.48 *!,.. $ 68 :., ,i $.3..18 Diluted $4.41
$2.16 ... $1.89
- i*tj $!6 $$1.60.,w.
.. . $1.34:,.
.. . I.. 41,,
Dividends declared per share Return on common equity 11.20% 10.70% 11.21% 7.85% 10.04% Book value per share, year-end .$37.31 * $38.251lsi'i tXm$38.02 :' .$35.24 ' $33.78 Total assets '$30,851,269 $28,310,777 1':1$28,527,388 $27;504,;366 "$25,910*311 Long-term obligations (1) $9,013,448 $7,180,291) o '$7,497 690" "v'$7,488,919' I$7,-743,298 (1) Includes long-term debt (excluding curently maturing debt), preferred stock, w'th sinking fund, nard noncurrent capital lease obligations. 2005 i; 2004 n t r!I bf2003 :. 2002 .', -2001
*'(Dollars.In Millions) , I .. i*i
- ; * 'C - , .ki.:. . OO!
U.S. Utility Electric Operrating Revenues: Residential $2,912 $2, 8 4 2 mio*'* dfl$ 2 ,6 8 3 '"' '$2,440: $2,613 Commercial 2,041 2,045.i 1,882 1,673 ., 1,860 Industrial 2,419 2,311* 2,082 1,850 2,299
.~~ ~ ~ ý.. I 4 ~ !, I'd 1
Governmental 141 200 195 179 205
- Total retail 7,513 ,. 7,398 . , .6,842 6,142, *,, .6,977 656 .390.1(,jýv,jo ! .v/:371, ., ..: 330, t?-_j,i.,*395 Sales for resale (1)
Other (2) 278 , 145.) li-,'m ; 184 - ,;:: , 174 *h n L. ,(127)
. Total $8,447' . $7,933ai:.o ýe.r'$7,397.:.,,': -; $6,646 :)'.:I:I $7,245 U.S. Utilit, Billed ElectricEnergy -"*
Sales (GWh): Residential 31,569 32,897 32,817 32,581 31,080 24,401 26,468 25,863ý , 25,354 ,. 24706 Commercial Industrial 37,615 40,293 38,637 41,018 41,577 Governmental 1,568 2,568 2,651 2,678 2,593 99,968 ,*;O,3..wh.99,956 Total retail 95,153 102,226 Sales for resale (1) 5,730 8,623 9,248 9,828 !" ,'Qi¶J-8,896 Total 100,883 110,849 109,216 111,459 108,852 (1) Includes sales to Entergy New Orleans, which was deconsolidated in 2005. See Note 16 to the consolidated financial statements. (2) 2001 includes the effect of a reserve for rate refund at System Energy.
'43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders Entergy Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of Entergy Corporation and Subsidiaries (the "Corporation") as of December 31, 2005 and 2004, and the related consolidated statements of income; of retained earnings, comprehensive income, and paid-in capital; and of cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Entergy-Koch, LP, the Corporation's investment in which is accounted for by the use of the equity method. The Corporation's equity in earnings of unconsolidated equity affiliates for the year ended December 31, 2003 includes $180,110,000 for Entergy Koch, LP, which earnings were audited by other auditors whose report (which as to 2003 included an explanatory paragraph concerning a change in accounting for inventory held for trading purposes and energy trading contracts not qualifying as derivatives) has been furnished to us, and our opinion for the year ended December 31, 2003, insofar as it relates to the amount audited by other auditors included for such company, is based solely on the report of such other auditors. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of othe6r auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of Entergy Corporation and Subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 8 to the consolidated financial statements, in 2003 Entergy Corporation adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 143, Accountingfor Asset Retirement Obligations. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Corporation's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control - IntegratedFrameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006 expressed an unqualified opinion on -- management's assessment of the effectiveness of the Corporation's internal control over financial reporting and an unqualified opinion on the effectiveness of the Corporation's internal control over financial reporting. DELOITTE & TOUCHE LLP New Orleans, Louisiana March 9, 2006 44
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
)" 1:1" ;,! For the Years Ended December 31
, .G{i .",2005 2004 2003 (In Thousands, Except Share Data)
I. - Domestic electric.,. S8,446,830 $7.932,577 S7.397,175 MIN EXPENSES Natural gas t,% .77,660 208,499 186.176 Competitive businesses OPRA'J 1,581.757 1,544.445 1.449.363 TOTAL i.... 10.106.247 9.685.521 9.032.714 if ~ OPERATING EXPENSES Operating and Maintenance: Fuel. fuel-related expenses, and " gas purchased for resale 2.176,015 2,488.208 . 1,987,217. ,.:, Purchased power 2,521,247 ,1,701,610.;, .1.579,057 Nuclear refueling outage expenses , 162,653 166,072, .... .159,995 , -. Provisions for asset impairments and restructuring charges - 55.000 .: (7,743).., Other operation and maintenance a: ,,;..2,122,206 2,268.332 2,423,951., Decommissioning 143,121
!,, , 149,529 146,100 Taxes other than income taxes 382,521 403,635 . 402,571" 856,377 893.574 849771' L Depreciation and amortization Other regulatoeicredits - net (49,882) (90,611) (13.761)""
TOTAL 8.314.258 8.035.349 7,527.158 1.791.989 1.650.172 1.505,556-OPERATING INCOME OTHER INCOME Allowance for equity funds used during construction 45.736 39,582.,, ,. 42,710
.150,479 , 109,635 ., 87.334, ,:.
Interest and dividend income 985 (78,727)', 271,647,, Equity in earnings (loss) of unconsolidated equity affiliates
," Miscellaneous- net, 14,251 55.509 (76.376)
TOTAL 211,451 125.999 325,315 INTEREST AND OTiHER CIIARGES
-?~ lII440,334 .463.384 -485,964 --
Interest on long-term debt Other interest - net 64,646 '40,133 ' " 52.868V!
"r (29.376) (25.741). .( 33.191) '
Allowance for borrowed funds used during construction
- I. 475,604 477.776 * ; 505.641 TOTAL INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CIIANGES 1,527,836 i'298,395' ' 1,325,230 Income taxes 559.284 365.305, -.!:.,': 497A433 INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
-.. EFFECT OF ACCOUNTING CHANGES 968,552 933,090 827,797 LOSS FROM DISCONTINUED OPERATIONS (net of Income tax expense f:.",(41)J[, r,;t-, (14,404) .',,.
;(44,794) ---
' * ' (benefit) o ($24,051), $603, and (S7,359), respectively) CUMULATIVE EFFECT OF ACCOUNTING
- - 137,074 CHANGES (net of Income tax expense of $89,925)
CONSOLIDATED NET INCOME 923,758 933,049 950,467 Preferred dividend requirements and other 25.427 23,525 23,524 EARNINGS APPLICABLE TO COMMON STOCK S898,331 S909,524 S926.943 Basic earnings (loss) per average common share: Continuing operations $4.49 $4.01 $3.55 ($0.21) ($0.06) Discontinued operations
$0.60 Cumulative effect of accounting changes Basic earnings per average common share $4.27 S4.01 $4.09 Diluted earnings (loss) per average common share:
$4.40 $3.93 $3.48 Continuing operations
($o.21) ($0.06) Discontinued operations
$0.59 Cumulative effect of accounting changes S4.19 $3.93 $4.01 Diluted earnings per average common share
$2.16 $1.89 S1.60 Dividends declared per common share Basic average number of common shares outstanding 210,141,887 226,863,758 226,804,370 Diluted average number of common shares outstanding 214,441.362 231,193,686 231,146,040 See Notes to Consolidated Financial Statements.
'"45
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASII FLOWS For the Years Ended December 31, 2005 2004 2003 (In Thousands) OPERATING ACTIVITIES Consolidated net Income $923,758 $933,049 $950,467 Adjustments to reconcile consolidated net income to net cash flow provided by operating activities: Reserve for regulatory adjustments (82,033) 33,533 13,090 Other regulatory credits - net (49,882) (90,611) (13,761) Depreciation, amortization, and decommissioning 1,001,852 1,045,122 996,603 Deferred income taxes and investment tax credits 626,813 275,458 1,189,531 Cumulative effect of accounting changes (137,074) Equity in earnings (loss) of unconsolidated equity affiliates - net of dividends 4,315 608,141 (176,036) Provisions for asset impairments and restructuring charges 39,767 55,000 (7,743) Changes in working capital: Receivables (367,351) (210,419) (140,612) Fuel inventory (83,125) (16,769) (14,015) Accounts payable 303,194 95,306 (60,164) Taxes accrued (172,315) 75,055 (882,446) Interest accrued 15,133 5,269 (35,837) Defered fuel (236,801) 213,627 (33,874) Other working capital accounts (45,653) 41,008 16,809 Provision for estimated losses and reserves (3,704) (18,041) 196,619 Changes in other regulatory assets (311,934) 48,626 22,67 I Other (94,226) (164,035) 121,592 Net cash flow provided by operating activities 1.467.808 2.929,319 2.005.820 INVESTING ACTIVITIES Construction/capital expenditures (1,458,086) (1,410,610) (1,568,943) Allowance for equity funds used during construction 45,736 39,582 42,710 Nuclear fuel purchases (314,414) (238,170) (224,308) Proceeds from sale/leaseback of nuclear fuel 184,403 109,988 150,135 Proceeds from sale ofassets and businesses 75,430 25,987 Payment for purchase of plant (162,075) Investment in nonutility properties (6,420) (71,438) Decrease in other investments 9,905 383,498 172,187 Purchases of other temporary investments (1,591,025) (1,629,500) (613,464) Liquidation ofother temporary investments 1,778,975 1,676,350 378,664 Proceeds from nuclear decommissioning trust fund sales 944,253 679,466 729,440 Investment in nuclear decommissioning trust funds (1,039,824) (769,273) (820,958) Other regulatory investments (390,456) (53,566) (156,446) Other (11,496) Net cash flow used in Investing activities (1.992.608) (1,143,225) (1.967,930) See Notes to Consolidated Financial Statements. 46
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2005 2004 2003 (In Thousands) FINANCING ACTIVITIES Proceeds from the Issuance of: Long-term debt 4,302,570 3,653,478 4,596,189 Preferred stock 127,995
- -:6106,068 Common stock and treasury stock 170,237 217,521 Retirement of long-term debt .(2,689,206) (4,022,548) (5,284,917)
Repurchase of common stock (1,017,996) (8,135) Redemption of preferred stock (33,719) , (3,450) (3,450)
'. "ie ,lO")N3§,850 Changes in credit line borrowings - net . . . (154)
Dividends paid: Common stock (453,508) (427,901) (362,814) Preferred stock (25,472) (23,525) (23,524) Net cash flow provided by (used in) financing activities '496,390 (1.671.859) (869,130) Effect of exchange rates on cash and cash equivalents "(602) (1,882) 3.345 Net Increase (decrease) in cash and cash equivalents S(29,012) 1 12353 (827,895) Cash and cash equivalents at beginning of period 507,433 1,335,328 .619,786 Effect of the deconsolidation of Entergy New Orleans on cash and cash equivalents (7,954) Cash and cash equivalents at end of period S582.820 $619.786 $507,433 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net ofamount capitalized $461,345 $477,768 $552,017 Income taxes $116,072 $28,241 $188,709 See Notes to Consolidated Financial Statements.
',~,:kIr#.ru, Ii ~:.
~ ~ 0'~
. .1,* .
47
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS December 31, 2005 2004 (In Thousands) CURRENT ASSETS Cash and cash equivalents: Cash $221,773 $79,136 Tem'porary cash investments - at cos, which approximates market 361,047 540.650 Total cash and cash equivalents 582.820 619,786 Other temporary investments 187.950 Note receivable - Entergy New Orleans DIP loan 90,000 Notes receivable 3,227 3,092 Accounts receivable: Customer 732,455 435,191 Allowance for doubtfiul accounts (30,805) (23,758) Other 356,414 342,289 Accrued unbilled revenues 477,570 460,039 Total receivables 1,535,634 1.213,761 Deferred fuel costs 543,927 55,069 Accumulated deferred income taxes 76,899 Fuel inventory - at average cost 206,195 127,251 Materials and supplies - at average cost 610.932 569.407 Deferred nuclear refueling outage costs 157,764 107,782 Prepayments and other 325,795 116.279 TOTAL 4.056.294 3,077,276 OTHER PROPERTY AND INVESTMENTS Investment in affiliates - at equity 296,784 231,779 Decomrissioning trust funds 2,606,765 2,453,406 Non-utility property - at cost (less accumulated depreciation) 228,833 219.717 Other 81,535 90.992 TOTAL 3.213.917 2.995.894 PROPERTY. PLANT AND EQUIPMENT Electric 29,161,027 29,053,340 Property under capital lease 727,565 738,554 Natural gas 86,794 262,787 Construction work in progress 1,524,085 1,197,551 Nuclear fuel under capital lease 271.615 262.469 Nuclear fuel 436.646 320.813 TOTAL PROPERTY, PLANT AND EQUIPMENT 32,207,732 31,835,514 Less - accumulated depreciation and amortization 13.010,687 13.139.883 PROPERTY, PLANT AND EQUIPMENT - NET 19.197,045 18.695.631 DEFERRED DEBITS AND OTIIER ASSETS Regulatory assets: SFAS 109 regulatory asset - net 735,221 746,413 Other regulatory assets 2,133,724 1,429,261 Deferred fuel costs 120,489 30,842 Long-term receivables 25,572 39,417 Goodwill 377,172 377,172 Other 991,835 918,871 TOTAL 4.384.013 3.541.976 TOTAL ASSETS S30.851,269 S28.310,777 See Notes to Consolidated Financial Statements. 48
ENTERGY CORPORATION AND SUBSIDIARIES t.- I CONSOLIDATED BALANCE SIEETS" *' "l ***
.LIABILITIES AND SHIAREHIOLDERS' EQUITY December3!,
2005 2004
.. . (In Thousands)
CURRENT LIABILITIES Currently maturing long-term debt $103,517 $492,564 Notes payable 40,041 '193 Accounts payable 1,655,787 896,528 Customer deposits 222,206 222,320 Taxes accrued 188,159 224,011 Accumulated deferred income taxes 143,409 Nuclear refueling outage costs 15,548 Interest accrued 154,855 144,478 Obligations under capital leases 130,882 133,847 Other 4218.442 4. TOTAL 3,12 7.914 2,332,383 NON-CURRENT LIABILITIES Accumulated deferred income taxes and taxes accrued 5,279,228 5,067,381 Accumulated deferred investment tax credits 376,550 399,228
*:":, ,17 5,.005 146,060 Obligations under capital leases Other regulatory liabilities 408,667 329,767
' i,923,97 l Decommissioning and retirement cost liabilities 2,066,277 79,101 79,101 Transition to competition Regulatory reserves 1,18,624 103,061 Accumulated provisions 556,028 549,914 Long-term debt 8,824,493 7,016,831 Preferred stock with sinking fund 13,950 , 17,400 Other 1,879.017 1.541.331 TOTAL 19,534,634 17,316,351 Commitments and Contingencies Preferred stock without sinking fund 445,974 : , 365,356 SIHAREIIOLDERS' EQUITY Common stock, $.01 par value, authorized 500,000,000 shares; issued 248,174,087 shares in 2005 and in 2004 2,482 . 12,482, Paid-in capital 4,817,637 4,835,375 Retained earnings 5,428,407 4,984,302 Accumulated other comprehensive loss (343,819) (93,453)
Less - treasury stock, at cost (40,644,602 shares in 2005 and 31,345,028 shares in 2004) 2.161.960 1,432,019 TOTAL 7,742,747 8,296,687 TOTAL LIABILITIES AND SIIAREIIOLDERS' EQUITY $30,851.269 S28,310,777 See Notes to Consolidated Financial Statements. 49
ENMERGY CORPORPTION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS. COMPREIJENSIVE INCOME, AND PAID-IN CAPITAL For the Years Ended Dectmber 3I. 2005 2004 2003 (lI.lTousands) RETAINED EARNINGS Retained Earnings- Begnnuing of pcTd S.4984.302 S4,502.508 $3,939.693 Add: Earnings applicable to common stock 898,331 S898.331 909,524 $909,524 926,943 S926.943 Deduct: Dividends declared on commun stock 453,657 427.740 362.941 Capital stock and other cxpencs . 569 (10I 187 Total 454-226 427,730 363.128 Retained Earnings - End of period S5.428.407 S4.984.302 S4.302.508 ACCUMULATED OTIIER COMPREHIENSIVE LOSS Balance at bcginning of period: Accumulated derivative instrument fairt alue changes (1S41.411 ) (&25,811) S17.313 Other accumulated comprehensive income (Ios) itet*s 47.958 12,016 (39,673) Total (93.,453) (7.795) 422.360) Net dcrivatisý instrumentfair value changes arising during *heperiod (net ofta&(bencfit) of($159.236). (74.082) and (S27,862)) (251.2031 (251.203) (115,600) (115.600) (43J124) (43.124) Foreign currency translatiot (net of ta: expense of $212, $659, and $1,459) 602 602 1.882 1,882 4.169 4.169 Minimum pension liability (net oftax expense (benefit) of(S9.176), 51.875, and $503) (15.773) (15.773) 2.762 2-762 II,53 1,153 telunrealized incstment gains (net of tax expense of $10.573, S16.599, mndS33.422) 16.008 16,08 25.2998 52,367 52,367 Balance at endofpcriod: Accumulated dcrivative instrument fair valuechanges (392.614) (141.411) (25.811) Other accumulated comprehensive income items 48.795 47.958 18,016 Total M5 ,43,%19t _$93.4531 1$7.793)5 Comprehensive Income $647.965 S823,866 194 L50 PAID-IN CAPITAL Ilad-i.n Capital.- Ieginvag ofpcriod S4.835.375 S4,767.615 $4.66,.753 Add (Deduct): Issuance of equky units (39.904) Comm)n stock issuances related to stock pLtns 22,166 67.760 100.962 Paid-in Capial - End of period S4.817.637 S4.835.375 S4.767.615 SeeNotes to Consolidated Financial Statements. 50
ENTERGY CORPORATION AND SUBSIDIARIES
. . ,NOTESTO CONSOLIDATED FINANCIALSTATEMENTS.:,
ýNOTEI, -
SUMMARY
,OFSIGNIFICANTACCOUNTING)OLICIES The accompanying consolidated financial statements include th6 accounts of Entergy Corporation and its direct and indirect subsidiaries. As required by generally accepted accounting principlcs,:all sigi'fic nt intercompany transactions have been eliminated in the consolidated financial statements. Tle -drnistic iitil-f.com-p-anies-and 'System Energy"Imiamitam.,'aceounts 'm accordanice'with FERC iiand.0ther--regublato'ry gu'idehnes.i Cer-tain" previously Ireiorted 'amounts~ haveb'eni recladssified to c6nfornm" to cufrrent ,'laslificati-ous,-,'ithno effct 'on "net 'income or hartholders'.equity.-Referene'to Entfergy Louisiaha .are intenided-to apply b~t5 to Entergy Louisiana Holdings on a consolidated basis and to Entergy Louisidna,! LLC.'" CI "21,u~irr*r, * .,! _i
;Use of E~s~irate'n the Preparation of Financial State'menO:,
The preparation of Entergy Corporation's consolidated financial statements, in conformity with generally -iacepitd icciifitini-gpriniples, -requiirenmanagenient to fiiýý 1stinates*£fid hssiimptions that affect :th6 reported amounts 'of ss'ets and lihabiliti~es'nd 'disclosure 'of contingehint *tiidfiabilities and thf'rejoriedaifiounts 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 anid Fuel Costs:,'i" ." 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 Texas. 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 iServices 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. To the extent that deliveries have occurred but a bill has not been issued, the doiestiuity c accrue an estimate of the revenues for energy delivered since the latest billings. Entergy calcuilates the estbmatebased upon several factors including billings through the last billing cycle in a month&, ctial generation mithe-mionrith, iiistorical 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 6f unbilled reenues from one period to the next, and may result in variability in reported revenues from one period to'th6 next as prior estimates are so recorded and 'e'Qersed. The domestic utility companies' rate schedules include either fuel adjustment clauses or fixed fuel factors, which allow either current recovery in billings to customers or deferral of fuel costs until thexcosts 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 basedon a pre-determined fuel cost (fixed fuel factor), the, fuel factor remnains in effect until changed as part ofageneral rate case, fuel reconciliation, or fixed fuel factor filing. Entergy Mississippi's fuel factor includes an energy cost 'rider that is adjusted quarterly. As discussed in Note 2 to the consolidated financial statefienits, the MPSC approved Entergy Mississippi's deferral of thelrefund of over-recoveries fo'r'the third quarter of 2004 that would haVe been refunded in the first quarter of 2005. The deferred amount plus carrying charges was refunde d'iri i:hi s'e&6id'oni d third quarters of 2005. Iri the case of Entergy Arkansas and the Texas'Ibrtion of Entfrgy Gulf States;:their fuel under-Fecoveries are treated in the cash flow statements as regulatory investments 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.
-51
Entergy Corporation Notes to Consolidated Financial Statements System Energy's operating revenues are intended to recover from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans operating expenses and ciapital costs attributable to Grand Gulf. The capital costs are computed by allowing a return on System Energy's common equity funds allocable to its net investment in Grand Gulf, plus System Energy's effective interest cost for its'debt allocable to iti investment in Grand Gulf. 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, 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 and Waterford 3 that have been sold and leased back. For financial reporting purposes, these sale and leaseback arrangements are reflected as financing transactions. Net property, plant, and equipment (including property under capital lease and associated accumulated amortization) by business segment and functional category, as of December 31, 2005 and 2004, is shown below: U.S. Non-Utility All 2005 Entergy Utility Nuclear Other (In Millions) Production Nuclear $7,390 $5,955 $1,435 S-Other 1,590 1,321 269 Transmission 2,394 2,394 - Distribution 4,599 4,599 - Other 992 989 - 3 Construction work in progress 1,524 1,268 232 24 Nuclear fuel (leased and owned) 708 373 335 - Property, plant, and equipment - net $19,197 $16,899 $2,002 $296 U.S. Non-Utility All 2004 Entergy Utility Nuclear Other (In Millions) Production Nuclear $7,308 $5,987 $1,321 $- Other 1,533 1,228 - 305 Transmission 2,182 2,182 - - Distribution 4,672 4,672 - - Other 1,123 1,115 - 8 Construction work in progress 1,198 924 244 30 Nuclear fuel (leased and owned) 583 297 286 Asset retirement obligation 97 97 - - Property, plant, and equipment - net $18,696 $16,502 $1,851 $343 52
iEntergy Corporation iNotes to Consolidated Fiiihcial Statements Depreciation is computed on the straight-line basis at rates based on the estimated service lives of theyariodis classes of property. Depreciation rates on average depreciable property approximated 2.7% in 2005 and 2.8% in
;2004 and i2003.:,-: Ificlud&i in'these:rales a-rd ihe'd jreciati6n hrates i6n aVyrige doreciable"utility property 6f 2.6% in 12005, 12.7%'lin'2004,1iind :2.8% tin 2003 'and; the: de'pciaiti6ri ratbs'on aerage~d6)fe~iable non-itility;pi'operty of 11.10Wini2005;318%'in 2004,1and 3.3%rji n 200311i (), b-))Y~! 0-it; Poxcl vaiowrd .f121'iij & Wflxj! I).
i rricou*fi bO'i~Ib'l* ' ",.,Lif!i ".,rflOQ 1 "3,1 3[i~flU1.'i'. K' ,V() I 2A*!r* dl?/,/ flciPb1'2)3!* ni] .omvrl.'9", i: l~!o. rlo') u r bi,:]> [ bv; ,N6fi-iaiNilitý property 2at,6ost (less laccuinulated depreciation)is'r*ibrted netvofaecumiilated depreciation'of S162.2 million and $152.8 million as of December 31, 2005 and 2004, respkctively.(i1 i, 'r-L , P:t, i,.ixi Ceriain *Entergy'subsidiaries jointlk,'ownr electric 'genferatinj facilities with third paftiesY*The irivestrfients, nd expenses associated with these generating stations are recorded by the Entergy subsidiaries to the extent of their
,respective tindividd owniieship 'interests; ,'As-of!Dbcembbr.31 ,'>2005;rthe ,subsidiaries' investment and iaccumulated depreciation in each of these generating stations were as follows: : -. Iar':ztir;ti- i *i tfli , i or'-
Total ". Megawatt, Accumulated
-,,i ,,, IGeneratingStations,,') cTm j, Fuel-Type -.L, . Capability (1),, .oOVnrhip., ý,Investment', Depreciation U.S. Utility:
Grand Gulf 1,Unit.lr. 1 ),! . .1 Nuclear., 1,270 90.00% (2) $3,680 $1,890 Inependence ----- t-i .and 2 1 ..a1,630 47.90% $466 $260 White Bluff+/-'[ -Units land 2o1,635 57.00% $430 $277 Roy S. Nelson (O:Uiit'6 dr?, m 2qI xo .-ýnC6&14 i I) 550 70.00% $405 $249 Big Cajun"2' Unit 3 *jt,. Coal ,;, 575 42.00% $233 $134 Energy Commodity otoj1d ,i'iiqo*Cj , r::lio, faid !Wj: 1 Services: . &7,j,-l Gas 550 ' Harrison Couny Gas 550 r 60.90% S17 $10 300 a75.00%'fW8T.oh 12$24rsi1 %rA*,I. $9 Warren *>.* P.S l 0.*# P.*)Sc Gas Q*-.V: I Q0eo;-, (1) "Total Megawatt Capability" is the dependable load carrying capability as demofiinstrat~d underi actual operating (F-buiditiouis ibased onthe primai-Y fuel (asfuming no'ciirtailments) that each station Was designed tO utilize. (2) (F1ncludes:an 11.5%i4leaseh6ld,.interest held by;System Energy. System Energy's Grand Gulf lease-obligations are discius-difnNote 9 to the consolidated financial tatemients. *u~zrI:: rrr,,r T i'rJU!t *:,t:m'A 8f.? I. I fi2 U(?.A £.l *e (WA..1. I-.T J*i, - Ernibnrleiiio Nuclear RefueiihiO itane Costs Enterg yreords nuclear re i]mg outage costs .reaccrdance wiihQiegulatory, treiihhefi and' the ma thing principle. These refueling outage expenses are incurred to prepare the units~to operate-for ,the next operating cycle without hbaving .tobe takenloff line. .qExýcept for.the River Bend plant, the costs are deferred.d.during th6eoutage and amortized over the period to the next outage. In accordance with the regulatory treatment ,of the River ,Bend jlant, River Bend's costs are accrued ,in advance and included in the cost of service used to establish r'etailra--tes.Entergy Gul~fSttes relieves the accrued liability when it incurs costs during the next River Bend outage. - Allowance for Funds Used Durina Construction (AFUDC) o - rrt bj;1,+r.
-AFUDC -represents -the-approximate -net composite interest -cost -ofborrowed funds -and a -reasonable return equity non ;,the'..~l.,:" used.-for iconstruction funds.Jiitf)i in the Utility U.S.* ()l. segment. Although'*+4 AFUDC increases both the plant
, )t bri, I ' V,(. AJ'+.t'si ILl C i.i: . ' .;
'. ti, i-÷A**.,l .'-d* t, i/ : ,*, 1*iI~ ;';unqt J ~t balance andearnings, lit isrealized incash through depreciation protyisions included in rates. "
" aIi i nd . I . " . j* I-i . l .,
+Jw+~lqo.h51ono or aufo~ ~.... "
2.iJ~1't f,,, ......... o "! n~iialtfAlrfn OiI:T* n 'nrI ncrfo'J"21 8
ý53
Entergy Corporation Notes to Consolidated Financial Statements Incom e .Taxes, .;t ,,-.., i. . 'c , . ," '. - : . ,;t , L::J..;c o . .. :: '-: J N . Entergy. Corporationand, the majority, of its subsidiaries file a United States consolidated federal' income tax return. i,Entergy Louisiana;, LLC,*, formed, December, 31; 2005,-.is not. a member, of,the consolidated'group and files, a separate federal income tax return. Income taxes are allocated to the subsidiaries in proportion to theircontribution to consolidated taxable income. In accordance with SFAS 109, "Accounting for Income Taxes," deferred income taxes; are, recorded; for. all, temporary differences between the book! and taxi basis of assets and. liabilities, and for certain credits available for carryf6rward.; n-'U-,, ,'.. ' T-' hi , ',?r" 2.? . :, _.)1* Deferred tax assets are reduced by a valuation allowance when, in the. opinion, of imanagement,.-it. ist more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are !adjusted for the effects of changes in tax laws and rates in the period in which the tax or rate was enacted.>- Investment tax credits are'deferred and amortized based;upon the average useful life of the related property, in accordance with ratemaking treatment. .. ; ,;t. . ' ;,;, . . .' ..' *:. ; . . Earnings per Share '
, ' .Te Tli, following table presints Efiiergy's.basi6ýind diluted earniiijs p'r share (EPS) calculation'included on the consolidated income statement:
' .<":'"For the'Years Ended December,'31, 2 003 7 "? 2005 ... - 2004 r,,. '.nAF' 0-:.
7..:.r (In Millions, Except Per Share Data) . .: ** ,
- -.- () ..... $/shar6 ', S/share :' $fshare V
Income from continuing operations before " ' ' cumulative effect of accounting changes $943.1 $909.6 $804.3 ,
, Average number of common shares ,
outstanding - basic 210.1 $4.49 226.9 $4.01 226.8 $3.55
'. . Average dilutive effect of:.,, . ,;' ui;;;!rc' :.r ,- 0 ' .. .. t ' , '
St6ck options (1)* ;"' ;r'i ,!: t., i,.
,11 r -;:.!Ž;4.0 (0.085)t,;) lrr; 1'.. (O.071),o Tc: 4.1'- (0.063) *' u,'..D'eferred Units L';*:) i . 1 : = .'.: . .: . 0.3"' (0.006)y ,0.21hi (0.004) - . i 0.2-:1(0.003) (-)
Average number of common shares '! . :- ,L
, 2- "'L' J tO1 (f[) C OO., f.f t. "
outstanding - diluted 214.4 $4.40 231.2 $3.93 231.1 $3.48
., Earnings applicable to common stock;,%r; ,$898.3 ... q $9 09 .5* ., ý; $9 2 6 .9 ,,-,!,
'. . .num ber ofcom mi A verage on shares; - , _ , *l *. , . .. , , .- ; .v , .. A .
o'tstafiding- basied ""210 : $4.21 2,312 "-$3.93*I-
- 4. 1 26.8r-$,.09, Taprxiael Optimo()ck 172,St79k 4s0 -e(0".081):*
sis 4! ; 9(m07)-4s1t-o(0.h3) .- Deferred Unitsý'* ; '"j ' "11 " 0.3' ('0:60'5)j_`':1" Q.<2'.' 004: 'i"02'" ý60:04) A ve ra g e num b er of c omm o n s ha r es, .; " , , -- . , , - , , . , , - ., .. . . . . ., t outstanding - diluted 2 f4 A. - . $4 1 - -2 1 2 . .$ .3 - 23 1-.1`- -54.0 1 (0"'( "Options to purchase approximately 1,727,579 common stock* sharesinm2005, 3,319.commfon stock shares, m 2004, and 15,23l'common' stock shares in 2003 at various prices were outstanding at the end of those years that were not included in the computation of diluted earnings per share because the exercise prices were greater than the common share average market price at the end of each of the years presented.
- 54
iEntergy Corporation
- Notes to Consolidated Financial Statements
*.Stock-basedConp, fisiation Plans jo)*.h; l It,]k,, '-'iittiolt htif [k C c; it. ,.; (!I!:z)rir:2. :?ri In
- r';~
*~~~3 *" " , r ?-" ,~fC . , ,, h-*nirn1D .*I, *r .i "! ,'.' V :;~i*./ .ir* -:_, -.'j~di,-'i iri Li IwEntergy
. ýgrants stockoptions'td'key:employees of the !Entergyi stibsidiaries,%.which ,is describedmore fullyin Note 7 to the consolidated financial statements. Effective January 1, 2003;Entergy 'pospectively adopted the fair value based method of accounting for stock options prescribed by SFAS 123, "Accounting for Stock-Based
*Coifipdnsation."',ý,Aw,/ards§unddr&Eiitergs plans vest tove- threeyedr*. ,Therfore;,.the cost 'related t0stock-based
,employee compensation "included'in the deterrmination of net iric6rfie-foK2004 ,and 2003 is less ,thanthat which would
.hitVe been r6ecogized if the fair value based method had bdef applied to'all awards since the original effective date of
*SFAS; 1232 ,Th&re is no'pro:forina eff&et :for)2005! because all nofi-vested'awards§are accounted for .atfair .value.
iStock-base&d&cinpensationexpens'6'included in 'earnifigs applicableitb common stock;,net ofrelated tax bffects;, for 2005 is $7'8 million. The following table illustrates .the effect on'netvihcome and earnings per.share ifEntergy would have historically applied ~ f the1 fair !!.).J. based value
*,),Iii~g~ffJ I* method of r)');*;*Jjv, "¢t i
accounting
;'rih1 stock-based tocinni
".' t e.,i lyA'bV :',
employee compensation. Iii~rLd2n2 v~riIr~ ?"A < ý;l!fl) l ~*li D 1?ffrrFor.theY'ears -Ended December 31,1 , I.kI, l,):i:*,"..;),n; ;,)W *)*. vd be_=t:,:"I, r, *1rzir;5**.' , ,, ):-,!::z iu jt*. 12004, "",:'ýý-'] V~* ii 2003 v'! ;:3) s t blxAi*'jn ',*'.*E 'tiri v*, i110IfO1 )'I2r T
.")i "!.I,;i;'?.r(In ThdusanidssExcipt Per.Share Data) *'L v-f:
Earnings applicable to common stock $909,524 $926,943 Add back: Stock-based compensation expense included :A!':. I_.) hrirdi". in earnings applicable to common stock, net of related rt.) M.rir',,tax effects I::oii! ) n r!3i:; *. 'ri; ,'. )-Th bi;;pI Mld , :.5;141 'i:* ,' b n.2 818 ff,:11 c0r*-:Didict:':T6tal siock-baseldemployeecorfipensatiorinu!p* i1;0 o- d0.1. rniL)I 'to IL *>', *' *;ruc'ro ' i) expense determined under fair value mrtthod'for all '-l-)W2Wrti'(1 *I)(ri i.*O; "-, r 9" L :i -.in*.*J::C:U 0Ui, awards, net of related tax effects 16,668 24,518 Pro forma earnings applicable to common stock $897,997"x1A,'-]_:_ $905,243 "'T).F!tr"
*'. .- Basi :' -) -.;:u l2,,i :Viw i.r I, r',tirfrfI !R. 1() T, :r'$4"01 ,
2J o! ' $4 09 "':i t 'Basic -'pro tfrna',.,. ! 1L.1B-, Ij>.,I r.,( ,rf oo obia *., '$39 " yin': O i1 $3.99.r*rziTAr
*,,f.* rr;'; :P ,, .. ....... r . i.' i.)Mi,l ?_E[; Lm - >'.; i lto ý)roijýn)lx 'i ii ,;-" (, h-; 4-Li' o i ,';'C l 01 , i . O:: ,r 1- dK:." . i," - . r mdrtrlx i o . $3.93
$I3*.9i , r l.,i,; 0 ,$4.0$-.0Diltit1'd- 1; 1tI 01 *I*1) 4
/JUjifrted, pro forrn a g' :,n 2.tIt I' , 1,x?,
I. .:-r!.. *.Fi ? IIt To i r.'1 $3.88 -II $3 92I 1Application of SFAS 71 ' dt-m ,cdr-o.iii*;dr ,,L-." Y'* ;.i~h:..tii :A lI*!r~i~r~i ri(?O).
*.,,,r;); * ,t~ j.,~ tv~r U. .*. :"FIT,
,' ,1 sfIJI L~! I
"( i; .* Dt ; \ ,': rl[{ OI II: tL:I 0'- t fi 1*'I,';'* y ' :1 /i J1,d)"~i i 1i '~~~ iP fJ .A rý} !l.,AtZJTh6'domi-estic utitity companes aid System Energy currently"aeountcfor'te effectsfreguilatnh pursuant to SSA * *I AC'ountilg fOr th 'Efe6ts 'Ceia~n Types' of-Rgulation.' 'nThis'st s tat t iapplics'td, thiefiniacialI statements of - 'rate-regulatI ienterrpise that' meets' three',cnteia.-:, Th. tenterpri"se must haVe rates -that' (i) aie approved by a body empowered to set rates that bind customers (its regulator); (ii) are cost-based; and (iii) can be charged to and collected from customers. These criteria may also be applied to separable portions bfa'iitilitys as the generation or transmission functions, orý tor i specific 71,- classes .¢ of customers. . ,-*t: If an. .- enterprise meets
",'. -111,-.such -"[ 1.:.*. .. -'* .. ") I I .* -
qbusiness, .- l 1, ý-,:-.. , ", .... 1 .--
, .. .I thes criteri,-it capitahzes costs-that'would otherw ise be charged to expense'if the rate actions of its regulator make
-'it probable ttiiatth6se cost- wil'be rcovered in fdture' re.Ii-i6 Such ca-iaize-dJ costsare r'efl&cted as fegulatory
-assets 'iitleaccomipanyng finanieil stateiments.' *'signidant maiiijrity 6f Entergy's regulatdrydass-e,'net of related
-regulatory anid deferred tax -hafbtlites; earn a recturnf o'in veisfmenit- durmg-thmr~i recovery-perifods, 'o'r E ntiergy expects
-that th&'ieywll'arn?a 'return':'f-SFAS' 711 r~equn-~e~s that"'rat~e-re~g-ulated~ enterrsass'h probabilhty6orecovering
'thn-eguatry assets'.-)When an'enterprise coniclu'des'tbhat recove' bf a reguilatorylasset is .nolonger'poibable;-tlhe reuatrasset muist erm ovidfro the entiy s balance' sheR. ' .. .. .. '." -,
'regltiyz ~ t b[. '-. jill:,r I :;:b;'t fli~ jJj' , Ol isib6t iio& f'.r'I Lit 1,rlh l ~ ii ! *:fI U.L
-~',_l, ,'L*j*l .y.!,c:.Jm l.n'22';:, :'.. I ' rit J'
(,~'U O!; i
.;oi,,:A k'.;i,. ,..,fi '"o
..... FSFAS 1l01; "Aco utmigirf6.the'Di6scontiiiuan io ofiApplieatmin of FASB Statemeni No.! 71 ,"spefies hov
*an enterprise that ceases tomeettliecta for aplicati6fi 6f SFAS 71 jforfal or bpart 'of its' operatonssh6uld repo6t
'that event iitsfinancil-statements. -In gealSFAS 01 tt te enterpnise report thebdiscontinuatioi'of
;55
Entergy Corporation Notes to Consolidated Financial Statements the application of SFAS 71 by eliminating from its balance sheet all regulatory, assets*-and liabilities related to the applicable segment. Additionally, if it is determined that a regulated enterprise is no longer recovering all of its costs and"therefor& no longeriqualifies: for. SFAS, 71, accounting, it is, possible that ani impairmentfmay existithat could require further, write-offs:ofplant'assetsLQt)1, - 9... . .. ,I!,,;,,2 .,' r ;I
- _,,*;d-:.!I EITF. 974:r-"Deregulationr' of: the Pricing ._ofj Electricity ;-,;Issues-*Related,] toj the;Applications of FASB IStatements No.J71 ahdl101'1 §pecifies: that SFAS,71 should be discontinued at a date rio laterthan when the effects of a transitibnto. dompititiofi plan'. fdrr all of- w portion,,ofthe entityý suabject to sucli planr ar" reasonably determinable.
Additionally, EITF 97-4 promulgates' that regulatory: assets. to be reiovered through-cash- flows deriv'ed froni another portionof the entity, that continues to apply SFAS; 7 Ir should;notr be6 written: off; rather; they, shouldbe considered 'regulatory assets of the segment that will continue to apply SFAS.71 -. k'di ' ; 0i (1;,. I ";iIT .f:o 1!,I: 8? "A r':,,- . ". ,C.4: : ,q lt ý II) b ". li f to _ ,
*w- "I IfI~r! lo IIf,.*! j.' 5. l~ (4 !:' *i'Dt If~I~ : .*;i d l ,; ,'l -s:
See Note 2 to the consolidated financial statements for discussion of transition to competition activity in the retail regulatory jurisdictions servedmby:the d~mestic utility companies. Only Texas has a currently enacted retail open access law;, but Entergy believes: that significant issues remain to be addressed by regulators, and the enacted law does not, provide- sufflicient.a detail. to reasonably determine the impact on Entergy Gulf States' regulated operations. Cash and Cash Equivalents . , , rqij 'irr,;" 1.' ., . .i fbA Entergy considers all unrestricted highly liquid debt instruments with an original or remaining, maturity of three months or less at date of purchase to be cash equivalents. Investments with original maturities of more than three months are classified as other temporary investments on the balance sheet..71 "*i!:,.,', :,,, Other Temporarv lnvestmentso 1V),:no
-('8? , - _,.f:,,i;: <.. :..;.i The consolidated balance sheet as of December 31, 2004 reflects a, reclassification. from, cash1 and cash equivalents).to, other temporary[ investments of S188 million of instruments used in Entergy's cash management program. rrA corresponding change was made to the consolidated statement of cash flows for the years ended December 31, 2004 and 2003 resulting in reductions of S188 million and $185 million, respectively, in the amounts presented as cash and cash equivalents as of December 31, 2004 and December 31, 2003. This reclassification is to present certain highly-liquid auction rate securities as short-term investments rather than as~cshequivalents due to the stated tenor of the maturities of these investments. Entergy actively invests its available cash balance in financial instruments, which prior to September 2005 included auction rate securities that have stated maturities of 20 years or more. The auction rate securities provided a high degree of liquidity through features suchas 7 ad 28 diiiauons
, that allow1 for, the redemption of the, securities at their,face amount. plus earned interest. Because Entergy, intended to s!;these instruments' w.thin one year or less,: tyically,within 28 days of the balance sheet date, they are classified, as .current.assets.3 1 .AsofDecember:31. 20.05, EntegF6 no longer, holds any of these auction rate. securities.- ,,, . Investments.,,,;; '.;;2 :n'.; ', b~ihrqV 9d , .',, .' zli *':'ro J'j *,:i't I :I'-I, L0 oi,~
,,,Enter applies the.provisions of SFAS! 115, !Accounting for1 Investments. for.6Certain. Debt.nd Eqity S"IPI ......
... - .- . g. 1.*... ...- .................................... .............. . .... ....
Securities,". i%accounting, for, investments . in decommissioning trust-funds. As, a result Enterg recordsthe decommissioning trust, funds at. their.if uv e on the consolidated balance shecy :Because. of, the. ability of the ,dom~e~sttutility companies and, System Energy, to recover decommissioning costsjn rates and.in accordance with the Sregulatory- treatment for. dcommissiongin trust. funds,,the, domestic, utlity'- companies- and System Enierg, have recorded 0 an offsettgin amount- of , unrealized4v gains/(losses) 1.on9 investment.., securities in,, other. fregulatory liabilities/assets. For the nonregulated portion of River. Bend, Entergy Gulf States has recorded an offsetting amount of unrealized gains/(losses) in other deferred credits. Decommissi oning trust funds for Pilgrin, Indian Point 2, and Vermont.Yankee do not receiveeguilatory treatment. 1 Accordingly, unrealized gains and losses recorded on,the assets in these trust funds are recognized in the accumulated other comprehensive income component of shareholders'. equity Sbecausethese assets are classied avaable for, sale. See Note; 15 to te consolidated ;inance4,statements: for
?56
Entergy Corporation "Notes to Consolidated Financial Statements details on the decommissioning trust funds. Entergy records an impairment on investments when the 'fai: market value is less than the carrying value of the asset and that condition is considered other than temporary. Equity Method Investees - . ,,
- EntIg* o' ns'investments that are accountedfo" under the equitymethod of accounting because Entery 's ownership level results in significant influence, but not control, over thgiiereteeaind its operations." Entergy'rec6rds its share of earnings or losses of the investee based on the change during the period in the estimated liquidation value of the investment, assuming that the investee's assets were to be liquidated at book -value: In a dance-wi method, earnings are allocated to owners or members based on what each partner would receive from its capital account if, hypothetically, liquidation were to occur at the balance sheetdate and amiounts diitriuted were based on recorded book values. Entergy discontinues the recognition of losses on eqwty investmients iwhen iits share of l6sses equals or exceeds' its carrying amount of investee plus any advances made or 'commitments 'to prtovideadditional financial support. See Note 12 to the consolidated 'financial state'ments foradditional information 'regarding Eite-ry's equity method investments.
Derivative Financial Instruments and Commodity Derivatives SFAS '133, "Accounting for'Derivative Instruments and Hedging Activities," requires'that all d" ivaiives be recognized 'in `the 'balance sheet, either as assets or liabilities, at fair Value,-unless they' eet th norma' purchase, normal sales criteria. The changes in the fair value of recognized derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is-'desiig'nated-as'pairt of-ahedge transaction and the type of hedge transaction. Contracts for commodities that will be delivered in quantitfi;. sexpected to 3used or sold in therordinary course of business, inicluding certain purchases and sales of power and fuel, are not classified "as "erivatives." These contracts arc eciempted under the normal purchase, normal 'sales criteria ofSFAS 133. Revenues' and expensess"frofm these contracts are reported on a gross basis in the appropriate revenue and expense categories asthe commodities arc received or delivered. For other contracts for commodities in which Entergy is hedging the variability of cash flows related to a va'riabl-ra'te asset,liability, or forecasted transactions that qualify as cashflow hedges; the changes in'the fair value of such deriwativwe instrfuments are reported in other 'o6mprehensive income. "'To qualify f6r hedge accountiigtie relationship between the hedging instrument and the hedged itemmust be d"ocumented to incluideifitherisk nagement objective 'and strategy and, at inception and on an ongoing basis te' of thehdge in offsctting the changes in the cash flows of the item being hedged. Gains or losses accumlated i othr comiprehensive income are 'reclassified as earnings in the peri6ds inwhich earnings are affected by the ariability 'of tle cish oflos of the hedgd item. Tiheineffective portions of all h'edges are recognized in curren'tperiod 'earnings. ' " : ' impairment of Lone-lved Assets' II.0 . -i. 'i ",
*, Entergy periodically revie.s long-lived assets held in all of its business segmentsr whenever events or.changes in circumstances indicate ,that recoverability 6f these assets is uncertain. the: d
.. i ri,' .0' f,,
recoverability is based on the undiscounted net cash flows expected to result from such operation's and assets. Projecied net cash flo'ws'depend on" the future operating costs with ;easse. , the-fcncy"'and
'*'oiated availability of the assets and generating units, and the future marketr aid price&for en*r& overrthe riemiaining life of the assets. See Note II to the consolidated financial statements 'for a discsion of asset impairments recognized by Entergy in 2005 and 2004.
I, ' i ,' , 57
Entergy Corporation Notes to Consolidated Financial Statements River Bend AFUDC , The River Bend AFUDC gross-up is a regulatory asset that represents the incremental difference imputed by the LPSC 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. Texas restructuring legislation allowed depreciation on transmission and distribution assets to be directed toward generation assets. The liability recorded as a result of this mechanism is classified as "transition to competition" deferred credits on the balance sheet. 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 operations of Entergy Gulf States) are included in regulatory assets and 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 the comprehensive income component of shareholders' equity. Current exchange rates are used for U.S. dollar disclosures of future obligations denominated in foreign currencies. New Accountingi Pronouncements SFAS 123R, "Share-Based Payment" was issued in December 2004 and is effective for Entergy in the first quarter of 2006. SFAS 123R requires all employers to account for share-based payments at fair value and also provides guidance on determining the assumptions to estimate fair value. SFAS 123R also provides guidance on how to account for differences in the amounts of deferred taxes initially recorded when the options are recorded as expense and the amount of expense deducted on a company's tax return when the options are actually exercised. Entergy began voluntarily expensing its stock options effective January 1, 2003 in accordance with SFAS 148, "Stock-Based Compensation - Transition and Disclosure." Entergy is in the process of finalizing its evaluation of the reporting and disclosure issues resulting from the adoption of SFAS 123R but does not expect the effect of the adoption of this standard to be material to Entergy's financial position or results of operations. As discussed in Note 8 to the consolidated financial statements, Entergy adopted FIN 47, "Accounting for Conditional Asset Retirement Obligations" during the fourth quarter of 2005. FIN 47 requires that a liability be recorded currently for costs associated with a legal obligation to perform an asset retirement obligation activity for which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity but for which the obligation to perform the asset retirement activity is unconditional. FIN 47 requires that a liability be recognized for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. SFAS 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4" and SFAS 153, "Exchanges of Nonmonetary Assets", were issued during the fourth quarter of 2004 and are effective for Entergy in 2006 and 2005, respectively. SFAS 154, "Accounting Changes and Error Corrections" was issued in 2005 and is effective for 58
Entergy Corporation Notes to Consolidated Financial Statements Entergy in 2006. Entergy does not expect the impdct of the issuanceOf thdke itandards to be material to its financial
, p ",.
n'" 1r '.... . position or results of operations. NOTE.2. RATE AND R t . NOTE 2.. RAT AND REGULATORY MATTERS . , .: :.'~o ", . . ,,. .. ... t
*
- i--in:41), i~
Rekulatory Assets Othe~rRepiulatnrvAssets .. : The domestic utility companies and System Energy are subject-to ihe provisions of SFAS71,Accbunting for the Effects of Certain Types of Regulation." Regulatory assetsrltipe's't'jrobable future revenues associated With certain costs that are expected to be recovered fromcustomers tl'ough:the ratemaking procesg'.* In ;iddiii6n to the regulatory assets that 'are specifically disclosed on the face of the-bWlahce'sheets, the table below'provideg detail" 31; 2005 and 2004: - ý - of"Other regulatory assets" that are included on the balance sheets as of December r 2005"'/ý: !2004
-,(In Millions) ".
Asset Retirement Obligation - recovery dependent upon timing of decdmmigsi6ning (Note 8) . , . . .- , .: . $27J.7, . :$380.1!,, Deferred fuel - non-current - recovered through rate riders when rates are..q ,' _ i redetermined periodically (Note) . , 6.1 321.9 Depreciation re-direct recovery begins at start of retail open access (Note 1)_,
- 79.1.* 79.1...
DOE Deco:mmissiining a*nd Decontamination Fees - recovered through fuel i'atei until Decermbeci 2006 (Noie 8) , -) , 17.5 .. 25.3. Low-level iadi-wast . - .fj . S"Peinsiri costs (Note 10) . " 396.1 726.3 "Postretirement benefits - recovered through 2012 (Note 10) .* a Provision for stormdamages - recovered through cost ofservice (a) , ,
- 695*8 :124.5 Removal costs - recovered through depreciation rates (Note 8) ; \' A140.4 .zi.53.2 -,
Deferred capacity - recovery timing will be determined by the LPSC in the formula rate plan . -. :
. . -. "" , i. :-
filings (Note 2) 93.8 25.4 River Bend AFUDC - recovered through August 2025 (Note 1) 35.6 , .,37.5, .q Sale-leaseback deferral - recovered through June 2014 (Note 9) 121.4 127.3 Spindletop gas storage facility - recovered through December 2032 :'k * >:-: . , 40.6 ,, : 42.3 Unamortized loss on reaquired debt - recovered over term of debt 5'1- i.pý1 ! 165.1 - j, 9:.9.. , Other - various - ,53.7. 97.0.
,.Total ......... , .$2,133.7 . $1,429.3 (a) As a result of Hurricane Katrina and Hurricane Rita that hit EnterWs service territory in August'and September 2005, Entergy has recorded accruals for the estimated storm restoration costs. Entergy recorded some of these costs as regulatory assets because management believes that recovery of these prudently incurred costs through some form of regulatory mechanism is probable. Entergy is pursuing a broad range of initiatives to recover storm restoration costs. Initiatives include obtaining reimbursement of certain costs covered by insurance, obtaining assistance through federal legislation for Hurricanes Katrina and.Rita, and pursuing recovery through existing or new rate mechanisms regulated by the FERC and local regulatory bodies.:
In December 2005, Entergy Mississippi filed with the MESC aNotice of Intent to change rates by implementing a Storm Damage Rider to recover storm damage restorationcosts associated with Hurricanes Katrina and Rita totaling approximately $84 million as of November 30, 2005. The notice proposes recovery of approximately S14.7 million, including.carrying charges, annually over a five, ear period. A hearing on this matter is expected in April 2006. Entergy Mississippi plans to make a second filing in late spring of 2006 to recover additional restoration costs associated with the hurricanes incurred after November 30, 2005 and to reflect receipt of insurance and federal aid. 59
Entergy Corporation Notes to Consolidated Financial Statements In December 2005, Entergy Gulf States filed with the LPSC for interim recovery of S141 million of storm costs. The filing proposes implementing an S18.7 million annual interim surcharge, including carrying charges and subject to refund, effective March 2006 based on a ten-year recovery period. The filing includes provisions for updating the surcharge to reflect actual costs incurred as well as the receipt of insurance or federal aid. Hearings occurred in February 2006. The LPSC ordered that Entergy Gulf States recover $850,000 per month as interim storm cost recovery. For the period March 2006 to September 2006, Entergy Gulf States' interim storm cost recovery shall be through its fuel adjustment clause, with the total recovery for that time period capped at $6 million. The mechanism for the fuel adjustment clause recovery is a retention by Entergy Gulf States of 15% of the difference between the February 2006 fuel adjustment clause and the fuel adjustment clause in those successive months in which the fuel adjustment clause is lower than it was in the February 2006 fuel adjustment clause, until the $6 million cap is reached. Beginning in September 2006, Entergy Gulf States' interim storm cost recovery of $850,000 per month shall be through base rates. In addition, all excess earnings that Entergy Gulf States may cam under its 2005 formula rate plan, and any ensuing period in which interim relief is being collected, will be used as an offset to any prospective storm restoration recovery. In December 2005, Entergy Louisiana filed with the LPSC for interim recovery of $355 million of storm costs. The filing proposes implementing a S41.8 million annual interim surcharge, including carrying charges and subject to refund, effective March 2006 based on a ten-year recovery period. The filing includes provisions for updating the surcharge to reflect actual costs incurred as well as the receipt of insurance or federal aid. Hearings occurred in February 2006. The LPSC ordered that Entergy Louisiana recover $2 million per month as interim storm cost recovery. For the period March 2006 to September 2006, Entergy Louisiana's interim storm cost recovery shall be through its fuel adjustment clause, with the total recovery for that time period capped at $14 million. The mechanism for the fuel adjustment clause recovery is a retention by Entergy Louisiana of 15% of the difference between the February 2006 fuel adjustment clause and the fuel adjustment clause in those successive months in which the fuel adjustment clause is lower than it was in the February 2006 fuel adjustment clause, until the $14 million cap is reached. Beginning in September 2006, Entergy Louisiana's interim storm cost recovery of $2 million per month shall be through base rates. In addition, all excess earnings that Entergy Louisiana may earn under its 2005 formula rate plan, and any ensuing period in which interim relief is being collected, will be used as an offset to any prospective storm restoration recovery. Deferred fuel costs The domestic utility companies are allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric and gas rates that are recorded as fuel cost recovery revenues. The -difference between revenues collected and the current fuel and purchased power costs is recorded as "Deferred fuel costs" bn the domestic utility companies' financial statements. The table below shows the amount of deferred fuel costs as of December 31, 2005 and 2004 that Entergy expects to recover or (refund) through the fuel mechanisms of the domestic utility companies, subject to subsequent regulatory review. 2005 2004 (In Millions) Entergy Arkansas $204.2 S7.4 Entergy Gulf States $324.4 $90.1 Entergy Louisiana $21.9 $8.7 Entergy Mississippi $114.0 ($22.8) Entergy New Orleans N/A (a) $2.6 (a) Not included due to the deconsolidation of Entergy New Orleans in 2005. 60
Entergy Corporation Notes to Consolidated Financial Statements Entergy Arkansas r0l ;l-ld T .0ic *A' "v! , . ! 4.n %r,vc?,'*:, .:. In March 2005, Entergy, Arkansas ,filed, With the APSC its energy .cost recovery riderfor, the period April 2005 through March 2006. The filed energy cost rate, which accounts for 15 percent of a typical residential customer's bill using d;000 kWh per month,.increased 31 percent pirimarily attributable to a true-up adjustment for an Under-recovery balance.of,$,1-2 million and a nuclear refueling adjustment resulting from outages :scheduled in 2005 at-.ANO aIand 2 and Grand Gulf. nd,,JJ 1,;' L
'i .f!lt . .. "1r,: r._,, . . _.... .
Y:)-i.,:iIn'September 2005,'EntergyLArkansas filed with the APSCan interim energy cost, rate per the energy .cost recovery rider that-provides ifori ari interim adjustment should thfe cumulative over-' or:under-recovery for the :energy period exceed; .10 percent lof the) energy, costs "for -that period: ,,,As ofthe.,end of-'July 2005, the :cumulative under-recovery, of fueLand purcha~sed o.wenrexpenses had'exceeded the 10,percent threshold due .to increases in purchased powver-expenditures resulting from higher, natural fgas prices:i. The-interim rate became effectivethe firstbilling cycle in October 2005. In early October 2005, the APSC initiated an investigation into Entergy Arkansas' interim rate. The investigation is focused on Entergy Arkansas' 1) gas contracting; portfolio, and hedging practices; 2) wholesale purchases during the period;.-3) hianagement of the coal inventory atitscoal generation plants; .and :4) response to the contractual failure ofitherailroads-to provide;.boal deliveries.l TheIAPSCestablished a,.procedural schedule.with testimonyfrom'Entergy.Arkansaslthe-APSC iStaff,'and intervenors culminating in a public hearing in May 2006.>-:` Entergy Gulf States*(Texas) i-, '; . n'*i '2 .
-.. ' ..- '- t., r , .:" . ,, ": - i: ':o: ::'.,, *,a: -:2 ::In the ;Texas jurisdiction,:Entergy.Gulf.States'ý rate schedulesý,irclude a-fixed 'fuel factor torecover fuel and purchased ,power-costsi includingcarrying !charges, not e.rcovered in -base rates.: Under the current methodology, semi-annual revisions :ofithe fixed ;fuel factor, may !be made in March ;and: September based on-the market price bf natural 'gas.%,'Entergy-Gulf;States ýwill likely; continue .t.use :this methodology. 'until the start :ofretail open, access;
'which :has -beendelayed itiThe3 -amounts'collected, unddr-EntergyiGulf States'- fixedfuel"factor -aidany interim surcharge implemented .until ithe' date 'retail open, access, commences date subject 'to ,fuel reconciliation -proceedings before the PUCT. In.theTexas jurisdietion,'Entergy Gulf States' deferred electric fuel costs'are $203.2 million as of December 31, 2005, which includes the following: V':., , *:,."!::qo l. ;A; *(In M illions) ;_-, ...., Iilj *;:.,_Under-recoveredfuel c6sts for the period 8/04 '- 7/05to belrecovered ' Li* L 1i,1. ,.,
;-.K." i .
,'. 'through an interim fuel:surcharge overa
,;r,3Ifo. .twelve-m'onth" peri6d begiimifig"'.- L,,v 'i ,; 1.-:' , -. ; Cz t :;:'i h;-no in January:2006"'DU*J *.:: )::.ti' ,,~-vs t.:* *,-.;'u] c.i ? 1.u'; irt~;Ai:;tr-. b'- " :2" l or r $46A1*l.h, .q ",
lcjy. iUnder-recdvefed ftiel costfs for the period 8105 1 2/O5,h-../q,: " . : ,_us$Oi.O ' ., t;P;,iimi Items to be adckessed as part-ofunbundlingD r:,! .b5 i 1:?.,.T -'q-*A ,*.h*:* ?-,$29.0 T,
,.! "t Otheri(inclu'des imputed capacity'charges),{, v.-x,:,- i. ?? ol
(.,);1
; r
. -,*) $27.l ,,f
.' r i, W )2 1 ,-m*
*F I 1,;!;(Tihe ,PUCTjhas: 6rdeied Ithat'Ahd&imlputed: capbeityf`charges11be) excluded ;from' fuel :rateý ýand,! therefore recovered thrduh.base, rates:. EntergyGulf States filed*"with the PUCT-;inlJuly.2005 'ai'equest 'for-implementftion of an':incremental-purchased dapacity irecovery i'ider;: onsisteiit vith'thbiFecently pas'edTexasilegislation discussed below'undei'i.Electrici'ndustrv Restriictiirina and the Cofitinued Application ,of;SFAS .71." ".Therider:retiluest&d
$23.1-million annuAllyintincremental revenues !on, a Texas ietailbhsis which! fepresents the 'incremental.purchaised capacity costs, including Entergy Gulf States'.'-obligaticnit6 lburchase :power. from',_Enteigy, Louisiifia'? recently' acquired Perryville plant, over what is already in Entergy Gulf States' base rates. Entergy Gulf States reached an initial agreement with parties that the date upon which costr ecovery:and cost (rec6riciliition, w6ld'.begin -d§ September 1, 2005. A further non-unanimous settlement was reached with most of the parties that allows for the rider- to be implbmenied 'effectiýe'Pe c'dmb'er'1 ;':,2005 arid collect .$l
" r.illion-ai ifi..il. Th..S.ttlenieii
.. 'also 'provides for i ýfuel'reconcilitiaonto befiled byiEntergy`Gulf States by'M**45,Q2006 that' ivill resolve thl remaininig issues in ihe: 6ase Mvith iheb-exception*1of:the amouit.ofý,purthased pbwr."iifin cirreit'base -'at~s-mnd 'thecoits to ;,hichl load growthtis attribufied,ýboth'.of which 'vete settled. cThe heiriinig'withiifespect toý.the'non-Vrianimous settlement, 'which 61
Entergy Corporation Notes to Consolidated Financial Statementi was opposed by the Office of Public Utility Counsel, was conducted on October 19, 2005 before the ALJ,'.who issued a Proposal for Decision supporting the settlement. In December 2005, the PUCT approved the settlement. The amounts:collected by the purchased capacity recovery rider are subject fo reconciliation.2' i.A'.';. '
, In September 2005; Entergy Gulf States filed an application.with the PUCT to infiplement a net'S46A 1.million interim' fuel surcharge,;'including, interest, to collect under-recovered ftiel and'purchased powerieipenses. incurred from August 2004 through July 2005. The application was approved, and the sufrciarge wiW be 6ollected-0ier a twelve-month period beginning in January 2006. On March 1, 2006, Entergy Gulf States filed with the PUCT an application to' implement an interim ftiel surcharge in connecti6n',(ith, the'unider-rec6,eify "of$97r millibn including interest: of eligible fuel costs-for. the, period August 2005 throughJanuary 2006J This iurcharge;is' in addition:to.the interim surcharge that went into effecf inJafiuiiry 2006.., Entergi Gulf States has requesfed that the interimsurchairge requested. inits March 2006'filing be implemented byJurue 1, 2006 and remain in, effeit,for: twehe months: Amounts collected, through the interim fuel-esurcharges, are subject to finMil- reconciliation' in. aý future fiiel! reconciliation pr oc ee d ing . . .. . i. : , . , -, .'
' it . . : : ij . . . ".1 In,March' 2004,. Entergy Gulf; States; filed: with the PUCT "a)fuel, reconciliaiidn case- covering; the' period September 2000 through!August 2003 recoiiciling' $1.43 billion of fuel and purchaised power, costs ofn i Texas retail basis. This: Aimount includes $8.6 million of under-recovered costs thiit Efiterg,: Gulf States asked to reconcile and roll into its fuel over/under-recovery balance to be addressed in the next appropriate fuel proceeding. This case involves imputed capacity and River Bend payment issues similar to those decided adversely in th&Janufary 2001 proceeding, discussed below, which is now on appeal. On January 31, 2005, the ALJ issued a Proposal for Decision that recommends disallowing S10.7 million (excluding interest) relaitd to these tio issueg,," In' April' 2005, the PUCT issued ant order reversing in part the AU's Proposal for Decision-and. allowing Entergy, Gulf States to recover- fi part of its :request :related to the imputed- capacity: and River Bend paymentý is~ues.!,.-The) PUCT's order reducedr the disallowance in the case to $83 'million. -Both Entergy. Gulf States and certiinfCities sried by. Entei'gy Gulf States filed motions' for rehearing 'ri these' issues which were denid, by the PUCT.,Entergy' Gulf Stateg and'certain Cities filed. appeals to th6 Travis County District Court:;.: The appeals- are pendifig.: Any'disallW&ande will be netted aghinst Entergy Gulf States' under-recovered'costs and~will be included in its deferred fuel costs balance.: 1 'YP4 .r*' "i In January 2001, Entergy Gulf States filed with the PUCT a fuel reconciliation case covering the period from March 19991through August 2000. Entergy Gulf States was reconciling approximately $583 million of fuel and purchased power costs. As part of this filing, Entergy Gulf States requested authority to collect $28 million, plus interest, of under-recovered fuel and purchased'pbwer, costs.-. InrAugustf'2002; thei PUCT: reduced- Entergy Gulf States' request to approximately $6.3 millioti,"including interest through July3 I;t 2002. rApproximaitely $4.7 million of the total reduction to the requested surcharge relates to nuclear fuel costs that the PUCT'deferred ruling on at that time. In October,2002, Entergy Gulf States appealed the PUCT's 'final: order,inTexas, District. Court. IiI its appeal, Entergy Gulf States is challenging the PUCT's disallowance, of approximately ý$4.2.' million- related, t& imputed capacity costs and its disallowance related to costs for energy delivered from the..30% non-regulated shafe of River Bend. The case was argued before the Travis County 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 thd Court of Appeals.-, Oral'argument, before the'appellate'court occurred in September 20Q4;-'and the Court deriied, Entergy Gulf States' appeal.'. In October 2005, Entergy Gulf States filed a petition for review.by the,Teas Supreme Court; aridin December 2005,, the TexasSupremeCourt' requested that responses bd filed to Entergy, Gulf. Statespetition as,, part of its' ongoing consideration of whether to exercis'e!its discretion. to-grant' review of this mnitter-[iThose respo6nses firid Entergy Gulf States' reply to those responses were filed in January-2006. ' '.. ,-; .' _.'- ;.. ii:.o.
Entergy Gulf States (Lruisiana) and Entergy Louisiana. ,.- . :;' .- , .i-, ::-;* .. '* b,.. i-..r,'c.,.i
, .,-',-In Louisiana,, Entergy Gulf States and-Entergy: Louisiana recover electric fuel and purchased power costs.for the upcoming month, based upon. the leveE of, such costs: from. thei prior, month.- In Louisiana, iEntergy.. Gulf.States' purchased gas adjustments include estimates for the; billing month adjusted by a surcharge oý credit for deferred. fuel expense arising from monthly reconciliations- of actual fuel costs incurred with fuel cost revenues billed to customers.
62
Entergy Corporation Notes to Consolidated Financial Statements In August 2000, the LPSC authorized its staff to initiate a proceeding to audit the fueladjustment lausiie 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 jeport and recommended a llowance with regard to one item. The issue relates to the alleged failure to uprate Waterford 3 in a timely manner, a claim that also has beeniraised in the summer.2001, 2002, and2003 purchased 1 power proceedings..The global settlement approved byfthe LPC,in Marchr2005, discussed below in "Retail Rate Proceedings,".resolves the upratMiiiý-dehý-disillod!aii-e*..isn-o-olngerat iuein-thisprcee g. Subsequent to the.issuance of theoaudit of is as expanded to include a review of annual reports on fuel and )urchased power transfictions with affiliates and a prudence review of transmission planning issues.Al, in .,July 2005, the audit to include the years 2002 throughA2004..Aprocedural schediuile has been
,established and LPSC staff and intervenor testimony is due in Apil 2006. ,* I, t, ,* '. ,', ,..
A Eli ni J*0JJr,*d' j:r jyi- en t 7[it_,I '- , 21o'!! *' 0 . ', 1: . 'r'-T: .hu) Th;i
* ,-J#,*
1 anuary 2003,the LPSC'authorized its staff ,to initiate6a proceeding to auditth`e iUel adjustment clause .,filings of Entergy Gulf,States and its affiliates pursuant to a November 1997 LPSC general order. Theiauditiwill incude a review ofthe reasonableness of charges flowed by Entergy Gulf States through itsfuel adjustment clause in
ý1,1995 through December.31, 2002. Discovery is underway,,but a'detaied iLouisiana 1 iiaa 1 .f~or,1t'he period.Ja'nu'ary or1 eio
-" ""'" Janar I . , 0, . f.i,11 -1 týW-Isk i,-
.proc luraschedule extending pbeyond the discovery,stage has not yet be6n established, andthe LPSC staff hsnot issueditsaudit yet - report. In June 2005,,the LPSC expanded the audit to includethe years t h 204 ,, *
-I . , 'Jý1%;2" / 1L' 1, i'/ Ii Jir'LlJ") ý,i ; ft,`/I .I'!" ;: I ) I J.Ar'4¶iI "-; P! I.-.) .', to' ()I',! I:,r 1161 31[' diofrl ,
In November 2005, the LPSC authorized its staff to initiate an expedited proceeding to, audit the fui~el ard power procurement activities of Entergy Louisiana and Entergy Gulf States for the period Janua'ry-l,"2005 1ti 'hr6-h ,,October,31,2005., ,,,! "1"Yiq .[rhil tlfl (, -.. 'K tu " .',',:' l ;Yt,'o! hLLL ::, ',nIf[ e/.'. Entertw Mississipri.zo i',",.'.""" Entergy Mississippi's rate schedules include an energy cost recovery rider :which is adjusted quarterly,to reflect accumulated over- or under-recoveries from the second prior quarter. In January 2005, the MPSC approved a 1,change in EntergyMississippi's energy cost recovery rider. Entergy,,Mississippi's fuel over-recoveries for the third quarter ofp,.2004 of $21.3 mullion were deferre from the first quarter 2005 recovery d"cost "ider adjustment caIcuIation. The deferred amountof.$21.3,,million plus cryg , charges was reunded ,t uou the, eerg st recovery riderin the second and third quarters of 2005. , . "* .,- ,.- r
- In May 2003, co5st r'coveryrider. ý'
EntergyIMississippi I,,-,£Underlthe filed and the MPSC 2approved a change:in Entergy Mississippi's energy MPSC's order,,, ' Entergy *- ", -- Mississippi
,. 1;.*.,* P6ý deferred ,1until
... d,.);
2004 the colletion
.,*il1 '. ,t2 o) . 1)+ fuelý -,),"
unde-
, Io
,,)- .,- 11- .. - 1 . ,
11"'*,3 t°,*di ,,, ,- " ,
,recoveries ..
- It,ifor '., ,the first and;,:,second 4X' * ": (- quarters
".... of 2003+that would '-.£' " , ::-t-shave been '. collected. .. .i ', *:'" third and thecoll.... 't+-,,iJ.-fourth the, en,,rgy g, quarters of
_,2uIrespectwvely, ,The deferred amount of $77.6rml ton plus carryingcharges was c olected t th ergy
- I, - , " 1.. ,,I
... , , - , - . - i , 1!' )L -. 1-. ,:,i, ; 1f A cost recover riderover a twelve-month period that began in Januairyn4u?~~: 20,04' ,. *,, , ,, b
'.i',,.;:i) beu ,':,,l ."' ":Ji tni~)hr 1 '*3h+i2 !':l) " ;*r 'L.brl 'Tt~ .... 'j :~v ~pfl.YIlf fI
.....I'i* ,,.~ ? .Dm *,I!JP / ' J;-.*
C,'!v "K ,,!U_* f~l .Y '-
.Retail Rate Proceedings.,-) 3.n ' . . )i \' r tj: ni .lm' . 'i ' u
[1 A w lo Filings s'ith the APSC Retail Rates , j,,. ' , No significant retail rate proceedings are penddimig in"Arkainas-at this time. .... .........
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intr: y C.orporation, -- . , , Notes to Consohdated Financial Statements Filings with the PUCT and Texas Cities ' ..R ~ i= R t ""*s
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. Enterv Gulf States'is operating in'Texas iiider a 'bae rate freeze that has remaimd- in' eff&t during the
'delay id tfemplemenitation. of retail open access,i' Entergry Gulf State'sTexas seirve terrtory.i 'As discussed in
="Elecfric"Industry Restructuri ng and the .Continued*Appncautioonof SFAS 7Vl-bow " a Texas law was enact in
'June2005 which' includes pro6vis'io9 in*thed Texas isleah6on regarding Entery Giulf Staes' abihity to file a:gnerl rate case ,and't foildfor recovery transition tcompetitioncosts 1As autloriied by tfi edgislation, inrAugutst 2005, rEntrgy Guf States.filed w6th th'liPUCT an"apphliatn for recovery ofts'rtrion i'6toi ompe'titi'on'6costs. -Entergy Gulf States requested rec&very of S89im'illioni initransiiin t6competonosts thrughItplementatin ofa"15-year rider to be effective no later than March 1, 2006. The S189 milhon represents transion to competition costs'Entergy Gulf States incurredAFUDC,1anrd from. June 1, 1999 through June 17, 2005 in preparing for competition in its service area, including attendani allcairrying costs projected to be recurred on-tha iranstkin to' competMn costs th1rou*ghFebruary'28,'
,*r ' ,- "k-r1-'11,*.
*,, P-, 1.1...2006"
" ', *- ", $l89 -.,
f* milho 11 ., ) s befo 1-1, ",. , ani
.. gross'up'f6r , *, ..or'carrying 1-4.,*, -'taxes 14 ,.. .,_ ,"*.over the costs 15--ear 1 issues"'6th recovery peribd." Entergy Gulf States has reached a unanimmou' settlementagreeient i'primniple on' all
ý,the '- active
-,, tt parties'
, ih' thet*;.Jqtransition"'0 " , to
,, "-,'competition .,' ,* :",".. .cost rclovery
,ii,- . ... ca'sieThe
-- ,,', r 1",, .. I in -prciple'allows
,.agreement ,,-..... ". I _:.'., Entergy*Gulf I , ,,.
States to recover $I4.15 mlhi'on perl year in transition to competition costs over a 15-year peri6d Entergy Gulf Sfites implementer' d interim rates .- based on this revei leve'l onMarch 1; 2006; subje6tl to refuindi: Entirgy'Gulf Stait6s expects that.the PUCT will consider the formal settlement document, which is currently being developed, in the ex*I('
. ct -I I.,,* I- , - .
1_11c'ýoýnd qtirter 2006. C,. .,.H.,~rfti>:~ ;' I The Texas law enacted also allowed Entergy Gulf States to file with the PUCT for recovery o certain incremental purchased capacity costs which was implemented effective December 1, 2005. This proceeding is discussed above under "Deferred Fuel Costs." Kcobvery'of River BeiidCosi' i "In March 1998, the PUCT'disallowed:rec6very of S$1.4 billihonf company-wde abeyed.Rier Bendplant costs,l'wiich have been' held iiabeyance since 1988. Entergy Gulf States* appealed the PUCT s`decision'onchiis matter to the Trvis County District Court in Texas; In April 2002; the Travis County District Court issiudnM fr e affirming the PUCT's order on remand disallowing recovery of the obeyed planit ts." Entergay Gulf States appealed this ruling to the Third - District Court of Appeals. .. In July 2003, the Third District Court of Appeals unanimously
.... Ir-) - -t,", , " 1t 1_1 " "i . .. ,t' c" ,, . ...- r -;'. - I,, ,.,-,s*., una nim ousl 'iairmed the judgmenti of the Trayýs County Dzstrct Court." After considernng the progress of the proceeding in light of te de~smrn *f'the Court of -Appeals,-Entergy`Gulf States accrued f6r the loss that'would be Associated witl a final, non-appealable decision disailo~wm tnhe oeyed plant'costs. The net 'carrymigf value of the abey~l plantiosts was $107.7 mhoathe e eCourt of Appeals d oesin. Accrua ofthe 6 077 million los1 was recorded in the second quarter of 2003 as rmiscellaneous" other: income&(deductons) and reduced'net' income' byC$65.*iillihn after-tax. In September 2004, the Texas Supreme Court denied Entergy Gulf States' petition for review, and Entergy Gulf States filed a motion for rehearing. In February 2005, the Texas Supreme Cout aiide!the -*tioforIfr rehearing, and the proceeding is now final.
Filings with the LPSC Global Settlement including Entergy Gulf States and Entergy Louisiana IIIt'
)d, -d In March 2005, the LPSC approved a settlement proposal to resolve various dockets covering a range of issues for Entergy Gulf States and Entergy Louisiana. The settlement resulted in credits totaling $76 million for retail electricity customers in Entergy Gulf States' Louisiana service territory and credits totaling S14 million for retail electricity customers of Entergy Louisiana. The net income effect of $48.6 million for Entergy Gulf States and
$8.6 million for Entergy Louisiana was recognized primarily in 2004 when Entergy Gulf States and Entergy Louisiana recorded provisions for the expected outcome of the proceeding. The settlement dismissed Entergy Gulf
'164
Entergy Corporation
;Notes to Consolidated Financial Statements
-States'ifourthififth,, sixth;, seventh;; and -eighth, annual rearnings reviews;,.Entergy,,Gulf! States't ninth ipost-merger learnings review and revenue.requirement analysis,,the continuation fof a ful ,review ;for Entergy Gulf.States, dockets established to consider issues concerning power purchases for Entergy Gulf States and EntergyLouisiana for the summers of 2001, 2002, 2003, and 2004, all prudence issues associated with decisions made through May 2005 related to the nuclear plant uprates at issue in these cases, and an LPSC docket concerningretail issues arising under the System Agreement. The settlement does not include the System Agreement case at FERC. In addition, Entergy
- Gulf States agreed not to seek recoveryifromrcustomers .of$2 rmillionf'excess refund amounts.'associated with the tfourth through the eighth annual earnings reviews and Entergy Louisiana ageed
- toiforgo recoveryjof $3.5 million of
[deferred 2003 ?.capacityi costs tassociated.nwith icertain ,:power purchaseriagreements:.i The, credits: were issued in
'connectionwith April,2005 bi~lings: iEntergy*Gulf Statesand Entergy Lbuisianatreserved for.the approximate refund amounts. . qo Iiori-bi;n "iO)l ,; d;iv nalr "" " "t' I;b-; *ii.xlThe ![ettlemnent'includesIthe: establishment oft a ,thre>year,!formula1,rateip]an for Entergy,.Gulf States that, tamong.other~provisionsj .:establishes:an ROE rmid-point -OfAO0.65%ýforthe' initial rthree-year terrnm oftthe plan and permits Entergy Gulf States to recover incremental -capacity, costs -,outside&ofi a traditional base rate iproceeding.
Under the formula rate plan, over- and under-earnings outside an allowed range of 9.9% to 11.4% will be allocated 60% to customers and 40% to Entergy Gulf States. Entergy Gulf States made its initial formula-rate plan filingin June 2005, as discussed below. In addition, there is the potential to extend the formula rate plan beyond the initial
-In" -.. r,!,-
three-year effective period by mutual agreement of the LPSC and Entergy Gulf States.
'I'.
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.o\P0. I 0 O1 Žr.1 .O 01 . rBl filBI' " BlO J 1 b9 .'I [B fIC 5rr_'[Ži'Jr;1:: ,21 ',i. I Entergy Louisiana made a rate filing with the LPSC requesting a base rate increase in January 2004. In March 2005, the LPSC staff and Entergy Louisiana filed a proposed settlement that in6lu*'dd an .i.i.... "i0 " a"'de increase of approximately $18.3 million that was implemented, subject to refund, effective with May 2005 billings.
Ijn May-2005;-' the LPSC approvd 'ameni, ongther* thig?*rduces depi&ciation and
-lcommissioimng expense -due 1lo -assuming -a H6 extenson of Wa~erf~rd f 3 andi eslts mi norchange mi'rates.
Subsequently, in June 2005, Entergy l6oi sinai made a, ra LPSC Ypp&ti rewsedsd eprc iTtionhrate-ifor Watf6rdý 3, tý ihermovaln'oteinIicm'a'dditins;and.ia r ht{ flects' 'rate increase from tte puFrhaseof thie'PeryMlle powerlant,which results m 4ainei$0.8 "ioii'nannuial rate reidictifn. -EntergtyLoisiafia
'reduced .rates effect!e6.with the firstibillihng cyle-ii' Ju1f,2005 ainA-reftinde'd'xess revenue collected during May 2005, including interest, in August 2005. - : -*.. t...... LA U.
The May 2005 rate settlement includes the adoption of a three-year formurla,4tetm"s ov hc include an ROE mid-point of 10.25% for the initial three-year term of the plan and permit Entergy Louisiana to recover incremental capacity costs outside of a traditional base rate proceeding. Under the formula a lan6ver-and under-earnings outside an allowed regulatory range of 9.45% to 11.05% will be allocated 60% to customers and vA0%°d ttr, L aa iutfl,"rrhtp filing fiin g b 'iA Ma7 /2606 b iMll oa a 20065 jest ýyear with
]raeseffcte .ept~ffiber2006. lniaddidlon,' there is the potential to extena .the fiformula lffate pilan *beyod the irittall S'three-yereffe'tiepe&i6d byimutual agreement of the LPSC andlEntergyLoutsiana. I( *.,ox (*lh" q-D) nrlj: sio;- W'.Bd.':n--*rlzn1":q rnoil:*r:.* t;ZB r. lq otv,a rlurmc,1otT edto r'A-,W:lr..tBh . vi x;:'2,Jp-, r, i**!.' "fit wwoD f l oil:,3.17 Ur i ,*o r r .) o:B'I, ,bohivoiq tioieii ýIziivj Ii 2:;*m ,on t:" 'I:;u ,
2005; Enteigy Gulf States made its .f6rmua rate plan filing WitheN LPSC& the-st, year ending UO :in1 June D6iVeenibr 3 1, 2004. Tie rfiling shiows..anet revenu'dfieeneyo-$2:58 miilidiihondifcatmig tha.no refu'nd 'liability Zexils.' ,ThfieinIg also'indiates'thatla prospective rate iceaseof $23.8 mhonillio i*s re~quiYd in'oder foi Entefrg Gulf St o h uo m-point of 10.65.Arev n to t'flihn-wai.miide li Septeinber 2005 resulting m a $37.2 mhillon base ratef&iease effectet wf eli'fith rst bilihngiy&le'of Oto-ber 2005,1sibject torefiind. 1Th base iate' increase conxssts oftwo' components. itTh6Ttietft 9s 'a baserateJ ncrease of approximateyS21 '-I iilli6hn
.ra lanIa2004 t est B-I" onieini 'of the reasecs-the "due'tb B: t'*form6utia
*:; bzio* "-,'l(YI ijiJ,;;h n: £r:'-'rn~iw.L s H .
-revenueiyear ieurement. -Thesecond
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?65
,Entergy Corporation Notes to Consolidated Financial Statements recovery, of; the; annual revenuer requirement: of $16.1:1 million: asio~ia'tedr with: the- pur6hase1 bif:.pover, from: the Peiryille; gen'erating statioh, which purch'se ivas approved by the LPSC. ýA final order from the LPSC is expected by the second quarter of2006, ' .,.>- ir; ',r ", - :, : ,, ; 'ir ',' "'u i :' ' ',,. , -' :.- J Retail Rates - Gas (Entergy Gulf States),' r: i :: " , . , ; .';;,. i ::' :,;Yi.L: .: i b.i ..-
... * .. ;i . ; L *1. ',.t) T.tl... : j' Li'.*-_.':'S i'3 .li .i-:jI.ufi) Y',4 k*H*) "r~f,, :s* u !' :i ~~
In:July 2004, Entergy Gulf States~filed'iith the LPSC an applicaition for a change in, its rates andch-aiges seeking ari increase of $9.1-' million in gas base rates inord&'to allow Entergy Gulf States'an opportinity to earn a fair and: reasonable.rate of return.'"InJune-2005; the LPSC .unanini6uslkv approved Entergyý Gulf States' prop6sed
,settlement, that includes ai $5.8 million gasrbhse rate increase effectiie the. first billing cycle -ofJuly 2005 and a rate stabilization plan with an ROE mid-point of 10.5%. w.11;!;:
In January 2006; Entergy Gulf Siates: filed with.the LPSC its ghasrfate stabilization plan.r:The filing' showed a revenue deficiency :of. $4.1'. million:' based:'oft anl,ROE: mid-i0binffi!fW 10.5%!-,. Approval': by, the, LPSC. and implementation are not expected until the secondquarter of 2006.;'!!rnm.-,oi ,:. r r h':. -lr ' '. Filings with the I PSC, .. '. .'A. '.: .ft . * ;A, , ' .. . Formula Rate Plan Filings .. ' ..ij, . . ., ."rr:'c,"'.:zl',::, : ;.' ., ;. ,, ," Entergy Mississippi made its annual formula rate plan filing with the MPSC in March 2005, based on a 2200*4 test year. In May 2005, the MPSC approved a joint stipulation entered into between the Mississippi Public Utilitiies Staff and Entergy Mississippi that provides for no change in rates based on a performance-adjusted ROE mid-ppint of 10.50%, establishing an allowed regulatory earnings range of 9.1% to 11.9%. Power Management Rider ,,., :, ,j . . '::
'uuj i ;;.. '. , .:.. : , ;. ' i LT ' " - '," . 1
- The MPSC approved the. purchase of the Attala power plant in.November. 2005.. In December' 2005. the MPSC issued an, order approvng the ivestment cost recover through its power management rider and. limited the
'recovery, to a: period)that begin s,,with.the closing, date of the purchase and ,ensthe earlier,'of the date costs, are incorporated into base rates, or. December 31,,2006.. ,The MPSC. order also pfdvided, that any reserve equalization benefits be credited to the annual ownership costs beginning with the date that Entergy Mississippi begins recovery of
.the, Hurric~ane: Katrina restoration costs,.or.. July, 1, 2006, ,whichever is, earlier.,'- On December- 9,, 2,005,!*ntergy Mississippi filed a compliance rider. . i. ., ',:., .' : .YC .Filings with the,City ,ouncil 1,. .. .: . , . . ::i'r'iw/r ' .' ' I <'". ",f. , ' ".
Formula Rate'Plans. * .. .. ' . ' "1 In, April.2005, Entergy New. Orleans made. itsý annual, scheduled formula, rate, plani filingswith the, Cit ,Council., The filings showed that, a decrease of $0.2. million, in electric, revenues, was warranted, and.an, increase of
$3.9 million in gas revenues was warranted.. In addition, in May, 2005,,Entergy NewOrleans filed with.the City Council a request for continuation of the formula rate plans and generation performance-based rate plan (G-PBR) for an additional three years. In August 2005, Entergy New Orleans, the City Council advisors,. and the; intervenors entered into an agreement in principle which provided, among other things, for a reduction inthe Customer Care System investment of $3.2 million and for at reduction in Entergy New Orleans' electric base rates of $2.5 million and no change. in Entergy New 0rleans' gas, base rates.. Theý agreement provided for theconinuation of the electric and gas form-ula. rate plans for. two
..........*more annual :-*.......
.~~~~~~~~.... cycles, -effectiveSeptember,l,*-;-....
..................... 2005,,with
;........... a target.. , .eui* ratio of
.,, ..... .. 45%
,...,.; as wel as a mid-point return on equi (ROE) of 10.75. The ROE band-width . is 100 basis points forn the mid-point for electric operations. For gas operations,,the ROE band-width is 50 basis points, from the mid-point and zero basis
,points for the 2005 evaluation period.,` The, agreement in principle also includes the continuation and modification of
- theG-PBR~by separating the operation of the G-PBR from the, formula rate plan so that the core business' electric rates are not set on a prospective basis by reference to G-PBR earnings. The agreement in principle provided for a 66
Entergy Corporation
,Notes to Consolidated Financial Statements
($4 .5 c-nillion.ýcap .on :Entergy lNew, Orleans' sharerof -G-PBR- savings. ;!-The G-PBR;'plan, however, has -been ..temporarily~suspended ;due.,to impacts from Hurricane. Katrina. lEntergy NewOrleans will notify~the *City Council's tadvisors and the City.Council at such time as it is reasonable to resume the operation of the G-PBR., ol i. s:; *.: .!--- i; J ju. '"io ,;1rL*iJ 3 I ....r,; -, ?,fr: r1,rin ,August,2005,-priorito Hurricane Katrina, the Council Utility, ýCable and Telecommunications Committee -voted torecommend to the City ,Councila resolution approving this agreement in principle. .,The CityCouncil was to (consider.this recommendation at its regularly, scheduled meeting on September.1, 2005, but this meeting did not occur ,due to Hurricane Katrina. ?On August .31, 2005,,the chairman of theCouncil Utility, Cable and Telecommunications Committee issued a letter,.authorizing -Entergy New, Orleans to implement the 'agreement in principle in accordance with the resolution previously considered by this Council committee, and advising Entergy New Orleans that the City Council would consider the ratification of this iletter authorization at-the first available opportunity. - On September 27, 2005, the City Council ratified the August 31, 2005 letter, and deemed the resolution approving the agreement in
-principle to be effective as of September 1i 2005. e.- . . . !1:). . : *" ". !, !.:-:'/-
,Fuel Adiustment Clause Litigation rm ,fir.q , ';' 1 , ,,rJ oW ':c" ;'3:-:i , trt !o tifIn, April j1999, [a group 1of~ratepayers filed a complaint against Entergy New Orleans, Entergy Corporation, Entergy Services, and Entergy Power in state court in Orleans Parish purportedly on .behalf of-all Entergyf1New Orleans ratepayers. The plaintiffs seek treble damages for alleged injuries arising from the defendants' alleged violations of Louisiana's antitrust laws in connection with certain costs passed on to ratepayers in Entergy ;Neew Orleans' fuel adjustment filings with the City Council. In particular, plaintiffs allege that Entergy New Orleans improperly included certain costs in the calculation of fuel charges and that Entergy New Orleans ;imprudently purchased high-cost fuel from other Entergy affiliates. Plaintiffs allege that Entergy New Orleans and the other
,defendant Entergy companies conspiredto make these purchases to the detriment of Entergy,NewOrleans' ratepayers and to the benefit of Entergy's ,shareholdersi, in violation of Louisiana's antitrust laws.-; Plaintiffs also seek to recover interest and attorneys' fees. Entergy filed exceptions to the plaintiffs' allegations, asserting, among other things, that jurisdiction over~these issues rests with the City Council and FERC. .,In March 2004, the plaintiffs:Supplemented and amended their; petit'ion.re.i f neces.sary, ;at. .the appropriate time,-.Entergy -will also, raise its defenses to the antitrust claims. JThe suit -instate courthas been stayed by stipulation of the~parties.,pending review.of the decision by the City Council in the proceeding discussed in the next paragraph.; Y,,i l*-I o:b c, r;.:'- .1Y,.. .,:I,.
,.'Pt 12Plaintiffs also filed a corresponding complaint with the City, Council in order to initiate a review by. the City Council of the plaintiffs',allegations and to force restitution to ratepayers of all costs they,allege were improperly and imprudently included in the fuel adjustment filings. Testimony was filed 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 inEnte qew Orleans' fuel adjustment that could have resulted in Entergy New Orleans customers being overcharged by more than $100,million overa period of years. Hearings were held in February and March 2002. In February 2004, the City Council approved a resolution that resulted in a rfunIdto customers .of $1 1.3, million, including interest,
* - during the months of June through September 2004. The . -
,resolution concludes, among other~things, that :the record does not .support an allegation that Entergy. New Orleans'
,actions or~inactions, eitheir alone.or in concert .with.Entergy or,any-of its affiliates, constituted a misrepresentation or a suppression of the truth iiade in order to obtain an unjust advantage of Entergy New Orleans, ,rjo causeloss, inconvenience or harm to its ratepayers. Management believes that it has adequately provided for the liability 1associated with this proceeding. The plaintiffs appealed the City-Council resolution to the state courts.. On May 26, I7 t 1 Court t-,. 1 . District - -' - Parish
-i ,J forrthe ofOrleans -I "i .1 - th&
- " -
- affirmed City l,ý . Council resolution. . that .. I I ~in a-l i.,.rl resulted refund*
.. ,1 1,~ + 1 Civil r2005,~the i- - - -J...I . , " lýA - '# JI.
" - -: .11-~1
,to customers of,$Il;3 million, including interest, during the months .of 'June through.September, 200i4,.findiUgPno
-support forthe plaintiff's claim that the refund amount should be higher. ;,' , - ,.,, , ,' " , I, InnJune 2005, the plaintiffs ,appealed the Civil District Court of Appeal. Subsequent to Enitergy New Orleans' filing of a bankruptcy petition in the Easten District of Louisiana, Entergy New Orleans filed a Notice of Stay with the Court of Appeal. The Bankruptcy Court lifted the stay with respect to the plaintiffs' appeal of the Civil District Court decision, but the class action lawsuit remains stayed. In
;67
Entergy C6porati6n Notes to Consohidated Fihancial'Statemrenis February 2006, Entergy New Orleans flied a notice iemoving the class actioni lawsuit from tde Civil DistridiCoiirtifo the U.S? Diýst'rici C'oUrt f6rtheE~isftrn District'0f Louisiani. :'Additi6fially, iin th&,Enrteigy N%;.Orleans bankruptcy proceeding, the named plain'tiffs' in the Entergy New Orleans fuel clauise lawsuiit4 togetlihr with' thefiarfied plaintiffli, in the Entergy New Orleans rate of return lawsuit, filed a Complaint for Declaratory Judgment asking the court to declare that Entergy New Orleanis, Eniergy Corporatiion and 'Entergy Services areassinlebligine'ssenterprise, and as such;' are liable in solldo with Entergy New Orleanrs for any'claims' asserted in!the Entergy!N(,w Orleans, fuel ýlause lawsuit, anid) the Entergý! Ne~v Orlaiis: rate of retumnla*vWsuit,'6nd'alterinativelyl that: thev atitomatiecstay"1e I fted to permit the movants to'pursue, th6 §s*ere relief- ih sate' court>p Ahswe'ri were&duet in this' adveiraryp proceeding; in Febiuary 2006, but, Entergy New Orleahs has r~quested anexiensi6fi to ans Wer until'March 2006' i'.> *-." ,r ': Electre Industry restructuriini, and the .Chtinbe . d A ' . giiY6f/ ... S.k 1 "' !ica' tr ue.: it:pphcatmn}Jl tnhConi 7SFS1,i-ii:;m".. Although Arkansas and Texas enacted retail open access laws, the, rtail opefi' access' la, -in Arkansashas now been repealed. Retail open access in Entergy Gulf States' service territory in Texas has been delayed. Entergy believes that significant issues remain to be addressed by Texas regulators, and. the enacted lMi4 'does 'nod ýrbvide sufficient detail to allow Entergy Gulf States to reasonably determine the impact on Entergy Gulf States' regulated operations.-' Entergý thereftre continues, t:loplp, regulatory acconfi'ig principles to the retail'6peiaiions of all of the domesticeutilhtycompanies. ,' / * :, *tn: ::., , , _*I*., ,*,, ,*:* . ,,,,.:i.,* ,.:*,! Texias* '- ' ) . ' , , ),,ir -. , , . : .*;!*) fli ;.l' i~,,,-I r, .' . "J " .... !i, (Eniergy Gulf States) '711 , 1' < :; ". i ii, .. . -' ' - . n .r,{ il
".-;'- As ordered by. the PUCT, iii;JanUiury 2003',-Entergy Gulf, States' filed its proposal' for an interim soluti6n (retail'open access without'fi FERC-apprdived RTO),'Wii'ch amotrg:otheir ele'iertitg, ihclided: M 1 _10 . .. .'
the recomrizmdtion that retaiop0en access in Entergy Gulf Stats'.-tekx'sýsirviee territory,'including;ti)Žiw!. corporate open access uhbunhdling,'6&ocr isý deladyed pas by ......Januairy.112004, ry " " 4 " ',Eieg " or else bd&laed "p .. .until'atleast
.. Januaryd
.. .. , 2007., ' If retail!-
rt n... oeac Jinar past s 1 2004,'Entergy Gulf Stiates requeted authorization totseparate into, two bundled utilities, one subject to the retail jurisdiction of the PUCT arid one subject to theretail . fT.' jurisdiction of the LPSC.
- -' "the 6commendati6n that-Entergy's iransrnssion organization, p6ssibly wIth tlie'oversight of aniothe entity,
.willcohtinue O g,* i * ~
to serve ash
'-7)1 tiransmissin tlfi( i,dfF1).~'ji,' authority :-,i I- : ,,1 '* ,
fo rjpuo'ses of retan access'in Enitegy
'.U:L.' ,'ri:;r7'j2J;!L.z L:;I .st!. , [J:![ru iL Gulf Stites'
'vi:(c* 1 ct'lri
.... * ' recommedation
'cthe ide'nrtified thdat the decision' points be thiatworuildrequdre prior totJanuary 1; 2004`the'a'
.. ` ..
. .I......
PUCT ,s rmiatin,-based. upon objective criteriawhlether'to proeedec . thifuithei efforts towad velotan
...... openacess fo ini tc yGuif SoacessTe-i xas service terntioa.-"..
.-After considening the 'proposal," in.Z an'April' 200'order'tlhe PUCl set!form' a- sequence-of ~ iinirpro~ceeings and activities ~I I,~~~ d'i i ; '. -r if -1 (7.p' "'~(fjh T'A disign t terrtory, and a d itenresolutaion. These proeedmtgs and activittes included'n mtttCapi proceeidg d tocertify an independent of zthep*lot pog eadmsrmarklet protocols-and' ensure nondisciriminatory access- to trani'snsoninid n"to 8crtify d'"Eýn~t er~gý'yý's-'ta'p'p h'clat'6 E nte rgy s transrm ssi on o .Ian i on "A 62U & CT Aide i'ide-pen'de'nt organization under Texas'lawý. eIn its order; the' PUCT alsd ordered: the cessation of efforts to develop an
-stuton iterm or etat oenacces in tntergy *ulf §tates",f.xa~s sr~vice territory;' termmfiation of-thae pilo't project in that terrtory, and a delay in retail open access* intl~{ etr a ndet tiIs FEr-proe paeo some other independent transmission entity is certified under Texas law. Several parties have appealed the
'ktem~ination o6fithe plot "rogram spect of llie order,'clammfig the issue was not properlyad part of thle proceeding.. 68
1;Entergy Corporation
.Nctes to.Consolidated Financial Statements rni *.-*io!In'June 2005t;1 Texas law 1was enactedwhich provides that: Inril bIrI:.rrl oit: *.:;2 hD ",im)I rl
,*JZJ:.'IB~h-) yr'tuj .oiuJo:rin.flý " -ryf bYu".!* Il16D IIAI W'13n-i noig*'J 7rýWoq ýAqrii Arl 'to Bo;1C-1, nrdiy :*ArEntergyGulf States-is authorized by the'legislation't6 proceed.with a jurisdictional'separation:into.two P1Icn
.Jxnjl .,*vertically~integrated utilities,"one.stibject solely to ,the retail jurisdiction'of the LPSC, and one subject solely,to
- r. the retail jurisdiction of the PUCT;j'o-;,:- :A: lo liW)T wl1 )Bntli I nrrimo: i s l .
the portions of all prior PUCT,6idders '9qdiring Entergy-Gu'lf States -tocomply with any, proyisions of Texas. law governing transition to retail competition are void;
- Entergy Gulf States must file a plan by January 1, 2006, identifying the power region(s) to be considered for certification and the steps and schedule to achieve certification (as discussed bdeov');* I/ E STO',,,
- Entergy Gulf States must file a transition to competition plan no later than January 1, 2007, that would address`h" iiEtegy Gulf.Siit6s intýdWt6 hif'igate market'powe .'arid achieve full custome'choicec including potential construction of additional transmission facilities, generation auctions, generation capacity divestittirfe' icinstatement bfa'customer choice pilot project, establishment of a price to beat, and other measures; ( .;tlT I)
- Entergy Gulf States' rates are subject to cost-of-service regulation until retail customer choice .% . J zI is I.~ ,.
implemented;
- EntergyGulf States may not file a general base rate case in Texas before June 30, 2007, iih rates effective no eailier than June 30- 2008, but may seek before then the recovery of certain incremental purchased power capacity costs, adjust&d for"load growth, not:in excess of five percent of its annual base rate revenues (as discAi~edlbove in "Deierred Fuel Co'sts," in "July2005, Entergy Gulf States filed ai'requesiffor impl&'hi6itition of an iriffir~ntal purchaiedZZpacity recovery rider); and )t..s - bhsn'3LUý0
- Entergy Gulf States may recover over a period not to exceed 15 years reasonable andnecessary. transition to competition costs incurred before the effective date of the legislation and not previous lyjrcovered, with apprriate arng gs s boi i- "Filings with the PUCT,and Texas Cities," in August
'ssd 2005, Entergy Gulf States filed with the PUC.Tan application for recovery of its transition to competition coifs).'- . .. ... . .. * *-" - . ..-- ' ..
y~til EOU~ rii (107 U12 brrn .1000S Si IV , f- NO00 nfl 1'O,.'s'; -I-- 1);.r~ fjrl; liiLtt~r, s:1 ( I. E~ntergy Gul-,States made the January 2006 filing regardmg the ipentuncation ofpower regpons) required by the 2005l djegislation
.* II+ 1and,,as, JUA Pldonthe
.' t)C.¢"i .*I reirements j ,orthe
'ji, JUpiŽi,'gCertification'of t nj -I. )
ii *¢'+a qualified i
- power region (QPR),
;)I prevous PUGTrulings.and EntergyGul States , geographical locationi, Entergy Gulf States identified three potential pow er iregions j iwY: 1 r1 i 2 :,k4he.IL, ;i. - J A.z I e J iJ.1 J 11
- ,..*Electric Reliability Council .of Texas (ERCOT) as the power1 region and Independent Organizati6n (10);
- 2. Southwest Power Pool (SPP) as the power region and 10- and , , *t' ; ") ':l. r-,.,
~, ;3;the Enterg& market as
.IJ L the power
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region
. )tLI and
*.-f)i th l ependent
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Coordinator jdLtl(itI
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of
}It Transmission
,'d tJ.LulU *jg ib. L'J 01a,1 Ct.(I Aas O(CT. iLLthe t ul
*,* .? ,,IJ,tat. isat r, ~q~o~oc, lt muof.l:'tpibi; Dfr!f" J o oe)! J- If)_'.:*' " ?t:o 1.rtoi lE,3o e~;o*ro li2rit -,; nlro.;jr;ýTliln.*i baio n ._t B n oase previous rulings of the PuCT, and absent reconsderation. of those rulngs, Ettrgy utf States believes ithat the .third alterative -.an ICT,,operating in' EnteeS.,market area - is not likely to be a viable QPR aitrenative at this time. Accordingly, ýybile noting this alte at ett ergyT flg o the first two 0UlL&tates alternatives, which are expected to.meet the +statutor, requirements .forcertification so long as certain key implementationissues.can be resolved.. Gulf S t.iLg f I .. _ULJ 'J9 tJL .UVand discused the corresponding steps
, . f ,:- L*J. ". t 1 *1 -. i j:J11t.LIJ UWJý.;:il ia i 1.,101 and a high-level schedule associated ~11:*.taI 'Lb with certifytng Jý" .Itt either
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tneetwo power regions.- R - , 3ia X./ r - t-l .. U
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....EntergyGulf States'..fiingdoes( not rmake a recommendation between ERGOT anj the SPP as a power
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region. Rather, the filing discusses the major issues that must be resolved for either of those alternatives to be implemented. In the case of ERCOT, the major issue is the cost and time related to the construction of facilities to interconnect Entergy Gulf States' Texas operations with ERCOT, while addressing the interest of Entergy Gulf States' retail customers and certain wholesale customers in access to generation outside of Texas. With respect to the SPP, the major issue is the development of protocols that would ultimately be necessary to implement retail open access. 069
IEotergy Cb..oriion eNotestd Consolidaied Finýancial Statements Entergy Gulf States recommended that the PUCT openi a ýprojectj for thepurlose Of invblvihg stakeholders in the selection of the single power region that Entergy Gulf States should request for certification. Entergy Gulf States notes that, House Bill, 1567: als6i direc&s Enteigy' Gulf)States; tO: file:a triahsition, to'c6mpetitibhi filing: no' later than 'Jaiiua'ry1rl;J2007. , ýThe&?ontents of the ýJainuary* 1', 2007 filihg will: be affected by-. the:'powerlregion' selected. Accordingly, Entergy Gulf States recommended that the goal of the project'shohld be to reach consensus 6n a power region inma timely manner to inform Entergy Gulf States' Jariuaryil' 2007.filing.')" i"r:,, 2 c.i .
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t.-. oq 'A;: :,r'i'*ii~mr i ... . : ,Lt ILI:,*;u3 yd. r! t,.:>rI L. ,'r:. < s, ..... ,",, ..... NOTE 3. INCOiME TAXES'r;i b ;t.,) wy. :.. t!1!,L.r, , o1hb{'; ; -,i. .I-i.:!tr," ' t ; * .! , I' rt,:ij ]-) t t-l I zi: rir " fI,'!.1 ,',,,(ol rr?.f l :) i . p .. . ru ) "'.it:,1: Income tax expenses from continuing operations.foit 2005,-2004;, and 2003 consist of the following:,
... I. lit!' !k r~ ~;Io w : rV1 , Ii . "IJ '.* 1sn1 (In Thousands) ':"
., ,-r -nt ' " Tu"tU ~ : . K~~-i0 1I~4jJ i J A:
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Federal,(a)(b) ($306524) $67,924 ($725,3 109)
- . (a)b); ,,.:...,. , , " (27'212Yvc.-" 38,324, .23,316-
ý,.. otat (a)(b)-:!Ft ,,. "'J) ,.-,, ,. .. ,.,( 0,( ),: ' '[.*4, 7. " ,),,,J~c693,7l9)*I Deferred - net tr; J. ',z. 898;384r8iluq It-, 282,275 2I .. *;:1218,;796- .
Investment'tax ci'r&it'*..'-'* Žt;,. ?. q i i'/o Vu'V<,.. vr .:,h:i'.tui) . 4 -' adjustments - nef j. IiO*l1.>i4- I (8,654)1 D~I1,(20 987):1 (27,ý644) operati6fiis~ ' Y2 c ol.;'r $5599284,1 1l"$365;3052 _________ (a). The actual cash taxes paid.were $98,072 in 2005, $28,241 in 2004, and $188,709 in 2003. Entergy
'Lo;isaa's mark~to-markettxacounting election signficantly reduced taxeipaid 'im2002.-' In 2001, Entergy.
I-ýllq ,1"'P~fi L6diouanachanged lr'o7 :, , , l*
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its mdth6d
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of.1[/* accounting
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for* tax purposes
- '.- - - . ;o : ,*g 7 related'to
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its
- wholesale
, ' Il electric
'l. III ;, t ri .'F power contracts, lTe most significant of these is the-contractto purchase power from the Vidalia project (the contract is discussed in Note 8 to the consolidated financial statements). The new taxk accountingI
((,method has provided a cumulative cash flow benefit of approximately $664 million through 2005 which is expected to revese iithe yeais 2006o toughr 2. dependig on, thase pnc of power. The election did not reduce book'income'tax expense.r' , ,, . (b) In 2003, the domestic utility companies and System Energy filk Wi waitl the IRS;' change in tax accounting method notification for their respective calculations of cost of goods. sold. The adjustment implemented a
-h ,simplified method of allocation ,ofdoerhead to the. production of electncity,*whichi is provid&. under the
" .. IRS capitanzatlora regu~lauons I'/iI *' l it "-0 ' ilW) ) 1.I '* - , -', -* )"', " * *&I I hn'cý"umulatlve
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"adjustment placing
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1""' compames" 1 1' '* -trf5
,ri on ihe" nw 1o. . ,i,- r ,
* . methodology resulted i'a $2.8 billion deduction onEntereys'2003 income lax retur: Tere was no'cash"
- b enefit fr6m the method chfnge m2003." Iii'addWition ,on a consolihated basis, tnerewas no cashfnenfi-from this meth6d chanein 2004 or 2005i The IR nads issue1 new prpose'regu atii tv, that may preclude a signmcantpo-on of the benent of`tinsax accounting method' change.- l i2005;;thne domestic utility companies and System Energy filed a notice with the IRS of a new tax accounting method foritheir respective calculations of cost ofg6bdssold. This new method is also subject to IRS scrutiny.
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Entergy CorpoiatioAi Notes to Consolidated Fiiiancial Statements the statitf6ij Total income taxes from continuing operations differ from the amounts computed by applying 2004, and 2003 are: income tax rate to income before taxes. The reasons for the differences for the years 2005, 2005 " 2004 2003
- ::T bi(In)Thousands) /
- i "Computed at statutoryrate (3 5%) $534,743 a.',.:$454,438:; : "$463,831
;:i'. " ..r.'. *;?* ,' '* ', t ( ' t
'Increases (reductions) ini tax,
"';resulting from:--b
.State income taxes.net of
; ~o..r federal income tax'effect 44,282 36,149 1.43,210 Regulatory differences-utility plant items 28,983 41,240 ,:/. ý ::T52,446 (I Amortization of investment v,-l,..itax credits f":-I (18,691) (20,596) ;i;,--(24,364)
- .:ý,EAM capital loss I (792) (86,426) . , . ... "
S,,Flow-through/permanent
;.ydifferences , (32,518) (43,037) ,. (29,722) 2,798 ;.',' 2,014,*;-!,..788
,,,US tax on foreign income
- ,.*Other -- net -."E 479 (18,477) ;,::!-:(15,856)
"Total income taxes .from continuing 7 $559,284 $365,305 :, $497,433 0k o operations -
Effective Income Tax Rate 36.6% 28.1% 3.7,5% 1% of the common The EAM capital loss-is a taxlbenefit'rcsulting from the sale of preferred stock and less than sold the stock stock of Enterg, Asset Managemient-an.Entergy subsidiary. In December 2004, an Entergy subsidiary of $370 million, producing a to a third party for $29.75 million. The sale resulted in a capital loss for tax purposes "of, 2004. Entergy has federal and".,sfat~hei iax bexi.tf o6f.$97inimlion that :Entergy rTorldediithe fourth quarter sufficiently cover the established a contingency provision in its financial statements that management believes will
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risk associated with this issue.., c, wrt "n" i" lx.Lf ., ' -..ia "O ,.PI It dl'."* . r~ ;C. r .Wv'-*ki ., :,,tYa::(O J;- ; "1 , 1........-..
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Entergy Corporation Notes to.Consolidated Financial Statements Significant components of net deferred and noncurrent accrued tax liabilities as of December 31, 2005 and 2004 are as follows:, .' . .. .. " 2005 2004
. '13t4* ,* (In Thousands)
Deferred and Noncurrent Acci-ued Tax Liabilities: Net regulatory liabilities ($954,742) ($978,815) Plant-related basis differences C , '(5,444,178) , (4;699,803) Power purchase agreements (2,422,967) - (972,348) Nuclear decommissioning (390,256) ,," (545,109) Other (621I, 179)): ".(346,993) Total '.. (9,833,322),-, - (7,543,068) Deferred Tax Assets .' 'i:.- '. Accumulated deferred investment .i.:m.-; " ta'x credit :" . 125,521 ' 133,979 Capital losses ' 119,003' ,' 134;688 Net operating loss carryforwards 2788;864;,* ...- 1,201,006 I Sale'and leaseb.ck,' V *.. 238,557 . - ;'-.227,155 Unbilled/deferr&1 iev-enues - 25,455 '. , . 28'741 Pension-related it&nsi) . 231,154 .1 - '247,662 Reserve for regulatory adjustments 120,792 .-',," ' 131,112 Ciistomer deposits7 .... '-:.. 7.. . 70,222 "107,652 Nuclear decommissioning 168,928 158,796 Othr. "' 560,980 225,659 Valuation allowance (38,791) (43,864) Total
"...,t" :'. _ 4 4 10,68 5" 5 '2,552,5 Il
* . i L,I. .L
-Net deferred andnoncurrent accrued tax liability,.;!.': i; $5,422,637)'.- ($4,990.482)1 ....
At December 31, 2005, Entergy had $268.4 million in net realized federal capital 1oss carryforwards that will expire as follows: $104.9 million in 2007, $0.8 million in 2008, and $162.7 million in 2009. At December 31, 2005, Entergy had federal net operating loss carryforwards of $6.6 billion primarily resulting from changes in tax accounting methods relating to (a) the domestic utility companies calculation of cost of goods sold and (b) Non-Utility Nuclear's 2005 mark-to-market tax accounting election, and losses due to Hurricanes Katrina and Rita. Both tax accounting method changes produce temporary book tax differences, which will reverse in the future. Approximately $4.0 billion of the net operating loss, attributable to the two tax accounting method changes, is expected to reverse within four years. The timing of the reversal depends on several variables, including the price of power and nuclear plant life extensions. If the federal net operating loss carryforwards are not utilized, they will expire in the years 2023 through 2025. Entergy expects to receive a refund of $242 million from prior tax years under the special provisions of the Gulf Opportunity Zone Act of 2005 and the Energy Policy Act of 2005 in the second quarter of 2006. The expected refund is reflected as a receivable in the "Prepayments and other" line on the balance sheet as of December 31, 2005. At December 31, 2005, Entergy had estimated state net operating loss carryforwards of $8.4 billion, primarily resulting from Entergy Louisiana's mark-to-market tax election, the domestic utility companies' change in method of accounting for tax purposes related to cost of goods sold, and Non-Utility Nuclear's 2005 mark-to-market 72
- r(Entergy Corporation
- ,Notes t6'Consolid-it~d Financial Statemeihts taxý' acc6unting'tlectio n;g1l dliscuss.leabove.;1f the' state
" .. n . netoperatimg ."ey'""1ossceriyfovwards ' "are'not' ot" ;utilized,the
" ywill
- aacc u tn eei0n*al .... "n T .s, *irri ltywr; b1-;;.:; ,. .:- ,1/2 i,, ,
expire in the years'2008 through .2 200.:--J ' *:-, i).,.i'.j.,j J" 'dSl'
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,;:!-r*-an';,'p :r- 1(.:. jr°I ;,/.ct-'.tt /I rtr v. ')i'n itiL, br' cp I,'c* ,',.*i ;;.. ',i ", :,' .'*,u.* ,I 2'. xThe 2005 ind,2004 valuation :allowances are provided ag'ainst UK 1capitalloss and UK net'bperating loss carryforwards,:,and certain state 'net operating: l6ss aifo rvarto!r.d The UK'-'losses can be'titilized against futuire UK taxable income. For UK tax purposes; these tarryfirwards *ot-fexjir~i? "' " '
On October 22, 2004, the American Jobs Creation Act of 2004 (the Act) was enacted. The Act promotes domestic production and investing aehwties by providing a nuriiberPoftýf x ncenties inclutding'a temporary incentive to repatriate accumulated foreign earnings, subject to certain limitations, by providing an 85% dividends received deducti6n 6& 'orccainm repatriated earnings aiid 'also providiing atiax d6du6tion of up to' 9% of qualifying production
-activities. ý';In 2004, Entte'rgiy"-rep~atn'at'ed $59.1ýmillio'n "of a'celuif-hTýated ý foreign'4 e~arnings, 'whih -res~ulte~d in Sapproximately $1 0 rmlihon of tax -benefit. --At December 31; 2005,'Entergy had no dundstributed earnings fro6m subsidiary co6jmpanies outside th-ie Uniited Stiies that are bengonsiderd E for repatriation.- n accordance w*ith'FSP I, 109-1; which was issued by"tebFASB toaYddress the iccounting for the impacts 6f the Aet, the allowable pr'odutib'on tax redit will be treateda§ a special deduction 'in the'perod'id ihchirhst 'ieddteid rather than treated as a tax rate chaingeddtinrg 2d04 whichis the pe6riod min which the Act was signed into law." Thealdoption' of FSP 109-1 and FSP 1109-2, also issued by theFASB to'address theaiccoiintingfor the6 $ktnaitidonprovisions a of the Act. did not have a material effect on Entc'rgy's"fiXn.a"n"c' i"al statements.. "'
I.,;n "n "'- om. Audits'"; . "I-- .....
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..Ente'r'gy's 'c'u'rrently nder audht by te*1tS-fth respecto tax returns for tax peri&odssubsequent to '1995 and through 2003, and is subject to audit by the IRS and other taxing authoritter"s frbseqjiu' ent'tax'periods. The amount and timing of any tax assessments resulting from these audits are uncertain, and could have a material effect on Enterg's financial position and 'esultsof operati6ns.'iEntergy believes thiat'thle'cintingency provisions established in its financial statements will sufficiently cover the liabilities that -are reasonably estimable associated w'th 16x matters. Certain material audit matters ,as :to which management believes there is a reasonable possibility of a future tax payment are discussed below. A :,Iiiw;ikii Depreciable Property Lives ( ,.oiru ' 2.?),O( _ i.*-';"..,Ž! : ,.
s'Ai*slli fl*!.2. (flaoi,.,,u*":* 2">/ 7*? . I'irAq, 8r;~> a. *:t" In October 2005, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi Enterg.yNew Orleans, and System Energy concluded settlement discussions with IRS Appeals related to the 1996 -:1998 aidit cycle. The most significant issue settled involved the changes in tax depreciation methods with respect to certain types of depreciable property.,-, Entergy Arkansas, Entergy Louisiana, -Entergy, Mississippi, and Entergy New Orleans partially -conceded depreciationassociated with assets other ,than street lighting ,and itt.d topursu e streeflighting depreciation in litigatikn. Entergy Gulf States was not part:ofthe settlementzand did not. change -its accounting:method for these certain assets .until1 1999.;,.JThe.total Xcash pconcession.related ,to these -deductions,.for. Entergy. Arkansas, Entergy Louisina, EntergyMMississ.ippi,.Entergy Ne -Prleans, afnd System Energyis $56 million plus interest of $23 million. The effect ,a similar settlement by,1Entergy GUlf States wvou!d result'n a#cash tax, exposure of approximately $25 million plus interest of $8 million. . B KI- . ' I' I(Is I': f "ri: r, f
- Because this issue relates to the.timing of when dereciation expense is deducted, the conceded amount for
,. EntergyArkansas, EntergyLouisiari6,,EntergyMississippi, Entergy New Orleans,- and SystemEnergy, or anyfuture conceded afmounts by Entergy Gulf States will be recovered infuture. periodi Entergybelieves that the contingency provision established in its financial statements sufficiently covers the risk associated with this item.
, ,jrt,' , u; .'.ni'5; tij," ...., :;s M!*Aark to Market ofCertain Power.Contracts ? iihd, S-, n ,201, EntergyLohisiana ebafigedits method, ofae.o0,nt.g:for,)incom;etax purposes ;related to.:its
,.vholesale electric power contract-. The most significant of these isihe contractto purchase power from the Vidalia fl73
Entergy Corporation Notes to Consolidated Financial. Statements hydroelectric project, ,On, audit)9( Entergy-Louisiana's. 2001 ta& return,the :IRS madean: adjustmentireducing the amount of the deduction associated with this method change. The adjustment had no: material: impact: on Entergy Louisiana's earnings and required no additional cash payment of 2001 income tax. The Vidalia contract method change.has resulted in estimated. cumulative cash flow benefits of approximately $664 million through December 31, ,2005., :This benefit, could reverse in. the'years. 2006 through.2031, depending on, several variables, including the price of power. The tax accounting election has had no effect on bookincome tax expense.r .,,, ;.f NOTE 4., LINES OFCREDI AND SHORT-TERM BORROWINGS,,..
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I . *Entergy Corporation has in place two separate revolving cive-year creditefacility a three-yearcredit fa'cility.. The.five-year credit, facility; which expires, in, May 2010, has a borrowing capcity of $2 billion, of which $785 million was outstanding as of.December -3 05. , w hca xpaiesfin eDýeember 2008, has, the borrowing c~ Xityfo$ 1.3 billion, none ofwhi*ch was, outstanding at December 31,-.2005. Entergy, aso has the ability to.issue letters of credit aginst the total borrowing papacity 9f both credit, facilities,.and lettersof credit totaling $239.5 million had been, issiied against the five-year facility at December,31, 2005..The total
.unused capacity; for these facilities as of December 31, 2005 was approximately $2.2 billion. The commitment. fee for thee facilities is .currently'"0.13% per annum of the unused amount. C* mim.. ent: feesand ter.ra.es on-.loans under the credit facility can fluctuate depending on the senior debt ratings of the domestic .utilitycompanies.,,.
Entergy Corporation's facilities require it to maintain a consolidated debt ratio of 65%.,grless ofit!s total capitalization. If Entergy fails to meet this ratio, or if Entergy or the domestic utility companies (ex-cept Efiteig* New -.Orleans),default on other indebtedness.,or. are in bankruptcy or insolvency, proceedings, an acceleration of the facilities' maturity dates may occur.. . . - Entergy Arkansas, Enter u and. Entergy Mississippi each have 364-day credit facilities available as follows: .. ..... . I . ....... I ~'Airiout of" '"Aout Drain'fiw'n , Company Expiration Date Facility 'of Dec. 31, 2005' Entergy Arkansas April 2006 $85 million (a) ' .. ., . ' Entergy Louisiana April 2006 $85 million (a) $40 million
' - a .
" Entiergy Louisia'" ': -May 2006" $15 'million (b)" '.'. '."-- 2 Enterg* Mississippi :: May 2006- $25"rmillion -' :... ..
- i5.: :,
-" '(a)' The combined/af'ioibht x'rtbfowed by Enitergy 'Arkafisas' and Efitergy Louisiairia iifiid*i'thes"'e-
- " "'> facilitiets-at 'aniy onietm'annot exceed S85 millihn., En-trgy L~'isitana granteda`seuntyý-`:
-: interestin its r"efii bies'to"se'uie its $85 millioni'iaeilitk,`l Wt: .- ,:':,' :.2C :
(b). The crmbin<ainrfilht brd' ed by Efitergy' Louisiania de iiis $15milli6,fcility and by
. EntrgyNSew' Orleans-under aS15, million facility'that-it as, xwth- the same lender caI
" "exceed $15 million at any one time.>- Because Enterg' New Orleans faclhty ii fully awn,-no capacity is currently available on Entergy Louisiana's facility. * ,... - . ...
";.."" .Tlhei364'-d : i ............
eie a' "16... ... .. .' d".tl"fd....; Te3dfifacilities have&variableinterst rates and.t average cominitent feis 0.13%1 The $85 milli6&h tergy' Arkans'a's. an'd Ent&erg Lotiisiana'&editfailitihes each require' th respect661e comipaniy to maiiiitain
'total'sliareholders' equit'of it least' 25%6 bf itsto6ial assets. -' - - -- -
After the repeal of PUHCA 1935, effective February 8, 2006, the FERC, under the Federal Power Act, and not the SEC, has jurisdiction over authorizing securities issuances' b the'doiiiestic utility 6iomipanies. and System Energy (except securities with maturities longer than one year issued by (a) Entergy Arkansas which are subject to the jurisdictionof the APSCI'and (b) Entergy"New Orleans whkh. 'arei 'ufrrently" siub.ect to' t&e jiris'diction of the "ankiuiptcy court). Under PUHCA 2005' and the Federal Power Act, no apprdvals are neessairyfor Entergy 74
,Entergy Corporation
,Notes to Consolidated Financial Statements Corporation to issue securities. Under a savings provision in PUHCA 2005, each pf:the domestic1 utility companies and System Energy may rely on the financing authority in its existing PUHCA 1935 SEC order or orders through December 31, 2007 or until the SEC authority is superceded by *ERCauthorization.-The FERC has;issued an order
("FERC Short-Term Order") approving the short-term borrowing limits of the domestic utility companies (except Entergy'New Orleans) and.System Energy through March 31, 2008. Entergy New Orleans may rely on existing SEC PUHCA (1935 orders!for its short-term financing authority, subject to bankruptcy court approval. In addition to borrowings from commercial banks, the FERC Short-Term Order authorized the domestic utility.companies (except Entergy,'New Orleans which is authorized by an SEC PUHCALIP35.,order) and ,SystemnEnergytq continue as participants in the Entergy System money pool through Febnawry8,,2007.p1,Themo~ney,,pqglispaninter-company borrowing arrangement designed to reduce Entergy's subsidiaries:1 depeilence on}external short-term borrowings. Borrowings from the money pool and external short-term borrowingssombined may not exceed authorized limits. As oftDecember 31, 2005, (Entergy's subsidiaries' aggregate money:pool and external :short-term borrowings authorized limitwas ,$2.0 billion;ýtheiLaggregate outstanding borrowing from the~money pool was $379.7.million, rand Entergy's subsidiaries' outstanding short-term borrowing from) external 'sourcespwas .$40 -million.,'To ,theextent ,that the domestic utility companies and System Energy wish to.relyon SEC financing orders yunder PUHCA ..!35, there are capitalization and investment grade ratings conditions jthatimtust, be satisfied! in'connection iwith security-issuances, other than money pool -borrowings. There is further discussion of comnitments for long-term .financing arrangements in Note 5 to the consolidated financial statements. tt:it,]uoJ 'r.>,il - 010Z -ib v.i,76" ,, .4.
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EnitergyCoporatin6 Noes td Cnsohlidated FihanciafStatemefiis 'NOTE 5.! 'OilIiLONG LTERMAt'DEBTO- A' I lUq ,,;i*. ,* iirgr, ndb.iIl br:T nl ,j1 Lgc
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'If. Lonig-term debt asoifDceinber,31'i20o0iaind2004 consisted of:f1 1',c. j Dui ,nr Iimo I 7i: [o,)
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,b4oti . '.i, i -r lIo c e d~ess25 ... "I6.4250WSeriediieueJuly.2005 UEnteigy nr uantsai lta".$ .1'i ') dfI t :?2Bh:,i '1 3 0,, I'0,000' i.. 83.25%Series dueddJulyt20058- Entergy New Orleans(g) : ',i .
4ihnt "0 4'.875o' Serize7s du0 October2O 207D m 2y'00t8 Eergy Gul Sis" In/; Vm'3-70,00011 rill,i ;-2,70,000 F "435% Sertie di6u Aipi2008,- EifergyfkMassssp
... *<'"- 100,000-W, j "r-100,000 4':-3.67%S&ries;dueJune2*008- Ente-rgy GulfoSiatena; - :*IL b3251000;tii'; 0.i.325;000!i 3.8751% Senes due August '2008 - EntergyNew Orleans (1) ,00,000......
*4L.5%ý'duieNovemberfie011 Series E e ergyks Gulf St, ate 22,00,0006 2*0,2:,00,000 5
- Llo.83% .50Series dueNo ember2010-20 Eneg Lousina*ig ;.rr!* "* a 1ufSae 50,000.c. .*f'l"i*',:*
4.65% Sebries due 4.67% Series d:.%Sre~~ue Ma 2010 June D01-enemery Missisipp
- Entergy Louisiana ufttsO,. .......
t,.:...,tgm2,000 80eg 100,000 80,.
- ,25,000.-
100,000 5.12% Series due August 2010 - Entergy Gulf States 100,000 6)'-,g4.50%Seriesdue 5.83% Series dueDecember2012 November 2010 - Entergy
- EntergyGulfStats14,01000 Louisiana 150,000 -
4.65% Series due May 2011 - Entergy Mississippi 80,000 80,000 4.875% Series due November 2011 - Entergy Gulf States 200,000 200,000 6.0% Series due December 2012 - Entergy Gulf States 1400,000 5.15% Series due February 2013 - Entergy Mississippi 100,000 1009000 5.25% Series due August 2013 - Entergy New Orleans (g) - 70,000 5.09% Series due November 2014 - Entergy Louisiana 115,000 115,000 5.6% Series due December 2014 - Entergy Gulf States 50,000 50,000 5.25% Series due August 2015 - Entergy Gulf States 200,000 200,000 5.70% Series due June 2015 - Entergy Gulf States 200,000 1 5.56% Series due September 2015 - Entergy Louisiana 100,000 - 6.75% Series due October 2017 - Entergy New Orleans (g) - 25,000 5.4% Series due May 2018 - Entergy Arkansas 150,000 150,000 4.95% Series due June 2018 - Entergy Mississippi 95,000 95,000 5.0% Series due July 2018 - Entergy Arkansas 115,000 115,000 5.5% Series due April 2019 - Entergy Louisiana 100,000 100,000 7.0% Series due October 2023 - Entergy Arkansas 1 175,000 5.6% Series due September 2024 - Entergy New Orleans (g) 7035,000 5.66% Series due February 2025 - Entergy Arkansas 175,000 - 5.65% Series due September 2029 - Entergy New Orleans (g) 40,000 6.7% Series due April 2032 - Entergy Arkansas 100,000 200,000 7.6% Series due April 2032 - Entergy Louiisiana 150,000 150,000 6.0% Series due November 2032 - Entergy Arkansas 100,000 100,000 6.0% Series due November 2032 - Entergy MLossippi 75,000 75,000 7.25% Series due December 2032 - Entergy Mississippi 100,000 100,000 5.9% Series due June 2033 - Entergy Arkansas 100,000 '600,000 6.20% Series due July 2033 - Entergy Gulf States 240,000 240,000 6.25% Series due April 2034 - Entergy Mississippi 100,000 100,000 6.4% Series due October 2034 - Entergy Louisiana 70,000 70,000 6.38% Series due November 2034 - Entergy Arkansas 60,000 609000 6.18% Series due March 2035 - Entergy Gulf States 85,000 - 6.30% Series due September 2035 - Entergy Louisiana 100,000 - Total mortgage bonds $4,575,000 $3,763,000 76
Entergy Corporation Notes to Consolidated Financial Statements i- (1) 0,fý" 2005 2004 (ý.Wrtf;pilrrlT nl) (In Thousands) Governmental Bonds (a): :(il:,::i::. :) j' '* *,; , -y ' 0o05.:'45% Series due 2010, Calcasieu Parish - Louisianaj - $22,095 ,4"' S22,095 0oo6,75% Series:due 2012, Calcasieu Parish - Louisiana ...... '.,no--j .48,285, ,,,r.48,285
'( (C :,, ' l450 717; j . ,17,450 00 67% Series due 2013, Pointe Coupee Parish - Louisiana ;coq j)*
5.7% Series due,2014, Iberville Parish --Louisiana~0 -) ,) u iol v-v!* * -- t, ,21,600 2 ;, :21,600 0o-7.7% Series due 2014, West Feliciana Parish - Louisiana ;rycp.a*) v .I j¶,'* t, . , ,(.94,000 2 8 ,4 00 2 8 4 00
. 5.8% Series due2015, West Feliciana Parish - Louisiana ; r.>: ':1 -,t- ,
7.0% Series due 2015, West Feliciana Parish - Louisiana 1-,j39,0001 ; ,-.3.9,000
-,765% Series due 2015, West Feliciana Parish'- Louisiana ,p~j'tfljb)jdu2 h'-:; W)i-f'* 9 . -"41,600 9.0% Series due 2015, West Feliciana Parish - Louisiana t ThJ) b.45,000
()1 5.8% Series due 2016, West Feliciana Parish - Louisiana ,R*j r? ,,, ; -.,r;-20,00 ;.7i) ,,20,000 Ofj...(J, 6 3 9 500 (' ý % Series due 2016, Pope County -Arkansas (f) - tu. ( tr :::19,5_0 Lwdr\ih,,:19 5.6% Series due 2017, Jefferson County - Arkansas.,,A ?'..jI l * *,. I x._- -. 4,j!45,500 "ii 45,500
.Q:6.3% Series due 2018, Jefferson County- Arkansas (f) ' -:". ) ,9,200 - t .t,9,200 S6&3% Series due 2020, Pope County - Arkansas 120,000 420,000
- 6.250oS-erie-s,-du- 2021,Independence County - Arkansas , * . - 5,00
_,)=7 ;51% Series due-2021, St. Charles Parish - Louisiana i '=*O ,:irr~rV! :2.1 - 5.0%'S&riei-dde-2021 7,Izdependence County - Arkansas... ,, . / -45,000..2.. .* r'..
--- 5.875% -Sefii du&e2022,Mississippi Business Finance Corp. 216,000 216,000
.5.9%Series due 2022, Mississippi Business Finance Corp. 10297, 102,975 7.0% Series due 2022, St. Charles Parish - Louisiana ( [4,000 7.05% Series due 2022, St. Charles Parish "Louisiaria-, bi d am:.,;1 -Imoc r: U-<to *:.i20,000 rý)
c'I friAuction Rate due 2022.,-ndependence County :Mississippi(f))Jo sA'.- I,.;! yv) tilO, 30,000 I) 4.6% Series due 2022;,Mississippi-Business Finance Corp:(f) j1b:ic* .r-).... r,: 16,030 y5116,030
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,:-5.95% Series due2023;rSt.,7Charles Parish -Louisiana (f)) T jzo : '3Vt* ,;,/ "izo2 5 ,000 ot Inc.!J;2 5,000(*)
"AjtfTq 1:6.2% Series due 2023,-St, Charles-Parish - Louisianar-iv* loqm, I'. ":t - o.:,m..*q r 3000 ký,*fl ii 6.875%' Series due2024,!St..Charles Parish -'LouisianaT.i, .If: e}i Au1.-
/ *-,,.: . I .7 fi,!.'20,400 6.375% Series due 2025;iSt. Charles.Parish-'.Louisiana!. , ,*ii-, 'K bti; fIf.-", I,10 1* 16,770
.:u.v -.6.2%!Series'due2026;.Claibome County, Mississippiknol bir, enit , "'. ",L9O0OjIf, 146 90,000j")) _gikUr,5.05% Seriesdue.2028,-ppe County-: Arkansas (b)i_,1cb \Md b ;-i Pr- ,;uq bid rn,. kim;.jA:
-. 47,000 6.6% Series due 2028, West Feliciana Parish - Louisiana 40,000 .A40,000
- tli rriAuction Rate due 2030i St. ,Charles Parish:- Louisiana (f), 1o .i b °triva ,-.rý!:*;.60,000,, Ž!o' d 60,000'.*)
4.9% Series due 2030, St.Charles'Parish-:Louisiana (e) ivo-q"tbn1 M't}.rL:*r c't (,ijtlr-'lt .ý-c,55,000 Total governmental bonds . -:'fr!ny
ýInI,?I[O31r 17ii ;.-i',:
1.'43,016,035 ::t: ;r,,14;462,805 n) bri:; ?rtn ItO vi'-* . ' v qrrAnlrd .r . ... V... V v-rufi (n)
.Othir Long-Term-De'bt:!it:ý;-i- /ir ZI ~bIIinL'i t!t'~ ti~IrT i ~q n1, .dNotePaable toNYPA, non-interest bearing;4:8%'implicit Pate i0? tpIr--),,)v--Ti!.;$373,186 n:,'-$445,605 Ill) lo Credit Faility;(En)igy.Corpo1atibn785,000 a b ;( 1)78,0 80 trnu vv5-year.Bank rutowi,3 yeair Bank CfeditiFacility (Efitergy.C6rporitiofi afid-Subsidiaries,tNote 4) ).:,- n (L- ir:t , -;50'000 hliv ,i,{Bank tertf0laah, Enterg& Corpbor-ition, aaVg rate 2.98%; dua 2010,0 wvinm* !-7Ti to ý-ý-&-d!60,000) br1; .0,60,000 i'q 0PBankterm loin;,EnterY.yCorporationaVg rate 3.08%,-due 2008;*r'jin c s,, .'b .J1rjn35,000!Ad clit 35,000 bir: 0l06.17%qNotes due Maich2008,tEntergy Corpor'tion .irurotr:brlu.:ef.*"iq ,:t lo prn-i'u,, >d:72,000 .!'i-u'<1i72,000
- i*Ibqu 6.23% Notes due -Mafch208,-Entery Corp6ritionrn.rt -i-i r ;tzr; rr,, 115,000 - 000. 151000 1r::.
6.13% Notes due September 2008, Entergy Corporation " .(.150,000r,*i- nrl50,000 F}77
Entergy Corporation Notes to Consolidated Financial Statements 2005 2004 (In Thousands) Other Long-Term Debt (continued): : .1 , ,I: ,: 735% Notes due December 2009, Entergy Corporation' I - :1' r , ("267,000-n,;-' 267,000
-"6.58% Notes due May 2010, Entergy Corporation *' _i- w, Al,'. ' 75,000':: - 75,000 u'6.9% Notes due November 2010, Entergy Corporation " - d!,' , ) '.':;t,,.140,000':';-" 140,000
',7.625% Notes initially due February 2011, Entergy Corporation (h) - .500,000" ' -
7.06% Notes due March 2011, Entergy Corporation.-' ,; : 86;00 -. . ,:86,000 Long-term DOE Obligation (c) . .... .- ', 1619048, 156,332
'Wterford 3 Lease Obligation ,..: .:'. '
7.45% (Entergy Corporation and Subsidiaries, Note 9) '-,. .. 247,725 , 247,725 "Gr.indGulf LeaseObligation ,,' ,. I 'f , Is.. " 5.02% (Entergy Corporation and Subsidiaries, Note 9) ; ,' - ' 364,806 ,:;r-q. :397.119 Uiinimortized Premium and Discount - Net ' '." - ' ' "(6,886) .'.,'A (10,277)
- W9875% Junior Subordinated Deferrable Interest Debentures . .o / ) . :,, *- .
- - Due 2046 - Entelgy Gulf States , ':- -` ;' 87,629 I(Other J! 1. :,*' * ,' .0 12"096) ., . ,:9,457 Tbtal Long-Term Debt "' ' -l'r','r': 8,928,010ý'-.:'-7,509,395 Less Amount Due Within One Year ' -.-
'. , .103,170 *5ni) 4902,564 Long-Term Debt Excluding Amount Due Within One Year ... ... ... '-' : . 8 8. 8 - 4'4 3 ..I.* $ , 1.,
Fair Value of Long-Teirm Debt (d) ' $8,0 09,388' $6,614,211 (a),,'! Consists of pollution control revenue bonds and environmental revenue bondst. t.t?.20 n2". ..' (b) 'The bonds had a mandatory tender date of September 1,, 2005.: Efitergy'Arkafiss piirchas'ed the bofids from the
'holders, pursuant to the mandatory tender provision, and has not remarketed the bbnds at this tirhe.! ,' . t-(c) ',PU'rsuant to the Nuclear Waste Policy Act of 1982, Entergy's nucledi ortnei'licehsI sfibsidiariesý ha*v*hbntracts with the DOE for spent nuclear fuel disposal service.', The c6ntracts'inclide a' oiie-tiiniE fed. for' gefi'alion prior t6*April 7, 1983. Entergy Arkansas is the only Enteigy coinpainy that gen-iiatid elktiic 0ower.ivithtrifclear fuel .piribr to that date and includes the one-time fee, plus acc'rued interest, ini loiig-tiffidelftx.b .i*?
(d)ý *.*The fair value excludes lease obligations and long-term DOE.obligati6hs,. and includdsdebt'duewithifnone year.
*',(Itfis determined using bid prices reported by dealernmarkets. and by nationallylre&oghizdd iive'stm-nt. banking (e)(;. The bonds had a' mandatory tender date of Juhe 1;, 2005. i EntergI. Lbuisianai purciased the boridsr from the
_"Ihblders, pursuant to the mandatory tender provision, and has hot! i'emarketed the bondsrat this timie.-ý ... " () ':-'The'b6nds are secured by a series of collateral first mortgage bonds. Jbl. l..,r:r'..:o.t 1019 (g) Because of the Entergy New Orleans bankruptcy filing, Entergy deconsolidated Entergy New Orleans and reports its financial position and results under the equity method of accounting retroactive toJanuary. 1i,2005. (h): 0,Ifi December 2005, Entergy Corporation. sold*105millionIequityunits.with axstatednamount1 of$50, each. An
- equity unit consists, of (1) a note; initially. due, February-201 Iand initially. bearing interest at aniannual: rate of
%'t.5ý575%, and (2) a purchase contract'that obligates the holder ofthe lequity) unit to purchase: fof $50 between 0.5705 and 0.7074 shares of Entergy Corporation common stock on or before February 17;.2009:i Entergy will
,'ilpa the holders quarterly contract adjustment- payments'of: 1.875%, per. yeaLr on. the stated,amount!of. $50 per
,:; elifity unit. Under the terms of the purchase contracts9 Entergy; Corporatiofi',,il1l issue betweei 5,705,000 and
'., 7,074,000 shares of common stock in the settlement -of the, purchasecontractsý (subject. to: adjustriient under
' certain circum stances). 1.:,. ' 'I.'t,-4 .,. ," ; -:". 0 , ,',f 78
1-Entergy Corporation Notes to Consolidated Financial Statements The annual long-term debt maturities (excluding lease obligations) for debt outstanding as of December 3 1, 2005, for the next five years are as follows: Amount ., ':.,., : i!'- (In Thousands) 2006 $80,528 4 9 ,53 9.rpIl::i) 2007 : 3: f1'*W,$l ' ..
!if. :;w b r 2008 jl. _.Jl066 ,6 2 5,
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fi* ,"' tij .y e In November 2000, Entergy's Non-Utility Nuclear business purchased the FitzPatrick and Indian Point 3 power plants in a seller-financed transaction. Entergy issued notes to NYPAwith, 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 ifromnthedatepf 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,ofilndian
-Point, 2 in 2001 [resulted Jn Entergy's Non-U:tilityNuclear; business lbecoming 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 S102 million was made prior.,to maturity on the note payable to NYPA. Under a provision in a letter of credit supporting these notes; rifcert'ainof 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. Non-Utility Nuclear's purchase of the Fitzpatrick and Indian Point 3 plants from NYPA included.value--- sharing agreements with NYPA. Under the value sharing agreements, to the extentthat,theayerage annua! price ofi 0* ',*the energy, sales from each of the two plants exceeds specifiedstrike prices, the Non:Utility.jNuclear.business will pay
.50% of;the amount .exceeding ,the -strike *prices ito NYPA:t. These payments, -if required, will be,,recorded .as
.r o ):.O adjustments to the purchase price of the plants.. jhe annual.energy sales subject to,the value sharing agreements are limited to the lesser of actual generation or generation assuming an 85% capacity factor based on the plants' capacities! at the time of the purchase.), tThe value sharing'agreements are effective through '2014:,<The strike prices r_.i for Fitzpatrick range ,from $37.5 1/MWh in ,2005 :increasing by, approximately 3.5% each, year, to $51 .30/MWh, in o', 74, 2014,. and the strike -prices for. Indian Point_3 -range from $42.26/M h.)in*2005. increasing by.approximately-3.5°,o each year to $57.77/MWh in 2014.--,3; ,,, , . -";ItI3 , ., .t . "
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 oflthe 1domestict utility,-:, companies default on other indebtedness or are in bankruptcy or insolvency proceedings; an acceleration of the notes'i
.; maturitydates mayoccur,.; . ,8 ,:, ' :i'in I - ,O. I ,lricf!u:i. . j;,'gL:;T,.' ...."
06.... l (A(',,, . - *-'.!,
'The, long-term securities issuances of Entergy Mississippi and System Energy are limited to amounts O? i.athii -~t~SEC iiiidr PUHCA -,,935'A t~~~ PUHCA .193 5.onFebruary 8, .2006, Ahe FERC,.
.. id~r"'th-F&ed&al P--i6 A(7*;h'*jiirisdi-tiono-voe--rthi-e -iirities-issuances of these companies. Under a savings provision in the PUHCA 1935 repeal legislation, these companies can rely on the authority of their existing.SEC.
orders until each obtains new orders from the FERC. The SEC PUIHCA 1935 financing order, of.EntergyMississippiý limits securities issuances unless certain capitalization and investment grade ratings conditions are met. -Entergy*,ulf 6-,V"States ;and EntergyLouisiana, LLC.have received FERCJong-term financing ordersthat doinot have such conditions. St ..... ee.r L. L have.re . ce.i ve.i. dF
-Y-The long-term securities issuances-ofEntergy Arkansas arelimited to amounts authored, t i..
~a mimons authorized by,'heAPSC.
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Entergy Corporation
-Notes tO'Consolidaied Financial Statements Capital Funds'Areembnt'JdlA, J ý,iO id- j. ricJ,, 6. -. &
I;I '., L ;1Jii t fl2L& f4-, -yv,, 1*.2f. ,d-Pursuant to an agreement with certain creditors, Entergy Corporation has agreed to supply System Energy with sufficient capital to: 1.,: 'wi,
;/L'ir*.uo ITI*i
- maintain System Energy's equity capital at a minimum of 35% of its total capitalization (excluding short-term debt); ,ý..fl,? (0v*
- permit the continued commercial opehioi6'niif Grand Gulf; 700-
" pay in full all System Energy indebtedness for borrowed money when due; and
- enable System Energy to make paymet's on specific Systean heirgy debt, under supplements to the agreement assigning System Energy's righltsim the agreement as security for the specific debt.
- NOTE6; 6. PREFERREDSTO'cK 'ýI .;,.n .. __ f:v "..it.i i2 I . "
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. ... , )
'Cr ,ff;j [10to ifii 2 i ? .. M+;; q1!~
S'"The7 number bf shares au'tliriz~d ahd'I6utsialnding' and' d'llfrralue bfgprcferred stock and mihorityr inftrest 4 for Eniergy Corq5oratiori Us~ubsidia'trie9'ds of December- 3 1, 2005' and,200 aere priseni~d belowYt Only the Entergy Gulf States§ series "With sinkinh """d "r ... ionreqire'menit. ;-All oih&er nes of the U.S Utility are darei- iable at Entergy's optioAil!o .-." ';w ;v' ',iids,! .,- .- '.. I:):rJ*l ti :';,rf.:-f , 4v . -. . (; :i., S :' , .;1. .. ,o .J . ;7 LdAI / . ,., +:2 -- n .111 ii lt *i c !-,I!..., L , O~I " . .'.,
' ., 5 l o.'......
' Shares, :As ii '(IT l!J
'Itff Shares7 ;bri : ,. )1
-. A* c.[l "i Outstanding .A'
-l;ob -fitAutho0rizedY.s'ob ' J'
- -AT, 1'-t '2005 ":.;:2004:oq 011,2005-1 1J-. ,2004*...", 200550!C-* 2004 Enter2y Corporation (Dollars in Thousands)
U.S&Utilit Jl '" :," :;i',i eLniq ;:.: ur.)srit r;...... .' i '.1* A) !"]O0 i..ruq , 'i!i. , ... Preferred'Stock witlihoitsihking'fund: r.IE JJ,,-.: f+J .iI. iI.r i $r '..';bnIJ <' M,.,IU. Ji/ Lin" Entwigy Arkansa's; 4.32%/-7o'88% Sees d '. i,613,500 1,613,500'm 1 613,500 I,613,500*t S$116,350 1 -'$116,350 Enier'gy Gulf States; 4J20%-756% Series7'!, - f 473,268,' 473,268 2Ai 473,268&1'1-473,268 lim 47;327 ,;047,327 Enteigy Louisiana H~ldings,
'Se rie di l f: i L . - .': ,ou~i;'t 4!16%18.00%
>l;'J. q;;9 ,,".!
1ýt, ,-1 2115;000' 2,1i~ 5 , 0~00o:Tir'fr-'i , '. 2 ;1 15,000'1 ;i'i 2,15,000 t
', '100,500.":,[100,500
. , - *~
Entergy:L6uiskina,1LiLC 6.95%'SerIesf11Z u:::,-1;000,000 .,-;i-)i,000,000q " " 100,000)-' Eni'fg-y`Mslissippi, 4.36%06.25%/S&-e'r ii;s',ixY*Tq,403,807 ('%:503,807"i '1 i403,807F 11503,807w; -'50,381 i ",0,381 Ent rg' New Orleans;"4.36%-5.56%0Sgie: (;),4, . ',;I-:. . 197;798mo[ n' . .,197,798f-' "i; l) i 19,780 Total U. S. Utility Preferred Stock without .+ UL fit //11 . '. olf . - sinking fund 6,605,575 4,903,373 6,605,575 ika; ;i , ) 1 .,'>I P , )I' "~- ) 'I~ ~5!J)'II 4,903,373 J$I ~.no Ui.xhrq!/ , ) ;., 414,558 334,338 En r y C m o i y S r m s + 1'l t!+ . 2't:t ' .*+ .,. I -:+ :;' c. '1;,,: .. . d-id
, , ,-."r 1.MAAn_: "1l " ,o'i" -"1 q i Preferred S6tocWiithoitkitiikifigfuhd:"'j i Entergy Asset Management, 11.50% rate 1,000,000 1,000,000 297,376 297;376-41 --29,7381,'If- 29,738 Other - - - - 1,678 1,280
- 1: (Ž::l it"[I.
' "]': Lg 1 l 1: ] I lj ;' * ':-'1 jui{;*?-:c- Ii ' } 2` ,}:".3 1O *oarfsuJ *'r 'J1IIJ2l vL' rn*fl -!r,' :i :ril Total Pretred o*tcwitl
" u..sink.
,o , u.nd
, , '7,605!5759 7 6,902,951 '-,5;200,749 $445,974", $365,356 I I Ho I *toc* ..... iýtr. I5i J U.S. Utility: * ...
fu-.,t f '512 { -f'.b:; I ,l,.o 1, j IiirmTiJ '-I , : Prefefrred St6Wk*vith s.,-i ,k ';. . - " " /.. , ) A"., .W':U
;Rate"7.0 01~~~ /oCb)*
~,~ .~ ....- ', ,.
,ti-*
I),,, 1]id Thb;( ..IT1' ,, ;n,,'AT. i t *'.1"39,500' '" k 1'7 '4 , 0 0 0 ua ' 1....39,500' .::: "74,000"'" :$i'13,950;.*S'17,400 . Total Preferred Stock'ith sinking fund - 139,500" `174,000W!" 139,500"`:' 174,000;" $13',950' -$17,400 Fair Value of Preferred Stock with sinking fund (c) $13,950 $15,286
,80
Entergy Corporation Notes to Consolidated Financi cStatemnts e j t, X (a) Because of the Entergy New Orleans bankruptcy filing, Entergy deconsolidated Entergy New Orleans and' reports its financial position and results under the equity method of accounting retroactive, to January. ,, 2005. (b) Represents weighted-average annualized rate for 2005 and 2004. (c) Fair values were determined using bid prices reported by dealer markets and by nationally recognized investment banking firms. There.is additional disclosureaf fair value of-financial instruments in Note 14 to the consolidated financial statements.
~j-Al1 outstanding preferred stockis -cumulative.--- i vt-1,11;,u rtýj,
(*b::* :e,*' Entergy Gulf States' preferred stock with sinking fund retirements were 34,500 shares in 2005, 2004, and 2003. Entergy Gulf .States,has annual~sinking fund requirements of $3.45 million through 2008 for-ts preferred stock'outsitnding. V*' \, '9,,, o ,, ft/
'tl...),05- I ' ,, ',, O ?)2_,0 ,~ r'*l* i.q *Ju In June 2005, Entergy Mississippi issued 1,200,000 shares of $25 par value 6.25% Series Pfef'i*` Stock, all-of which are outstanding.asTheofpreferred December 31, 2005. The dividends are cumulativd.afi 'Y'-bIc-'a rterly beginning November 1, 2005: stock is redeemable on or after July 1, 2010, at Entergy ISSISSIppi's G ý- , ( "I I lo**k- - I option,;at the call price,,of$25 per share.-The proceeds fromfi -this issuance were used in the third'arterf 2005 to
'I . I". e + -,_!l. * (i)('..l , I I,* *1:* - l -* *k I "< 'ý O' i ".r ... 51 T I.-,if -3 4
redc all $20 million f-Etergy'-Mississippi's '$100 par value 8.36% Series Preferred Stock and'all $10 millon of Entergy *,LI, Mississippi's 1"1i'. tlhU' . *(!tt.$1009,1,par Jo) value 7.44% Series
*.flg~flJigIlJf)'Y- 9'71 Preferred J>.9;;8 Stock. '(iU'L/:'*'lhi~ '!.'i i- 1 r -2 :-.i1 r71'3pJ tTsi-19j!
(*I ,+f.tf1L( SIn'December 2005, Entergy Lo6uristania,-ýLLC -issueid 1,000,000 shares 'of S100 'par value &.95W eries
'Preferred Stock, all March of which are u s'oD ecember 31r,- 2o5 '-The dtviaenos'arccumulative and'payaple quarterly beginning 15, 2006* 'The prefrred stoclkisrreemable on or after'December ý3*1 ;2010, atEntergy Louisiana's option, at the call price of $100 per share. The proceeds fr iimthse i'ssuain{c' will 'b usedto repay lih&t-term borrowings.
In 2004, Entergy realized a pre-tax gain of $0.9 million upon the sale to a third party of preferred shares, and
,fss'tfhan-% of'the *'6mr* < shares, of'Entcr J'ss6 Manae'ment; -an Entergy subsidi y.- "-S l'obe 3 to the consolidat'ed r aI'discussion ffinancialostatehifi i of "the- taxt(benefit eailized oiit n' Lithet s IAsset Management's stockholders' agreement provides that at any time during the 180-day period prior to December 31, 2007 or each subsequent December 31 thereafter, either Entergy Asset Management or the preferresna(renoierd's may request that the preferred dividend rate be reset. If Entergy Asset Management and the preferred shareholders are uinable'to Agree irk'l u - ,I' - it +,, '~~~~r~~e on a dilwdend'reset'rate; it-"r,, j- unblt
?it+ ,-rrt,, ~ +::"-l aap preferreo l, "11L'")'
lr' - I-snaC6freni
+ I ' en"eus Cain Tequest aid .,+ that ht+tssae',
" **-its'* shaires
+ i:"rl7; be I, '. oot sold . . to ,a -;. nr third pa'y.-If.Entergy Ij,, *f'1 " lI' t'r" ) I "Ii Assei"d' 1 Management 1, - : ;I, t \V 'rjj 'I, sell
"*'+ - If *'*,isl'flunable'to " " the . t pjfres*reaghares
-, + l"r. J!l ý
*,lyý .- witl'iN
;! t I 'T , * .,+itiepreferredishareiolder 75'days,-
I -* a" - +4t l- ,+,.i ... .4;t thas the right. ,lto takecontrol'of the'Entergy Ass6t'Management board of
*,+'l*.. ' if',-'.e
,1"*' rtll'"'I:"7r~eqq'~ " '.P i"iti
*+'i rre" t sh directors res' *
"' ,l~.. for the "purpose
,-.ii *+'1 of irlihquldatig'the
' r'+ *+' oi assets of Entery Asset Management .floetlirr in orderiit0.epaythe prefee ars" auany accrueCuiviid nds. o f ilqqshh Ili*1,l. ] 11'_j li 19 (On21.-w ýA,,l I. .. , W,L. it ); CE , 1( f ,5r1iX0 3 " -,:.'W 29t* , 0 tc'J f \
"to00.
lo
- ':'b'*rI*.fO9 MdC]i)(" £ Lu,S' . -f)0 .?.O0-£ r'i s*beris <:is.m' :!'lrI ; :k3oJ.? *fii "TO 9sfl]s; "i3 1i' muf ?Ul~'91 1i t-4iA ,,:.jr~flh
~ II tn"v ;et
.~ 6 ,0 1; Pc0 i*+ *0i 1;;r :l.
~~8l
Entergy Corporation Notes to Consoidatied Finaicial Statements NOTE 7. COMMON EQUITY Common Stock ' . ' ..... ', , , Treasury Stock ,." : :' ...... , -
' Tr.... .;, Lid ,rIiu . r mj:,i '-; . , .- ,L.d Treasury stock: actwvty f6r Entergy for 2005 and 2004 is'as folows:,
2005 2004 Treasury Shares Co.t " " Trea.sury Shares `-"'Cost
. , . f(In Thousands) (In Thousands) a aniayi 31,345,028 $1,432,019" 19,276,445 $561,152"-
Repurchases 12,280,500 878,188 16,631,800 ' 1,017,996 Issuances:_;. . .. . Employee Stock-Based*, Ernpl i n Plans . '(2,965,006) (147,888)- (4,555,897)' , (146,877)" Directors' Plan h (15,920) (359)"q '(7,326)" (25') Endimig Balance, December 311 40,644,602
' .,$2,161,960 " "31,345,028' S 1,432,019 Entergy Corporation reissues treasury shares to meet the requirements of the Stock Plan for Oiifside Directors (Directors' Plan),, the Equity Ownership Plan of Entergy Corporation and Subsidiaries (Equity Ownership Plan), the Equity AwrsPlan qAwards ltCorporation of Entergy
andSubsd bertaiari es, aid~~fili.
.. " oth, stock, benefit b 1 plans. T The rectors' Plan awards shares of Entergy Corporation common stock. to. non-employee dtrectrs a po non
.... of.their om ensation r{i.;... lo ii thfe frm of a fixed ,- a number . of Equity Compensation Plan Information Entergy, grants stock options, equity awards, and incente. awards, to, key, employees of the Entergy I
subsidiaries under the Equity Ownership Plan wvhich isa shareholder-appove stok-asedcompensatiopl. Id.*I
* * , . . , , -, aaa,
,{*d aI a I*,I'd i ,*t t. , t nnrlfp( .. i......1..L...... .J£2 .. . -
Stock Options - .'f f ,. . -(~'aL , .' K a~r.a I o-'r I~t-:s ,:r I/ is .' / . aj .;a -~ ' "il ~ ") J 'i I."
,,1 -Stock opti ns are granted at exercise prices not less than market value on the date of grant. The majority of options granted., i 2005, 2004,. and 2003 wi1,,
_ - - - I .. t'faa, Z I 1_ I *. . -1 - LJ-i become exercisable inequal1 amounts, on eachof the first thrie "AI ` II, II.XIr-, 1 .- .- .I ; .I
- anniversaries of the date o grant.. Unless they, are forfeited prewously under* the, temis ofthe grant, options expire ten years after the date of the grant ifthey are not exercisd. Stokbased pens include m earnings applcable to common stock, net of related tax effects, for 2005 is $7.8 million. There was no effect on net income in 2004 or 2003.
Entergy determines the fair value of the stock option grants made in 2005, 2004, and 2003by considering factors such as lack of marketability, stock retention requirements, and regulatory restrictions on exercisability. The fair value valuations comply with SFAS 123R, "Share-Based Payment," which was issued in December 2004 and is effective in the first quarter 2006. The stock option weighted-average assumptions used in determining the fair values were as follows: 2005 2004 2003 Stock price volatility 18.8% 23.1% 26.3% Expected term in years 3 6.3 6.2 Risk-free interest rate 3.6% 3.2% 3.3% Dividend yield 3.1% 3.3% 3.3% Dividend payment S2.16 $1.80 $1.40
'82
- ,Entergy Corporation
- Notes to Consolidated Financial Statements Stock option transactions are summarized as follows:
r~u
*~ ) !~~~1.$YC-rt ;' 2005l-' ,'I) 2003 2:
;:1-:~~V2D
;,L .",XI-"+. +: . (. 7 x rt. . . Averagell , , .. :,1 1:-,'Average ,:., -Average v i,, , 1~y.- ' :i ,, '.ri:,::-, Numbe'r'.;*,Exercise ;'- -'o Nuinber :*Exercise.' ::'Nuniber:'--:E-eicise
-+ ' ,';'bf Options"::, -Price ,:' ;,ofOptions P"ice' r-,' . fOptons'"r PPrice Beginning-of-year balance 12,310,077 $41.88 15,429,383 $38.64 19,943,114 $35.85 Options granted 1,835,218 $69.37 1,898,098 $58.63 2,936,236 $44.98
.*Option~s.exercised. *,:. rv =:'r* ;*.,.( 3 ,135, 3 9 6 ) ,!;f-$40.11 - (4,541,053)':, $38.07,i!. (6,927,000) ::- $33.12 'Optionsforfeited/expired :,'V! ;v:-i(154,440) $59.16 *wz, (4764351)v.:-,!$39.94r:',::",(522,967)',,:,,$40.98 End-of-year balance I854 '$46.8 2,310,077 . ,, $38 Options exercisable at year-end 7,397,622 $40.21 7,162,884 $37.25 6,153,043 $34.82 Weighted-average fair value of .. ' , , options at time of grant $8.17 $7.76 $6.86 The following table summarizes information about stock options outstanding as of December 31, 2005:
,! *~~di;,:a ":, :rI ,
- 00 ponis Exercisable-"-
i;IiL'.Ž,vr.i,,,2z C';,-:zi '~u ~., ~r L ~: X.£Oi~i h;,.;- "_: _ :;. inga'i'oc.*,:,"')-;`_
/" 3 66" ;.*,-.
' L' J y:7* ' i I:,:;*;*
.... ' i Re.tiining Weighted- U "NuiiibIUr "W ghted-"I
*" Range'of -' As of ": '0 or`atal.....Avg.'Exircisi : xercisable --Avg. Exercise' "e je'ces iil2/31/2005 F- 1Lfe-rs " . Pric' ... -at 12/31/2005 "- '- .Price'..
c*~ i . * .,': .,-A n ' r t ', ' .3 . .. .. .' ! ;+ ', + ' ., ' . ,"-' t i -' .. . , ', I
.. $2 .9 1,274,4 10 41 ,. +, $25.98 '*), ,7,10,,.+25 § 98 ,
.....,$34 .$*44.99,,j _.,!,-5-940,768:.: . +,:;+ 6.1+ :, ;,: $ 1 2;. ,+,,,260,842:..;. ++.$40.69,)ý.
-211,394 ....
, - (1$45-$55.99,, 4.6 '..:,.i $ 4 9 .3 9, rw, io'I 207,360: .-$49.43 )j
$56 -$66.99 1,688,091 8.1 $58.63 532,714,r:';":"10$58.'69.u
$67-$78.99 1,740,796 8.9 $69.64 122,296 $71.92
$23 -$78.99 10,855,459 6.6 $46.80 7,397,622 " L-==
'$40.21`:+-
- ,,Eguity Awards and Incentive AwardsjL.;.+ £; -t- .7- ti '. r:tj-u;:: -'im ,, *!-rA,<r'. ,i ;'i:
. Entergy.grantsmost of,the, equity.,awards -and lincentive awards earned -under its stock benefit plans -in the form of performance units, which are.equal to the cash:valueoflshares of Entergy.Corporation common stock.at;the time fpayment. In addition to the potential for equivalent share appreciation or depreciation, performance units will
- eam the cash equivalent of the dividends. paid during Ahe performance period applicable to each plan. JFhe costs of
.equity. and incentive.. awards,given either.as company stock orperfor.mance: units, are charged to, income over the
- ,;period of the 'grant orrestrictedperiod,' as appropriate., In2005 ,-2004, and 2003,$36 m'Ilion, $47-.million, and $45
_,mlhion,-respectively, 'wvýasc..harged to compensation exPen.rise. :., 1.' '
- -:83
Entergy Corporatibn Notes to Consolidited Financial Statements Retained Earnings and Dividend Restrictions Provisions within the articles of incorporation or pertinent indentures and various other agreements relating to the long-term debt and preferred stock*of certain of Entergy Corporation's subsidiaries restrict the payment of cash
,dividends or other distributions on their common and preferred stock. As of December 31, 2005, Entergy Arkansas .andEntergy; Mississippi hadrestricted retained earnings.unavailableifor distribution to Enterg& Corporation of $396.4 millioni and $68.5 million; respectively. ;Entergy Corporation received dividend payments from subsidiaries totaling $424 million in 2005, S825 million in 2004, and $425 million in 2003.
NOTE 8. COMMITMENTS AND CONTINGENCIES
. Ente-rgy is' involvedi in i, nhumb&'of: legal, tax, and rekulatbifp:p&ie~dings before various'courts; regulat6r'y commissions,, and governmental. agencies, in;the ordinary, course of:its' business. While management' is.unable to predict the outcome of such proceedings, management does not believe that the ultimate resolution of these matters will have a material adverse effect on Entergy'si'esults of operations-,,c-lshfflowsor financial condition.,
Enter2v New Orleans Bankruptcy See Note 16 to the consolidated financial statements for information on the Entergy New Orleans bankruptcy proceeding. ,. , . Vidalia Purchased Power Aigreement Entergy Louisiana has an agreement extending through the year 2031 to purchase energy generated by a hydroelectric, facility, klo0wn as the Vidalia project.,. Entergy( Louisiana made payments under the contract of approximately SI15.I million in 2005, $147.7 million in 2004, and$11216-niillion-inr 2003. If the maximum percentage (94%) of the, .eergyis made available to Entergy Louisiana, current production projections would require estimated payments oft'approximately $130.4'.million in 200,6, and.'a total of $3.4 *billion for the years 2006 through 2031.,.Entergy Louisiana. currently recovers te costs of the purcnased energy tnroughits uel adjustment clause. In an LPSC-approved settlement related'to tax benefits from the tax- treatment of the-Vidalia-contract'Entergy Louisiana agreed to credit rates by $11 million each year for up to ten years, beginning in October 2002. The provisions of the settlement also provide t~iatiihe LPSC shall not recognize or use Entergy Louisiana's use of the cash benefifs- from the ta treatmen" t in settimng any, of Entergy L'ouiisiana's rates."Tfhdiefore, to th& e'x'tentEntergy Louiisiana's use of the proceeds would ordinarily have reduced its rate base, no'chhrig* in rate base 'liall.bld Feflected for ratemaking purposes. :." - t ?"'. Q!," - ,- Nuclear Insurance ....... .. .. Third Party Liability Insurance The Price-Anderson Act provides insurance for the public in the event of a iclarpbower -plant'accident:6The costs of this insurance are borne by the nuclear power industry. Originally passed by Congress in 1957 and most ';recently,'aiended iH 2005, the: PriceýAnderson",Act .r&qiuires nuclear"'powerjplants' to showt evidence of financial jpr6te~tidn in the eveit of a nuclearaccideht. :Thiss proittionmiiist consisto ' f -. J,, ",.
- 4. .. ', ,.4 ..... : ... .,. : )'I,{ 4 '. '. ... i:*-(' 2 ,: ;, tGi;r. ,l,,:; Cflico ".rA,,* ;t)> f:! .¶l'.:m r i'o t: :r I. -The primaiy-leviflis" private'.in~ii-ance und&revittcn.-bY',iiiAirah Nuclear 1' " Insurers '"ii"iand."providesliability insurance coverdge' of $300 millionfi) If this amoufit is not'suffieieiit'ib c6Veri'laiif irisingfromthe accideht,
-thesecond' level,' Secondary Financial; Protection, applies:-.Aii iindistiy-vide aggregate lmitation of $300 million exists for domestically-sponsored terrorist' acts. ý-Theiei& isno
' 'aggregate'hlimnitation. for.foregi-sponsored terrorist acts.
84
r Entergy Corporation
,"Notes to Consolidated Financial Statements 1 n-'-Within th6'Secondary Financial Protection lkvel, ,each nuclear fi1nt musi pay a r'etrospective liieiiniu'm,' equal
-,2:
to its proportionate share of the loss in excess of the primary level, up to a maximum of $100.6 million, 06r reactor per incident. This consists of a $95.8 million maximum retrospective premium plus a five percent surcharge that may be applied, if needed, at a rate that is presently set at $15 million per yea'i per.nu'clear power reactor. There are no domestically- or foreign-sponsored terrorism limitations. ,':' r-7. ,, Currently, 104 nuclear reactors are participating in the Secondary Financial Protection; program ,- 103 operating reactors and one under construction. The product of the maximum retrospective premium assessment to the nuclear power industry and theznumiber of nuclear power reactors provides over $10 billion-in insurance coverage to compensate the public in the event of a nuclear power reactor accident. i;'.J'ii . ,i - Entergy owns and operates ten of the nuclear power reactors, and owns the shutdow ,In 1 reactor IPo'mt (10% of Grand Gulf is owned by a non-affiliated company which would' share on a pro-rata basis in any retrospective premium assessment under the Price-Anderson Act)., 7 :,-._r.; An additional but temporary contingent liability exists for all nuclear .po'wer reactor,owners because of a previous Nuclear Worker Tort (long-term bodily injury caused by exposure.to nuclear radiation while employed at a nuclear power plant) insurance program that was in place from 1988 to 1998. The nmaximum premum assessment exposure to each reactor is $3,million and will only.,be applied ifsuch claims exceed the program's accumulated reserve funds. This contingent prermum assessment feature will expiriewhth thNuclear e Worker 'Tort program's raon, chs scheduled for 2008. , i - -i , - , . ', .- . .* . . Property Insurance v .:Irttcj -lt_:I'I v iiitJ-r:ti Entergy's nuclear owner/licensee subsidiaries are membersof. certain mutual insurance companies ,that provide 'property damage coverage, including decontamination and premature decommissioning expense,, to the members' nuclear generating plants. .These programs are underwritten by Nuclear Electricnsurance. Liitted (NEI). 1 As of .Decembrer 31, 2005, Entergy asNinsured against 'such losse per,he following structures: .,- U.S. Utility Plants (ANO I and 2. Grand Gulf, River Bend, and Waterford 3)
;. Primnar~y 5Layer,(per planJ0 -50million per occurrencet, , - . ,. , ' -,,."Exeess Layer (per~plant) - $100million per occurlencei;, ,,. " , -a ........
- l ': h" ; oo
.-. Blanket Layer (shared among the U.S. Utility plants) ,-$1.0 billion per occurrence., 1, *. , *.Total limit -.$1.6.billion per occurrence~n, ~ i.,:B i , :*lq ;uadlid ;, i *.1' -, -..
h ?f!* ;,r:cd li.+!:' W'r'""
,. .. . . f
....... :~a~' Oar aI? 2fI :. 1:f)t i~ l . ,, 1.~Jza yi r. LaIY ,/LJ1..d.2
* $5.0 million per occurrence - Turbine/generator damage .rri*vro;,i i-r;'; - i,.-;r
* $5.0 million per occurrence - Other than turbine/generator damage Note: ANO I and 2 share in the Primary Layer with one policy in common.
i .rýn 1-1m1,n~~ ')I VC-i V i r: t). ihfsr.?sr.~i YY
- Lfl ~ I!fI-1,,:a .t *'j
-. i[Noh-Utility Nuclear Plants (Indian Point 2 and 3.FitzPatriekP~ilgimlnd ,Vermont Yankee)Nc.ei:rKat(,.;-nPi'-2
- ,.' iu.zPrimaryLayer (per plant) -'$500million per occurrenic,r*i bL.:.W, i - i.i,'
hi, a,,; :7 qb*%;I -.r --U A aiw't 1
\:.!v..*"..Blanket.Layer (ihaired amongall plants) - $615 rMillion per 6ccurreicee'ri .st:ilbs' ,,t*) :'I
*.r ;.Total limit. :$1Q 15.billionk eroccurrence- .?:,'.rj -s"j " i u r? t ibi: £L ~ i W L 3 Lrj u.. .r / ?c ......
'Dditbes ~ ~ ~ j'. (a' r') '.aI (" Z*' !.... f.[jJfWi eX*t;f1L'.nf iiO) ;L-,~ ,, v ,lq *[ ( lt~zr ..... ".- .i"" '
b;,1, ia i. "bel d atibles. ' .... "' . -
- 9. \11.... * ,$2.5 rmlli6nper'ocufrence '-Turbhegenerator damaget u'mgnrtr.damage' .. T.+
)(f,
. ). ..... *
--- 'd,.*$25tmhn per occurrene -Ohrta
.7+9[{ ::r [,0 jo~v'I*' 't~r~i ,;: a*Iih'*'t. "' l: ,*': ,r/)!Jn1',)nl_ to 9 %+;_ !ia ",* I;,' Hi '.* ~.;r'.,'C)[ .t,9!i9Tf9'9!'
1C*..l
-. ... . [l... - * ' )'* ) :I{ " " " "
' 1. ,+
Note: Indian Point 2 and 3 share in the Primary Layer wtn'brioe poicy -i common. - ,1Il: eie. ,. I "addittoniith'e No-thty Nuclear, plants -are ls6ocovrd In 'einder 'NEIL's Accidefntal 'Outage Coverage 1 program.' This-coverageprorides certaim fixed imdmnities in 'the vent'of an'unpanned outage thai irsultsrff6oma ('85
Entergy Corporation Notes to Consolidated Financial Statements covered; NEIL. property: damagei loss, subject, to a deductible. The following summarizes- this coverage as of December31, 2005: r,: .. . .... . ... - ., , ....
, Indian Point 2 and 3 , . .. , . .,, . i'j . .. . .b .:
- '! .'"-, '.. ! ".. .. 2.. -
* $4.5 million weekly indemnity:-Ž ': ,, . - .... . :... ., ...
* $490 million maximum indemnity
*. Deductible:.12.weekwaitinig period. . '.,i!'r . ,: ,-L', . f'..-"
'w,"FitzPatrick and Pilgrii (&ach plant.has an individual policy with the noted parahmeters) 11:b,.
* $4.0 million weekly indemnity .,-. . . . ,' ri "", ,:*...:*.;.........
*0* 1$490 million maximum indemnity Deductible'.12 weel wattihgp0enro'd . ,:! " - " ,.. '.:*.:,"' *. .:< , :',: , ., :
Vermont Yankee ' , ... ,,
- t. "l :'Z,:1 .' ." ,; "- . . J/, . " ':* ":
* $4.0 million weekly indemnity,
$435rmillion'*m xiiifu'im indeini*i .it* -. .. ..1 ,,:'*tt!,ff,, ,.:,, ,.];v u. .- ... ,
.Detductible: 12 week wmitig penodi " *. .
.... Enterys U.S. Uitity nuclear'plants hvsg i cantly' less'or no a"ccental odutdaigef covierage, u ethe property daiage and accideintal outage insurance programs, Entergy niclear plants could be subject to assessments should losses exceed the accumulated funds available from NEIL. As of Decem r 31, 2005; the maximum amounts of such possible assessments per occurrence were $52.5 million for the U.S. Utility plants and $66.7 million for the Non-Utility Nuclear plants. "dI' * '-.
E.ntergy maintains' property insurance, for its nuclear units im excess of tie'NltdfCs minimum requirement of .$1.06 billhon pier ote*?8or- nuc'flea'r' powVer- pla n't" hice*ns e~es. NRC*regulations provide that the p~roceeds of this insurance
ý /1,. I '! , '- , ,
f It* -, I ,
,I , .- ! -,, " - , , ý;*,I, 0f*
, + I; t" " -.'
-- *1 -,,, '- -* I1 I ", I" 'i t * -,--' ...a-. ..
must beused,' first, to render the reactor safe 'and stableand se6ond,?tjocomplete decontamiation oper . Only after proceeds are dedicated f6r such use and regulatoryispproval is secured ýwould'any. remaining proceeds5be made available for the benefit of plant owners or their creditors. In the event that one or more acts of domescally-sp6nsored terrornsm' causes propertiydamageunder one or more or all nuclear insurance policies issued by NEIt, (imfcludmig; but n6t litr t ed to, 'those descne i above)'within 12 months from the date the+fis't"Orbpierty 'daiag occurs; tne maximum recoveryun'der'alf such \lea~i-?insurance policies shall be an aggregate of $3.24 billion plus the additional amounts recovered for+such losses frbmi reinsurance, indemnity, and any other sources applicable to such losses. There is no aggregate limit involving iie'o mn6re acts of foreign-sponsored terrorism. "::. 'I.! .... .,,. 9"'. i '>,'-" " ,;. Non-Nuclear Property Insurance Entergy's non-nuclear property insurance program provides coverage up to $400 million on an Entergy system-wide basis, [subject to, a, $20-million: perl odcurrehceself-insuredc retentioni,', for+all risksýc6ve'6g-fo fdirect physical loss or damage, including boiler and machinery. breakdown.!!:Covered property, generally-, includes power plants, substations, facilities, inventories,+; and gasr distribution-related properties.. .,Excluded;: propertyl generally includes above-ground transmission and distribution lines, poles, and towers. J,.The. primary property program (excess of the deductible) is placed through Oil Insurance Limited ($250 million layer) with the excess program,($150 million layer) placed on a quota share basis through underwriters at Lloyds (50%).and Hartford SteamBoiler Inspection and Insurance Company (50%). There is an aggregation. iit qf, $1 billion- for all paries.u bYOiL for any one occurrence. Coverage is in place for Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy Gulf States, and Entergy New Orleans., r. , .J..
. , .,I addition to the, 0IL program,: Entergy, has, purchased additional; coverage for-some of its non-regulated, non-generation assets. through, Zurich American. This policy, serves to, buy-down the $20 million deductible. and is
;86
rEntergy Corporation
,Notes to Consolidated Financial Statements 1placed *on a: scheduled location ýbasis: ,Thie applicable deductiblesý fire!$ 100,000 6r'1$250,000 hsgper ,the schedule prbo'idedtoundecrvritei's.i :r'r!l *'i i', , , :r i*,irrrI* rK.f; )'1v.:; rLi3V :,9ýý".i -I , '
1Niii6leai.De'commissionini and Other Retiemenf'CosfsP+-? m .ii,.!h'-,,J. ......... Y.iilit .. t i1:,;'h. 4:0,; o13; ýAlouitn;for11, )if t1" 7.V.
; Reiemn .. il i 1 SEAS :143,Accouiiting 'for; A~sst;Retirem'ent Obligations;, :*which was' implemehted'effective Jahuary jl, IA) 12003,,requires the rec6rdirig of liabilities for, all legal 'obligatioris-as§*bciated:with the retirement of long-lived assetý that result from the normal operation of those assets. For Entergy, these asset retirement 6bligditions c6iisist-of-its liability for decommissioning its nuclear power plants.
irutrr ri"kThese liabilities 'ire rdcoirded at thei, fairl.values :(whichtare the presenit values of the 'bstimated futurecaAh routfliws) ýin the'peridd in'which they are incurred,- with ai accompanying addition' t6 the recorded cost of the long-lived r asset. r"The 'asset 'rbtirermibnt obligation is accreted each' yearthrotighl 'a charge to expenise; to 'reffect the time Ivalue of money for, this preserit value obligafion:ifThe amounts ,added to thb cdrrying amounts of the long'lived assets will be depreciated over the useful lives ofthe assets. ' .. ... fl, uraiInir~na&coi-dance with ratemffaking treatment and a* required by SFAS ,7.1,,-the depreciation .piovisionis for the idomesticutility companies' and System'Energy indlude:a cofi4ponent: for'.removal c6sts that are fiot.iasget retirement .obligati6ns umnder SFAS 143.,'Iri acordanceiwith regulitory accoufiting principles;'Enterigy has recorded a regulatory "asset'for certain of its domesticýutilitytcompa-nies and Systenm Efiergy.of $162.9 niillion'as of December-31, 2005 and
$86.9 million as of December 31, 2004 to reflectan'estimate-ofineurred but uncollected ie'rieval c6stsipreviously recorded as a component of accumulated depreciation. The decommissioning and retirement cost liability for certain of the domestic utility'comphnies'iind System Energyinclude.4/ reulatoryliability'of $22.8 nifillion as of December
- 31,!2005 1and:$34.6 t.rhillion 'as~of Decemb'er.'31,:2004;representingi'an estimate .of collected but not yet incufrrd
.rei'idvil costs.' ; ", , aPjri mi,; ,:,b-, r ....1' . 1tZ r a; wr mil;-, rIT ;!.. Ii r ti n lz ,, I '", " t*J 01 r,hV;, Inciq ýJ7llJ ffih';jI ','.' t " ." r iP:, The cumulative decommissioning and retirement cost liabilities and expenses recorded in 2005 by Entergy 4
,were as folloxsI:*.,,'ib irrus ,'f ,,, r i.'-..i t- Vi',*,* , r1174'xI'. . )"(u PJ r*. "'rS; lt li m~j 51 I";:*"7;nYr+u :!';'~', , ')51r' *d ',,, ir.';'qqr~io iqr~.n *,[m d.'i ;a::,,,ujn; *iK£"04/. 'iii vjil~ir ,,I~l~dFi,-h- l ,,;,, L',*nro. : : fi o, )b W' ri'A! .. P:; ni bh)ifýChange in h ,'i:h'n .111W h "i,; f:, .'r!91,'
Liabilities as of Implementation LoCash Flonv T, uW; i* rmr'iqLiabilitlis"as of 4n. December 31, 2004 Accretion of FIN 47 Estimate Spending December 31, 2005 1aozr *ru *',, ', b'JLA*,rni :I
.'U"I:,( 0' ,f;i.'
fu) 1)ý,!b (In M illions) mrn 'r'i ,! ("fl£ lE'in";': ,,', Ifi.; l odr rn 1, f~i l):h .'. ,;. i..j b* ',- ,i A fi ) l
.i[J t,' 1""!
... llit. 1"o:) 1-rinO,*: ;!,-flr-)t.,' .. *v-:.!) f; flhi.w *x O +; :- ni ,'l4 r1U.SlJtilityni$l,$328.0 fin',: :'no'$88.2 Jn,',) "-i v$27.81 Poi ).r($282.2)-!-.,,'Jh ) .:-
)-. uL$1;161;8 It
- Non-Utility bc. L ~n orh nii tri w.2;l uiff:oi,r'.I2? f; b,,;!r, O.c;t':]' l lq, '(lIAlil Nuclear $738.3 $59.2 $0.9 ($26.0) ($10.3) $762.1 L?"-'.
Inu,,l,, 'i. '. ,A." ,, ~... *.... natal P.Jt'! b fLnscn'j!rqri i*;*ol.r~i ,*c ,"K i..,dnnin.';(l rd
,Inidditioh, :afi!insignifi'antf am65iht 6f ijetii,6vl c6gts-associaiedW'vithiion-niuclear power.plants;are"hlio included in
*the (decommissioning r line, itenfi) onrnthe 'bdlance'fshe&t,) 'Enterg yperiodi~ally tii'vs r:aid *updates; 6stimnated
'decoiiimiiioning:'cosis.n'aThe actual ;decommissioning rcbsts, rny.'ary~from,"the .dstimai-s because-Of'regulatory 1requirements,' changes iniechnololgy; iaid increased costs"of labor;mat&ihals; and equipmefit.; During 2004 'and 2005,
-Enterg& upt~da'd&oi'iss'ioning
-tinterg" p'dantIL$dd 'dost ..'studies -for*ANO 'ihd
'VOh1~JIi'Li'8yg o'missininrndot
/, :and,2,;...Rier ;Bend, adn Mi*d Grand~fGulf; "~~ 'dand
,r Waterford,'
;r~ " a non-IIlb "c:
1 1,~'; un .j" '".z (I dlrJl[l:,t'j,'rf 91;;',7 r' rnnl'i ai'3.n I a'a 1;i'** ~kn'*.va', Votnhrlll"m 1;a:;t1 ijobv' , ,'l ;:v .,9 ] ." ;* rl 1'*na*-/i . .t.
,o.An tilrnihe first iquarter-of12004;1:Ent&rgyIArkansas ,rec6rd&d airevision ci' its-estimated decommissioning'6cbst Iliability -in';acdordahce 'with ;ra",newrýdecomr-uss nmg:'cost~tstudyrifor rANO .- l:.and'r2 'asa*i i'esult'-of revised "de~ommissioning costs Jind change in asuftiibiions i'egarding 'the :timifig.of when the decommissiohing 6fthe plants 1will begin:iThe revised estimate'resulted ii 'a*$107.7 niilli6hn're'ductit6n*iiiits 'decommissiohiiýig' liibility,",along with a
'$19.5 'milli6'n'reduction in uiilifi 'plani and an $88.2 "millionix&ducfi6fi 'in the related regulatory asset."'lin 31 lfvh. I S.' . ~,. l, '.. 1rI-1'J'0f(i 1' ' . /,';;I I; La; ,r;,i'l bl'f nd-It('o o
(' !'Y'lJ's* : ; t' '.I1,f1" i; 'thi 'i,.a/'H "1n /flraiPfi o19 "ur T*' V2*[1t9 rf',1,:r'f , :,-.i
- II" ';ili2'a (J.*'L
'87
Entergy Corporation Notes to Consolidated Financial Statements
*": '*YO* In the third quarter-6f 2004; Entergy Gulf States recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for River Bend that reflected, an;'expected life extension for the plant. The revised estimate resulted in a $166.4 million reduction in decommissioning liability, along with a $31.3 million reduction in utility plant, a $49.6 million reduction:in non-utility property, a!S40.*imillion reduction in the related regulatory asset, and a regulatory liability of $17.7 million. For the portion of River Bend not, subject to': cost-basedrmtemaking;. the revised estimate resulted in the elimination of the. asset retirement' cost that had been recorded at the time of adoption of SFAS, 143 with the remainder recorded as miscellaneous other income of $27.7: million ($17 million net-of-tax).-;t; o .. c,.. '-. '. .i. , .
In the third quarter of 2004, Entergy's Non-Utility Nuclear business recorded a reduction of $20.3 million in decommissibning liability to reflect changes' in!assumptions regarding thetiming of when decommissioningof a plant
,vill begin.) Enteigy. consideied the assimptions as part of recent studies evaluating the economic effect of the plant in
.its; region.'4,rThet revised. estimate..i-esulted., in, miscellaneous income of' $20.3-. millioni (S 119, million net-of-tax), reflecting. the excess' of the reduction i in the liability over the amount of!undepreciated asset retirement cost recorded at the time of adoption of SFAS 143. '.: ,,1t.'.. 'I'd); 14,j'-., ,! -c C n ' ;61 AIn the first quarter of2005, iEntergy's Non-Utility Nuclearbusiness recorded a reductioni of $26.0 million in itsfr decommissioning- cost, iliability,,in, conjunction; with a new,, decommissioning. cost. study; as a- result_ of revised decommiissioning costs ýand, changes in assumptions: regarding the: timingi of; the. decommissioning. of: a-. plant.' The revised estiffiate' resulted, in miseellaneouss income of $26.0 million ($15.8' millionrinet-of-tax),* reflecting the excess of the reduction in the liability over the amount ofundepreciated assets.:, ,-t c' 40: . ',. ', , ".: Sr~rn, ,,Ifii the second, qa-rter of-2005,- Entergy Louisiana recorded a revision toits: estimated decommissioning*cost Hliability in! accordance: with, al new decommissioning cost'-study Ifor. Waterfordr3- that' reflected' an expected life extension for the plant. The revised estimate resulted in a SI153.6 million reduction in its decommissioning liability, along with a $49.2 million reduction in utility plant and a S 104.4 million reduction in the related regulatory asset. In the third quarter of 2005, Entergy Arkansas recorded a revision to its estimated decommissioning; cost liability for ANO 2 in accordance with the receipt of approval by the NRC of Entergy Arkansas' application for a life extension for the unit. The revised estimate resulted in an $87.2 million reduction in its decommissioning liability, along.with'a corresponding reduction in the related regulatory asset. '1,' '; T.,,iI In the third quarter of 2005, System Energy! recorded a revision to its estimated decommissioning cost liability in accordance with a new decommissioning cost study for Grand Gulf. The revised estimate resulted in a
$41.4 million reduction in the decommissioning cost liability for Grand Gulf, along with a $39.7. million reduction in utility plant and a $1.7 million reduction in the related regulatory asset. vmi it J.fj,.,
In December 2005, Entergy implemented FASB Interpretation 47, "Accounting for Conditional Asset 'Retirement Obligations.:-an interpretation;of FASB.Statement No. 14Y',.(FIN 47),-.effective:as-ofthatdate; which 'required, the recognition, of.additionalt asset,'retirement obligations! other than nuclear decommissioning , which are 'conditionat in nature. JThe obligations&recognized upon imp!ementation primarily, represent; Entergy's obligation: to remove and dispose of asbestos at many of its; non-nuclear generating units if and when those units 'are retired from commercial! service and; dismantled.) ,For- the' U.S; Utility business;, the, implementation- of, FIN i47:. for, the; rate-regulated business of the domestic utility companies was recorded in regulatory assets, with no resulting: effect; on Entergy's net income. Entergy recorded these regulatory assets because existing rate mechanisms in each jurisdiction allow the, recovery, in rates; of the ultimate costs of, asbestos, removalieither through' cost, of. service or: in rate base, ,from, current and future customers. (As' a result! of this. treatment, FIN: 47-.was, earnings neutral, to. the rate-regulated business, of the domestic, utility companies.,. Upon implementation of FIN 47 in December 2005, assets increased by
$28.8 million and liabilities, increased by $30.3 !million' for' the U.S.i Utility segment, as a: result of recording the' asset retirement obligations at their fair,,values of' $303. million as determined! under FIN,.47, increasing, utility, plant by $2.7 million, increasing accumulated depreciation by S1.8 million, and recording the related regulatory assets of $27.9 million. The implementation of FIN 47 for portions of Entergy Gulf States not subject to cost-based 88
riEntergy Corporation Notes to Consolidated Financial Statements rratemaking decreased eaminigs:b )S0.9,inillion net-bf-tax..i If iEntergy hMd !apliedFIN 47"duringipriornperiods, the r*following impacts would have resulted:*-!o rtl,... ... 'i. o01 -161 11,1o') voiJ *IACFI ,.*j'; L'ji.*U .,-, ri %cr.,old inioqdrlc7:) 2004 ,!r; !, , , ... v 2003::,!'` 0!!iPIY ix!' , rn: r[Y.b ;.*h ;,ri. viJ m. "!, ry,% rt! -f. i, w,,,!i ol , l2.i ;, nIi .ri 1. ,,. 1A I oi "_1 i ui ,:'
.. rr, -[j o?
to lIrAss&'t retirement obligations actiiallyrecorded 1!rv.tj;q "ii*,'f II$2,066,277 v-,,:',:.f:,$2,215,490v L-',-thvi Jj;,ii. ::miPr6 f6rna effect ofFIN4711 Hr:;oriilt.. ;.y:';q'2 ni $29,399.;. rri;:-)rii'$27,708 b ri ii!,,r 11L LwuiAssetr'etiiement obligations - pi'ro f6rmair.;d,) _.ji!I jiJ* 3$2,095,6761" S'1
,rr$2,243,198 1riu.v., rs .. r -o- v) ii~u ' 4 ol Ib(). ,. nf:. fli '11 .[);-j vr NO i
;i'.*A 1" ;
The iifiPaci'6fi net 'incime for each 6f the years ended December 31 '2004 and ,2003 ..w*ould have been immrnterial.!,:`1 For the Indian Point 3 and FitzPatrick plants purchased in 2000, NYPA retained the -d06ommissioning trusts and the decommissioning liability. NYPA and Entergy executed decommissioning agreements, which specify their
*d*donirilissioriing! obligatiohs.*A1NYPA:has -the: right'1to ireqiiireiEfitergy fto issume. the) decommissionifng liability ;provided rthat Fit as'signs fthe corresponding 'decommissioning ;tl:ust, -.up!it6 asripecified, level 1,t6 lEntergy.v':If. the
'-decorirniissioningiliabilityis retained byNYPA; -Entergy' vill'tbrfforin the dec6mmisiioning of the 1lantsiat aiprice
- qualito:thwlesser of-apre-specified ilevel or the *amountl n the :decomnniissioning trusts, '*Enitergy ,believes that the f amouits +'availableto!.it under, either s6enario'are sufficie'nt ;to cdVr.he ;future decorrimis!sioning cbsts twithbuti'any oadditional'contributions to'the.trusti .v1ifi,, ,r ,:'i ,, . n,,,h .r K
.; lc if*;'1tq, T:*h)a~l ...-- "*r
- fbi ;l~irj [t;i:);r'icr' .iht ;:* I',G)i* fii'i-ulfr In*',v;*I OJ 1:;: !t ,.uqiuo'.D l b:ntl:l~: ;] ; l,,:.L)
Entergy maintains decommissioning trust funds that are committed to meeting the costs of decommissioning the nuclear power plants. The fair values of the decommissioning trust funds and asset retirement 'bbligation-i'elated regulatory assets of Entergy as of December 31, 2005 are as follows:. A[f+ l ' ~il; nI!* ',;,rl I t:2 it92l;,.*.
*. Z).LrrI "2.9.3f!l; ,0, l9 /l ,.i,-,ll*lJl+[lJII .* . . a 'l ,11g.
*.* 1nvir.j ', .
h i~! ',-i~L ,/ */ . '.
.uDeconmtissioninp" Regulatory'. " " ":..... ,.)r~f'. -"ri1~. .A sset 0 , ' !_
- ,)I., .
... 7*.,.-*-* .*u*.,9~ .,." ...... -. .. , .,.., - T Irust
~ ~ ~~~~1 nM illi o 'fi-§)
" '.. ........... -,r'll of,'t :* nt'ft *l[
~ ~ ,, ~ :re~ ~Lr.* ,, ~.. ~ ..,......(
~ * ..~o..,,
U.S. Utility $1,136.0 $271.7 Non-Utility Nuclear $1,470.8 . i!,v ' ) The Energy Policy Act of 1992 contains a provision that assesses domestic nuclear utilities with fees for the "de&contamimatlon, and--dbeomminssuoning -(D&D) of theI ý OE's past.uranium'I enrichment, operations. mililion Annual
"$ , '"rilo !for Entergy 'Gulf States,- $1.7 . ; for asesmns f't~r 00 S , ;.' er - 4: ) milhofrEtry9fas
` ,- II " i Entergy Louisiana, and $1.9 million for Syste Inergy.? The+Energy-oltcy 1i 7 t calls for ces'sati6 o'dfannuail D&D assessments not later than October 24, 2007. At December 31, 2005, one year of assessments wvas remaining. D&D fees are included in' othierurrentiabilitits and other non-current liabilities and, as of December 31, 2005, recorded liabilities were $4.5 imllihn -f*r-En1t.1 -for-E/ifergy-Gulf-States, $1.7-million for Entergy miArkansas,-$1.1-llion Louisiana, and $1.7 million'for System Energy. Regulatory assets in the financial statements offset these liabilities, with the exception of Entergy Gulf States' 30% non-regulated portion. These assessments are recovered through rates in the same manner as fuel costs.
-- o+*' r 0 .+
CashPoint Bankruptcy I 2OA .. In 2003 tle aomestic utilit'ycompanies entered an agreement with CashPoint Network Services (CashPoint) under which CashPt'oitwas .to manage a network of payment agents through whicli'Entei"s utility customers could pay their bills. Th'elýa,'inent agent s'yst'fem allows customers to pay their bills'at various' comm'er'cial or governmental locations, rather~thif sending payments by-mail. Approximatel Snh-third .bf Enterg?"'utilitycust~mers use payment ritr**
-~**t(q1*t*lln :1 lh . '*
agents, rýo+..,1' Qt(, .ý); ;?:,ý ,I* C189
Entergy Corporation Notes to Consolidated Financial Statements On April 19,,!2004,/, CashPoint Ifiailedi to, pay' funds due, to: the, domesticc*utility- companies. thatt had: been collected through payment agents. The domestic utility companies then obtained a temporary restraining order. from the Civil District Court for the Parish of Orleans, State of Louisiana, enjoining CashPoint from distributing funds belongingi to iEntergy;iexcept. by paying those funds to Entergy. On April 22, 2004, a petition for involuntary Chapter 7 bankruptcy was filed against CashPoint by other creditors in the United States Bankruptcy Court for the Southern District of New York. In response to these events, the domestic utility companies expanded an existing contract with another. company to manage all of their payment agents:, The domestic utility,companies filed proofs of claim in the CashPoint bankruptcy proceeding in September 2004. Although Entergy, cannot precisely, determine at this time the'amount that CashPoint owes to the domestic utility companies that may not be repaid,; it has accrued an estimate of loss based on current information. If no cash is repaid to the domestic utility companies, an event Entergy. does not believe is-likely, the7current estimate of maximum exposure to loss is approximately $25 million.i r Harrison County Plant Fire:,,. -'-iq '"'4 K;t)). i:*,. . , .': ,.\iiL.I. K ,,,,- .... , ii ,I On May 13, 2005;1 an explosion.and, fire! damaged' the, non-nucleariwholesale' assets: business';JHarrison County. powerr plantu A; catastrophic failure and, subsequent natural gas:. escape fromi a nearby 36-inch !interstate pipeline.owned and operated by a third party, is:believed to have caused the, damage.. Current' estimates are that the cost to clean-up the site and reconstruct the damaged portions of the plantwill be approximately S52 million and take until, the'second quarter 2006 to be completed. '.The plant's property. insurer, has acknowledged coverage,. subject.to a S200 thousand deductible. Entergy owns approximately 61% of this facility. Entergy:does. not: expectule damage caused to the Harrison County plant to have a material effect on its financial position or results of operations. Emplovment Litigation , I :. ! ,i:U:,. .aI
" fi eo - i . ,-:,;,g - :'- 1:w,!;' Ah!
Entergy Corporation and certain subsidiaes' are defendants m numerous laws6ts fi b for' employees asserting that they were wrongfully terminated and/or discriminated against on the basis of age, race, sex, and/or other protected charactenstics. Entergy Corporation anid
' " ,' , 1 these subsidiaries are vigorously defending these suits and deny any liability to the plaintiffs. 'Nevertheless-' no assurance can be given as to the outcome of these cases.
NOTE 9. LEASES ", 'Wi~* General
,,ip'iA As. of. December 31 2005,, Entergy, had capital leases', and non-cancelable operating,!ldses for, uipment,
, buildings, vehicles,,and fuel storage facilies.(excluding nuclear fuel leases and-the Grand Gulfand`Waterford 3 sale and
, leaseback transactions),ith minimum lease payments as'(ollows *fl;? .. ,, .. ,, . .
.. . ..~~ ' .J 1, O peratin .. Ca i a ., , . *
- _
, : . ,... ... . .Year:.. - . . , .. >, Leases.ý*. , Leases., ,,* --;.;ci 16 nou ds)i, 2006 ir" "' "Ž"'.... ' 'j* ) ' Ji, :3 2006 $94,533-,.,,: :,*$5 747t-,;, ,I , .,:
2007 77,026 3,495 2008 63,081 1,307,-n*.f*m-" 1:,1)~ 2009 51,692 -23i-... ......
,: ... "Years,thereafler . 196,3126 , -. 2,33123 .,
, L,'
- I, inimum.lease payments *,:.
,M l';' ,... .A !o.. ,51 , 9 3 3 9 .. .13,354T1 .,I,1d i..ul ,i,*
-,:.,,, . Less: Amount representing interest. ,, , ,, ,.1, 3,403i , :.
Present value of net minimum lease payments $519,339 $9,951 .,.; 90
I:Entergy Corporation
,'Notes to Consolidated Financial Statements I':;,..-:o nTotal rehtal expenses-for, all leases :(excludinig huieai'.fu'elldase~s-and the Grand Gulf:and .Waterford 3 sale
-andleaseback trinsactions) amounteia to S712 ,million ifi 2005,$81.3 inillibn in 2004, and $84.3 million in'2003.1;J;il Nuclear Fuel Leases As of December, 31,r2005,'arrangements to lease nuclear fuel existed in an aggregate amount up to $150 million for Entergy Arkansas, [5105 million for Entergy Gulf States, $80 million for Entergy Louisiana, and $110 million for System Energy. -As of December 31, 2005, the unrecovered cost base of nuclear fuel leases amounted to approximately $92.2 million for Entergy Arkansas, $55.2 million for Entergy Gulf States, $58.5 million for Entergy Louisiana, and $87.5 miiiioi -for System Energy. The lessors finance the acquisition and ownership of nuclear fuel through loans made underl revolving credit agreements, the issuance of commercial paper, and the issuance of intermediate-term notes. JThe credit agreements for Entergy Arkansas, Entergy Gulf States,-Entergy Louisiana, and System Energy each'have a termination date of October 30, 2006. The termination dates may be extended from time to time with the consent of the lenders. The intermediate-term notes issued pursuant to these fuel lease arrangements
* -L $ 114.J,-*
have varying maturities through-February 15, 2009., It is expected that additional financing under the leases will be arranged as needed to acquire' additional fuel, to pay interest, and to pay maturing debt. However, if such addtional financing cannot be arranged, the lessee in each case must repurchase sufficient nuclear fuel to allow the lessor to meet its obligations in accordance with the fuel lease. - aZ-Ph{IO .,;=*, :!w., K , Lease payments are based on nuclearf fel'use. The total nuclear'fel'lease payments (principal and interest) p 'i>, _r. " ; ;' d -V'. "' " -" ' I f" rr' , ". " 0' ' Sy
" m as wel as the separate interest component charged to operationsby the domestic utilty companies'and, System IrrI.0 --i5. 8. *"JIN . T V"t' 1,' - 11 ;',f,'2r rtii of -- ,!
millon) in 2004, and $142.0 million (incuiding interest of$11.8'milhoni) m 2003. 2.-
.ilU() L:;U,'I) fl! I I I:9"0fli I II.. li e :f I'i , I I' I-Sale and Leaseback Transactions Waterford 3 Leaýs' Obligations ....... r,,,.
e l),12 In .1989, Entergy Louisiana sold and leased back 9.3% of its interest in Waterford 3 for the aggregate sum of
'$353.36i -The leaserflion. has an approximate term of 28 years. .Thelessorsfinahced the sale-leasebaek through the issuance of Waterford 3' ecured Lease Obigation' Bonds. 'he'lease payments 'Imade6'by Entergy LoUisiana'are sufficient to service me oeBt. ..
1.( I 'i ii"1 S r* t .'; --. . , , , L.. (I r. )l;':
-, ; .- 19,'m
-. -ir, .- .*', :,- ,', , . *-: ' j;%-o In 1994, Entergy Louisiana *ld not exercise its option to repurchasethe 9.3 'interest' in' Waterford 3. Asa resUlt, l tEntergy t T`:--
10 ; ", N'ý Louisiana
') " , . r.*'!I issued t ,.: *$208.2 h0.million 'ofi,,,,L non-interest'bearing
. *,.:ý II,i 1*
1A, r flL"'7,1 first 11:;!*J mortgage 1'
' ,V* bonds
~ m - asc'cllateiiil'Or fl O D 10 ý: Vmthe
' 1I". ;',3 equity portionicertain amounts payable under the lease. .... 'a.... t' " "". p. ' 19,,7 1 ° '191;.'
.V.5'/11)J ([~19" tUl* ut :, C12J-, , i. "i Ye'.
V.
.In 1997, the lessors refinanced the outstanding bonds used to finance the purchase of Waterford 3 at lower interest rates, which reduced the annual lease payments. " -... . .
Upon the occurrence of certain events, Entergy Louisiana may be obligated to assume the outstanding bonds used to finance the purchase of the unit and to pay an amount sufficient to withdraw from the lease transaction. Such events include lease eventsofl default, events of loss, deemed loss events, or certain adverse "Financial Events."
"Financial Events" inchlId.Q"'a':nong other things, failure by Entergy Louisiana, folloNvig'-the expiration of any applicable grace or cure perio&I to maintain (i) total equity capital (including preferred stock) at least equal to 30% of adjusted capitalization, or' (ii)"'a fixed charge coverage ratio of at least 1.50 computed on a'rol1ing 12 month basis.
0*', .. *QO'3i As of December'3,.20'05, Entergy Louisiana's total equity capital (including prefýeýýl stock) was 49.51% of adjusted capitalization andriis¶fixed charge coverage ratio for 2005 was 3.69. v. , I )*?. - f:P Io 1 o,"I . [! ; )ýI"is m : j . 7.2 " .1f -n1.9 f l l~oE.
'F'if ; ý !L v 1\ ( C r91
Entergy Corporation Notes to Consolidated Financial Statements ,:,.- " 1 As, of December 31;.: 2005 1Entergy Louisiana*had future, minimuml leasefpayments., (reflecting, an overall implicit rate, ofi7.45%) in connection with'!the Waterford 3' sale'and Ileaseback transactions,i which. are recorded as long-term debt, as follows: Amount 2006, $18,261: 2007"' :' l )'(. 18,754 ' ' . 'i r:;'i!N':i S . '2008 .... 22,606 , 2009' 32 4.521! 21 ' i3 1382-Years thiere2 ifer 1 . ' 298:94i4 2 S" Total- '. :" 426 135 ' ..
... Amfount Less: represeting,, ,, ,l .... 178,410 2 "
'Presenivalue of net miimmum lease payments -. $247,725 ... " . -
Grand Gulf Lease ObligationsI , .,. .. , ... ,s , .(:
- f . l,* IIn
- (t, December if.. , . .. 1988, il .* ; #/ System
-It "1 , #.Energy i ý1) . ', ,sold "-0 11.5%
. '. .I-I its lundivided
'.I1of ,,- . t :- I ,. ,' ownership
- i . l Y t;tinterest
-, , .. 1-1in* . Grand
',; -", IGulf
.. , J for the aggregate sum~of$500milhoni.* Subsequently, System Energy leased ba its in'te'rest in the unit or a term of 26-1/2 years. System Enrg has the o , o terninating the lease a d repurchasing the 11.5% inters in the unit. at certain intervals during the lease. - Furthermore, at the end of the lease term, System, Energy hbth, othot of renewing the lease or repurchasing the' l.5%int'erest in'Grand'Gulf. .
In May 2004, System Energy caused the Grand Gulf lessors to refmance the outstani'dinig bonds-ttiai'they had issued to fimance the purchase of their undivided interest in Grand Gulf. The refinancing' is at a lower interest rate, lower interest costs. and System Energy's lease payments have been reduced to reflect the System Energy is requr to report the sale-leaseback safinaiug transaction in its financial statements. Forfinancial reporting purposes,. System Energy expenses the interest portion.of the leas'eobligation and theplant depreciation. However, operating revenues include Itf eea the pyents beaiuse the transactions are accounted for as a sale and leaseback for ratemaking purposes. Consistent with a reciomimendation contam&l in a FERC audit report, System Energy recorded as a net regulatory asset the difference between the recovery of the lease payments and the,amounts'expensed ,foa inerest and depreciation and isiecoiding this difference as a regulatory asset
) i in 2 .1221 -- , 1.,. A '
.2 - ', - I ,11,1
. -';:!.', ) I2.:11
. 2 C) 2 _- I (' '2 1, .. 'i' i J or liability on an ongoing basis, resulting in a zero net balance at the, end 'of 'the lease term. The amount of this net regulatory asset was $63.1 million and $73.7 million as of December 31, 2005 and 2064, respectively. "
As of December 31, 2005 System Energy had future minimum lease payments (reflecting an implicit rate of
! .1 1 1 ;. Alt.'. I J.", I.
5.020/6), which are recorded as long-term debt as follows: i* " . .:,, ' II ,' 2 2 ',1V2 2 AM!-ou nt' *!' ,:: iiS)
" :*,!, ,,, . .2, "
... *. i.'h - :* ' i, ' .t l . . *
* : ' *: ;-:... (n Th6uisinds)"';'!, ' :'.~ .II.
... .Ilh '.'. , :: $46,019,1 ,.,j-"*: .. .... l"
, 200 ,;, ),-:1125(~ 4,Olp
~')f 46,552 2 2 .j .d'2
'.2 - 2008,.,I .2. '1?. .
2009 47,760 20.10,rj ~ ) r , 2.j.. .ý:,: 489569 ....;... , ý "r,. Years thereafter .'N. - '., 1
.- , - <. .,T , .- .253,833 .. . :'r, 22..... '2* J.'.'
- !J1b Total 489,861 Less: Amount representing intere st 125,055 Present value of net minimum leaase payments S364,806 92
rEntergy Corporation
-Notes to Consolidated Financial'Statements
!NOTE:10. *5! h.RETIREMENTg Y IOTHER R.'f:*P,POSTRETIREMENT Af BENEFITS; ý.,!ANDQ 7311DEFINED CONTRIBUTION PLANS :bgf"e0fl 1r "". Oualified Pension Pifns ;r7,i)'j(J Eniterg- hs .tjulfiedp-*ff~i6n q-e'e. plans covering substantially all of its employees: "Entergy Corporation Retirement Plan for Non-Bargaining Employees," "Entergy Corporation Retirement Plan for Bargaining Employees,"
"Entergy Corporation Retirement Plan II for Non-Bargaining *Employees," ,"EntergyCorporation Retirement Plan II for Bargaining Employees," "Entergy Corporation Retirement Plan III," "Entergy Corporatio Retirement Plan IV for Non-Bargaining Employees," and 'Enitfergy Corporation Retirement Plan IV T6r Barga gEinmiEAployees.' Except for the Entergy &6ipoation RetiieientnPlan III, the pension plans are noncontributory and provid&pernsiic"benefits that are based on mpl6yees' creditd serwce and compensation during the final years before rehirement" The Entergy Corporation Re[ifement Plan ]Ifficludes a mandatory employee contribution of 3% of earniiigs'duriig' the first 10 years of plan~pariikepation, an8 1lo1w's voluntary contributions from 1% to 10% of earnings Ifor a limited group of employees. Eifiefgy Corporafi'ii hnd its subsidiaries fund pension costs in accordaice'with contributi6n guidelines established by'Ithe'Efiployee Retirdrhint Income Security Act of 1974, as amended, and the Initernal ReVenue Code of 1986, as amended. hetasses of-the plans include common and preferred stocks, fixed-income securities, interest in a money mi-a'ket--fuid,--and-ififsurance contracts. As of December 31, 2005 and 2004, Enteigy recognized an additional minimum pension liability for the excess of the accumulated benefit obligation over the fair market value of.plan assets. 0 In,accordanceNwith SFAS 87, an offsetting intangible asset, up to the amount of any unrecognized prior servie cot,.was also recorded,wit'h the remaining offset to the hability recorded as a regulatory asset reflective of the recovery mechanism for pension costs in the U.S. Utility's jurisdictions or 'tao otheri comprehensive income for Entergy's non-regulated business. Entergy's domestic utility companes' and System Energy's pensin costs are recovered from customers as a component of cost of service in each of its jurisdictions:'-Entergy uses 'aDecember 31 measuremen'd ater-its_pensin lans.._As a result of the Entergy New Orleans bankruptcy' fling;*Entergy has discontinued_th&_*o'dlidati6* KfE r~yNew Orleans retroactive to January, i ;2005,ý and is repbrting Entergy New Orleans' results under the equity method of accounting.
Componeiis--of Qgi-alifle-d Net Pension Cost Total.2005, 2004, and 2003 qualified pension costs of Entergy Corporation and its subsidiaries, including amounts capifahziied, included the following components: *
.,., ,Y-o 2005 2004 20033 ;
. .Thousands)
S82,520 $7(6,946 J.-$70'337 Service cost
. ::
- O,.5 c ,.'uring"( ,.period,earned
,tnhe- benefits ,.;n 1, ,*':
-Interest cost on projected 1 5 5 ,4 7 ji4d,4403092 . 134,403 :"
LJ::, e4dir.Thrlr (, .*c
' .*_benefit obligation 182,01 Expectedr'reiiri' on assets ('.ii,) 'i'ý(159,544")':(15*,584) '* (155,460)
___.:-Amortizatin of transition asset (662) (763)
'"0 ' ortiztinof prior-service cost 4,863 I-Recognized net loss 35,604 21,687 6,399 Curtailment loss - - 14,864 Special termination benefits - - 32,006 Net pension costs $118,258 $97,521 S107,672 193
Entergy Corporation Notes to Consolidated Financial Statements Oualified;Pension Obligations* Plan Assetsj Funded Status. "Amounts'Not Yet Recognized'and Recognized in the Balance Sheet as of December 31, 2005 and 2004:.-_ ,,", . f2 ..:. ',(, ) December31., ri,11i-it' (, 2005 2004 S.l... / .i.-* ! J ,h ,.. . -I q n,: ,'(IiThousands);.u f y:' Ir:.
- .,.;, :,:Change, iniorjed~ted~i""fit'tbiigjidah,(PBO) ,. :* tli ,v ,.*2:, :.,::q:.?i*.,/
Balance-at be'gfining of year.$2,555,086, "$2,349,565 - 82
- Service cost " * , ,520; 1": 76946 Interest cost, . . 4, , ... ,(,,
- 155,477 148,092 Amendments. -. . 6467 .......
,, ! .A ctuarial~loss ,,, . ft~ . , i ' . ., i*.,In f:th , ;!211,194 i. ,,,j~ A,F !46 1,,1,'., .:j 32 ,,,212 -;...** ,-
Employee contributions
...... ~~~~ * ,r ', ,1, . ~1 ,,,-u. lm* uncT-.:
'i!.(Ib:rl,0 17,768) ,),vol1, (I117,234)f Benefits paid .': .i ':br. o. B .*- , ((
Balance at endofyear..-,!; "li'.. :,.... Lii $2,894,008!'-,-"- $2,633,436., Changed iliil i`).G ,ir.lf 1f:,.,Y..,, Fair value of assets at beginning oyear S"841,929 $ 1,744 975' e' r c :o "('":"
.,:,,m-,p o retumr
-. ,,, 'Actual lo, e,': I,',., " , ~ '. '
i ,.;" t o,nassets tonibplan : " ill , Tt ; -1 ,: 13. ",8""'r1
,;.0'),
,.i" ' . !t. Q,,,tT 0 "8"5'. 7,,,2, 2 ' ' . 5 !5., *:-
- ,170,964-'
tbf 1 El ~ 17,885, 72,825 ~~i
- mpoyercontriutions*,'-
P ,, .
~,, 10321,8 ~ 122 Employee contributions , , - .. ,,02
. B,::Benefits paid .,;, ,. ., , ,-., (1,17,768) (117,234)
. Fair valueofassets at endofyear., -,;.-. :,'i $1,994,879,i-< $1,872,742:,
Fude ( sttu 0,64 (9,2 h.) Funded status ($899,129) ($760,694) Amounts not yet recognized in the balance sheet
ýUnegized tranion asset - , - h. - (662)
' "29,393- 29,053 Unrecognized prior service cost Unrecognized net loss 713,285 542,391 Accrued pension cost recognized in the balance sheet ($156,451) ($189,912)
, :) , : *.I 1 i )
Amounts recognized in the balance sheet Accrued pension cost ($156,451) ($189,912) Additional minimum pension liability. A63) ,(244,280)
', 26,167 Intangible asset
*'*~~~~2423 r-:,:,; . ~~
0781 Accumulated other comprehensive income (before taxes) Regulatory, asset , ,)7 ', i , ",358,061. -,- ,,,207,332 Net amount recognized- -. ..($156,451) ,($189,912)
,,, "' t' t ;
*;:5*, . " ,*
,'.. I',! ,:
"B 94
- Entergy Corporation
;*Notes to Consolidated Financial Statements Other Postretirement l'
Benefits
,, * . , . " * . x* t . -: i- 1 .*. .' a" api .r.. *,,.;': %-'. , a-. C-., .t;'"*',,¶
- Entergy also currently provides health' care and life insurance benefits, for retired employees.i Substantially all domestic employees may become eligible for these benefits if they reach retirement age while still working for Entergy. Entergy uses a December 31 measurement date for its postretirement benefit plans.
Effective Januaryl,- 1993, Entergy adopted SFAS 106, which required a change from a cash method to an accrual method of accounting for postretirement benefits other than pensions. At January 1, 1993, the actuarially determined accumulated postretirement benefit obligation (APBO) earned by retirees and active employees was estimated to be approximately $241.4 million for Entergy (other than Entergy Gulf States) and $128 million for Entergy Gulf.States. Such bligations are being amortized over a 20-year perod that began in 1993/'For the most part, the domestic utilith opanies and System Energy recover SFAS 106 costs from customers 'and are required to fund p6dtretifement beneflis bbllected in rates to an external trust. Components'of Net Othe" Postretirement Benefit Cost ,, * - ,. ('Total 2005, 2004,and 2003 other postretirement benefit costs of Entergy; Corporation and its subsidiaries, includifigam-ounts-capitalized 6fid deferred, included the following components: ,.. ,. - 2005 2004 2003.- In,Thousands) -
,.. Service cost - benefits earned
.1A ;I. during the period $37,310 $30,9470d I; ,$37,799 -I ,
Interest cost on APBO 51,883 53,801 52,746,., (17,402) J1(8,825), j._,(15,1810)*:;,", *,:1
-*r ~*-.. 'Expected return-on assets
- Amortization of transition obligation 3,368 9,429 15,193
.,- Amortization of prior service cost (13,738) (5,222) (925),.
Recognized net (gain)/loss 22,295 15,546 12,369 Curtailment loss 1.' %..~ Special termination benefits Net 6thei'p6stretirement benefit cost $83,716 $85,676 "/-$164,774,:' '.U'-'
" .t , r
- t-" v,:` f*f..
I.CO F.-
*'-* - j 11; p.95
Entergy Corporati6n Notes to Consolidated Financial Statemehts Other Postretirement Benefit Obligations, Plan Assets, Funded, Status, and Amounts Not Yet Recognized and Recognized in the Balanie Sheet iso6f December31 ,2005 and 20041-:i ., . - -* , ,
-- '7 2005
' .... : (In Thousainds) --
2004
'Chan ge iiAPBO .. -,.
Balance at beginninrg of year ... _$928,271 ," 9 1,803 , .. Service cost . .37,310. 3,...:,. 30, 47< , Interest cost ,., j , . 51,883". .53,801 ., Actuarial loss 98,041 73,890 Benefits paid .:.... .. __.(60,031),. 1-.(66,456):: -' Plan amendments (64,200) (60,231)
" . Plan participant contribuition-'.:! '.1" ' : 6,749'
- 6. :. '9312 Balance at end of year . " "- . *"'. " .!) A' !$997,969:' $983,066 M
Change in Plan Assets . . . Fair value of assets at beginhing f'year $214,005 S227,446 Actual return on plan assets 15,003 15,550 Employer contributions it 58,790! 63,399 Plan particioPant-c5ontributions... ,:;1 . d~ 6,749` 9,312 naid
..... ~ (.-11
~! *_ * ,: f -1(60031)'"1(66,455)
_1" '.1 ,, Benefits paid Fair value 6f'assetl at end of year ' ,* " " S234,516r' $249,252
'J! -
Funded status i, .- ". ..-.. . , ;. ;($763,453)y.,-,/ ($733,814) Amounts not yit recognized in the balance sheet Unrecognized transition obligation - :,gt,~x:
, ;;','15; 176;.* ' 5,594 Unrecognized-prior service cost.. 6 , I. " .:.:.-.......(66,105) ;. (39,560)
Unrecognizediief 1SS. .". 403,252 391,940 Accrued other postretirement benefit cost recognized [ in the balance sheet ($411,130) ($375,840) Qualified Pension and Other Postretirement Plans' Assets Entergy's qualified pension and postretirement plans weighted-average asset allocations by asset category at December 31, 2005 and 2004 are as follows: Pension Postretirement 2005 2004 2005 2004 Domestic Equity Securities 45% 46% 37% 38% International Equity Securities 21% 21% 15% 14% Fixed-Income Securities 32% 31% 47% 47% Other 2% 2% 1% 1%
,96
,Entergy Corporation
;Notes to Consolidated Financial Statements Entergy's trust asset investment strategy is to invest the assets in a manner,whereby Iong term earningsý,n the assets (plus cash contributions) provide adequate funding for retiree benefit payments. The mix of assets is based
..on. an optimizationstudy; that .identifies rasset ;allocation, targets, inlorder, to ýachieve ,the maximumnreturn for an ,acceptable level of riskwhile.minimizing the expected contributions~and pension and postretirement expense.i, !Y In the optimization study, Entergy formulates assumptions (or hires a consultant to provide such analysis) about characteristics,- such ,as fexpected asset: class investment returns,"volatility (risk), and correlation coefficients among the various asset classes. The future -narket assumptions used in the optimization study are determined by examiniing his-toricalrmT'alcraciristics-,orf, iie-,vario-us asse siidc*asses, andrnking adjustments to reflect future conditions expected to prevail over the study period. The optimization analysis utilized ýin 'Entergy's latest studyprtoduced the following approved iasset class target allocations. ,, f!" _.
.;: . Pension i- Postretirement m ,'1 Domestic Equity Securities 45% 37%
International Equity Securities 20% 14% Fixed-Income Securities 31% 49%
,, .:4 0h
ýol c4{2 . 0 - ..,.;f
; ,: ((,i.-,i-.,.-,,OQther (Cashand GACs) . *
!.f,'i!' <>These, allocation' percentages <,combined -with /each *assetIclass'I:expected iinvestment, return 1produced: an aggregate return expectation for the five years following the study of 7.6% for pension, assets, ;5.4% foritaxable postretirement assets, and 7.2% for non-taxable postretirement assets. These returns are not inconsistent with Entergy's disclosed expected pre-tax return on assets of 8.50% over the life of the respectiveiJiabilities.1 t - t,'.7: ;Since precise -allocation !targets- are inefficient to-.manage: security :investments,, the following ranges were established to produce an acceptable economically efficient plan.tomanagetq targets:,,1 - , \fP),L-, 1:. 73-Pension' Postretirement Domestic Equity Securities: ,,:' v4 5%,to,55%vri*: :' 3 2 % to 2 W! .4 _L.. ((-AL,~) International Equity Securities 15%, to 2 5/;i.: ,r.' 9 % to19%j- 1 :,:2 ,. -:,',
! Fixed-Income Securities 25% to 35% 44% to 54% c.
Other 0% to 10% 0% to 5% Accumulated Pension Benefit Oblieation K0(.".l .Io. ;:O,'. "2ý;"i "oO A'L/. .:. m. , bTr
*w.ni 'Po') ':.z d.,. i' t . 1 x.::.A...... ,The accumulated benefit obligation for Entergy's qualifiedm.ensionpans was $2.5.billionand $2.3billion at \. ecenber3*I,'2005 and 2004, respectively,.. <. ..:. h r-.q;:,- yn.ýrJ 1:A I:.;,K :".. r:i U-1'1 "'(
- qI* 9))" !-S . "*t ,,'11'..
.:* I,t*,:*: '*i~ ... t -,,
AJ*q*,*-'r:).
.*,1. ," !rv . J ' ** * : "' - i !*t* '*.7' l
.. '04w'.
5L ('0 bfl:in i
'9.7
Entergy Corporation Notes to Consolidated Financial Statements 'Estimated Future Benefit Payments; ,,.,. '.y-. -. .' . ', - .
- * * ! Based upon the -ssumptions! used to' measure Entergy's *qualified pensionr arid postretirerent benefit obligation at December' 3 1 2005; and including pension and postretiremrent:benefits attributable to estiffiated future employee service, Entergy expects that benefits to be paid over the next ten years will be as follows:
- .'.. - .E~timated Future Benefits Pay'ments!ý .,'Estimated Future Medicare Pension Postretirementil Subsidy Receipts (In Thousarids)-:': %
Year(s* " b*: - .*i , ., ... ".. 2006 $118,291 $58,936 $4,241 2007"' S*20,343Yr $63,280 . $4,928 2008 $123,592 $66,551 $5,618 2009 $128,281 S69,397 $6,249 2010 $134;5321* $72,545 $6,810 2011-2015 $840,503 $405,161 $45,328 Contributions Entergy expects to contribute $349 million (excluding about $1 milliohn'in 'employeý'contributions) to its qualified pension plans in 2006. $107 million of this contribution was originally planned for 2005, however it was delayed, as a result of the Katrina Emergency Tax Relief Act. Entergy expects to contribute $60 millifii to other pdstretireient plans in2006.-..- ,! Y"". ,:,I .. ... .. * ... Additional Information - -'. :, :, . .. ,.' - ', . ,I
'The change in the qualified pension plans' minimum pension, liability included in other comprehensie income and regulatory assets was as follows; for 2005 and 2004: . - ' ..... -.- - .. -.
.: ,:. ",-' '. 2005 2004 (In Thousands)
Increase/(decrease)'ih the minimum pension liability included in:, .- Other compreheiisive income (befor6 taxes) ' - $13,462 :", ($4,578) Regulatory assets . ; : "* ' "' $150,729 $73,311 Actuarial Assumptions The assumed health care cost trend rate used in measuring the APBO of Entergy was 12% for 2006, grddualiy decreasing' each-suc&essive 'y-ear until 'it reac'hes 4.5 in 2012 andbeyond. The'assmfied health care cost trend rate used in measuring the Net Other Postretirement Benefit Cost 'bf,Entergy waS"l% f1t0'2005,Tgkduali, decreasing each successive year until it reaches 4.5% in 2011 and beyond. A one percentage point change in the assumed health care cost trend rate for 2005 would have the following effects: 1 Percentage Point Increase 1 Percentage Point Decrease Impact on the Impact on the sum of service sum of service Impact on the costs and Impact on the costs and 2005 APBO interest cost APBO interest cost Increase (Decrease) (In Thousands) Entergy Corporation $101,814 $12,727 ($92,042) ($10,998) 98
,Entergy Corporation Notes toConsolidated Financial Statements The significant actuarial assumptions used in determining the pension PBO and the SFAS 106 APBO as of 1December 31,'2005, 2004,1and 2003, Wee as§:~AI follows: ,r:5tiu-rlrt ,b'Jl ii ip-f.:t ;. , 2*q, (v' :
1,,:. .11.00.
- i *...,;'!."t .I+vnr ru h'al
?.t.) if .q d:but,l [;,m,- .i:: I* ji't , 0 5.*;id rrJi*)20047)
!;~.si *,i-s*::,:1ihnoioq Lt-.( :.1r'l
*],-7:w-- ",::12003]_'_" ,>. .i .I-(Y'.
- +! ', ntifvj,9HirT!1 ", . ,I,
. !W&ighted-hvFerAie discount rate:, f,,H. Oi I? Hu.i noillif ".I U. ,, ,,i,,,:, l1;'
1i.*.rfti 2 2:'J
- 'f:;: r*itj.' n'Ai --' Penfsion prmi,-i vd;l:)*: v;1ilni r -i-- ; 5.90% 7r-r rnoiti'6.00% "-,-.-,-- -6.25% T t
- i. 1',
0 . ,,'P1I,:6.7lT .n.ioiirm I .U) t; l: .Jim, ;o 'o:'Other.p6'iretiiemifit,. ji,,"ri . 5.90%J/.I . c 'd46.00% Weighted-average rate of increase ' ', if'r:'d1'ql1Of it.', 2 ,',9fl 01 01:"',i; *ilt-! irlt8 I? in future compensation levels 3.25% 3.25% 3.25% The significant actuarial assumptions used in determining the net periodic pension and other postretirement b'efit c6§ts -fo',2005,2004, arid 2003 .eire as ifollows: 2i') -i l I,
- or-Li- I.. h,8 IK; i:-; i,'l rI
- r. bm.% .,frrtiMlfLf,- lb
.i.. Iin, n rcoo ;2005,,j nrid5irl2 2004 : : ',, 2003- . ' ,
.2 IsI,,Weighted-average lfo1;jI.. discount'r rate:l-.,°,; f; J! rP '!;07 t *:t'T -f,"
.1,v-i r:r2 . -', sO!Ti'.
Pension 6.00% 6.25% 6.75% 6 ,', 6 I i.635% f!:u,-udT
- r v'rdbipdijh i ',Other.postreti'ement jr, . / r: iC! .00%/
ýA1" .ýs-YN.olq'rtWeighted-averagerateofincredse 1 ;:n-nori li: -,6, iýirttrr . .r ... , Iii :,r, d i ,U s ;r: w "n ir; :& i c-,-in future'cofiipensitiofi levels 2"3.25%
-,i-'-1v -,;ALtr ow 3.25%-,o ,'ý,iL?;3.25%,.r ,i","','!yts:
1 q;!q ij,,iv.Exp'ect&d1long-tdrrfi rateofu ,:r - " r' i ,O ,- - , , , , .... return on plan assets: :a:Ioi;'J 2 5flrD, i;f: 0111111 'nit 2CiJ> y.'.::: 5r:ior, :; 1i8t1 ;2bIoL:t0 Taxable assets 5.50% 5.50% 5.50%
,,;[ zN6h-taixible Olo::i asiets qu ,.noi ,dn., -8.50%, .q'cilrj8.75% IV h8.75%'frn. ri ri: f,
..... r,-
':iz.'. _,i ir 't, "iioh ;:2sirb :co'. clrro q ~r h iri ;;:'-'~ t:mnrlrr .i rlt/.*i~'oqil')1) ','+ i','tN. 'r ;'*I *c~:l ni* ,Lt') '(i'Ct Entergy's remaining pensiobetransition assets ýteb~ing'aimortized'ver.the"greater of the 'remaining service
.whieh period of active.jparticipanis'!or'15 (years ended in 2005,tafid its SFAS! 106'trarisition*obligations 'are being amortized 6ver:20oyears e.idin in20l2.'li0 'JI "yU Ijcs;i;9
,Voluintar~y Sevrance'Progra"m' ,u . r' ,,,l ,.JT+;
) ' :. lo rtr;q '.2:.n i ':'.q' G~'; ','c')2':L'l u : ,-,,J:,1-As part'of an-initiative to achieve productiviiy mprovieiimetsir'uIth /!goal of reducinig dofti;fprimirily in the
*Non-Utility Nuflear'and 1U.S:3Utility;busines'es,tin 'the second 'half of,2003 Entergy offered a ivbluihitary'sdveriance vprograim to employees in:vaious dejirtmeiih*s?'Appioxiinately 1,10(0 employees, including' 650 emnloye6§ in iiudler 1joperiitiois'frorm the NonUtfilityNuclear irid U.S.,Utility busiriesses;,'iccpted ihe offers.'As aregtilt of this 1rog"ra'i, in the fourth quarter 2003 Entergy recorded additional pension and postretirement costs (includifig aamounits capitalized) of $110.3 million for special termination benefits and plan curtailment charges. These amounts are included in'ihe net einsion'coit and fiet postietiremhent benefit cost 'for "they'ear'ended Deceriibei:31 1,2003.:i jrll cA t-w,' ;.Ioilocdi 11fr")1A,; il ,'lo
. .u ' ..cO0, ni fmilli.n & I" t h::r. I iQ r;,;ItIr_ Q . -
; rt:*-'i [r "leM~'
Medicare Prescription DruLy. Improvement and Modernization Act of 2003 In December 2003, the President signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 into law. The Act introduces a prescription drug benefit cost under Medicare (Part D), starting in 2006, as well as federal subsidy to employers who provide a retiree prescription drug benefit that is at least actuarially equivalent to Medicare Part D. The actuarially estimated effect of future Medicare subsidies reduced the December 31, 2005 and 2004 Accumulated Postretirement Benefit Obligation by $176 million and $161 million, respectively, and reduced the 2005 and 2004 other postretirement benefit cost by $24.3 million and $23.3 million, respectively. 099
Entergy Corporation . Notes to Consolidated Financial Statements Non-Qualified Pension Plans l, : .' 1 X,* "A*
, . i* *.!
- L **.
#** [1. ,::*.q I *.
'V '~r it ir;,i' ;.'.b ii Lv~i afo i~*. r.*, :r :.,i :! ..i *i :>fY1 Entergy also sponsors non-qualified, non-contributory. definied benefit; pension plans that provide behefitstto certain executives. Entergy recognized net periodic pension cost of $16.4 million in 2005, $16.4 million in 2004, and
$14.5 million in 2003:!,The projected benefit obligatibniwas $142 million and $141 million as of December 31, 2005 and 2004, respectively. There are $0.4 million in plan assets for a pre-merger Entergy Gulf States plan. The accumulated benefit obligation was $133 million and $130 million as of December31;-2005 and 2004, respectively.
As of December 31'; 2005, Entergy's additional minimum pension liability for the non-qualifiedipension plans was
$63.1 million. This' liability was offsetiby a $13.6 million intangible asset'.S38.li million regulatory asset, and a S 11.4 million charge to accumulated other comprehensive income before, taxes. .'-,',
Defined Contribution Plans Entergy sponsors the Savings Plan of Entergy Corporation;and Subsidiaries (Systemt Savinfgs.Plan))oThe System Savings Plan is a defined contribution plan covering eligible employees of Entergy and its subsidiaries. The employing Entergdtsubsidiary. makes T'matching cofit.ibutions for all non-bargaining and certain bargaining employees to the System Savings Plan in an amount equal to 70% of the participants' basic contributions, up to 6% of their eligible earnings per pay period. The 70% match is allocated tOinvestmeiits as diredced býJihe employee. Through Jaridfary 31, 2004, tth'e System Savifigs Plan provided that the employing! Enieq*gy subsidiary make matching contributions in the following manner for all non-bargainingfand, certa-inT-bargainimg', employees. The employing Entergy: subsidiary continties to make matching contributions[ in, thei followingj manner for all other bargaining employees who don't receive the 70% matching contribution discussed' aboveoIThe. System Savings Plan provides that the employing Entergy subsidiary make matching contributions: :. *wq ,;,.::A 0 in an amount equal to 75% of th' participants' basic contributions, up to 6% of their eligible earnings per pay period, in shares of Entergy Corporation common stock if the employees direct their company-matching
; ,contribution tothe purchase of Entergy Corporation's common- stock; 1or.a,,h r,-i ; MT J',1qi:LmL
.:,i~: -r:rin at! amount, equal~to 50% of,the participants!,basic contributions,; up.to 6%.of theirieligible earnings per iq pay period, if the employees direct their company-matching contribution to other investmenLr funds.!9\ilnt;n Entergy also sponsors the Savings Plan of Entergy Corporation and Subsidiaries Il..(established, inr200 1), Savings Plan of Entergy Corporation and Subsidiaries IV (established in 2002), and the Savings Plan of Entergy Corporation and, Subsidiaries YV: (established, in: 2002) to which matching contributions are also. madeffThe, plans are ,defined, contribution, plans" that-cover eligible) employees,; as I.defined by'each, planj of.Entergy, and: its -subsidiaries.
,Effective December 31,' 2005, 'employe.s participating, in: the, Savings; Plan, of Entergy Corporation and Subsidiaries
.V, (Savingsý PlanIV),were'transferred into the System Savings Plan when Savings; Plan Yj was,merged into the:System
-Savings Plan:. ti,; * ,.q i b ?,' Ins, ; i ] )b' 'E'*
Cg:io i'i [ )] I !jp itmo'! OilI [I1 Entergy's subsidiaries'; contributions! to, defined'contribution: plansý collectively, were: S33.8! million! in) 2005,
$32.9 million in 2004, and $31.5 million in 2003. The majority of the contributions were to the System Savings Plan ii I;' 1m::019: !oo -14;vi; V'h[i il::iJiv: '"Ž . .. .. i; , 1 ' '>' :',)t:t l;~u'*,l : *.! '3.", *'."ri '/' :2 vbi',,rq ,.iv" , c'.lolqy~vv 9i1 ,:!.,i-:,: , l i rz'brt *, I[*' ; .
*1)([. ..f h.'l~ll;i ,:*.*l r: !3
. P':I;'! i", ,, ;~lr*:'"[3 .xJ oiirjf* .'o~'* l i,:,
ll;'i *:*I;Oi ['J*'l'A
.: 'l .y...<
" .Joiti:*, i... ' : .*'? /, i,)I(oo i'*';'".~o i* q :'!! n ';')oLt, 100
,Entergy Corporation
,Notes to Consolidated Financial Statements NOTE 11. BUSINESS SEGMENT INFORMATION Entergy's reportable segments as of Deceiimber631, 2005 are U.S. Utility and Non-Utility Nuclear. U.S.
Utility. geriates',,transniits, distri'butes;laiid sells electric pbwer-iy6rtioms'of Arkansas, Louisiana, Mississippi, and Texas, and provides natural gas utility service in portions of Louisiana. Non-Utility Nuclear owns and operates five nuclear power plants and is primarily focused on selling electric power produced by those plants to wholesale customers: ,'AIl Otheri,,includes the parent company, Entergy Corporat!ion, and other business activity, including the Energy,Commodity Services segment, the Competitive Retail Servicesbusiness, and ear nepres of sales of previously-owned businesses. The Energy Commodity Services segment was presented as a reportable segment prior to 2005, but it did not meet the quantitative thresholds for a reportable segment in 2005 and 2004, and with the sale of Entergy-Koch's businesses in 2004, managementre.does notexpect the Energy, Commodiity Services segmenthas to the- uantitatie Ifsholds i eet The(2004 and 2003 mformaiionmthetab1esbelow hasIii meet qb.ui!j itaiv in _,6e - tables below been restated to include the Energy Conmodity Services segment in the All Other column. .As a result of the Entergy New 6rle'bankruptiy filing, Enter& has discontn'ued the conoiilation of Entergy New Orleans retroactive to January, 1, 2005, and is reporting Entergy New Orleans results under the e m ethod of accountin in the U.S. Utthrtyrsegment. .... ,n ,y*, Entergy's segment financial information is as follows: , . ,-'
. ....... ) I *.11 2 -; Non-Utility; J r - .' ,; ; ,' : ,!
2005 U. S. Utility Nuclear* All Other* Eliminations Consolidated t:, ">,*.* i ), I .* L;;. r8 [(Ifirrhousands) 7...)*, f Operating revenues $8,526,943 $1,421,547 $237,735 ($79,978) $10,106,247 Deprec., amort. & decomm. $867,755 $117,752 $13,991 $- $999,498 Interest and dividend income $75,748 $66,836 .$78 185 ($70,290) $150,479
-Equity inearnings of " .....
unconsolidated equity affiliates $765 $- $220 $- $985 Interest and other charges $364,665 $50,874 $130,302 ($70,237) $475,604 ncome taxes (beefits) . $405,662!' - :-$163,865 $2"' ' " ;$559,284 S*,$1,243) iLýss3'from discontinued operations'"" I _ $V.. $*< (,$44,794).r :f$`7 .h.-:($ 4 4 7 94 ) t Ne t income (loss5)--'2"2) l ,f.C'$681,767 -" $282,622'i 5 .)..($40,544) .($87) L.. $923,758 Preferred dividend requirements $22,007 $- $3,475 t r'($55) ": f$25427 erning (loss) applicable to . - (,.. ' , . ,j , common stock ' $659,760 ' $282,622 ($44,019) ($32) 89'$898,331 Tot1l assets " '$25,242,432 $4,887,572" $3,477,169 , ($2,755,9049 $30,851,269 Investment in affiliates - at equity $150,135 $- $428,006 ($281,357) $296,784 Cash paid for long-lived asset 7(,* .. .
.-a~dditon~s 7 $1,285,012-,J $160,899' $11,230 $945 1086 I ,.r ,,. -- -2 -? I." ,Fiti~r.'Y' ,t ':,._, h*sL, ,ih hm.)Y.t.!q J? 'i 2t,!) k. Er hc .'{iCt, .(I b . *-_, ...... '. ,qrr' j
*,IX"11,i xb o, I '.,rOf--,: ro" r ' fI ,t' , ;.
rrf 2a4;t 7*7,
,- I'" Tý
.E0 .vr
'i . ,:...
,,:I,'l.':'r . tý~ T:'t .1Ci * :o l t!it~r r~!.l
'no I .t;,i qrn ,,I ] p".7
- - ;'..).!fr t2Y.li.,..t
*i, :'j;rV:' .7; ,
M101
IEntergy Corporation Notes to Consolidated Financial Statements
. f 1 :1; ;'
- . .*. ,; - ;:,*, ;;.:.'?ilifJ U d A . flL ;'",! No-n-Utility/,J lo Ž.* i::.g2'.&..: ' .d ::d;;c*L *.¢,7fl 'r, 2004i . v,.:h.:U;S. Utility.,' Nucleart ,!Al1'Other*jEliminations, Consolidated i~r7 I
- f~!rc> L2q(nThousaticls)- ;!-,) 6' ;o, i ' T
" .. prtnreee ,,*., ,*:,) Lu; .$S8!142,808 'Sl,341,852'(Fý! $265,051 '-!:;'`,$6d4,l9O)tO$9685,521Y, U Dnere, amiior. &ddecomm.*, -I . $21,028 S'1,10043,103-'
IInterest anddividnd inco. $40,831 $63,569 $60;430 ($55,195) SIO9,635"
,r '
Equty'
- . .I. -
loss of. .-
" .L .- ' , I '.)'. ,
- ".') 1I '
- I-I I . "; ;. , ' -If -.
, ,4 uncnsý!dAatea emty affi(iates' SI S (S78,727) , S (S78,727)'
Interestniiother charfgess .. $383,032 " 657 fi ($55 142) $477,776S 'f!U
.Incomne
" *[;U taesQ,.nefits)
- ' . "'*9 . '/ "H
,, [* ,!
$40*6*,8964'" ") ":'1 :2$142,620
;*,J*flLI~ri.' " "i'zq ,b'($184,179) 7;:.fi ,*'v~' it'.:.Y, !I[
,,. l.!:.{: S365,305
. . "*;! ,5/
Loss from discontinued operations ,, S- (1) . . Net infcome $666,691 S245,029 $21,384 ($55) S933,049 I/:?;",j Preferred dividend requirements S23,283 S- $297 ($55) $23,525 Earnings applicable to common stock $643,408 S245,029 $21,087 $- S909,524 Total assets $22,937,237 $4,531,604 $2,423,194 ($1,581,258) $28,310,777 Investment in affiliates - at equity $207:,: ,' $- $512,571 ($280,999) $231,779 LCash liaid for long-lived asiei :'L... . -, ;.. $242,822 $15,626 ($5) $1,410,610 additions ,..1'o". ,'S1191521167 A.,,,,.No _'IVt P.1 2003." U. S. Utility Nuclear* All Other* Eliminations Consolidated
,. ,; .. ; ; (InnThousand ';7 ..* ..,.., ... ...-,
Operafting revcenues ?.$7,584,857. .$1,274,983, S',210,910 (S38,036).;, .9?032,714 92 Deprec.,amort &.decomm. , ,- -$890,0 $87,825 ----
$17,9514C -,:o
,..J.. $'.I,295,871 Interest and di vidend income S36,874 -i;,,
$43,035,- $45,651 ($38,226)"i,, (,$87,33,4 Equity in earnings (loss) of -
unconsolidated equity affiliates ($3) 5- $271,650 " .$-. . .2 1 Interest and other charges $419,111 $34,460. $90,295 ,($38225' ,.7 $27iý64-Income ,, taxes I.' ,+-y
' tKt)* * . ,._ .', , +,.$341,044 ' . $88,619?_ $67,770 $- $497,433 Loss from discontinued operations $_ S- ($14,404). $- ($14,404)
' " !,J '2 J:;
] J; l'i2*I* fl ,2? I r.'t Cumulative effect of accounting change. (S21,333) $154,512 1$3$895 .. 137 , 074 Nei income $492,574 $300,799' $157,094 $- .$95ý64U7 Preferred dividend requirements S23,524 $- $- $- S23,524 Earnings applicable to common stock $469,050 $300,799 $157,094 $926,943 Total assets $22,402,314 $4,171,777 $3,572,824 ($1,619,527) $28,527,388 Investment in affiliates - at equity S211 $- $1,081,462 ($28,345) $1,053,328 Cash paid for long-lived asset additions S1,233,208 S281,377 $54,358 5- $1,568,943 Businesses marked with
- are sometimes referred to as the "competitive businesses," with the exception of the parent company, Entergy Corporation. Eliminations are primarily intersegment activity.
102
!Entergy Corporation
;Notes to Consolidated Fifinncial Statements In the fourth quarter of 2005, Entergy decided to divdst *th*'Y6Wil 1etric;p6itibn6 f.the'Competitive Retail Services business operating in the ERCOT region of Texas. Due to this planned divestiture, activity from this business is reported as dis6ontiiniuid r'opjeratioiiim rth6 Consolidate Statements of Inco'me- n'rconnectioin with the planned sale, an impairment reserve of $39.8 million ($25.8 million net-of-tax) was'icoi~ded:f6r0the'remaining-net book value of the Competitive Retail Services business' information technology systems.
Revenues and pre-tax income (loss) related to the Competitive Retail Services business' discontinued fc' r i, !I,aoperations
;,t.:ofi vi bwer ;:s follows:t,.iir
'1 ( 1,-, q
. -'*: ! i . ! : , " .....' : !Ž 6 5 .,, * * .rt,1. n . o2'i,-0 , 0.,t4 2003 '..) ':/ c 10 11 J', 6 (In Thousands)
-'Operating revenues $654,333 $438,203 $162,206 S Pre-tax income loss) , ' .. ... ($68,845) $562 ($21,763)
" t:Od
,Ok rg j)'j. 1 fl1"r !;:*.I"i; dl 2tloV . "*u .*O Z_ , f .1',:u, I.
, " ' o - ,"'l,.fl -ý
- Assets and liabilities related -to the Competitive Retail Services business' discontinued operations were as follows:
~D~~be ecem*2 r 31, .I it j1o II: .-) r ;
N.I. d Itot* Hir o;oi lpC *111 C f,. _2005" 2004 1 (In Thousands) t[iti..O'}:! 'rh itd :, *z',.i ~l
~i ~v"-.,h.r"horl tn!rv .- , :'.
9Ai *
"Current assets $89,579 $85,572 Other property and investments 15,095 5,061
~, Property, plant and equipment - net )9,587, .... 27,867
;' . L e ler r lt Sa n oo"eot h er a s s e t s , 15,263 lotal assetis $145;164' $133,763 Current liabilities,. .1$26,036 .,., $32,552 Non-current liabilities 35,884. '
i, , W:,, 6,298 Equity 83,244 94,913 Total liabilities and equity , .$145,164_=, S133,763
-S .
Also, in~the fourth quarter, of.;2004, Entergy recorded a charge of approximately $55 million ($36 million net-of-tak)-as-a- reilt-0f in ipi-ifendit'bf thevalff-eof theWiireffPower plant. Entergy concluded that the value of the plant, which is owned in the non-nuclear wholesale assets business, was impaired. Entergy reached this conclusion biis6d vd&aluation sfildiesir@lared in chiiebii60i with the sale of preferred stock'in a"subsidiary in the non-nuclear wholesale assets business. wc, v.,,.,'jry "i;, ,-<:.n'A 1l'l Z09 ] ,i1Oo rr':!*-!.
.* 'ýA )*': *ff<'i Geo2raphic Areas - z2;!z.t;i hto ,b),,
For the'years ended December 31, 2005, 2004, and 2003, Entergy derived less than j1% of its revenue from outside of the United States. (o(MY,.Z I Ii '2 *.fii,1li .i' r, '..,]I(1- .I t" ) " -K.v lr..-rfJ- ; "1.9fsf Co1:.fs r .,2f iz-:J.ri:-i(l As of:December 31, 'and2004i, Entergy had almost no long-lived assets located outside of(the United States. 1103
Entergy Corporation Notes to Consolidated Financial Statements NOTE 12.
- EQUITYMETHOD INVESTMENTS, ' :b vr.+r&ri .,. !,, .- :a di:-' " i c,1
, v~i*.,; ,iti,
, .,.'I u ri*;.rb bcvrr:.i:q ,,-l* *;I -.i (1J .. .. ., H*i,t "T)O D*!J :' i, i,,tit*':*, 'u ":ms++ iUd *'i:+iv,"§2 As of December. 3 1,.2005, Entergy owns investments in following companies that it.accounts fobrtunder the equity method of accounting: , [. i,, . , f *
- ri i ':*, .+1'Tn If ,O,"fI; Company Ownership Description
..-. . +.d -'l'
.J ... ( ii'VJ+,1 "'.iJi~Žr:: .. + . ' " ,tL, %:'",1:) .sr++rI ./G ' . !,:2 *q L ,"z2;i:;19] l Entergy New Orleans, Inc. 100% ownership of A regulated public utility company, that generates, transmits, common stock distributes, and sells electric power to retail and wholesale 7
I..y. ,1 - h, customers_ As a result of Entergy New Orleans' bankruptcy filing in September 2005, Entergy deconsolidated Entergy
;:, NewOrleans and reflects Entergy Ne~v, Orleans' fimancial
....results under the equity method f accounting, retroactive to January 1, 2005. See Note 16 for further discussion of the
- , .. .., *,* :,: ,i*~bankruptcy proceeding., , .... j Entergy-Koch, LP 50% partnership Engaged in two major businesses: energy commodity interest- marketing and trading through Entergy-Koch Trading, and
.. gas transportation and storage through Gulf South Pipeline.
Entergy-Koch sold both of these businesses in the fourth quarter of 2004, and Entergy-Koch is no longer an operating
- ,*r ~~entiity*.... +
",.,;- ) ;p - rf
.: ,'r!';+~i;( fl&.Irf
.. f[e.r! ./r'*.:'.+ i~
RS Cogen LLC 50' / member Co-generation project tthit poduicespower and steam on an interest-- idustril and ibasis in the Lake Charles, Louisiana _0
........... area.
Top Dee 50% member Wind-powered electridcgene ratiodn* int venture. interest-Following is a reconciliation of Entergy's investments in equiltyaffihates:
. ' ', : .. 2005 004" 2003.
... ..... .(,,,
,- ,, I . ,iThousaids)' , . i; si *i I - U--
Beginning of year. $231,779., 1!,! $1,053i328,. f ,::._$824;209-" o', Deconsolidation of Entergy New Orleans, effective January 1, 2005 154,462 Additional investments 157,020 4 .1 _ Income (loss) from the investments 985 (78,727) 271,647 -,a: .: .ifl Other incomiiei :I! <-: . E 6,232:';! - .. '45j583 2I * " Distributions received (80,901) (888,260) .e-(105,l42)h l .'Aoi,,- Dispositions and other adjustments (9,541) (17,814) 12,363
" End 6fyear:" ', .
",4 $296,784 -',i .*'>$231,,7790) .1,* $1,053,328)J
*104
rEntergy Corporation
;Notes to Consolidated Financial Statements The following is a summary of combined finaricil Iiiif6i iiti6iirep06rted1by'.lEntefgy's equity mineth6d investees:
2005 2004 2003
,; - *:i ,$';:, if; d' 1 ,o fi-rcr ll VI'A ,;r -!l, ik:'.bltnk-(InTh~ san'1s) .lAm' ._ IL i:
....1 .... *, .qr: r.Iu'!r! b*;'. .+' v*'i'tr' .r ;'"'I ;.C " ;','-I ) "~to '1J'l fibi?.! ;; rft~i~j :;(,ji~f;
- 1 "t'3 u: ;:;*-iuuj
'.-,Income Statement'Items :fT, ,)*qA ,, , ' !, iz,- bD105f f1la -. v..,,..' f:,r,-* .it' ._ rr.,-o.
h'*i$585,404,i1/2 ,birj ;*o,';,"
-E'110lq &i;rq
'**lO erg':-*'
' V..'perafifig rev'enuesili -: ' "!'S "IN,*-S *.':S.'721,41'0 2l 4 I *z":bn'u 27,17 70)1 -7 Operating income $9,526 ($111,535) $207,301 Net income $1,592 $739,858 (1) $172,595 Balance Sheet Items Current assets $415,586 $540,386
- ii r')*- hl:*
Noncurrent assets $1,498,465 $418,038 .K*ri 1 bý:;Hl" (JCurrent'liabiliies (j 1-.!fl it :$544,030
-nb ! r':'"*""$180,009: ") " ' . I ",,;1 t:-; I v.<_r:I:'-I* q~ No66durrentliiibiliflie*.' 7 Dh ,,l"'i'*v: ., S999 ,,346- m-')rn* , o '$46391899' ,, .:. r "1-l'*. *t*rmý r:, trfl"
'/1*., ]*n,; , r' L- * ;'i?;?rJ .9rlI ljf',:: f,,>! -1t2 :.*l'i! ;'vft 4' ,OM nJ .ar*.itudiitt.;, fl*;: ", rr~jii~::" £&Z* lr~
f 1, ( lnclfdes f -recorded by! lEhnergy-Koch on 'the .sales* df rits;en'ergy 'trading ,and -pipelihie 1;ml J!:: {gins f',-r r, buisinesses.!2xt*7J .;1"-'(?n fJ ' t.-,: *r'l bWI) 1->V: ).'lttnzva J..; - 1 r,?- Il t ;Ilt flC'io J?'I, b"<2'.",; o; *. (I:f c fI
.ýlo) -IL. r iii i- I;I,-.-:
r) I1; y tlp; t)li, tu i.s [i}','vv.oi21t-r,!I ,Jloi *jL £>1 guairh6n eesV.::.!; l {?.!. . aninrwfI ef] .ii.-Y Ii '*il',, ti:ý Y: I-'1o-lýf¶ iinoiýitr Related-ia'*ikrV ansaclionsjhnd See Note 16 to the consolidated financial statements for a discussion of the Entergy New Orleans bankriulflay proceedings and activity between Entergy and Entergy New Orleans. Zi _` E I ý: .i i 't U"! -,.ir *-ý During 2004 and 2003, Entergy procured various ,servides)from IEnteigy-K6ch, bonsistiniglpriimairily iof pipeline transportation services for natural gas and risk management services for electricity and natural gas. The , total'cost'ofsuchseirvices in 2004!ah'd 2003 was'apprbx'iihiely5$9.:5.miillio6 add $15.9:miillion;'respeciively. There were no related party transactions between Entergy-Koch and Entergyiim2005.I,-EntergyLouisiana and EntergyNew Orleans entered into purchase power agreements with RS Cogen, and purchased a total of $61.2 million, $43.6 million, and $26.0 million of capacity and energy from RS Cogen in 2005, 2004, and 2003, respectively. Entergy's operating transactions with its other equity method ifi~cgte't's Werh6 tt'iailin2005,;2004, df'2003. .A,t ",:TO4 T In the purchase agreements for its energy trading and the pipeline business salles;iEntergy-K6ch:dgrbed Jo indemnify the respective purchasers for certain potential losses relating to any breaches of the sellers' representations, Iwariantiesiand6bligations'undei: each ofthe purchase agreements",Enitergy Corp6ration .hasiguarante&dluip to 50%
-'ofEntergy-.Koch'sindemnifrcafion obligations fto the purchasers'.: Entergy does not ý'xpe~t any' rhiterial'claimsiuider htbese.indeinnification'obligatibn',,Ibut to the extenit-that aniy-aretisserted intd:paitd, Wlie gaiui that ;Entergy:.expectsto record in 2006 maybe reduced.;,ix-;i ,; Ii:'o; hru .01'Iif; BL~i ý'. .IAI i ukwrt JAI*ni
-- During the fourth liiarteFrbf 2004, ai Entergy subsidiary purchased from a'.c6iiiinercial _bank holder$ 16.3 million of RS Cogen subordinated indebtedness, due October 2017, bearing interest at LIBOR plus 4.50%. The debt was ,ptirchased 'at a' discount "of approximnat6lyS2;4 milliofiltlit -Was to be amortized over the renrihing life .ofithe debt.-=* in 4J6ine'2005;6100%',of the ,$16:0. iilion'bilanie 6f,'ilij subordinated indebtedness was soldlto :i-ilehdifig institution for.i00.75%'of par.-I v:L' 'ifili 1
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Entergy Corporation - Notes to Consolidated Financial Statements
- NOTE 13.'.: ACQUISITIONS AND DISPOSITIONS .,, .':- ',
Asset Acquisitions In June 2005, Ent-ergy.- Louisiana1-purchased the 718 MW Perryville power plant located in northeast Louisiana for $162 million from a subsidiary of Cleco Corporation. Entergy received the plant, materials and supplies, SO 2 emission allowances, and related real estate. The LPSC approved the acquisition: and, the long-term cost-of-service purchased power agreement under which Entergy Gulf States will purchase r75. percent of the plant's output. * f . ~: .,.. . :; ' 2' . : . -, .:: , ,° A-Asset Dispositions Entergy-Koch Businesses , t --. " , In the fourth quarter of 2004,f Entergy-Koch' sold its energy trading and pipeline, businesses, to third parties. The sales came after a review of, strategic alternatives ,for enhancing the valuet ofiEntergy-Koch, LP. Entergy received $862 million of cash distributions in 2004 from Entergy-Koch after the business sales, and Entergy ultimately expects to receive total net cash distributions exceeding $1 billion, comprised of the after-tax cash from the distributions of the sales proceeds and the eventual liquidation of Entergy-Koch. Entergy. currently expects the net cash distributions that it will receive will exceed its equity investment in Entergy-Koch, and expects to record a $60 million net-of-tax gain when it receives the remaining cash distributions,; which it expects will occur;_in 2006.,%-, In January 2004, Entergy sold its 50% interest in the Crete project, which is a 320MW power plant located in lllinois; and realized an insignificant gainon the sale.v:,;,l :. ':;: T-h- , .: In, the fourth quarter of 2004, Entergy sold undivided interests in the Warren Power and the Harrison, County plants at a price that approximated book,value. . , ' . . I -i'. " .'. .- ,*,t ., "i! " - NOTE 14. RISK MNIANAGEM1ENTZAND FAIR VALUES,. ' .. ;,... .. , '.. ".,,,
,Market and Commodity Risks ,r1 ,,,*;... ,r-,. f T
., 3 YCAi ?. *' 4 : '.': . ".. .. ... ;.;! " *'i* ": "...q..... .....i.:.r.
."r o I Inj the normal, course of business, Entergy. is exposed to: anumberý of market, and commnodityj risks.: Market
.riskjis' the potential loss that Entergy, may incur as, a. result, ot.changes in, the market-or, fair,yalueof a particular instrument or, commodity.,, All financial and commodity-related, instruments,, including, derivatives,, are: subject; to market risk. Entergy is subject to a number of commodity and market risks, including:-..:b,.:, UT, o*), .7 11,;
, " 'J hI 4 ' :Type of Risk: , b-> ,"., , V,- Primary Affected Segmentsm* -
.bt :i Fd].,,u ..- .:,!.. ;. ,-
'- ',i ,, n1/4*; -:. ,' .. ' -; . ~1 ... b i L i i ;rt~ .), ... i~!
Power'price risk,,- .d..i.,:, 1 c: d0; -,i U.S.,Utility; Non-Utility Nuclear; Energy.Commodity Services., iFuel price risk,') 2.... 2:..ý , I:' 4,* U.S.'Utility" Non-Utility Nuclear; Energy Commodity Servicesda 1 Foreign currency exchange rate risk U.S. Utility, Non-Utility Nuclear, Energy,Commodity, Servicesi-i 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 management 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 106
Entergy Corporation
-Notes to Consolidated Financial Statements management strategy. Except for the energy trading activitie conrdfiute tliroiigh D.eehiber :2004 by Entergy-K6ch, Entergy enters into derivatives only to manage natural risks inherent in its physical or financial assets or liabilities.
Entergy's exposure '6tdnihark'et .irisk':is';deterimrin-ed rb? ' 'Snu'nbef of.,fictois'.-including -th&'! size;- terr*, composition, and diversification of positions held, as well as market volatility and liquidity. For instruments such as options, the time period during which the optiofainay be exercised and the relationship between the current market price of the underlying ;insirumefif and theloptin's'cd6ntractual stiike or exercise price also affects the level of market risk. A significant factor .influnrcing the overall I vel of market risk**o which Entergy is exposed is its use of hedging techniques to mitigate such risk. Entergy, niaiage& market risk by actively monitoring compliance with stated risk management policies as well as monitoring the effectiveness of its hedging policies and strategies. Entergy's risk management policies liifiit the amount of total net exposure a'nd r6lling net exposure during'the'stated periods. These policies, including related risk limitsiare regularly assessed rto ensure their: -appropriateness given Entergy's objectives. ,,>,,* obecies............. .......... . " ... ?. l? ' Hedging Derivatives Entergy classifies substantially aiJiof the following types of derivative insifimientsheld by its consolidated businesses as cash flow hedges::'
;.-4nstrument - - -b,*.. . Business Segment Natura gas and elecrcity futures and forwari* - Nont-Utlif 4uclear, 'Energy"Commo'hty Services, Foreign currency forwards U.S. UtilityNon-Utility Nuclear . i r;-. *
-. Cash -f Ii*egs -with -net -unrealized losses of 1 5aýroximtfely-$391 -million at December 31, 2005 are scheduled to matuare during 2006. Net losses totalihnapproximately $218 million were realized during 2005 on the maturity 1f 'csh'flow hedges.' Unrealized gains'ori5 16sses result ffriom' hedging power output at the Non-Utility Nuclear.p6owrstations .and .foreign .currency h6dges related to EuroUlenominated nuclear fuel acquisitions. The related gains or losses from hedging `6-e;i"fireircluded 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 isI currently hedginig the variability in future cash flows for forecasted transactions atbDeceffibier 31; 2005 is approximately three years)IThe ineffective.p6rtion of.thechanei-n the value of Enterge's cash flowxhedj6 during 2005, 2004, and 2003 was insignificant. £t i h. it
,Financial Instruments g.,i *3: ;,'t..Mi - , ' . ! -i., ,*iirJ 1t.rl[ 1" . "Jo -l-'ft),
,CIHP,.?,i:t::i:,,,b 11
) q
"" !,The estimated fair value, of Entergy's financial, instruments4s a.dterrrned using bid .prices reportedby dealer
,markets and ,byinationally~recognzed investment banking-firms.<The Le§timated fairyvalue of:derivative financial Lmnstruments is ,based on marketquotes. Considerable judgmnen~Qsrequiredin developing some ofjhc estimatesof fair value. Therefore, estimates are not necessarily indicative of the amounts that..Entergy, couid,realizejna, 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. 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 6 to the consolidated financial statements. 7107
Entergy Corporation Notes, to Consolidated Financial Statements NOTE5.',:; DECOMMISSIONING TRUST FUNDS, 'b;;i ,,.'i: !" ,: : ." . o Entergy holds debt and equity securities, classified as available-for-sale, in nuclear decommissioning trust accounts; -The securities: held at December.3 1,. 2005 and 2004 are. summarized as follows:! .. S, . :Total;o ..!* .;',Ji Total , .- Fair. Unrealized-; , .. Unrealized'.:::: . .,
. , '..i.*,:, *.* ,:' .i*"* Value
- , .(In:Gains-I.W.
M illions)*:..: j:Losses:!..:i : ,* .;.: .:.;' *.. --
-.2005,.....(, . .,: , .. , " Equity, ,,, '* ;.t ' $1,502 :.-', $280o .:r,:r," ý., $12' *-ý,:;;%.q ,,...'.,, * ,
Debt Securities.,,i - .': 1,105. . , "'20 .m -, ;. I "';, ;, .1,,, Total $2,607 $300 $22 2004 Equiit "$166 $ s99 Debt Securities 1,457 33 '6 t'f: . Total S2,452 $199 $23 The fair valueand gross unrealized losses of available-for-sale eqiyand debt securities, summarized by investment type and length of time that the. securities have been in a continuous loss position, are as follows at December31, 2005: - ,, ', , ,,r. . , . ,
- ,Equiy.Securities .- Debt Securities,.
-'*lJ n-*r' (' ".i;i": ,'..:.. . ; ii 81.2 v ',,P,..ss.
rGros.s
~F~r~( h~.Uneai,. .... Fir... -;.:
t Unrealized, 1 ,...~. Value,. . Losses.-, Value r .... ,,LossesF.. (InMillions -
., r,¢ Less than l12 months,.,.b ,,,. ., .,,. . -; $ 7 .. ," ,, , $1r, ':i"}*,,: 4 5, .."= , .$ , ..-
More than 12 months M :.! -> I., , :ti104.,: ,' ' 1...tT .i , 116:.;,- ,-, ... Total $131 $12 . ý.,$541"": i $ " Entergy evaluates these unrealized gains and losses at the end of each period to determine whethei'ar bih;"r than temporary impairment has occurred. This analysis considers the length of time that a security has been in a loss position, the current performance of that security, and whether decommissioning costs are recover&! m'ir'tes. Due'o the regulatory treatment of decommissioning collections and trust fund earnings, Entergy Arkansas, Entergy Gulf States,. EntergS Louisiana; anid System Energy record' regulatioryasets or liabilities-for iiuneal gd'jainis'and losses on tnust investments. Fo the unregulated pobion' of RiverBenLd, Entergy Gulf' States has recorddd an offseting amount f tiinirealihed'4gaihs 6r ioss'eis mtlir dfefered credits. No sigficanit tparmnts wer.e recrdt in 2005aihd '2004"as a'aesut t.e.seevalii"tin "f , . .... ..... ' " ' 108." ,". 108
,Entergy Corporation
- Notes to Consolidated Financial Statements
, f(The fairyalue of debt:securitiesi,summarized by. contractual .iaturities; at.December 31,'-2005 and 2004 are
- a. ...... 7; ;-;, v io , 'lf 11 b.""
7.Vl less than I year $80 $134 lyear- 5 years 357 592 5 years - 10 years 382 425 10 years- 15 years."K-O ,1 i; 416.0* J")'. 'i 158 , I .I.. " 15 years - 20 years 73 " 60 20 years+ . 'h ;L97iu t.tJa ", '88 -rc. :th;, Kin;i'j) Total $1,105 .: $1,457 During the yeharended Deceniber.31 ;2005, the pjr'oceed&_from.the dispositions of securities amounted to $50 million with gross gains of $0.7 Mimllion'"ad gross losses of $2.3 million, which were reclassified out of other comprehensive income into earnings during the period. During the year ended December 31, 2004 lthe proceeds from the dispositions of siurities amounfVtb'o $37 million-vwthlgross gains of $0.7 millibn a'iid&grss losses of $0.7 million, which wveree~la'sified out of-oithie*rmprehen) firco'n*re into earnings during.the'p eiod. NOTE 16. ENTERGY NEW ORLEANS BANKRUPTCY PROCEEDING Because of the'effects of Hu'rne6anhie Katrina, on'S ptember 23, 2005, Entergy New Orleans filed a voluntary petition in the UriiietS'6& tes Bankrtipc'y Couirt for the'East'ei'District of Louisiaia: s&1iihg'rCorganization relief under the provis6nsvf 'Chapter 11 6f.the'-United Statis Baiilkuptcy Code (Case N0 05-17697). Entergy New Orleans continue's'to 'operate its business asia 'debtor-in-possessinunder the jurisdicti6hbf'tli6'bafikruptcy court and in accordance with the applicable provisions of the Bankruptcy,Code and the orders of the bankruptcy. court.
"(*I,' . w) -, /JJ." '" ý,r! r;flý.1( v-* , ' "1H;*no,**~rbi o.ro "..dl 'w *',l, 007 :'!,")'!I; ; :,i... ,
,In ,Septemfber-2005, .Entergy New Orleans, as borrower, and Entergy Corporation,.as lender, entered into the Debtor-in-Possiosn (DIP) credIt agreement, a debtor in possession credit facility to provide ftindih'to Entergy New Orleans during its business restoration efforts. On December,9,(2005, thebankruptcy court issued its final order 7
approving t&e tbh. credit agreement, including the priority an ihen staiti of the indebtedness under the agreement. The credit faciity provides, for up to$200 mtlhon - loans. ,he faeitty enables Entergy$New2Olneans to request funding zfrointergy Corporation, butthe decision to lend money is att the sole discretion-bf Entergy Corporation. As of December 31, 2005,EntergyNe' Orleans hbad ouiisianding borfowings of $90 million unIder the DIP credit agreement, - ? :rr 'A1~ 9~ ~{f2O * :i'pVm Entergy owns 160 perent of the common stock of Eniergiy 'NEw Orleans,'.hiascontinued'to supply general and administrative services, and has prove ebtor-posssion financing to Entrgy New Orleans. Uncertainties surrounding the nature, timing,. and specifics of the bankruptcy proceedings,- however,-,have caused. Entergy,to deconsolidate Entergy New Orleans and reflect Entergy New Orleans' finaenil results underthe-equity methddof accounting retroactive to'Janhary ý1 2005. Because Entergy owns all of the common stock of Entergy New Orleans, this change will )iot, affect the amount of net income Entergy records resulting from Entergy New Orleans' operations for any current or prior period, but will result in Entergy New Orleans' net income for 2005 being presented as "Equity in earnings !(loss) of unconsolidated equity 'affiliates" rather. than its results being .included in each individual income statement ;line item, as ;is .the case for:periods prior to:2005. Entergy reviewed the carrying value of its investment in Entergy New Orleansi to determine :ifan impairment had occurred as a resultof the storm, the flood, the power outages, restoration costs andchanges in :customer load. *Entergy determined that -as tof*December 31, 2005, no impairment had occurred because management believes that recovery is probable. Entergy will continue to assess the carrying value of its investment in Entergy New Orleans as developments occur in Entergy New Orleans' recovery efforts. (109
Entergy Corporation Notes to Consolidated Financial Statements Entergy'9 results of operations. for 2005 include $207.2 million in operating revenues, primarili, fr&T6sales of power by Entergy consolidated subsidiaries to Entergy New Orleans, and $117.5 million in purchased:-Po'ver, primarily from purchases of power by Entergy consolidated subsidiaries from Entergy New Orleans. As stated above, however, because Entergý owns all of the common stock of Entergy New Orleans, the deconsolidation of Entergy New Orleans does not affect the afidount of net income Entergy records resulting from Entergy New Orleans' operations. t, NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED) - Operating results for the four quarters of 2005 and 2004 were:
- Operating Operating Net
.... , ,, Revenues(a) -. lncome(b)..
I . Income
- - ~(In Thousands) i-2005:... " .. . . . ' "';,8 ,' ", .: .... :t' -" . '
First Quarter: $2,110, 182 ,. 311,008, ,..,.S178,620.. Second Quarter . , $2,445,389 ., ::$515,573, , S292,789,. " ' Third Quarter S2,898,259 $654,339 $356,388 Fourth Quarter $2,652,417 $311,069 $95,961 2004: First Quarter , $2,169,983 $379,020.. .;$213,016 Second Quarter, , $2,379,668 . $4 9 1,2 6 7 ,, *;*$ 2 7 1,011. . ThirdQuarter ,),,$2,832,642.:. S570,316;: - $288,047
.,Fourth Quarter.. ,. j ! $2,303,228-. $ 2 0 9 ,5 6 9 :7-,;d .,j .,,$160,975. ,,.!, ,. .
(a) Oprating revenues aire' lower by'$102,461 in thd fist quarter.2005"and $1 10,597 i efthe' second quarter 2005 due to the deconsolidation of Entergy New, Orleans retroactive to January 1','2005."Operating revenues are...........,,.I....- lo'wer by.. $1.10,771 in. the ......first quarter 2005y $1-53,`5'3`3' I... ...the second' quarter 2005; $231,472 in the'third quarter'2005; $81,566 in the first quarter 2004, in the thid'rd 2004 'due to the
.....: seondxquarter
"$105,429 if a'tlie o'on
+ 'treament 2004- and$130,939 oftheýCompetitiv'e'iý Iet Sevcs i bsiness as aýqarter diseoniimuýt operation." "
(b) *-Operating-icome is lower- by $12,521 n the first'quarter'2005 and $17,934' i the second
"* "quarter' 2005 due'to thie"dconsodoation" fente'rgy' t Nw brleanfsretroactive :to"aanuaryi "
- 2005. Operating income is lowerr (higher) by ($1,850) in the first qiuarter 2005, ($3,897) in the second quarter 2005, ($10,502) in the third quarter 2005, ($186) in the first quarter 204ý"
$3,045 in the second quarter 2004, and $1,156 in the third quarter 2004 due to the treatment of a portion ofhe Ciompetitive Retai Servces t esas a SContued operation."s- .
Earnii2s per Average Common Sh .
....... ::'"e
" 2005,-
/ ,. I ,':.>' 20
, ' Basic,.
.... Diluted .' T Basict't;..: -*Diluted ! ; i,,
,.,i* . , . Fir'st Quirter-:-.. . :,:. $0.80 $0.79!.)* ,,.r_. $0.90 1! $0.88'i ,i- !
- Second Quarter"-" ,,.' It$i.36 . $331 ; $1.16 - . $.144:v+..
i -
,*i ,,, , . -Third Quairtei"-1 "; -,'! $1.68 * $1.65.', ..: $1.24,' ".':$122- J';.: *:. .
- . - -$0.43
,FourthQuarter $0.42r - ' ! $0.71'---;, :-1$0.69 :'"..,'y: . ..
110
Part I Item 1 Entergy Corporation, Domestic utility companies, and System Energy
*':,l,. ENTERG'V'S BUSINESS (continued from page 3),-.. , , . . ..
.... ! The .U.S,-Utility. is Entergy's-,largest~business'Isegment, with *five wholly-owned domestic, retail electric
-utility:subsidiaries: Entergy ;Arkansas,' Entergy Gulf States,- Entergy:Louis iana, :Entergy;Mississippi, 'and Entergy New Orleans. These companies generate,-: transmit,,: distribute ýand isell electric ;powerto, retail and -wholesale customers in Arkansas, Louisiana, Mississippi, and Texas. Entergy Gulf States and Entergy New Orleans also Iprovide:Lnatural ,;gas ;utilityý services to icustomers; in and ,around.,Baton ;Rouge, -Louisiana,., and New. Orleans, ,Louisiana,respectively., Also.included inthe iU.S. Utilityis System-Energy,-a wholly-owned subsidiary of;Entergy (Corporation that ownsorjleases 90 percent of Grand Gulf. SystemEnergy sells its power and capacity from Grand iGulf at wholesale toEntergyArkansas, EntergyLouisiana,-Entergy Mississippi, and Entergy New Orleans. .- ,(<zq (,Idrrq (,! ",'i~1*! i;1t itrf, ,".1," fi 2lU :'I' ., ,. 1d1* 1.2..',,xJ 1,,......,,These.utilityj subsidiaries areeach, regulated bystate utility.commissions, and in the case of Entergy:New 2Orleans,:theCity Council. :System Energy.is regulated by,FERC.as.all of its transactionsare at thewholesale level. JThe U.S:-(Utilityscontinuesto:operate as:a-monopoly.as:efforts toward deregulation have~been delayed, abandoned, tor not initiated in its service territories.-,-Trhe overall generation portfolio of the U;S. Utility,,which relies heavily on
.natural gas and nuclear generation, is consistent with Entergy's strong supportfor:the environment. : ,
(;()I r:1n,0u TheU.S:.Utility. is focused on providing highly, reliable and cost effective electricity and gas service while
ý.working in -an environment thatiprovides the highest level of:safetyfor its employees.-: Since .1998, the U.S.-Utility ,has significantly iimproved keycustomer, service, reliability, and :safety metrics and 'continues-to, actively,!pursue .additional imrprovernents.,).. . 'r)!I';: ',*- ) .' :-;9.*ri! c . . -fi *L:,.A ,'ii , ; J.,!o I i:fr'.,,
Entergy Louisiana Corporate Restructuring
.rrnui ~ :,'.z. o:r:o*:', lz~t.1. i*L 2 o ),,*;.v'v,
. 2nr: :., ,,. -Il j'f! nt: x~:ini. '02 I 1i l,')l ,t;o';ii:. "'tq !'?
*,iqtJ.- EffectiveDecember: 312005, Entergy, Louisiana, TLLCi -a !limited: liability company organized under, the 0laws ofithe State ofTexas as part of a restructuring involving a Texas statutory merger-by-division, succeeded to all
_,of the regulated utility operations.of EntergyLouisiana, -Inc.;',Entergy, Louisiana, LLC :was allocated substantially
',all of ýthe property, and, otherý-assets,,of Entergy, Louisiana,.Inc., including ,all, assets iused :to, provide retail fand e ,wbholesalel electric i-service 1to iEntergy ,Louisiana, -Inc.'s, customers. t -)Entergy Louisiana, LLC also .assum d ,substantially ?allýof .the ,liabilitiesj of Entergy; Louisiana, Inc.; )including all, of its debt securities ;and leases :but excluding the outstanding preferred stock ofEntergy, Louisiana; Inc0 v .1vt:f- I-, I*
2 . '2 *,"; ,,i
¢l- 1,',*rrAs the operator of Entergy.Louisiana, Inc.'s ýretail utilityloperations,- Entergy.Louisiana,2 LLC is subject to .the jurisdiction, ofthe LPSC~overelectric ;service, -rates and icharges to the same extentthat 1the LPSC possessed ,jurisdiction overEntergy*Louisiana, Inc.'s retail utility operations.,iThe.restructuring is intended to reduce corporate ,franchise taxes.--.The 'restructuring implements a recommendationfrom the LPSC staff and is expected to result in a -decrease in Entergy.Louisiana, LLC's rates to its Louisiana retail customners.h ; :-.-v"'. :H- v-L:. :i- ,' -:.-
On December 31, 2005, and immediately prior,.to the *formation :of Entergy, Louisiana; LLC,,;Entergy Louisiana, Inc. changed its state of incorporation from Louisiana to Texas and its name to Entergy Louisiana Holdings, Inc. Upon the effectiveness of the statutory merger-by-division;.on-;December.:31,,-2005,,-Entergy Louisiana, LLC was organized and Entergy Louisiana Holdings held all of Entergy Louisiana, LLCs common
.membership interests.i All of the common membership interests of Entergy Louisiana,,LLC, continue to.be held by FEntergyrLouisiana, Holdings andall ,of the common stock of:EntergyLouisianaHoldings continues to be held by ;Entergy Corporation., iAspart ofthe imerger-by-division,-:-Entergy* Louisiana-,Holdings succeeded to rEntergy ,.Louisiana,lnc.'s rights and obligations with respect to Entergy.Louisiana; Inc.'s outstanding preferred stock,-.which yhas an aggregate par, value of approximately,$100 million.. DWithin three to nine months of.the effectiv'e date of the
- merger-by-division,' however,,Entergy Louisiana Holdings expects to,redeem or repurchase and retire theEntergy
-Louisiana;, Inc.'preferred -stockthen *outstanding and thereafter amend its charter to eliminate authority to -issue preferred stock. . .
l.,t;,,'* . I.. K: ':'] Entergy Louisiana Holdings also holds all of the common membership interests in Entergy Louisiana Properties, LLC, a Texas limited liability company that, as part of the restructuring, was organized and allocated the r111
Parft iltenii I Entei-gy Corporation, Domestic utility comp~ihies; and System Energy Entergy Louisiana, Inc. assets not allocated io Entergy Louisiana,, ELC!',Tfli&'5ssets allocated to Entergy Louisiana Properties were two tracts of undeveloped real estate, known as the St. Rosalie and Wilton Plant sites, and Entergy Louisiana, Inc.'s equity ownership interest in and a long-term note receivable from System Fuels, Inc.;,.ajc6mpiaiy also owned by Entergy Arkansas, Entergy Mississippi, and Entergy New Orleans, which implements and maintains ccertain )rograms for: the purchaý, 'deliveicr ind storage of fuel supplies fdr Entergy's utilit), itibsidihriks!." Entergy
,Louisiafia' Properties also assun'ied' any'obligations aid- liabilities relating to these, iassets. The book'value of the assets iillo*ated to Entergy Louisiana Properties is appi'oxim'ately $33milion:., ., ii -.. -
S,""' Afi the restructuring and'nierger-by-division'the financial statements of Entergy Louisiaha Holdirigs will be on ]aconsolidated, basis indltiding. Entergy' Louisiana, :LLC,"it'a Eiit&'y* Lbuisiarid. Prrperties-' and will'cariy forNvard tlie retained earnings of Entergy Louisiana,- Inc. at Decembei' 31* 2005. 'As result of the merger-liy-divisi'6n and related accounting. the balimce sheet of Ertergy: Louisiana, LL .willfitot carry forward the rethined earnings'rf Entergy Louisiana, Inc. at December 31, 2005. The Federal Power Act restricts the ability of a public utility to pay dideidg'outt of capital: As a result of its restructuring and the raitted adeounting, Entir'gy Louiiiana,: LLC applied to the FERC for a declaratory order to pay divideiids 'on its, c6nrmon and preferred membership inftrests.froni the follo6wini sources: (1)'"the ýimotnt ýof, Efitergy. Louisiana,i Inc.'s, retained! earnings: immiediately';pri&r' to'iis restructuring on: Decemblesr'31, 2005;! '(2) ati' imountr in excess of the: aiffiount in' (1) over a tii'nsitidn' peiiod' not expected to last more' than/3 yearsý sb long as Entergy Louisiana, LLC's proprietary capital rati' is;. ind will remain, above 30%; and (3) the amount of Entergy Louisiana, LLC's retained earnings after the restructuring. The FERC g0anted the declaratory ordeit'on.'January 23,! 2006.' Dividetnds 'paid by Entergy-Loutisiana',lLLC: oh'it common m'dmbdeship interesis~to Entergy.'Louisiana ,Holdings may, in.turn, be~paid'by Enter'gytLouisianai Holdings io its
- common' and preferred stockholders ,vithout'the'need for FERC approval: "As a. wholly-owned 'subsidia-y,i Entergy Louisiana Holdings dividends its earnings to Entergy Corporation, as the common stockholder,.on a Oerceiiatge determined monthly.
Entergy Louisiana, LLC will not join in the filing of Entergy's consolidated federal income tax return, although it will' be consolidated~for' financiilreij,'orting purposis:'- Entergy' Loisana,;LL filet i separate
'federiallincome tax returnl will pay,. federal incorfe'. taxes on a! stand-alone bhsis; and will hit, bb-,'`? pftiy) to" thle 8ntirgy'System's intercompanytax'all6cation' agreement.- 1Entergy,"Louisiaina,,LLC' may nmI;e W1dciions fo? tax lprol:oges tfiat' may differ fr6m those ma'de by thel Entergy consolidated "tax-group,; which may- result in! Ehteigy iLouisianalLLC hfiving more exposure to tax liability thin it would have had,lhid if beehincludedi'.n thý Efitei'gy cdnsolidiittd' tax return,' thereby ad ,ersely affecting Entergy Louisiana', 'LLC's' financi~il' conditit'nB Ent rgy Louisiana Holdings will continue as a party to the Entergy System's'inrtercompaoay taxi alloca.tion'agreerient1!' 1..*1, .'
S1'*(r-I--Aflir the merger-b'y-division,' Entergy' Louisiania, LLC- i~sued $1001milliond' fits' preferredt m~mbership 'interests% ,hicli grant the holders' thereof the power t6 vote together; as a'single class.'\itli Enitergy*CorIoiation'dis the' holder ofthelconmmohl membership interests. The preferred'memberShip! interests have'appioximately.23%6 of the total voting power.; Since Ente'g, Corporation,'in'directly through Enteigy Louisiana' Holdihis,'owns' all'of tlie common membership interests in Entergy' Louisianai,' LLC, Entergy Corporittion! will be""able to'elct; theent-e board of directors of Entergy Louisiana, LLC, except in certain circumstances when distributions on Entergy Lbtouisiana4LLC's preferredmemberiship interests are in'arrears. ' . ri,: *rJi ' ', ,.)C "Huiricane Katiina and Htirricane Rita-'ý:-. "' '+ . .. '- . .'iwW'... ". '.1'11 '{,(K':L1Th6 temporary"p*okver outages associated with Hurricanes Katrina and Ritad in tlie'affected 'service teiritory
'chiuied Eiteigy Louisiana's itid Entergy.N~w Orleans' sales volume to be low& than normal firom Septefihber 2005
'-thrdugh, De:ember 2005." Thý number: of customers as; of December 3 1; 2005 compared to' Decembr 31,' 2004 "de6reased bý'44,000 at Ehtergy Louisinaaiud' by20,000 and 15,000 fobielectric'and~gas;, resipectiVel*,, at Eniterg'y 1-46w OrleansP'.:-The '.ustomer, figures, below includeicustomers' ,ho 6re'abletoaccept 'ervice but: have not y~t
.returndd tf their:liomes:' Restoration' for many of the customers whoar'e'uhable to accept serice will foll6w major "repairs or- re5onstruction" of'custorher 'facilities, and' will be contingent"on') validation:. by'. local-, a'uthorities 6f habitability and electrical safety of customers' structures. . . ;:* :_.
112
IPart I ,Item I
*Entergy.Corjoration,;Domestic utility companies, and System Energy iCustoniers %15!1; lywrsierrioD ýUWp9 %'ir1::fjro: yfji ju~ Dilýruob -d l6 u!I 'fr'_ AFE As of December 31, 2005, Entergy's domestic utility companies provided retail ielectric and igasservice to customers in Arkansas, Louisiana, Mississippi, and Texas, as follows (in the case of Entergy Louisiana and Entergy New Orleans, due ,to the effect of, HurricaneKatrinathe'number represents )customers) who are able to accept service, but have not necessarilyret-urned iheir-hom-es):-
Electric Customers f[Gas Customers Area Served (In Thousands) (%) h L2naiis ,, % 1.11 r.ý Entergy Arkansas Portions of Arkansas 675 26% Entergy Gulf States; .pioon . fTxsa~ fUdYI:r l mr rifr~~ fjrf~I)li>~mj~~i (~ Louisiana mob "r 740"* -161f;!t* 28% " mr il,
- 89. D, 41%
'Il~*'o>";'D
.,[,"* ,'..,;. *;.t~..,,. ,*.:' :K::.?
E'-*tierigy;T1OUiSiana ... Portions oLOUiSiana- -":18 *f 4%*o~arn'i r*z,, Entergy Mississippi Portions of Mississippi 427 .0O,) 16%9 - ,;-0fl " s ". noar Entergy New Orleans City of New Orleans* 169 ,6%. 13 0 ,-.- Y..59%* Total customers 2,629 100% 219 100% z2.hnu~r litir o hr 1ý.vloq "-bio 1110Edld *.IU:Iz Wton; vt. w:'.. v 1 1"1DV '-
;%*:*~:'
v tkxclddesth-Algieis -area of the tiy;hreEterg'I26`utsianpjrowdes electric edrvice24 Vg', I Rr .'. P Prv, ýUf* ' na nii _.J"h. ) -. ... ,"10o 0`0 .2 0: a] .ý00 n:i; 1-J w .,*1Irt-.2. 1*:Io Iir;'.,t[
*-The'electric'energy sales fEntergy' domestic ýiliity-oml?6paniesare subject to:sean'&l . fl.kiiations.with the peak sales period normally occurring during the third quarter of each year. On July 25, Entergy reached a 2005 peak demand of 21,391-MW,'ý6'iipared to the'2004!peak'6f-21.,174 MW recorded on July 15 of that year. Selected electric energy sales data is show.n in the table beloW: '_.-,_ 21_f_5__10 Selected 2005 Electric E*neib'ý Sales Data l9, FIL V , t;9
,Efiltergy Entergy Entergy Entergy Entergy lrh);1:Sytenm Entergy Arkansas Gulf States Louisiana Mississippili-NeW Orleansr;-1'Efiiergy (a)(b)
(In GWh) 1104, h 5 l.... Sales to retail customers 21.005 33,918 26,889 13,341 4,712 - 95,153 1 -~a~', ........ sale,. .
.iq~]!?er*1tiM 'yl:.tn:1 ,ram':'i ~o I (ji tj*j ,. l~l)i!J ,:';v:~:1[ ,,~:*:n*,;'/! "M1'n.*;l) lf,*,',;
Affiliates 4,555 3,213 2,451 516 1,705 9,070
- ,t,,, 4 42003,:rt ".,336 lII! 7 5,730 2 9 ,4 4 9 a-,rri~!* 1Kt,:- 4 ,27 7 -zj.d-aoart: 6 ,7 5 3 '(q a,5. 9 ,070. rif(100,883 f:1io1joTotal tswi m; ,29,66 3 :i L** 39,935
ýioh Lait :'lJI. ii '
v 'l'.1rxI1 .P~iilr'I.:;r1 r1. fhi~*j I.,tl~i( O1 .l1.. Iit .. J. 1iU:i IDit 9 e.,IiIii U *[l~i~iiiltoq J2fU./1 "yl'/li'Jl 9I;O 9'.9: Average use per pTriciq51m residential customer .*rntq *1r r bn l-r:113 /m1 b*,itc;~ikj:;i (kWh) 13,399 15,643 15,852 14,833 10,600 - 14,659 (a) Includes the effect of intercompany eliminations. (b) Because of the Entergy New Orleans bankruptcy filing, Entergy deconsolidated Entergy New Orleans; therefore, Entergy New Orleans electric sales are excluded. H 13
Part I Iteffi 1 Enteigy Corporation, Domestic utility companies, and System Energy The following table illustrates the domestic utility companies' 2005 combined Lv electric sales volume:asa percentage of total electric sales volume, and 2005 combined electric revenues as a percentage of total 2005 electric revenue,, each by custonier'class.,' * . . , ,l) 1,, : i .7 ' . i. t, '7.. :oJ, k .
;Tu Customer Classq ;-. % ofSales Volume:,J` '.'*
%o-f Rvenue-,;, * ) :'"
Residential 31.3 34.5
. Commercial . . , i 24.2 24.1 IndustriaI(a),l 37.3 28.6 Governmental 1.5- -. 1.7 Wholesale f'I ?.,4;,~ 5.7 -7r.f;Z.hi;'i. ,f 'F'
- ,.a..11.1 S
.0't (a) Major industrial customers are in the chemical, petroleum refining, and paper industries.-!, .
See "Selected Financial Data" for each of the domestic utility, companies for, the detail of their sales by customer class for 2003, 2004, and 2005. Sei{ted 2005 ,' Natiural Gas Sales D-ata,;* .d'.: eI 4 TO., ... -YOl .. i! ' .,...
)-U
. Entergy New Orleans and Entergy Gulf :States provide both electric power and natural gas to retail customers. Entergy NewOrleans. and Entergy: Gulf: States sold! 12,329,794 and 6,71,7,077:rMcf, respectively, of natural gas to retail customers in 2005. In 2005, 98% of Entergy Gulf States' operating revenue was derived from the electric utility business, and only 2% from the natural gas distribution business. For Entergy. New, Orleans, 80%
of operating revenue was derived from the electric utility business and 20% from the natural gas distribution business in 2005. i Following is data concerning Entergy,.New Orleans!'2005 retail operating revenue sources. viul "iiO*" h,?;",. .,h i.7j Electric Operatingý , ;,.,..Natural Gas-., r l.,-.. .: .. ;-' Entergy New Orleans Revenue -; m,
;, Revenue. , -.
Residential 39% .. ,. : 47%;' L:i ' Commercial 38% 21%
.,l ; ,,,Industrial :lj-,, ( ,,'.. ; :8% ,<,2. .I '. 15% ,li,,) ui. Govemmental/Municipal:i,.,.,.- ".r 15%'
161 :,,.t >.CC 17% Retail Rate Regulation ii;.'r7 1;' 7, 1'-/ General (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and.,Entergy,_New Orleans) - , , j .',. "- ' " 'A p)"7<' The_ retail reguiatory philosopfhy has_ shifteda in some' junsdictionsfromtraditional, cost-6f-*service regrii~tion to- include peffothriance-bas~ddcat6 elemenfs; -P&formafiee-based radt&plahs are designed o'"encourage "i~iffi~i&s-and f-dueti~ity*7hil pihnittin-g7utilitie.i-theif`ti6-rfif -ff-ih the benefits. Entergy Louisiana, the Louisiana jurisdiction of Entergy Gulf States, Entergy Mississippi, and Entergy New Orleans have implemented performance-based formula rate plans. *',:*¶*- li1;jl~ic,2
- 114
i Part I Item 1
,*Entergy CorporationDomestic utility companies, and System Energy ejj.rl!o-iFollowing is a 'summary!of-the status ofretail'open access.inlthe domestic utility'companiesiretail service Nterritories.:,.v;: :ýiz ;r i[!tnqrftrl) %fi!!jri "ri~J ; 'jd: o r 'jj,., ni bta2u0,ib Pi t1:,'f1 i,' IS '*. m .<r,, *iibu ",, v Jurisdiction Status of Retail Open Access Arkansas Retail open access was repealed in February 2003.
1io ' 21id 6 12ui1 2(i . %oilih 8.?jZ E B2{,Výqq'r -)ý 'mi .JOH tAIvil ili Texas In December. 2005, jEntergy iGulf:States,.Omde. a -filing [identifying:three potential )s ,(ju,
-power region(s) to be considered for certification and the steps and schedule to i)~wo4t *,n i it :dF .n LI t achieve'certification. , The Texas law enacted in 2005 requires :Entergy gulf States h1C 'X9_1A, vd ILV..,toltalsoýfile)a transition:to competition iplanby; January 1;,. 2007) addressing,how. 2 i Entergy Gulf States intends tomitigateymarket power; and:achieve full icustomer j,.lqrni choice which will be affected by the power region selected.
Louisiana The LPSC has deferred pursuing retail open access, pending developments at the
, :o .', jvm c* L* 1rfederal:level and in .other,states. ,In response ,to a study~submitted to theLPSCthat
*:n)zi Lft bT%'h i*.- rwas funded:rbyja 1group :of large; industrial ,customers,.,the -LPSC.-recently: has,-r, Ij'ij t*n:i dii-btiv;:,(Fi ?solicited Icomments )regarding . a 1limited *retail ..access Iprogram., ,A,.technicali br,11 rI*i bn. LIl,itoillir ý. I Iiconference wastheld~in April2005: bovoqqr, D*.. *1T -il .D-tT:lu* l!id ,v*-
~I~8~fi[ i ~i' i'no 1.ý'i l otd xýi~c~
0 'ZOKb~ ~Iutj bru' ?.FI00. tnui. -61~~rs..c L:L~ Mississippi The MPSC has recommended not pursuing open access at this time. .:,j-H ; h:1dkr; l:2 b.,,:2New*Orleans d sThe Councilhas taken no action on:EntergyNew.Orleans',proposal filed in.=1997: lrIl'r t * "-itor y ft l -icl Pb-i: -o vjr ; '. rK. c y. j Retail Rates .. lJr o1 i,?, :)d J ivI'. oni
)'lEir*ruv'7 ! l J '.rj:I. 'ico nflif-silinr:o.xiP Each domestic utility operating subsidiary participates in retail rate proceedings on a consistent basis. The status of material retail rate proceedings is described in Note 2to thedomiestic Utlity-companies-ana System Energy financial statements., The domestic utility companies' retail rate mechanisms are discussed below.
i ,: Li tLolhtiI i Aj, I. I +l",. iU*
- j14 ,IfjZ1 liA ,,, I :. *V '.. J ,.fl WIVI 07.1 . l eV,1I(l. 11111) "L.- '. L] : (A,`.;_ I."2.i b~ ~ 141 ,'1*_!n:*-* )i ibijiw i ,llf*,m T rl.l** :,l,h i .'Jr i 11;1iir 7,.812 t ,vipr .... *swm,o:F-: nr!fis~T .
" 6)1:.. J¢ i 2.JI'JI 4.10j ... ,lfl iT 1. rl, ¶9tI~ 4 oJ-t -{J £.vfit] * *B 0r _*! vl*k
- bu't rl ;1
.f,Recovery
[I;,tll 2_' -o ýJrtfnl.*pmil"o :q g* x ý-,ar* ;;i:I; How ?L* bgnliuý)ri tf;3[' Jrl lc. ir:of,I.:* -,Jrljill1, filv,0b'.-I"I "gI; Fuel F66. 8 k') I bv"*lrnc "IXJ r.,TY .1g vi t!r-(;) 00,0U2 ? f :; , iii .... [Oh _. , Eni'g'.Arkayr sas' rate si{hdle6 includq an elnergy yU ecovery'iidei t6' .rcoverifel cost and purchased energy costs in monthly ellS. ,T.he riderUtilizes pror calendar year energy costs anid prgjected energ sal forthe tweive-ionth pein6d commencing.on, p.nl. 1 of each year to develop an'energy cost rate, whichis iseetermined anuay andn es re-up adjustment n. reelng me over-recovery~or under-recovery, .enluin ca;reying lcharges,)of _nepnorcalendar he energy cost forIte year..Tntery Arkansas 2065 ililngl diSCUSSed In, 2 to the o . sticystem li 1*> ii : .4 .h I,. HL, !t) ( I l J J t1: Energy
~i-i..,U*i~
IkiJ.,e nnancial se 7)*, t il5 ,I!.hLI.Jll i a . i hi. .*.'jI£, *;jnYj , - nli* u'1:l .... *Id !1£f!? .. " fitnfht -tfJAT -i 3....,*i? , (jtLt In accordance With provisions in the energy cost recovery ride forlra interim rate request dependent 1 es, or under-recovery, Entergy Arkansas llle a'Irequestf w'.ltn mebAPC. for'an~ interim ratje upon the Eneg levelufSaof over- . .. ; ,, increase
-d in SeptemberanL~ 2005 Which nda became effective with October 2005 billings.,
Fpa -fo E t.;l'Gui 2 Sn. in-;l;i, .I*i* Tllp T n fiROE d. "Ir-, "l F6ii' 1h0 intial
" 'li.eeIn-<'&-" of thplanandLn theer c ,to .rn'rii i~A uponiiathe level l rateroo under-re o te fo'lrmu ranepa'sover- and A alw ianer of-plnlrEntergy Gu lf Satatstaaogonr
,rmma rvsos saisesa ,sit-on I.UU potreniact t e larate anpeond th initialen
.exten three-yea effective peria o bya mutualgree ment of rthe pf-
'f'it'=' 'L, i~--j t Ii' ,' ,"I+, ., e],*:j ll(*,
2?*I, Vlnt! ,* l v! ... 'i rr .Plahren<.*'
,.'.i ii', -Ill auoitioni
.9%.9.% tooil.%viisnýJfsito 1.4%.... 't -*n bt wf6 ~tmr " "i '4ioto0; tI /*I Glf Si:it~ t:Iff .,,i*r':2
-!?-Io oe1lf ailoate custmer )""I =.vo rlneg1uit *tates s1"he yoentar temofetn the fomlah rand plant, beyndthe ýini tiale tohrecovear infcriempental baiy agreeent of ah costua'
?115
Part I Item I Entcigy Corp6ration, Domestic Utility compainies, and System Energy LPSC fidfiEntergy Gulf Stites. *Entergy Ghlf States made its first] formula rateplan filing, in June.2005 ffr the test year ending December 31, 2004 which is discussed in Note 2 to the domestic utility companies and System Energy financial statements. Louisiana Jurisdiction - Retail Base Rates In June 2005, the LPSC approved a $5.8 million gas base rate increase effective the first billing cycle of July 2005 and a rate'stabilizationplanifor ga's with an ROE mid-point 6f..10.5%'.rr;-(,I 'l In Ja*iuary 2006, Entergy Gulf States filed with the LPSCI its' gas rate stabilization plan. The filing showed a revenue deficiency.; f ,$4.1V million.based, ontani ROE, mid-point-of 10.5%?-.-Approval by the LPSC and implementation is not expected until the sec6nd quarter of 2006. .:i - ,' 1 ) . Louisiana Jurisdiction - Fuel Recovery
.* I; )+ .. !f,1l"q* .! o u. i Enteigr Gulf States' Lcuisi.ind electric rates include a fuel idjustment' elabie designed to recover the cost of fuel and purchased pbw~r'cosis. ,The fuel adjustment clause contains a surchgire or credit for deferred fuel expense and related...rry.ig charges, arising: fro'r' the!mmonthly reconciliationof actual 'fuel' 6osts incurred with fuel cost revenues billed to customers. The LPSC approved th6edeferrail of $15. F million" ind: $11.5 million of fuel and purchased power costs for June 2005 and July 2005, respectively, to reduce the effect on customers of increasing natural gas prices. ;I h, +,>'_,u ;
-f'!:) )bf," iJr' , . .iD q ;, d P" HI,'i,- .
Eniteigy Gulf States' Lduisiah'n'gas fatesý include alpurchased gas-adjlistmefit clýiise based bn'estimiated gas costs for the billing month adjusted by a surcharge or credit for deferred fuel expense arising from the monthly reconciliation of actual fuel costs incurred with fuel cost revenues billed to customers. -:*' ; Louisiana Jurisdiction -' Storn1 Cost Recovery- )i ti., ;i!-:m ., .t-. In December 2ou0, hntergyGulf :Staite"sle 'witn' the ,tPS.C;irimterim recovery of $141million of storm costs. The filing proposes implementing an $18.7 million annual interim surcharge, including carrying charges and subject to refund, effective March 2006 based on a ten-year recovery period. The filing includ6s provisions f6r updating the surcharge to reflect actual costs incurred as well as the receipt of insurance or federal aid.. Hearings occurred in February 2006. The LPSC ordered that Entergy Gulf States recover $850,0006r'm6onih-as interim storm cost recovery. For the period March 2006 to September 2006, Entergy Gulf, States' interim storm cost e'overy.,snll b'e thnougH its ajusment cUla lause;wwith theo tal.recov-ery forbth'at time nod, capped at $6 'il *)I ,.I T hI I . h.m, is'rii 1Il l- W /1 ) . I1 1-11". P , f)) V .- l 1 - i ,' . I' i' - - I I - '" t '" miifon. The !a-"*.,*- I 'I- .) lo ).- me chanismi I ; f I, i f6t I "- ,(- the fuel v'". - adjustmentclauise
* ' fJ,,I.
' ,) I recovery I " .k'; 11I ,.
isIf4a relention
' r- / I(\
by Entergy
!"¢:"I*'l *'Tf Gulf
'i ) States it- *i } r I* lof l* 15%
1l '}J bftthe ° terzence between th eFu ary 2006 fuel'adjustmenti'clause and the fuel adjustment clause in those successive
'months in which the re£ aduustment clause is lower tnan it was in the Februeay 2006 fuel adjustment clause, until the ii ltm $mzlzon illion cap ca is
-is reached.
' !'fi. &
Beginng Be in n iin eptemiber ,S '*-iý 'i 2006E, Entergy*ulG I",L+'(",lOff , 1",7*1 tates'f nAtenm storm cost r ecoverý, of
; l*I%)'** .):"(,.*.++*.')+* .,,'(.'l
$850,000 per month shall be through base rates. n ai i ton, all excess earnings that EntergyjGulf States may earn under :-* its 2005 formula ' .. I*1
-,.I rate
. plan,
. !, and
;1ý !,I anyt' ensuing
- i ..
period - in, which interim "i 'Al relief is being ]collected, III - ~~l will be used as I" +;*11!:J) )'.Xr)" ;14 an offset to any prospec storm restoration recovery . . .. Texas Jurisdiction - Retail Base Rates Entergy Gulf States is operating in Texas under a base rate freeze that has remained ineffect during the delay in the implementation of retail open access in Entergy Gulf, States' Texas service territory. In June 2005, a Texas law was enacted that provides that Entergy Gulf States mai not nlea genieral base rate case inTex'as before June 30, 2007, but may seek before then recovery of certain incremental purchased power capacity costs, and may -recover reasonable and necessar transition to competition' costs.' I July 2005, Enteirgy unlf Statefs iled with the PucT 'a request <.implementation r of an incremental purchased capacitytri&ir. An $18 Iuion anul' rider was ,made etlectlVe Decemoer' I 2ocomutpIS subjec t to reconci iation.m DiScUSiOn Ot tneiecently passedj.eas
,'eglsiato i , in ot62 6otheomscuttcmpns and System'energy financial statements. -
1I+ /+,psi tio in .is , I! + /+,+DI t, + '- ;,. '.. l, 1+*-
), t* L',;'a ll i6(
HJ 111' " ,I :° [ " t, , (}t 'J! 10 ',*r'. : . . : .: :,i* A~v ;,- 3;/ ', . ' I :+, ': t l;", , . J: +i,:I l;:r + ,1 [;: ',u 116
I Part I Item I
,',Entergy.Cor.poration, Domestic utility companies,:and System Energy zr:i
- iAts'iauthorized-:by~the Texas ilegislation,;in fAugust ,2005;!iEntergy Q.GulfiStates) filedtwith thePUCT', an rapplication ifor, recoverybffits 'transition -to' competition costs.kcEntergy ,.Gulf.,States requested ;recovery )of.$189
ýmillioh*intransition to icompetitionýcostsglthrough implementation of'a 15-year ;riderto ;beeffective2 no:later, than aMarch. 1;:,20062 '(The $189 lmillioiirepresents :transition :to icdmpetitiorn costs xEntergy Gulf iStates incurredfrom ,Jtlne 1,41999.through ,June:17, 2005:inrpreparing for competition iriits~service area, including attendant AFUDC, -and all :cairying costs projected to be incurred on the ,transitionitocomipetition'costs. through February_28ý,2006. The $189 million is before any gross-up for taxes or carrying costs over the 15-year recovery period. ,EntergyGulf States has reached a unanimous settlement agreement in principle on all issues with the active parties in the transition to competition cost recovery case. The agreement in principle allows Entergy.Gulf,Statesito recover
$14.5 million per year in transition to competition costs over a 15-year period. Entergy Gulf States implemented dinteriin rates'based 'ohthis revenue 1eveltbn March 1;:2006,'sUbjectlto refund. ,,Entergy Gulf States .expects that the IPUCT-,will :considerthef:'ormal ýsettlement doctiment,i :whichits ctUrrently *being developed,1 .in *the iseond quarter i2006.1)iivo-ti *&,bul-~'i r,.¢iilI AlT .Loitq-j. ',o.,i :'.,-L!: £ no b*and FW 6v dl ;: , / '/tt ,o't3"i c
- oi.7i*it;91-l .b{ I!,,~'iob "o 9",,)['iLm~'lr~ 'to In ~ *i r *,: INcw *.:b*i:ri b .U'to. i;'.rt.m; u3:,fi<. 'f,*. 2 :rlii,'* !nI[ *rlmob.tqu fuhwco~ri -Texas Jurisdietioif -Fuel Reeove -ry i.h*.hl*:,.( ',- iai:' Frl. btrit)!b o 't{l, rffl .AOI'3 Cvul.Il.J Aqfi b m mol10 o 1h0o nnOX. ft~l!.-.'r.ntiýir;o1.y.iodrr3 ,60(' " 1- a o1 89,1l.'t.':oy.i ]) rj'n;!ý, boinr.oq .)1 I ria;.llIý W t b-Enterg&yGulf States',Texds rateschedules include:a,fixed fuelfactoihe:tocurrent recoverifuel and purchased power
,;cbts,,.' indliuding ;'rrying charges :ndt, recovered tin rbase.,: rats.t.rrUnder; ;methodology, ,semi-annual -rdvisions, of the fixedrfuel factor, naylbe2 made in March andSeptember-based on .the lnarket priceiof natural gas. IEntergy, Gulf States*' ill qikelyiontinue~tb use this methodologyltiit~l,retail open acess' begins infTexas.- TJothe Iextent tactual'costs :vary, fromi theifixed fuel factor, refunds orsurcharges'are required!or.periitted.- iThe amounts rcollected- under ,the -ixed] fuelr factor, through, the start! of; retail_--open :acces ssoare ,subject ito, fuel recontiliation
.proceeding§ before thbPUCT.I TheTUCTifuel cost reviews that.were resolved during the paistyear or are currently pending are discussed in Note 2 to the domestic utility companies and.System Energy'financial statementsm,*?to nz Entergy Louisiana \ , .'i't A Formula Rate Plan artrl;l sto- p '.t"roA
, IAi
-oIro'.:l
,1it, 0 IniMay'2005 Athe LPSC apprbved airate setlement .that inclu'des the' adoption ofa'ihree-year formula rate planh,-tl tietms'ofw'b hich inclu'de'an ROE mid-pbinf 6f,10.25%frrthe initial thiec-year termof 'the plan and permit "ifEnterg'yLouisiana'-torecover i'ncremen'tal :cipacity cost'soutside.'bf-a traditional ,base rate proceedmfig:;Underthe
,,formulal r ate',P over-.,an under-earnings outsider'an, ailowed lregulatory range of:9.45%* to~rl-.05%6 will be
.llocated 6%to ustomersran'd 40% 't'Ent'r'gy Louisiana!,The initial formula'rate plan filing'will be inMa ,2006 rba9edb"n .a 2005 test yearw'ith .ates 'effective Septenibet:2006ftr.ti' additid. there"is . hd ntial'to'ext'nd
..... the r!fotr-'mlu a'id' Fpla.......'byo ii "in"itial thre".'..a "effective pdriodtby'mutuial'agre'ermient :of-1the 'LPSC ý,,nd, Entergy
.Loisiania[ cf o hi)1?Ji'to" h;oii~jhiqi*.h Xnio1 r. 'J*,/r:.Ir~n ".)E m,I ,do :~'05 i:!Mfi .-ir.;-y I*7m1 -OO, f rio bozcd ?.O'.<
i:. no lko~nd 2iL1~ ni ¶~ris'fib. 6*:,vi".l .. Vmi'ir:;:c. .-rP ietri1/2*.iM a iv', I'rll. l~rao Thl;12 ::'A]iIiU' .:ifdui .iq, , Entergy Mississippi ,,,, Performance-Based Formula Rate Plan . ;iJ#**_,,.',;_io"l I !,! Lýr!Entergy.Mjyississippi. isi operating under a- December. 2002 MPSC order,whereby Entergy)Mississippi files a performance-based formulas rate plan annually; on or, before, March, 15.fl The, formulai rate plan, compares-the prior year's annual 1earned rate. of return to," and adjusts. it-against,, a benchmark rate: of,return.,, The,, benchmark, rate of - return is calculated under. a separate formula.within the, formula rate plan. -The,formula rate plan allows for, periodic small, prospective, adjustments, in.ratesi.:upf to, an, amountthat ,would producer a. change1 in Entergy: Mississippi's overall revenue, of,-almost ,2%,:based,,on~a; comparison-of, actual earned! returns to .benchmark returns and, upon
,certain performance. factors;,,Entergy Mississippi!made its annual formula rate plan filing With theMPSC inMarch 2005 based on a 2004 test year. In May 2005, the MPSC approved a joint stipulation entered into betweentthe Mississippi Public Utilities Staff and Entergy Mississippi that provided for no change in rates based on a performance-adjusted ROE mid-point of 10.50%, establishing an allowed regulatory earnings.range, of 9.1% to 11.9%.
n*)l, -1*:-Fuel Recovery ., fib ) )'; r :: 1, :; * :;:(.i..- . 0 'o1!L')fl i t f . " Jl7 , 1 b: : 1L Entergy: Mississippi's. rateý schedules include- energy; cost, recovery riders-,to1 recover. fuelý, and purchased energy costs. The rider utilizes projected energyI Fosts; filed quarterlyby Entergy, MississippiIto develop.an energy cost rate. The energy cost rate is redetermined each calendar quarter and includes a true-up adjustment reflecting the over-recovery, or,under-recovery.of the energy.cost. as of the second quarter preceding the redetermination, r:bi'/ -$11I:;" n'u*oruA ',:!ii :::f j' z.'.fiJ*,!/il* zl~IL
!/ .,i'i"12 ...... "" ,) .1 ,.C,_rha¢u-, irI_ ","'n; ..... (A zr,;.. :, '*. *1 .l rwj In January..2005p thea MPSCL approved' a: change in.EntergycMississippi's, energy, cost recovery, rider.
rEntergy; Mississippi's' fuel, over-recoveries: forthe third quarter of 2004,,were. deferred from~the; first quarter. 2005
- energy, cost recovery rider. adjustment calculation.- Thedeferred amount of $21.3 million plus carrying charges was
-refunded through the en'rgy~cost f ,o ;,,ft 77: 'n;-v'
-;r;' f recovery. rider.in the second and third quarters of 2005.ý,,;-
g'.,;I: i 1 )99.J 1 YO! 1'9.0.. ;:, -'1::- C _"r;'~
,i'ib i.,'A -C,
,' .... - '. I.r,. -c; ,;'r-' -:, :,l"*o a .*g, .~ t 118
Part I Item I
.Enteigy Corpoiration, Domestic uiility companies,-and Sysiim Energy i i
.; "* "; ;:';;J .'2' ): f,7:;- iigu**j l.-; *~"'-!,' ;. , ' ,:W~'n lbr: .l~rfl rr;*tI!d "';
l'* ). ,*.>( *C -, ). iJ 2,
!.The MPSC appr6Qed the purclidsbof.theAttala'.power plant' in N6ýemiber-2005: !In Decemb'cr 2005,"the
'MPSC issued an 6ider. hpproving~th'e 'in6stment cost recov~ry.through' its tpower rhanagemint 'rider and limited the recovery to.a )eriod ,that beginý'swith',the closihg'date"of the'purchase',and ends';the:earlier 6f the date, costs' are lincoi'poratedinto basedraites'orDecembet 31, 2006. Th'e MPSC oral& 'als6bProvided that'iny reseive eqtializiti6n "benefits ble credited td the annual bwnership costs beginning 'withthe 'date thai Entergy Mississippi beginsredoviry bfthe'.:Hurrica'ne Katrina 'restorati6n' costs "or 'July 1,12006d;whichever'is, earlier.), On December)9, '2005,,Entergy Mississi ji)filed i compliance ider.':q I ;q Jjcii" ,',',,-',. :;. ' ; ,,' 2 -
,*,,i, !:'Storm'Cost Recovery ' :: -,, ., ..,!t' ','1t l,-' J a)' ,' ; :
.**,In: IDecember.-2005,!Entergy,;Mississippi filed ,with the lMPSC ai -Notice !of,Intent 'te'change -rates:'by' implementing a Storm Damage Rider to recover storm damage restoration cots associated with Hurricanes Katrina and Rita. totaling approximately $84 million as of November 30, 2005. The notice proposes recovery -:if approximately $14.7 million annually over a five-year period, including carrying charges. A hearing on this matter lisrexpected inriApiil 2006.'-Entergy iMississippi plan's to make sasec6nd'filing indlate sprinj-6f 2006 4i recover
,additional restorittion'costs associated with'the'hurricanes incurred aftei-No'Vemb&30,!2005. .- ol L.r: ,ri Entergy New Orleans .,rr'.r <., ;,r,,- '!.L"h r: ,:, r:::
- i. ".,, )*
rula'RatPlas~'*
~r.
h'![*I; ;*,*:i.;i.: : ,K'i; b i m:.(';*',','3,, .' )'i;;r*iZor;p* ni .9"r;'ii *.{ 2**,..9 . &
- i O'cno (AI ', .h'x"Duf [)..
- '--',In2May 2003, th' CitCo' proved the mplem ta of rula rate pans .oreltic and gas
!se-vice that: Would bVe~eýluatddrafntnally.'fTr *two Cycles of 6peaiib6i iihlegs§xtend~ddby the'City. Coun*il 'oh or before Septeiinber.1,--2005.EnftergyNewv Orleans -i..imade its annua sheduled'formula' rate plan filing "wth'the City Cotincil in April 2005 -whichis"dihcussed inNote "made -2tothe doimstieiitilithy companes and System Energ finaifcial statements..n May 2005, EntergyNewOrleiis a' filing at ihECity C6uniilseekmgapoa ifthe'continiued finiplementatioon'6f thegas and 'electrfc'forh'muIla'rate plahs ..The CityC6cilondapproved' ian'agreement in'pirinple which provides, among other things, for the continuation of the electric and gas -formulirate p'lan's-for twimonre annual cycles, effective September 1, 2005, with a target equity ratio of 45% (an increase from the original target of
'42%y.as:well as 'a mid-pointreiirif'6ii'.eqdiiy of 10.75%.0!Tth&ROE b'ad-width"Ils"100 baiis' pint*'fr6m' the mid-
"p6int f6r electiic oprations (allowd eiarnings'range'of,9.75%'i6"' 1.750/o. For ja': Wperatiofii;the'ROE bdiid--vidth s 50'basis pomints fom theid m ,ip t (ailo6wed 'earniings range of-1025%koJ 1.25%) and ero' basis lpomits frodm the mid-point for the 2005 evaluation period. The electric and 'gsform-ula rate plans are schedued toibe fild 'no later than May 1, 2006.
,.Thle'gr&eemeiit.'iivprinciple
- , also 'balledforAthe"on` u i and imohification'6f- Entergy New. Orleans' i3ener~atioti-Peiformtane BasedRate (G-PBR) by separating the'opatiaoh-of the G-PBRfrbmihe formiiilar'ate'plan
,so that the'orebiusiness' e~letric'rates are not set on a prospectve rfereneebto G-PBR 'arninigs'-Uiider the tastsby revised G-PBR, the customer retains 100% of the first $20 million of additional savings, 90%'6f thi'hexki$3O million of additional savings (up to $50 million), 95% of the next $30 million of additional savings (up to $80 million), and 100%'of addittonalsavmgs over $80 milhion. The aigrieeitin principle'prowdes for a$4.5 million cap "onEntergy New Orleants' .share oG-PBR savwings. The'G-PBR'planiliowever;, as been temporarlysuspended 'eff~ctive-with" tlhe. Sept&hber"i2005 /6operatiotnal -month due toimp'apcts, fromii' Hrian'ieKatriaV Enitergyd -New Orleans will notify the City Council's advisors and the City Council at such time as it is reasonable to resim'tethe operation of the G-PBR.
li ' 01 e' ," 1 oi b uiiu if ' " Fuel Recovery 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 the monthly reconciliation of actual fuel and purchased power costs incurred with fuel cost revenues billed to customers, including carrying charges. The adjustment also includes the difference between non-fuel Grand Gulf costs paid by Entergy New Orleans and the estimate of such costs, which are included in base rates, as provided in
'!119
Part I Item 1
- Entergy Corporation, Domestic utility companies, and System Energy Entergy New Orleans' Grand Gulf rate settlements. Entergy New Orleans' gas rate: schedules include an adjustment
- to reflect estimated gas costs for the billing month, adjusted by a surcharge or credit similar to that included in the electric: fuel adjustment clause,, including carrying charges.,.In June-and November. 2004; the City,Council passed resolutions: implementing a. package, of.measures developed.by EntergyoNew Orleans and the: Council.Advisors; to protect customers from potential gas price.spikes during the 2004"-, 20051 winter heating season:.These measures included:. maintaining Entergy New.,Orleans'- financial hedging plan for. its purchasei of wholesale gas. and deferral of collection of up to $6.2 million of gas costs associated with a cap, on, the purchased gas adjustment in November and December 2004,in the event that the, average residential customer's, gas, bill were to exceed a threshold level.
The deferrals resulting from these caps were recovered over a seven-month period that began, in April 2005. In October 2005, the City Council approved modification of the current gas. cost collection, mechanism effective November 2005 in order to address concerns regarding its fluctuations particularly during the winter heating season. The modifications are intended to minimize fluctuations in gas rates during the winter months. Franchises , , I .)*. }, .. : .. .f i]r .* , ",;' " '
- j*.
Entergy Arkansas holds exclusive franchises: to provide electric service in- approximately, 307i incorporated cities and towns in Arkansas:; Thesej franchisesý are unlimited-in, duration, and, continue unless the 'municipalities purchase the utility property. In Arkansas, franchises are considered to be contracts and, therefore, are terminable upon breach of the terms of the franchise. .,' . ,i:,', .: In Louisiana, Entergy Gulf States holds non-exclusive franchises, permits, or, certificates of, convenience and necessity to provide electric service in approximately 55 incorporated municipalities arid-the uniiicorporated areas, of approximately 19 parishes,,and to provide gas service in theCity of,1Baton Rouge and the unincorporated areas of two parishes, In Texas,. Entergy Gulf States. holds a certificate of convenience, and necessity* from, the PUCT,,to: provide electric service. to; areas .within:,approximately 24. counties in, easternTexas, andholds. non-exclusive, franchises to provide, electric service in approximately. 65 f incorpor0ted. municipalities.-,, Eniergy. Gulf States typically, is granted 50-year, franchises in, Texas.,' Most of EntergyGulf.States' Louisiana franchises, have, a term of 6§Q years. Efter ,Gulf' Statese ci'renti electric franchises .willexpire during 2007.,-, 2045, in :Texas and during.2015.- 2046 in.Louisiana., , .:,' . . ,... I ,
.,,..Entergy. Louisiana:, holds! non-exchusiveqfranchises to: proyide., electric: ser.vice.-in: approximately., 116 incorporatediLouisiana,
..* - - -
- municipalities4
*-- "Most,
. of. these
; franchises.,have,25-year,
. I - - .- . . terms., ,Entergy:
. . lo,. Louisiana also supplies electric service in, approximately 353 unincorporated comm-unities; :.allU,,ofwhich are located, in ,.the, 46 Louisiana parishes in which it holds non-exclusive franchises.,. . ; - , .. . -, ,
Entergy Mississippi has received from the MPSC certificates of public convenience and necessity to provide electric-service: to areas within 45, counties, including a; number of municipalities, in,w.estem :.Mississippi.
'Under; Mississippi statutory, law, suchcertificates.are.exclusive. . EntergyMississippi may continueto serve in such municipalities: upon paymentof a. statutory.franchise, fee, regardless of whether an original municipal franchise is ,still in -exist 'n'ce. , - . .- * .,
- m :o ! , " " ; , * -:* ," , i ?ý:i , :* : ::, ' ,' * :; '..!1.: ..,
' (,, 1,!. :,.t. .. . ,, ,, I,o ....
tI,,i .... , . .2I , .I.,. , f,'lii.t ,-A (,0 ,. , noj: I i',b P, I 0, ,') ,
.,,' , EntergyNew Orleans, provides1 electric, and gas service in, the- City;,of.New Orleans* pursuant; tolcity ordinances, (except, electric: service in,Algiers,iwhich is.provided: by Enterg'y Louisiana).; These ordinancesý contain
- a. continuing option, for. the:City of, New. Orleans to: purchase: Entergy-. New1 Orleans'. electric. and, gas iutility
.properties. ,%':.' ., '. , .. : a:>.. , . "c,. ' , . <, : $/, " , : ,-':YlI2 The business of System Energy is limited to wholesale power sales. It has no distribution franchises.
.120
Part'I Item I K Enteigy Corjration,:Domestie utility icmpmnies, and System Energy Property and Other Generation Resources ,. Generating Stations i -i t t .*s ....; . v :: ' r* The total capability of the generating stations owned and leased by the domestic utility companies and
) ,, -*,, I _ ,
Syste~m Ene'rjas of'b ec'ehiber 31 265 iiS'ihdi ted bi w -
, 1; It
*~~ ,j V/l/A (*) 'Ovned and Le6ýd Capability MW(1) 1 "W " - ""..::,
"'f,1,. l ;'* '.
' ," V Company . ... Total , G di /Oil ',,Nuclear Coal Hydro ' ,'1,, t'l:.,EntergY.Arkdnsas§6 §v!.' l I-f4,704 YBJ 1,1601 ,il1,843 11190-- 70 Entergy Gulf States 6,494 ., 1.<',':
1"4,890 1*S ': . : 977 tk-<-(e I i,:,<', ,627
,T I,">, ) j . .... !,,,. f I U)
Entergy L'ouisiana'i"l' . 0_ " *, . `44,9 , ' 1-1lif.2! 1157 - ,. . ' ". . (d)
.0 Wi16'1~'
0 Hi 15-1a 61 ;,' j 'W*j".11') e,.1rEntergy Mississippi.,.,11,, ." .- ,83 2,467 -, A16.. , " -.
.;< .,", ,,,*rl,.ea"
,.,Entergy New Orleans(2 ,.lvn.,,." I87 ,., it, 76 .lit-:.-.-,.7
.;,,iSystem.Energy, ' ;;,21l1,143 .t !, l hJ*Ail,,143. ., * ' , .
.'t* -T'al "' .9 *- ,,'! :'.-,? ,, '22,249 ` "'14,826~'; j5-120, -'1 2,233 '!7r:: 0 (1) w"Onedand eae**apatlit'y" 'is the 'depenable load'carryingcapabillty'as demonstrated under actual operat(g'` ondiions based on the primary fuel Wassummg'no curtailments) that each stationw\as --
designed to
'z -', "
L It n I,
... i-I ..
(2) tEntergy New OrleanshGas/Ollgneratmg capaulity sustained dmage due to Hurricane Katrifna. and repairs to be completed as needledl ,toserve' dad., -". -,. are expected I I-,..
-- , "li -i.! ; -
( I FýI t- r - I
," I'""
'The
. '; "*Entergy It 7'*1 ! ', System's II,". ,o !~
. Ilil A If% load
; ana',)j!rcapacity r "
£
... I.- . ,projections'are
. . ,1
" i' '-
.-i V1. , Ii '
, - - - I?..
2t'-'12* ý lillý 11 reviewel periodically to assess -the p i I't II I :*. , ,", I : H? . - - II 1 , " ¢, -, .I need and timing a'aitional gnerating'capacity
, t .
I',"l . I D and interconnections.-Tnese reviews consluer existing and prdjeeted demand, the for ' ' I n ." t" availabilityaid price of power,' the lction6f new'loads, and economy.. Peakload in the U.S:.'Utility service territory is typically around 22,000 MW, with'iimm umiiuioiad typically around 9,000"MW. -Allowing for an adequate reserve margin, Entergy has been short approximately 3,000 MW during the summer peak load period. In
*~ion, otits net' shrt positioh h'um~'ek 'Entergyonsier's it geertiondinthý&zý ~ oi 1)bsla coai,'nuciear solid iel generaton);' (2load-fOlowmg!,e~g._comfbned'cycle 'gas-lireoJ;-and`Q) peakinig" The relative supply and demiaind fothes~ecateioriesot' ienperahonary by regionfoftthehEnterogiyoSyostem*
For, example, the north end of the Entergy System has more baseload coal and nuclear generation than regional o ornn te generation. In.the southl eand of iihe lnfitergy System, lo6 wodbe iad more effectively served fgas-fired iite diate resorceaready in place were suCppemented with i'*r T, (.il' .. qh,.r ; q f','r- ;** :2 f** 1 '('j '.J . l
'f'i.z, L '*'
; ¢ *' "7' lr*', ",'12 t¶."i l'- i i;
-' *,i'lO',.t
........ n'te pst;th'Entergy'System'covered its'sh'ori position'at summer peak almost entirely with ucae from the spot market. Int~he'fall of2002,Ente'rgy began roes1 fiun irequests'for proposal (RFP) to prcurie of the domestic supply-side resources from sources other than the spot market to meet the *unique regional needs Al f ha
'first RFP.'sought -e prvd
'eore to W6ri~ sme so~urces-acq 2003 redand lionger- 2002rFsp.~me the Flallermrsoureeshrough
*uihty'eopaie: Therhs
< ,,r"ri l'~ fO nOl7,fr..li*...):i
'pr~dctis-'and' '.;lI;*"..r::.i y;
aset acquisitions."Ateaid ; (( prcs ,D" ; *i:r";{ ta in~cluded~ ',,q <ith"7t*.ll*s:z;. ninvolemen oan qogtem b*cnrata ,*H to evaluate submitted bids. The f ohe independent monitor was developed urdsince thral202.P Alo h
..REP process for short-term, ~limited-term, and long-tr *eore of the lW6ough thsprocess arid'signed l~r wih Anonaffihiates;with the exception ciontracts whhweeawarded ,0 1 .i.f. -
irom I "
.,Cgen. P ....
contract covering 185sA,a, ! rt envibzu. lrUi o' 1*'0. j ¶;C*1". > P ! :, r ' J. i I; l1; . - ,
-1,1 i l ' 2 1i21
. Part I Item I ý.Entergy Corporation, Domestio utility companies, and System Energy Short- Limited-term 3rd Limited-term term 3rd Long-term Long-term :,,.J,:! -, RFP party affiliate party affiliate 3rd party Total Fall 2002 0 MW 185-206 MW (a) 231 MW . 1-12. MNV (b)'- 718 MW 1,235-1,276.6MW January 2003 supplemental 222,MW)Y , .. *. n/a.. ,,, . n/a n/a n/a 222 MW Spring 2003 n/a "- 0M, 381 MW (c) 0 MW 381 MW Fall 2003' " '/a 0MW -- '- 396MW - n/a- - - n/a -"'390 MW Fall 2004 n/a n/a 1,250 MW n/a n/a 1,250 MW Total 222 MW 185-206 MW :2,252 MW V101-121 MW 718 MW, 3,478'-3,519 MW (a) Includes a conditional option to increase the capacity up, to the upper bound of the range. - (b) The contracted capacity will increase from 101 MW to 121 MW in 2010. " " (c) This table does not reflect (i) the River Bend 30% lifeiof-unit power purchase agreements totaling approximately 300 MW between Enterg, Gulf Statesrahd Entergy Loui'iana, and between Entergy Gulf States and Entergy New.Orleans related to Entergy,Gulf States' unregulated portion of the River Bend nuclear station, which portion was, formerly owned by-Cajun Electric Power Cooperative, Inc. or (ii) the Entergy Arkansas -wholesale base, load' capacity- life-of-unit power purchase agreements
. totaling approximately, 220. MW betweenEntergy Arkansas and Entergy Louisiana. and. between "Entergy Arkansasnsaid related to the sale of a portion ofntergy Aransas' coal "
and nuclear base load resources (which were not included in retail rates) to Entergy Louisiana1 and
, Entergy New Orleans executed in 2003; or (iii) the 12, month agreements between. Entergy Arkr'sas
'and Entergy Gulf States and b.etween Entergy Arkansas and Entergy Mississippi relating to th ale of a portion of Entergy Arkansas' coal and nuclear base load resources vhich w not included in retail rates). to Entergy Gulf States and Entergy Mississippi executed in 2005, which agreements currently are pending for approval by the FERC. These resources were identified outside of the foriiial. RFP pocess but' were submnitted' a frmal prop'osls in response' 6 th Spring 2003 RFP, which confirmed the economic meritsof -these resources*., * . ,,",, < ' "
S .Thepurchase of the Perryville plant was completed during June 2005, for appro . mi ion. Entergy Louisiana owns f100%o I . 1 I* . W* tk, ... . , , " ~ of the 718 MW plant and will retainm. 25%, of the output, for, Entergy Louisiana I 1 . - -l o.t . *1t I ý* *< ,- . , _ .' *. - i + ,i [ . ". ' customers, seling,75% to Entergy Gulf States under Service Schedule MSS:4 of the Ente`iýSystem A- eent In addition, Enteirjýi.ulf States entered into*a485 MW c6ntract for capacity d ,ygfron Calpmne Energy Srices, id'C [.P.'s Eergy Center. This contract, which has a, one-year delivery term beginning in July 2005, wa tlie result of bilateral neg6tiatiboins' c~olnducted ai the direction of the LPSC. Also, Entergy Louisiana entered into a 179 MW contract for capacit, ndenergy fio Ocmceidfntal Chemical Corporation's Taft Cogeneration Facility, which. was also, the result of bilateral. negotiations conducted at the t" ,,il l, I;1 j~lltl. ii .'l'[,
, i" ,q~i'l* i l . ,*ý( ..", l-. .. J"* .J IJ I;, I, "li ., / I "'- , , 'lt - I directioii of the LPSC. This contfact has a thiee-year. delivery termeining in JulW2005* r- ,,r;l
,.ntergy, Mississippi, entered .into anagreement m March2005 acquire the Attala generatmn facilities fo from Central Missi"slppi, Genera - any(CMG). for $88, million. Attata is a gas-nredpowting facility, Mississippi with nominal capacity of480KIW *.Ente aselocated of the near plant Kosciusk6o,in. anuary.2006,, ,. .- ,
- i.' , E- , y , .,p c gsnera, . the In additi6o to the resources already identified,,the Entergy System preferentially allocated to EntergyGulf States ad' Efitergy Louiisiana 80 MW of anin'uarl bock energy- purchases asa part o its Sumhmer.20 resource plan. Block energy products help the Entergy System and the domestic utility companies meet several of the objectives outlined in its planning principles. Block purchases allow the companies to meet their need for baseload resources, while matching resources with demand and helping to provide price stability. In addition, block energy 122
i Part I Item 1
-'Entergy Corporation,'Domestic utility companies, and System Energy purchases also provide a means by which individual operating companies can move their total production costs closer to the Entergy System average.
b'-*,, -:)As: part of.,theongoing needs 'ssessmidnt and RFP. process*mentifrned above,- Entergy Services ristied an RFP for 'ong-tefnries6urces in Januaiy.2006.,'t-Entergy.:Servidalcirrehtly':ihtehds :t6!seek to acquire up to approximately. 1,000 MWof long-term solid ifuel resources-anrd bu'°t6'approximately, 1,000 MW of long-term CCGT resources thr6ugh economically and operationally, attractive propbpals:in',the 2006 long-term RFP. It currently is anticipated that' the-lorii-trm resources swill ;liiilhde :life-6f-iiniit pfooals-ifor existing :faCilities and projects that maybe deVeloped -ofi onipleted in the fititre.':EntergyServicesiidentified-a self-build option to be located at Entergy Lobisiaa's!Little Gypsy faciliftyfinfthis RFP,,and Enterg& qdixpetitive"affiliates are also allowed to submit proposals,7r-'v.;4,.-1*.~i n' *, h/. -: I thi Aqq *' , - i: Iu'j-,l*
,t (t.
0I! "I "3"rro I r::, jtit r~.iŽ3E !i* b~b:ilrr '. I:.rr *l :y.r 't:: 'Ii'11.OI !~ ll.:riir*'-qrij: j: riHr,.4
*.Ifi ddition -to the -purchases froni non-affiliates shown iabove,-Entergy Arkansas;i Entergy Gulf States in Louisiatia,.7EntergyLouisiana, Entergy Mississipoi, and ,Enter*r iNew'Orleans 'niade filings with their respective retail regulat6rs seeking approval to ent~rintb'transabtions withlaffiliats ias-shown in the'following table:
"Mýf31iil,rtibr;cq 4i ?/.' Status of Approval in Compliany il .!cyoiciin Proposed Transactions Retail Jurisdiction Entergy *If. *:I) .iEntered into a life-of-resources PPA to sell approximately In May 2003, the APSC Arkansas , !'i ni b-,mril 10 MW of capacity both to Entergy Louisiana and to found the PPAs in 1)
. : .Ii t, -1j,;oiEntergy New Orleans not included in Entergy Arkansas' involving Entergy retail rate base, consisting of a portion of the output from Arkansas to be in the
, -ANO, 61 'White Bluff;Indep*ndence,-afid Erit@gy,Arkansas',v::i bLpublic ifiterest. v;izdrr
, -ii* l!.q Irh-, 1share of GraM`dGt6lf.i 1Q.*vi,ýc-* I4(*vl*hrtz '.rl .clqý ii:* *./'
2r1T .*;:-!.! ;-2) 'Ent&ed into one-year PPAs with both Enteigy.Guilf States ,,-,,UIFERC approved the PPAs nli i'h o;. ".andEntergy Mississippi. .: to sell akro-rkimately97MW and 1! ý,*in.2) which went into
.610-, v.i..59 MW, respectiVely, capacity not ificluded in Entergy. it ".::-.,effedt in February 2006.
o6f Arkansas' retail rate base, consisting of a portion of the output from ANO, White Bluff, Independence, and Entergy Arkansas' share of Grand Gulf. ?., : ~ cA 'v.*:r:: r* .;. r I',':nl Ihr* ).,V.iV:;Jq ",uf*:qrv2 V/l/, 0 ot V/* i(Ivt' Entergy Gulf u.' 1.1) .,Entered into abne-y6ar PPArvith Entrgd Arkaiis s'to rri, t,!:The LPSC and FERC:- )IO States.; ,rrh :-,mpurchase i approximately 97 MW of capacity not included h.)'tpproved the PPA with 1m0) ,;-/-) ,,*-in Efitergy Arkansis',retail rate base,,cofigigtifig of a6tif i r !,;J* !-:Entergy Arkansas. The t-;rr,,','Lz h yW,* ?-'].,portion of the dutput frim'ANO, rWhitdBluff,"iJ-,'-, ';!) WI1.! () PPA went into effect in
ý,dA m=ii:,pQ1u-.l:Independence, and Entefgy Arkansas',shdire of Grindvo'It ; :r, m Tebruary F, 2006.
bt,;h-rh;;rn !ir',uoZGulf, o zl;*'i' dI~I ;i v; :'-;8 nliw Aqlq h~nu- -ii,-t]r bi,*.,!'.]r (*i nnr e.rrth() -,,A v orjtni :7 vL"S-. "o ...O.* ;I~1" Job~i.rcly1r Urti "-31 *if~~J'gf ;*rrv rjti~
"('3(t .. ,' ";r'lc r',rijrD Md*.b.3,tio v lt.Arr, 0 1 ... I.:thruh l LrL"t f~Oi
*00!ixdb:- ri I : , m.F
.(6-ncr['.tO,,n:l (1 ni[ li-r~.<i*a,.b J.:r.l d?~V .1'1,q*'
...... z"uo*m. h-UloI. CJLT 1r. m.I3 (1
- Irn Ih::i '-.n*,,.r;1x/*
. y%;,'rtln* ni b~rbuI:x;~! ;-rr ','icc-
.Oi*"A. n :u10- ;"! qtu.A %rlio fjoilaroq c'ls :rr:;hr' r.-d liu;) ri bn..-)
ot <'
* 'tofIl iJ,;'. n' 2i ?.)uo l k*ih; :Lit,)
rit -lint. (
,'ArL oT .ri:.i / s )'l I Yd
-:niTxul !vi,
- bn,°)! 1.*t
',l)i y.'t31fi*.- -'ci bl~s~~r ,r f'_.=tl *ctd vi ri'lnepn *.ri "ic "'tiiZ27'1
, .I:'.
, ) "
i123
SPart I Iter I Enteigy Corioxration, Domestic Uitilitycompaiiies, and System Energy I ýI w;61, ) I
- 11
.i"I &5if1:;i I- it )bivj )7q I Entergy 1) Purchased a 140 MW to 156 MW capacity purchase call The LPSC found contracts rL6uisiana-.i)i .,._2. : option from RS Cogen' for June 2003 through-April 2006.-u,f:-.,1)and,2)'to be prudent and
. (-.1Iij2);,Entered a life-`of-unit;PPA;to purchase approxirfiately. -!:tLri ..,-authorizedEntergy-tiol
' 51MW* (increasing to.61 MW. in'2010) of ouitpiut fro' Ifij-,':,,i: "Louisiana' td geecute thesei; ei hr:'.,. i0 i-iEntergy Powers'share'of Independence2.yjkroilsijro 1hf ,1 contracts. InDecember')i.,
t .. ~.. ,: ..3)';:Entered d life-of-unitpPA with:Entergy Gulf States tomv-.ýro?- ir-2005;,the LPSO apprqved!r.
,:.,pui*h-se two-thirdsof theoutput ofther30% ofRiverli iii -1h,i.the life-of-unitPPAs for::..r
.,Bend formerly owned by Cajun (approximately.,200.MW), .'*,-qv proposals,3) arid 4). '.:r*1
- 4) Entered a life-of-resources PPA with Entergy Arkansas to Entergy Louisiana isic,.-q purchase approximately 110 MW of capacity not included seeking clarification for the
, fin Enteigy Arkansas, retail,rate base;consisting of wa)t e :'Tpricingofone of the
-, '., ,.. : .' ' -portion' of the output froimý ANO; White Bluff,.*;,;i,.A, ;, ,: resburces included in.iJO.l Independence; and Entergý'Aikansas' share of Graindt.;v ol hi.i:,,contract 4).ý The butcome'i Gulf. of the life-of-resources S.- , , -PPAs is still pending FERC
, , ,. . . ... a ppro v a a lth ou glh the FERC ALJ issued a
'.,, ,.. :,:riY *~qC l: c . .: o-'fl oinn b decisionilgenerally ',;- ~i
- I *;,*:1, : l,ý:.;,(
tm-/ft I 'ii 1 ' ,,* r ' "J ,o i'elinmending thatrthe t-tA
,,,i';... *, c'rmO t. uw,.i-:;. v,i ; ,. contiacts be approved.
Entergy 1:.
) .Entered into a one-year PPA.WithiEntergyArkansas:toa Alj.iv,,TheMPSC and the FERC Mississippi purchase approximately 59 MW of capacity not includedcir;t) o approved the PPA with in Entergy Arkansas, retail rate base, consisting of a,- ,no orii b9 EntergyArkansas. The n .,':portions of the,output frmonANO, ,White Bluffqr,,i.::.,'i;: 1. ,a. PPA,went into effect in S.i..,. Independence; .an& Entergy, Arkansas' share of Grand: 211 vt February 2006.
Gulf. -d 1, r,) g'o7 l-mq ;, .,*. .-j"'; i.*y Entergy New 1) Purchased a 45 MW to 50 MW capacity purchase call In May 2003, in Orleansrl'i , ,-Fioption from RS Cogen fbrJune 2003 through Aprilh o:i [)W connection withavg-i~tn-
.ii ... w, -. rl. 200 6 . ;oa ,(
voi ' qr- , :l :/1"Ivi *? "['.,*:ari o ' -,,-,:settlement relating to *::t*
-it . .- ,. - 2)t. Entered a life-of-unit PPA to purchase approximately' .yijEntergy New Orleans'
- ,i ,,. , ,* * '-,, '50 MW (increasing to.60IMW in2010).of output'frorwio ,!-cost-of-service study and 11
- ' . Entergy Power's shareof Independence 2:,;, brui .- '; m, revenue requirement, the.
- 3) Entered a life-of-unit PPA with Entergy Gulf States to C.ity Council authorized purchase one-third of the output of the 30% of River Entergy New Orleans to Bend formerly owned by Cajun (approximately 100 enter into contracts for the MW). proposed transactions
- 4) Entered a life-of-resources PPA with Entergy described in 1) through 4).
Arkansas to purchase approximately 110 MW of capacity not included in Entergy Arkansas' retail rate base, consisting of a portion of the output from ANO,, White Bluff, Independence, and Entergy Arkansas' share of Grand Gulf.
- 5) As approved by the City Council, entered into short-term PPAs with Entergy Gulf States and Entergy Louisiana to sell, on an interim basis and subject to recall, the capacity and energy output under contracts I) through 4) on a short-term basis as a result of the loss of load caused by Hurricane Katrina. To date, 175 MW of this capacity has been recalled by Entergy New Orleans.
124
I Part I Item I
.Entergy-Corporation; Domestic utility companies,:and System Energy
- 6) Entered into a transaction pursuant to Service 'Iqq&'. ,:"
Schedule MSS-4 of the Entergy System Agreement to
*, '*; -J ito: ' i, r* fl t;,oJ 'Oilpurchase ,a'portion of the capacityahd'energy being, *.. orV1' acquired by Entergy Arkansas, Entergy Gulf States, L.,,, - .n, . t ; !T,.jA Entergy Louisiana, and Entergy Mississippi from a l~ :u'I'i third party; this contract expires on May 31, 2006.
z.sj9) Entergy als-ofiled -withihe FERC.ihe-affiliaft-agreements dei---ribed ab'6-vesFor the aie-ements other than the'PPAs between Entergy Arkansas and-IntergylGulf States'and Entergy Mississippi, in'-May 2003, the FERC accepted the agreements for filing, subject to refund,"with the, contracts becoming effective on June 1, 2003. The FERC-ali-otablishel-a-heirifigprocess to review the jusiniessand iionableness-f ihe- agreements. Se-vial parties intervened or filed protests regarding the request-for-proposalstprocess and the agreements filed with'the FERC. After hearings were held,, the FERC ALJ issued an initiaF-decision generally. recommending approval of the PPAs. The matter is still pending before the FERC. *. £ F U, ' 0 r~interconnections 'co il,-I "-tm*f'l > i ,k t - "1* f:,)~nw 'If) ?5DO1so : .o b6,10 ,' 00 ]*u */ The Entergy System's generating units are interconnected by a transmission system operating at various voltages. ,up to 500 kV. These generating units consist primarily of steam-electric production facilities and are centrally dispatched andoperated. Entergy's domestic utility companies are interconnected with many neighboring -iitilitieL ntiridditi6ii, th l6iiiiFtic uiility' compianies arfe mfiemble-rf the.-Saiitheastefii -Electric*Reliability Council -- (SERC).--Thepriuifiry~*ýidse--f SERC-is-t&-nsufethe&-eliability -- nd adequacy bf the electric-bulk power supply in the southeast region of the United States. SERC is a member of the North American Electric Reliability Council. Gas Property
,,r en. ? I" 1 ' I As of December 31, 2005, Entergy New Orleans distributed and transported natural gas for distribution (solely within New Orieans, .Louisiana,'through a total of 33 miles of gas transmission pipeline,, 1,498 miles **fgas distribution pipeline, and 1,027 miles of gas service pipeline from the distribution mains to the customers. .As Pof (December 31, 2005; 1the gas properties of Entergy Gulf States,;'wyhichare located, in and,around Baton;Rougeq Louisiana, were not material to Entergy Gulf States' financial position. 71
.Titles (d) e,>,)I 'I,!)6'o 001-- 'c):ZI ni .
,"r Entergy's generating ,stations ,are generally {located on fproperties owned. in fee,,simple. Most of the substations and transmission and distribution lines are constructed on private property or public rights-of-way pursuant 1to easements, servitudes, or appropriate franchises., Some substation properties are owned in fee simple.
The domestic utility companies generally have the right of emin'ent ,ddomain, .whereby~they~mayperfect title to, or secure easements orservitudes.on, privateproperty for~their utility operatio~ns..?" , ia, ¢ti:Lc,: (c)
*n:,j['O v'.'A)1/4 \rr:¶. mm ltn2 .'J - i;','r! .* : 'i*v: - rr:c :, 1-1 - w;aitiijo.J v~am*r::l *:2,'.~ - i:zm:;r/ V: *'zni3
,, ,;Substatiitally all ,of.the, pýhsical mpronerties and assets. owned biyEntergy1 Arkansas, Enteigy Culf States, Entergy Louiana, Entergy Mississippi, 1Entergy.New ,Orleans,3 . and System ,Energy'are, s t 'the lens of mortgages securing the mortgage)bonds .of'such .company. ,The Lewis, Creek 1generating staton is,owned by GSG&T, Inc., a subsidiary of Entergy Gulf States, and is 'notsubject to'the- lien of the Entergy Gulf States mortgage securing its first mortgage bonds. Lewis Creek is leased to and operated by Entergy Gulf States. '
iud~Il'fa~I'p'1I iti'i'jat-lhrii-. .;'Lbj'1 i ic;',i'~C lcqrt, lu ')r1 vc)ir'V;lb "I9 f~i Ai If)~":: d6 '*:I;1nr'j-.rc;I:*llr.,zifin~d2 ii)~~CI gr~), 1?;lir,7,' o*,.'., vAP5D) w)fd~f rg o I i .n1:* I!LfT !ThE JUKIC~IJ l(sf .)lin'-. dI 'jd fifill flL,* 1fd*l
'.J~;flF; 11;'q,,.. [tIn .*;; :'/ Eff ljr1 , f;* l;.[if:i~i;"Jl I[ r.irfl~r b'.J'J'Lo'ir. 7 !i "it) l,'iiih -*rin '(kl qnf,;r'ul:, l qci,.:. WI;uJDc. ?lrll c l',f'"
6125
Part IfIteni I Enteigy Corporation, Domestic utility compihiesý, and System Energy Fuel Supply . . vW:i.l:l- r.o , .,v...ii The sources of generation and' aierage fiel: cost per kWh for the domestic: utility companies and System Energy for the years 2003-2005 were::):-0Il vihi) ',:,r 1'; P. 'ri . B fB r'YL qi ... :.i " " Ln.'; ,:r._ii..;' t ,g' .~'niJ
.1 , ,1 / ,. " , '* r:u -ii > q * .) Purchased Natural Gas Fuel Oil Nuclear Coal Power
, :.; ,, - % ' 'Centsdif .y, o/'", Cents,:- %i/o r centh .iI '-;!.%-!* ',-Cents,?!!. :° Cents
,. '. . .. ofv .per'iM, "A of:lt I' Per)' / of 2'o 1 -Pei-.c ' .,of'. 'I.:Per' ft-'ý :of *A'"Per'
.r* Yea.i ',Gen--'en; kWh" Gen,'jA kWhic* . Ge iiJ kWhr.r'C"Gefii IYkWh-
. 1 00 5 *11 .. 18 ": '-9 .8 1:, ' '.'r 3 ' PO 7 0 " : *33 t '*f . 94' : : 2Kc,1( ' ! 1 5 7 !Y
,)
- 3 e, : 6 . 3 3 9
- 2004 -' ' 15 '" 7.311'; "-TA ý:4;;!".,5,.02'P '. 35 L-Ab.491'T ' : ) 131 ' -41.39'TCi;'- - 33 ;r .'4:51 2003 17 6.53 2 5.04 35 *'>IA&.48r ,hI:I 12"-' 1[26 ' 34 , 4:24't Actual 2005 and projected 2006 sources of generation for the domestic utility companies'andrSystein Energy, including certain power purchases from affiliates under life of unit power purchase agreements, are: Ci' 111-, ba;j'~ . .- -i~ uiI jI ~Y';I ~ 4 ~ p Purchas-ed'
- lI I','".,.. Natural Gas*='-'-:t' -FuelOil!v:) ', ' Nuclear"- -. i T . Coal"" i.';::.yLPower '
2005 20 2005!0J '2006![Fi,*- 2005'! ','"f120061Mll1 Z120050i :.2006;:r,1".2005. 2006 l" . , r I .),1A I f) 1.J.. (I I",I. ' I A-1% - - 43% 51% 22% 23% 34% 25% Entergy (a) Arkansas 1%
- ,.,i ,D Gulf States 21% 21% 1% 1% 18% 16% 10% 12% 50% 50%
Loualiiifa : .)., 25%O.-/' ,19% -,'frf".4%-.0:'4A,('4/*,r/
- 26% .,I41.:1l! .*ýiO.l "'2% "'.. 45%' -134%
Mississi0pi- 9%:'" 31%"b ": 10%* '19%': : ' - )! :21%o/)>
-,2%'*7;l6%/o:t '65%-...27%
Entergy ,. ., ,! . . . Ui '.*2::?,1 n: :;'4: :' i,,: . New Orleans 22% 10% - 8% 37% 2% 14% 68% 39% System Energy -- 100%(b) 100%(b) - - - lU.S.'Utility(a)'ý 18%0/$ 15%c:i"- 3 %w':`('ý, 3 %, 33%': .- I 36%'-r'rI2%i:I-12% ;'I.-:34% 34%
'A()a Hy..loel&ctric powr& prvided lessthan, 1% of-_ Enterg Arkansas' geineratiodn, i-2005and... is expected to 10 "-' r~vidd*pp2006.'- "" . :" "s. '"Icr frC'e;K - 1 ::uin , ,n:- ..
(b) Capacity and energy from SystemEniergy's !iterest in Grand Gulf was- hist-or' allocated asýfollows:: Entergy Arkansas - 36%; Entergy Louisiana - 14%; Entergy Mississippi - 33%; and Entergy New Orleans
.,1 , '7%;' Pursuant to purchased power agreements. some that Are thesubjetof a pending oeeding at the
- "- FERC, Entergy'Arkansas is sellinga portion of its owned capacity and energy from Grand Gulf to Entergj
-'GulfState,,Entei~gy LoUiiauia; EhtIiy 'Mississippi 1ihd'Entei-:NdOrleif. '* " - '-:., '
*~~~ '.~ . ~ 'U ~ ~ "i" ~ ~ ~~-l aitr, ni:l 1,'l[)1:,I Natural Gas
- I ."
"" : .I - f i elf The domestic utility companies have long-term firm and short-term interruptible gas contracts. Long-term firm contracts for power plants comprise less than 15% of the domestic utility companies' total requirements but can be called upon, if necessary, to satisfy a significant percentage of the utility companies' needs. Short-term contracts and spot-market purchases satisfy additional gas requirements. Entergy Gulf States owns a gas storage facility that provides reliable and flexible natural gas service to certain generating stations.
Entergy Louisiana has a long-term natural gas supply contract, which expires in 2012, in which Entergy Louisiana agreed to purchase natural gas in annual amounts equal to approximately one-third of its projected annual 126 I
; Part I Item I
ý,Entergy Co*rporation, Domestic utility companies,-and System Energy Jfuelrequirements ýfordertain generating units,'Annual demand'charges jassociated with this contract are estimated to be $7.2 million. Such charges aggregate $50 million for the years,2006 through 2012.,;)i.if: *._ , , II "; '1'i uLi.ci;vt :Many factors,!including wellhead deliverability;storage and pipeline capacityand demand requirements of (end users,,iinfluence the availability and:price of natural gas supplies foripower plants., Demand is tied to weather
-conditions aswell as .t6 the prices Iof-bther.,energyIsources.,z ,Naturalgis supplies were significantly ,disrupted in
.,2005 due to Hurricanes, Katrina and Rita -(at one point up to 70% ofthe normal-level of.Gulf of Mexico, production
-twas unavailable),iand :disruptions'are~expected to continue into 2006.-i Nevertheless, Entergy's 'supplies of natural igas are expectedto:be adequate in 2006. However,-pursuant to federal and state regulations,-gas supplies ,to power plants may be interrupted during periods of shortage. To the extent natural gas supplies are disrupted or. natural gas prices significantly increase, the domestic utility companies will use alternate fuels, such as oil, or rely to a larger 2extent on coal, nuclear generation? and purchased power:.):. -r:; , *tW iu - - :o-.. i/.. x':::.,'.? l:*2L r,'inbi*i::I*'o *;! or:*'rtni i jElo.:*'*rT .*..ooi','.ic buir, ;t-*mrij lpo b:lYJ~fT, br:n, i2v:J' * ::12:, ro:)"*(i ;.I~i'rr,:r-rjl;:i; (Coal .,:. ai;olI'n:.ofr**r£'it; o of ori "TO
,.'."oI ho~9 t 1i flb*.ut'tl-ftII01Zi tr:,t* ' 212' (12,':, ni'*':';. I:."I ,.2hJ'J, *T1(1 (l'L. ',24, 3*I i:l~'.fIrrt ,!in i.i0:i~ 11'*: ;:o.n o rI ff!Okl'(2E lhr:i:" i2*
.'rVJc< ,ylili.u 0r~evn'.Ab o[l ohl (, 0"-.':' v.j. .(';i.2" '. I Zi'>i-'
Entergy Arkansas has ,a long-term contract for low-sulfur Powder River Basin (PRB) coal.which expires in 2011, and is expected to provide for approximately 90% of Independence's expected coal requirements for 2006. Entergy Arkansas has entered into three medium term (three-year) contracts -for-approximately 67% _of -White Bluffs coal supply needs. These contracts are staggered in term so that one is renewed every year. Entergy
,;Arkansas has an additional-16%'of its ,2006. coalrequirement ,committed in, a one-year contract. , Additional coal *requiirements .for both independence and )WhiteBluff are ?satisfied b*y.spot .market or.over-the-counter purchases.
1!Entergy Arkansas has'a.long-term railroadtransportation'contract, for, the delivery of coalto both White Bluff and cilndependencethat expires ,in .2011 .A;second carrier, currently delivers a portion ofWhite Bluff.s coal requirements render a -long-term transportation'agreementthat expires, on.December<31; 2006.tu : ,, K oio, 1.: .' W,>2
), .it ~E ~ . a .0*.) O tilý(rJi 1uio 2 Ai ,1 I' WI *;-,:, 1
.;izrr 0t-;EntergyGulf States. hasa long-termcontract for the supply of low-sulfur PRB coal forNelson Unit-6./cThis f contract will expire during thesummer of,2007.f.Entergy,.Gulf States has executed two transportation requirements t!contracts Lwith railroads ito Ideliver'coal, to iNelson :Unit'6 through 12007. iThe -operator, ofBig :Cajun 2, Unit 3, Louisiana Generating, LLC, has advised Entergy Gulf States that it has coal supply and transportation contracts that should provide an adequate supply of coal for the operation of Big Cajun 2, Unit 3 for the foreseeable future.
~To~InD"':! i , UiQ~. I ni '1wqrjtjnhi i tonil: qiq eo-r iI:-)Ilito `V2i) fini!
.~i ?0ftrAI~ i oui
-,)011) f;(. !%
'mo_1i Iib oBoth ithe',Entergy fArkansas' and: Entergy 1Gulft States .coal Nplants vwere -originaIly,,designed, for Jand have texclusively ,burned. low-sulfur,:coal.o-tWhile..both ,EntergyJlArkansas 4and ;Entergy. .Gulf: States have adequately
!'arranged jfor ;the lsupplyr~ofzlowv-sulfur iPRB .coal;-Athe -railroads servicing these.:coal plants are ,currently. 'not performing at expected levels tdue~tojvarious issues including but not limited to capacity constraints.across their systems. As a result of these railroad issues, Entergy Arkansas and Entergy Gulf States may not be able to deliver (all the low'sulfur, PRB coaltrequired for maximum plant utilization by means of the ,existing agreements. Entergy i Arkansas and Entergy, GulfStates plan to-test alternative coals iiniaddition to low-sulfur PRB coalin an effortito increase delivery options and to' cover portions of the potential .shortfall.in low-sulfur PRB coal deliveries.o",i ;r*oo Nuclear Fuel n tir!: ll:i..
oimvobrioL The nuclear,fuelicycle consists of the following: 0.. ,ii.-_,;Ib *n ,n.Iii:, ,. . . - (/I'.9,lo.,l)' I:'. I%,:.21*' "of]~ ol[ Jir;;Ii*'lls) i.olca rr:9o:'i?.a:itfi,.niL:'!ori) *oJ;'m OI 'OhC,. ':,,!:o'..'.: ., ;) ,>' .....
. :,lf, ~.."':0i~l:,
I-L, eoi.mining and mi.lling of'mranihimror&to produce a concentrate;' ?r, , ThiI, n . :" , . 1,i -,
- ) .conversion of tbeconcentrat to uirariiuinh'exafluoride gas*.ii.o y*g,,m,:' :, /.vA f.l :,,I; enrichment of the hexafluoride gas; . i,*;:J'. ,:0 t.n -S:.',i itn'J
. fabrication of nuclear fuel assemblies for use in fueling nuclear reactors; and dii .'o) of spen,',i7'i:! L* j;,-i.o'.il/
System Fuels, a company owned by Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and
'Entergy contracts to acquire nuclear'material to be used in fuehing Entery's utility nuclear units,'xetfrRe eil *)tmFesas anan inventories of such mfatertals during the various
;tags8'6f proessmg?.-Tibelmesitu ty ompames purchaselennchlie& -ird raiiim'hexafluoride'from System Fuels, e127
Part I lteni I Enteigy Corp6ration. Domestic 6iility compinies, and System Energy
*but contract separately1 for ihe! fabricationw of their) own, nuclear/fuel li The, requirements, for River Bend,.are' nTiet pursuant to contracts madeb'y'Entergy G6lfStates, -A' v I- )', ,':-i 0i; * ............. *'-
,-':.i Based dpon'ctirnently:planned'ful'6yclesi Entergy's nUclear initg hav, contr66tsiant inventory thit provide 1adequater inaierials and f ervicds'. -Existing coihtracts, for buraniufm co'ncehtrate~i '66i versioti! of, the fcdncentratei to
~anium' liexfifluoride,.and" enrichhient of tie urahnium hexafluoride.wil prbvide -r sigfiificant piercentage' of these materials: and services; oer& the nieit several! years'0 Uranium=market siipply'becamre mtih tighter iri recerit ,aifs.
Costs and risksi of obtaining supMlies ha'id in{ii6ased: for nuclear fuel users., It will bi' necegsiry. for-Entergy.to enter into additional arrangements' to: acquir&nucleai' fuel! in the, futurett' It ise notf6'ssible to. plredietvthb ultimate cost or availability of such arrangem~ nts.;,. -a* !r,,'i:, ,n..:., ' ,1 *', ., :o . ib-1 1,!. L-;q' -,,J. J../r* , 1"i ri'lq Entergy Arkansas, Entergy Gulf States, Entergy) Louisiafia;!: arid % Sysiem, Energy- -each; haver imade arrangements to lease nuclear fuel and related equipment and services. The lessors finance the acquisition and ownership of nuclear fuel through credit agreements and the issuance of notes. These arrangements are subjecftto periodic renewal. See Note 9 to the domestic utility companies and System Energy financial statements for a i el lea s es !i d is cu s s io n of n uc lea r ,f- :ý:.L
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Natural Gas Purchased for:Resale ('%Y.-..( ;; .1 .'r,,,n,',
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'10rn';" [,'.,:x'-. r'*l- -jaig 4lgffJit,-} 9,-iT .*bc.a(I 'i[q,]:> frn.* ;,gfl; 11/42
' ':1 Entergy New. Orleans. has sever'rl'Suppliers of natural ga:I.Itssyeýi is'en'inti-donectdd with thr&e interitate
*and'three intrastate pipelines., Efitergy. New:O'rleinsiprimai'ysidpplieis.cirrently ire-Atinos Endrge and&Bridg'eline Ga's Maiketiii, ;Eniergy, Newr Orleaihi hai! a,"nov-ntice" servicel gas:pibrchase contract. with 'Atmos Energy, which
'guaraniees, Entergy N*iv-Orleans gas-delivery aiit-*peiific:delivery'p-oints- and at h.ahy/ volufie' within theiminiriiuin and maximum set forth in the conti'fainfounts:t' TheAtmos; Energy. gas, supply. is,ý transported! td.Ent&rgy-New Orleans pursuant to a transportation service agreement with Gulf South Pipeline Co. This service is subject to
*FERC-appioved rdtesý 1Ent~i&etg .Orleis'
ý hais firm'contractswith its, two, intrastate sffpolieis, and 'also makes
- interruptible spot; marketr'purcliases.; Inw r&ent 3yeis, natural gas7d~li'eries to Entdrgyi Ndw) Orleaiis ,have :.been
. subj6&tfpriniariily, tol',weatherarelat6d c6i-itiilments:' 'However,,'EhtergyuNew 'Orleansiexerieficed, no,. such curtailments in 2005.:ý,Afc! , ' .!,,.'.*:;-d!I .z...! " ' ) ,',*.'J... l.ih,i ; ' ,.).A r. . ,) .* c As a result of the implementation of FERC-mandated interstate pipeline restructuring in 1993, curtailments of interstate gas supply 6buldioccur-if Entergy Newv Orliif',S suppliers' failed to perform their oblighti6nfto deliver gas;under their supplý igr-6ments:r' Gulf South Pipeline Co."coild'cuitil.'trarisportatibn capicity:only' ih the event of pipeline system constraiints.,Because of the ifimpad of Hirricanes' KftriniCand Ritaion natural gfis suipply as well as'other factors; Entergy New Orleains: mina,have additionil difficulty in sourcing natui-al gas§iý¶qzx It, ýmirtrholq
'i Entergy Gulf Siates-purchases natural gas foi'resale'under a' firm contract froth Enbiidke Marketifig (U.S.)
'Inc. (formerlyl MidtLbiiisiifa Gas Cbmpafifi) entered' into September 2002 ýfdr a five-yehy period'Tlie'contractfwill continue annually'at the rid of the termlufil6si prior notice is giVen by Entergy Gulf States.-(., ,::-b >,,._,r! Federal Regulation 7 . __ State or local regulatory authorities, as described:&above'";*regulate tlie"retail rates 'bf Ehtergy's'domestic utility companies. FERC regulates wholesale rates (including intrasystem sales pursuant to the System Agreement) and interstate transmission of electricity, as well asý rates for,System Energy's: sals* of: capacity. and energy, from Grand Gulf to Entergy Arkansas, Entergy Louisiana; Entergy Mississippi; and Entergy New; Orleans pursuant to the Unit Power Sales Agreement. : -,b10it.oijrzl;;'Jd l 0mnl'i-m System Agreement (Entergy Corporation, Entergy Arkansas, Entergy Gulf States;, EntergyLquisiana. Entergy Mississippi, and Entergy New Orleans) b,-nc iff;i.')'K2i!. .,; "* : ! .Zi.mi.2'i:-,i '.'" izanr! .*P'1:2i'IA ,,,!,T'Af!: ,',d b*,n'g~ V'l/tilZeT)Ar .k; u 1fW9 IO:'( 2'
,l;'. .,.The, domestic, utility, companime historically, have engagelanning, constructn,, and operation of generating and bulk, transmission facthte r the terms ot theSystem Areement, which ii a rate schedule tiat has been approved by the FERC;.rUndeup the terms of the System Ageemen,, gene and other power resources are jointly operated by the domestic utility companies. The System Agreement provides, v 128
- Part I Item I Entergy Corporation, Domestic utility companies, and System Energy among other things, that parties having generating reserves greater than their load requirements (long companies) shall receive paymentsf from ;those -partiesjhaving deficiencies .in_-generating reserves (shorticom panies). Such
,payments :.areat, amounts sufficient toycover certain, of the: long.,companies', :costs for, intermediate "and peaking oii/gas-.fredgeneration,*including* operating expenses, !fixed charges on :debt, dividendrequirements on preferred "istock; anda ,fair.rate, ofreturn on *common equity.:investment. riUnder the :System Agreement,-.these .charges are
- based on costs associated Nvith the long 'companies' steam electricggeneraiing units 'fueled by' oil orm gas and :having an annual, average heat rate above ij 0,000 :Btu/kWh. I In addition, 'for iall energy exchanged among jthe; domestic lutility.companies underthe System Ageement,'the companies purchasing, exchange energy.are'required to pay the
;cost ofifuel'consumed in'generating such energy plus a charge to cover.,other:associated costs.:*,,i:,. T!:1!,!'*
See ".System Agreement Proceedings" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis:_for discussion, of the proceeding; at FERC involving the System Agreement and of other related proceedings. ri ; :,:g'r.,,' u,,?.c:,-.*
, i', z,tI "i'.*ro "?tfug~ iwrr-r:'*:., ;o: *nl, F~ *t'crtcz a!,f- .. .'
il,* l'Fransrmission Ib!2'-I cj h: ,di l II,,, t:~ic..h al i/rU~D§?i1i if, -1;, 1;moll 111iii nii~£LP , W~- ~ ;~t~. iur~ ;v,, 1() )):O ill .1irfw l!,o
ý)t;rfw ,!:See.,'Independent Coordinator of Transmission" in thet'"Significant Factors and Known Trends'",section ofEntergy, Corporation andiSubsidiaries Management's Discussion andiAnalysis. i.v, ,:; .;:-. )? ri ,!:;! ,-i "iMarket-based Rate Authorityv , , i: i.. * ,!:!I ;I Io ý1.
.. :,:TJ.Fj:.rt,'- 01 I :1;' , i >'i:,,.f2;i1I ,rM" .1'ch.i h io i:-See'"Market-based iCt) -Rate'Authority'I in the' "Si2nificant Factors and 1Known Trends' fsection, of,Entergy
,Corporation and Subsidiaries Management's'Discussion and Analysis.. q.:ui.: ýj zti ,.l i ' D..1S'
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'to L-iivi o- f,.,l.[ ;t "iO *'a".;l.l(*
;Interconneetion Orders? j .. ( t 'A I)j...
See "Interconnection Orders" in the "Significant Factors and Known Trends" section of Entergy
,Corporation -and :Subsidiaries Management's Discussion and Analysis.[id .'. . *c_,, ..'- r;'nO
,Available Flowgate Capacity Proceeding ,o -); ? '-:.',i ... ,;rI eIl ,:JV:, ., ,;,'1I, "h d p:I' uhi,!cd:ro9
*1:.) /oq I ) l e,1;:;i .)D Tr),') !i(: fL,, ',(c"'S ;: oth ':l , ;.i~ ,)k . :' i~ji:; . ,r *'*.,r"- .' ,,t'.1 '", b ; ,i:* *aJ !
,rSee. ,Available Flowgate Capacity:.Proceeding",.in ,the ,"Significant Factors and Known Trends"-section
.ofEntergy Corporation and Subsidiaries Management's-Discussion and Analysis..,-uu 1.7(11 ti, , -.,',IŽ ft¢ ; ', frLlO'jTg4;ui in- !1T .q. Ž5'-] -1~nrii Ol V',g'L'T!uOi DA 14')il*
- ,r ,,:,.,. u- , :,'*;'_!.Kuh. ')1L.) Ho "i:)/:o',._-,3 .v:,;if - :" "
*:t.'tl:
,FERC Audits :::,f i,: 'i ;.IA 'j "'AI .. ..., . '.W -
?.!i "o :[In August 2002; the FERCOinitiated audits and reviews of Entergy's compliance with.Order2Nos.. 888 and 889 and ;Entergy'sl open,Taccess transmission tariff. jiIn ,March -2004,.ja 'separate :audit. was! started, concerning
'Entergy's administration iof !the..Generator. Operating -Limits, (GOL) :processes. ,rEntergy, iresponded 1to (numerous
.FERCI data 'requests and the :FERC, Staff members interviewed several'employees. 'In December 2004, .theFERC
ýissued the GOL audit ;report in iwhichit c identified certain input and :modelingerrors -in the implementation of the GOL process (which process .was replaced in-April 2004 with the :available flowgate capacity.process).. The report recommends that Entergy implement additional quality control and assurance procedures surrounding the processes iforfgranting short-term transmission service: rSeparately,-;the ,FERC:inrvestigation staff hasprovided itouEntergy its
*preliminary ,findings-in ;a .:non-public'idraft., report identifying- certain. areas! jof concem)xrelated .to:,Entergy's
,compliance with provisions ofits open access transmission tariff.'jEntergy.has submitted a. comprehensive response
-and, rebuttal to -the :specific concerns -identified ,bytheinvestigation.staffbut;)at this, point,,believesi that it *has
!complied with the provisions of its open access transmission tariff.,'rThe draft report is not a finatreport and maybe
-modified by .the ;FERC staffibased onEntergy's responses oriotherwise-raln:addition;iEntergy has the abilityuto
- appeal the final reports tothe full FERC..':'ýf-n4*.r:. ,?c H.0'iri..*I it'ld o;: oU.W! bl. *-:.u 0 *'.,' t)1.7n1>I nhiiunpq
-niL,',,','TheCFERCf is currentlyreviewing icertainwholesale sales..1and -purchases involvingEPMC that occurred
,during, the ýA 998-2001 'time 1period:-,? EPMC.(was-,anEntergy, subsidiary Iengaged, inL non-:regulated wholesale
'marketing. 'and trading. activities prior to ithe tformation of Entergy-Koch. ; Entergy isworking vwith the-,FERC investigation staff to provide information regarding these transactions.
1129
I Part I Itemn 1 Enteigy Corporation, Domestic utility companies,' and System Energy See "Available! Flowgate Capacity Proceeding"I in the !'Significanti Factois andý Known .Trends',se6ti6n of Entergy Corporation'and SubsidiariesManagement's Discussion and, Analysis. forla discussion*concerning.the potential loss of certain'avhiilable flovýghte capacity data;* Following Entergy's) notice to iheFERC'of ihe'potential loss of certain a',ailable flowgate capacity datal ihe FERC investigation' staff initiated a non-public investigatibn of the'domestic utilitýr'compafiies' compliance with the FERC's record retention'requiiremehts>. Entergy' is pro*,iding information to the FERC staff concerning its record ietention policies'*ind'orktices. I Additionally,, Entergy recently notified the FERC investigation staff of a? failure, to timely posi'td6 Entergy's OASIS sile cirtain curtailment- 'nd schedule information. A, separate; non-public investigation-.k*,as. initiated'to, review; this issue and: Entergy, is working with the FERC staff to respond to their questions. Oth'e Customer-Initiated Proceedings"at FERC'O"... .- :j';(! *'::,:-r mu .. , 'r,L '; ' . In September 2004, East Texas Electric Cooperative (ETEC), filed a complaint at the FERC against Entergy Arkansas relating to a contract dispute over the pricing of substitute energy at the Independence- c-owndd coal unit. In October 2004 Arkansas Electric Cooperative (AECC) filed a similar complaint at the FERC against SEntergy' Arkansas, addressing the satiar'issue&with're~pectlto Independehae~and aiiothetr co-owned c'I unit, White Bluff Electric Station. Entergy Arkansas, filed answers to these' complainits. in Octobtri 2004 and No'kmber *2004. FERC consolidated the cases, ordered a hearing in the consolidated proceeding, and established refund effective dates. The main issue in the case relates to the consequences under the governing contra~tsgwheri'the, dispat'ch'6f the coal units is constrained due to system operating conditions. On August 24, 2005, Entergy Arkansas and ETEC filed'a 'settlement at.FERC that reslN'ed'all, issue. in dispute1betvfeeni ETEC 'and Entergy Arkansasi *As' ipart of the settlement, ETEC filed to dismiss its complaint.,f-Enitergy, Akansa 'believes that 'the. AECC contracts in, dispute recognize the effects of dispatch constraints on the co-owned units and require all of the co-owners, including AECC, to bear the burden of the reduced output. A FERC ALJ issued an Initial Decision in Janifary,2006 denying AECC's complaint. On February 17, 2005, ExxonMobil Chemical Company) arid ExxonMobil.'Refining &':Supply Company (ExxonMobil) filed a complaint with FERC against Entergy Services and the domestic utility companies. The complaint alleges that the Entergy defendants have violated Entergy's open a*cess transmissio'n' tariff, ai -well!as'its interconnection and operating agreement with ExxonMobil, by not allowing ExxonMobil to net its station power needsý at its! industriallcibfiaplexini Braton, R6iige, louisiana.'. ExxonMbbil: also.alleges. that the Entdry: defendants have been charging rates that are not'on, file witli, the FERC' and that'the. Eni~igy. defendants' monthly: facilities charge is contrary to the FERC's current interconnection pricing policy. ExxonMobil states that such violations have resulted in monetary losses to it in excess of $5 million. Entergy believes that it has compliedlwith?.thi provisions of its open access transmission tariff and the provisions of the interconnection and operating agreement. On April' 18, 2005,:ifie' FERC (1), rejectedia'i unfoun'ded Exxon'Mobil's'alleg'ti6iil cohcermiinig' the. netting of its station power needs, and (2), setý for. hearing'thfe 4uestibn, of whether thei facility upgrades and ielated' -hhrges' are subject: to, FERC Jjurisdiction and,.if so;'. wlhdithey b'ecame subject tor .FER..jui'diction .whe.ther:the:' monthl f'iliity*cha'rge'violated-FERC pricing policy,,and whether'any refunds'ai4re plird'riiate.U The FERCO-then held the hearing' in abeyarice in-drder to provide the parties an'bptortunity-to settlei tlieii dispute, before hearing prbcedure*s commence. Settlement discussions with the assistance of a FERk Settleinent' Judge are underwa'y.'.' , -) 101t
.O-)
,. '.:OihJaiuuary 24,-2005 CottonwoodEnei Company, LPg." an independent., generator; filed-with the' FERC'a iate schiedule 'for i'eactive power, that. proposes to' imfi6se, 6n Entergy:Gulf States a rate for:; reactiVe-supplysei vice allegedly. supplied by, Cottonw'ood's electric,-gerieriting facility:- Cottonwood- has pi'6posed ai' fixed 'Monthly"charge
($3.4 million, ainnially),(which according; to' Cottonwood:. represents, its revenue requiiement'.for reictivd pdwer Sservice.J, Entergy believes that independehit generaiiors shouldonly be compensate'd! for reactive poev& to the'extent ,that ieicy hive an affirmative and' continuali obligation to provide reactivepowdr suP'lrt bd6fndtheir p6,ker factor range when directed to do so by the transmission provider, and is opposing Cbtt6fiiýbod's, rate scheduldi On March 23, 2005, the FERC accepted Cottonwood's proposed reactive power rate schedule for filing effective on February 1,,2005, subjecf td refund; and established hearing and settlementjudge pi'ocedures>!N A hearinijiii this fioceeding origihally scheduled fori January 2006 has been held in abeyance,. pen'diiid settlement discugsi6fis?' A'similar filirig was"made by Union: Power Partners in May 2005 requesting $4.15tmillion annually. On ,Julyi 15;;2005, thb'FERC G130
; Part I Item I Entergy Corporation, Domestic utility companies,'and System Energy
-accepted Union Power Partners'tproposed reactive power rate schedule for filing,:effective May.,18, 2005, subject to "!refund and established hearing andsettlement judge procedures.: '-,;*,ar, -;. v'i,.-Y L',. , -;,' ,
$-, ;ti) [::v.During August and September 2005i:three additional generators :filed.similar requests seeking to'charge the domestic utility companies'. customers -a total lof approximately.$8 ,million. .,On!September.2, 2005;-.the domestic ,utility companies 4filed .a Petition for Declaratory Order.,with the IFERO seeking confirmation that -ifthe ;domestic .,utility companies do, not :seek ;compensation,,from' .wholesaletransmission (customers for,-reactive power iservice lprovided bytheir owned generating facilities, [then the domesticfutilitycompanies'are notrequired to.compensate non-affiliated generator's :for;maintaining reactivepower within specified, limits-:tConcurrent with their -Petition-for Declaratory Order, the domestic utility companies filed modifications to their transmission tariff proposing to eliminate any charge for reactive power supplied by the domestic utility companies' owned units. ,On October rl4, 2005, the FERC issued an order granting Entergy's Petition for Declaratory Order and accepting the proposed ,,changes, to the itransmission. tariff, Ieffective,-November .1, 2005.7,.Accordingly, third following November.1;'-i2005, the
\domestic,utilityccomnpanies:.customers Ashould not be required..to partygenerators !for.reactive rcompensate power :,supplied "withinthe-specified limits:! The FERC. accepted the.!three' additional, generators', jproposed rate
- schedules :forfiling but:noted that the,proposed rate scheduleswould no~longer be.effective after October 31,i2005, consistent with its ruling on the Petition for Declaratory Order. On November.I, 2005,.;the ýdomestic, utility companies filed two complaints with the FERC requesting that* the FERC issue similar orders prohibiting
,Cottonwoodand. UnionPower Partners from charging for reactive power'supplied within thespecified :limits after ,October 31,'2005.-, "I.... f) o (-
1;,.*;1i !Entergy and iUnion Power .Partners have filed with ,the FERCa proposed 1 settlement for:reactive -power ,chargesforithe~period May, 18;!2005.*through October 31, 2005:.!,Entergyis currently-,engaged Jn settlement discussions with the otherffour.generators.ij i :i ,,-Y,.- ,' ,; .,r... ,, [.; 0.? vi-,,.: ;'
-System Energy and Related Agreements ," . ,.$,- t. ' . . ,. -.. , *;w;;,>..!' "2F rf',ý.1-,1;,System Energy,:recovers icosts related.,to its interest! .in ,Grand.-Gulf through :rates !charged :to Entergy
*Arkansais,,Entergy Louisiana,:Entergy Mississippi,. and-.Entergy, New ,Orleans'for,:eapacity.and .energy:under~the Unit Power Sales Agreement (described below). In December 1995, System Energycommenced a rate'proceeding at the FERC. In July 2001, the rate proceeding became final, with the FERC approving a prospective 10.94%
,,returnion ;equity. The.,FERC's %decision,also.affected other ,aspects'-of-System Energy's ,,charges :o the',domestic
,utility companies!that rit. supplies, with; power. : 1ln :19.98,, the ,FERC 'approved requests,;.by Entergy. Arkansas and
*Entergy ;Mississippi ,to :accelerate a portion of. their; Grand Gulf purchased 'power obligations.,- Entergy-.Arkansas'
'and Entergy.Mississippi's acceleration of.Grand: Gulf purchased poweri obligations:ceased effective July 2001land
'July 2003,.-respectively, as approved by FERGC ' ... ,; iiO . ..,, . ', ,-'.c,i ':",..T
*.UnitPoweriSales"Agreementl t) i.:t- ;f:ir:- :..:' 1 ,iU,:-A, ',, , r .'. I 17!?,.-j.-.
-rry:
A'-,. TOI
.,'he,Unit Power, Sales Agreement, allocates capacity, !energyj,- and the related -costs from System Energy's 1!90%-.ownership ,and rleasehold interests, in; Grand ;Gulf to ,Entergý -Arkansas: ,(36%), -Entergy, Louisiana, (14%),
Entergy Mississippi (33%), and Entergy New Orleans (17%). Each of these companiesiis :obligatedrto -inake payments to System Energy for its entitlement of capacity and energy on a full cost-of-service basis regardless of
,the quantity, of energy delivered,so -long.as Grand Gulf remains-in commercial operation..j -Payments under the Unit *.Power:Sales Agreement are System Energy's only, source .of operatingrevenue.7 :The,'financial condition of System -Energy, 'depends jupon .the continued -commercial operation .,of,-,Grand ýGulf, andr the ,receipt of: such .payments.
1Entergy,Arkansas,! Entergy, Louisiana,..Entergy,-Mississippi, :and -Entergy-New-Orleans generally recover payments nmade under the Unit Power Sales Agreement through rates charged to their customers. ,b'.-il,, , . i , io In ,the case tof Entergy,:Arkansas ;and' Entergy iLouisianaipayments are ;also- recovered ;through sales of
!electricity:fromltheir respective retained sharesof Grand Gulfo.Under a,settlement:agreement:entered into with the ,APSC, in:1985 -and amended in i1988,",Entergy.Arkansas retains 22% ofits 36%-share of Grand Gulf-related 7costs rand recovers the xremaining 78% of its share .in;rates.cIln Othe ievent (that,Entergy,:Arkansas is inott able:to-sell-its cretained :share.to third -parties,)it may sell'such energy ,to its, retail icustomers -at a price -equal, to ýits' avoided, cost,
(,which Js currently. less than Entergy Arkansas',cost from :its retained .share., Entergy.Arkansas.has life-of-resources 2131
Part I Iterii I Enteigy Corporation, Domestic titility compaihies,: and System Energy purchased" 6,vei* hgreehienits ikith! Enfergy? Louisiana and: Entergy New Orleans p~nding i~egulat6ry apprbvals that sell a portion of the output of Entergy Arkansas' retained shareof Grand Gulf to thoie'c6mpdrnies§',iI a siries'of LPSC orders, court decisions, and agreements from late 1985 to mid-1988, Entergy Louisiana was granted rate relief withv respect. to!costs assbciated, vith, Entergy Louisiana's sfiarý of.capiacity:and, energy., from' Grand Gulf, subject to certain tefis and coriditions:.!Efiiergy*Louisiana retains ard does; not recovdr.' from retail, riiiepay'ers 18% of its 14% share; of the, costs of Grahd' G-Ulf 6apacit;: andenergy! andi'ec'verý the iierfiaininl-82%. of its shai&' in - rates. Entergy Louisiana is allowed to recover through the, fuel adjiistm rit clause'4.6 cents; pe- kWh for the energy related to its retained portionof thiese costs,-;Alternatively; Entergy.Loui~ianii may sell such energy t6 non'affiliated 'parties-at prices above the fuel adjustmehi clause'recovery amount,, subject to the EPSC's approval -: . ' Aaiblity Areement - . ._
" The 'Availability,'Agre'ement' among Syst'rm Energy, and Entergy Arkainsas, Enitergy Louisiana,-"Enter'gy Mississippi, and EntergyNew Orleans, was entered into in 19741inohnnection with the'financing by System' Energy of Grand Gulf. The;'Availability'Agreement. provides' that Systemn Energy, hmake'available, to Eritergy!Arkan'sas, Efiterg- Louisiana;' Entergy Mississippi, hnd Entergy New Orleang all capacit5 and energya*,aila'ble from System Energy's share of Grand Gulf. ', ,.' ' '.; ' . ; .,:,:' ; I!. , .- .,:
Enterigy:Arkanisas; Enterg Louisiana;ý Entergy Mississippi; and Entergy. Ne*w Orleans ali0 agreed severally to pay System Energy monthly for the right to receive capacity and energy from Grand Gulf in ari'iduntsi that'(wh'en added to any amounts received by System Energy under the Unit Power Sales Agreement) would at least equal System Energy's total, op'eratifig-expenses foi Grarid Gulf (ificluding depreciiation'at a spe6ified rate)ad interest 'charges.- The September!1989 write-off lofSystem Energy's investmeint)in>.Granid Gulf' 2, amounting r:to approximately $900 million, is being amortized for Availability Agreement o.r 27y "urposes rs.'. . The allocation percentages under the Availability Agreement are fixed, as' folloivý? Entergy/'Arkansas -
- 17. 1%; Entergy Louisiana - 26.9%; Entergy Mississippi - 31.3%; and Entergy New Orleans - 24.7%. The allocation perceritage, under the Availability Agreement wouild remain in effect afid would govern paymenti made uinder such a.greement, in the event of a shortfall of finds;ivailable to System' EieiLe from' other: sources,, includifig payments
.under the'Unit Power Sales'Agreement:'*ýý., ,' '*.. . , ) Ifr'..;*, *-I,-. , . s,, , tiJ *. -, System Energy ýhas,- assigned , itgt rights, to payments, -and,ddvances: from f Entergy Arkansas;,'Entergy Louisianal Entergy Mississippi;andEntergy N -" Orleans'under' thenAvailability'Areement ak security: for its' frst mortgage bonds hnd reimbiirsement obligations to' certain bainks'`pibvidihg letters of'creditin' connection witli'the
- equity fundihig of the' sMeý and-leasebackktransactions described'in Note.9 to the' financijilsiatem nis,;under-"Sale and Leaseback Transactions - Grand Gulf Lease Obligations." In'tliedi assignments, Entergy!Arkansa'* Ehtergy Louisiana, Entergy Mississippi, and Entergy New Orleans further agreed that, in the event they were prohibited by governmental action from making payments under the Availability Agreement (for exampleif FERC rediiced" or disallowed such payments as constituting excessive rates), they would then make subordinated advances to System
-Energy in'the sameamiounis, aid, at! tie*sameý times as the prohibited, payments.i Syi'tem'Eiierigdw6ld not be allowed to repay these subordinated advances so long as it remained'in default un'dei the, related indebtedness 4* in other similar circuumstances:,:*. * "flf ,.' .' . .. ., !.t:toi;, . ..". ,';" ",?',j /1 Eiich of the assignment agreements relating to the Availa'bility Agreeinentfprovide6 that Eniergy6'Arkansis, Enterý', Louisiana;' Entergy'Miiissippi, and Entergy New. Orlearis will makd paymeitsg directly to: Systini' Energ~j.
However, if there' is&ain' eventr 'of defaUlt,! those "aymenis must be madedirectly to.the holders of iihdebtidness, that are.the beneficiaries of such assighiment'agreements,2 The payments must lie mad( pro' rata'ac~ording, t6' the amoufut of the respective obligations secured. , , . . . :...':.. '... .. " .; , i 1 ! - ,' ' ;M4
- ..* *.'> 'The obligations-of EniergyArkansas, Entergy Louisiana;,. Efitergy Missis'sippi; and Entergy Ndw- Orleans to mlrake paymeints, under' the. Availability-, Agreemeht;.ire
- subje't to. the! 'reieilit and' continued effectiveness rofj 'll necessary regulat6ry.a *irovals. Sales of capacity and energyl uxid~r the' A;ailabilityi Agieement: woxldfiequuir'ethat
- the"Availability Agreement be submitiedto.FERC for: hpproval with: resp'ec to thý teri*n'off such sale.-No such filing Mith FERC has been made because sales 'of capacity and eneigyfi6m Grand Gulf are beihg made'pursuant to
- the
- Unit Power Sales Agreement If, for any. rason, sales of capacity and energy areinade inthe,futurepur'stiahi to 132
i Partl Ilteni I Ente'rgy Coijration, Domestic utility comphies,; hnd Syitem Eneigy the Availability Agreement, the jurisdictional podions 'of ihb rAvailabilityAgr6eeimnt'ýwould b6 submiitted t6 FERC for approval. '~11-Since dorn ieicil bpeikaiion of Grand'Gulf begairn/;payments'lunider the; Unit'Povr Sales) Agreement-to System Energy have exceeded the amounts payable under the Availability Agreement. Therefore, no payni6nits under the Availability Agreement have ever been required. If Entergy Arkansas or Entergy Mississippi fails to make its Unit Power SalesAgreunefit parmeits,':and Sy'tem Energy is unable to obtain funds from other sources, Entergy Louisiana and Ehiergd New'Oirledani'could ibecome subject to, claims or demands by System Energy or its creditors forl laymentsWbf_advances-inder the Av.iiiability_Agre6ment (or the assignments thereof) equal to the difference between their required Unit Power Sales Agreement payments and their required Availability Agreement payments b'elause thei ASailability-Agireement obligations exEei~l their Unit Power Sales ,Agrdeinent-obligations. The Availability.Agreement i',y be terrmiinated, ameffded, or modified by mititual'agreerment of the parties thereto, withfout furthei- 6nsent of afi*,issignees br other credit6rg. 'M)A ,*~t:;.is;,,J .i r.4. V.0. ', CapitalFzindsAgreement System Energy and Entergy Corporation have entered into the Capital Funds Agreement, whereby Entergy Corporation has agreed. to ;supply]System Encigy with s'ufficient capital to (i) maintain System Energy's equity capital at an amount equhl it6ldbminimiun'f of 35% iof Its total capitalization (excluding short-term debt) and (ii) permit the continued conimercial'op'a.tidn:6f Grand Gulf and pay infull all indebtedness for borrowed money of SystemEnergy when due.'3 _ Entergy Corporation has entered into various supplements to the Capital Funds Agreernent:..Systemi Energy has assigned its rights -under such Tsupplements. assecurity fore-its first mortgage bonds Cand tfor;reimbursement obligations to certain ,,banks providing letters ofi credit in confnection with, thetcquity fundingqoflthe sale and leasebacktransactions- described in-Note 9 to the consolidated.financial statements underi"'Sale.,and -Leaseback Transactions - Grand Gulf Lease'Obligations.",:.Each such-supplement provides that:permittedindebtedness for borrowed money incurred by System Energy in connection with the financing of Grand Gulf may be secured by SystemEniergy's rightsiunder the Capital Funds Agreement bn a pro rita balsis (except for the Specifie"Payments;, as defined-.below).,.In )-ddition4* in"Athesgupplemefits 1to -the -:Caiital;iFiinds'7;Agreement relating, ito *-the specific indebtedness being secured, Entergy Corporation has agreed to make cash capital contributions'diiectly-to System Energy :sufficient to enable System Energy to make paymerits .when-dUe on"such.indebtedness (Specific: Paymezits). HoWever,. if there is an event of default,' Entergy .Corporation muist imake those pa'ments directly -to the holders of indebtedness benefiting from the supplemental agreements. The payments (other than the Specific Payments) must be made pro rata according to the amount of the respective obligations benefiting from the supplemental agreements. -i;,-:, ' !i iI T ,.., i,* '::n.:i-,The.Capital,funds ,Agreement -may. be iterminated,, ýamended,, dr "modified by mutual agreement of the
'parties ithereto,,upon! obtinnig. the *consent, if;required; 'ofthose fliolders7;ofSystcm Energy's: indebtedness 4then outstandirigwho'have received the assignments of the CapitalFunds-Agreement.,-r'- J.':,-!r,. Lr,v, Service Companies .o:) .I:.2*;L: , (. ' *'.*i*!*
Entergy Services, a corporation wholly-owned by Entergy Corporation, provides management, administrative, accounting, legal, engineering, and other services primarily to the domestic utility companies. Entergy Operations is also wholly-owned by Entergy Corporation and provides nuclear management, operations and maintenance services under contract for ANO, River Bend, Waterford 3, and Grand Gulf, subject to the owner oversight of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy, respectively. Entergy Services and Entergy Operations provide their services to the domestic utility companies and System Energy on an "at cost" basis, pursuant to service agreements that were approved by the SEC under PUHCA 1935. 1-33
Part I Item I Entergy-Corporation, Domestic utility companies, and System Energy Earnings Ratios of Domestic Utility Companies and System Energyp, .,-, .;.., .;. - ',;,,... ' The domestic utility companies' and System Energy's ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and. preferred dividends pursuant to Item 503. of SECoRegulation! S-K are as
'follows:;,.- .. . ,, *,, . ... ,
Ratios of Earnings to Fixed Charges, .,. ....
-Years Ended December.31;
.2005 L.2004', ,; -!-2003 .- i 2002,,-,.-,., 2001 Entergy Arkansas 3.75 3.37, '3.17 2.79 , .3.29 ':..r Entergy Gulf States 3.34 3.04 1.51 2.49 2.36 Entergy Louisiana Holdings..:' 3.50 , 3.60 "., 13.93 r -. : 3.14 , 2376 Entergy Louisiana, LLC 3.50 3.60 .3.93r, '," 3.14, 2.76 Entergy Mississippi 3.16 3.41 3.06 2.48 2.14 Entergy New Orleans 1.22 3.60 1.73 (a), (b)
System Energy 3.85 3.95 3.66 3.25 2.12
..- ,. . , ,; *i Ratios of Earnings to Combined Fixed. .:
S . *. i,.1 'Charges and, Preferred Dividends-i ,,; ,
*' .:., :.. 4. " '. , ,,; , b .: , :Years Ended December.31;,-,?. ' ", " " '4rf,*'.I 2005 2004 2003 2002'. 2001
, .Entergy Arkansas - j,-:
; 3.34 2.98 ,..', 2.79 .- " 2.531.. .. 2.99.
.;:'Entergy Gulf States, .... 3.18 2.90 1.45:'r' 2.40'., i 2.21',.
Entergy Louisiana Holdings!' i. -'-;-,3.09 3,16 . ', 3.46"',, 2..86,; 2.5b;i- ,
.. . :Entergy Mississippi ',; t- ' ., 2.83, 3.07, ' 2.77 . 2.2711 L ',
.." . .Entergy New.-Orleans. -',;IqX:v:: .. 1.12.' 3.31 :.>"'. 1.59 :,,':j .": (a)m:t',-; - ,(b)
.0 i3 (a),.. 'For Entergy New Orleans, earnings for-the twelve months ended Decemlber 31; 2002 were riot adequate to',
cover fixed charges and combined fixed charges and preferred dividends by $0.7 million'and $3.4'million,i,
- .. :..: respectively.',,, . . ,:/-. .'i ' . ' .-.. - .. Ct :1 ,. .. t., '. !L' J .. "!b .....
(b);, F6r Entergy New Orleans, earnings for the twelve months ended December. 3 1; 2001 were not didequate toi
-. ...i cover fixed charges- and combined fixed charges and preferred dividends by $6.6 million and $9,5. million, 1.J;)respectiv'ely.~'.-, I,. *j ely. '. ; , ... T .r' -K. '*
Non-Utility Nuclear _ -,z:
.. Entergy's Non-Utility,.Nclear businessowns.and; operates, five-nuclearpower..pOlnts arid: ii'primarily focusedon' selling electric power'produced by those plants, to, wholesale: customers,: ':This, business; als6;pr6vides operations and management services-. to: nuclear -power plants. owned:"by oth&' utilities in the' Unitd, States.
Operations and management services, including decommissioning services, are provided through Entergy's wholly-owned subsidiary, Entergy Nuclear, Inc. :,.-,-:.-!:1.fl::;
'IC,'..
* . . .4 -
%;.1 r' ,
- 1) jI' -.
134
I Part I Item 1
',Entergy Coribration,'Domestic utility companies, and System Energy
* ;,::z1,.r,,, .. :.t,,n lfnwlr;u" yr v ,,:,':h .'
r!Proper'ty v'ilidrii, rmritriy,:Iz'ir i r * 'o !JC4B , i n3+. ,.-.a ,' . Generating Stations
".LI:;,I b)')i)U!J i . i' 1'( f ?IHI
?rIof t E JI!, 1.-
,:: .f ,, !:r0,lii i "10 ':r.1*,1:re i ' !. ,C;ii J-rio'*
-,,irhq lEntergy's Non-UtilityNuclear.business owns the following'nulelar power plants: rI;; r:zrr'.::
Hliv/ , "ljj.,j i - '. '*ri . , 3 i_- . ilrrirlq1 o0:'1 Ar! 'tI ri o:.' f
- a e v;;',.Ac l,:uif
- Fr fi!yr)vZv)D i -_1 .b;IMi "'ihv 3i ,!tfu7,r / ;'?'d ./.'/' ,
- t ý.alq ,,, y9'r mw'*,f f, tr, £ trL eli lo License,-
i:il'u
'jai imrtiU l? i ýi rf 61 4 i; eI-J- 'P A) aximum .z1imi1; jl1 ?:-_.rL' A; oi ?Expiration
'* rraPower Plant-:i,-I "oiAcquired ,j `ILocation , Capacity2 -o noifrru-.Reactor Type -;:,f cr[3 oiDaterlif
?uOrIrj "~5i.;?'l* ".U I' .A-I0 4iHO';Uf 9",'tc, !iL. , n:;Z '. e 7;,'
' Zi e h7 *)i'
'MJ'I .*~;!,-1a.u: *fl1I tll) r((i] $ri12
[I Z5iuJO~rI2 rPilgiirri')O.l.2 ol mzoJtily.1999 B ,Plymouth, MA'r .,i688 MW.00B6ilingWater'Reactor o ý'u i-:I ird i %:i:2012 C`FitiPatrick1di,oniqc. raN6vy.:2000 _Osvegr,,NY'K .:-; 838 MWin [BoilifigWater.Reactor j 5hll? -:" ir20140lr Indian Point 3 Nov. 2000 Buchanan, NY 1,041 MW Pressurized Water Reactor,'.X? o1 -1r201lS.1 Indian Point 2 Sept. 2001 Buchanan, NY 1,028 MW Pressurized Water Reactor 2013
!,Vefmont Yankee'f ý:,r;July 2002' Vernon;iVT.q -i',Ahr'510 MW.V tB6iling Water Reactort, ',i!it-nr 12012 nfl;!f1f.ig - h fiira i. a baa I g- , ' . l;.!
!dA/,%),, 1;,'*:,
-r;;Ir' .; :'Iu :!q or!i .,7j -,,! I "il -t "Bh I r (i 161
!v:'!
iNon-Utility; Nuclear added 47:MWof capacity in 2005 through in:uprate at! Indian Point '3.sin March 2006 (the
,VNRG-appioved'a' planifed 95.;MW uprate at Vermont Yankee'that iNrn-Utility. Nuclear intends. to implement',i.n t)2006..'-o'u cihh ýid.v l Inom1)J1/ rnIN ol ol P 1?"; :iwoqi)t', l) '1,
,tiq *'i *u!i A "lu'.4 b]isow' 2flrth rkd;vu ;'- *,rtl .* ra :J;g ci!: "o 2"*1,'i-i ' [:,'!~i:~ *rh ol 1Is:*eOl'tJ3JJO *.L 12b v. 'L-Ui : wJily: .I; :iwF t ,?12r~e:Z, Interconnections - - . o j,>
urri brrL £10:Err*r.' i e'i
)rh b'-u, -iThe Pilgrim'and:Verm6ntU-Yankeeplants are dispatched as ja pdrt*of Independent-System Operator (ISO) fi New England maid the -FitzPatrick and Indian .Point -plants are dispatched :by the ,New York -Independent. System DOperator.J(NYISO):iThd primary purpose of ISO New England:isto 'direct'the' operati6ns oflthe:majoi generation and transmission facilities in'the New.England region and the priniary purpose of NYISO is to direct the operations
- ..:6fthemajorgen~ratiohand transmission facilities in NewYork state, bar; 1i:i 7 v..,-" ,* 'M.l-, c !;.* U ii .. t f i
- ILh -Ia'b. r-'*:!1-. ti e,3 .vh)i rv:ii no i):':, ,;,;7"j . :' r:i; ic,',o* *r:':,rr.,si*L:ay
.li *.rh viA tr* ol IC~ifaIIoC
- !"Eneigy anid Capacity Sales Al r ; . I "' '
- , i4 i-ti .B ji "dr-:(I
-It rt .hr' :ýI TI' s ,'
hwrý 11:r..Entergy-s D*on'Utility'Ncfieleir Abusiiess ýhas" :enteied7,iinto iTpower i;purchase l-agreements' B(PPAs) rwith i.breditworthy rcounteiparties 'to "sell the enefgy,-produced iby. 3itg .*pow.et'plants: at prices <estblish~d iin'ýthe PPAs.
-(Entergy c6ntinuds .tb purstie,oppqrtunities 'to :extend -the :existirig, PPAs -arid,to cbnter: into; new-!PPAs iwith *.other parties. Following is a summaryof the .amoufitof-the Non-Utility Nuclear business' iihtputthat iiscurrently.sold forward under physical or financial contracts: ~
lt ~lbz!*..i *J:, '*c~ii,.rsI ~a'Aiut'¶ v,hi'hJ-rro>'l '*rLs .,t" I' y-i ['."*t; iOio1 "19.'.ctj L*tJ *:,i!L'* or f:,)' ct.r1 rai'Iii oo L-',_ U: rrrcY-i IYMH )p'Ž1 or t7, 122006
-fi't;'rL9; 1..! 2sinmr; 2007 ihJslir -i2008o-iu'r, ,;2009 ?t",,i'i1010 Noh-Utility.Nuclar::(s* Qi)iil1J-to'/ w! "*&1. ;ct,O ": '11:ntif[ ;,'.Al')"f
*2r!' ; i brri .;ir£ "iirl ni (2 ()l r6 vz Percefit~ofplanned gerieraition'6ld-forWard: _m :;:,.r, Bi'!jr*jld o'h bnr ,1io.,.: LU; \hTiru'11Ir zi Iz~r v li;r.q';c Unit-contingent :La;,f; rUr ':i34%n ti ni32%:.q'.a: !LoU:
!- hi*25% i L.r: il1%i fa',)tn12%
Unit-contingent with availability guarantees 53% 47% 32% 13% 5% 0 tFirm liquidatEd damages.£ " L_ 4% 2% 0% 0% 0% Total 91% 81% 57% :'ir,532% ';i!?tl.7%' Planned generation (TWh) 35 34 :Lr 34'"I1, 1a'3411 'i 35 lo AVerhage contraicted price'p& MWh I . 1' $41 ;$45 vr-'=
- y. r$49 br; vl:$54) L:Abcii$45 5U?. The Vermont Yankee acquisition included 'a 10-year PPA under which the former owners willlbuy'the
'powier produced by the plant, whichis-.through the expiration in 2012 of the current operating licensefor, the plant; Ti&ePPA incliudes an adjustment clause under which the prices rtpecifiedliri'the. PPA:will be iadjusted.rdownward monthly, beginning in November 2005, if power market prices drop belowPPA prices._:'oH-r . ,r'K B-b.-l S,£,; t D07 S:* 501 7 5', b~z.'1,'o? h!r* "J'_i ' ','; ,, i)cI'j :*ro' t,'f 'Arrl)!c 't( I a A s616,ofpoweri6fi a unit contingent basis'coupled with an availability guarantee provides forthe payment to the power purchaser of contract damages, if incurred, in the event the seller fails to deliver power as a result of .the failure~of the'specified generation unitto generate' powerat o'above aspecified availability threshold. All of S135
i Part I Item I Entergy Corporation, Domestic utility companies, and System Energy Entergy's outstanding availability guarantees provide for dollar limits on Entergy's maximum liability under, such guarantees. Non-Utility Nuclear's purchase of the Fitzpatrick and Indian Point 3 plants from NYPA included value sharing agreements with NYP. i Under th6, value sharing agreements; to the extent that the average annual price of the energy sales from each of the two plants exceeds specified strike prices, the Non-Utility Nuclear business will pay 50% of the amount exceeding the strike prices to NYPA. These payments, if required, will be recorded as adjustments to the purchase price of the plants. iThe annual energy sales subject to the value sharing agreements are _limited;_tothe lesser of actual. generation or generation assuming an,' 85% capacity-. factor based on the plants' capacities at the time of the purchase. The value sharing agreements are effective through 2014. The strike prices for'fFitipatrick range from $37:.5liM lhi:in2005',inc~reasing by. appr6ximately 3.5% eachlyear to S51.30/MWh'in 2014,(ind the strike prices for. IndianPoint13 range'from S42.26/MWh:in 2005 increasing by approximately 3.5% eachlydar to $57.77/MWh in 2014.i-e- ":. '. .. . C10 Non-Utility Nuclear's purchase of the Verm6nt Yankee plaint included a value sharing agreement providing for payments to the seller in the event that the plant's operating license is extended beyond its original expiration in ,-,2012.' Ufider the value sharing agieement;jto the'extent that, the; average annual price of the energy. salest from the i planti exceeds the specified strike pricd of $6I/MWh1 on the plant'f original capacity of,5 10 M .;theNon-Utility Nuclear business will pay 50% of the amount exceeding the strike prices to Vermont Public Service. These payments, if required, will be recorded as adjustments to the purchase price of the plants. The value sharing would begin in 2012 and extend into 2022. :r. . (t ,?I) ,()jSome',of the.6greementsto tell~thq power produced by Entei'gy's Non-Utility Nuclearipbwer plants and the wholksale supplk, agreements entered into byyEntergy's Competitive Retail business'contain provisions that require an
*Entergy. subsidiary to provide collateral to secure itg obligations under the agreements... The Entergy subsidiary may be required to provide collateral based upon the difference between the current market and contracted power prices in the regions where the Non-Utility Nuclear and Competitive Retail: bitsihesses&selli power. :.The primary form- of the collateral to satisfy these requirements would be an Entergy Corporation guaranty. Cash and letters of credit are also acceptable forms of collateral. At December 31, 2005, based on power prices at that time; Entergy had: in. place as collateral $1,630 million of Entergy Corporation guarantees for wholesale transactions, $237 million of which support tletters of cfedit:i iThe assurance'requirement associated with Nofi-Utility Nuclear is estimated to increase byan amount *up't6 S400M milli6n'if gas prices increas& $1 per MMBtu in both the. short- and lbng-terni markets.!In the event, of a decrease in, Efite-rgy. Corporation's crddit rating to below investment grade; Entergy may. be required to replace Entergy 'Corporation guarantees with'cash'or letters of credit'uider. some of the agreements.,i.,rvr:m:v: -, .: :,.';i,-
- ii In addition to selling the power produced by its plants, the Non-Utility Nuclear business sells installed
__fri*ity to 16ad-servinge, distributioxicc6mpanies in order for those companies to meet requirements placed on them by the ISO in their area. Following is a summary of the amount of the Non-Utility Nuclear: business!Iinstalled capacity that is currently sold forward, and the blended amount of the Non-UtilityNuclear business' planned generation output and installed capacity that is currently sold forward:
- , ¶ , " 2006 2007 2008._, .20091,'-; 7"2010 Noti--Utility Nuclear: .. 7-- . .
Percent of capacity sold forward: r oir.U ': i'1
. Bundled capacity and energy contracts . 12% 12% if1'1 12%_:.v! !,.12 %;,,- 12%,
Capacity contracts 77% 46% 36% 24% 3% trlsTotfili`i ., c
", il c i:I:,i:I:: ui;.i, l. . . I*. 8 9 %,:i;,iii i.58%/op-,
u -',48%' 36 l5 % 1.,5r
%-t:1 Plarined'net.MW in~opeiation: ,, . 1,II : 4,184i . .-4,2001:;i., 4,200:J; ,,'4j20M-o,(q 4,200 Average 6apacity'contiact pricd perkWiper-month,.r:,ivj $1.0. $S;II *,**n $1.1,;.: i-$1"0i A',$0;9 Blended Capacity and Energy (bfised'or'revdnuies) :b .- ; ,:. ,,,,a) . .;.,,.,.. .,
% of planned generation and capacity sold forward 82% 71% 47% 27% 12% Average contract revenue per MWh <,iri:i, $421.. I ;, ',,$46. i;I, .$50:-",i i$55", A $46 Tho 11A .tAs'of December 31; 2005, approximately 96% of Non-Utility Nuclear'scounterparty exposuie from energy and capacity contracts is with counterparties with investment grade credit ratings. 136
iPartl Itemi
'Entergy CorjdrationiDomestic utility compafiies, and System Energy Fuel Supply n:,,i. ,/. 'ii " i Nuclear Fuel %;t"r"'."Im The nuclear fuel requirements for Pilgrim, FitzPatrick, Indian Point 2, Indian Point 3, and VeRihont'Yankee are met pursuant to contracts made by Entergy's Non-Utility Nuclear business. Entergy Nuclear Fuels Company is 'iesponniibl6' for'cointracts -to acquire nucilear miatnals,rexeept (for'ftel Tfabnieation, for thes' n6oini-utilit nuclear plants. : C!2I).!-:i ___ f , I Based upon currently planned fuel cycles, Entergy's nuclear units have contracts and inventory that provide adequatem"aterials and se'r'ves.tExstmg'contrat'sfor-uramum concentrate,-conversion ofthe concentrate to uranium hexafluoride, and enrichment of the uranium hexafluoride will provide a significant percentage of these materials and '!rvic'es over'tle' Aeit several yaii.I Uranium mari-et siioplý,became much, tighter -jin rie ent' yeiirs.
Costs and risks of o6taing supphl'e have increased for nuclear fuei users.w t il be ne'cessarr for Enterigy to6nter into additioinal arr a ts to acquire nuclear fuel in the fututre. tit hs not possible to predict thelultimate iost or
- e. _/ /,A , 4* 1103:
UoJ ri*u/ (i.) ), c availability uh a,r ~ VIMA 0-1,' XT o11hr_,;-rA (.) V!1/,0'-,' ,*,..: .. i], b~iv.,r Other Bu Acfiei~s"A'ivities WI'f. i , !>_ .!ffJ .)tJ
!..rA:. (t) VII,4,2 ?.5!
*1.*'-.) i;:ry*;rr j) (*)'II/. _J..* , ;XT ,Ih:ir'*inl: V/1/ 0>." ., ) r.o. h i:li Eniiergy`Nuclear, Inc. also pursues service agreements with other nuclear power plants owners who seek the advantages of Entergy's scale and expertise but do not necessarily want to sell their assets. Services provided by either Entergy Nuclear, Inc. or other Non.Utlhit Nuclear'subsidiares include engieerng, operations and aitnne fu" procurement, - management "and supervision, technical "support and 'iraining,"a'dministrative
-iupport, and other managerial or "technical services-'requtrea to operate,' mamtai, and" decommissin nuclear electric power facilities. End mmissioningservices-for the Maine:4Yankee nuclear power plant and continues to pursue opportunities f6r on-thNi elear t r nuclear plant owners through operating agreements or innovative arrangements such as structured leases. In September 2003, Entergy's Non-Utility Nuclear business agreed to provide aaministrative support services for the 800 MW Cooper Nuclear Station located near Brownville, Nebraska. The contract is for 10 years, the remaining term of the plant's operating license. Entergy will receive $14 million in 2006'anA'mi ach ofthe remaining years of the contract. Entergy can also receive up to $6 million more per year beginning in 2007 if safety and regiulatory goalsa~e met.'In.addition, Entergy ? r&ieibursed for all employee-relatd expenses.
*.*{i Entergy,,., r Nuclear . ".,"., also is a party to . two
, IInc. ,, business
- arrangements that assist it in providing operation and
--managemen serwvices. -Entergy Nuclear,-Inc., in partnership with Areva (f/Ida Framatome ANP), offers operating license renewal and life extension services to nuclear power plants in the United tates* Entergy'N cear'n. through its subsidiary, TLG Services, offers decommissioning, engineering, and related services to nuclear power, paint owners. ' I 5\., I ;\C,1 1Il I , '/,'i:J.) , , Eneraw Commodity Services I, (([W/T) vi}jri n:t: U'r;;:E[q V. -, -, Energy- Commodity Services includes Entergy-Koch, LP and Entergy's'non-nuclear-wholesale assets business. The non-nuclear wholesale assets business sells to wholesal customers the electnpowe-ri produied hyj power plantsthat it owns while it focuses oft improvmg performance" and' explonng 'sales or restructuring opportunities for its power'plants. Such opportunities are evaluateddwcintehn consistent "attEntergy's 'irk'etbased jpdo'int-" of-view. The non-nuclear wholesale assets business terminated new greenfield power development activity in 2002. Entergy-Koch, LP engaged in two major businesses: energy commodity marketing and trading thiouglf Entergy'- Koch Trading, and gas transportation and storage through Gulf South Pipeline. Entergy-Koch sold both of these busmesses in-the fdurth quarter of 2004,-and g h isno n"ern operating entity. " .. bfC *.1- ; ortI 10 ;,.'orrr L rJ['I:';o', '*'t-i-. Iff1ocl: I, .. , v" :;'IG 'i no J;jy o ' t_*-, T) ,2-'..:;i~ .b. y ¶.;.1; d:, A I~a: **flJ,*., ":: 0; rm*:. rirliimi I U.-!,.::: ,o;i;:'ud riin" r ri*ib~it br *li'*,'r " ,,-i *1 P,) ;]9 *ro *'J:
" .*&.'d1~;'/i'tF.) 7)flt~
rigt':b': >';, ,2e;I*L.vJi~iP ' ,ic, L ;,.* Luar, b'Jtvho:trrr iluid'-,.': .i,. ' y$-'ri)
,I r[:, ,:. I,:; . :'*i iii ,i 137
i Part I Item I Entergy Corporation, Domestic utility companies, and System Energy Non-Nuclear Wholesale Assets Business Property Generating Stations .* , ; , . J , ' -;2 .. .. :. :, ,, .': The capacity. of thgene~rating-,stations owned in Entergy's non-nuclear. wholesale assets business, as of December 31, 2005 is indicated below: Plant ,.,.. ,.. Location,, Ownershp . Capacity(),.. Type,.. Ritchie Unit 2,., 544!M.%'>i ..,,.; ,,Helena, AR 10O%/ : ... 543/oMW Gas/Oil.:. , Independence Unit 2,,: 842 :MW; . i_4/.o-14%Nea2k,,AR . 12I1MW(2) Coal , .. , ,:, ','. Warren Power,,: 300 MW)t ,,,.,..Vicksburg, MS .. ,,; .75,%.,, .225,MW(2)L GasTurbine!L, Top of Iowa, 80 MW (3) Worth County, IA 50% 40 MWr,..' .4 Wind White Deer, 80 MW (3) Amarillo, TX 50% 40 MW ' Wind RS Cogen, 425 MW (3) Lake Charles, LA 50% 213 MW ,Gas/Steam,4,, 0 Harrison County, 550 MW Marshall, TX 61% 335 MW(2) Combined Cycle S-.'.:.*.. " .: "" .'.", ',.., GasTurbine "Net Owne'd Capacity" refers;to the nameplate rating on the generating unit. (2);. I'Ihe o6wvned MWcapacity.is the portion of the plant-capacity-owned by Entergy's non-nuclear wholesale
, assets business., Fora complete listing 'of Entergy's joint-owned generating stations,, refer to "Jointly-
..Ow'ned Geneating S "tatns m Note 1;to the c6nsoliddte dfinainiciastatements., .
n). , ctI yovne ,qugh interests, in unconsolidated joint ventures. - * ,, In addition to these generating stations, Entergy's non-nuclear l' business li&assets as a contract to take 60 MW of the power from a portion of the Nelson 6 coal plant owned by a third party., En' ,gy. n , ,,,city , le,,,, +. ~ . , , , ,.: . I '" ll ,: . ) ':;,. * *i~',.'I 4) :"~ " i',," . 4& ., l '. 44(*. . '; " . . .r " :i ,/ ' J , " " ') . 1 .," ,,.+ 1 ' ['El* *'?T ' ";',((
*,ollowing is a summary ofltheaim*ountof Energy Commodity Services output and iiistalled cap'acty that is currently sold forwadrduner physcal or tinancia'l c6ntracts at fixed price s:.. .. .
+,~V. "~ "l 'r.,r)r ""011'+ * ~ ~]r v ", Yil
, 4, '4 2006 2007 7 2008 . 2009_.. 2010 Energy CommodRity Services: , P .,.,. -,-9 u fL'; .,.......
Capacity .I, " , .t Planndd MW in operation 1,578 1,578 1,578 1,578 1,578 % of capacity sold forward 33% 29% 29% 19% " 17% Eneg= ) -. .i, :,' Planned generation (TWh) 4 4 44. .4 . .. 4- %.of planned generation sold forward,- , . 47% ,1 43% . 3 6 %.,.-7 36% Blende'dt 12pa c ity an nergy' base on rvne s +"-,.. -d... %ofp~lanned energy and *apakitysold forward 25%', 23% 26% 17 , 7% so 26jEýrd ,.20 Average contract revenue'per MWhi , $26 .2 . $21* 2 128( j .. $20 Entergy-Koch, LP, . , ,.. " '
`:J.. !.-Iu
. ..- J ,.'rt ,> . ........
'1 1 ,ft': l '.,r.lr Entergy-Koch is,* limited, partnership owned 50% each byEniergy, and Koch Industries, Inc, through subsidiaries. Entergy-Koch began operationsion Februka'ry 1, 2001. Entergy contributed most of t assets and trading contracts of its power marketing and trading business and $414 million cash to the venture and Koch contributed its approximately 8,000-mile Koch Gateway Pipeline (renamed Gulf South Pipeline), gas storage facilities, and Koch Energy Trading, which marketed and traded electricity, gas, weather derivatives, and other 138
i Part I Item I
,Entergy Corporation,;Domestic.utility companies, and System Energy ienergy-related:,commodities ,and ;services., f.As ,specified 'in the partnership agreement,, Entergy contributed an radditional $72.7.million:tO'the partnership in January 200 4 .-v;,vv.,*r, '1o 1 idrrir:t;i1 *: )o '- : ,:' : . :
In the fourth quarter of 2004, Entergy-Koch sold its energy trading and pipeline businesses to third parties. The sales came after a review of strategic alternatives for enhancing the value of Entergy-Koch; LP.. Entergy received $862 million of cash distribuiions in 2004 from Entergy-Koch afterfAhe business. sales,{ and Entergy ultimately expects to receive total net cash distributions exceeding $1-billion; comprised of the after-tax~cash from the distributions of the sales proceeds and the eventual liquidation of Entergy-Koch.; Entergy. currently expects the net cash distributions that it will receive will exceed its equity investment in Entergy-Koch, and expects to record a .,$60.million net-of-tax gain Avhen it receives the remaining cash distributions,:which it expects ,will occur in 2006. Reiulation of Enteruv's Business PUHCA 2005 L' . 1'."J' P ~~~~~~.'
;:lI7~
tiX-, -,J~ As part of the Energy Policy Act of 2005, PUHCA 2005,repea~led PUHCAJ1935. ,See 'Energy Policy Act of 2005" in the "Siiinificant Factors and Known Trends"e.section.,of:,EntergyCorporati.onanId.. Subsidiaries Management's Discussion and Analysis for discussion of the implications of repeal of PUHCA 1935 a'nd ongoing FERC regulation under.the Federal Power Act.-,i; ., ri wi. . 54t e' L*&:! ,. , -. . 'i, ... YA Federal Power Act
";* v~o![rI dl o>.-" ': , , vd rw,it'hir*.i ,- ,
The Federal Power Act regulates:
- the transmission and wholesale sale of electric energy in interstate commerce; ;:,',..
- the licensing of certain hydroelectric projects; and l,:: : .. :
- certain other activities, including accounting policies and practices of electric and gas utilities.fij:v.- c i:;t:,jrfv'cTheFederal Power:Act'gives FERC~jurisdiction over the rates charged by,System EnergyforlGrand Gulf capacity and energy provided-,to!Entergy-Arkansas, ,Entergy, Louisiana,,lEntergy;Mississippi, and Entergy -New Orleans and over some of the rates charged by Entergy Arkansas and Eniergy Gulf States. FERC also regulates the rates charged for intrasystem sales pursuant to, the System Agreementand the provisionof transmission service to wholesale market participants.
Entergy Arkansas holds a FERC license that expires in 2053 for two hydroelectric projects totaling 70 MW of capacity. '. it) )'iY. State Regulation .:.!:-o Entergy Arkansas is subject to regulation by the APSC, which includes the authority o:. ,1o .
- oversee utility service; , w 9,, 'i L!2, , -".., oi-
- set retail rates;
.. ,*determine reasonable and adequate service;, , -I. ,q , i '*. - .
, .* ,Oi,-0require.,properaccountinI -1 1Y,/oI J 1::.,oi d .: ti*ii U .'. 411 '.'!fl)'f[L ="--v,?i prIL.
) "* )'rcontrolleasing;:t.r; .:nih:='-2 , ,r ' ,;ril: r w.//o', .i~r12 io 21 t"l r or '.li cI 1mi lic:!li '3 d i;!d .Y.'7., t.,IT
'i-rili. w control, thebuiwin) acquisition .b-r~6l-y ofany or.sale public utility plant or property~constituting an operating unitor;h.v- ri
,vl-,:j)x.-system;D Lm rýli brir.
br--- nV .i ) ,. r", ")AT r., ii-
*/zf+I i 0/',.A* c: ) 1tC~rh~;v..,,,,o*:,,
1*)*oernuhti aitoq i.o.rtrlrr1/ i ld *.,;T **
, .'i)5* *rset-rates ofdepreciation;1A riA.:,J ?.1im,
*' ,!Ji :, :ti -t.1* qo . dl ;or , ""'" ......
.f:i'r:iql issue certifidates of convmnience and necessityirid .ertificatef ofenvironmental compatibility drid Public `]
P, ,-jic .ncneed; and,'-,v).':*-" hfiiq!' hir~i JI2 .5.., i ' i; :w, i brrz .,i <I
. .. I'A') /,.r :.q:, " I
- regulate the issuiande ain sa'le ofceitin s666ritieiu 6iiu1jq 2.ro'iCTI,, J6I, Vl.6If 1C'.. b). ...... T r,;.I&2!
(139
Part I Item 1 Enteigy Corporation, Domestic utility'compafiies, and System Energy
%. ,. :i*,To the extent authorized by goreming legislation, Entergy Gulf States is ýubjectt6 the'origihal jbrisdiction of the municipal authorities of a number of incorporated 'cities1 iii. Texai. withf appellate'jiiiisdictibin 'over .'.tich matters residing in the PUCT. Entergy Gulf States' Texas business is also subject to regulation by the PUCT as to:
_.' *t;- retail rates and service;) ,:,;,, -;. ; .. ,-*.. - .. ,,'. -,,j customerservicestandards;ii:; :. .,:,' .:,. ',: .. , '.'* ',/.,,..,.
,. certification ofnev.transmission lines; and . ;-:, r'.* ;-W . ;i'.,: ,,
- rextensions of service into new areas. ' , .: . '" , .'::-' .*.. . ... -
. i ."I :;. , -:: / . V* .. * ,* ' .*;"'4*, " *g, 1 *i~i
""t'..r','¶ ![1j i * '!. : i.: ¶.+, ',i,'I ;!;'f_) P'fl Entergy Gulf States'Lotiiisiiana electric and gas business and Entergy Louisiana aresubject to regulAtiohi by the LPSC as to:
- utility service;
, retail rates and charges; :' :'!,,'t
- certification of generating facilities; P1T, . .
'power or eapaciy purchase contracts; and ,,. : , I. , n, .. ,
** depreciationiacco6ntimigand .. &otherimatters. ' *....*, ;': ;'?, iv, . ; : : ,"
Entergy Louisiana is also subject to the jurisdiction of the City Councilkwith' rspect to' such matters w0itlfn Algiers in Orleans Parish. Entergy Mississippi is subject to regulation by the MPSC as to the following:
- utility service;
" service areas; : K 2 ~<) > ...... . .
" facilities; and . .-;: ',,, ( f. . * ' .- 'ff
" retail-rates." ,`w :I2 :;-, ;... , : ,,,, :'rn b .::_..t:. : ::: 1.,,:: '; ,
, .:I) ! Eniter gy. Mississippi' is also :subject :to regulation by 'the,'APSC "as', tor' the' certifi'ate' 6f-"envifonmental coinpatibility and public need for the 1independenc6 Station, which iý lbcated incArkahsas.,'ý9 ,:).'* L'.:
-',Entergy New Orleans' is subje~t to; regulation by the Councilas to the following: ;,.'
- utility service;
.1?retiil rates and charge6;rii.,ý,0; . -~'~~ 4Ir .1 ' n
, standards of service; ..',, ';
- depreciation, accounting, and issuance and sale of certain securities; and
- other matters. , ;W:"..>i 'J;':j Regulation of the Nuclea o Induis" t.. '". ' ' ;:r Atomic Energy Act of 1954 and Energy Reorganization Act of 1974 ... 1 K .,:iL, 3,': . -,
Under the Atomic Energy Act of 1954 and the Energy Re'i'nizati6n"Ac'of 19ct 74;,"the6bp :r&tibki of nuclear plants is heavily regulated by the NRC, which has broad power to impose licensiiig'and shafetyi-relatedd'reiuirenients. The NRC has broad authority to impose fines or shut down a unit, or both, depending upon, its~a'skessment of the severity of the' siiuation,i until :compliance is, achieved&! Ent6rgyArkansas, Entergy Gulf'States, EiitbrgyLouisiana, and System Energy, as owners of all or portions of ANO, River Bend, Waterford 3, and Grand Gulf;: respectively, and Entergy Operations, as the licensee and operator of these units, are subject: to'thejuriý diction-of the NRC. Entergy'.s Non-Utility: Nuclear, business: is,subject- to: the. NRC's jurisdiction as; the, owner. and: operator, of Pilgrim, Indian Point Energy Center, FitzPatrick, and Vermont Yankee. Substantial capital expenditures 4 atý Entergy's nuclear plants because of revised safety requirements of the NRCcould be requiredin the future.-' r.;.:j:! : a
'140
I Part I Item I
- -Entergy CotpbrationS,Domestic utility companies, and System Energy Nuclear Waste Policy Act of 1982 no itzfi'l iiUnder the Nucleaf Waste Polic ý,Adt 6f 1982, !th6DOE'is'requiied,(fof.h specified fee, to construct storage
.,faciliti6s'foi, 'and't6'disjpdse of,'all'spent nuclear fuel and other high-level~radioactiv6 waste generated by.domesfic bnticlear ;iý6'ver,ýidactois.) 'Entergy!s inuclear;owher/licenfs'e :subsidiaries iprovide for the estimated futtire'disposal
'icosts lIof spent 4iucle6.fudl ..in"ra6cordfnie iwith)'the Nuclear .Wagte Policy, Act- of .1982. The affected. Entergy lcoinpanies~eniered-int6 cohtract*;,vith the DOE,. ,-herebytheDOE1vMll furnish disposiMlrvice'at a cbst of one mill
,per, net'.kWh geheratuddand sbld ifter jApril '7,,)1983,K:plhs a oh6-tim61fediforigeneration prior to that date. .Entergy ,Afkangas ig the odil,!one'of the'doniestic Utilit,:companies thaf.generadtdd lelectic.p06wer with nuclear fuel.priorlto Lthatdate Wad has 'a.reborded liabilify 'agl'fDecember 31,;2005"of $159.61ifiillion for the 6nei-'time:fee&. Entergy's ZN6h-;UtilityrNuclear~bin'sifishas" h6cepted'assignient .of the iPilgiirgFit.Patrick,, Indian ,Point,3;;1fdifin Point .2, l:and -Veu6oHri /Yafikee spent fu6l dlislosal !contracts 'with'the DOE 'held ýby theirtpreviouoxovers.r DThe pre'ious ý6tvliers ;have paid ornretfiinedliibility for theifeesfor all generition:priorltb the purchase'dites of those plants:,IThe hfee;payable io'theDOE'mayb6 adjusted in thefutu're to'assurefull recovery.,*Entergy'considers all dosts 1incufred r'for' the ;disposal :of,'slent ,nuc&lir) fuelpexcept accrued .ifiteresitto ;bevprbper ;c-iripbnehts-of'hiielear fuel 'ekpfinse.
uPiovisions'tb reuover isuch ;costs 1bve. beenbr~ .,ill !be: made :in-a piliddtions't6*rdgulatory authorities ,foi the U.S.
,iUtiliiylýlahls:',:rByth6'end'of,,2005¢ Entergy's total,'spent fuel fees Ito idate, including the biie-time fee'liabilityof Entergy Arkansas, surpassed one billion dollars. .mnr;flXJ F n71 i%': :i ln :; l i: .'. ni r:n'.1i t)HT .I n'Thfe'leimnfinbnt spent>fuel'iepositofiin the U.S.:'ha§ been [legislated ?t6 be ,YucA ,Moutitain,;Ne1ada. The LDOE'is*riquir'ed byilaw to prdceeddwith'ihe licensing and,' afterithe license, i§ :achieved (granted bk'~the NRC),1 the repository construction and commencement of receipt of .spefit full' -isSince DOE :has -f6ot :accomplished 1thee objectives, it is in non-compliance with the Nuclear Waste Policy Act of 1982 and has breached its spent fuel ldisp6sal c6ihtracts.--DOE'recentlyhas had iidditional'dela*,s and has iiot iindicafed ,vhehn the lieehse application will
(,be filkd.-iLarge uheertaintý remhini"regarding :iheltirime ifram&ufiderivhich the DOE ,will b&gifi't6'dcdept spentffuel ofrom':Exitergy'ilfacilities for 'stormgeior',,disposil.,,!As'arresult,; c6ntinuing future' egpenditures will be required 'to increase spent fuel storage'capacity at 3nterg3y's'nuclear. sit&:.,' *.flq ,.* ,. 2.- , ,,,uiýi ,A!t1rfci'J *-,1 JtiB *..'c
,ni nýi;'ý,i As ta:.rdsult"of thbe;DOEfailui-t6 begin 'disposal bf.fspehftnuleaf fuel in u1998 pui-suant'to ithe Nuclear riWste Policy,Act :ofil 982-and the speht fuel disposal cbfitracts,'Eiit~rgys iii'u'clear own'er/licensee sub~idiaries' have ,incufrred and will-continue to;incur-dadthages.'1These subsidiariesifi'November 2003 began:litigatiori t6 recoverthe tda-iuages *catied by ,the. DOE's *delay1 in 1perfornmanie.e:Managem6ht'cannot predict ,the 'timing br-,amount- bf 'aiiy .p~tential rec6vo rll r:i*.i ii ' x.,r: , /'t'f'I vrf i,.ni:,:'i ;-i yliil *).l.;'
vni.Wd,Pending DOE aceptancd and ;disp6sal of-spent -fluclear elithe*ownei's ofihuclear, plirits; are providing tihdir, bVrri' spent -fuel storage. ;Curirent, on-site'sken( fuel storage caoacity.,ht Grand Gulfand Waterford ig estiffiated "Utobe sufficientruntil rajiproiimitely 2007 and 2012,ies'pe&tivelyi; dry'ciskl storage'facilities are planned to be placed Pih'tb serviice'eat "these:units .in '2006 and !2011 ,fespeciiely.r*,Constfuctiotriat Grafid Gulf's nfacility! 'is cin;,progregs. c:Rivei'Beiidl16aded'its':fir~t dryicask at its new(facility, in Deeember,2005'had kvill"16ad more 'dry~casks fis heeded.
-AnANO ,gbragefacility h'ihg dry dasks.begafi~operatiofi in 1996afiid haslbeen'expanded sinde ahd-.xwillibe further adxpanded"is:ufieeided. ,*The 'sperit 'fuel 'storage pobl at !Pilgrim is libcehs~d ;to :pio',ide ehoiigh storage '&apihcity :until approximately 2012. The first spent fuel, dry casks storage were'load&dVatFitilpatrick in 2002, .nrid fuihetdrdiy.6asks have been and will be loaded there as needed. Indian Point and Vermont Yankee currently have sufficient spent Lfuel'st6rhg6':-apiuit -.uritil alýpro:iiifudtel2' 2006 and 12007,:respeWtiVely; dry dask storage ýfacilitiesiutid -planned to Ibegin'bpeiation'ý at,'b'6th 'sites in 22006 2affd: 2007,- rspec'tiiely.)r!Im*lerfiehitation obf dry idsk 9toiage iat Vei-n6nt Yankee is currently the subject of pending regulatory proceedings in Vermont.
Nuclear Plant Decommissioning £QQI t. .*io 9 n*_ tiDi)" " 'Enitrgy ýArkansas;,'Entergj !Giulf.States.iEntdrg' UL6 iisianh;aZnd ' System Efierg6 Tecover rfrom'customers (thib&ugh electric iates ihe estimated decommissiofiing 6ost4 for. ANO;the portionobf River Benid subject toietail rate irdgulation; Waterfoid 3;nand Grafid Gulf,, rspedtiv'elj." ýThese amoutfits are deposited 'ihdtust funds thatecan bnlybe 1 iused forfutuiie decoorimissi6ning costs>" Entergy periodically reviews and lodates estimated deeomrmissidiiihg-c6sts Ito, reflect iinflation' ýarid chiinges rin. regulatory '2requirernients :arid ,,tchhnlogy,. and then', makes rapplications -to 'the Iregulafory auithoriti~s to reflkctin rates,,the changes in projected dedommissioning costs.-: r *ai :u-rt AL; :e;,rr.,
*141
I Part I Item I Entergy Corporation, Domestic utility companies, and System Energy In June 2001, Entergy Arkansas received notification from the NRC of approval for a renewed operating license: authorizing operations at ANO. 1' through May, 2034. "In July 2005;, Entergy2Arkansasý received. notification '.from. the.NRC of approval for a renewed&operating license authorizing operations at)ANO .2through,July;.2038. !,The APSC ordered' EntergyArkansas' to use a 20-year life extension assumption, for'ANO- Itand,2,- which resulted in the 'cessation of the collection, of funids to. decommission ANO i1,and, 2 beginning in`2001R.:Entergy Arkansas' projections show that with the assumption of 20'years of. extended- operational life for.both units;;the current. fund balance with earnings, 'over: theý extended lifei will, be sufficient:to, decommission' both.units.,1;Every; five; years, Entergy Arkansas is required' by. the APSC to updatet the estimated; costs, to decommission: ANO. In March 2003, - Entergy. Arkansas filed with the: APSC its-third, five-year'estimate,.of ANO decommissioning costs.b1The'updated estimate indicated the'current cost to decommission the two'ANO unitsýwould be, $936 million; compared to $813 ,million in:,the 1997, estimate.'t:In September 2003;^ the APSC approved'a stipulation between the'APSC. Staff and 'Entergy Arkansas resolvingissues -in the: decommissioning cost estimate proceeding.- r EntergyrArkansas, and. the APSC Staff agreed to -exclude, at this time,; certain' spent, fuel management' costs because'of uncertainty!associated with the responsibility, of thel DOE for all oraportion of those costs as-a: resulti of Entergy.Arkansas' contract with the DOE, to start taking spent fuel. fromANO beginning, in 1998. iEntergy'Arkansas reserves, the. right! to. seekla decision: from the APSC 'on this issue. prior: to. the, next required, decommissioning. cost, filing, should significant changes in relevant facts and circumstances warrant. :f;i[,b rfoi~id ", L. .. ,
..;,In.December 2002; the LPSC! approved a settlement; between Entergy.Gulf States-and: the LPSC staff. The settlement included,- among; other things,-. the' approval to cease collection :of funds-to decommission; River, Bend based on an assumed license extension for River Bend. , , *nc,rr;'*':;. r. :'i * ' ,'.'-..'y, ,i',,:i,, .. ;i,As part of the Pilgrim, Indian Point:1 and 2;, andiVermont Yankee purchasesi Boston Edison,, Consolidated Edison;,. and ,VYNPC, j respectively,; trainsferred!? decommis'sioningr' trust,-: funds,-. along.-. with; the ;.liability, to decomnmission' the plants,. to Entergyii Entergy; believes, that the decommissioning' trust funds will: be adequate to cover future decommissioning costs for these plants without any additional'deposits to. thetrustsi.. ,lu _rv .,"
I; ' Li Fort ther Indian Point ,3 and FitzPatrick. plants purchased! id 2000,! NYPA retained, the. decommissioning .trusts,'and, the, decommissioning: liability.-. NYPA, and!, Entergy-executed. decommissioning: agreements,.,which % specify their decommissioning obligations:, NYPA has the right to'require. Entergy to assume thedecommissioning ,liability provided that it assigns the corresponding decommissioning trustg up to d,specified level; to. Entergy., If the decommissioning liability is retained by NYPA, Entergy will perform the decommissioning of the, plants at a price equal to the lesser of a pre-specified level or the amount in the decommissioning trusts. Entergy believes that the ,amounts available to, it under, either, scenario are sufficient to cover, the future decommissioning costs without any t'additional'i contributions, to Ithe. trusts.s In. conjunction) withr the, Pilgrimi acquisition;- Entergy, received, Pilgrim's Idecommissioningi trust fiund., Entergy.believeg that'. Pilgrim's 'decommissioning ,fundwillr.be; adequate! to cover future decbmmissioning Costg.for,the plant: without any additional: deposits to the trust. As part of the.Indian Point i l and *2 .purchase,. Consolidated !Edison', transferred ,ther decommissioning; trust fund., and!. the l liabilityi.to
.decommissio iIndiati.. Point, 1U'and 2, to !Entergy. r.: Entergy.,also: funded) an; additional. $25, million/ to , the Idecommissioning trust, fund and believes that, the trust willi beý adequate to: cover futureý decommissioning costs for Indian Pointl,1 and:2 without any additional'deposits.to the trust. .:.. ';, .! *.,i, ':, r,,-I.-.
r ",IW-, 0J ,i U.Additional' information with respect' to decommissioning costs for ANO;, River Bend,,Waterford-3; Grand ..Gulf;; Pilgrim,' Indian Point,. 1;, Indian jPoint'2,, Indian Point: 3 ,r and FitzPatrick, is found in Note .8 to, the financial statements. ,,! I tr ,, . . - :, ' *r ,q't,: i.'xr Iv- -f : -,Y Energy Policy Act of 1992 .' . , ,u'(! Q :r:'AVI:; .LI'."I.
-. i' -,The* Energy Policy' Act of 1992 requires. all) electric, utilities: (including Entergy-Arkansas,' Entergy Gulf
-States;, Entergy.Louisiana, and SystemEnergy)! that purchased uranium, enrichment; services, from: the :DOEI to contribute up to a total of $150 million annually over approximately 15; years (adjusted for. inflation,.up to a total of o2.25,billibn) for decohtamiriation and' decommissioning of enrichment facilities., At December. 31;.2005, one year %ofassessments remains.i' In' accordance with the Energy Policy Act. ofi 1992,. contributidnsI to decontamination and decommissioning funds are recovered through' rates in the same manner as other fuel costs. The estimated annual
'142
, Part I Item I Entergy Corporation, Domestic utility companies, and System Energy
,,contributions byEntergy for decontamination and decommissioningfees are discussed .in Note 8 -to 1the'financial
.statements.6 Entergy ,willi oppose any, attempts to -extend the assessments rpast this :date,: but cannotstate with certainty that an extension will not be made. '. .77, r . ,+ -'-:,.iL-Price-Anderson Act -
., y!The Price-Anderson Act-limits public liability for a single luclearjincident to approximately $100.6 million
-per reactor (with currently -104. nuclear industry:reactors; participating): :Entergy Arkansasi Entergy ,Gulf.States,
- Entergy Louisiana, System Energy,- and Entergy's Non-Utility Nuclearbiusiness ýhave protection .with respect to this
,liability through a combination of private insurance and an -industryi assessment prograrn,, as ,,wellas ;insur~ance for
- property.damage, costs .of.replacement power, and other risks relating 'to
- nuclear,,generating units..,,Insurance
- applicable to the nuclear programs of Entergy is discussed in Note 8,to.the financial.statements:.,: ; ii's,,.7 Environmental Regulation
.u'Entergy's facilities 1and -operations, are subject to :regulation ;by.various ;govemmental -authorities >having
, jurisdiction 'over air- quality, Nwater ;quality,,control of toxic substances and hazardous and solid *wastes,.and other .,environmental: matters.--,-;Management::believes that. its, affected companies are in [substantial ,compliance twith
-*environmental regulations currently applicable to their facilities and operations... iBecause environmental ,regulations .,are subject tochange,future.compliance costs cannot beprecisely estimated. :;'>. r::. ti~i,,: L;T, i+ v~': *rtr !:AT
.,Clean Air Act and Subsequent Amendments r . , 'L,-r<:: ILI, U a2';,: i lo q-.;i
-A -u ,-The.Clean.Air. Act and its subsequent 'Amendments,(the;CleanlAir Act) established several programs :that currently or in the future may affect Entergy's fossil-fueled generation facilities: -. u:, ! ; , ,
- New source review and preconstruction permits for new sources of criteria air pollutants and significant ;!
modifications to existing facilities;
-! -'** .-Acid i-ain program for cohtrol of sulfur dioxide (SO 2) and nitiojen bxides (NOQ 1 );!!.( rLi,. nM':1 b.v'- "Ozofe iioh-attainrnenta ea piogi'am for control of NO*'and'volatile organic &6mp6unds; 'I-q
,' J o !h
!!. o. - Hazardousair polluiant emissions'reduction program; T" ," " -" '.. ..
l"nterstatea ir.Tmnsport;,and l - ** 1 . . ' -, , ',JýJ V '(,-r'i". + '.',Zu "Li'.'fU-ti' .'s £ 1iv'
'--eatmg permits program for administration and erifdrement of these and othr Clean Air Act programs
ýNewSourceReviewv," ,-M i,:wi-----; ,- , .,.)- ,, .- r -. ,. .
+"... +rcotrc tmIn permfits are required for niew faill~tie'sland foremsitig facihities that undergo ~amodification that is not classified as routine repair; miaiitenance; or replceimieit Units-that undergo a non-routie 'modificati6n must obtain a permit modification and may be required to install additional air pollution control technologies.
--Enterg ha's'an iestblished'"proessfor 'identifying modifications requimingadditi6iial permitting approval and has 1followed ther'egulations 'and asso'iated guidance
* ., " ,.1
"'` ' ..."':iý* ... "d" ,-m in"i'.. - . ,-provided
"- " "-+'by'.the
--.. states and
-,d ". the
..... -..I federalgovernmenit
..... "'< '"- iith Iregar'dto
.....ý "+"
'the determinatin of routin6 rar, ateriance,-an replacement. In recent years, however, IEPA has begun'-an enforcement initiative, aimed primarily at coal plants, to identify modifications that it does not consider routifi'e 'nd that have failed to obtain a permit modification. Entergy to date has not been included in any of these enforcement actions. Nevertheless, various courts and the EPA have been inconsistent in their judgmnits regarding What modifications are considered routine. In 2003, the EPA promulgated a rule to attempt to clarify this issue, but the
.re has-.i.been..ha'llenged m the nited -States, Court of-Appels.f6r..ihbe Dlstrict-'of C6lumbia Circuit, and its 2effebtiwe~ns has been stayed by 'te 60urt. '.The 6'riftis exp`cted to igsiise a iiling'thisyear..'-"'- .". ; '--
7 j l.'[ fj~t ;,j . , : .-
, - - - /a," f IJ'L r~,.iu ; ';- ~; - .~' ';< . " ':'_ j q l1, l ŽoI , . , l: : t. r J !:'..'r , 5; ;j'l
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The Clean Air-Act 'provides SO2 allowances' to moist of the affected Entergy gener'ating umhts frr-emlssions based upon past emission levels and operating characteristics. Each allowance is an entitlement to emit one ton of
'SO2 per year." Pln onr aerqie to oses 'llowacs ~forSO '+emissions 2 frmafcedgnrtn units.
-Virtually all Entergy f6ssil-ftieled 'generating 'units'are subjectrto SO'allowance 'reqiiremenits. ,Entergy could 'be
+143
Part, I Itefii 1 Enteigy Coiaoration, Domestic'utility"compaihies,ýaind System Energy ' requir&d t6'purchase idditional allowances-when' it generates 'p6wer'using~fue1Ioil:. Fuel oil usage is determined by economic 'dispatch: andt ihfluenced&by' the price of; natural gas, incremental emissiod hllowance'costý, and'. the availability and cost of purchased power. .:, ' !: ,:,,i ,:- '*. Ozone Non-attainment .. ,; '.1 ., :..'I
, ipi:, Enteirgy Gulf States:andEiitergy. L6uisiafia each operate'fdssil- iueled:giner'atinguuhitg in geograp'hic areas that' ar' not in attainment of the: currently-eniforced&national ambient air' quality s tirdaids'-forozone: *Texas non-attainment areas that, impact Enteigyare thý Hduston-GalwVstorf ahd the Beaumont=P6i'tFArthui" area;: In. Louisiafia, ,Entergy is affected by the non-attainment statuslof the Baton' Rouge area.; Ai'eas` in n'h-att6inment are classified as
- "marginail",' "moderate,!!!:"serious,;T' or -"severe.", When, an area fails' to meet'.th6 ambient. air standard, the" EPA requires state regulatory authorities to prepiare'state implementation: planslnfiitnt to cause progress toward briAging the area into attainment with applicable standards.
In April 2004, the EPA issued a final rule, effective June 2005, revoking the I-hour ozone standard, including designations and classificaiions.,', Ina separate action 'over the same period, the EPM enacted 8-hour ozone
- non-attainment'classifi'ations and stated thatrareas designated as'.non-attainment ,under a. new" 8-hour ozone istandard shall'ha*ei oieicyearl to: adjust to'the neW' requirements:witlN'sibmittal of, itnew attainnient plan:' ,'For
';Louikiana,'the Baton Rouge area is no "classified as;a "marginhti! (rather.than "severe'!) non-attainment area under the new standard with an attainment date, of June. 15;, 2007>, Ford Texas,; the' Beaumont-Port. Arthurý area-is now classified as a "marginal" (rather than "serious") non-attainment area under the new standard with an attainment date of June 15, 2007 and the Houston-Galveston area is now classified as:'moderate"' noh-aitiainmeht "uhdert.lie new standard with an attainment date of June 15, 2010. Specific costs of compliance cannot be estimated at this
'time, but Entergy is niorit6drg' de`velojirhent'6f the respective stafe implemdntatirii plans*and will develoip specific compliance strategies as the plans movie'ihrtiughthe adoption pioce'ss ",-. :,. ;i'I,: ,,
Hazard~is' Air.Pollutanti"1' ;Uil n,';. ,,l!,. " ", ~ i'~, In March 2005, the EPA issued a federal rule to permanently'cap and reduce rihercury, emissions from, coal-fired power plants:;i. -Thee Clean, Air .Mercury, Rule -establishes-.,"standards, of! performance"
- limiting, mercury emissions from new and existing coal-fired power plants and creates, a: market-based, cap-,and-trade, program that will reduce nationwide utility emissions of mercury in two distinct phases. The first phase, cap is.38,tons beginning in 201 0.,,The rule has, been challenged in the.United States Court of.Appeals. for the District of Columbia Circuit; howeve'er, 'unless the rule is stayed, compliance deadlines remain in effect. The rule is also being challenged by various members of the U.S. Senate through a process called the Congressional Review, Act.,qEPA, recently announced it is accepting additional comments on certain aspects of the regulation. The regulatory approach chosen byEPA to regulatemercury.emissions is, quite contoversiaIt and Entergy, ismonitoing developments and
,qworking towards a reasonable,b cost-effective; technologically sound regulationiz, 'jh,-, - .
-ýa~ý a *esn l. , *o . -
.Entergy. owns units ~thatwll, be subject to the mercury. regulations and, is,studying compliance ,options in
.order to determinthe ,bestcontrol alte..iative*,. Enýtergy expect. that any, nec.essary cap!tal expenditures will. occur
.,between 2'06 and 200*9'dnd are estimated to be, appioximately$ 26 milligon.- Ongoing operating cpstswi..begin Interstate Air.TrJns ; ."por,*. . , :UC>;, .1- , , " f : .,. ,., , .......
,InMarch 2005, the-EPA, finalized, the CleanAiir Interstate Rule (CAIR),. which, will reduce SO2 and.NO, emissions from electric generation plants in order to improve air quality in 29, eastern states.,The rule will require a combination of investment of capital to install pollution control equipment and increased operating costs. Entergy's capital investment and annual operation and maintenance allowance purchase costs will depend, on the economic assessment of NO, and SO2 allowance markets, the cost of control technologies, and unit usage.' At"this time,
- Entergy,estimates that the cost to its Fossil generation fleet will be approximately $73 million... .:;'j,
' . j,,,he capital financial.. impact could, be,.offset. by. emis.sion -markets which, allow, for purchases, or,usei of oc d credits; however,, the allocation of the emission allowances and the si tu opfthe market will det&rmine the
.144
IPart I Item I EntergyCorporationDomestic utility companies, and System Energy ,ultimate cost toEntergy.i .Entergyjbelieves that .the allocation ,is *unfairly, skewed ,towards states with relatively higher emissions by the use.of :a fuel-adjustment factor.: Accordingly; Entergy. filed a request for1reconsideration of the allocation. EPA granted this request and is reconsidering the rule. Entergy also has filed a challenge to this iaspect iof the:rule ;in~the.D.C., Circuit. -:Entergy,will continue to studyithe, final, rule's impact ,toits generation fleet ,and will work to ensure that all states are treated-fairly in the allocation lofemissioncredits.,.*q*f, r2,cr:;a< i,*,.q ii.'r... 1InJune:2005;,the[EPA (issued ýthefinal 'Best Available iRetrpfit'Control Technology..(BART) regulations 1which-could potentially iresult.in a requirement to .install 'SO2 pollution 1controltechnology.on.certain 'of Entergy's coal and ,oil generation units;, The impactkof this rule is unclear, as (it leaves DBART; determinations tobe made by respective states,.but'could result in significant increased capital-and.operating costs on certain -units.ti ,.,t.c :,j
.Future Legislative and Regulatory, Developments- l': i ftnOqU ;." .1'ir .Ffi-lrl
-,irj,[ iln-additionjto the:specificitinstancesI described ,aboveK.there area inumberof Aegislativecand regulatory initiatives ,relating to the reduction of emissions that are under, consideration at the federal,,state,, and international level.,-.Because of the nature'ofEntergy's business,,the adoption :ofeach of these could affectits operations. hThese jinitiatives include: li? -;<,b .,,t "' '7q---+:.: , ,?,
* .' designation' by the EPA and state environmental -agencieso0f.reas that are not in attainment.with national %i
,i-f' I ambient'airquality standards; i . ,IV!j, It ,,:r !.: , t l/';nM bh',, , ,- bIr. rrti!:,,A
.*i .ra'EPA initiatives related to regional'haze;"i ti i
- 4. .r~ii.wu .i *. ."i;'r.;1n,'.ul ; if.¢cioq 'il v.i -2,iifroduction ofseveral bills in Congress propo'ingfurther lim its on"NO'-SO 2 mnercur#y,bor litmiits on ciirbon
'5i d.jioxide (CO 2)Yemissidns;:. .; ,:" 2 1, ."vi';t "Io ?ý?JýOrq Vttt r~i -J-; ')I"UU,.;..
[i~i!i V; !u* L'+', I pursuit by the Bush adminittrati'on' of'a voluintary priogram'intend&:td reduce COj emissions, r:i.:' "
- passage of the Regional Greenhouse Gas Initiative by 'seventatiesdi'th6eiiofhestYU.S.;'ahd ,,
- groups . ,- - ; .,mandatory to compel I ,. . . I '-and reporting .. , ft, , of disclosure 't CO 2IL,emissions -1and risk.
'
- efforts
*T) r*'l [ ,t- ; ,.. external byI'1 ,certain , -, , , I T" 1
4tI-+ .--. 1 -. - " *tf ,7 *-1 , c~ 1+'3-1 ¢l
... " Enteigy as one ofth 0 laes'eectric generators, hri i& id a req oi this di"losure -
Entergy continues to monitor thek 'atiido' m order to !ania'lyet elr-o operational and '6sff'fiplicaion-'f : itental In anticipation of the potential imposition of C0 2 emission limits off ihe 'electric incaustry-m the futur Entergy has initiated actions desig*ned to reduce its exposure to potential new governmental requirements related to
'C02 emigsilons.' These actions nlude staibhlihment 'of aif~irma prtb*atn~ ~to tbilize pow~exr plant CO 2 'emrissions at emission intensity, or riait 6f CO2e"mitted per kilowatt-iob folf ledtrit gernerated,isils dy among the'lowst
'in' the iniduistry.I Total CO 2' e issions'i epresenttn* .the' o pys -ownerhip shar~of power plants in the United tStatesere` approximately 53.241iiillihon' tons in 2O00,<z9.58irillih'otnt' ion2001; 44.20 tlhon tonsin r2002,'36.78 miilli6n tons in 200338.28 rmillihon'ton'6nm 2004 and 36:50mtlho tons in
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CWA) provide the statutory basis~'r the Naionaiiil Pollu~tant DilseiargeEliminrjation~ SysteAipermttioram~ and'the basic structure for regulating the discharge of pollutants from point sources to waters of the United States. The 1 CWA requires all t)discharges ofoltnsto waer of he Unte ~Sfat +t +pritd- -::- '- -=-'-=. -'- -'.... .
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' the-P" finatutor new ýrhegliaition#hnJily 204.ovrigth nak fwtpernat la iorge in thsmgoer basi stutreqng foreregulalting the dischargen tefhpollotatsro potintesoures to EPAtareUnted waters Setates.mwTher
'jiit t36ba{ Coolng Waterin I ntakeSrcues..,':
ae ~i:;.iii .r~rs1fu.,,le
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- 0 aorll ndish regceisved aiqiuti: ito, uats.ofntheg ofthe`-indutry' . meimbers ta if.dustry'groups, I r, , an'd
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r-4, f. 5 . . V. , , " .. " . fen~ifronm~enfta1 group;' fiind ýa co6ahition' of northeasternff a'ndýfmid-ýAtlanlttkc staitesh` av~e'challe'nged -Various .aspects of
,1145
Part I Iteni' 1 Entergy Corporation, Domestic utility compafiies, and System Energy the rule.. This challenge currently is lodged' in the:United States Court of'Appeals: foi* the, Sec6fid, Circuiv inr N~w York City after a motion to transf&r' from th6 Ninth Circuit in San, Francisco was granted in December 2004.' *,
',i Entergy'snon'-utility fiuclerir gneifation;business is curr'ently in 'Qarious stages'ofthe-datii'evaluation'and discharge permitting process for its generiation facilities. Indian' Point; is involved in' an administrative peirmifting process with the New York environmental authority for renewal of the Indian Point 2 and 3 discharge permits. In November 2003, the Neýv.York State Department of Environmehtal Conier'vation (NYDEC) issiied'adraft permit indicatifii that closed cycle coolifig would be"considerid the "best technology available'! for'minimizihg percei*ed adverse" enrvironmental' impacts attributable to the intake and discliaige'of coolifg water: at' Indian Point '2, arid 3.
The draft permit would require Entergy to take certain steps to assess the'feasibility'of retrofitting the site to' install cooling towers before re-licensing Indian Point 2 and 3, whose current licenses with the NRC expire in 2013 and 2015. The draft permit could also require, upon its becoming effective; the flcilities to take an annual'42 imnit-dijy outage (coordinated with the existing refueling outage schedule) and provide a payment into a NYDEC account until the start of cooling.iower construction. -Entergy is'participating'in the administrative process! in'orddr to have the draft perhmit modified prior t6'finaltissuahnce andopposes any requiremenit to install cooling toweis, or,to' begin anrinial outages at Indian Poifivt2 and.3.'" 'Accordingly',' Entergy also hasý filed a siarate actiori' in, NewvY~rkf state court seeking a determination that the state cooling water intake structure regulation underpinning'the NYDEC's draft permit for Indian Point 2 and 3 was improperly promulgated and is thus void. The New York trial court and interim' appellate court dismissed Entergy's, claim,. and, Entergy ýhas, appealed to the'New' York Court' of Appeals. Pilgrim and Fitzpatrick received approval from the EPA and the NYDEC, respectively, allowing the full 3 1/2-year schedule for compliance demonstration as is outlined in the;'newI rule-! and :will- also-, purstie'" appropriate supplementation of the existing, record regarding perceived impacts, options and'costs.I Entergy's' other Non-Utility Nuclear generation facilities are in the process of reviewing data, considering implementation options,! providing information required by- the current,,ruletot the EPA and. the affected, states;: and requesting the- 3 1/2-year submission schedule allowed by the.rule,,yre necessary.. - ' Entergy's domestic utility, generation: facilities are. likewise in the process: of reviewingdata, considering implementation options, providing information required by the ctirrent rule t6 the EPA and the affected states, and requesting the extendedsubmission scheduleallo~wed by the rule, where necessary. , .: .. Oil Pollution Prevention Regulation '., , ' ',--'; To.!'i,. . .- ',,, . '. . ; ,
,.,The EPA published a,revised Oil, Pollution Preventionjrule in July. 2002.,. The, rule: potentially,*affects Entergygsý operation of its; approximately; 3,500 transmission and, distribution electrical equipment. installations.
While ;the, published'rule provides agreat, deali of flexibility to. the reulated commuity~sofar. as. allowable strategmes,. it also provided the EPAwith a. great deal of discretion in evaluation of a facility's compliance with the
*rule.,In September 2004, the EPA solicited comments on altemative afnagement strategies for oil-filled electrical
,e!quipmeint-that ,ýyere proppsed, b tbh Utility, Solid Waste Activities Group, and, Entergy. The EPA published a proPosed rule ..in December:-2005 that. solicited. comments on proPosemd complianc&e requirement for. qil-filled operating equipment. This category., of equipment, includes devices such as, oil-il!oed.elctrical equipment, turbine lubrication and hydraulic-actuated control systems. This proposal eliminates the mandatory requirement to equip such devices with oil containment systems and is extremely favorable to the electric utilityindustry ,, ,It;',is anticipated that the final rule will be issued in October 2006. In addition to the proposed rule, the EPA-1pirblislied and;is seeking comment on guidance pertaining, to, other issues t hat.werel not; adequately, addressed in the August
,2002 ....rule.
. . . ... . The
. . comment
.. ...- period
. . - . for
.. ...both
-.. . documents . . . closed
. ... . , 1.. .. ... . on
... February I 10,
. . . .2006.
", .:t l9"**
Comprehensive Environmental Response,. Compensation, and Liability Act of.1980,1. ... ,:. , ., * ,.' The Comprehensive Environmental Response, Compensation, and .Liability.Act, as amended (CERCLA), authorizes the EPA to mandate clean-up by or to collect reimburseinment of clean-up costs' fromi owners or, operators, of sites from which, hazardous, substances. may, be;ori have been released- -.. Parties thattransported hazardous, substa*nces sites or. arranged,-for' the dis osal .of the substances, are.-also,deemed, liable by
'tothese CERCLA._CERCLA has been interprieted to imposet strict, joint, and several liability on responsible parties.,The domestic, utility compahies, have sent -waste? materials, to 'various disposal 'sites ,over the, years. .,In additi6n,
'eAvironiental laws now regulate Certain of the companies' operating procedures and maintenance practices, which 146
IPart I Item I
,-Entergy Corporation,;Domestic utility companies, and System Energy historicall,'.weie,not .'subje*t to .Tegulati6n.,'vS6m'e *;disposal sites rishd by tEntergy 'have -been' the .subject,-of governmental action under CERCLA, resulting in site clean-up activities. The domestic utility companies ihave participated to various degrees in accordance with their respective potential liabilities in such site clean-ups and have developed experience with Iclean-uip :costs.'l 'The,.affe*ted' compaiies ,hai*,&'established .reserves. for; such environmental clean-up and restoration activities. Details of material CERCLA liabilities are discussed for each "6pbrating cdmpany in the "OtherEuiv'ironme'ntal Matters"'sectiofibelow.mri-il i 0'&' noi& :rr;:f1i 2ri
'Other E-nvironmentalMatfers! 'rwA truP ',r8 ;i'r; r:'. ,,i;, r~rj 2iirnllnoi *rh:::,,. (fist I tq j;.;q,, ,Enterg?,'Gulf.States!r -D ' I L,;,ha-] .1i. li,:' ' '0 f ,n': -r! . ) !ij' : . ,'
,to:"."!!!;.J;¶:,*it:riLrtr" l
'!9If h'ri*i [)il .:rf't -?ilO.L '12 'I :tq .&9):l '*I2'lb ) Vg"4I)]!**, *1 .,r[ ,gi'iiJb ,,. yh.,:.i[ o; ;21:, 'w ;: Ki l*,il i ri, .' Lf/i [*iijj ?i.if ni -Several class action aiid other suits have beentfiled'in state and federal'courts seeking relief from Entergy
.Gulf States arid ,others Ifor .damages caused bk.:the:,disposal bfi hazardoug waste 'and for asbestos-related-disease
- allegedl resulting from 'e-posure onlEritegy Gulf States',premises'(see "Litieation", bel1w).. 2 "!
- .)
i v. "--H hrz: ?;i rrri,.'ob O'.)?~i2* "O ',vlji;*i n, 1, bob A? *:*_')::: J~il:oIz L)!2 J;?')D *flii:'*T. .'*;:/C, "bi 2 .. d ,it'.'J: i ;1 1Jj)il:,~,) M:-,,.'A Entergy.'G6]ffStates is.curr~ntly'.inv'olved~in ;aremiedial iin*stigationi of the ,Lake Charles Service Center
,sife, 16cated in Lake Charles',Louisiatia. f:Arminufactuied gas plant (MGP):is believed to hav6 "opeatedat this site ifromripproximately i1916 to 1193 1: 1;Codl'itar,,!a',by-pfodut;'&fcthe distillAtion proeess :employed at :MGPs,!,*as 'aptiarlntly routed to a portioni'of the pr'opýertyfor disposal.-'Thb satfie.area has also beenihsed as aldndfill:fIn i1999, Entergy Gulf States signed a second Administrative Consent Ofderwith ýthe EPA toWperforrh! removal action at the site. In 2002, approximately 7,400 tons of contaminated soil and debris were excavated and disposed of from an area within the service center. In 2003, a cap was constructed over the remedial area to prevent the'migration bf contamination to the surface. In August 2005, an administrative order was issued by the EPA requiring that a 10-year gToundw'aterstidy.be cofiductedht rhis. ite i.The grcuhdwatef rhonitoring ýtudy,.which Was delayed because
- of iHurricane Ritajwill begin tin Kthe first ,"ilarter')of '2006: n Entefgy,, Gulf States .believes that its'ultimate
ýrespbn~ibilitý foi:rthis'site,-Mill not materially exceed its existing cleait-up provision of $1Smillion. Ti hivtr; r-er:
fI,; o1 irg. t>. y'< 'j ., i t;'1I;: ,i ( O i'[ L',, . m,/')/
!*' Ii;ru,ihj '*o01*il.tl U..:'. ? t ,il .'.;I ,i';'1 2 ) 2'lj * 'i,- .ý:In 'I1994.EnterigyGulf.States ,jerfomined a site dasessment in"c*6fijunetiori with a -construction project at the ,Louisifnia Station 'Generatiig Plhnt (Louisiana Station).') In1 99.5;'a iftirther assessment confirmed -subsurface soil jatid groundwater impact 't6 three aieas 'on the plant site.!; After .validation,l a notification was made to the LDEQ .and la phased'process was'executed to remediate .each fareawbf concei'n..,Thd final phase 0f groundwater cleanwup ,and ýmoriitoring',itt :Louisiana:Statibn-;is' expected to 'continue!through,2009. bThe',remediation cost -incurred ,through December 31, 2005 for this site wdi91$6.7,rnillion., Future costs are not-expected to ex'ceed the:existing provision of $0.8 million.
Entergy Louisiana and Entergy New Orleans vIh'iqrnq Several claiss&tionrarid other suits hive.been filed in :stite and federal courts Seeking"relief from Entergy
!.Louisiana-and Entergy2New!Orileafis :and '6therg for damages ibaauseddby the disposal, of haýzardous'vaste" and for
- asbestos-related .disease ialldgedly resultinýifr6m, exposure b6n.Entergy- Louisiana's rand Entergy. New Orleans'
'Ipremisý6s (see".'Litiiationi" below').%'lA o ', r ;e.* :d n-, not?
-t. ofu,- " i If,1: l,;u :',:: I,( i' . = i A:.,';i 1:
2 bim ;' . .r!l')) 2rIIril*Wl v :rrt ,,','t ).I )J JtI . tirHirti I? notfi ". 'ý,d).r i. ',.A '1o t.1 Ap. . , r!, [ .f i
.v.'WfThe S6u1thern Transformer' Shop located ,iri New. Orleansgrv~d both Enteirgy Louigiana and Entefgy:NeW Orleans. This transformer shop is now closed and soil and groundwater assessment activities have resumed since the demolition of the onsite buildings and structures was completed in early 2004. Entergy has entered'int'bthe Voluntary Remediation Program with the LDEQ and submitted a Site Investigation Workplan. A liability of iipproximdtely $210,000 !has bden' established for 'environmental assessminmt and remediati6n costs :with estimated tcomnpletiin in late-2006.:)'L2 :,nr~xvofi *. *,',"' !ii ¢t ;!':.*-U2,, ,Jot l 1 : ?
rtvo'1crx in/in;!! if/ *qy2.'.'.,!:1:- t! )ini., flu *",!':I, fi .rv, Dtiing rl993;itbe)LDEQ -issued new.rulds'forsolid wAasteiregulatiofi;ificluding regfilAti6n*'ofzwastewater impoundments. Entergy Louisiana has determined that 'sohme of :thir :pbwer plant ivasteW.atei'impoundments were affected by these regulations and may require remediation,'repair, or closure. Completion of this work is dependent on pending LDEQ approval of submitted solid waste permit applications. As a result, a recorded liability in the amount of $2.1 million for Entergy Louisiana existed at December 31, 2005 for anticipated wastewater remediation 4147
'Part I Itemd I Entergy Corporation, Domestic utility companies, and System Energy and repairs and closures. 'Management oU, Entergy Louisiana-believesthis. ieserve to be adequate.based, dn current S nil ,::i, 1 (1 I ,,) 'rilrx',o " ni :V.", " ' ' .t, o; .: J:r<I'Ar2 Entergy Arkansas, Entergy Gulf StatesiEntergy Eouisiana, and EntergyNew Orleans .', ;:'. t ,:nL .'/t
-6 'J'f ?,Jill id;,li'. l4! '
The Texas Commission on EnvironmentAl- Quality (Commission) notified Efitergy'Arkansas;, Entergy. Gulf States, Entergy Louisiana, and Entergy New Orleans that the Commission believes those entities are potentially responsible parties (PRPs) concerning contamination existing at the San Angelo tElectric Service-, Company (SESCO) facility in San Angelo, Texas. The facility operated as a transformer repair and scrapping facility from the 1930s until 2003. Both soil and groundwater contamination exists at the site. Entergy Gulf Stategsand Entergy Louisiana sent transformers to this facility during the 1980s. Entergy Gulf States, Entergy Louisiana, and Entergy Arkarsashive responded to-an-information- request, from the Commission andWill' continue, td:cooperate in this investigation. ! Entergy Newi Orleans has' provided requested, information, concerning: its: status) in bankniptcy. Entergy Gulf States and Efitergy..Louisiana,)have joined' a'grotip .ofoPRPs) responding,6 ,sitelconditions Iin cooperation with the State of Texas, creating cost allocation models based on review of SESCO documents and employee interviews' and investigating contribution 'actions against'other PRPs-.! Entergy. Gilf;States: and Entergy Louisiana likely will be' required to'c6ntribute to the reniediati6n oftcontaminated soil ahd,grouiidwater, at the site, while Entergy Arkafisas and Entergy, Ne*w. Orleans likelywvill pay de miriimis amrUrits.I Ctirrent'estimiates;:although preliminary and variable depending on the level of third-party, cost contributions,'.indicate that Entergy's totalshare ofremediation costs-likely will be less thari$1 million.'.",: . . ;*'*-nirriii-[T Il,,..2 , l.'..,I, Ž 7" "u,) y:*';-r'" Entergy New Orleans ,; ../,. ; -.. ., , - .q !. , U'Of IIrI . '-it; ; ' 'r.:;-lI ,,ri *)I; NO tiIi
.- ;d In Marchi&2004, agents 'of the Unitedi States IFish and iWildlife: Service. conducted'ari. inspection of Entergy
'New Orleans&;Michou'dcpower plantiand: found a number of deadibrowh pelicahs -neai th6efacilitl'si,wateri intake structure and fish-retinrn7 tr6iigha,' Browv (pelicans;are an. endangered.! pecies, iniL'uisiahazitiThd Uiitdr,States Attorney's Office for the Eastern District of Louisiana (Attorney's Office) issued a grand jury subpoena to an Entergy Newi Orleans employee in May,2004 to, give evidence regardinig the, cause*Of death! of therpelicans. The
'Attorney's Office then agreed to.meetv with'Entergy New Orleans ratherthanrequiring the employee'to.estifyi.iAs-a
'result: of.thati meeting,, Entergyt N*w* Orleans conducted. an ;internial 'investigation' of the. matter" and', submitted: a
'report to the Attorney's Office.in:Au'gust 2004.. Entergy New Orleans also constructed.an engineered, walkway: and c 'oroverIthe intake structure: andi feeding trough: to eliminate pelican accessto therafea-, Entergy New Orleans continues negotiations with the Attbrney's Office regarding final resolutiori ofthis'matter., - ?I,*0 -ir Entergy Louisiana r m::I'O ",'iV/ "*]2'H ,if I t/"1.: Htfl.!'j KOicJ" /21H) lu' Transmission and distribution storm teams entered wetland areas of Lafourche Parish to restore Entergy
'Louisiana'sBarataria-Golden' Meadowvlirid shortly., afteR-Hurricane Katrina? A-portion ofi this.iue crosses'.property ownedý by LafourcheRdalty.1 The iealty conipany has requested that Entergy, Louisiana) niowconduit an* extensive wetland mitigation, program over a ten-acre' area. f: Entergy( Louisiana,'believes that, thf marsh: area affected:bylits activities is less than 2 acres and that restoration can be conducted to the satisfactioni of the:_United States Cdrps-of Engineers and the State of Louisiana for less than S1 million. Entergy Louisiana is meeting with the Corps and the State of Louisiana, to determine the extent of mitigation required by the.Clneai Water Act and parallel state.law.
.t :!" Entergy, uses? legal-r and-appropriate, means ito contestl litigatiori: thieatened,on0filed, against,,'it,but,.certain states in which Entergy operates have proven to be unusually litigious environments.,,ýOJuidges ;andjuries, in Louisiana, Mississippi, and Texas have demonstrated a willingness to grant large verdicts, including punitive
-damages;; to plaintiffs-in persorial, injury; property. damage, and businessi tort cases; kThe, litigation ,environment in these states' poses a significant-business risk t6 Entergy,., ' ', ,:"A >f!ir !:'t !{ ,1; ! . ,l ';:r !o l'...) ,": ?h;s.,ic;b:- r,....fit t' u,i Kt'. :'.:2u Iftj. K, l,'" "!'**:-: l
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-. 'l)L '.-', .,' , ; , ' c' fir :; '. ? 'n~ '"l~: ,-, ,:, 1o rtfH jI/1 148
Part I Item I
-Entergy Co.rporation, Domestic utility companies, and System Energy Ratepayer Lawsuits (Entergy Corporation, Entergy Arkansas, EntergyjGulf States,'Entergy Louisiana, and Entergy New Orleans) iEntergyNew Orleans Fuel Clause Litigation-',; , . t :. i, cro.ylb iterilj....... t.'.A'c, i1*;".: f;Aý i; r In April,1999, a group of ratepayers filed awcomplaint against Entergy New, Orleans, Entergy Corporation, I.:oi
[Entergy, Services,,:and Entergy, Power lin state court in Orleans Parish purportedly on behalf of all Entergy New ,,Orleans .ratepayers:rl The ,plaintiffs ,seek, treble, damages; for .alleged ýinjuries arising from the defendants',.alleged ,,volations ofrLouisiana's antitrustlaws .in connectionwith certaincostsassed. on to ratpayers ,in .Enterg,New
,Orleans ,fuel ,adjustment'flinggsith ,the1 City Council. ,In particular, plaintiffs, allege, that .Ent!rgyNcw) Orleans
- irpr9eedy'included 4certain "costs~in thee calculation of fuelcharges and ptha Entergy,New Orleans imprdeiy purchased high-cost fuel or energy from other-Entergy affiliates* iPlaintiffs allege thatEntergy New Orleans and the
.other, defendant Entergy compaies .conspired to make these purchases to the detrimentjof.Entergy;New Orleans
_ratepayersandjo to the benefit ofEntergy's shareholders, in violation of,Louisiana's antitrust laws. ,Plaintiffs also Gseek to recover interest and attorneys.fees. fEntergy filed exceptions to the plaintiffs' allegations, assermng,, among
,other things, that junsdiction over theseissues rets with~the City Council and FERC In March 2004, the plaintiffs is-ý'et E C., aIne'atiMc and amieded iheir petition;, necessary, at the appropriate time, Entergy will also raise its defenses .t , e , I
- 1( Iai Is.','i. CC, to the antitrust claims. The suit in state court has been stayed by stipulation of the parties pending revie,', ofithe decision by the City Council in the proceeding discussed in the next paragraph.
ý)2,111fr/lJ("', e'.j) inui IV**'*,V-ý[sso~1ý!filed tacorresponding
.*.t,I .. . .tig,*_',
~fll66ns-' complaint
,1 iý *,the writh CityJ, Council ii, I I;,t.[; JJr* t
- in-!. 2order
.'t,-, to1 ; initiate
.I al*."IZ,.review
'i I~ -f'2 by the it. ý`,,I City Counc of tne,'plaint ,tiff a n Icc restitution to ratepayers o' a costs they allege were
.,tmprqpeny and i npruentlyeiuoeo m thuerel adjustment3Lilings. ,Testimony was filed on behalf of the plaintiffs in this
'l "
pro'ceedig (4 11 J I r, assertinhg,
*,/'I
; lII lt I" -! .
among other things, that Etergy new Ourleans and other defenatis have erngage in i,11 ;*1,, " I.I , r ý1,;* ,* .* ", t
- , 1. - ' I ,# - I I
,I )'. II - M If I'; , ,'*I frr rI I , ,,, )I " I' -- . ', ,,I . 1II cuei procurement anl* power purciasing o I., , ,practices
-. :,* ;l " ; andI I,.' ,included I . v i*,7 i O)wi costst r,'T,Enrery aflin "- , - ' 1 !;1 ,New
- " 'P Orleans' . .... ffuel"-- ajustmeint t1*-i I,,r , It'7 "1 that could have resulted in Entergy New Orleans customers being overcarged by miorethan $100 million over a period of years. Hearings -"were held in February, and March l * '~ f J)) -T'r -, 11711 11 , ,-, 'dl/
2002. In February
; ... " "' I"- i "IIf 2n , V1t o ýl l.
2004. the tr- I 10 * .I/. City.... fM
.14 Council,
.l 4*,11, ;]
approved a V.'/; ,/ - "' t'l.,P' " , I it , resolutioni that resulted in a refund to customers of'$11.3 'ilhon, includiniglterest,duningthe-moniths of June through September 2004: e resolution concludes, 'among 'other hings,' that the record Vdoes noi 'support an allegation that Entergy NeW Orleansactions or inactiiis, eitaer alone or in concert with Efntergy Corporation 'or
.anyof its affiliates, constituted a misrepresentation or a suppressioinof thetrith i ade'ninorder to btahi'an unjust advaniiafge of Eniergy Ne wOrleansor 1 to'ause loss,-inconvenience or harmn to its ratepayers.". Management believes aadequatey proid for the 'liablity associated vith' this pr6cie'eding." The plaintiffskappealed 'the'City
"'Council "resolutionto the state'courts, 6OnMaky26, 2005' the Civil Distnet'Couri for the Pari'sh oif Orlean~saiffirmiied the City Council resolution that resulted in a refunid to custom'ersof-$Il3 niAillioni,-including interest dunring tie months of June through September 2004, finding no support for the plaintiffs claim that the refund amount should be higher. :.,.,iA o "x',, -
...... in. 2005,'the latiffs~ppealed'the Ci~il.DistricfCt.ourt'd6ii6iit6s tthe Louisiana Fourth Circuit Court 1Subsequenit 'to Entergy New'Orleans' filingof a'bikrpitcy petition initheEasternD istiet 'of Louisiana, o'6f Appeal:
,EsergyNewOrlanfileda Notic' of Stay'With 'the Coutio6f.Appeal. kfic Banliipiptcy C6urt lifted the sta'y ,kiih "respectidtote'plaintiffs appeal of.the Civil Disurict Court ccisio but'the'class ctin lawsuit remainsistayed .]n
'February 2006', Entergy,New-Orleans .filed anotice f6s WCivil from tde Distrct Court to the U.S. District Court for the Eastern District of L6iisihiai.21Xdditi6hally l bankruptcy proceeding, the named plaintiffs in the Entergy New Orleans fuel clause lawsuit, together with the
*i~it~~e*,Oilns~
*'iaiiied'iIgi~tifs~i~th ri* dr~n"lgfsu-,,1*t, fil6dl'Con fc( emtiadifit fotf.Dbecla*itýý'Iudgment laskifng the", court 1tod'Tde'c'lare ttha't En't'e'rgy" wOrenI'ng Corato,*n Etr}SevcesI are a sinkle "business, enterprise 9and .s s ith' EnitrgNewwOr eans fcr' anyclaims, Aserted renthe
, -'suich,ar CEntergy New Or'leansftel claiuse"lakvsit Uaind 'the'Eiterg Nw Orleans rat&of returaiWisuit'and alteriiaiively, that tth'e'aut6oiitic'stay be liftedto p'ermiti the off6vants ito pursue tlie' ameir'elief istatecu6rt. !Aiiswers were due ini this adversary proceeding in February 2006, but Entergy New Orleans has requested in etensiciiti onsik, uiitil i Mairh 2006.
.~m ~* ~ ,',' lq j i t; fi', H kir trih,, it ; 1)irgit;'lo ax T rni Fiy. J.r;h Irr;lu l viii;rr < fi. 1(ii;'i fLi I;'J;.19 l;- Ai.I, 1; o, OA 1J1/1.t
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0149
Parf I Item I Enteigy Corporation, Domestiei tility compihies, and System Energy Entergy New OrleansRate of Return Ltiws'uit":.." -, , . ,, . ... ........... In April 1998, a group of residential and business ratepayers filed a complaint against Entergy New Orleans in state court in Orleans Parish purportedly on behalf of all ratepayers' in Ne6A OrleanS: iThe plaintiffs, illege'thlat Entergy New Orleans overcharged ratepayers by at least $300 million since 1975 in violation of limits on Entergy New Orleans' rate-of returh that the plaintiffs allege weie establiih(d by, ordinances passed b';'the Couincil in 1922. Th6 plaintiffs seek,'ýamohg' other lthingsi, (i) 'a declaratory judgmehtl'that"sucll franchise.ordinancesý have' been violated; and (ii) a reiniaid to the Council for the establishment'of the 'anio int'of 'verc haf g' plus interest. ' Ent'r'&gy New Orlearns believes tizelawvsuitFis without m Entergy.New Orleans has;chared ohlnl those rites authonzed by the Council' in acc6rdance, withýphalble law. In May' 200:a' curt f'appeal granted Enitry N'w&Orleans' exception'to .junsdictioin' in. the cas'e' and 'dismiiss'ed' the proeedmng'.o-Thte Eouisiana Suipremie Courtdenieid: the plaintiff's request for'a iwrit; of certiorari. Tlie p"laintiffs 'then commenced a!similar proceeding bef6re the' Coun'cil. The plaintiffs anid'the advisors for theei first round of testimony n Jan'ayc2 :02,i Inhthe testimony, the plaiintiffsallege thif Enrtegy New Orleans arned in excess of the legallyautoriozed rate of return
*l ' t ~"'Ithe'peiriod duiirinhg t: . ' *1 1'979"t'o
,, . - ? " .'2000!aid*'-iJ .jq 'th*t'Enteigy f - - r'p , , . New
,. 1 ,.Orleanýshstiod
.I., * ,beirequired
' . . '* iorefind'betw'eeni'
+, . D l . -",, -, -.. It $240-- *i'million
, ,' r and $825 milon to its ratepayers. In the testimony, submititied bythe Counci advisors, thedadvisors al ege that Etergy' Newx Orleans'l'as not earn1' ine'xcess of its aut orlz6e rate of return for the period at' issue and' that no relunfd isthnerefore warIanted.' "1 . . . .. ...
In December 2003, the Council Advisors filed a motion in the. City Council proceedings to bifurcate the eringin this matter, such that the effectof the provision of the 1922 Ordinance in settingiawflU rates would be considered first., Only if it isý determinei1d that tnis provision establilses a limitation, wvouid ibe remaining issues be reached. Tiircate The motion to was granted byIth City 'Council inhApjl'.204u*,and a hearing on.th .. rst'part of
'thebltUiaed ~proceeding wds completed' i Junee2uu5. A brieting schedule hlas ben' establlshed Wvhich calls for
.suomisiono t Ki Is 'J;ll Leseevleintiary~reordtoth 1 r, j jm.,
;m: (U JX 2ýJ.'
eCity Council inMarch20o6:7; r', J ;J.~I V / Ia
.lH iH4.'1 2.!I t)
*- Addit!0nally, in the Efitergy, NeW!Orieas binkriuptcy, pro6edingthe namedplaintiffs ifi t-t Ehtiergy New Orleans rate of return h,*siit,*d'-gether' with the' n imed plaintiffs in'the Enier r e t ffld~aComlaitforDecara~r~ ~ gy New Orleans flel. lused lawuit filed. at.omplaint for Declaratory Judgment askng the court to eclare, that, Entergy 'New Orlieans,, ntergy
,Corporation, and Entergy;Services a're, a, single, business enterprise, and&a~ssuch, are.lIable*m Solido-' .th Entergi New1 Orleans orany claims. asserted in, the Entergy New1 Orlens rat ofrtrlwsi-n h Entergy, New Orea~ns fulcas asiad lentv <-New*64 return, lawsuit- and th E eursuRethe am Olea'ns el clause lawsuit, and alternatively,.that the automatic stay be lifted to permit the movants to pursue the ,,samerelie. in state court.. Answers were. due in this, adversary proceeding in, February, 2006, but Entergy. New Orleans.. .U' has r'equested
,.()~ f f,! 1 ani extension
"* 2l" to answer "
until March . 2006... " ; Fg*; j'
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Texas Power Price Lawsuit ."',, ;. Im o-, In August 2003; a, lawsuit was filed-in the districtcourt of Chambers County, Texas by, Texas residents on behalf of a purported class apparently of theTexas retail customers of Entergy Gulf States who were billed and paid for, electri.;p9er, from January 1 19,4 9Pl, to.the, present. ) The named defend6,ts includ. ,rpotn, ,,Entergy Services,, Entergy Power, Entergy Pow'er Marketing Corp., arid Entergy Arkansas..,;Entergy. Gulf: Siates, is
- not a named defendant,,.but is alleged; tobe~a' Co-conspirator. The court.has granted the request 6;-Entergy,Gu f
.States to intervenelin the lawsuit to protect 4 its interests. ,,, , ;-; .- ,
!., fo:) -_:HlýI( . U -1(f) ()I
... .1: .'. ,"2 I'2'
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. t '2'H . ,,tib ,.')2t'ZQ L-' 1jrim,.d
.... Plaintiffs allege that the defendants implemented a "price gouging: accounting schemer tosell to plaintiffs
.and similarly, situated. custom.ers, higher, priced power generated by..the defendants while rejectifig and/or r~selling to off-systeni, utilities, less, expensive, power, offered and/or. purchased from off-system, suppliersiand/or geneatedby. he1 ntegy., system. ,I!n particulkr,. plaintiffs allege. that, the defendants manipulatedidcniut manipulate the dispatch of.generation so, that, power, is pfxrchased from affi!iat.ed exp.eisive resourcesinisfead, of buying cheaper off-systemr power. ,,',, -i . .... , ,,- ,, ,':,,i" - , ij A',. .'j'.) Hl -: , Plaintiffs estimate that customers in Texas were charged at least $57 million above prevailing market prices for power. Plaintiffs seek actual, consequential and exemplary damages, costs and attorneys' fees, and disgorgement of profits. In September 2003, the Entergy defendants removed the lawsuit to the federal court in 150
I Part*I Item I Enteigy Cor*6rationl Domestic tiility compahies; and Sy*iem Eneigy o Galveston, and in'October 2003,:filedri pleading seeking disiiiissdl of the~pldintiffs' claims. :AIni October:2003,'the liplaintiffs ifiled 'a ifiotionto're'rmnd the castb state'court.,-In January2004*,tthefederal 'court 'detýriiiined that it Adid nifot iha've *jurisdic'tioi' ovex::the subject in'atter; of the' law'suit,! and !remrhanded' the cake'to the ,state 'districi 6ourt 'in OChaimbers'Cointy.'In.Novminber'2004,Ahe state "district-'court dismisset'the case'based bn 'a lack'ofjurisdicti6hi. "The plaintiffs have initikted aljipelhlte proceedings'ifi the 6ourtof. peals.1rit *' u:,:. Vrii Ii* :,, riar17;~ ~ ~~~7 ~I~ i U0 -u~ ;-161 -t, ) 11 ~ I f.z~ 1.-ýiJ wr lini rIilo 10 i;'- 1Cc~ ;~1I j-C)r~~. i1Imri*';nOn March;2,;2006th'6Cort'pus Christi Coutirtrf,Appeals hIndid dowivits'opiiiiori aiidjudgmentJ 'The court of appeals determined that neither the FERC nor th*PUCTih.id exclutie jurisdicti6oh'over-the'plaintiffs'. claims and, on this basis, reversed the district court's dismissal order and remanded the case for further proceedings. The
,couirt'offipeals affirmed the disirictrc6uii'sdecision'*allowingEnterg Gt6lf.Staies'to'interVene in'the case Entergy ,.,now hIis the optionobf seekinig ~hlieafing from'the court of appeals,'6rbf filifi' apetitioff6iieviewvwith the Texais -,Sdpreme Court.? 1'1i, , "-'- "d I *i[Iq, ' rh,' 1,'[Iq.- *:*: *[,,1!o'*tJ C.bfrrr ?JI'. iq :'.:t. r; lc[,.qn *:Fl "]to ,
I "i, z.,' '*r.d1 1.,! *.q~ t~ lflJJ.)9I; -- 2 *'i)~I;k **1 _Mtirpy Oil tawvuit :(EntergyCoi'pb'oation'and Entergy'Louisiana) tifl 1,1wj (. ,:i:xrrr 1TiýTi;* ?/.r L-.":: .:,I.J., Residents located near the Murphy Oil Refinery in Meraux, Louisiana filed several lawsuits in state court in
\(St.,Biriard Parish,` Lduisianalagiinst MurphyOil,;Eh'tergy Lbiisiianarand btheif'sor'injuiries they allegedly guffered as a result of an explosion at the refinery in June 1995. The lawsuits were consolidated and a class ofplaifitiffs'l~is certified. Plaintiffs alleged, among other things, that an electrical fault at an Entergy Louisiana substation 'contrib*uitd o 'causing the 'explosibn.: Murphy Oil filed alcross-clainiragainst Entergy L'6uisiaiiabased oii the same allegatiofi,1nwwhich'Muriph*' Oil seeksi ebovery of an',.dama slit*'iia~spaid to the phiintiffsl Claiborne 'P.'Deming, !wh6bectiie'a director of Eniergy Corporati6n in 2002,.is the Presidentmirid ChiefExeutie Officeir of MurphyOil.
d ~",vfMurphy Oil and 6ther"di*fharit§ setiled with thie plaiitiffs'for $8.8'million;butEntergy Louisian'a'did fiot (participate :in ,the settlement.ihAfter -trial! for ithe' remaining parties: in. the proceedin'g; thb juidge issied ald,6ision fiiding EntergylLouisiana 140%-responisible (and awrirdifig-moiietiry :damageg," which itotal: approximately$11I
'millionwith'interest, against :Enterg&y L6uisian'a!:,Eniergy Louisiana' hipealed the judgmefit td the Court '6fAppeals.
Entergy Louisiana has insurance in place for claims of this type, and management does~not expct':a-:i'aterial adverse financial1effect from this decision. ~ 1.,~! .... ,r:O~iiin:lqi' ) *';',rz2*) r.:i'_-i~"iii, r,*r'rr/.:otu._' 7.
~(1~f~Itrz~;o'~ ~ ~ t(,,.tJ) - ¶AJrr*tDn1 vif;,.
Fiber Optic Cable Litigation (Entergy Corporation, Entergy rGulfiState's*,iand Efitrgy Louisiarii .and,-Entergy Mississippi) "- 'tiu :rI,:;:;x.!: ur!i iY;; r o;lt' v'*-'..) ,10 ,y F:'1;d 111 t ; *T::.,i'
-'!, l tioi 'rurr; I:i *11!C rjftCob oiI: ;.*h'rW ir m ';u
- to 1d } Ihii1998,:a ogrup'ofpr'operty iowvners filed a: class'"action fstiit Iagai'nst' Entergy! Corporati6hvEfitei'gy, Grilf ySiates;)Enter&y Srvices,."afid1Entefgy;Teehiiology"Holding ýCoinpany-in state court :in Jefferson Courity, Tlexiis r'purportedly on 'behalf of !all;i6peity ýo*,ners in each ofth&)siates throughbutvthe Eniergyiservice~arca-,:' ho have 1conveyed iasemeitts ýto the- defendants.,rrThe lawsuit alleed 'that ;Entergy' insialled, fiber, optic cable Facros's' their property without obtaining appropriate easements. The plaintiffs sought actual damages for the use of the land and a share of the profits made through use of the fiber optic cables and punitive damages. The state court petition was voluntarily dismissed, and the plaintiffs commenced a class action suit with the same claims ifi'the United Sta'tbs District Court in Beaumont, Texas. Both sides have filed motions for summary judgment, which were heard by the
'Icourt lin 1late "200l1.)'In 2003,qthe(disfri6t judge ruledrthathas':aniatter 'of .lawlvill ofihe 'Texas easemehts permit IEfit'ergy-fo utilize thefiber .for.their dxwn'orhri unic~itions-:'Furthei, the rcouit ruled ihfit appioximitely two-thirds of rtli*'Teaia e.isem~ntsallo&vtEntergy.1t6use' the :fiberfor external or:thiid.party c6mmuhiicatiofisi Entergy believes Ithbt hny damages suffer6d b; thee reniaiiring 'one-third ilitintiffliiridovwners'Vre niegligible hnid.7that thle&"is nho bagis for the claim seeking a share of profits. In April 2004,"thE trial c&irt 6fitired in '0r'ddr:de' ing the Iliritiffs',r'4juest that this case be certified as a class. The plaintiffs appealed this ruling to the United States Court of Appeals for the Fifth Circuit, which recently upheld the trial court's order denying the class certification. At this time, management cannot determine the specific amount of damages being sought.
Several property owners have filed a class action suit against Entergy Louisiana, Entergy Services, ETHC, and Entergy Technology Company in state court in St. James Parish, Louisiana purportedly on behalf of all property owners in Louisiana who have conveyed easements to the defendants. The lawsuit alleges that Entergy installed fiber optic cable across their property without obtaining appropriate easements. The plaintiffs seek actual damages for the use of the land and a share of the profits made through use of the fiber optic cables and punitive damages. 1:51
t Part I Item I Entergy Corporation, Domestic utility companies, and System Energy Entergy: removed the case to federal: court in. New.Orleans; howeveri the District Court remanded the, case. back. to state court,.,rWhile, Entergy appealedi thisw ruling, recently the, United States Court of-Appeals for thelFifthi Circuit
,denied this appeal. r;In December 2003; the trial court held a hearing to determine if a class should be certified.;, On February, 18i 2004, the trial court, entered an.order certifying thismatteras a'ciass.,, Entergy appealed this ruling.to the Louisiana Fifth Circuit Court of Appeals,,.which, has denied Entergy's:appeal of the trial court's order, certifying a class. Entergy sought an appellate review of the certification order before the Louisiana Supreme Court, which was
'denied:in December 2005;rThe state trial judge has set trial in this matter, for May 2007.w At this time; management cannot determine the specific amount ofdamagesbeing sought. - 'l,.It -.;i fI ff,,i l ,i;; 1
'.:,. Several property- owners: have! filed;, separate, lawsuits, against. Entergy; Corporationr, EntergyrMississippi, Entergyj Services, ..ETHC,C; andr:ETCi in-,state court ini) various., counties.: in :Mississippi "alleging, that., Entergy Mississippi installed fiber optic cable across their properties without obtaining appropriate easements&,,The plaintiffs seek actual damages for the use of the land, a share of the profits made through use of the fiber optic cables, and an unspecified amount of punitive damages in the othercases:f. Plaintiffs in some of the lawsuits-have agreed to dismiss the lawsuits based on evidence that there was no fiber optic cable running across their property.
tAsbestos and Hazardous Waste Suits , (Entergy, Gulf States, Entergy, Louisiana,, Entergy. Mississippi; andEntergy New, Orleans), ,I- a, .T', . '1)./ iII " IT-" iX- -I
. nNumerous. lawsuits have:, been i filed.i in federal, andf, state. courts "in-ITexasi. Louisiana,, and iMississippi primarily by contractor. employees in the,, 1950-1980 timeframe against-Entergyi Gulf States;, Entergy. Louisiana, Entergy Mississippi/ and Entergy New Orleans. as, premises owners of power, plants,-.for, damages caused byalleged exposure to asbestos or other hazardous material. Many other defendants are named in these lawsuits as well.
Currently,: there are: approximately 555- lawsuits; involving approximately;! 10,000 claims::; Reserves" have been established. that: should be adequate to cover, any, exposure;,- Additionally,-i negotiations:continue with..insurers, to recover more reimbursement,- Management:believes that loss exposure has: been and wilLcontinue, to be handled successfully so that the ultimate resolution of these matters will not~be. material,, in, the aggregate,, to the companies' financial position or, results of operation: L,:, .! q J: , :. . .:: ,I ";rA "'nurI 8: :":*,, -tn : .Cu:.'. , ' Employment Litigation (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans; and System Energy), .. ,,rj ,r:"i!! ,',.t:i -A:Th) :- Entergy Corporation and the domestic utility companies are defendants in numerous lawsuits that have been, filed, by. former employees alleging that! theyi were.wrongfully terminated and/or,discriminated against on the
-basis .ofiage, race,;,sex,,I and/or, other protected: characteristics.-Iý Entergy, Corporation. and, the domestic., utility companies are.vigorously defending thesesuits and deny any liability, to the plaintiffsd, However; no assurance;can ,be: given. as Ito- the outcome; ofethese cases,; and at. this' time, management, cannot,, estimate: the; total amount, of damages sought. i ,;t .- , :, fin,:-: ) -: . ' /i .. ,',>, -. .. ikVqo/q,' - , 8,) 'Adi,: v I .q Research Snendin~*~A~',;'1:8.t 'j-.:. /:lj'r9;it:r. bm;:;.'A: (:I:¶;:
Entergy is:a; member, ofthe!Electric, Power.Research, Institute (EPRI).;,EPRI- conductsratbroad range- of research) in major, technical fields,, related..to the electric, utility, industry.. Entergy!, participates; in: various, EPRI projects based on Entergy's needs and available resources. The domestic, utility companies contributed, $1.6. million in both;2005 'andi 2004 and S1.5, million! in-2003 to EPRI.. The Non-Utility; Nuclear, business, contributed $2:1 i.million in 2005; $3-2 million in 2004, and $3 million in 2003'. ', '*, " .. " :-. .*, ,:, -:r'1 .., -,4* '.'[:' ,,U ' ' .. , ; - ", ' , H, f" I ' ;h . .,";; ' : '" -! :',, ': I ?2.:. , "' .' -" a .- '-22_
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152
'Enteigy Cor~dration,'Domestic utility compani es, aind System Energy Employees ) V.:~
~.,.,Empoyes~renintega pato neg omtment 1to serving jits ~customers. A fDcme 1 12005P El t g ln ydyI6pol.~ u~*i*~~~l P'§ .~ ~ ;)i:~ii I Entergy Arkansas 1,467 1ri 1;rcrt.
Entergy Gulf States 1 616 !t 4d-~i Entergy Mississippi 797(-:2 )
~~~! ~
tli v k4!q' i':);~2System Energy '- ol Uritd~hi(!:~. '"i~~ih~I 3P flvexi !. F,; -W' CiM "Eite~rg'y bperations !'. A'i'JiuI lo ;684f 07 br~ -ny::iF1 W 110~n-r Entergy Services ?~7~hO~!"1ifV ~ 9~i1~
~:l ~i!~')( ~Entergy Nuclear, Operations, 3,218,
~~I\~ i~U vi(I ~i *-thqr subsidiaries ~ itl~ 220, 1r' ici: 7 n; 1~:2~
!)I. .. d- (lotaU;Full-tirne:,-ý ~ ~ iq ;tbi;c!'j1 3,995 - io>07 wl ~!t to f,;'j
'ij~f).'~I~~rJl0'~4C~ ~~ Total Entergy 117k, ~ i :;~ "
pprximtey 4800 eployees raerpeetd by, the internationalBrotherihoodof. Electicial'-Workers (~,,,~, t Union.ti btit W~krb' n Amlrc, and thehlnternatiorialBro therhood of Teamsters Union
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IPartlltem'IA& 11B Entergy Corporation, Domestic utility companies, and System Energy RISK FACTORS , S oilo'faing "Th& fict6rs, 'ina'ddiitiitonothers' s'peifically* addresed' iin this, Managemen t's' Disussion and Analysis of Financial Condition and Results of Operations, could have a'matenrial impact,-onEntergy's and its subsidiaries' operations, financial results and financial condition, and could cause Entergy's and its subsidiaries' actual results or outcomes to differ materially from any projected.06tc6me' ýontained in any forward-looking statement in this report: .,*. I :. ':" *-, (Entergy Corporation, Entergy.Gulf States, Entergy Louisiana, Enter Milississippi, and Entergy New Orleans) Entergy's results of operations, financial condition and' ljquidityr could be materially and adversely affected if the domestic utility companies fail to recover;,ort'experience delays in recovering, storm restoration costs incurred as a result of Hurricane Katrina and Hurricane Rita or as a result of continued lost revenue from these two hurricanes. Hurricanes Katrina and Rita'caused catastrophic damage inLouisiana; Mississippi and Texas to portions of the service territories of Entergy New{ Orleans, Entergy Louisiana! Entergy Missis'sippi and Entergy Gulf States. As a result of these two hurricanes, thesfdsubsidiaries have recordeda'cchiials f6r the estimated storm restoration costs for the repair and/or replacementp of their electric and gas facilities damaged, by Hurricanes Katrina and Rita and business continuity costs, which are curr-fitly estimated to be $1.5 billion. The cost estimates do not include other potential incremental losses, such as the inability to recover fixed costs scheduled for recovery through base rates, which base rate revenue was not recovered due to a loss of anticipated sales. Entergy and the domestic utility companies'are pursuing a'broad range'f 'initiatives to recover storm restoratin costsn,'Ita t ves !clude (1) obtaining reimbursement of certain costs coveed'by insurance,' (2) obtainig assistance thioughi fedeiral legslati6o for Hurricane Katrina as well as Hurricane Rita, and (3) pursuing recovery through existing or new rate mechanisms regulated by FERC and local regulatory bodies. Because the domestic utility companies have not completed the regulatory process regarding these storm costs, however, there is an element of risk regarding recovery. Entergy is unable to predict with certainty the degree of success the domestic utility companies may have in their recovery initiatives, the amount of restoration costs, insurance proceeds and incremental losses they may ultimately recover, or the timing of such recovery. For further information regarding the effects of Hurricane Katrina and Hurricane Rita, including the effect on revenues for those domestic utility companies where customers are unable to accept electric and gas service, reference is made to ENTERGY CORPORATION AND ITS SUBSIDIARIES - MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - "Hurricane Katrina and Hurricane Rita." For further information with respect to storm cost recovery regulatory filings, reference is made to Note 2 "RATE AND REGULATORY MATTERS" - Regulatory Assets - "Other Regulatory Assets" to the Entergy consolidated financial statements and the respective financial statements of the domestic utility companies and System Energy. (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi and Entergy New Orleans) The consequences of Hurricanes Katrina and Rita have negatively affected the liquidity of Entergy and the domestic utility companies. The occurrence of one or more contingencies, including other unknown events such as other hurricanes or ice storms, and increases in gas and fuel prices, could put further pressure on the adequacy of the liquidity and capital resources of Entergy, the domestic utility companies and the Non-Utility Nuclear and Competitive Retail Services businesses, which could materially and adversely affect the financial condition and results of operations of Entergy and the domestic utility companies, Entergy's corporate credit ratings and the credit ratings of the domestic utility companies. Under normal circumstances, Entergy's business is capital intensive, and depends upon its ability to access capital at rates and on terms that Entergy determines to be reasonable. The hurricanes and the resulting consequences on Entergy's business have placed even greater importance on the ability of Entergy and its subsidiaries to access the capital markets to support the increased liquidity needs. At the same time, the continued rapid increase in natural gas prices has resulted in increased working capital requirements for the domestic utility
'154
"Part Iltem.IA & IB
,:Entegy Corfrration;'Domestic utility companiies,'lnd Sysiem Energy bonipanii ,vhile waiting f6r'exiitingregtilatorye fuel and purchased power fecovery~mechanisms:to catch-up.? The high natural gas prices and effect of the cumulative deferred fuel balaice will continue to have a'negativ& effect -ih the liquidity of Entergy's domestic utility business.
q..'* x,-:Addiiionally, high pveriprices have caused 'andn the futiiih; may continue to caitse, an increase in the liquidity needs for Entergy and theiNon-Utility Nuclear and Competitive Retail Service' businesses: Some of the agreements to sell power by Entergy's Non-Utility Nuclear power plants and the wholesale supply agreements entered iinto ;.by 'Ehtergy'i.Competitii,'e Ser, ices :.Retail'. 5usifibsss rcoitain ýrovisi6ins that require-:an' Entergy lsubsidiary_'to provide coliteraltto skife reits obligationsunder these agi:einents.' MThe Entergy subsidiary~may be frequired to provide-collateral based up6n the differenc6 between' the cirrent market and contracted powvf'prices in the :i~gions ý,'here .the ,NonLUtility, Ntclear *and Competitive Retail tServices 'busineises; sell :power. 'The pnim'ary ýformof-the'collaieral :to satisfy thesý iequii(ments is 'anEntergy Corporation guarantee.7 Cash-and letters of cr*6dit
- are also acceptable forriis of collat ral
- ;-,,.:,o-,",.: 1 .:.: ,oi.r:,l, * : ;iv, n,.; i'.,' Th'e 'ocetirn'nce&' 6f one or ;moe t(ontingencies,.iiicluding higher lthan estimated st6rm restoration costs,
'lowe ithan' expected irii*irancereco*,ery with 'respect to it'i'm ritorati6nrcosts,: ora delkiy.in'uch iecov'er,.a'delay uIn* therecovery bfstoi'rnrest&iation-co'sts;a greater than bxpectel'din'creaseinnatural ,gas'pi'ices;'an incdease in'credit 'suppoii !re*quirementstreldting'to Enteig*"s 'Non-Utility Nufclear' andiComfipetitive Retail Services:-businesss, 'an ,accelemtion .'of-paymients:!or ::decreased ,credit lines ini respect':of ?fui -'or poifer supply,: to ;the dbmesti' utility, rcorlpanies, less casti flow ,from operiitions-than "expectedý'orrothertuiknown eents,:su~h as future ,storms could
- cause ,the financing' needs ofEnte~rgy and its subsidiiries ,t6'increas$ which niay 'resultin"an: increase in levivage.
iMaterial Idverage increases *cnizld negativblytaffect Enterg6's raccessi to the' capital markits as well as'its' credit ratings and/or the credit ratings of its domestic utility companies.,k::.r , - ,.:J:'. c, .- C. 'O -,; , :'. t-,
.'The bonsequenc'6s oftthe'hurrinihes*6nf Entergy's finincial 'conditioh, and the related ui'eertitifassociated iwitli storm'iestorati6n cost 'recbverýyj:together wvith 'othei factors', .such as 'the ;bankruptcyVfiling tof .Eritergy-New .Orleans; have negativ~l9 imticted Erifergy's credit piofile and the 'redit profile of its domesfi ttility'6ompa'nies.
- Following.Hu'nficaneiKitrina;,--.Standardi & '-Poor's Ratings cServices' placed Efitergy~and*lthe idomestic" utility'
-comianiieidin' credit .wateh with'ringati*, implicitions ;and Moodrs-Investnrs Service, In.:jýlaced the debt ratings
'of Entergy, Gulf -States lon -ieview' for '.ossible':do1wngrade. 'ýAftlri the Ent(rgy ;New: Orleans bankruptcy: filing,
'Moo'dys Inv6stors Seirvice,fTfieand Standard& Po6r'sRatii-gsl Services downgraded the senibi'sedu'red debturatingi SEntergy N6Qrl~sý6 C i 1aanid DreisectiVely.` If one ornmorie rating agencies 'ere to'd6wfigrade.Enteigy's
'co~orate iss~idr ratinig~oi". the"enimio¥"s~cfifrcd debt' i-atings oft ahy'1 6f thý`bth* bri~nsfie'ftility' Eo mp'ahi ei,Vpaift iclai-ly to 13blow :investme'fit -girde, the;boifroxiing 6o~ts of"Enterg' ... mianieýand
""dofii.stic..utility ..
r..ubsidiauries
.oth could increase, which could negatively affect their financial condition, results of operations and liquidity. Entergy and its subsidiaries would also likely be required to pay a higher interest rate in future financings, and their ,potdntial 11ýbol of.in'estors 'hfid.fdnding 'sd6irces' could decrease. .iIni addition; adverse ritings 'actions 'c'uld prori'pt fuel and power suppliers of the domestic utility companies to require accelerated paymiie'nts ornto reduce oi"eliminate credit lines. Lastly, in the event of a decrease in Entergy's credit rating to below investment grade, Entergy may be ,required ito :.eplace.iril ashortip~eriod -6f -time the t.Entergy" guarantees; relating to .theNon-Utilify Nudlear and Competitive Retail Services .buiinesses with cash or'letters 'of- crndit under sorhe 'of the 'agreements.t6 sell powEr.
For further information regarding the impact of the hurricanes and increases in natural gas and power prices to JEntergy's 'liquidity, positi6n, reference :is'.made 7to ENTERGYý CORPORATION AND ITS SUBSIDIARIES -
'MANAGEMENT'Sý,FINANCIAL "DISCUSSION AND rANALYSIS --,Liquiditv :.and 'Caipital ;Resouices!-ý.
M'Liquiditylffects of Hurricane Katrina ind Hurricane Rita;!' and ; Slanificant Factors and Known Trends-
,"'Market and .Credit:Risks" ';:ýCommoditN Price Risk",:ý-!!Powir Gifieration.'". i r! .., . .:-.- ';;h'
ý1l55
,Part I Item IA& I B Entergy. Corporation, Domestic utility companies, and System Energy (Entergyl Corporation,;,Entergy,. Arkansasi Entergy. Gulf States,:.Entergy, Louisianaii Entergy* Mississippi, Entergy New Orleans and System Energy) ,-,,-. , '.J ., . .;' .. >* .- ,0 ,,-* Entergy Corporation's investment in Entergy New Orleans and advances under the DIP credit agreement, are. at, risk;, the: domestic- utility, companies' pre-petition .receivables, due, from- Entergy New Orleans are also at risk for]nonwpayment.- ,i .;,, v:-. f.;
. ' ,I', :-,J Because;. of the effects,, of, Hurricane, Katrina; Entergy. New Orleans:. filed, ar.voluntary petition, for reorganization, under the provisions,.of. Chapter, 11 of,the, United States .Bankriptcy _Code. -Entergy2 Corporation
,owns .1.00 ipercentr of. the:c common :stock., ofq Entergy New:.Orleans,1 has rcontinued- to',supply., general*.and administrative services,, and.has provided debtor.-in-possession financing to Entergy NewOrleans and, accordingly, believes these factors,, represent, significant, influence! over: Entergy; New. Orleans...a Because. of, the: uncertainties surrounding the nature, timing, and specifics of the bankruptcy proceedings,, however, Entergy, Corporation has deconsolidated Entergy New Orleans from its consolidated financial statements and reflects Entergy New Orleans' financial: results under, the equity method, of accounting retroactive: to January J1 , 2005-.., :Entergy Corporation reviewed-,the) value ofits.&investment!in.Entergy:New; Orleans and determined, that as of December,31i 2005,, no impairment had occurred-because.management.believes that cost recovery, is- probable; ý,Entergy Corporation will continue~to assess the carrying value. of.itsinvestment.in Entergy New.Orleans' as developments-occur, in Entergy New, Orleans!; recovery, efforts;... Because Entergy:,New: Orleans has,, not- gone,: through-, the, regulatory process regarding, storm. costs and losses,:however, there is. an element of risk regarding, recovery, andEntergy is unable to predict:with certainty the: degree of success Entergy, New. Orleans may.: have in4 its: recovery, initiatives,, the amount of restoration costs and, incremenial losses; it may ultimately recover, thý timing of such recovery, or. the returnm of customer load to New Orleans to support any such cost recovery-...: ::c.',,:. ;," : .;.
,Additionally, the payment by-EntergyNew*Orleans of its $47, million, of pre:petition accounts, payables to the other domestic utility,.companies, and, the payment.of Entergy.. Corporation's, advances to.Entergy; New Orleans made under. the. DIPR credit agreement: are: subject to:the risks inherent: in Entergy, New. Orleans': recovery. efforts.
Since Entergy,,is unableto, predict with certainty, the degree:of success. EntergyiNew Orleans: will.have in, its, cost recovery, initiativesi; Entergy=Corporation's, equity investment: in Entergy New, Orleans, Entergy's, subsidiaries,,pre-petition:accounts' receivablesi from-Entergy New- Orleans, and ;Entergy. Corporation's advances to ,Entergyr New Orleansr~under! the. DIPZ credit! agreement. are at risk.; For! furthert information regarding i,.4,Entergy, New. Orleans' bankruptcyL: and.. DIPc credit agreement*i reference. is o madef- to ENTERGYi*, CORPORATIONI AND1 i ITS SUBSIDIARIES ;,,-5AIANAGEMENT'S -,FINANCLItL. DISCUSSION. AND", ANALYSIS t...- i"Entergyc {ew Orleans; Bankruptcy,", and,- Liquidity and Capitai Resources.- "Debtor-in-Possession Credit Agreement.!'! . (Entergy Corporation,,'Entergy Arkansas, Entergy) Gulf; States,-Entergy- Louisiana;: Entergy.,Mississippi, Entergy New Orleans and System.Energy), 9iip:,.' i,,f).':,,I
, .r' .',:.r, b ',J lo .. , .::.; I.;it
-,; ,.:-The electric.rand, gas. rates! that the domestic- utilityý'companies iand System- Energy; are, allowed. to charge'their, customers ard largely determined outside their control by the.actions of regulators.I ,iii:1.y-..,
*-,-1:,i.The rates that the domestictutility companies'and System Energy charge for their services are an important
.item, influencing the financial:'condition,. results, of, operations.and- liquidity of Entergy and-.the, domestic utility companies.-..,The domestic utility, companies- are heavily. regulated; and the: electric and-gas. rates that the domestic utility companies and System Energy are allowed to charge their customers are determined,: in large part; outside of their control by governmental organizations, including the APSC, the City Council, the LPSC, the MPSC, the PUCT, and the FERC. Decisions made by these regulators could have a material impact on the results of operations, financial condition and liquidity of Entergy, the domestic utility companies and System Energy. For information regarding rate case proceedings, reference is made to Note 2 "RATE AND REGULATORY ALITTERS" to Entergy's consolidated financial statements and the respective financial statements of the domestic utility companies and System Energy and Part I Item I of Entergy's Business - U.S. Utility -"Retail Rate Regulation."
The domestic utility companies' fuel and purchased power costs also are recovered from customers, subject
-156
Pat IItemlA & 1B Entergy Corporation,'Domestic utility companies, and System-Energy .to regulatory scrutiny.:my,.This regulatory risk represents the domestic utility companies', largest potential exposure to pice change, in. the commodity, aarkets.t On occasionwhen the,4evel:of the. fuel and purchased -power costs rise Yvery damatically,-,someof the domestic utility companies might agree to'deferrecovery of a.portion of that month's fuel and purchased power costs for recoveryrat a..later. date, which~could'increase,the near-term working'capital requirements of the domestic utility companies. In addition, from time to time, the domestic utility companies' regulators have initiated and, in the future, may initiate proceedings to investigate the adequacy.and operation.of the fuel recovery clauses of the domestic utility companies as well as their fuel and purchased power procurement lpractices. For .further informnation regarding the regulatory, proceedings ifor.fuel and purchased powercost recovery, ,,referencejis made,ffto,:iENTERGY*lCORPORATION ,AND ilTSy.iSUBSIDIARIES .- ,,MANAGEMENT'S FINANCIAL DISCUSSION AND rANALYSIS- :Sianificant Factors and, Known Trends -:'!State and Local Rate Regulation and Fuel Cost Recovery" and Note 2 "RATE 'AND REGULATORY MATTERS" to XEntergy's) consolidated !financial :statements ;and the 'respective) financial! statements of ithe .domestic utility
.companies andSystem:Energy..'.r.::-i; " - ;OKI':' ',.'.: : . ,*-i f.,'
"" +' i JDj t ,The domestic .utility./companies -have ,historically. engaged in rthe coordinated planning, ý.Construction land
,operation .of,generating and transmission facilities +under-tbe !,terms; of a TFERC+rate' schedule, called the ,System
[Agreement. ýroThe )LPSC (and ,the -City. Council reommenced :a Iproceeding-in 2001,!at the.; FERC,that, requests
,amendments 'to the System -Agreement; particularlywith -respect to achieving equalization of,the total,production costs of each of the domestic utility companies.-In December.2005 the FERC.issued:its Order~on Rehearing,' which affirmed its decision issued in June 2005 in the System Agreement litigation. Entergy will be required to file with FERC a compliance filing to implement the provisions of the FERC December 2005 COrder,{F,or' information relating to the System Agreement Proceedings, reference is made to ENTERGY CORPORATION AND ITS
,SUBSIDIARIES -_-MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS !jSi2nificant Factors and Known Trends -i[Federal Regulation',- System A2reement Proceedings. -Entergy andthe domestic utility companies believe that any changes in the allocation of production costs resulting from the FERC's decision in the jSystem ,Agreement iproceedingand,..related retail proceedingsishould resultfin .similar,, rate, changes 'for retail icustomers:,The.timing ofrecoverycofithese costsin.rates could beithe subject ofadditional~proceedings.before:the APSC and retail regulators -ofthe other domestic utility, companies. ,Although the outcome andftiming of the FERC,
.APSC and other proceedings !cannot be.predicted at'thistime, Entergy !and the domestic utilitycompanies :do ,not
,believe ,that the ultimate .resolution of these-proceedings willlhave" a material, effect on,,the..financial condition ,or
.results'ofioperations of.Entergy orithe domestic utility commpanies.,,,*r,t'tiýt:i...,. - " .,+/. (,..... -',1 i
.OlJ)7 i 0
,Entergy Corporation and Entergy Gulf States)
- )i:;ii u' 'i o-*[ni* ' . . ii ;
Iqil..Iiyo[ i. 2 r' iii; 'jc. *'i".J r ; i :;.d'- j . , /- . Li'))k
,*i:A,.JDelays and uncertaintyjrelating.to the start of retail open access.in Texas.for.EntergyGulf.States, the
-implementation ofirecent.,legislation In Texas and, adverse decisions in .relatedxregulatory!proceedings ,at the JPUCT could have.a material adverse effect on Entergy Gulf States' and Entergy's financial condition, results of operations and liquidity. .,i'~qr:* Lor: " , . . fi,') : .:iiz.} ¶A. r, ,io .',)'Lb-r.):
,:-. )f(,-The PUCTzhas delayed'implementation of retail open access in EntergyiGulf States'.Texas service territory.
In addition, the PUCT has not approved a base rate increase for Entergy Gulf States since'1991 JnJune 2005,:the Texas legislature enacted a statute that, among other things, authorizes Entergy Gulf States to proceed with jurisdictional separation into itwo .yertically, integrated -utilities,-.oneksubject solelyto retail jurisdiction of the LPSC and one subject sfolely to the retail jurisdiction, of the PUCT. OIn addition, the statute proyides (i) for !Entergy Gulf States to file a transition to competition plan no later than January 1, 2007 and (ii) that EntergyqGulfjStates' rates are
,subject to cost-of-s .icee regulation until retail customer choice s -
*~in::v'~:~5 rl vi c";0. ;f,: It10K '3'Iho :
*eeu spectto the startof-'Stail jopen access, in,,Texas (including uncertaintyoas to.he 'ultimate pform of.,Entergy. Gulf States',,relate. bsness separation plan, particularly in conjuinction with any junsictonai s-eparatioi of Enter Gyulf States as described below),"he +implAh'ementation of the Texas legislation, including implementation of a transition cost recovery rider", and adverse deisions in proceedings at the PUCT (whether related to the Texas legislation or otherwise), could have a. materal adverse effect on Entergy Gulf States' and Entergy'"s fnancl ondfton, restius of operations,and liqudty. For ,additional informationpower regarding Entergy utiilf States' iegulatory proceedings in rTexas, including the implementation of purchased capacity and transition cost recovery riders, reference is made to Note 2 "RATE AND
'157
'Part Iiem IA& IB Entergy Corporation, Domestic utility compaiiies, and System Energy REGULATORY MATTERS"' Regulaiorv 'Assets - "Deferred Fuel Costs,'."-" Rifail Rate-) Proceedin2s)'-
"Filings with the. PUCTYaiid.Texas Cities (Entergy Gulf States),"rnd '-Electrie Industry Restructuring and the: Continued' Application; of SFASI 71"* towEntergy's consolidated:. financial, stitements and the respective ,financial statements of.the domestic utility compaiiies. and System Energy:,'. -6, -' ' '.' ., .'*
(Entergy I Corporation
' , .t ;.
and + Entergy
- *+ .
GulfStates): S "'.
. .:. .. +t+':l " + .. ,." l " ,I .I .(
¢ . . , ; *' ', * ,+'* I The proposed juiisdictional sepfiration of Entergy Gulf States into two separte vertifall* integrated utiliiie's could,-dejindin'g 6n'the sttiuhcturre ;a"'hd fiems 0f tiei ieaiitioii,; ha;ve *iati'ial i adverse effect'onthe finaficial condition, iesults ofoperiations and liquiditj-ofEnter* GulffStatds.>.: , "
.)Reference tis madd, to ENTERGY' GULF STATES" MANAGEMENT'S, FINANCIAL, DISCUSSION AND ANALYSIS - Si2nificant Factors and Known Trends - "Transition' to I:Retail,'.Compeiition!':.
Jurisdictional Separation Plan, for information relating to the proposed jurisdictional separation of Entergy Gulf
ýStatesý' -Any jurisdictiona,! ieparaiion"of.Entergy:Gulf. States resulting, fromh the: LPSCiproceedings, wbild affect Entergy' Gulf States': finincial cofididi6n,. iesultsof operations, and .liquidiiy;,particularly in'conjunction, with: any additional restru*tuiing'of the'&inpany that may be ordered by th&PUCT with'respiet to aý,jiiii'dictional'separati6n or up6n the implementation of retailopen dccess in Texast: Depending on the.structuie and terms of the sepfiration, such a separation could have' a' material hidierse effect on Enterigy Gulf States.,-' .: :;; ... -' .. .
(Entergy Corporation)I.+. iT,,11 _. " I. n
-* , ()J .i /,)0, ; ' "+c:;i~ )' .1*i, I' t'. :, "W.*;10 11r i ,.r . .... ..
-: ., , .) . q~+,.pt..
. ,r*Zj:._,. . .,%, 01r , "fu J ,j .,
*>.2_3'* 37lhe:;nuclear i6vi' g~ienrati6n' plants '.owned by' Efiter,'ss' N6ii-Utility:Nieliar bhiihi sviill" be exposed to price risk to. the extent they must compete for~thesAle of eiheigyi 'fid capacity. . ?-t.'Y(A _
*
- Entergyand its, nron-utili'tynuclei:.ibnisiness t do not; have;r- tail! rate! recovieryfortitsi'investmentvin its
'unregulated&generating! plants.;.Tlie, gale of cadpacit, and energy from the, iýdwervgeneration: plants; owrned-by; this
.busihiessJ1unless- otlherwise, contracted,' isrsubject: to the fluctiati'n: of- marketýpý,ver-prikes:.' For, informati6n regaiding: Entergy's Non-Utility NuWlar. business and. the amou'nt 6f outptit' currently, sold: forward,,- refere-n-ce+,is made: to ENTERGY-" CORPORATION' AND: ITS, SUBSIDIARIES- IN MANAGEMENT'S, FINANCIAL DISCUSSION AND ANALYSIS - Significant. Factors and KndwvnTxendsv. "Mark'etrand, Creditf Risks'.--
"Commodity Price Risk."
.,(
' *_",, ,, , i' 5 :l.,4 . c, r . ::;.I,"
+ . 3 Entergy's Non-Utility Nuclear business is pursuing opportunities to extend existing PPAs and to enter into nfvw' PPAs' ,vith other. *arties. foilJ p6rtions: -of.its, Unsold planned ý'generatiofiL. To,! the, extent: that: the 'electricity gencrated by these plants!is not'undercofitraci to be sold, the'revenues"ind reslts,bf bperatiorislof Entergy's Nodi-Utility Nuclar- biasiness,&arid '.whetliei*':it iecovr.§'erits investrnient and opemtihig c6stg" from, ithes6,&plants,+",,&ill generally depend on the market prices that can be obtained for energy and capacity. .*' ',u pil :mi :.. ";' :'
,"Among the factors tlit; coUld'affect market prices for electricity and fuiel 'all of which tir* be6ynd Entergy's contr6l'toa-significiintdegree, are < :',r'M, ". ,. ' i .. , .,.: ":,'. - ' . " ' '
-;.'prevailing- mark&i!/`prices,-fdr cbal;,J2 oil;; natural !gasý and other,:fuels:iised"in"electric+ genei-atio'niu iplants, I
' inclu'difg assoc~iat~d 'transportation eob~sts,,and su~p-p he's'of 'such conm mod ,.!1+
;?l+) ttte s;, :,,I:,;* C- :+ .. ',,+ Jo;Ci..'*T.
,;:;'j. !rl.+ .* , ++*
e': " l iquidity intlie g a olealeelectclty miarket,' .; , . : '- ;-.f,;..: *o ;;+;,.': *tt o: .
- the actions of external partiesi such1asthe FERC; thai may ipo6se price hlim'itations and other` meiicliahisim-s to address some of the volatility in the energy markets,
* -
- condtto-nsmpa~c'tig wether demand for e ectricityor availabilityf hydroelectric power or fuel sulies, the rate of rowthin demand for electricity as a result of popuati&n chniges,'reginal econom condltn and th6mplemenitateon ofconservatnon programs".. , .
S unibr and rabor relations, -. , . . ... ' . I " .... - ... natural disasters, wiars, embargoes and other catastrophic events anJd _
. changes ineferal anid stateenergy and environmental laws and regulations " . "),
S ". '+ . , ',. .h :.r . ? ' ,r~ ...... . ' . : ' . "* , , ,j-. ,5 158
SPart I Item IA & IB
*EntergyCorporation, Domestic utility companies, and System Energy
,(Enterg.Corporation/ EntergyjArkansas,'Entergy. Gulf States, Entergy Louisiana, EntergyMississippi and Entergy New Orleans) '..f'o. ;,tinoi:fi ci -::: , - , .
', , A ',iu
(,qji.,i ,Entergy %andthe domestic. utility companies iface uncertainty.3vith:respect to the domestic 1utility companies' independent coordinator of transmission proposal at the.FERC~and the outcome of other, related FERC and state and local regulatory proceedings relating to transmission.
?5; W5'oi lo.<. o ;i' :fit 1-i 7*
. '., '.q ~ f:l, . " ': e :,l .:
IJ! o th i ..<- ,,o i: !...- f c to iw i!i 1,:, The domestic utility companies face uncertainties with respect to whether their regulators will approve their enhanced ICT proposal and the outcome of the AFC proceedings at the FERC. An adverse outcome in thiese
- matters could -nmaterially affect ,the (financial condition,
- results.jofjoperations -.and, liquidityl of Entergy and the domestic ,utility companies;,Reference.is~made to. ENTERGYLCORPORATION.AND ITS SUBSIDIARIES,-
.IMANAGEMENT'SFINANCIAL.DISCUSSION AND ANALYSIS -,Significant Factors and Known Trends k:,1",Federal Regulation" _-, ,"Independent Coordinator,-of, TransmissionI'll and f-,Available.. Fiowgate .Capacity Proceeding for disclosure regarding theFER ICT and ,AFCproceedings and the -APSC proceedings to review the
!EntergyjlCT~proposal.: ij!r, ()I -~Jrn.LL ~ ~ i:ii~ird 11-m jtrI~ i ;
*.rt*i *. fli*,ld 1~I:,;,i'i r'.yie L ,.,-'J') ~¶Zgl' I-. j..),i? ni lr fifirnO~ivn,,t' lv ;i,:'I r'l l~r .t'z l >i !].l ;*.' 1 (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana and System Energy)
Ownership and operation of nuclear facilities creates business, financial and waste disposal risks. x , t'lý 9" ;-:: c:r, i !_" l-t:i*:bi.?1: *,<8 .'? '. I¶i i II, iOf. Vi3e, 7) .. .lr i-s',.. ,',:r
,.;IThe 1domestic utility, companies, jSystem ,Energy, and ,Entergy!s, Non-,Utility Nuclear, subsidiaries own and operate ten nuclear power generating units and the shutdown Indian Point 1 nuclear reactor. These companies, therefore, are subject to the risks arising from owning and operating nuclear generating facilities. These include risks from the use, storage, 'handling, and'disposal of high-level and low-level radioactivenmaterials, limitations on
-the amounts land types of insurance commercially aailable ;fortJosses -in connection with -nuclear,operations, ithe ,costs ;of securing the facilities against ipossible terrorist attacks,ounscheduled :outages dueto equipment.and 9pther problems, -and technological,-and IfinancialLuncertainties 'related toadhering:to :environmental Jawjrequirements 2associated with plant operationsi;as:well as the decommissioning of nuclear plants at the end of theirlicensedlives, including thesufficiency of funds. in.decommissioning trusts.,,,The .domestic.utilitycompanies, System Energy, and the Non-_UtilityiNuclear, subsidiaries maintain decommissioning trusts and external insurance coverage to mininimize thejfinancial exposure to some of these frisks; however,lit is;possible that:losses could.,exceed the amount ,bfrtheir 1insurance1 coverage.. :In-*the eventcofanunanticipated earlyshut-down'of.any,.,f, the nuclear plants,..owned ,and operated by the domestic utility companies, System Energy, and/orjthe Non-Utility Nuclear subsidiaries, :Entergy may be required to provide additional funds or credit support to satisfy regulatory requirements for decommrissioning.(':*:5l < .)
- r,i'The NRG has broad authority.under federal law to -impose licensing and safety-related requirements for the operation of nuclear generating facilities. !A.major incident at a nuclearx facilityvanywvhere.inthe ýworld.could cause the NRC to limit or prohibit the operation or licensing of any domnestic nuclear generating unit. In the event of
- noncompliance, jthe .NRC:,has ithe,, authority to ,impose ]fines,prshut.downIa., unit, .or both, depending upon its
,assessment of (the,,severity .of the-situation, 'until -compliance Lis 1:achieved., .Although Enitergy. ,has ,no ,reason, to -anticipate a serious nuclearjincident at any of the.nucleargenerating units owned and operated by~its subsidiariesif ian incident did occur;, it could materially and adversely affect the business,-financial position, results of operati ons and liquidity ofEntergy, the domestic:utility, companies and System Energy2,r 'i r. I,.; ":F .rirrm,'l)
Ql I*', f'In addition,; concerns,are being-expressed in public forums about the safety, of nuclear;generating units and
- nuclearifuel; in particular jn the northeastern United States,,which is jwhere the Non-Utility Nuclear, generating units lare located. fThese ,concerns i have ,led: to, 1and are: expected tojcontinue ,to lead to, various proposals ito federal
*regulators as well as governing bodies ,in some -localities whereEntergy's,subsidiaries ownnuclear~generating units ffor legislative and regulatory changes that could .lead to the shut-;down of-nuclearunits; denial of license, extension applications, municipalization of nuclear units, restrictions on nuclear units as a result .of unavailability..of sites for spent nuclear fuel disposal, or other adverse effects on owning and operating nuclear generating units. Efitergy vigorously responds to these concerns and proposals. However, if any of the proposals relating to legislative and regulatory changes becomes effective, it could have a material adverse effect on Entergy's results of operations, financial condition and liquidity. For additional information ENTERGY CORPORATION AND ITS dt59
Par f lem'IA & I1B Entergy Corp;cration, Domestic iuiility'compaýiies;' and System Energy SUBiSIDIA.RIES: LO MAiNAGEMENT'S'. FINA1NCIAEL DISCUSSION PANDWANALYSIS '; Signifiea~nt' Fa ctbes and Known Trends - "Nuclear Decommissioning Costs." (<':: :'-t) v,. (Et'itierg*y Corjiora'tiod, Entergy:'Arkanhsis, Entergy Gulf States, Eiterg') Louisiana', Entergy)Mississippi, EntergyNew Orle'ansand'System Energy) . *.,w'.5:. : .. uI h; -I( ', *',. '-*.,- ',3i .:cf).9 The litigation environment in the states in which certain Entergy subsidiaries operate poses a sighfifican t:risk 'to th 'oseb us " s" Wl *" Of* : *l, ,:, ";'.'1i) r.. ;'3*:',t;.' .::."JVjI.a , i )'V,-} 3d!* t tvl:.' ' ,'.,' .v', ) '{ . *[l!f °!) **ff3':l:','.'j [I bi:3! 'A ,K'[l J... t~ i[ .:f::? f; L' Entergi/ 'and',itissubsidiariesarernVolvedihthe{' ordinary rcourseof business ini'a, number of lawsuits eommercilT.' alsb'gj") haz-d6ulsl i'fiterial,- ratepayer,; and,,injuries7:and d.hm'ages, issues, cnvolving'employment; . .inb~ an 9xa.hv
' other- riaitets provene r. .'-State , w hich tihe bip'urntisuaair ini d'ohm esti& iitilif
""...... , ... .i..... "'a'rii t iii' "i .......
..* oprae, hiU.. L-uisi ha M i gsi-si fl3Ii
*and.Teiasý.ha~drovd t bdu'indsuall~litigious envir6nmenits. Judges and juries inithese stitei have" d&mohsti-ted wvlhngness to grant:large verdict, including puniti've'dainagei)Io' ".la.tiffs in'.ersonal:inj.iy ;'pr6.rty...mag6, and business tort cases. Entergy and its subsidiaries use legal and appropriate means to conteit litigatio'n threatened or filed against them, but the litigation environment in these states poses a significant business risk.
(Entergy Louisiana) Entergy Louisiana, LLC will not join in filing the Entergy consolidated federal income tax return. 'Becauýe itWivillfile as 'a~sep'artie'thxpaier, Entergy Louisianih, LLC's financial'condition'could be'adversely a ff e c te d .' -'"'* '* c -, . ,i , ..' A (~.* , , i , 'I p' zib' :T ; *; .* '..i; ; *irn; '. *fL ',= ' :'.:'- " '!.:..i 3 I *, .. ,'; ,:f l . fj ) 2 :'**;;* '* ........ ': y "'1:. "j 3~i:" ihe** fiin .. . 3'1. 3'i 3 . ' I' A A ."d (';:~'I
* - .EntergyI Losniiian LLC will' notljol in filingf Entergy's consolidated federal income" tax-return,
'alth6ugti' it; Will: be consi'olidated for financial r~poirting purp~ose', ,Entergy Louisiana,, LLC, *ill',, file&a,'separaie fedaer, 1 in6mnie' tax. rettirn ?,villjpy fekderal income ta'xes on 'aistand-ali"ne basis,, and will iof be " party to,Entergy's iht...C..... . nytak allocatiortiagreefrienr. Entergý Louisiana, LLC may, iake electionhs for! tax1 purposes: thaitimay difffr'fr6fi'tfiose'inade by t6l Enterjy consolidiited tax group, which may iesult in, Eniergy Louisiaria*, LLC having more exposure to'. tax- liability than it would have' had; had it bleenr in'cluded in' the Enteirgy consolidated tax' ieturn, thb'reb y'adversely-affdttiin Entergy-'Louisianai LLC's' financial conditi6n. For, inf6imaition- regardinig the Enifergy'
,Eoulsmnatrcio'roaie? restrncturing, ' s'e'e, ENTERGY ffLOUISIAN i HOLDINGS,ý,' INC-: and ENTERGY ELOUISIANA" LLC'-!MANAGEMENT'S FINANCIAL DISCUSSION AND'ANALYSIS - Significant Factoris anid'K'nownTrenids -'Entergy oisina C6rp0rate Restru&uring." ,. , i :.':* c 'A 'JiL',
(System Energy) .3fIr.' :,/',)
* . ýyg 10 SytEm-Ener'gy i s-busine'ss'consists of the 'ownershipW nd operation o'fla single iticlb'ir-grgenerating facility,, afid:it'is'dep'endint'on'.affili'ted conipanies for ll'o its: revenue"" *'; '"..
tco .'-.3 -f li Ain ,ii :,,* 'i' :r¢ La; ! ' (i ': 3); l, 'v.,!;,:!.J:;r
-o rlo i :q ,o! irkil 01 i 1 1!
'li . Systeim Energy's operating revenu&s Are derived from-the *allbcatibn:ofthd: 6a iiy) 6hergyf a'ndr related Seostý,disocifted ,vitht its'90%0o henGrsraip/lea*;hold intet:sin- r:nd Gulf. 1! Chirges unider the, Unitv Power. Sales Agreemeitiard,0aid bytthe domestic utility' companies as"consideration for: their'iespectiv&- entitleiments to' receive capacityand enrergy ahd'are payable'dn a fill cost-of-seivice basis solong'lis:Grand'Gulf liremaing ih coriiei'ncial operation. The useful economic life of Grand' Gulf 1, is finite and is'lirnited bythe 'terms of, its, 6i3eratihg li~e'nse, which is currently due to expire on November 1, 2024. Payments under the Unit Power Sales Agreement are 'Systdim Energy's 1'only: sour&e of operaiing revenues.d S,.teml Energy's' financial'condition -depee'66 both on the 'iediot;'bf 'Payments' ionf tlife doies~tic'~utility" &onipanies.' iinid& the. Units Power Sales!"Agreeme nt !aiid on. the continued* commerc ial Coperati6ni'of Grandi Gulf, .ýFor' further- informnitioii, -refirence. is :maddFto! SYSTEM ENERGY'-RESOURCES;) INC. i', MANAGEMENT'S FINANCIAL 'DISCUSSION' AND 'ANALYSIS/: For furtheihinformation rega1din" the Uhit: P6wer Shles!Agreemfnt;,'se&' Part'It Itemr 1.. Enteigy's Busines-s "Systeih Energy
!'2Th.*; hl' and Related
.',WI3)I, qi : Agreements
- ,1: 'a' *0' '.,2;ý:-Federal
':'du.;;:q,)
Regulation."
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- 160
Part I Item IA& IlB Entergy Corporation, Domestic utility companies, and System Energy UNRESOLVED STAFF C2OMMENTS Neither Ente y'~Cdrpb~ratibfin'riefiibf itsg siib'idid-ricisthdt' ar& sftbject to'thfereporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 received any written comments regarding any of their periodic or current reports from the staff of the Securities and Exchange Commission that were issued -180'days o-r more preceding the end of their 2005 fiscal year and that remain unresolved. Ld~ilvd 12ýr)fl vlhf.i; iq tf rrlw:il 1itrll? 1"11 'ýr'),' 3' *rLj o01 b no~iim iY2 1.l);ýr~~ I 1;1 0F ;~'iq' ;rT:9toi!,rrt brIE r0' 1: 1 t ftl 01'UE ol2 iColim 2~I~ ~t'ri2f20 2 U I V.i I? ) P:zi otL)61i tiso J-_,ff e.-oll ý1,15rl) 0 01:fxisw.rm AiUri v iw ,:%I 1-00S. tI) ;I(IVJi -;l oibnr~ ,2 fl (JC{'/ rr 12VI1.-;lV 0 to---v if)~&T~ ri brII1!I .JO .1' i~flSii'mt210. I 00 J-r
- bt)2E;-normi rit "flt ilL.' ri0ý1 cl'!l9r~i 1B2/\.
ba f2;1f1V1( rSIUU 01,JOfi-Jb .licjoso
~.fiII22i ~I12 to f'.0~i/'it t1 01 ;Ir: I ~ i'Ifuriiiq o!
Qf;I)tf;7 V 161C E161
ENTERGY ARKANSAS, INC.
. .. NAGEMIENT!S&FINANCIALDISCUSSION'AND ANALYSISi.i ,-._ .o,,
Results of Operations ; ,,, , ,, s ' .. ' J* *d*'. :. :' VC. "I", Net Income 2005 Compared to 2004 Net income increased $32.4 million due to higher net revenue and other income, partially offset by higher other operation and maintenance expenses. 2004 Compared to 2003 Net income increased $16.2 million due to lower other operation and maintenance expenses, a lower effective income tax rate for 2004 compared to 2003, and lower interest charges. The increase was partially offset by lower net revenue. Net Revenue 2005 Compared to 2004 Net revenue, which is Entergy Arkansas' measure of gross margin, consists of operating revenues net of:. 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (credits). Following is an analysis of the change in net revenue comparing 2005 to 2004. Amount (In Millions) 2004 net revenue $978.4 Volume/weather 43.6 Deferred fuel cost revisions 15.5 Capacity costs (11.3) Net wholesale revenue (14.4) Other (1.1) 2005 net revenue $1,010.7 The volume/weather variance is primarily due to an increase in electricity usage, including the effect of more favorable weather compared to 2004. Billed electricity usage increased a total of 1,270 GWh in all sectors. The deferred fuel cost revisions variance is primarily due to a revised estimate of fuel costs filed for recovery at Entergy Arkansas in the March 2004 energy cost recovery rider, which reduced net revenue in the first quarter of 2004 by S 11.5 million. The remainder of the variance is due to the 2004 energy cost recovery true-up, made in the first quarter of 2005, which increased net revenue by $4.0 million. The capacity costs variance is primarily due to higher capacity related costs including the revision of reserve equalization payments between Entergy companies due to a FERC ruling regarding the inclusion of interruptible loads in reserve equalization calculations. The net wholesale revenue variance is primarily due to lower margins on wholesale contracts and provisions for refunds related to wholesale formula rate and contract disputes. 162
Entergy Arkansas, Inc.
.Management's Financial Discussion and Analysis I._t~';*'~~ * '.4P.'-O Z.," i h~i'"
' . "r~.~ ; c-f Md. ' * .' . ,' .
Gr6ss opeiatingrnvenues,-fuel andpurchasedpower.expenses,,andoihdr regulatory,charges(credits) Gross operating revenues increased primarily due to an increase of $99 million in fuel cost recovery trevdnuese:due"`t6 increasesrin the energylcost, recovery ýrider.'effective April ,2005 and ,October 2005 -(fuel cost Frecovery rr6venues rare-: discussed in -Noter2 r4i6 th6 !domestic 2utilitý fiompariies and System ,Energy' financial statements). The increase in volume/weather, discussed above,"iilso'6ontributed to the increase., ! : q At r, nrG ol t,1Fuel'and utiichased'pbwer -expenses increised primiarilydtie-tdanincre'ase in the market price of purchased ti;wer,, 1artially;'ffset by decreased deferred fuel 'expense r'eeulting pritiarily.frbm higher.fuel and purchased power costs. See Note 2 to the domestic utility companies'and System Energy 'inancial statements for.a discu"ssion'of the proposed recovery of Entergy Arkansas' deferred fuel costs. Other regulatory charges increased primarily due:
- to an increase of $12.6 million due to the over-recovery of Grand Gulf costs due to an increase in the Grand 0! "-i Guilýiad"'effebti(ý'6ja'iuai'ur 2005:Tiler:ider hag ii6'mait6iial effect-6oi fietinc6mfie due t6 the efufid and/or
*'2P:I- the amortization6f $5.4iilihon *6fthe transition'to comp.eitit:on regulatory asst. The regulatory assetis' being amortized by the amount collected thiough ith TransonitCost nder begiiinning-with the first billiig.'-
cycle in October 2004 and ending with the last billing cycle of January 2006, resulting in no impact on net income. :o0 1 ub 6(ifm-nq t,.i ',.
"'rNet revenueCwbcnh'issi ttrg"'onsasf masure`6f gross margin, consists 'of operating revenues net.of. 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power:e'xplensesl and '3)'ottiei"ir'egulatory charges (credits). Folo gsini ialysmisofthe ch'aiige ineiit r&een-ue' comnparing 2004 to 2003 . ....
(In Millions) 2003 net revenue $998.7 ,*;r, ::,, _rh
*.l g*otct*3** :ru*9;*.Deferred fdel cost revisions .:--, z ,,;. ,, ,,*'(16.9)-
Other 'c~j~'~ 'L'l,'I , Q
( 4)'" .:~~iUi~r:r::ir 2004 net revenue $978.4 Deferred fuel cost revisions include the difference bet'eennth"e estimated deferred fuel'epense and the actual calculation of recoverable fuel expense, which occurs on an annual basis. Deferred fuel cost revisions decreased net eve~nue due 'to ratrevsed f6s61maitefiled f fuelcos'ts' at Entrg'y 'rAkansasin' the March atr-reovery 2004 energy cost recovery rider, which reduced net revenue by $11.5 million. The remainder of the variance is due to the 2002 energy cost recovery true-up, made in the first quarter of 2003, which increased net revenue'"i'j ,23"t!
,Gross operatingrevenues, fueO anaptirccasea pwer epenses, anotherregulatorycredits .'
-L*ross operantig revenues increased primarily due to:. ". , '-.
- an increase of $20.7 million in fuel cost recovery revenues due to an increase in the energy cost recovery rider effective April 2004;
" an increase of $15.5 million in Grand Gulf revenues due to an increase in the Grand Gulf rider effective January 2004;
" an increase of $13.9 million in gross wholesale revenue primarily due to increased sales to affiliated systems; and
- an increase of $9.5 million due to volume/weather primarily resulting from increased usage during the 163
Entergy Arkansas, Inc. Managements Financial Discussion and Anal)sis unbilled sales period, partially offset by the effect of milder weather on billed sales in 2004. See "Critical Accounting Estimates",below and Note 1 to the domestic utility companies and System Energy financiall.ý, statements for further discussion of the accounting for unbilled revenues.
- "j.*/', ., ', ,, -. C i !ij'! ! . :L';" I) fl'; , tAf L5 ,.i0l:1 5 bo*..r , 'I 'q ),-o0 D) k..,
- Fuel, and purchased power 'expensesi increased primarilyi due.to increased recovery of deferred fuel, and purchased power costs primarily dueto an increase in.April 2004 in the energy cost recovery. rider and the true-ups to the 2003 and 2002 energy cost recoveryrider~filings. , , .....-J'":..
r:. 'C, .- --I *-Ili
. Other: regulatory credits, decreased; primarily, due! to. the, over-recovery, ofi Grand Gulf. costs, due to an increase in.the Grand Gulf rider, effective, Januaryý2004. The rider, has. nomaterial effect. on netincome due to the refund and/orrecovery through annual-adjustments to the rider.nI;rro> iNi,, I,: ,. ' ." --
Other Income Statement Variances 2005 Compared to 2004
,: A.)I C.I PB) [ri*rii_) ' /1'-.,t -1.., OIr/C I Ciffl L.. -') . r')o P 1;1of Other. operation and, maintenance:.expenses increased, primarilyC due. to an increase: of $15.8million in payroll and benefits costs, partially offset by a decrease, 9f $2., (million, in, ifnformation. technology, costs and a decrease of,$2.4, millior re!ated to proceeds.received from the radwyastesettlem:entdiscuss~dbelo!9 in "Sienificant Factors and Known Trends -Cientral States Compact Claim." , j,..... " , i, , ',,
.. . .. . .. . - . . . . . .*. . .. . .. . . .* .. )"' j.-I *.. H.,' : , ., *,: .i' Other income increased primarily due to: ,.
- an increase of $4.9 million related to proceeds received from the radwaste settlement discussed below in.,
"Significant Factors and Known Trends - Central States Compact Claim;"
an increase of S3.9 million in miscellaneous net primarily due to the write-off of disallowed transition to
... compnetition costs in 2004
- an increase of $2.5 million in~inierest earned on temporary cash investments and money pool investments; and
- an increase of $2.5 million in interest income recorded on the deferred fuel balance.
2004 Compared to 2003 Other operation and maintenance expenses decreased primarily due to voluntary severance accruals of $31.8
-- I--
million in 2003. The decrease'waslpartially offset by the following: . _ J) , ., O
- an increase of $6.6 million in customer service support costs; and an increase of $5.1-,million in benefits an~ ~ inrasts 5 costs., *)~j ,jAJ~j~'.- ~~--~j(
,: * ,Interest charges decreased primarily due to the !iitst Mortgage Bonds in mid-2003,, ,
T'.*cd'n,0_Txe-s
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CY i I.no, v '*:;r,. 'iOC r nT The effective income tax rates for 2005, 2004, and 2003 were 35.7%, 38.5%, and 45.5%, respectively. See Note 3 to the domestic uiilify compaies and System Energy financial statements for a riconciliation of the federal statutory rate of 35.0% to the effective income tax rate., Tax reserves not expected to reverse within the next year are reflected as non-current taxes accrued on the balance shleet. :. , -.... ,, U0LV, ;:i.I,,.;f, ,., J:,,ff
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- 164
.EntergyArkansas; Inc.
ýManagement's FinancialDiscussion and Analysis
-Liquidity and Capital Resources, - rl I "(; ) fl(.i; :.- I*r::Iic,:,liriz c tSiflo Il i'.l .lo.rt 'I'i.i:; , Cash Flow, P*.5i[ ,rii ol irn'(rq f; 9iirpl i oP'-"h hitt: *iii)o;i9qO )on L.9r.bilr 'r:,ic .,ý '.-i2;L,-Y1" lu ,
, Cash flows forthe.years ended.December.31, 2005,2004, and2003 were as follows:. , ,. * .
rrýP .I 1
; !,1 1dpL2 i 1i .rfii ti ~jfI j u ., 't.
v2hil *-5*,1 ' Lu:, 2 .vtiiuij* 2511 o* i99LdTI* 04 , 2005 .. * .,(InThousands),. -. 2004 .,,, 2003 1o [h1; 'ý:)ri ,; ,. v r:! hhit ., 'i:xq%:or ,rl ..!,!;- 0 'wh , Iq ( borlmxr 16t J . . . . ." I Cash and cash equivalents at beginning of period $89,744 $8,834 $95,513 Cash flow provided by (used in): _ .iiAri!.in
'ý7,1. 539,012 364,088 lOperating activities, flo..- ý0(h t;N!, fi nfoilli .- be.:,Ii. 2: i5iv_07711.l.. IF539012t
" Investing activities " (488,718) (292,946) (333,230) o Financing activities _(99,344) (165,156) (117,537)"
..-:,..Net increase (decrease) in cash and cash equivalents .. 1 9r' .._(80,351) . 80,910 . (86,679)
Cash and cash equivalents at end 6fperiod,, '- - .o"-$9,39 .. ),t'. $89,744 , .: $8,834 i rrul fltfailill " "..:h Operating Activities .1V .410OL Ofl n - ,-'"" Pj~-l:tJo Cash flow from operations decreased $31.3 million in.2005 compared to 2004 primarily due to income rltaxI v i'wr I 91~ I V: payments made in 2005 compared to income tax refunds -received in 2004, partially offset by the timing of the collection of receivables from customers and theI timing ofpayments to vendors- ,. *
; Lw o U U ;J. *JJ L. (II'iUJ 4 Jt[. .* i1 /ilA II ul, i,.fli IJ 1.1I..;,_ . l',) Ill lIi.. !iJ!o un asdniow'from operations icreased $174.P milliOn in,2 ocom4pbareto-2u3ojpmani~y'ue to income tax refunds reiceved id 2004 and increased recovery ofaelerredfueil costs. , " ,' -'-' " .- * " .. .. "-
In addition to minimal restoration costs caused by Hurricanes Katrina and Rita, the storms have had other impacts that have affected Entergy Arkansas' liquidity position. The Entergy New Orleans banf uptcyciu&s1ue'lu and powver supplierst *tol increase their,scrutiny (00,*l of the, remaining "1' 1, 1l'1f" r lrr ?; t11 domestic
.i1rM3[
utility "il l2U*:llll companies
,'l')l* l il i f, ,! F- 'l" with the concern w,*¢;-1 i r I .) rF,k',
that one . . of (1 Iw F, 'Ql;;'i,,~. '.!Y i,rtii[0'J
" + )f. suier'similar
-Xgll "Icould M hem A il VOI )V impacts,,l.fl'l.flr particularly.
, F) fll*!J 11, "' M A " after'f Hurricane kita.
'"ff'.l rfl tlI - mlt u
".... Asa~result,
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.. soma
.... esuppneirs 0 ;.; 1 ,.: +l egan
; d ;,l'l! requiring I,, ,* :*
accelerates payments and decreased'credit lines. In addition, t&Ie hurricanes lamaged
~~~~~~~~~I iq,:1 certain :'l,,{t gas supplylines, i -i,. ,*rrT ,thereby -=.-< li decreasing-the number of potential suppliers. The hurricanes also exacerbated a market run-up in natural gas and power,,prices, thereby increasing Entergy Arkansas' ongoing costs, which consumed,,available credit lines more 4qickly and in some tO instances (I required 3,' I. lf~l;li the posting lL~ ,**)'
of additional*',l'* collateral. If) lt 'JttlIU'l'l(t lll*'?t' Entergy
,'!tV*',frq managed,'rrfTthrough'tese ,I1I,/f V'*il*
events l r.1'T
'ihus'r, adequately su-"eda Ent'ergyliquidity Arasa with fuel and power, and a a7 result of stepsltaken by it regaraing its storm costs expects to have adequate and credit to continue supplyi ti ntergy' Arkansas mvhfuel and power.
'l'O-!l;I >,i'.Ar'*. J "k,' !:r')rriL[,..,!r;m:rlrori! ',rt'v"'q rC"' ' ?. l,,,'* *,"Tr1"fft!,i vii.'1' .7,~vx'" ' , f)* ""t*r '_? .
1 mU 23u the domesti unnty companies ystem ergy nled, "wtn me itR InR a changein fax accounting method notification for their respective calculations of cost of goods sold. The adjustment implemented a simplified method of allocation of overhead to the production of electricity, which is provided under the IRS capitalization regulations. The cumulative adjustment placing these companies on the new methodology resultedi'itn '$1l3'billion deduction for. Entergy Arkansas, a $641,million deduction for Entergy Gulf States, a $474 million deduction for
*or. ,ntergy MISSISSIppi, a$32 n ltuonfqeduction 'Iorf,
'Enteýrgy New E.ntergy Louisiana, 'a $111 lliuon deoution6 orleans, an] a$c44ion o bystem¶nergy nEntergy's-2003 income tax return. Entergy's'current estimates of the utilization through 2005 indicate that Entergy Arkansas realhzedi 1I I rmllon, Entergy Gulf States realized $46 million., EntergyLouisiana realized,$64 million, Entergy Mississippi realized $2 million, and System Energy realized S138 million in cash tax benefit from the method change. The Internal Revenue Service issued new proposed regulationseffectie in 2005, 'which disallow a portion of Entergy's method. Approximately $776 million of tax deductions"hav'e to be reversed iiitd'vill be recognized in taxable income ,equally o6v'er:two years, 2005 and 2006. Entergy Ai'kniisas' share of this ,,e'&sal is $270 millioh?'-1Enter'&yGulf States'ishaie is $148 million, Entergy Louisiana's share'is' $145 million, Entefgy"fMississippi's share is $124 million, Entergy:NeWzOfleans' share is $27 million, and System Energy's share is $62 million. In 2005, the domestic utility companies and System Energy filed a notice with the IRS of a new tax accounting method for their respective calculations of cost of goods sold. It is (165
Entergy Arkansas, Inc. Minagement's Financial Discussion and'Analysis anticipated that this new method will offset a significant portion of the previously statd': adjustment to+:taxable income. As Entergy is in a consolidated net operating loss position, the adjustment required by the new regulations has the effect of reducing the consolidated net operating loss and does not require a payment to the IRS at thi§ time However, to the extent the individual companies making this election do not have other deductions or other sufficient net operating losses, they will have"to pay baicl& their enefits received to other Eiiergy 'ompanies under the Entergy Tax Allocation Agreement. At this time, it is estimated that Entergy Mississippi would owe $1 million, and System EnergP*W7uld owe $9 h'ilion. -The new* tax accounting method is also subject to IRS scrutiny. Should the IRS fully deny the use of Entei:y s'*:a accounting method for cost of goods sold, the companies would have to pay back all of the benefits received. Investing Activities Nt cash flow uised in investing activities increased $195.8 million in 2005 compared to 2004"priiharily due an increase' 6f$' 19"3.9- millid"d for other regulatonusory iivestments as a result off fuel cost under-recoveries that have been deferred and are expected to be recovered over a period greater than twelve months; and
---an increase o$S46.7 million in construction expenditures primaiy ltiyre ing rom te steam generator and reactor vessel head replacement at ANO 1, partially offset by additional transmission line reliability work on the Lynch-Jacksonville line in 2004.
r-
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The increases were partially ffset by moiiey pool activity. . The decrease of $40.3 million inh net cas used in investing 'activitiesi 2o04 coimpared to 2003 was primarily due to a decrease.in, construction expenditures resulting from less transmission upgrade work. requested by merhan ge~neianb' or i 2004 coi'mbinie'd wit~i lov~r'sý,'nding 'on cu~stomier" supporr'ects in'2004., This decrease was partially offset by money pool activity.
"*d'l ) bcf lJActivities "" r!"if ) *, I. ;' , f, .,,.1 'i ,. n:" .; i'i),t -" ;i , . ,
- n'Cit , i ,t
- -11 Financing Net cash flow used in fnnancing activities decreased $6'.8`muilion in 2005 compared to 2004 primarily due to N.
Ioney-pool activity and a decreas o'_$21.7 mill16h inc ommon:'-'sitock ldiwviends, partially* offset by the net retirement m nI ey O1 N I I J, , 1 [!1 i,. , i *,..;- . .. "I ."i In
.!: 1; The increase'of $47.6 mlnn in net cash usen",einii hnacng activities in 2004, compared tO 2003, was primarily I.,A lli 1 a 1'J due il to.
IJ )I ,' 1,money
,I , I 'p". oul"- 1 activity,
.*1 ' partially
;/**, 7 offset
. ;,51) t.,, by, the j~ L., 7. :1net, redeinpiti6
. ,b Ze t_.A /, onf 'M"2' $2.4,ffmillionI l;. l ' l
- of 'J* long-terim tl .- debt
!;.,i "1_10in 1 200uc. ared to. $1u.. m.lu oninioou..r 0A*3.", . ... * ",i
, ,i nnl[', 1 See Note , 3,. 'Up. 5 to the domestic utility companies and Systeml1I'Ii
,ýI;':,j ;Jl,, . i ' . ,."
Energy financial statements for details on long-term debt., , , _ . . , ,,, i i- ;),:lj .. "A., i ,i' f;-.-"'i.All Capital Structure " '2: ( ." " "-"
, Entergy Arkansas" capitalizatiodn is balanced between equity and debt, as shown in the following table.-The decrease ini the debt to capitalI percentagd as of Decemer. 31,1 265'" is priiarilyn the.lresult Iof an increase in
.t) *
- l . llI , ] " ( . , , . -' , I - '* -J , - ; ; l[).': I ý, ' ] ) - . -,O f * ) ' ') ) " ' * *
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- sliareholdrs` equitydue to increase in retained earnings. " -' -, "I!&3 81'.',- -
. . : ' " ' . ' .' . ,' 31 , ,Dec mb.e 31 ,
..... " .~ A K~t.8fi jJI ;.g 2005' ! .) ' 2004 . ..
- i:f , JnThrl:l 48 5 Net debt to net capitalIi , , ,, - !%47.4% f.....r._, ...d ri . % r'i rnnL. iJ ")o
'.1:1 r.';f.!:nl, Effect of subtracting cash from debt p , n, 0.1%-i; . 'n 4 'rv':. 1,.0
-.. Debt. to'capital.,r] , " " ... i .
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,166
Ehtergy Arkansas, Inc.
%M~inagehlenvsFinancial Discussioh and Analysis Net debt consists of debt less cash and cash equivalents. Debt consists of,n6tes 'p*i'ble, capital, leae obligations, and long-term debt, including the currently maturing portion. Capital consists of debt and shareholders' equity. Net capital consists of capital less cash and cash equivalents. Entergy Arkansas useslthb:net"debt.to'n't capital ratio in analyzing its financial condition and believes it provides useful information to its investors and
,r",:,,. ",
creditors in evaluating Entergy Arkansas':fin*acial'c6ndition.' Ifriqr, zti *.v.:;,, :.Z H',, Uses of Capital ... 'jijI ...hi: j, (*i,:*.- : Entergy Arkansas requires capital resources for: br-i . ., b',::.* ,. i , 0 construction and other capital investments;
- debt and preferred stock maturities; :.-.:.Ir: ...: j ii id.b rn-*roA b:Jizi :i.h., '.'ri~t 0 working capital purposes, including the financing of fuel and purchased power costs; and 0 dividend and interest.paymrents. f)i --' . -.
Following are the amounts of Entergy Arkansas' planned construction and other capital investments, existing debt and lease obligations, and other purchase bbligations:'ai &,.)rF L of' )rýs" XC'J5~rzi~ 0n~
,2006 4 K2007-2008R ýý'2009-2010 FYafter.2010 Total (In Millions)
Planned construction and capital investment (1) x:$245- t; X-0' $5571 f1:.-,;f!u! N/A ' ;"1nN/ANA v, - I....$802 Long-term debt $- s- $100 $1,198 $1,298 Capital lease payments $6 $5 $:,t..cIlh<t$2 $13 Operating leases .-- $317 ___e_ " $19 ,$130 Purchase obligations (2)11 ýTit 1!) $557 $992 $936 $2,422 $4,907 Nuclear fuel lease obligations (3) $42, $50 N/A N/A $92 (1) Includes approximately $176 to $190 millionannually fornmaintenance capital, which isplanned spending on routine capital proects that are necessary to support reliability of service, equipment or systems and to support normal customer growth:.. 2 1..,,Purchase obligations represent the minimum *" 111;1, -.,' purchase. fj lr- obligation
. 1')"]:
'* 4 .1" or1,-,cancellation
.1l1*1 " 1 ' 'I, **).,iil tI, 1 ¢ ,f tl,,, , contractual chargefor -, ',I-,' t, . r,! I ii;.;, ,1,1
;H " ,l'.11 *, (' i 1 ll ," . " ?L,L1r' rr( 11,*;
OBligations to purchasec goodsor services. ,For' Entergy 4Arkansas, 'almost all of the total consists' of unconditional fuel aind purchased power oougauons, m fg its otlgations uniiedr the 'Unit' Poier Saks Agreement,,-whieh statements. . - , is discussed, in Note 8, to the domestic ,; 7 utility J' companies and System Energy Energy, financial financial (3) It is expected t additional'nnandig under the leases will be arranged as needed to acquire additional fue'1to pay interest, and to pay maturing debt., If such additional financing cannot be arranged, however, the lessee in each aseinmust repurchase sfficieiit nuclear fuel to alldow he les1or to meet its bligations. .i .. In addition to~these contractual obligations, Entergy, Arkansas expects to contribute $114.5 ,million to its
,It'¢ ",'fl.. I Lr'4" ~,tG*.':I:*, -*4 '. ".:.j);-'. !"'Y ,,'M) iT 42 , v. , ,*-'.,t *.r, AS@, ,, S 3ti J, SI* '..¢ts:..'.: DLU I::H!d HL Dicd; ..
- VflL t ATe pianned capital investment estimateifor Entergy Arkansas als reflects capital required t6 support existing businessand customer growth..,.The estimated, capital. expenditures are subject to ,periodic review and the ongoingeffelets olreguiatory&onsramints, market economic trends, "mOillatlon anrd may-vary oaseno cmpunee an the.
envronentl meao `t-~acesepital. 'Management I volatiliuty, dofes- more information 6Ill'iif.. on long-term er
' 11l l'l,.,;! utility
" domestic C',',," ( ' Pand'System companies ., r, ergy . ;.imncl t ,:Iahd
"[4,I'det ; preeirrcn
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.wlý4 iaturitiesA t'?~I
,* 11 . ,- , .<: m.4otes 1 :. - . L J 'a'l
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'Statements. .t , " ,- 'Q , " ".. . . ; .. . .
As a wholly-owned subsidiary, Entergy Arkansaspays dihvdenids to Entergy'Corporationi from its earnings at a percentage determined monthly. Entergy Arkansas' long-term debt indentures restrict the amount of retained earnings available for the payment of cash dividends or other distributions on its common and preferred stock. As of December 31, 2005, Entergy Arkansas had restricted retained earnings unavailable for distribution to Entergy 4i67
Entergy Arkansas, Inc. Management's Financial Discussion and Analysis Corporation of $396.4 million. :, i-:.. c.'.*t .., - - Sources of Capital-. . - - . . -, .. . , .. ,, , , '. '-, .- " , %-,., Entergy Arkansas' sources to meet its capital requirements include:. i,, ,, -" ,
- internally generated funds;
- cash on hand;
- debt or preferred stock issuances; and
- bank financing under new or existing facilities.
Entergy Arkansas issued::t+z'long-term:,lr debt , in 2005 as follows: '*r,3 ;; r!i- , l'ny'"
* .; .,v ';- . ,. i *o 1j'ril Jf;'u ;i ri **.,.: : ;r. i ,:. 2...m .+* -
Issue Date Description Maturity .e t '.:Amount :).As I:II', (In Thousands) January2005 5.66% Series,,.,- February 2025.!,) . '$175,000,: . March 2005 5.00% Series January 2021 45,000
,.May2005 I ,' .. 4.50% Series-. ! - June2010 100,000
.......................... ;r;$320,000
.i'. Entergy Arkansas redeemed long-term debt in 2005 as follows: , . ,, ':,
"' ' Retirement"- :-, /,;,,. - .. . ;..)
Date Description Maturity Amount .. ,
-.. .: . ,... (In Thousands),,, .: . *r, ,
February 2005 7.00% Serie October 2023 $17
" '"): April 2005 6.25% Series
"" " ;'Julý i005' '::';+'6.1250/6Sei'ies '+' July 2005+!f:0 i ,j;**. January 2021 45,000 0 ,.0.,. .: ** I I...'. j ' - $320,'000" :~,-
Tne vMar1 2005 2m issuance ahnd April 2005 iretirement arenot ShOWn on the cash 16ow -statement. because the proceeds fri'oi the issuance were placed ina trist and never held as cash by Enter'g Arkansas" ", .. -'
,* * " ' ' 1 r " ? * ' ' -7 ': : '. 2 "; } J ; . ' " L . ' ' *, ' *, : , ; "1 ,:,-; jr* , *...
in September 2005, Entergy' Aransas'purctiased its $47 millioii of 5.05% series Pope County bnds, from the holders, pursuant to a mandatory tender provision, and has not remarketed the bonds at this tim";'" n' Entergy Arkansas may reninanic oirredeem debt and'prtrreo stcp t y le extent market conditions and interest and diVidend fates are favorable. AIl'debt and co on and preferred stock ssuances by tergy Arkanas requirep regulatoy approval. Preferred stock and debt issuances are also subject to issuance tests set forth in corporate charters, bond indeitures, and other agreements. Entergy Arkansas has sufficient capacity under these tests to meet its foreseeable capital needs. Inm April 2005, Entergy. Arkansas renewed its Entergy Eoisina entered into a separate cril*+ facihty, Withcreit %cityci4-6ythrough April 30, 2006. In May 2005, the same lender. 'Enitergy Alrinksas and Entergy Louisiana can each borrow up to $85 miillihoinunder their respective credit facihties, but at no fime can the total amount borrowed under these- facilities bi tbe two.companies combimed exceed million, lnere were66 outstanding borrowings under the Entergy Arkansas credit facility as of December 31, 2005. The Entergy Louisiana fda'ilit Hi~d $40 million in outstanding borrowings as of December 31, 2005 .. ',' . .... .
- .*t,.*.*,.* . H'I' ii. :I',/.*'.. ,. .
-168
*'Entergy Arkansas,qic.
i Management's Financial Discussion and AnalySis Entergy Arkansas' receivables from or (payables to) the money pool were as follows as 0f',Decemlier 31 4or each of the following years:
-. .. .-:,., ;:,.- . 2005 . , ... .2004 ,!,: t:c' -tm2003' r -:,,.,.2002 . - '),
... ':.,.:jr~ h':~r. .. ; * . On,Tifhousands) : h * <;.,
- './:,
'.',t.,:',':.'. ,
z~' !,::,
*:*,rri* v;i*',q. , *i,Zt;($27,346)r*t , $23,561.rv)- "'1$69,153)A ,.*ar;: $4,279.1i(V:m ]I:* *-J:
,See Note.4 to the domestic jutility companies and System Energy,financial statements for.a description of the money
..Pool.. .,;Ii- . -r', ': - ; ' .u ,;f :,:I n ::i ::. ,,-1o',,tf' J 0t~ "l )*:t';5. £'.;. PYŽ r: "_.*r .l. "'..
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*Short-term borrowings by,Entergy.Arkansas, including ýborrowings ,under the. money pool,. are. limited to an
;,:')
tamount authorized :bythe FERCi,.whichjis $250 million.- .,FERC 'has jurisdiction. over ,these short-term borrowings eseffective with the repeal 'of.PUHCAJ1935 ýon February 8,'2006.and has :issued an order~effective through .March :31,
- 2008. ",See Note.4 to the domestic utilitycompanies and System Energy~financial statements for,further discussionof iEntergy .Arkansas',short-term borrowing-limits. -, , '.,,.i ] i,- _-It ' tbr~ "
r 7 ).rri-h ;:2:* t*~u ~4;- . 'n1 *Ilf * ,i vx-'i * ;~~i:u r Significant Factors and Known Trends )' - -!10;rih.*r.ýfi v.- '1 J.c L * " .7&(V}. ,! Y*us ,:,Utility Restructuring wiv.' ,.l.. Y.?&
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- 3~ J JJ;,flL, -:hIrrIq2~ f c' Iir f. IT' In April 1999, the Arkansas legislature enacted Act 1556, the Arkansas Electric Consumer Choice Act, providing for competition in the electric utility industry through retail open access. In December 200l1,the APSC recommended to the Arkansas General Assembly that legislation be enacted during the 2003 legislative session to either repeal Act ,1556.,or -further delay retail. open Iaccess,.until :ati least :2010. -,-.In iFebruary !2003;- the, Arkansas A1egislaturevoted ýo repeal Act 1556 and the repeal was'signed into law'by the governor.:'-:cmis Th '
F:eirr al-:ii-egu, Federal Regulation
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System Agreement Proceedings i -T I
,:r, -,See "System Agreement Proceedings" in the ,'Significant Factors -and Known Trends'Lsection.of Entergy iCorporation ,and Subsidiaries'.Management's MDiscussion ,and ,Analysis 'for discussion.r of the',proceedinig ,at FERC !involving the System Agreement and of other related proceedings,. i y!-trriq ,z. . '",,r'. " r. . ( /. L(r:.,
i .;);J;*'n,,
-. - . ;.:'I"" j:,1.,L . .r.y','fi;v. 2r,,.,~ hi'.., I(: J.,'. i'.'a or t na 'i-qZ;'.i" 1: .y *nk."*t. .J 'i;g., t ' .}'., q!'u,~ 1:
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;Transmission fii , - ,,; .l'n ttiil'rr" ,/:i .
,..i . f, ,,lS1';i, --,:It w f-I b, F' el)p). vi ',Ii.l ;,I' -: rfi b L See "Independent Coordinator of Transmission" in the "Significant Factors and Known Trends'",section of Entergy Corporation and Subsidiaries Management's Discussion and.Analysis for further discussion.
Interconnection Orders V , . r ', SIt ro hs.!-r .- See ;:!'Interconnection,. Orders',' in ,the "Significant Factors! and Known ,,Trends"._ Sectioni of: Entergy cCorp6ration'and Subsidiaries Management's Discussion and Analysis for,fiurther discussion. if-:, -- : J-.r:.z rI I n f, nl' L. 10! o . ........... J:! i iu 1r. Available Flowgate Capacity Proceeding ' " " " gee "Available Flowgate Capacity Proceeding's intthe "Significant, Factors and ,Known Trends"o section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis "rL for further discussion.
.5-. ".; ' . 01 U ", 5
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f-Energy Policy Act of 2005 r i r ' . .. " ' i" See "Energy Policy Act of 2005" in the "Significant Factors and Known Trends" section of Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion, including a discussion of the implications of repeal of PUHCA 1935 and ongoing FERC regulation under the Federal Power Act.
Entergy Arkansas, Inc.
- Management's Financial Discussion and Analysis
.Central StatesCompact Claim .:. .'. .7' ' " ' ' o-The Low-Level Radioactive Waste Policy Act of 1980 holds each state responsible for disposal of low-level radioactive waste'6rijinating in-thaft'.ifate, but allows"tates to-paiicijiate in regional compacts to fulfill their responsibilities jointly. Arkansas and Louiiiana. parilcipate in the Central Interstate Low-Level Radioactive Waste Compact (Central States Compact or Compact). Commencing in early 1988, Entergy Arkansas, Entergy Gulf States, and Entergy L6uisidna made i s~ries-of contributions to the Cnir*al' States Compact to fund the Central States Compact's development of a low-level radioactive waste disposal facility to be located in Boyd County, ,Nebraska.', '1wDecember 1998;! Ncbraski, ihe' hoistC state for-the pi'oposed Central, States Compact -disposal' ficility, denied the compact's license application for the proposed disposal facility. Several parties, including' the commission that governs the compact (the Compact Commission), filed a lawsuit against Nebraska seeking dam~iges resulting from%Nebraska'g denial"of the, bropbsbdf facility': license:, IAftdr: a rtrial, th6 U.S: District Court concluded that-NeBraska" violated: its"'g6od. faith'6bligations, regaidiihgi tlie' ýrolo'ied-lwaste' disp6sali facility, and rendered'a judgment against Nebraska in the 'a'mount of S151 millioho.' In-Augdst-2004,' Nebraska aigreed to pay' the Compact S141- million in settlement of thejudgment.., In July'2005; theý Compact Commission decided"to:distribiute a substantial portion of the proceeds from the settlement to the nuclear'power: generators that. had dontributed funding for the Boyd County facility, including Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana. On August 1, 2005, Nebraska paid $145 million, including interest, to the Coinpact; and thd.Compact.diitributdd! frbim the settlement proceeds $23.6 million to Entergy Arkansas, $19.9 million to Entergy Gulf States, and $19.4 million to Entergy Louisiana. The proceeds were first applied to the existing regulatory asset, with the. remaindiir causiiig an increase in pre-tax earnings of $7.4 million at Entergy Arkansas.
i6arketan'd Credit Risk :. .,- '..-3 :"'i . . ;,: . . -'ji, .1 ,-:' - ,.2 ,. ,
. ,, 'r2 Eniergy *Arkansas-: has,'certhiin market" and credit- risks, inherent in; its business- operafions': !Market- risks represent the risk of changes.inmthe' value6 of commodity and-finanicial insfirzmefifs, or ih future O6erating results' or cash flows, in response to changing market conditions. Credit risk is risk of loss from nonperformance by suppliers, customers, or financial counterparties to a contract or agreement. i!...
Interest Rate and Equity Price Risk - Decommissioning Trust Funds . . ',', :'i -" .' '.":mi, 'Entergy- Arkansa' nucleiftUecommissioning't'ust.funds are' exp'bsed t_ fluctuatiofis- in eq(uityý;Prices and int*fest rates. .,The NRC iequires Enitrgy'Arkaihsag to: maintain.trusts to fund.the costs ofdd'cbrminiissioniiig ANOI and ANO 2. The funds are invested primarily in equitý-securities; fixed-'rate; fixed;income securitie';:.dnd cash and cash equivalents. Management believes that its exposure to market fluctuations will not affect results of operations for the ANO trust funds because of the application of regulatory accounting principles. The decommissioning.trust furids are discussed more thoroughly in Notes 1, 8, and 12 to the domestic utility companies and System Energy financial State and Local Rate Regulation The rates that Entergy Arkansas charges for its services are an important item influencing Entergy Arkansas' financial, position; reiults ofbperationis, and liquidit, - EnterigyArkans~hs is closelyf'egulited and'thefihtes 6harged to its customers are determined in regulat6ryipr6ceediiigs: The APSC, a&goVernmentaFadgeficy is prifniarily responsible for approval of the rates charged to customers. There are no base rate cases pending at this time. Entergy Arkansas completed recovery in January 2006 of transition to competition costs through an $8.5 million transitiofn cost recovery rider approved by.the APS0 that has be6ii in'effec since.Octobei. 2004"' Entergy Arkansas' fuel costs recovered from customers are also subject to regulatory scrutiny. Refer to Note 2 to the domestic utility companies and System Energy financial statements for ffiel" i'&coeiy'4aiid i'etail: raie proceedings.
~ . .. . -'H" I 'T I .
170
.JEntergyArkansas, Inc.
*.Management's Financial Discussion and Analysis Nuclear;NMatters ,,T , ,.:,n ir , 'li -io ,izb - ,up _"
- Entergy,"Arkansas, owns, and-operates, through an affihjate, the.ANOh and ANO 2 .nuclear,.power &lants.
in Entergy .Arkaisas :s,"therefor; subject Ito the risks relatedto owning rand operating nuclearplants These include risks from the use, storage, hndling and disposal of high-level 'andl,9w-level radioactive materialslimitations on the amountst and typ'es of. imnsur'aiinee rcially, available. for losses' i connection with 'nuelearo6peratidinsf,"nd technological,.and. financiAlJ'uncertamnttes: related to decommissiomng.nucilar plants at tthe end f, their licensed lives9 icludin*-theb sufficiency tof'funýs in decommissioning trusts., jn.'the, eyent of an unanticipated - arlyshutdown of.either.ANO .1;,orAN.2,,Enter'gy Arkansa1ýs may be required to'.file'jwitl the APSC a rate mechanism't6"ir'ide 4additional funds or creaitsupport to satisfy regulatory requirements for decommissioning..,,",,; . ... ;*'
*. r : "" ' ' t; '" - " " :: " '". g - :5 " . . . ..
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',~The nuc~lear,,cindustry continuesjtbaddress ,susceptibility,.to stress ,corrosion cracking ,of.qcertan materials associatedI with components waithin the reactor coolant systeni .*he.ssue is 'appcable 'to ANOandismanaged in acc6idan'c& wiithf'ndustry standard practices and guidelines. Several or'modifications to the;,ANO units have been implemented, wijwth the.mos recen-project being the installatn-of.new,steam generators,and a new reactor vessel head in the fall of 2005 for ANO1. ,e areplacenment reatorvvessel head is being fabricated forANO 2 at thfis
.tie. Routme nspections ,of, the .ANO)2 reactor -vessel .head have identifiaed no 'ignificantmaterial degradation issues for that co"'pt, ahd will continue at plannedre uelingoutges *-, * -.:. ,
..Entergy Arkansas is plannm thei eplacement of thieANO 2 pressurizer vessel in the fall of 2006 during a planned refuellngoutage.n _pianne~efueeinpra":Th~h' ps "factored'ito the , 2006 capital jspending .plan:..nd is tt or.li.-n,ýa Leconomcallyjustified as ,than repairing flaws in the susceptematenalswithithatnma. or thbetter,'alterntie 1Etivironm X ' '.'... "ental - ... Risks, t". "+... :.. ni!.. ....1%
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fi,:ju boai~l;Ji& 'I./ f"1i~irl"l ,,;:'.{}'C ri! iyxttl boLslc'l~: o~v LJ:k:*'4rj')/.Jrf, idT .',*b~i .. ~;;not.i-mIfmfuZ'b ~7&lJ!I,*i o~f Entergy Arkansas' facilities and :operations,areiýsujeet'to regulation byvarious govenmental authorities hawingjunsactin over air quality, water quality, control 'of toxic substances and hazardous'and sold wastes, and
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operating lives 'in order' to prode 16r this obligation.-Entergy Airansas conducts'perno ic decommissioning cost studies (typically 'updated every fivieyears) t6 estimate theiots that wll be incurred to decommission the'facilities. The following key'assu mptibfi l ",e a-sighificant effect on these estimates: 1Ž. . .. .... '>',....'. 1 J. *-,i ?*. ,lVJJd' u .. *a ,,x.. *, , \ . ..ii.. 1.. n0. Dl .... , .... ~ir /' y.* 1t l .. q . ,, o Cost Escalation Factors'-Entergy Arkansas' dc6mmissioning studie&sinelude an assumptionmat -:
,decommissionig cos,'ats escalate over presentcost le nnu ctor approxiniatgn r.C'sA 50 basis point change in this assumption couto change e utimate' cost of decommissionmig a factlyit'byas muc asl 'o ": " y',, ,u..... ' 4.";I IjA;,. I,- '.A,r r.o :~3 I"j~~I' - *.,J~
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REOR F REGISTERD.ioi~ I . . REPORT OF INDEPENDENTR ERED PUBLIC ACCUNTING r To the Board of Directors and Shareholders., -, : . L. , -,,._ - , . Eniergy Arkansas, Inc.: , , .
*We have audited the accompanyingbalance sheets of Entergy Arkansas,, Inc. as of December 31,. 2005 and 2004, and, the. related statements-of. income, retained earnings, and cash, flows (jaages1177, through. 182 andd applicable eis pae32hr each of-thethree years in the period ended December 31, 2005.hese finaniicl statements are the responsibilty, Company'smanagement. Ourresponsibility. er an ma Our responsibi tnexnr!,ý1essanoionn
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these fi nancial statem ents based oni our audits. "
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,We 'onducte our audats in accordance witthe stanoards of the Puoblic Company, Accounting, Oversight, Board (Unted States). Tho stdards reqtre that we plan and perform the audit to obtain reasonable assurance, about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, -vidence supporting the amounts and disclosures in the financial statements..; Ari audit-also includes' assessing the accounting: principlesi used and- significant (estimates- made by- management, as**well ais,,evaluating- the, overall financial statement Presentation., We believe that our audits provide a reasonable basis for~our'opiniom:i*,.',. .!.;
In, our opinion, such financial 'statementspresent fairly, in, all ,fnaterial: respects;'thli financial position of Entergy Arkansas, Inc. as of December.3 F,,2005 and.2004; and the results of its 0perations'and its cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. '. " * s .'iliitr9i-. :'.'. As d'iscuss~ed'm-N6te,8 to the notes' torespetiefinancial statements i 2003 Entergy Aikansa.s,'* Ine-adopted the prowvsnsio of Statemenit of Fm 6ial'Ac'couiiting Standards No. 143,c&couintingforAsset Reiitwmnent Obligatdons. We have also audited,;im-acci6rdancbe wvijhIth'th standards 'of tb'e Public CodmipanyAcc6uhting OversightB~oaid '(United 20, States), i'se"' n ththeefffcttheness* cri' "" d -;e;" t ' of-" ',",*i"Coii " ...any's
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" .... - f, I 2005, based on the cnitenia estabsltshed- iInternalControl -Integrated Faineuiork.issifed by the' Cboffffiittee of Sponsoring Organizatins'i of the-Treadway- Commission and -our report dated' March 9, 2006* expressed a unqahlified 'biioh'on anagemenit's as sessment of the effectiveness of the C6opany' intie.ialcontrol'over financia reportingan ann unq4uahfed 6pmiion on th efficttveness of the Company's itiernal cofoil' over finainical
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ENTERGY ARKANSAS, INC. INCOME STATEMENTS For the Years Ended December 31, 2005 2004 2003 (In Thousands) OPERATING REVENUES Domestic electric $1,789,055 $1.653,145 $1,589,670 OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale , 22,151 210,394 153,866 Purchased power 755,277 484,849 476,447 Nuclear refueling outage expenses 27,892 24,568 23,638 Other operation and maintenance 392,777 384,424 402,108 Decommissioning 31,205 32,902 35,887 Taxes other than income taxes 39,011 35,848 37,385 Depreciation and amortization 203,836 206,926 202,497 Other regulatory charges (credits) - net 959 (20.501) (39.347) TOTAL 1,473,108 1.359,410 1.292,481 OPERATING INCOME 315,947 293.735 297,189 OTHER INCOME Allowance for equity funds used during construction 11,614 11,737 12,153 Interest and dividend income 22,941 10,298 9,790 (2.408) (6.354) (4,332) Miscellaneous - net TOTAL 32.147 15,681 17,611 INTEREST AND OTHER CHARGES 79,521 Interest on long-term debt 78,527 87,666 Other interest - net (v1[frit iJi ilh *'Ii*t fbi ¶.rI') 6,465 4,909 3,555 Allowance for borrowed funds used during construction (8.482) (6,288) (7,726) 76,510 78,142 83,495 TOTAL INCOME BEFORE INCOME TAXES 27i,584 231,274 231,305 Income taxes 96,949 89,064 105,296 NET INCOME 174,635 142,210 126,009 Preferred dividend requirements and other 7,776 7,776 7,776 EARNINGS APPLICABLE TO COMMON STOCK $166.859 $134,434 $118.233 See Notes to Respective Financial Statements.
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( *-;L,,,J (, 3414 YVA ':I*' F)'< 1' :4 -1 1111. 6W W.J W. 71" ItA 178
SEN.TERGY ARKANSAS,'INC. STATEMEN`TS OF CASII FLOWS For the Years Ended December 3 1. 2005 2004 2003 (In Thousands) OPERATINGdXC-I'IVITIES Net Income $174,635 $142,210 S126,009 Adjustments to reconcile net Income to net cash flow provided by operating activities: Reserve for reilatoy adjustments (3,231) 3,099ý",'-' 1,739
.t--* 4!959 r,-*; -'.::
."(20,501)'-,-'
Other regulatory charges (credits) - net (39,347) Depreciation, amortization, and decommissioning 235,041 r. ,a , .. 239,828 .i i, 238,384 Deferred income taxes and investment tax credits ?102.446 ,..!,!.. ,1.-: '65,847 48,357 Changes in working capital:-. Receivables RI... 6,495 (63,003) :-;.3 (33,895) Fuel inventory (" , (8.04.):.. ',: '. 2,424w ,pp,. 4,159 Accounts payable tY2 ) 64,558 ".,,28'282v".- (28,538) Taxes accrued'" (33,250) 137,767. 48,791 Interest accrued (2,169) , (48) (6,348) Deferred fuel costs . .. . . .... ... - . . 773 . 6,880 ., (46,333) Other working capital accounts . (13,155)ý""' *'"'! "*4,753... (79,331) Provision for 8timated losses and rserves - (5,904) ' I(5,172) J"] 8,686 Changes in other regulatory assets "71,932 '- ':r' 37,ý68 ".7:z,. (54,745) Other , (83,375) :..- " (41,022)1 L' 176.500
;kc507,71I V4 -- '2!1 :-j; -539.012 ,*'.-.'. 364.088 Net cash flow POFo'dided by operating ictivitles INVESTING ACTIVITIES Construction expenditures ý " '. J (317,112) (270,427) uJT (334,556)
Allowance forbq~iuhy funds-used -duringconstruction 11,614 11,737 12,153
! ,,4LT.Ti/I(.72.290)), ýri';."!H,(8,101) (065 Nuclear fuel purchases 8 (60,685)
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Proceeds from sale/leaseback of nuclear fuel ...... . . 2'2o _7. ' I-..8,1t9 7., 60,685 Proceeds from nuclear decommissioning tst fund sales '203,772 .- ' * :-142,508, 147,021 Investment in nucleardecommissioning trut funds (212966) ",(151.368) (155,300) Change in money jool receivable - net 23,5"6 (23,561) 4,279 Changes in other investments - net ...-...... *- - 1,856 " Other regulatory investments . . . . (197,587) (3:69'1), (6.827) Net cash flow used in Investing activities - (488,718) (292,946) (333.230) 1 t"- -4INANCING ACTIVITIES 272,702 ... '". 7.59,429... 361,726 Proceeds from the issuance of long-term debt Retirement of long-tefm debt 0
'% F (327,516) i-r. , ,. ",.V(61,856) .".,) (471,040)
Change in money pool payable - net '27,346 1 i- :1 :(69,153).! :1 69,153 Dividends pald: j. " Common stoci'v .;) 0 '(64,1l00)0) 'SOT (69,600)
.(7.776) -. ..... .. (7,776) *.- (7,776)
Preferred stock., .-.. Net cash flow used Infinancing actlvlties 7. ...... (99,344)Ti : .. ... (165,156) !1:-,_ (117.537) Net Increase (decrease) In cash and cash equivalents ?j3 80,910 (86,679) Cash and cash equivalents at beginning of period 89,744 " 8834 ' 95,513 Cash and cash equiva1ents at end oflperod S9,393 ? "'7. S89,744"*' $8.834 SUPPLEMENTAL DISCLOSURE OFcASH FLOW INFORMATION: Cash paid.(receive!i) during the period
";fo It 'l 0 1 Interest - net of amount capitalized $77,821 $78,144 S91,142
*$33,792 , (($103,476) FA'T $2,177 Income taxespci Financia Samn.
See Notes to Respective Financial Statements. , . L1j l . 'e. -, "1 179
ENTERGY ARKANSAS, INC. BALANCE SIIEETS"l r-ASSETS December 31, 2005 2004 (In Thousands),,,, CURRENT ASSETS " ,.: , : .. Cash and cash equivalents: Cash.-, o., , $9,393 ' .:... $7,133
*, . L Temporary cash investments'- at cost, which approximates market.' "_ .'____
___; '_ -. ,, 82.611 . .
- Total cash and cash equivalents 9.393" , "i: ,89.744.
Accounts receivable: Customier' 115,321 87,131 Allowance for doubtful accounts (15,777) (11,039).. .. Associated companies 30,902 72,472 ' Other_ 63,702 72,425. Accrued unbilled revenues 68,428 71,643'. Total accounts receivable , 262,576 292,632 Deferred fuel costs 153,136.,,:. . . :.+552 . ::,.. . Accumulated deferred income taxes . ..2 7 ,30 6 j, Fuel inventory - at average cost,,. 12,342 4,298 Materials ndis-p-plies - at a-virage-c-o.st.. Deferred nuclear refueling outage costs- 30,967 16,485 Prepayments and other .' 7* 9,628 P i 6,154 TOTAL' 565,917 '527,221
" ' ' OTHER PROPERTY'AD INVESTMENTS Investment in affiliates - at equity I1,206 11,208 Deconýmissioning trust funds '402,124".. 383,7ý84 Non-utilhypro'perty - at cost (iess accumulated depreciation)
Other.. 2,976 '"'2*6.7 7 , ,; TOTAL. , 1i 417.755 399,421
'UTILITY PLANT Electric ' 6,344,435 ,,, / 6,124,359 Property. under capital lease '.
Construction work in progress - 139,208 226,172!' Nuclear fuel under capital lease 92,181 - 'ý.--!,19 3 ,8 55 Nuclear fuel 22,616 12,201.lhi *:.. TOTAL UTILITY PLANT,-'".' 6,608,340 6,474,087'
-' Less -' acctuiulated depreciatioh and amortization 2.843,904 2,753,525
..'. -. UTILITY.PLANT,. NET:- ' ... .. 3,764,436" '....... 3,720,562 "'! j'-
DEFERRED DEBITS AND OTHER ASSETS Regulatpry assets: SFAS 109 regulatory asset - net'. 61,236 + 101,658 Other regulatory assets t, . Deferred fuil ýosts'. 51,046 1,842 Other :,:*t*,-., .+ 46,605, , ,- .. 42,514 .1::/-... , .. TOTAL 619,902,.- .. 546,188 *';2.o.- C.-It *;P -; ,.! - TOTAL ASSETS $5.368,010 $5,193,392 "
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See Notes to Respective Financial Statements. 180
* ,.ENTERGY ARKANSAS; INC:j
" ""BALANCE SHEETS ...... ;)
LIABILITIES AND SIIAREHOLDERS' EQUITY December 31, 2005 2004 (In Thousands) CURRENT LIABILITIES (-?'Currently maturing long-term debt I::47 0 Accounts payable: Associated companies 135,357 68,829 bL/*, 120,090 8 9 8 9 6 :,, Other 4 ,r:; , Customer deposits 45,432 41,639 35,874 Taxes accrued Accumulated deferred income taxes 56,186 :1. .!)l ,76,.*. i.2 Interest accrued 19,207 7 \Y.r Obligations tii-d& capital Ieasiir. 46,857 -JY. !149,816' (r'&,f...Other AL t,:, .011 . 21,836 , 19,648 ") 444,965 474,078, NON-CURRENT LIABILITIES
"*'.. ~
1;105,712 1
!121,623...
A. Accumulated deferred income taxes'and taxes accrued Accumulated deferred investment tax credits 64,001 68,452 Obligations under capital leases 55,224 61,538 Other regulatory liabilities Decommissioning * ' 442;115 492,745 Accumulated provisions 29,073 34,977 Long-term debt 1,298,238 1,191,763 Other 306,034 237,447 TOTAL 3,376,904 3,275,907 Commitments and Contingencies SHAREHOLDERS' EQUITY Preferred stock without sinking fund 116,350 116,350 Common stock, $0.01 par value, authorized 325,000,000 shares; issued and outstanding 46,980,196 shares in 2005 and 2004 470 470 Paid-in capital 591,102 591,127 Retained earnings 838,219 735,460 TOTAL 1,546,141 1,443,407 TOTAL LIABILITIES AND'SHIAREHOLDERS' EQUITY S5,368,010 $5,193.392 See Notes to Respective Financial Statements. 1.,181
ENTERGV'ARKANSAS; INC. STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31,
.C ICC 2005 2004 2003 (In Thousands)
Retained Earnings, January 1 S735,460 $686,826 :-638,193 Add:!.'; Net income 174,635 142,210 A 126,009 Deduct: Dividends declared: Preferred stock 7,776 I '. 7,776....., 7,776 Common stock 64,100 85,800 69,600 Total: -: 71,876 93,576 .:, 77,376 Retained Earnings, December31 $838,219.1.:. S735,460'. $686,826
':- . V See Notes to Respective Financial Statements.
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1.( I? fil/ 182
ENTERGY ARKANSAS, INC. 4 'N1EYE COMPARISON SELECTED FIIRANCiALýD"W3TA 2005 2004 2003 2002 2001 7 y, Operating revenues,) ý dj i:,;Iji,~ T~~~$,8,5:$; 5 , 4 5 ~r:l~% 15110~,$,7,7 42 2 2 6 $135,643!, i$178,185t .;Net Incomei !r n :bUi)f' b':iL $174,635 ;' $l , lOjmrný'i$l ,OWII It- . A-:~$ 68ý010 !j:$5;,193,392ýý1q$5,058,078 $4;*569,511: r$4,45 1!2580 I., asts'f T.ta t,
- C')' ,353,462 ;",$1;25313011 "'ý$ 1A0,2' $,4;6 " 14726 Log-robig-at'oi, 1~) .M f1) Ancluded long-term debt.(ex~cluding currently mfaturing dbt)jand noncurrent capital leaie bbfig;tiionAs.ý 1
2005 2004 2003 2002 2001
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ioQV~7iJ m,1 l( f(D~ollars In Mvillions) 2,f~~ !.TL r 348' 05 304 330lI I ýA j*~~**
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*,,Industria,,., .. j~rp J ; ( jii362
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SGovernmental;ý1(, ,( ii ;.; ).f-fr$i :. :'i'r 8 :,1;l 6 rjv~; ~ ~ . . -45,. , 16 Sales for resale: 1Vya II2loi'II'ai ) IOZ2 h;i' .' !LfJ'J Associated companies 1 192 250 234 165 240
&Nbi-ass6ctatedcompne 211- '186" 188 . 1~ 6. 201 6 . $1,561, $1,777, Totitl :iI +W' g$l79: rl ,,$1 ,59 ,,: i-Billed Electric Energy Sales (GWh):
' M~deiial) T'~~ ~ 'q"'"~ 653 7 0 8 i~ -7,05 7 6918 6
'0nfifl5,73 0 5'4528 1 5328 -5 221" ~5 1 mtGY e~ntefl '--lY ,. ý,j i-!ýro hri ~,ý,288 r., ;, 275~,j, , 266- .. '255~ , , .-* .245F L.-,Total retail -,! :ii, rkiv r.4Pi 0Z.¶) 21N051 -
wifl; '.1(!,:9,735 o,,019,650 (,!,;,19,600 ~* i, 19,377.: 1.'ISales fforiýesal6:.,U;H )~ 2jI; i W:' -j' iy .. ~'i~!-te . . ~ *,. ItO
- ssocia~tiacmais-15,ý f1-71437, - 7 ý036'r` f-'6;8'-11 !)fi.;
rf01ocae companies 4,0 W,9 i "5,399 ' 7' 509 '"~0 Tot_6fl'-a- - ~ ~ 1963 32,083l7' .ý-32,085,-".'. 31,480 31,-503 ev.b.t~ iY~i:Cfl,~ ~t 4
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- .1 83
'.* * ...... ENTERGY GULF STATES, INC.,.,
MA1NAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS Hurricane Rita and -lurricane KatrinaT - In August and September 2005, Hurricanes Katrina and Rita hit Entergy Gulf States' service territory in the Tjxýca'nd Loui~i Aawju'isidictio nsP Th t*brn m estilfe'd'iii pow` 6i6tig'e', significant damage to electric-disiributinh, trah'smission, and'gefidration andtrgas infrastructure, 'and the loss 'f sales and customers due to mandatory evacuations. Total. restoration costs for.the repair, or..replacement, oP Entergy,.Gulf States' electric and gas facilities;.damaged.by Hurricanes Katrina.and, Rita andbusiness continuity,costs are esti'mated to be $575 million, the, majority~of which is due to Hurricane Rita. The estimated costs include $289.8 million in construction expendituires andiS285'.2-inllion recorded as regulatory assets. The cost estimates do not include other potential incremental losses, such as the inability to recover fiked' costs scnedumle*o6r recovery through base rates, which base rate revenue was not recovered due to a loss of anticipated sales. I ,7' ." ,. . Entergy Gulf States has recorded accruals for the portion of the estimated storm restoration costs not yet paid. In accordance with its accounting policies, and based on historic treatment of such costs in its, service-teffitories and communications with local regulators, Entergy;,,Gulf States recorded assets because management believes that
., ~~~~l recovery of these . piudently incurred .-.costs through some form ' of regulatory mechanism is. probable., In... IDceIiiAber
.. *,I 2005, Entergy Gulf States filed with the LPSC for interim recovery of storm restoration costs. "The filing is ditscussed below in "Significant'Factors and Known Trends."-Because Entergy Gulf States has not gon-etliruugh tli&-regulatory p.rocess, regardingthese. storm c6sts, howeyer, .there isan element of risk, and Entergyis unabl6 to 1iredict with certaihit, the degre- of success itirmihy have in its! recovery. initiatives, the amount of restoration',costs and incremental losses it may ultimately recover, or the timing of such recovery. - ;..
Entergy is pursuing a broad range of initiatives to recover storm restoration and businessý continuity costs and incremental losses. Initiatives ,include obtaining reimburseni.eht of certain costs covered' by-iiisace, obtaining assistance- through-federal- legislationfor- Hurricane Rita and: Hurricane Katrina, and, as noted above, pursuing recoeIry"hirough existagogr nev ratne mnechanisnris'rgulated by the FERC and local regulatory bodies. "'i
- Entergy's non-nuclear property insurance, program provides coverage up to $400 million on, an Entergy system-wide basis,, subject to a $20 million per occurrence self-insured retention, for all risks coverage for dirct phAysal loss ordamage, including boiler and miachinery breakd6wn. Covered property generally imluides power plants, substations'facilities, inventories, andg'a's distributionirelated properties. Excluded property generally fimcludes. above-grbundtransmission and- distribution. lines,_jp6les,_ and. towers. The primary propeýrty, program
(&6ei of the dedu6tible) is plaied through Oilfinsurance Limited ($250 million layer) with the &e'esgpr6gram ($150 million layer) placed on a quota share basis through Underwriters at Lloyds (50%) and Hartford Steam Boiler Inspection and Insurance Company (50%). There is an aggregation limit of $1 billion for all parties insured by OIL for,any one occurrence, and Entergy has been( notified by OIL that it. expects claims for Hurricane- Katrina to materially exceed this: limit. Entergyis currently evaluating the'amount' of the covered losses f6r Energ, and each of-th'eaffected-,do'mestice utility.' companies, .orkiiing with: insiirance, adjusters, and preparing proofs of'oss for Hurricanes Katrina and Rita. Entergy Gulf States currently estimates that its net insurance recoveries for the losses caused by the hurricanes, including the effect of the OIL aggregation limit being exceeded, will be approximately S95 million. In December 2005, the U.S. Congress passed the Katrina Relief Bill, a hurricane aid package that includes $11.5 billion in Community Development Block Grants (for the states affected by Hurricanes Katrina, Rita, and Wilma) that allows state and local leaders to fund individual recovery priorities. The bill includes language that permits funding to be. provided to publicly owned utilities. It is uncertain how much funding, if any, will be designated for utility reconstruction and the timing of such decisions is also uncertain. Entergy is currently preparing applications to seek Community Development Block Grant funding. 184
*,Entergy Gulf States, Inc.
ýWIMagnement's Financial Discussion and Analysis
,Results'of ' ;i l f Operations,','i;t 1 fl;.. I ý i*i ,(1 , 0,1A' Jr) ,, I;
- i. r, - ,' j Net Income1
- 2005 Compared to 2004", c.I ' l:'*i: .' . . . i'*I' Ol- ci .,, *rjj~iJ t.1 , .,
Net income increased $14.2 million primarily due to higher net revenue and lower interest expense, (partially offset by lower other inconhe and higher taxes' other than income taxes.,.i': 7. ..... i, 2004 Compared to 2003
-,1 ine6me increaiid $149[7rnillion primarily'due to the follbowing:;'-: :: 1
. l.Nef ,t. ::c. , [ .1/. . : ',:.
the $107:7.iIilli6ii accrual ($65.6 million net-of-tax)in Juhen'2003 ;for th6 loss'that would be associated with qh[ff a final, non-appealable decision disallowing abeyed River Bend plaiitlcosts>. See Note 2 to'the domestic" , utility companies and System Energy financial statements for more details regarding the River Bend abeyed plant costs; , ,, ,, \ '-c.c ', "
- the $21.3 million net-of-tax cumulative effect of accounting change in 2003 due to the implementation of SFAS 143. See "Critical Accounting Estimates" beloýw formore information on the implementation of SFAS 143;
- an increase of $39.7 nillibi
`i7m~selnoslcm net revenue,'as discugssed'beloiW;.',
(pre-tax) in(pre-tax)'resulting o'$ý27.7nlo 'ri it*= " ""* \ . O 5V'.f.f . . sit fromarevisionof the'decommissioning liability for River Bend and of $10 million (pre-tax) resulting infrom a reductiondin the loss provision fat hn'; en'ronimenta clean-'up site, loth"of which occurred 2004anid re discussedbelow;, LU f., Sadecrease of $23 .2 million (pre-tak) ininterestcharges on'long-term debt is'discuIssed below; ind a decrease of $12.0 million (pre-tax) in other operation and maintenance expenses, as discussed below. The increase was partially offset by a higher effective income tax rate. . , ',:, wrI l; Net Revenue ___
- '2005 Comrpared to'2004-)" *.:- ' . . , ,. . ., ,,.:.1. ' d Thi .i ..... . , - ,
Net revenue, which is'Entery Gulf States' measure ,ofgross~margin,:consists'of operating re&eniiesnhibt of:
- 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits. Following is an analysisfof the change in net revenue comparing 2005 to 2004.
Amount.
,(InMillions) 2004 net revenue . $1149.8 Prine applied to unbilled electric sales '44.2 Rae refund provisions 22.1,-
Base rates 8 ,.
-N'etjholesale revenue (14.7)
-V6lumn/&'eather (13.4) d: .,, i ' i ?,'.Other 1 ", ,' ;T ..... (4.7) 11 t,
" 2005!net revenue . '- $1,191.7 . *
- iu*I"l rtc The price applied to unbilled electric sales variance is due to an increase in the fuel cost component of the
*price applied,to unbilled ,sales in 2005,*,The fuel ,cost component ofan increase -in .natural gas oisfhigher.because costs. The increase was also due to an increase in the base price applied to unbilled sales in both the Louisiana and Texas jurisdictions. See "Critical Accounting Estimates" below and Note I to the domestic utility companies and System Energy financial statements for further discussion of the accounting for unbilled revenues.
t,185
Entergy Gulf States, Inc. Management's Financial Discussion and Analysis The rate refund provisions variance is due to provisions recorded in 2004 for potential,.ragt actions. and refunds. The increase in electric base rates is due to the implementation of the LPSC formula. rate plan rate increase effective with the first billing cycle of October 2005. The rate increase which is subject to refund is discussed irnNote 2 to the domestic utility companies and System Energy financial statements. The net wholesale revenue variance is primarily, due to lower margins, on sales to municipaL and co-op customers. The volume/weather variance is primarily due to decreased usage primarily during the unbilled sales period and decreased weather-adjusted usage on billed sales primarily due, to. the effects of,Hurricanes, Katrina and Rita. See "Critical Accountine Estimates" below and Note I to the domestic utility companies and System Energy ,financial, statements. for further. discussion* of the accounting. for. unbilled, revenues.. Thel decrease. was partially offsetby more favorable weather on billed sales compared to 2004. : .. ..
,- -... . , : *. - . . ** .T * . , * "' ,, ' " - ' ,t . ' ,
Gross operatingrevenues andfitel andpurchasedpower expenses Gross operating revenues increased primarily due to: : ,.. . . ._. ._. '_, . '.
- an increase of $237.4 million in fuel cost recovery revenues due to higher fuel rates;z , .,.., * .
,e.,., an increase of $161.4 mi.'llion in grosswholesale revenue primarily due to increased sales to affiliated systems and municipal, and, coop,.customers;,,.
. .1.,,..=,*:..:lr. , ' .*' :'. -!';,.
" an increase of $44.2 million in the price applied to unbilled electric, sales, as discussed above;: and,..
- adecrease.of $22.1 million in rate.refund provisions, as discussed aboye..:- ,
Fuel and purchased power expenses increased primarily due to an increase in the market prices of natural gas and purchased power. ." .. . , ,., ..... . 2004 Compared to 2003 - . Net revenue, which is Entergy Gulf States' measure of gross margin, consists of opcrating revenues. net of:
- 1) fuel, fuel-related expenses, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory credits.. Following is an analysis of the change in net,revenue comparing 2004 to 2003...; . , ," * ,
rAmount.--,,. (In Millions) 2003Y nejtrevenue $1,110.1 Volumdvwether 26.7 Net wholesale revenue , 13.0. mmer capaciy charges .5 ,; r,-,i,;r: " 5 I Price--ipplied to unbilled 'saes '" 49 Fuel recovery revenues ,-B .2) Othe'r . .. 3.9' 2004 net revenue , $1,149.8' The volume/weather variaince resulted primarily from an increase of 1,179 GWh in electricity usage in the industrial sector. Billed usage als'oincreased a total of 291 GWh iithierelsi'dentialcommercial, and governmental sectors.
'"'The'increase n'het wholesale revenue is primarily due to an increase in sales volume to muiiiiicipal iaid'co-op custom ers. . , . .. . : - 1 ,: ... . . Vt1 :V" , , -:.' .. i .: .:;.r 186
- Entergy Gulf States, Inc.
NManagements Financial Discussion and Analysis The summer capacity charges variance is due to the amortization in 2003 of deferred capacity charges for the summer of 2001 compared to the absence of the amortization in 2004. The amortization of these capacity charges began in June 2002 and ended in May 2003. f . . The price applied to unbilled sales Ivaiiance resulted pfimarilyifrom an' increase~in ithe fuelprice applied to unbilled sales. t 'under-recoveryof fiiel charges thit ?re'fec6161'eried in base rates". nii Fuel recovery revene .represen Entergy Gulf States recorded $22.6 million of provisions in 2004! pfotential rate 'reftind:.'These pirovisions are not included in the Net Revenue table above because they, are more than offset by provisions recorded in 2003. Gross operatingrevenues,fitel andpurchasedpowe'expe otherreg-ul6toir cedits -" " 6nsesand n.; 4 Gross operating revenues increased piimarily dua-to a.n ... ease of1$187.8 ;milli6nin;,ful cost recovery revenues as a result of higher fuel rates in both the Louisiana and Texas jurisdictions. The increases in volumfie/wVeither atid wholesale rieve nueiscussed ab6ve, also contiibuted to hleincredase:, .* t, I , Fuel and purchase po'wer expensesincrteased primariiyduto?. '- .. .. , i,' "--*;!,increased recoVery 6f deferred fuel 'costa due to higher fuel :rates; . U8 ... s" Y,,? fie.. in&eaies'in the market prices 6f naturhl gis, coal andptirchaseddpowef; and.'-i , . - .,-
.-.":tan'incer'ase'inleltctrict uiaje,-discu~sed above: ,,. -: "./ -i. "; :,*"...' ", ., ": : b ., :,
_!,Other, regulatory credits increaged lrimarily dueto the'aniortiihtioh in 2003 6f deferred capacity'charges for the summer of 2001 compared to the absence of amortization in 2004. The amortization of these charges began in -June2002 and ended in May2003:'! t.-;" ' i .i; rr;; F b b,;" .r-Other Income Statement Variances .<clr,'1 k.., 2005 Compared to 2004 .:,:-*'-,,o, Taxes other.than income taxes increased primarily due,to,higher ,ad valorem, franchise and employment taxesa.Ad iloidm taxkes mireasedpmriuiiiily ldue to thincrease in fuel-a revens. .
"6cepreciation and amortization expenses increased 'priftiarily due to Wanincrease in plant in service as Well as'a change in 2004 in the estimated salvage values of certain""ep eeassets.
I Other income decreased primarily due to miscellaneous income - net, W $3c;3'n"iln-s'a result of the following:
- 0 a revision in 2004 to the estimated decommissioning cost liability for River Bend in accordance with a new d ecomm s s onngcost stu'dy tht ri'fle6ted a life extension f6r the panit.. F6f the portion of River"Bend not subject to cost-based ratemaking, the revised estimate resulted in the elimination of the asset retirement cost
.-... thiat~had been recorded at the timenof adoption of SFAS 143 with the remainder recorded as miscellaneous income of $27.7 Ii6lhon; and
-1/4Y.i i'duction`'6f$10A1I million'if 2004 in the loss provision for aft envi'onmental cleafi-up site.' ir) Lac 1iz)
The decrease in other income was partially offset by an increase in interest and dividend ificome prinmi'ily due to pro'ceeds-i'eceived Trdni'*he radwaiti'settlement discussed below in "Significant Factor's ind Known (Trends - Cehtral;States C ipaii*atClaim",'-ind 'a'fi'increase in AFUDC as a result of an increase in ;construction'work in Interest on long-term debt decreased primarily due to the net retirement of $357 million of long-term debt in 2004,:'paitially offset by the net ii!iah6. of $363.6 million of long-'teim debt issued in 2005.-. See "Liquidiy"and Capital Resources - Sources of Capital" below for tables of Entergy Gulf States' long-term debt issuances and
'187
, Entergy Gulf States, Inc. MaNiagement's Financial Discussion and Analysis retiremnents. i '7: 7' rrI.
**r
~ : .:- * : tu 2004 Compared to 2003
. Other operation and maintenance expenses decreased primarily due, to: L'V;ri 'iu . l
- voluntary severance program accruals of $22.5 million in 2003; and
- a decrease of $4.3, million in nuclear, material and labor costs due,to reduced staff in 2004.
.The decrease was partially offset bythe following: . , .. ,-2 , t <, " )"
- an increase of $8.5 million i benefit and payroll costs; and
*lo i eei an~ uppat.9 an increase of S5 million in customer service su.pport cos ts..,,, r .. .
Miscellaneous income-net increased.$145.6 million primarily due tot:.: . ,.tw:;,-q.) -ax2)
- the $107.7 million accrutal in June,2003 forthe loss that would be associated with final,fnon-appealable, j,,
decision disallowing abeyed River Bend plant costs. See Note 2 to the domestic utility companies and System Energy financial statements for more details regarding the River. Bend abeyed plant costs;,,., the River Bend decommissioning cost liability revision made in accordance with a new decommissioning cost study that reflected an expected life extension' forthe plantb For,the poiltionof River Bend riot subject to cost-based ratemaking, the reVised estimate resulted in the elimination of the asset retirement. cost that had been recorded at the time of adoption of SFAS 143 with the remainder recorded as miscellaneous income of $27.7 million; and
*. a reduction of approximately $10 million in the: loss provision related to an environmental clean-up'site.
Interest on long-term debt decreased $23.2 million primarily due to thei financing; and-debtirestructuring program implemented in 2003, which resulted in extended maturities and lower interest rates in Entergy Gulf States' debt portfolio. Income Taxes _. .. ' ::' .
'Tie effectiw'e income tax rates for 2005, 2004, and 2003 Were 34.8%' 36.0l%, and 21.3%i ,espevely. See Note 3 to the domestic utility compaes anid System Energy nnanca statements f6r ardconiiatiin of the federal statutory rate of 35%. to the effective income tax rate. Tax reserves not expected to reverse within the next year are reflected as non-current taxes accrued on the balance sheet.
Liquidity and Capital Resources . 0,;., . .-... .,:,)l,,,: y..t..... Cash Flow ." ,: ;( "
,, Cash flows for the years ended December 31* 2005, 2004Land 2003 were as follows::, .,
2005. .... 0400 2003
- , (In.Th6usands&) "
Cash and cashequivalents at beginning of period .. .......... $6 ,9 74co; $206,030 <: : $318,404 c, .Cash:flow provided by,(used'in):,:! :-,:-..; ., . :. , ,i r. ':,.I*h',t ?!.,'".,r ,]'d '):;o "','! *ii .b A'.l 1,-; - Operating activities!.*:t_ tIiif,7.7,186r" , ,:,; ,: . ", :- ti:j, 6l,993 :,- :520*384 4 97 86 2 ,I iInvesting activitiesr**,- rkf,'*, , lo .* -r , : (57.7,859)'..tj,: (319,990):) Ž.tj( j ).) Financing activities 534,265 (399,450) (9 1,6 9 8 )(q Net increase (decrease) in cash and cash equivalents 18,399 (199,056) (112,374) m..Cash and cash equivalents at end of'period ,. ..... ' .S25,373 j,; ,!yIj$6,974:, ll,.1i206,030 r,; 188
*')Entergy Gil f States,; Iric.
eManagement's Financial Discussi6n and Analygis Operating Activities ec.i2ivibA-ni1 *., n. ni 'au;, ,(iCash floN;,vfr6m'odperations dec&eased by' $458.4 hiillion in 2005 :cbinlared to 2004 prifharily due to: Y~I U. : inc~r~ases ii the deferred 'ue'l co~ts and account receivables balances because of the effccts'fHurricanes2 ý
'<Itil~j D*iKatrirla AMd Rifti, along' with afiVi~drea'se'inftdel'pirices; 11J!1~ rt*rfi"~hu"*[o~im?..2 1o*:!Sn
" storni restorationi s§pfendiifgdue to HuMiricanes Kdirin"'a-id Rita,;ffi4 hli'Jflfiff (.rl,.i3 rn.'.r.P, !nrJ ;:uix'J*
- the refund of $76 million to retail electricity customers per the March' 2005 settlement approved by the LPSC; u'ui~ibrqc:zn h~.n:;)
,!*.~ ")ifld ~iri~lnt.i ,r::.i'tl I II r £1111.",u.5;1 uli ir., ;It+:.a' v*s ?O0K.&ni11 ,tt r~n
- a tax payment of $14.5 million in 2005 compared to a tax benefit of $28.2 million in 2004.
...... -Cash' low'fromoperations-increase-ty -'43.2, milqin'iiti*h2 04"'6oimpafed'to2003 'poiriffialay due to dcre n a ncreased recov ofdefrit fuel iostsand lower teresi p nen s. " f
-:r;'ni: ;;+9 l frlittm i*)b 1_.V! ".,ri,'"
?.
f.,,-J I" *il~flo)
-it, o! W,-fl'£l
-*.*"'.')b a/ .l i ( l l !t:*;o3b b. '¢vo-m-! i'i(/,
. -I 0 l~~uA te ~lmetl~uthy oma o In203, -sand System Enryflc*wt h IRS 'a, changeint tax cecounting miýethod notification fdr their iipc~v eacltoso ot ofgg6&*+sold.*7fThe adjustmen mleete iphifi~ed:
f* method of allocation of overhead to the p'rdu'ctfion_"' ofeletryS provid&l underlthe IRS &apiitazation regulations. The cumulative adjustment placing these companies on the new methodology resulted in a $1.13 billion deduction for Entergy Arkansas, a $641 million deduction for Entergy Gulf States, a $474 fiilliondeducd'ti6ii46r Entergy Louisiana, a $111 million deduction for Entergy Mississippi, a $32 million deduction for Entergy New 'Orlens; and a-$440 million -deluehon *6r System Energy ondEneigys0 i6ncome tkax Sfetum*n- tergy's current stit
- f the utlzto -truf"005ý~~~i'tttnfe'gy i lcnhhsas liieA $115 ffiilli6h,--Ente1gy Gulf Stý6~
realized $46.rilhon, EnterEyiLouiianairealize ehzed$2 r!onanSystem
'Energy realized $138 ~mhni rcai h *x benefii rfroim the method hniige. heIniteail Revenue-Servicessued new proposed regulations, effective in 2005, which disallow a portion of Entergy's method. Approximately $776 finillion of tax deductions have to be reversed and will be recognized in taxable income equally over two years, 2005 and 206& "n*i ns e is reversal is $270 rili6Edr,,ErGlSitis b'Sliire' is $i48"niilli6ih, Entergy Lousiana s'sharcis $145 'rilion, Entergy Mississippis share is $124,ý'mfilli6h, 1Efitrgy NewOreans sae-s$27 million, and System Energy'ssi ihon. In'2005,tthiclomitic hty companes and SystemiiEnergTiled a h'iil.$'62 notice with the IRS of a new tax accounting method for their respective calculations of cost of goods sold. It is anticipaat athist ii'mthod t a signifiatportionof th preoslystated adjustmentto taxable income. As Entergy is in a consolidated net operating loss position, the adjustment required by the new r~ii't-ii-s has the effect of reducing the consolidated net operating loss and does not require a payment to the IRS at this time.
However, to the extent the individual companies making this election do not have other deductions o'tdfher sufflient net operating losses, they will have to pay back their benefits received to other Entergy companies under the Entergy
- Tax'Allocation Agreement. At-this tiine,t is ektinitm diiat"Entergy Misissiippi would owes$1hlli6hn, and System Enrgy'woul *6,ve$9 rmn~lhon. Tlnw a~x~' a ccountmg method is 'also~ suibjee ito iRS sruhny.~ "Should the'IRS fully
'lnyfhus'h e of Enfeg's tax accountingj m'tho' ` aor*d6t for o st .old th'e ompaiji'ies xwould have topybakall of A &'1.i' iti bit; rI, tJ. .+,'J',.2.:,'-l f . 1 . the'*b'e'n'efi)ts ieceived.C )r? : Y,,q ,..,,J; .x",; In addition to the direct costs caused by the storms, Hurricanes Katrina and Rita have had other impacts that have affected Entergy Gulf States' liquiditynosition. The Entergy New Orleans bankruptcy caused fuel and power suppliers to increase-their scrutiny of the remi"aining domestic utility companies with the concern that one of them could suffer similar impacts, particularly after Hurricane Rita. As a result, some suppliers began requiring accelerated payments and decreased credit lines. In addition, the hurricanes damaged certain gas supply lines; thereby decreasing the number of poidiiial ku-p5lieirS 'The hiti6i al*6-exacerbated a market run-up in naturallgas'anid power prices, thereby increasing Entergy Gulf States' ongoing costs, which consumed available credit lines more quickly and in
*someinstancesIrequired .the,,posting rof.additional ,collateral m., Entergy,.managed ,through,!these; eyents Ithusk far, "tadequately: supplied:EntergyGulf+States ;Withfuel and.pow9er,!and as. a resultfof stepsltaken by it-regarding .ts storm costs expectsto have adequateiliquidityj and credit to continue supplying tntergy Guf Sitate1: vith fuel and powr-ji A.
l~~ltrrl+qriIU+L *+*i* !,i "b-;.tsjif(u; r.oilito,, ,, KIwr+tun+,ik ,*rt+l+d ~ o l+ ,.q, lt + 1 wsJ .'r .,;b* P 0189
Entergy Gulf States, Inc. Management's Financial Discussion and Analysis Investing Activities .. ;,i- .,,:;',:.,; Net cash, used in; investing. activities- increased $257.9 million. in,2005) compared.,to,2004ý primarily due to money pool activity, an increase in under-recovered fuel and purchased power expenses of $102.6 million in Texas that have been deferred, and are expected to be collected over a period greater, than twelve months,-and the maturity in 2004 of $23.6 million of other investments that provided cash ,in: 2004:; ,See -Note 1.jto the domestic utility companies and System Energy financial statements forfurther discussion of the accounting forifuel costs... Capital expenditures made during 2005 as a result of Hurricane Rita and Hurricane Katrina were $121.8 m illion..,, ., , ,. _,. . Net cash used in investing activities decreased $177.9 million in 2004 compared to 2003 primarily due to money pool activity. and, the maturity in 2004 of $23.6 millionýof othertemporary investments that had been made
... ' ...... . . .. - - P, " , .......- ,,.-....... _i "
in 2003, which provided cash in 2004. Also contributing to the decrease was a $27.2 million decrease in under-recovered fuel and purchased. power, expenses in Texas that have been deferred and- are, expected to,be, collected over, a. period grete, than, twelve months.. SeeNote .1tOlte domestic utility.., companies and System: Energy financial statements for further discussion of the accounting for:. fel costs.,, . . Financing Activities" ....
. Financing, activities porovided cash, of$f534.3 million, in,2005;compared to.:sng cash of $399.5 million in 2004 primarily due to the capital contribution of $300 'million received from Entergy Corporation,andithe, net issuance of $363.6 million oflong-term debt in 2005'compare1dto the net retirement of $357 million of long-term debt in 2004. See "Sources aof Capital". below for tables of Entergy GulStates' 1ng-luer m debt issuanes' and retiremens': :. ,
S Netq cash used in financing. activities increased $307,8 million in 2004,compared to 2003, primarily due to the net retirement of $357 million of long-te~n debt in 2004 compared to $1I5.4 million in 2603,.,i 7dditin"t-o money pool activity and an increase of $26.2 million in comnion stock dividends'paid. y, , -. See Note 5 to, the domestic utility companies and. System Energy, financial statementsfor details on long-term. de bt. ,. i- * ... .l * ,, , , " . < s:: r! , , ; ?r ,. .. " ,, Ceapital Structure , , . , .., .: .;, . - ., - .-. , i :. *!1i -. .1 -i 1: W.' ':t ',!. ').'u ' .
.~~~~~J .. I ..- ,,'.
....... Entergy; Gulf States'. capitalization is balanced between equity and debt,, shown in the following, table. The decrease. in the debt to a of December31, 2005 is primarily the result, of an increase in shareholders' equity due to an increase: in, paidincapital resulting from the capital contribution, of $300 million received frorii Entergy Corporation and an increase in retained earnings, partially offset by, incireasd &'et outstanding.
. IDecemuer'31, December 31,
"'2005 . 200i4 .-
.. .' ;: Net debt to net capit al:!-"! ";. - . :** 5 ;% :!::'LI : ,53.1% ,-ir .<, .!r'
- '".,: " *Effe 0o sbtacig dash from debt- ' ! .. '02 .*ll*!:3;-:.,--..! ,.:::,'x
" Debt'to capital . ' , ' - ,51.6%.. " i53.1%]
MNet debt consists' of debt lesscash and cash'equivalents;.'*Debt consisitS of notes payable, capitaI]lease obligations, preferred stock with sinking fund, aid lIong-term debt, including the curr entyW mituriiig portiohn6'Capital cohsists of debt and shareholders,'equity; Ne 'capital consists ofcapital less 'cash 'and ca'shlequivalenits. 'Entery Gulf States uses the net debt to net capital ratio in analyzing its financial condition and believes it provides useful information to its investors and creditors in evaluating Entergy Gulf States' financial condition. 190
-/Entergy.Gulf StategIiic.
*:Managdment's Finani~ial Discussion and Analyiis Uses of Capital iti *ttt;:i "s , t dinu . '
Entergy Gulf States requirescapital resources for: -,1 1ý.;i PIP i ',. d I.I! it I.
- co.nstructon and other capital.investments; " - :,..(: ',a STdebt-and preferred stock maturities;
- working capital purposes, including the financing of fuel and purchased power costs; and
- dividend and interest payments..; , * . . .. . ,
. ..A.. ~I (0ý . ,.n s ,, ,
Following are the amounts (ofl Entergy Gulf States' planned construction -and other capital-investments, existing debt and lease obligations,,and othler purchase obligations:. 9"}Ž', S'(.' 4. + .t:,'. , . ___ , },*I,' 1A l:( f- .'.( )i:)I 10"-I (;2, '*,*"I#"J **' 2006 2007-2008 2009-2010 after 2010 Total (In Millions) Planned construction and :VIL 17 v,< I," ,d b, W;*-b ar!'b - . . X7 ."', l!,] -..dl capital investment (1) $191 $513 N/A N/A $704 Long-term debt -, . . w!_ . $- $675ýi..iz*)G $347 !!'.$1,;336 -,1-1$2,358 Operating leases ff ril) $25 $29 $19 $- $73 Purchase obligations (2) $180 $91 $5 $- $276 Other longter~mr Othe log'e liabilities " 0* ..... $3 '" *$"*i*.. "L t." .hE*2... 'C" .*w' .. $12 $12 Nuclear fuel lease obligations (3) $34 $$21- -'...N/A N/A $55 (1) Includes approximately $172ot6$203niflion:annually :for maintenince capital, which is plahhed spefiding on routine Icapital projects :thft' are -necessary t6 sulipbrtI iliability bf*s'rvic', equipment 0i (,sgyterni and to support normal customer . . . .. 14r;?i "ýIi :i' "T,Ir)). .. ,;:. (2) Purchla~seobbligations repjrCdnt the' .hinimum purchase obliga2tion*r cancellation bhfifge,'for.:corntractual obligations'to purchase goods or services. For Entergy Gulf States, it primarily includes unconditional fuel 7nd p7uRcihas p'&ver obligations. 1(3 ).:;.It is ,expected that additional financing under the leases will be arranged as needed tocacquire-additional fuel, to pay interest, and to pay maturing debt. If such additionalfinancing cannot!be arranged,-.however,, the lessee in each case must repurchase sufficient nuclear fuel to allow the lessor to meet its obligations. .Ir... l lf "*F JII J '
- ff ..] .'..- "..2".f'y' ) F ,*gf '. 2l;;i)"{-
";. 'c ; -1" '. i ':" *j")i.
.. ' b',ITrr i~i r [ , '-* I _,i~ .'rQ [:'i , "i(,'.. a '.i)
. .In! addition, to the planned ispending in,the. iable ,above,jEntergy.Gulf States .also:expectsto. make;$139 lmillion of payments in 2006 related to Hurricane Katrina :and ,Rita irestoration work.;rAlso, EntergytGulfStates expects to contribute $22.1 million to its pension plans and $14 million to other postretirement plans in-2006.¶.b, S=.u" .The planned capital investment estimate .forEntergy.Gulf States reflects capital required tosupport existing business and customer growth. The estimated capital expenditures are subject to periodic .reyiewv-and !modification and may vary based on the ongoing effects of regulatory constraints, environmental compliance, market volatility, economic trends, business*restructuring, a(idthe ability to-ý'&ess capital. tManagement provides more information on long-term debt and preferred stock maturiiies'inN6jes5 +`nd6 to the domestic utility companies and System Energy financial statements. * " . ( Tr .
As a wholly-owned subsidiary, Entergy Gulf States pay.dividends to Entergy Corporation from its earnings t at a percentage determined monthly. Entergy Gulf States is restricted Iby lo6g-term debt indentures im& payment of cash dividends or other distributions on its common and preferred stock. Currently, all of Entergy Gulf Siaites' _retained earnings are available for, distribution. *w,, 1.*S
. e l. , A . -.. .. .: -..
nterg GuilftStat' E*: sources to meet its capital reiuirements include-' ,.I ._-
/II 11 Att 97 1ýsjeiý r1A
(
ý,
f~~~~~~~~~il~~~__fl i !21`, ",
- internally generated funds; . (P; o,; (1 1uo 1,
- cash on hand;
" debt or preferred stock issuances; and 1i91
Entergy.Gulf States, Inc. _Management's Financial Discussion and Analysis
- bank financing under new or existing facilities.
The following table lists First Mortgage Bonds issued by, Entergy Gulf States in 2005: , -. Issue Date Description ..... a*-'Maturity-,<* '.: "A'iiioiinV:' "
".), ., , n.Thoiisands)
February 2005 6.18% Series March2035'"i' `I Ttti br J; $85;;(00 . May 2005 5.7% Series June 2015 200,000 iSp"',!Julyb 20055 ',i"5d12%'S*ie, ,i ', "AiigAufst2010 1"Jri',, . '*.: '-`100,000 September 2005 Libor + .75% Series "..:;ay Octbbe' 2006",..:" !200,000;- " December 2005 Libor + .75% Series December 2008 350,000
$935,000 The following table lists long-term debt retired by Entergy Gulf States in 2005:
a!.'* V Retirement Date - Description -Y Maturity Amoiint:ds:1--. a (In Thousands) i'~1
., March 2005 8.75% Series Junior Subordinated
- March 2046 $87,629,! ;
-DeferrableInterest Debentures May 2005 9.0% West Feliciana Parish bonds May 2015 : 45,000 May 20051 ' .:171 7.5% WestiFeliciana Parish bonds I:,iiMa*2015.,, .-.i 4 1,6 00*a,1 '
':,c June 2005, *r .,:ij7.7%:West Feliciand Parish bonds, v .... ,,December,2014 .,-,",- '::,.94,000;, !
August 2005 6.77% Series First Mortgage Bonds August 2005 ," .t-:, i 9 8 ,000,,,':,
- .;r.
.,, a'Decembert,2005 r,,....'Libor,--75%'Series, *... ... ::./iOctober2006;*. ...... r..,200,000j.,j . :j.
aoi',b i .I,)o " *';.." Ii .Lg'$566;229.i'a!
,;; I,;n, Eiit~rgy Gulf States'may refinance-orr~deem debt and preferred'stock 0rior inaturit*, to' theextentrmarl~t conditiohs andminterst and dividend mtes-'re'fa*brable.,ý .;'. 1 . * ,I ,I , - ' ..... '
,w ;1Q ")`-
All debt and common and preferred stock issuances by Entergy Gulf States require prior regulatory approval. ,Preferred stock and debt issuances aire also subject' to'iisuance tests sef forthihnits'corporate-charter,, &odindentures, and othefragreaemnts.. Entergy, Gulf-States ha's sufficient Capacity' uder these' tests to meet its, foreseeableI ciapital 0!-, Entergy Gulf States receivable from o (payables to) themoney poo. were asifollows as of Deember 31 Sfo6r'eah ofthd fo low"ingyears:!
,, .", . . .a :" * ... ' , . o' .. .......2005 200'.. . 2003 . ' ...... 2002 .: .- , .
$64,011 ($59,720) $69,354 $18,131 a' :,' .
, *ee J~ot to the domestic, utility companies'and System Enaergyfinancml statements f6r 'adescnpton of the money
,b~ .T*, P ;. *'; *: I$ '.tH~n
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9a .: . -" ..... ,-_ '*4aUz .'h. Ia,. ri 1 a descriptions.C;'y--thof, money Prior to February 8, 2006, borrowings and securities issuancesy6J'Entergy' Gulf States' were' liuited-to amounts authorized by the SEC. Effective with repeal of PUHCA 1935 on that date, the FERC, under the Federal Power Act, has jurisdiction over all of the securities issuances by Entergy Gulf States. After thieeec~tie oate of PUHCA 1935 repeal, the FERC has issued two orders authorizing long and short-term securities, issuances by Entergy Gulf States. The short-term authority: etends tahrough Marcl{ 31, 2008 mnh aggregate amount, at any one time outstanding, of up to $350 million. 'L!,i t ff. 1192
-Entergy' Gulf States,,'Iic.
Management's Financial Discussion and Anal'is Significant Factors'a'd/lknow6 Wtends ? i.7, .i 51,. ,J.i(O:J,flIiJ Vit .... 71 .... Transition'týRetail C6mp'eiitiohýj o'r1 ýu,,t/'.li,° ,* .-':f:.;*n di,; ,! ,*i lh, ,.on
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!Texas,' ('.)ol - : 1;w .- !f!f b iAl'ordered bý' ihEPUGITfiin Jaaiilar9 2003;'Entergy'Glff SIte' filed itsTlroposal 'for aifi'int6rim'solution (ietil open access without a FERC-approved RTO), which among other elements, included: :oi,2i n-'o q hri,-;,
*** the recommendation that retail open access in Entergy Gulf Sates.Texas servie'teritmcludmg corporate unbundling, occur by January 1,2004'-or else be ddlayed iihtil dtl lestJanuairy:1, 2007d ifrietail open access is
- ' delayte'd 'past Januai'l,2004l*En'tergy GulStates requestdldit6rizationito separate into two'bundled --
utilities, one subject too*.o:Ifio the retail jurisdiction ofr the PUCT and one subject to the retail jurisdiction of the
;", 'I~i i-PSC. -.* ,*:Lr;ri nio~iii: hl)]no: v"',.', n Lnrrl' ,TOJ~1 'Ddi to ;-;ot*;hr *:s. :*o.e *o b< ",""
- the reomhinldaioihat Enter 'strsision organzation,-possibly withthe-oversight'of another entity;
,t wllcontinue to serve as the transmfissionauthorityfor purpos'sof riail oIp6access in Eitergy Gulf:Statese'f
, Vth'i'commd 'tian thaiiti gioi poindits b6identifi~d thtwould require'priior i'6JanUiitr 1-20042i4titi.h PUCT's determnai o iffdi' 6bje activi;1 re'itjjerna; wheter'ito'pr&ceed with'further ffotir to6ward ireailTI 'l open access in Entergy Gulf States' Texas service territory. . -j eAfter considerig the propiosal~mi inApnlI 2003 order the PUCT sff6it'ia sequenice tof proceedings and atiwtifs esgi&ed to 'initiate anint6emsolution. Thes piroceediigs and actihiies icluded initiating a proceeding to certify an mdependentii organization to administer' market protocols and ensure n`6hndiscrimiatory access 0to irnm-ission -and
]':dm* ~i'2*;i*q'm o ' Oc dUi f:~h~ifLji~LI-
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~distribuiion systems.-
In July 2004, the PUCT denied Entergy's application to certify Entergy's transmission organizti6xr *is'ah independent organization under Texas law. In its order, the PUCT also ordered: the cessation of efforts to develop an
'interim soution T&or retail open access An tergy.Gulf States Texas T ervice territory, terrination ofte piot project in 4'thtitory %ad a delay in retail ýopen ccess n thtterritory until eiher aFERC-approved RTO -is iplace or some bpth er Fii aepe incn It 'ta~n's'`inss~io6n- e~n t ity. scertfeab *the pilot program aspect ofwthe brer,'claimmhg th s*washnot properl*_ part ofthe proceeding. -
d'u'nuer"'-t exa aw,6Vera'i
'S d pat6- itie s' nha v cap p ea Ie the t - " 't ion"uof erminina In June 2005, a Texas law was enactead wcn prowed'thadt: .... - -r
- Entergy Gulf States is authorized by the legislation to proceed with a jurisdictionl separation into twoo -
vertically integrated utilities, one subject solely to the retail jurisdiction of the LPSC and one subject solely to
,' . . below);
11)~.~!L~I)1i~~
, PUerti~~dsd'ti'nýi61TCT
- 1r;'1 r(discuss'sd
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L711
. the portions ofan pniorgi'oiIny forPders requiring Eniergy Gulf Stiaes t1o comply.Cm v provisions of Texas-
. .law governing transition"* retil competition are void, .'* ._ .,., ,.,.
+* Entergy G"ulf Sitates must a plan by Janu.ary 1, 2ie 2006, identifying neoover, region(s) to b considered for-.
)ýI. ' ,
- certifiation and the steps l
oý --. .. It I,-.)" , *,,L > VR`>ll ano oschedule
- t, . to Iachieve
.J : certincation
,*I;'. ], .! (oIscussed t*' il.*~ below; l*!.* j'a .. ,
,.,, ,J .......
r.'111;;Cýt IIi, ,j ' -_,l !. jIt* Jl J Entergy States mustfile tufEntergyG.ulf a transition to competition to mitigate planpowerno later than January', 2007, that would ^, address how Statesintends mialrket andachieve full customer choice L'l °IaJll .. , ý., LI ýL *:*.'r'_
"-l" *. .* I . -.................. p4i. .* . I).il11: tzL(JILhi ofadditional transmission .tl facilities, I..q,generation auctions, generation l,capacity
. ., .:,i ncluding bi"lllo ,, , , potential 6onstruction II " al~~iI;~ll Ji.:* Ij v 1.t. - ,111.v 1'tlli I,.- ,1 lfý. - -_/'., 4l~A . i;.f _ 21x1 )i : )- I; , Y,
, vstiture, reinsttemet a .,-customer ChOiCe piotproject, establislnent oifa;.. prce to beat, and other,'.0 _
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.
- Entergy Gult-States .rates are sub~ject to cost-7of-service regulation until reiait c"u'stomer ChOiCe is implemen~te;
* ,, Entervgy Gulf States may not file a general base rate case nfexas beforeJune 30, 2007, with rates effective 4;
),,no earlier than June 30, 2008, but may seek before. then the recovery~of certain incremental purchased power;,
, ; ,capacity costs; a~djusted forload growth, not in excess offve percent of its annual base raterevenues (as ,;
-, w.... discussed below-in "Slate and Local Rate Regulation,, Juy E . Sfi a inJly[2905 Fiqrgy.Gulf States filed a request for, C....~~ implementation of an incremental purchased capacity recoveryrider); and. ,% ' .. "t'- ,
wi
- Entergy Gulf States may recover over a period not to exceed 15 years reasonable and necessary transition to 1f93
Entergy Gulf States, Inc.
- Managements Financial Discussion and Analysis competition costs incurred before the effective date of the legislation and not previously recovered. with;::.',
appropriate carrying charges (as discussed below in "State and Local Rate Regulation," in August 2005, Entergy Gulf States filed with the PUCT an application for recovery of its transition to competitioncosts),:i JI' Entergy Gulf States made the January 2006 filing regarding the identification of power region(s) required by the 2005 legislation, and based on the statutory requirements for the certification of a qualified power region (QPR), previous PUCT!rulings, and Entergy Gulf States' geographical, location,, Entergy Gulf States identified three potential power regions: . ' " *-' ." ,. .,,.
*., 1.. Electric- Reliability.Council of Texas, (ERCOT) as the power region and Independent Organization (10);
2.-*.Southwest e t~o. . PowerPool,(SPP) as the... power region -9 and 10; . and, .-, .. ,I ,:, * .
- 3. the Entergy market ashe power region and the Independent.Coordinator, of Transmissio-n, (ICT) as the 10.
Based on previous rulings of the PUCT, and absent reconsideration of those rulings, Entergy., Gulf States believes, that the third. alterative; - an ICTI operating in Entehrgyirmarket area, - is not likely to Abe, a viable.,QPR alterative,pat this time., Accordingly,,\while noting this, alternative,,.EntergyGulf States; filing focuses: on the first two alternatives, which are expected to meet the statutory requirements for certification so long.a, certain key implementation issues can be resolved., Entergy, Gulf States! filing enumerated, and discussed the corresponding steps and a high-level schedule associated with certifying either of these two power regions.,. ; .. 7 .+!" Entergy Gulf States' filing does not make a recommendation between ERCOT and the SPP as a power region.,. Rather, the, filing discusses the major issues that must be resolved for either, of those alternatives tolbe implemented.Jn the.case of ERCOT, the major.issueis the cost and time related to the construction of; facilities to interconnect, EntergyPGulf States',TexasI operations, with EROT, whie addre-ssing the interest of EntergyGulf States' retail customers and certain wholesale customers in access to generaiion ouiside of Texas.,.Wiih respectto theopeSPP, acess*- the major issue is the development of protocols that would ultimately be necessary to implement retail
.,Entergy Gulf States recommended thatthe P.U opena projectior the purpose orinvoiving stakeholdersin
.the selection bf.th~e single pover,region, that Entergy, Gulf States should request for certification;, EnterIgy.G~ulf States notes ,that House Bill .,1567, a1*6 directsEntergy Gulf States. to file a transiiion to, competition iling fii ateý than
-1 ,1 16 l any. - 1, wil.2007 b, Iin. -fce J..... y. 1.n itha January 1, 2007. The,.,contentsj of. the- Janay. 1,,2d f c by the, power, region selected.
Accordingly, Entergy Gulf States recommended that the goal of the project should be to reach consensu-s on a power region in a timely manner to inform Entergy Gulf States! January 1, 2007 filing..,:.,, Jurisdictional Separation Plan " - , . . ,: - * . . " Pirsiiuiof Entergy Gulf States' business' se"paration plan mandaitedby Texa's law. in:coninection Vith retail open access in the Texas service territory has been comphlicated by thieecxi'stence of retail' 6pertins in Louisiana subje'totohe junsdiction of th'e'LP* uning the course or nttergy Giulf States retail open access proceedings with the,PUCT, the LPSC has been holding indepenident proceedings concernng the proposedf Ewiiert Gulf Statesbusimess. Unhlke theplan filed witth the PUCT in 2000 (and amended through '2 ito separate I , "."
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" ;- '!'.: .;'*': . , , ": " 'P. , lo* ' I.t.
1, ý('% I 'I* !I+,+** Entergy ,Gulf States' Texas generation,d transmission, distrbution, and 'retail clectric fuictions rot separate companies, the' investigation 'irently inititaed n'ithe LPSd 'proceedings is evaluating a'junisdictiiai spht of Entergy Gulf rateait A:s iouana company and "a"Texas company. 'a' a' status conterence neld itiSeptember 2004 befre' an -"",AU',
! ' ., the ",.l LPS- ' staff" "asse ted , ,I .. . ihatuncetainiiy with respect
.~ a, - ',
to retail ,"* Ir,' ,.'. e ' " I ,', T open access in-Texasishould
',,.. r.1 1 -' ,, - -1, !- '- I, ; '"
not control 'whiether or when the LPSC 'should requiie the Junsdictional separatin 'of Entergy G~ulf States and recommended that an investigation concerning the proposed jurisdictional separation proceed. Entryv'Gulf States submfitted'a prelimina'ry mtho~dol'6'gd~ev'elr5ped 1tine-r~g'y'fdo'r tlhe junsdi'cf'io'n"'a1 _§ Th6tion-of nutergy.Gulf States if 'the regulators should, deterrnne' that a junsditional, separaion, is'i the' public interest., Althoughiit conitains many'components that ar' ismiilar to th-ose set f6rth' in the business 'separatjin-plan'filed--\ith'thi PUCT, the prehminm ary mtho'd6logy,fl6l& with the LPSC provides for the separatin&6f Enitergy Gulf Staat§es imtoa Louisiana v~rinlly iit*aated utility cimpany and d Treas- ertically- iiifegated utility comiiAny;' ran*thfhanth eseparation of Entergy Gulf States' Texas generatio'n', rii'nmission, distrnbiition" :ajnjd retail 'electiin fin'ctions rint6e separate
! " -" .? *!- 4 V 194
.Entergy Gulf States, Inc.
E.Management's Financial Discussion and Analysis .companies as ,is envisidned'in tlie plan filed with the PUCT. 'At a statuý'6onferehce in De&ember 2005; the ALJ set iia new.procedural 'schedule which p'rovides :for ahearirig to be held ifir'A~igust.2006*,,,Approvals'of the FERC, the
'SEC, the PUCT; and'.the NRC'imay 'als6.beijrequired *for..certaintmatters before' any'implementation of Athe
ýjui-igdidtional'separdifion 6fEritergy;Gialf States. ':,*: J.eij:* ... trrt>=!': :..
-_1h ,-:.;+'i::; .:*; -
In November 2001, the LPSC decided not to move forward with retail open access for any customers at this ttime.'*The:LPSC instead dire6tldits staff t6 hold collaborative gro4: fine*tifgs concerinig 6pen access from time to itime;,and to hbave.the:LPSC~staff inonitor'deVelopmehts infieighb6rink states and to report to the LPSC'regarding the progress of retail access developments in those states. In September 2004, in respbhfse to h-study perffrmed by the Louisiana State University Center for Energy Studies that evaluated a limited industrial-only retail choice program,
.the :LPSC, asked, the ;LPSC .staff to solicitcomments :ind ,obtainhinformati6n',froin ,utilities, ?cuistomexs;, and other
'.interested parties coficerning!the rpt'entia*.'6sts and, benefits 'of. a imited *choice prografrtf the'impactyof such'a lprogram !on other vcustomers,,;as well issues, such 'as!'stranded csts"andtransission'service. ,C6mmients 'from ias iiitirested'parties'-,veie'filed with'thie LPSC in'January 2005.'2A 1t&hfiicalc'6nfeire*ii ývas held in 'April 2005 and in
*May;2005'interesfed '*arties :file'dlreily:eonrmefits fo aiguments mad* at the technical cohfer6fice.ý Efitergy stated that
'it 'belie.,e's'thai' there'is rno hew uinforination :or"credible&evidence ithat jwould ,justify altering the ,LPSC's'previ16us nc`0nelusion that rkail access is not in-the public interest.,'1,'i ', IJ*' ' * ,'f< *;rsi .
'. r'"
',Stte and Licýl Rate'Regdlation 1'1li ' ')2'"!v'.' '.2O';!;:: u',6:'lrb'yi,'q ', .n.!.K- iit'..q>. ii':',
The rates that Entergy Gulf States charges for its services are an important item influencing its financial
!pbsition',result*'of~opei-ationg;,anrd liqtiidity." Enitrgy Gulf StWiiesclo'sely regiilaied and'the rates chaiged to its r!cbstomers aie' 'determined -int egulatoiy Iproceedings.,'; Gdvexrimental Kagencies', the ;LPSC and dhe PUCT, :are prinmaAily responsible for~approval of the rates 'harged io 6ustomers:r'i i " ,' ': '2' t:'r :;.h! :'."
rP.r¶-In.Deceniber ý005;'Entergy Gulf Staies filed 'Withthe;LPSC.for;interim recovery of $141 million'ofitorm
,costs.'*The 'filing proposes'.,implementing an $18.7,' million ;annual interim 'surchaFge,-includimg carrying charge, rffeiTive 'March 2006 "based 'on'ia'tten-year.:rec*veiy -piei-odJ T'ie fihifigeincludes' tirovisions 'for -updating'ý'the Esuichairgto re'fetvactil`idcokts ihcurrfd as'vll a's 'the receipt of irisurance 'or federal 'iid.r'Hear'ings .ocburred in (Fibru'aiy:2006:; The; LPSC ordered'thit'-Entergy Gulf States ,re6over,$850,000 ýperrmonth-as' interiiii' stoi:m -cost "rec'oVery:'For the ptiod March 2006'toSe~tmber'2006, Entirgy Gulf Siates' inter'imstorm cositrecbver'shiall be
'through' its *fueli adjustment :clffise@ ith Athe't6tal ,recoery.for 'ihat; time 'period':appd 'at"S6'-million. '-The iiiechAnisiii for!the ýfuel'adjustnient:clkijse"rec'very'is'a0retihtion'by,'Efitergy Gulf St~ites of,15%'6f the difference
'bewveen'-thliFebruary 2006rfuel'adjtistmenit clause and 'the ýfuil adjtustment"claiise-ini those iticcessive'mn'iths'in whichithe 'fuel 'a'djtistment claiuise is'lower'than it' was 1in 7the Febriiary 006 fuel adjtiitment'clause, -inftil 'the $6 million cap is reached. Beginning in September 2006, Entergy Gulf States' interim storm cost recovery of $850,000
!per'm'onth shall be through bas'erates: 'in additionTalle6icess 'armings'that 'Entergy Gtilf Statei may earndunder its "2005 formula rte'pla'n,"and 'any ensuing period in which mteirithrelief'is being collected,'.will be used as an'offset toany prospective stormii restortii qo-anyretrtb
.* prospctiv stor bcover T~. formuli'rate plantis'dii&issed "The in N6ie 2 to th6 doriestic utility "ry -. * !.-r. *
-companies arind'Sys-teEnergy 'finganiciial statemehts.l 0 '. L, 61 .A
' 1i"l ,k ' -!- 0 F.-" .....
t:,+ r+.b In :March' 2005,:'the'-LPSC 'appr.oved i settlem'eii* 'l"rdp6sal)to0iesole,arious -dockets covering i range of
,issues' for';EntergyGulfStat~vahnd qEnitrgy'Lbiuisiiha. .Tdc settlement':rstilted in credits r6f$76 million t6'retail 1electricity lcustoiniersin' Entergy'Gulf, States' Louisi-iiaa -'service iertit6ry.1 'zrhe settlemerit dismissed ;Entergd,.Gulf fStates' ifourth,;fifth,"'sixth, fseventh, and ieighthl'annual iearning's reviews,' Entergy .Giulf States' 'iiinth pbst-merger
- earnings review and'revenue requiremientianalysis,'the'contmiiuati6oinofa'fuel review .ff Entergy Gulf States, dockets cestabhished!t'6."conisider lissues"conrceming povwer :pdrchaes, for 'the'Uinmt'ers 'of 2001;',2002**2003, -'and 2004;1all
"(prudence issues asiociated with'dedigionis made through Ma?!2005*Milfted to the nuclear plani'qra'tes at issuie in these cases, and an LPSC docket concerning retail issues arising under the S*,feih'Agreement.*Thefs-ettlement--does n6t include the System Agreement case at FERC. In addition, Entergy Gulf States agreed not to seek recovery from ýcustolmers'of'$2 mifillion-:of, xeesstrefund;'hmounts'is'o.ciaftedlv ith'tibtf,f0urihithih6ugh ,the eighth annual earnings lrei6ews.'-< The'redits' eie'issiiad in"6cnnection' with April'2005 billings'!Enterg', Gulf Statf6 previously reserved for the approximate refund amounts.
0195
Entergy Gulf States. Inc.
.Manageirnent's Financial Discussion and Analysis IIA :The' settlem~nt,:includes- the -establishment of a three-year, formula rate, plan ,for,. Entergy; Gulf States. that, 'among.other 1rovisions;, establishes' ant ROE mid-point: of, 10.65%; for, the, initial- three-year: term. of the' plan and *permits Entergy. Gulf States to recover, incremental capacity costs. outside of a traditional base rate proceeding: Under the formula rate plan, over- and under-earnings outside the allowed range'of9.9%jto.l 1.4%:will.be allocated.60%,to the customers and 40% to Entergy Gulf States. Entergy Gulf States initial formula rate plan filing is discussed below.
In addition, there is the potential to extend the formula rate plan beyond the initial three-year effective'periodr by mutual agreement of the LPSC and Entergy Gulf States.
,:r 'InJune 2005i the'Alliance-for Affordable, Energy. and an-individual plaintiff filed'an appeal-of the settlement in thea19"h, Judicial District Court, for the parish of, East Baton RougefLouisiana&,-iThe plaintiffs dismissed the appeal
- with prejudicein December 2005.pý,- i .;n *.- ,,.'i.. ,-'i ': .:i e,,'s;r.e-,L , !ii;",'
TIN',,, In June 2005,:Entergy. Gulf Statesrmade its formula rate' plan, filing with the LPSC for the testyear ending December:3.1,',, 2004ýr The' filing shows "a.netievenue deficiency. of $258 'million-indicating that no' refund liability
'exists., The filing also indicates~that' a prospective ratei increase of $23.8 million.is required in order for Entergy,.Gulf Statesto eam, the- authorized ROE:mid-point,.of, 10.65%.1. A, revision to.the filing, wasI made. in September, 2005 'resulting in a $37.2 millionbase rate~increase, effective with.the first.billing.cycle of October.2005, subject to refund.
The base rate increase consists! of two!components..,The, first, is, a, base rate increase, of approximately,$21,1., million due to the formula rate plan 2004 test year revenue requirement.-Ti -The,second component; of-thel increase, is the recovery of the annual revenue requirement of $16.1 million associated with the purchase of power from the Perryville generating station, which purchase was approved by the LPSC. A final order,from the, LPSC is expected by the second quarter of 2006. Entergy;,Gulf; States filed-:with, the.. PUCT,, in July 2005,.a, requestr, for implementation of an, incremental purchased: capacity recovery, rider':consistent,. wvith) the%recently, passed ,Texas-.legislation,rdiscussed. aboveI under "Transition to Retail Competition." The rider requested $23. lnmillion annually in incremental revenues on a-Texas retail basis which represents the incremental purchased capacity costs, including Entergy Gulf States' obligation to purchase power from Entergy, Louisiana's. recently, acquired, Perryville plant;, overwhatvis, already in. Entergy Gulf States' base rates. Entergy.Gulf States reached an.initial agreement with parties that, the date upon which cost recovery
'and cost:, reconciliation would- begin, is September 1,;- 2005. A further. non-unanimous, settlement was- reached) with Smost, of.the parties that allowed for, the rider: to be implemented,.effective December 1;,.2005, and-collect $1,8, million ;annually: ý The settlement also, provides: for, a, fuelreconciliation to be, filed:by, Entergy, GulfStates byMaytl5, 2006 that:3vill, resolve. the remaining issues in the case with the exception of the amount of purchased p9wer in current base rates and the costs to which load growvth is attributed, both of which!were settled.-,The hearing with respectto the non- 'unanimous, settlement,i which vasopposed1 by.the Office.!of Public Utility Counsel;was* conducted on October,9, ;2005 before the ALJ;,who issued a. Proposal, for Decision supporting the, settlement 2 In December,2005;?the-, UCT ,approved the settlement. 'The amounts collected by the purchased capacity recovery rider are subjectr to reconciliation.
[:-1,The recently, passedi Texas legislation also. allowed Entergy, Gulf States to file for,recovery, of reasonable and
*necessary transition to competition costs:. Entergy Gulf States:filed with. the PUCT inAugust-2005.an application for .recovery,.ofsuch:costs -.Entergy, Gulf, States, requested recovery of $189, illion in, transition: io-competition1 costs through implementation of a 15-year rider to be effective no later, than, March. 1,: 2006.-;.The $189, million. rpepresents transition to competition costs Entergy Gulf States incurred from June 1, 1999 through June 17, 2005 in preparing for 'competitioni in, its: servicearea, including attendant AFUDC; and.all: carrying.costs projected, to be. incurred on the i transition to competitioni costs through, February,,281 2006. .The, $189. million iis.before:,any' gross-up-for; taxes, or
'carrying costs!over the, I5-year recovery period.,:Entergy,Gulf States has reached a unanimous settlement agreement in,principle on all issuesowith the active parties in the; transition to competition, cost~recovery, case,.lhleagr'eement in principle allows Entergy.Gulf,States to,recover,$14.5 million per; year, in transition to competition costs oveT a. 15-year fperiod.' Entergy.. Gulf Statesi implemented: interim rates,,,based; on, this: revenue leveLon.AMarchý 1,,.2006;, subject; to
*refund.-, Entergy.Gulf States expects that, the PUCT,will consider, the formal settlement document, which iscurrently ,being developed; in thesecond quarter,20062; ir :-t ',,;. :: . '.", ; :i*, ror' ::i;;, C1,,1 l.l ":11 1.
- ,;i,In
- July 2004;, Entergy. Gulf: States filed! with- the LPSC .an application; fora, change, in: itý ratesand. charges
-seeking an: increase of $9.1; million, in gas: base rates in order to allow Entergyj Gu*f States, an opportunity,to earn a.fair
.196
I Entergy Gulf States, Inc.
?'Managemnent's Financial Discussion and Analysis rand ireasonible ,ratei of, i*6tdrn.'-In i3une.2005,¶ the ILPSC'lurianimouslyl approved iEntergylGulf .States'ý -proposed ssettlement that includes fa,$5.8 million.ýas .base rate increase effective:theifirst~billing cycle of July 2005:and arate stabilization plan with an ROE mid-point of 10.5%/? ';[i..
- l'. )r
- fi-Iyio 0 Hi *.-*,
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In January 2006, Entergy Gulf States filed with the LPSCits ga rate-stabilization plan., Thefiling showed a revenue deficiency of $4.1 million based on an ROE mid-point of 10.5%. Approval by the LPSC and implementation uis hot expected until the second 4uarterof2006.?j.,'. ! ri.mrr- Iv-!- I ub.:.!` -'.::. *§h .. ;r*i -" .V(,'io J:w)Ifr.: ,.-,: . ' "*.ip,*'.
.Ii ) "4*15 I1*I", rr$,;lu. " )iI.I , iot~q,) fir i ifri 1 u: j r,1Iul ;;) '*r"Ij; XFederal Regulatiohiv; 2*ir-of~u. j-'.hii*'.tx-u :tji,6*
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System Proceedings , :.r int.,'. sAgreement s.cion of En
!,." ;.),See ,.'System Agreement.Proceedings', in th&'Si2nicant Factors and Known Trends' ctionof Entergy Corporation and Subsidiaries Management's Discussion and Analysisf6r fdiscussion, of the proceeding)at FERC involving the System Agreement and of other related proceedings."
Transmission e*Ti*u ix.t . - f,(Atli,*;: *., >, j. i'l fl*
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Sj 1 ,;l,,,*-Seeij3ndependent Coordinator.of Transmission",.in jthe ,Significant.Factors and Known Trends", section ofEnter&gorp6ration and Subsidiaries anagement'sDiscussion and Analysis, for further discussion
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Interconnection Orders See "Interconnection Orders" in the "Si~giifieant FaetOis--n-jid Kii-o6ii Trihils" sectin.Eriterg'y Cfpdrtibn and Subsidiaries e Managemntps Discussion and Ana ysis for.fht `er discussion.
*: n f 1,' 7i I ol
- F~ 0 v-- ti.17 "V (A See'Available Flowgate Caiaentroceedmg.,m the' Significant Factors.and Knowin Trends! sectnio of Entergy Corporation and SubsidiariesManagement's Discussion and Analysis for further discussion. o l; Energy Policy Act of 2005 See "Energy Policy Act of 2005" in the "Significant Factors and Known Trends" section of Entergy
,,Corporation and ,Subsidiaries Management's Discussion and Analysis forrfurther, discussion, jincluding a discussion of ;Itlhe implications .ofrepeal pf PIU.HCA 1935 and ongoing EER"C-regul.at!on .underthe Federal PowerAct.etj "tu .-,,b 1(1 ?f£.iI~fCI' .2.!£U*;t!~Cf s 'it)P~tiV,; - ',. I :,t,,-r /':.,i-;!id "I:) tl*c~cqp*b t~:*w .,::'; : :4 . r,2,;!;'> ,:at o:AI *rz il ILCentral States Compact Claim . .LIo:, . , ," . * :I..icvf; ,,:fh:iY.: . .. . ° ?.fdpI blr; 2.u'r:
bsau.r iI, "ii : V, l b ) ,'t1*', l i, zjt:,'. -lo .it,Y j:Irrmyut u: l*'AsArI *.i£I; Th£:2 £1 !w. ur ,n i7r1iD I-,' I , c r o-, frn;)b t :iThe 1Low,-Levvel Radioactiy.eWaste sPolicy,:Aet. of.,1 980, ,olds ,each, state, responsible ,for. disposal of.low-jlevel. adioactive, waste originating in that state; but -allows, states .to participate in regionalc.ompacts ,toq ful rfil.their responsibilities jointly. Arkansas and Louisiana participate in the Central Interstate Low7 Level ;Radioactive.Waste Compact (Central States Compact or Compact). Commencing in early 1988, Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana'made a series of contributions to the Central States Compac.tto 'fund the,ýentral States Compact's development of a low-level radioactive waste disposal facility to be located in Boyd County, 2Nebraska. jIn Decemberj 998,Nebraska, the, host statefor the proposed Central, States iCompact ,disposal facility, tdenied .the 1,compact's. licenseI application lfor*:the;'proposed disposalrfacility.ýi'rSeveral,.partiesý,ncluding the
,:commission that governs, the compact (the, Compact ICommission),- fIed Jaaw,,suit, against, Neb raska, s.eeking adamages resu-lting from -Nebrasas's denial .of.the propose;,ei.facilty'sT,!icen se Afterr-a trial, :theU.Si,.strict .Court concluded that Nebraska violated its .good faith 7obligat~ionsregarding.the ,proposedjwaste.diiposal! facility and rendered a judgment against Nebraska in the amount of $'151 million. In August 2004, Nebraska agreed t6 pay the Compact $141 million in settlement of the judgment. In July 2005, the Compact Commission decided to distribute a substantial portion of the proceeds from the settlement to the nuclear power generators that had contributed funding for the Boyd County facility, including Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana. On August 1, 2005, Nebraska paid $145 million, including interest, to the Compact, and the Compact distributed from
%197
Entergy Gulf States, Inc. Minagement's Financial Discussion and'Analysis
- the settlement' proceeds $23.6 millionto Entergy Arkansas,, S19.9 million to Entergy Gulf States; and $19.4 million to Entergy Louisiana.- The proceedswere first applied to the existing, regulatory asset,with the remainder causing an increase in pre-tax earnings of $16.7 million at Entergy Gulf States, '., r,,-. . ' .'.,:: .'..
Industrial,.Commercial, and Wholesale Customers .. . .. . -.A,,, ,.*; '. ,, Entergy Gulf States' large industrial and commercial customers: continually, explore! Ways to; reduce, their energy costs. In particular, cogeneration is an option available to a portion of Entergy Gulf States' industrial customer base. Entergy Gulf States responds by working with industrial and commercial customers and negotiating: electric service contracts to provide competitive rates that match specific customer needs and load profiles. Entergy Gulf States actively participates in economic development, customer retention, and reclam'ati6h"'activities-:to-ý iricre-e industrial and commercial demand, from both new and existing customers. Entergy Gulf States does not currently expt T addition'al silhifiian- loskis t°'cbg* C rietion" bec.Y'ause'*of the 'curfen't 'n6no'mics of the ele6tri-ity markets and Etit-gy GiJilf States'T"mIketing 6fforts: in ieaining industrial cust6mers. ' , . ' . ... ,., Market and Credit Risks Entergy Gulf States has certain market and credit risks inherent in its business operations. Market risks 6rersenftho risk bf -ch'anges in'.the valie-of,cbifmodity and finaficiall inti-ruients, or'ih .ur..'oeiingresults or cash flows, iti'resiofins to changitig'mirket coi diti6ns'. Credit risk i§ f'isk of li6s from nbnperifirmaihce by'suplie*rs, customers, or financial counterparties to a contract or agreement. Interest Rate and Equity Price Risk - Decommissioning Trust Funds Entergy Gulf States' hucl6af detommissioning trust funds expose it to flucttiatiois in equtyprices' and interest rates. The NRC requires Entergy Gulf States to maintain trusts to fund the costs of decommissioning River Bend.
,ash anii d'.cash The funds are invested primarily in equity securities; fixed-rate, fixed-iira fiemesecuiiities;,. afid equivalents. Management believes that its exposure to market fluctuations will not affect results of operations for the Riviei Bend 'trust funds. bd ause of th'e applicationof regulatory' accountinig principles.' -Te-d'eco'mnm~issiboing trust funds are discussed more ,thbioroghly in Notes 1, 8, and 12' to the d6mestic utflity companies and System Eri&gy financial statements.
Nuclear Matters E*itergy Gulf States owns' ahnd"peratesttfroigh an affiliate'the River Bend' nuclear powerplantY Entergy Gulf States is, therefore 'subject to 'th6 risks'related, to'owning and operating 'aic'eiear'plant;y; TheSe incliide 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> vfitli-nticlear opeatibrns;, an'd technological and financial uncertainties related to decommissioning nuclear plants at the end of their licensed hvesin'cluding the'sufficiency of funds indc'commissioning trusts> In the event 6f an'unianticipated early shutdown of'Rier Be1nd,-Entergy Gulf States&may.be-required .to pr6vide'additidnal funds or creditsupport, to satisfy regulatory reqiireimiients for decommissioninig. ' . .- ::.,, ' i .. ".17, h ,' ,r. . .
..-
- Entergy Gulf States facilities: and operationa are'subject todregulation by'vainouis governnmntal authonties liaving jurisdiction over air qualtyd water qualty control of toite substances and hazardous and solid wastes; and
- other environmental 'matters.', Management believes1 that;Entergy Gulf States is ini substantial complianceý with
!environmental regulations currently applicable to Its' facilities&and operations. Because environmental: regulations
- are subject to change, future compliance costs cannot be precisely estimated..-!' . ,' "/ - . ' '-"7. .
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Entergy Gulf States;,16c. Mhnageinent's Financial Discussion and Analysis ,Litigation Risksl c ., tlr-? :,:* 2 >-.2c'. U,* P) 3I9 0:-ii2.*, ' J)"", ,. The states of Louisiana and Texas in which Entergy Gulf States operates have proven to be unfisually litigious environments. Judges and juries in these states have demonstrated a willingness to grant large verdicts, qireficifig'unitive-damag'es, toplaintiffs tinperional injury, propertyd mage,,and bibsinesg tort cases. .Entergy Gulf 'States ";tises"legal Land '.appropriafa rlt-eans :toýconteLt litigation, thi-eatenid -or"filed [against it, .:bUt the litigation cenvironm'entrn these states ýbs'ei'lbusines' risk.ri ,'flJ . !, . .'Z,*
,rie ,:"/. "'. . 2'. P:i, J]) *2'):*!*~ o "r~:)lr ~i; " (.;1 ibfx.f: ,l,,if~ri 15!/i* l,'* r*:: ' ; i~ 1 ,r2:r( :'*iI-rto2~lJ "o ,:i; .'. : . ' ..* '..,: ,:ivp,:' , '*J',r Critical Accounting Estimates . .P .' ' :*' ` J :0' j The preparation of Entergy Gulf States' financial statements in conformity with generally" dccetted accounting principles requires management to apply appropriate accounting policies and to make estimates and
'jidgmienis ,thaitcan'.have aisignificant effect on ireported ifitincial 'fjoition; resfilts of opirationis,' and caish flows. i~cbunting policies and'estirrmites ýas critical bechusý6 they'ire' based 6n theitfollciwtgSMacnagemintt:his'idhiifi~d t assuniptions and' heasuieriierits that'i'Volve a high' degree of uncer*iinty,'and the potential for :fdture changes in the "aSsiis ptions-and rmeasiiuements :couild .prodti'e estimates ,that Wv64ld Ii*v6, a material effect onfthe presentatibn of Entergy Gulf States' financial position or results of operations. . ,v, , ,. 2 .nc,: Nucle'ar.Deco'n~missioning Costsmz'o *,xv, "Pr't j:ij ;'**u;.'*
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b!'!J;H Regulati6ns :i'etuirue'Entergy;Gtilf States Ito d~coinmissi6di ithe-Rive; Bend ;nuclear: power plintr after the facility is takefi out of servicd, and mnoney iscollected and depositeid in trustlfunds during thd'facility'soperating life in oi'der .to provided.for ,this:obligation.-.Entergy Gulf..States ,conductsfperiodic*-decommissioningltost studies (typicallyupdated ev-ythrde tofiv6 yeafs);toestimatethe costs that-will be incurred .to decommission the facility. The followinig keyassumpti6ris have aisignificant, effect on these estimates: i v, :;.....,.' .
- Cost Escalation Factors - Entergy Gulf States' decommissioning study includes an assumption;that
* -i- decommissioning costs ,will'escalate over-present cost -levels-by an annualfactor averaging approximately CPI-U to 4.5%. A 50 basis point change in this assumption could change the ultimate cost of .
decommissioning a facility by as much as 11%. i.-:-; *-'Timing I.The'date;ofthe plant's retirement must be estimated and an assumption must be`rade'whether..: I i- Is;:*z'-",I;decommisnioning will.begin irxiiediately-upbn plant retirem'ent;.or whether the plant will be held in~b'r-i j-.:,'ir,';; "safestoe"-status :fozlater~decorimissioning, as permitted by:applicable regulations. :;While theeffect of----*
-,-,-these a§sumptions cannot be determined with precision,.assuming eitherlicenseextension-or use ofa., ai,,t 1o lth,'i"safesfore'Fstatiisýeinpbsibly decrease the present "aluebf these obligationsr i '.t J .k-ri );:J'J *,:,*rt I ..,i2 S'feht Ftifl Digposfil
- Federil regulitioris'require the !DOE't6.provide a peirmanent fepositorybfor.the
ý-rj `:
i:;.,' stoi'age of 'pent fifi~lear fuel; and legislation' has beeen'passed byCongess'fo develop this repogitory.at:!,*= r,= ni l-.YuccaMo'untain;'Nevada?',Until this *ite is available;,hiwevev',.fiuclear plant pei'atoig'inust provide foi"")
.,interim spent fuel itofag on the iiuclear plant site,' which can requuife the constructSi6ii nd maintenance of-dry cask storage sites or other facilities. The costs of developing and maintaining these facilities can have a I Vr.-yrsirusignificant effect (as'much as 16% of estimated decommiisisning codts)..,Entergy Gulf Sfates',Y *I
. )idecommissioning Stuai~s*:iifilude&bst bstimates for sp6ntfudl.storagb. However,.these estimatescouldK:iE
.ii.5:iI chmange iii the future'basied 6n the timing of the opening'of.the Yucca Motintain'facility,' the 9cheduleiforz;._
.- shipments.tdthat:facilityvhefnfitis opned,'ori6therrfactors.,iilu t ' - rl r......, tl:i. :=rsi
*iIaTechnologyand Reiulatron L-' Todaie,'there 0 is limited Iractical experience iii theUnited Stafes Vwith-actiial-
*,,,~ h.d'comrmssioning~of large niublea'arfa'cilities..-As expeniencelsslgained and technology changes,!cost '. ,
,.-'i;ioI[i:estimates' c6uld also 6hange.: If'tegulations re'ýirding nucleirAdecommissioning *'ere to chafige,.this coield have a potentially significant effect on cost estimates. The'eff&t ofthese potEitial cifigei ii'n6t presently determinable. Entergy Gulf States' decommissioning cost studies assume current technologies and regulations. *U..:* '"
i irtnjEnterg&,Gulf.Statei ýollects` th6 proje6ted c6itg of deaornmissionin'g RiVer Bend thioughl'ates ;charged to customers for the portion of the plant subject tb'6oio-based rfterihaking.'Thle amounts collected through 'ates,;which are based upon decommissioning cost studies, are deposited in decommissioning trust funds. In December 2002, decommissioning collections from customers for the Louisiana-regulated portion of River Bend were suspended as (1199
Entergy Gulf States, Inc. Management's Financial Discussion and Analysis a result of the settlement with the LPSC of Entergy Gulf States' fourth through eighth earnings~reviewso; If decommissioning cost study estimates are changed and approved by regulators, collections from customers would
', Approximately, half ofý River., Bend is *not: subject! to cost-based. ratemaking..,.When; Entergy; Gulf States
- acquired the 30% share: ofRiver'Bend. formerly owned by Cajun,.Entergy.Gulf States obtained: decommissioning trust funds of $132 million, which have since grown to $158 million: 1Entergy 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 made for these costs. ". ,
+SFAS 143.". " ": ,),,)J :t
- T:'.,' .,:, ;*;: ', (* 'tt l1,'
o 1:,;; F~ q;1,! = fJ Entergy. Gulff States, implementedi SFASI. 143, "Accounting for fAsset.-Retirement, Obligations,,": effective January' 1, 2003. Nuclear decommissioning costs comprise substantiallyall of Entergy Gulf Statesiasset:,rmentiv
-obligations,' and, the- measurement: and recording of Entergy; Gulf States'*decommissioning;.obligations changed significantly with the implementation of SFAS, 143. The most significant differences, in.the measurement of these obligations are outlined below:: I') s. : ' -- ioi'.':r,1 :..,';:;:::t 'l[:i) .
Recording of full obligation - SFAS 143 requires that the fair value of an asset retirement obligation be. z recorded when it is incurred. This caused the recorded decommissioning obligation of Entergy Gulf States
,'.,- .,. to increase significantly; as Entergy, Gulf States had previously'only recorded'this obligation as the related
.:1.costs were collected from customers;, and as earnings'Were'recorded on the, related trust funds; ili ;i ... !;,'I value approach SFAS 143 requires that, these obligations be measured using a fair value approdch. ti
.Fair Among other things, this entailg the assumption that the costs will be inciurred bya third party* andillr.;1 therefore include appropriate profit margins and risk premiumis;rEntergy. Gulf States' decommissionirig.,0 1 studies had been based on Entergy Gulf States performing the work and did not include any such margins or premiums.,- ,,: [,:!l ,;. * , ý fi l i'L: :J.. .. ,. ',. l " '. .;. _
. ,Discount rate SFAS 143 requires that ihese obligations be discounted iising a-credit:adjusted risk-free The, net. effect of implementing SFASf143: for the portion of River. Bend' subject to cost-bsd ratemaking was recorded a'a' regulatoryihsset; withno resulting impact on Entergy Gulf States' netIincome:.iEnitergy Gulf States recorded this reghlat6ry,asset because'its ýxisting: rate mechanism is based on the original or historical tost standard that allows, Entergy' Gulf States.ib recover: all ultimate costs of decommissioning existing assets. from current and future customers. Upon implemientition- ofý SFAS! 143 -in,2003;. assets and:liabilities. increased!as a&result of increasing the asset retirement obligationby $129Tmillion to. its fair value as determined under,SFAS: 143;. reducing accumulated depreciation by. $63 million,; and recording the related regulatory asset of.$32: million.,PThe net effect of implementingi SFAS; 143: for! the; portion,, of River,! Bend, not subject to cost-based' ratemaking! resulted in an earnings decrease of $21t million net-of-tax as a result of a one-time cumulative effect of accounting change.
In the third quarter of 2004, Entergy Gulf States recorded a. revision to its estimated decommissioning cost liability in accordance;,*witha) new decommissioning cost study.:for., RiverBendi that, reflected an. expected life extension'for the; plant!i:The'revised estimate resulted: in a $166.4. million reduction in: decommissioning liability, along with a $31.3 million reduction in utility iplant, a $49.6:.million:reduction -in: non-autility:property, a $40.1 million reductionmin the related regulatory asset, and a regulatory, liability of $17.7 million., For,the portion of River Bend not subject tocost-based ratemaking,. the revised estimate resulted in the elimination: of the asseLt retirement cost-that had&been recorded at. the, time. ofi adoption .of SFAS 143 with the remainder recorded as, miscellaneous income of $27.7 million ($17 million-net-of-tax).r, .. , *.;, ,,K.[ ;-;,=:H*l.. , 'i ',q i>if, Application of SFAS 71 .. ,,J:Tipy. ',J: ;-;r,The application of SFAS/71,:"Accounting for the Effects of CertainmTypes'of Regulation," has a.significant
- and pervasive impact onaccounting and reporting for Entergy Gulf States-Jz.. ,:;+/-A, .. :. ,'i.q .I ! *Irn,';!si 200
.:Entergy Gulf States, Inc.
eManagement's Financial Discussion and Analysis Entergy Gulf States' financial statements primarily reflect assets and costs based on existing cost-based irateiraking iegulation .in accordhice NwithSFAS ,71;,,'Accouniting forthelEffects bf Certain Types 6f Regulation." fUnder tiaditional:rateiiiakinig rpractice, tEnteqgy Gulf States"is granted a rgeogiaphic' -franchise ;to ,sell. electricity; ,In ,refuri* Entei'gGulf States:must make investments and incur bobligations to sere customers:. Prudentlyincurred costs fare'recovered fr6m'custom~rs along witha return on investmeht... Regulators hiay'require Entergy Gulf States to defer
.collecting from cust6merg some.operatingcosts *until 'a future date. bThdse deferred costs arexrec6rded as-'regUlatory
,'Assets in thefinahcial-stateinents:',In order to c6ntinue applying'SFAS 7Iz.,to'itsfinancial .statements;.Entergy.Gulf IStates' ,rates must!beset 6n a cost-of-service bagis ,by.tin-autbbriied ibody and the rates must becharged to and collected from customers. .hfv'. T- "A*i" . r~m,,-8:lf the generation portion"ofa utility company.moVes toward competition; it is possible that geheration rates iwill ,no Tl1ngeif be set. on. a: cost-of-service basis.', If that occurs, ;the rgieeration portion;oo'the -business:could :be
- required to'discontinue ,aplicatioii 'of SFAS,71.: Theresult'.ofdiscontinuing application of SFAS,71 .would bethe
-.remoQal-'ofiregiilatory ,assets .,,andiliabilitie6 from -the:,balance isheet,:"and ;could ýiriclude the -recording ,ofasset
[impairments; rqThis iresultfis :because some 'of the costs or. commri tmenits, incurred ,imder. a regulated, pricing :system "might be impaired or not re*bv&redih a competitive nmarket." These costs aiteferred to as stranded costs. -;J(d,.J*h+- 1).cl Unbilled Revenue As discussed in Note I to the domestic utility companies and System Energy financial statements, Entergy IGulf States records an iestiinate ofthe reenueseadrnied f6i" energy delivered since the latest,ctustomer billing. Each month the estimated unbilled revenue amounts are recorded as revenue and a .receivable,"and lthe)prior. month's estimate is,reversed. The difference between the estimate of the unbilled receivable at the beginning of the period and the end 'ofthe penod is the amount of unbilled revenue recognized during the period. The estimate recorded is v"" , ,ýbased.upon primarily ", ,: /.. n t-j~ -an
- estimate 3 * '" cu`stomerusage of'I*L -'+' )++7 ,-,* q'***". l".1during I . 11 0l:';:1.3-r., " period thei-Abilled " - - billed and l the .'
- / -"*I price
. 1114?to1.:customers
- 1. 1"1 ., in that month, miuiudig'fuel pai&ce'imittergy Gul States' Loiiisiana jusdiction.-Therelfore,-revenue recognized may be affected by the estimated pace and_usage at the beginning and end of each period and fuel price fluctuations, in addition to changes in certain components of the calculation including changes to estimates such as line loss, which affects the estimate of unbilled customer usage, and assumpttons regarding price such as the fuel'cost recovery mechanism. , ; * ,
Qualified Pension and Other Postretirement Benefits . Entergy sponsors qualified defined benefit pension plans which cover., ,t a a;,,,m,.o,+,,..
,Additionally; Entergy currently provides postretirement health care and life insurance benefits for substantially all employees :who.reach retirement age while stillworking for Entergyj, ýEntergy's reported costs of providing these benefits,, as :described in Note 10to the domestic .utility~companies ,:and :System Energyufinancial.,statements, are imatd yue -osfactors inclu-din-g -th'e -pr-o'v-isi-o-n-s-f th-ejpla-ns, c1~i~iig empýloye-e demog-rapici6s, and-dii16i&s actuarial calculations, assumptions, and accounting mechanisms. Because of the complexity of these calculations, the lonrg-termn'iature of these obligations,- and the importance of theiassumptions utilized,,Entergy's:estimate of these costs is ':critical accounting estimate".- (o,°*-.O) '
Assumptions . .* O'J e,q*:j W,3:1 1, J "inIM0ITr1 Itt::.;L. o:)" hfo !ill I* J!:,; *.rlj
-t~ouf <.,*,rd y22.33'+ I')
Key actuarial assumptions utilized in determining these costs include: " , ,! fiL,22
. Discount rates used in determining the future benefit oli'gations; , , - .
_,, r..,.rbjected healthcare cost trend rates* :,
- L, ,, t , * + i., , , , , ;, .',
-,
- II,'Exp3ected
. , !., - -l ,Jlong-term I' ' rate
+ .:v;t9* %, ,,,*t ' ., return on plan of 3,-. assets;
,'*+ and' .
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f,+ -14) it ,*,~,,, D 9 Z'. Rate of in crease in r olevels 1t T- * , +,, .' i j i s ; i ;; ' i, . *
-VI a. Entergy revie t.these assumptions.on an annual 1basis .and aljusts them as necessary.,,tThe faiing interest trateýenvironment and worsethan-expected performance of the'financial equity markets overjthe past sevcral years Lhave impacted: Entergy's .funding and ;reported costs for, these9benefits. In, addition, theseitrends have caused Entergy to make a number of adjustments to its assumptions.
.201
Entergy Gulf States, Inc. Management's Financial Discussion and Analysis
.In 'selecting 'an assumed discount, rate to calculate. benefit obligitions; Ehtergy; reviews, market Yields on high-quality corporate debt'anid matches these rates with Entergys' projected stream of benefit.payments.".Based: on recent market trendsEntergy reduced its discount rate used to calculate benefit obligations. from 6.25%! inr2003 to 6.0001 in 2004! and to 5.90%in -2005.; .Entergy'reviews actual;recent cos§ trends: and: projectedi future trends in establishing, health care cost trend rates.". Based on this review,. Entergyj increased its, health-.care cost trend rate
'assumption used in calculating the' December'31, 2005: accumulated postretirement' benefit,:bbligationi to at'12% !increase'in- health care costs in':2006 gradually decreasing each successiv& year, until iv reaches'a 4.5% 'annual increase in health care costs in 2012 and beyond. . C, .:,_,A,,,I",
,, .'.-I'.
Sý !,. ' In determining:: its expected; long-term rate of'return" onz plan;asset§,' Entergy, reviews, past ilong-term performance; asset allocations; and, long-term inflation assumptions:r EEhterg&', targets; an. asset allocation!'forl its pension' plan assets of roughly 65% equity securities, 31% fixed incorfid s-curities and4%o otherinvestments.-',The target allocation for. Entergy'sr other postretirement benefit assetsis 51%' equitysecurities and 49%,fixed, income securities;', Based on recent market trends,, Entergy reduced its expected long-term rate of return on plan assets used to calculate benefit obligations from 8.75% for 2003 to 8.5% in both 2004. and 2005. The assumed rate of increase in future compensation levels used to calculate benefit obligations was 3.25% in 2004, 2005, and 2006. Cost Sensitivity
-.The following chart reflects the sensitivity of qualified. pension cost. to changes; in-: certain: actuarial assumptions (dollars in thousands): :. . : " . ... :'.. ; c..',,: .: frd:;:, Lr.,,',:h.J ' , ,
.... . Impact on 'QUallliedl
.. . .Change in impact on 2005 . " 'Projected..".
Actuarial Assumption Assumptin' Qualified Pension Cost ' eBenefit Obligation: a ' Increase/(Decrease) . . . Discount rate : (0.25%) " " $1,650 , ,4 Rate ofretumn on plan assets (0.25%)' ."$I;160 " "' ": " " '- " Rate of increase in compensation 0.25% $789 S4,622" The following chart reflects the sensitivity of postretirement b'enefit co'st to changes in certain acuarial assumptions (dollars. in thousands): .- .
'.....* - - ,!'-J. Impact on AccUmulated.
- , . . . "'Changein.i -. ' Impact on 2005 r:,,,:',::Postietirenient Benefit-;
Actuarial Assumption - ' -Assumption: PostretirenentBenefit Cost ".' f71 Obligation,.
-. , * .. , , *....... ' :, . Increasel(Decrease) :' "n' Ar ',, .',; r Health care cost trend.'-, 0.25% $4;628,,,. ,;
Discount rate (0.25%) $493. - '-. " -' ' $ 4 Each fluctuation above assumes that the other components of the calculation are held constant. - ' . Accounting Mechanisms if.,(! !jw" ý,h; t t In accordance with SFAS No. 87, "Employers' Accounting for Pensions," Entergy utilizes a number of accounting mechanisms that reduce the' volatility of reported 'pesio'n 'costs"" Diff~rences, between, actuarial assumptions and actual plan results are deferred and are amortized into costboly when the accumul'ateliffeireces exceed 10% of the greater of the projected benefit obhgiation6or' i m"ar-rel u a If necessary, the excess is amortized over the average remaining service period 'of atiw'e e'mployees.? f'
...Addiiionally,- Entergy accouints" f6r 'the impact of 'asset perf6rmniice'6on ension'epense 6over a twenty-quiiairter'phiise-iri'period thr6ugh'a' "iiia'rket-felated" value of '-isiet 6aldulatioi..'" Sinhe th&'hit~rke'ti-elatedý'Vclu6'e"f assets recognizest iivestment 'Igainsi'or l6ssessover a t".enty-.'uarter- peri"d,"thdfiitire' Valbe ' t w 202
Entergy Gulf States, Inc. Managements Financial Discussion and Analysis impacted as previously1 deferred gains or losses are recognized. Asa xesult,,the losses that thepension plan assets experienced ir 2002 may' hav an adverse impact on pension cost mintre years depedingon whether the actuarial losses at each measurement date exceed the 10% corridor in accordance a -with
,vo~n SFAS
,. .o:,, , .!'87. .: . f , :,S i OT Costs and Funding .. ' +'
,T oifalqualifieldpension cost ior- eg Gul[ States in 2005 was $4.3 inillio. 'Entergy'G uilf 'Stites nicpa 2uquiae pent inc e mi. ullon.i ergy Gulf tates co'nEtnGbuteu $14.8 mnion to its qualeflpension p an0 hnontrbutons ,Oh nAer current haw, project 6wll be $22 miiillioni.f. This pe n ni as g ofpension iuu6, u en ref mie aunded. gls iat :onin j anuary projefi on myh ae' Tnis contribution ws onglnlWandeoo it ws Aea as a result or the Kitrna 4mre' pension funding requirements is due tothdeclining interest rates and the phased-in effect 1Tax Relief Act. The rise infrom 2006 to 2002, artially offse&b Pensin Funding Equity Act ielief passedin oi asset Unierformance Apifill 2004...It
-p z~.En e tl tjtj
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. ., ",C'D r " -
, EsntergyuGlf States quall'e peiision accumulated benefit 6bligation iatecemoer-3 ,-2udyexceeeplan assets. As a'r Entergy Stats"Vwas required to recogize an a9dditonal minimum liability as prescrieddby
,3ulf SFAS 87 at December 31, 2005. At Decemfib& 31; 2005, Entergy Gulf States' recorded an additional minimum lIiability.for its qualified pension plans of $16.4 million, a regulatory asset of $11.2 T million, an intangible asset for
.,the unrecognized prior service cost of $3.2.rhillin, and accumuiilited oherc o.r. v..ncom. of ..... $ milion
,net-of-tac. At 6emob6er.31, 204, Euu tcrgy Gulf State's'" blti6n was less than plansets, tnerefore;tere was no aoWilflon'a minimum 'pension ltanllty requ be reco ized. .Netincome for 2ý0 5, bo
&reu 2004, and 2003 was not impacted.
Total postretirementncalth icare and if insiiurancebenefit costs f6r Entergy Gulf States in 2005 were $15.2 m4llhon,°cluding $4.7 million savings dueto the estmatdl effeci of fiutue Meedicare Pat&D subsidies. Entrgy 9ulf.States- expects 2006 postretirement health care and life insurance :benefit costs to be approximately $14.7 million, inCluding $5.3 milliOn'in'savings due to the estimated eflet Of ftute'Medicare ParD subesidies. . ., iiitin1 it.
'A~I
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I*;+u u+'. t~ )'.',+.L+, . - ,', .. (+It,If[' ji.J. K) "IMy r();. [rt*( i "In Decembe 2005, Entergy Gulf Statesimplemenhied FASB Intierprfetation 47r,";couintimif6r Conditio6nal
*sset Re~tir'+meit Obli~ii~~toA*- arl'inirpiTrciationi of FASB Statemenit'NO.+'1-43", (FIN`47), ýeiT' '~ i+ '-as tha te1.
which required the recognition of additional asset retirement obligations other than nuclear decommissionin-g",kliich are conditional in nature. The obligations recognized upon implementation represent Entergy Gulf States' obligation to remove and dispose of asbestos at many of its non-nuclear generating units if and when those units are retired from commercial service and dismantled. The net effect of implementing'F'1 4:7-ifo'r the .....'irate-re1tul'ate"I business of Entergy Gulf States was recorded as a regulatory asset, with no resulting effect on Entergy Gulf States' net income. Entergy Gulf States recorded this regulatory asset because its existing rate mechanisms allow the recovery in rates of the ultimate costs of asbestos removal, either through cost of servie or ifiratebDase, fromn current and future customers. Upon implementation of FIN 47 in December 2005, assets increased 13'9$8:1 iiiilliohn and liabilities increased by $9.5 million as a result of recording the asset retirement obligation at its fair value as determined under FIN 47, increasing utility plant by $0.9 million, increasing accumulated depreciation by $0.6 million, and recording the related regulatory asset of $7.8 million. The implementation of FIN 47 for the portion of Entergy Gulf States not subject to cost-based ratemaking decreased earnings by $0.9 million net-of-tax.
;203
?Jr(
;....t]:, ,(' 'REPORT i ilr~l L" p,OF INDEPENDENT r;*J,3' fljOJUI:jj r , REGISTERED . I")0 ;,,.
IiJ PUBLIC'ACCOUNTING
',;." ,)
J." * :: .7 I' I **' FIRM
*. * -' ; :9 ' [. . .
To the Board of Directors and Shareholders Entergy Gulf States, Inc.: We have
- ý"
- 7-,if- audited
' I %. , 1 the r"l' . . 'accompanying 7 -' IIi "I-* ' 4,,- balance, , I/*sheets
,I of, Entergy I ;,!
*" -: t, I ,- iI ) Gulf tV,- States, ll;',
- I~iInc. ,, as ofI: ; IDecember
" ,,," " .r I .,' . I ; 11;31,. 2005 and 2004,t and the related, statements oflniome;ý o retaini earninigs, comprehensive income, and paid-in capital; and of cash ages 205 thiough 210"anid applicable items in pages 302through 376) for eac of the thiee,years in le eiod ended Decembei,3 , . n sts aretresponsibility of the Company s management.
We31 uur responslllty is to express00'. an opinion on tnese finnancial statements thheeFa 376) fornia based'bnouraudIts, eaemnt a ofe ""'" n hl We condictda'oui auaits, ini accorancewith'tne stanoaab i the Public Comjpany Accounting Oversight Board (United 'Stites). Those standard:s require thatwe lan and performte audit to abtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on iatest býsis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the. accounting principles uksed anidsliglCant estimates made by ma'angement, as el as evaluating the overall i.:
*I statement
,:'l i . '. :! 'G presentation.
u:;7 r;*jy,(f,j'. - w t. enanciat beli J uTD hat
.l~l ,' our
. ... aut ", .' rovtid' i :.
reas J1'\
" t.Tl:'.7j0.t ble .Cl' asisi... fori. our";L,"opinion:' ,l; ,,* "', * .i , i. ,.- r *,-.:ihi <; *;i lF.' *? t ! 't l?T,, .v-* '"* '. .. ;l L .!'fl., , *.l~ ,'qrt.". !.,t7jt -!" ,t~: nerg"y Inour opinion, such'financial statements present fairly, in all miaterial respects, the' financial position' of Entery Gulf States, Inc. as of Dece #,er 31, 2005 atid 2004 and the results of tp io dits'csh flows-fr each of the' three years in tlhe period endedb ecemer i, 2005 in cohformity with accounting pnnciples generally accepted in thenhitedStates ofAmerica.'
Asdiscussed in Note 8 to the notes to respective financial statements, in 2003 Entergy Gulf States, Inc. adopted the provisrions .*V.,'*
; of
.,H Statemeit ' :t. o :m" Finanai
. 2~;;j',i,. *DoIu Accouhting
- e0) ..gSanadars 2 ,- I N6o.. '.3
-l 143',AccontgoAssetReriment
,', '.5012 .',ol. t '. . . t i ..! m! 8 I
,-' .UU.I-,1i Obligations.
t, ... ~ il;+ We naveiatso audited, in accoraance with the 'standards, of tn~e' Picbic 1 'Company Accounting OversighnuBoard (United States), the eff ctivenes~sof thde ompany s interal'control over-financial reporting asof December'3 2005, based on the criteria established in Internal Control - IntegratedFramework issued, by the. Committee of Sponsoring Organizations of the Treadway Commission and our report dated-'March-9,-2006-"expressed-an unqualified opinion on. management.'sassessment of the effectiveness of the, Company) s intemaltcontrol over financial reporting and an unqualified ppinionn the effeciveness ofep Company's interal control over. financial re.parting, ... r i: .,. . !* - ;'i .1,9 . i,:J t<, _.,¢; .. ";::, .-, ., .. . .. , -,:8- i k7"
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.'11 J*;,Li , TDI "..,lJ.o New Orleans, Louisiana. ,2, . .. , ', .' , ., '*: ,;., -(.j <,*t, -Hoi ]ur'; i.r* ;;i- r,'n)
March 9, 2006 * :..r.1'.i: .. ) wr)La~~t~ 9.. ii. 204
ENTERGY GULF STATES, INC. INCOME STATEMENTS For the Years Ended December 31. 2005 2004 2003 (In Thousands) OPERATING REVENUES Domestic electric $3,289,511 S2,821,296 $2,579,916 Natural gas 77,660 61.088 59.821 TOTAL '3,367.171 2,882.384 2.639.737 OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 829,151 772,914 693,612 Purchased power 1,353,108 969,779 838,498 Nuclear refueling outage expenses 18,151 15,969 14,045 Other operation and maintenance 445,326 445,413 457,428 Decommissioning 9,483 13,645 14,268
*125,263 118,081 117,009 Taxes other than income taxes Depreciation and amortization 202,128 197,234 199,583 Other regulatory credits - net 2.(6,799) (10,070) (2,476) 2,975,811 2,522.965 2,331,967 TOTAL OPERATING INCOME 391360 359.419 307,770 OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction 18,757 13,027 15,855 Interest and dividend income 21,375 15,753 17,902 Miscellaneous - net 910 36.180 (109.389) TOTAL 41,042 64.960 (75,632)
. INTEREST AND OTHER CHARGES Interest on long-term debt (,,rt.rFJi1[-*r:j .:,id fl5! , i) 116,633 125,356 148,516 Other interest - net 10,155 8,242 8,827 Allowance for borrowed funds used during construction (11,153) (9.771) (13.349)
TOTAL 115.635 123.827 143.994 INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING ClHANGE 316,767 300,552 88,144 Income taxes 110,270 108,288 24,249 INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 206,497 192.264 63,895 CUMULATIVE EFFECT OF ACCOUNTING CHANGE (net of Income taxes of S12,713) - - (21,333) NET INCOME 206,497 192,264 42,562 Preferred dividend requirements and other 4,201 4,472 4,701 EARNINGS APPLICABLE TO S202,296 $187,792 S37,861 COMMON STOCK See Notes to Respective Financial Statements.
~205
1' ý2 2 :2 I'
- - --V. -
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............ 1~
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" ," ' IC* ,) r 7
- t4 I .' : '. , *
- ' ~- r 206
-ENTERGY GULFJSTATES, INC%
STATEMENTS OFCASI! FLOWS
....... . PFqA. FL W For the Years Ended December 31, 2005 2004 2003 (In Thousands) 61PERATINGGA MIV1TIES Net Income $206,497 $192,264 $42,562 Adjustments to reconcile net Income to net cash flow provided by operating activities:
Reserve foriegulitory adjustments . (64,802) 24,112 12,605 Other regulatory credits - net .(6,799) ." :,... '(10,070)':" (2,476) Depreciation, amortization, and decommissioning 211,611 ,:..:- . .210,879 213,851 Deferred income taxes a-n investme-nttax-credits - 404,793 , !.. !:.57,908 '.1 37,287 Cumulative ffet-of aii*-ufn g Eh.nge . 21,333 Changes in working capital: . Receivables , (147,085) ,,., , (54,580) . , (45,186) Fuel inventory, . ' 1,205 (1,469) Accounts payable 99,581 126 (17,013) (272,308) 99,955 , 12,618 Taxes accrued' -.". Interest accrued 7'7..- _ . .. 1,596 (3,834) ' (1,900) Deferred fuel costs . (87,594) "' '78,200 59,165 Other working capital accounts - 8,142 " :'7,426 " 11,874 (3,979) "-*:> :<(384..::';. 115,878 Provision for estimrated losses and reserves :. '": (10,060), .:" 3,983 (219,172) ": Changes in 6ther"iegulatory assets"0 r,9;, Other . AQ, I (57,950) .- i ; (59,303) . 14,074 Net cash floWiprovided by operating activities 61,993 . 520,384 .. : 477,186 INVESTING ACTiVITIES v. ;;).'T&['(370,52_1) 1'ý,i,z-": v(357,720) (348,507) Construction expenditures Allowance for equity funds used during construction .713,2. .: 15,855
.,::i.*,L :'.,:/,.I.97).,,::' . ' (45,085).:; . .. (39,959)
Nuclear fuel purchases Proceeds from sale/leaseback of nuclear fuel 491 38,800 .,, 38,029 Proceeds froiiut*ncear decommissioning'trust fund sales 38,070 29,185 46,027 Investment in nuclear decommissioiing trust funds -- (51,178) (41,255) (57,455) Change in money pool receivable - net (64,011) 69,354 (51,223) Changes in other investments - net (577,859) (923,5799 (23,579) (152,51U3) (49,875) ",.' (77,050) Other regulaioryr investments UV(I (577,859) (3990 ,"- (497.862) Net cash flo'us*cd in Investing activitles
" .*FINANCING'ACTIVITIES Proceeds from the issuance of iong-tcnn'debt 929,782 472,039 -. 1,032,682 Retirement of long-term debt , (566,229) .:. l'1 j(829,000) 1i ! !,- cv! (1,048,129)
Proceeds from a capital contribution : 72 0 Change in Emiyjpi*l 3ibli- nit .7 , . . (59,720) ." I?., "I (-: I U Redcmptiofi-6f p-refereid stock* (3,450) (3,450) (3,450) Dividends paid: Common stock 1-6,900).............. , ) -- (68,100) Preferred stock , ", ('" 5(4,218) -. < (3,4r59) -" (4,106). 534,265 ' "(399.450) +... (91,698) Net cash flov provided by (used In) financing activities Net Increase (decrease) in cash and cash equivalents 18,399 (112,374) Cash and cash e4ilvalents at begirinln " of period 6,974 206,030 .l 318,404
$25,373 $6,974 $206,030 Cash and cash equivalents at end of period l:
.A,',;, '
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid/(reccived) during the period for: Interest - net of amount capitalized $117,075 $130,491 $152,655 Income taxes $14,450 ($28,169) ($30,987) See Notes to Respective Financial Statements. P,207
ENTERGY GULF STATES. LNC. BALAINCE SEfETS' ASSETS December 31, 2005 2004
-. -. ~ ~ ,t.,, . J* :.
- .(In Thousands),
CURRENT ASSETS Cash and cash equivalents:
$7,341*:,.,.;. .. $5,627,* . . .- ,
Cash ' ,t 1!.'; :." Temporary cash investments - at cost, which approximates market I -. i ý - 18,032. ... ,.. 1.347... Total cash and cash equivalemits ':,""125,3731_-' 6,ý- 974 ."' Accounts receivable: Customer 203,205 124,80 Allowanc~efdr doubtful accounts"'--- (4,794) (2,687 "". Associate-d *mpanies 90,223 13,980-Other 50,445 40,697 Accrued unbilled revenues 186,527 137,719' Total accounts receivable . .- - 525,606 314,510 Deferred fuel costs 254,950 .,61,124
- Accumulated deferred income taxes;, 14,339 Fuel inventory - at average cost, ý ,- , 60,196 ., .-. .49,658.
Material and suppjies :_at averagecost 112,544 101,922 Prepaymentsiand other -. is; "'36,996"' -,:,1 *--?, : 20.556..;: 1.,. lie TOTAL 1,015.665 569.083 OTllEA PROPERTY'AND' INVESTMENTS Decommissi6ning trust funds 310,779 ...... 290,952 Non-utility piNerty - at cost (Iess accumulated depreciation) 91,589 94,0521 Other 22498"' 22,012" TOTAL[ 424,866 407,016 UTILITY PLANT 8,569,073 ,.8,418,119 .. 0 ." Electric -.... :I-Niftui'lg~ii 86,375,. til. ..- 0,. 78,627, * .:,f-., _° Construction work in progress 526,017 331,703 Nuclear fuel under capital lease f1 55,1555,! _.,i;._ 71,279
' Nuclear fuel- . 1,'
l338 , .r .) . .. , . ,' ,.., : TOTAL UTILITY PLANT , 9,247,958 "' 8,899,728, Less - accumulated depreciation i'd 'iarortization 4,075,724,;" '.' .:4,047,182' .. - UTILITY PLANT- NET , 5,172.234-t -'" 4,852,546 DEFERRED DEBITS AND OTIIER ASSETS Regulatory- assets: . 459,136.',t ,444 79"9;"f"" SFAS 109 regulatory asset - net -. Other regulatory assets . Deferred fuel costs . Long-term receivables 16,151 23,228 Other *!.,,,. : .. . .41,195 ,.. . . .,44,713 -.., ,.,,l,:.,.. TOTAL 1,190.344 826,757 TOTAL ASSETS $7,803.109 $6,655,402 See Notes to Respective Financial Statements. 208
ENTERGY GULF STATES, INC.
- I!, ': ) 1 1,1 t,.. : > i BALANCE'SHEETS1A.a *uirT,.I "tO
- L'I' / 1,, "
. , .' .. . LIABILITIES AND SIIAREIIOLDERS' EQUITY
.', ,.. T , December 31.
" * -' ,-2005 - '- - -' : 2004 (In Thousands)
CURRENT LIABILITIES Currently maturing long-term debt ~c $ - .,...... . $98,000 ;,:.,,, :..: Ac6ounts payable'. :'
-hssociated companies 100,313 153,069 Other . 479,232 ., 147,337. ---- 1 .,..
Customer deposits 57,756 53,229 Accumulated deferred income taxes 71,196
- :>'"-(' "!:!; '* i*;1:E *, 4`2 2, 8 8 2 "J )'),,.
Taxes accrued Nuclear refueling outage costs 1
------- ,s48 -"
+.34,338 ' ,. , -.. 32,742 ,,;,.. .-
Interest accrued Obligations under capital leases .; . -- 33,516, ... , 33;518.. - 3,! Oter'- ---- 14,945 19,912 TOTAL 806.844 560.689. .
,,' ', '*V.' M NON-CURRENT LIABILITIES ,'3 ; .,:", ..
Accumulated deferred income taxes and taxes accrued 1,619,890 1,533,804 Accumulated deferred investment tax credits ,. *'I 132,909 - 138,616 ".. ' Obligations under capital leases 20,724 37,711 Other regulatory liabilities 37,482 .. , 34,09 ,.
,, .152,095 . 5,, ..,A , 3 Decommissioning and retirement'cost liabilities 175,480..'.
....... ,-. Transition to competition-- ---..... , .... , 79,098 79,098 !' Regulatory reserves" 16,153 81,455 Accumulated provisions 67,747 66,875 Long-term debt 2,358,130,, . 11,891,478 Preferred stock with sinking fund' -" . 13,950 Other 203,665 229,408 TOTAL 4,725,228 4.261.949 . Commitments and Contingencies,* . , . -1 1',11l I . I, . . I ,i SHAREHOLDERS' EQUITY Preferred stock without sinking fund 47,327 47,327 Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 100 shares in 2005 and 2004 114,055 114,055 Paid-in capital 1,457,486 1,157,486 Retained earnings 653,578 513,182 Accumulated other comprehensive income (loss) (1,409) 714 TOTAL 2.271,037 1,832,764 TOTAL LIABILITIES AND SIHAREIHOLDERS' EQUITY $7,803,109 $6.655.402 See Notes to Respective Financial Statements. (209
;' /NTERGY GULF STATES, INC.'.
STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL
, * ".; * **Forthe Y'rearsEnded December 31, 200s 2004 2003 (in Thous~ands)
RETAINED E.ARININGS Retained Earnings- Beginning ofpcnod . $513,182 S419.690 S449.929 Add - Net Income 206,497 $20 06,497 192264 $192,264 42,562 S42.562 Deduct 94,306-.' J ,', ,.,100) 6I Dividends declared on common stock 61.900 Preferred dividend requirements and other 4.201 4-201 4.472 4,472 - . 4.701, 4,701 Total 66,101 98,772 72.801 Retained Earnings - End ofperiod $653,578 S513.182 S419.690 ACCUMULATED OTHlER COMPREIEKNSIVE . . .,',' .' . .. *" s INCOME (LOSS) (Net of Taxes): Balance at beginning ofperiod: Accumulated derivative instrument fair value changes S$ S3.912 $3,286 Other accumulated comprehensive income items 714 Total 1714 S3,912 S3.286 Net derivative instrument faie value changes .... arising during the period (3,912) (3.912) 626 626 Minimum pension liability (2.233) (2.233) (2233) I10 Net unrealized investment gains 110 110 714 .- 714,. Balance at end ofperiod: . 3,912 Accumulated derivative instrument fair value changes Other accumulated comprehensive income items (1,409) Total j S L409) ______ $714 S3.912, Comprehensive Income S200. 173 S184.594 S38.487 PAID-INCAPITAL Paid-in Capital - Beginning of period $1,157,486 S1.157,486. ,, $1,157,484 Add: Capital contribution 300.000 Other 2 if $1.157.486 Paid-in Capital - End ofperiod $1,457,486 S1.157.486 I. -
;.. ";?
'210
ENTERGY GULF STATES, INC.
ý4." i,/SEIU&C*IEW)FIlqNCI.d L D.XTA -TivFIVEA'M'RCOMPARISON". Tr ' -
A. lll,,' 1- ., I 2005 2004 2003 2002 2001 M ,IThoisdids) ... " ' " '.. .I . ..- Operatingrevenues -,.:..".. .. ~$3,367,1,71 $2,882,384.$2,639,737 $2,183,87,94,$2,648,560, Net ncome .- , , -,.?.j. , $206,4971 , $192,264 , ,$45,262 ,1-.ý: :$174,078M; ,ý]$17 9 ,4 4 4 , LTotdlassets-il.,',: h.i ;, H: 4I$ ,tiS7,803,109 -t:$6,655,402._,'-;$6,854,862 ', $6,599,533 ri,ý,$6,209,741, 1Lbong-'term. 6blihgatins' (1).,'-' ý .+j ],' "J!t*;' *:pi!,m.;i
$2,392,804', .'r:;ir'U:iia 9o.$2,051;083
. :+i $1,946,589' a
- ':li*3' f,, S2,096,329, e J" '* IV yt'
' !.$2,130,'245 (;!.'.ia 'Ur s¶it, *4.5Is IPJ!,s ~is ?'*Jo? ;ffub . .Jy ; *':; '.¢ (1) Included long-term debt (excluding currently'matuiig del~t), preferred Stk'w ikint g fund,and noncurrent capital lease obligations. -.
~f~
r:fi\. dli-: , ~ffJ'r~ W!¢'. 10J '" i '.,'r..:!.¶ .i*,'3,':. : Ji,'*,I " .' *[1 i;I- 14 1ia.f :itlJ I.-ih F~-
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;' " q(P.-
Electric Operating Revenues:-:!' P. ' Residential ... . $960 $881 . $829 $700 S $788 ohmerlal-,... 7.,672 734 - 7,o1C4 ' 6 502, 95
. 587.
In*du~stri'alw,2 ot b'A,.*',?:K ;i: 'r:'P) ~j*+ :;'01.O4+ ,-,~!976 A , 853
- v,, ~.* ,,.mh" 946
... ...- 19 946.
,. iGovemmental.):., ;-,y.. .,.-* :. ,,.. 4 . 39, ;..34 1 38 Total retail .;o".;,$ , 2 749
.. ::::i2,566 oi z'A-i ,2,335 -i,.,Z1,931AiT *.~i 2,359ý Sales for resale:
--. Assotateocompantes -*5.2...... 42 '+) 1,',"**"',' 73
.Non-associatedcom anes.1 tJ_.* l * +d~ -'*(A1 .'P*:186:
. ý§" O ,oo 521ýi: ;*.*
150 Li .'-, ~. . .,~a P . .', " fq'+t
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I.fOtber)_ - Ij V~fl.,,i "t i,: ;P# , I' . r,,.53 . .. , , 44 4467.A.- r , .13 2 ,5W1,, Vtp, $2;142 ;,- r:iW $2,591. vd hTotali t; -,J;:,9 'J.J ,;:nri2.* ":*2:;35$3,290:,. i.:* *j $2,821_,n foi:,$
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',Billý'dElectric&Efi~i6t5'SAl§(GV'h):, 1OIUTUOJL'i
'i. i ,Y ., .. *U ,..0241* `9 803 - ""9739 9 -502 9 059,
. 8,4*6--4 9 84448,,74 ,
5,4.,1/7* . ,, 887 7,6 uo.
. Comm-esrintal
.89.
.~II~ ~. ~ :-.~r ?j1 'z ~ "',,, .~ ;+16,596i.";, /,o:.i r'-..---3 5,417. , 8477,
+
j,,A*. 5,ti-; 15 C.~ ommernnetal -"-':""
!ri~I..
<-,.....~ .jfj~ ' 'i...... ~ ~.. .46441 ... -. F .. .475,. '.-*doot, ', 452',,
;, .+:. . q,
.,.,1.j - h+:-(+:.44i r:*'.:.*+ ,:,,., 32:'j.*r,*:tvt',
Lljl'r[*** (I475 t-) ,.ý, 1-.,:,.:,477 ,,-,,.; ,452!. 4.-
,-:,Govemmentalr;,-,
Totalforretail 33,918 35,275 33,805 33,760.. i,ý
,-333;837 3 Sales resale:
. .. i. 3,213.... 1,528 " " 3,5 I185 , -708 1,08
.Associatedcompares Io.. I,7 ' 1i -- . 4,391 3,305I Non-ass6ciated companies 2,804 .'1.3,672 ;-,. " 3. 4,391. . 30i05, Total 39,935 39,975 . 38,348 38,859 38,229
£ u I..",f
'"=....(, * ",
1.. .. '.. 12 ,5 ,* ,I ,' . .-. : j; ,-.,, 1
"-pr - ,*/j;,.1 '.r f* ,I '
- Ic. L ,' f t.z4,*.j
... '+'--' t 2.. ,+,+.', , ,+00. 1 . . ... *,
vL ,+lt;-u'r.f., ,_, !_,-v
*I' ;2 :*" *q(70C1cf ,,,;n ;.5 Yri*h.w'?:"',?.-
f211
ENTERGYý LOUISIANA, HOLDINGS, INC. AND ENTERGY LOUISIANA, LLC MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS Entert, y Louisiana Corporate Restructuring Effective December 31, 2005, Entergy Louisiana, LLC, a limited liability company organized under the laws of the' State ttea"as part ofarestructuring ing'6voing a Texai statutory merger-by-divisi6orIsucceededto "ail of theiregulated utility, 1operationisof Entergy L. isiana, Inc.' Entei:g Louisiana, LLC was allocated substanitiallS, allbf-tlihe property. and other dssets* filEntergy-Louisiana, Inc.,*incliiding all assets used to provide, retail-and wholesale- electric, service to .Entergy: Louisiana,,. Inc.'s customersr--.- Entergy Louisiana,,,LLC~i alsOr assumed substantially all of the liabilities of Entergy Louisiana, Inc., in~cluding all of its debt securities" and leases but excluding the outstanding preferred stock of Entergy Louisiana, Inc.p ,-... ,t- .j After the merger-by-division, Entergy Louisiana, LLC issued $100 million of itspjrerrAd memiierisilp units which grant the holders thereof the power to vote together, as a single class, with Entergy Corporation as the holdFif the comrnibnimembershipJiinierests.__Tli_ Peferred me-mli&ship interests have approximately 23% of the total voting power. Due to these, outstanding voting membership interests, Entergy Louisiana, LLC is precluded from joining in the consolidated federal income tax return of Entergy and its subsidiariesU ;.l.l As the operator of Entergy Louisiana, Inc.'s retal operations, Entergy Louisiana, LLC is suibject. to the jurisdiction of the LPSC over'electric service, rates, and charges to the same extent that the LPSC possessed Jurisdiction over'Entergy Louisfaria, Inc.'s retail utility operations, -The restructuring is intended to reducej'corporate fr'anchise taxes.j'The restructurif* implements - recommendation from-the LPSC staff and is expected to result ii a decrease in Entergy Louisiana, LLC's rates to its-Louisiana retail-ciistomers. . ,.. : On December 31, 2005, and immediately prior to the formation of Entergy Louisiana,, LLC, Entergy Louisiana, Inc. changed its state of incorporation from Louisiana to Texas and its namie to'Enteigy Eoiisiana Holdings, Inc. Upon the effetiiveness of tie statutory nmrger-by-division on D~ffi'6ý? ý3i1,'2005;"Entergy Lduisiana, LLCvas organized'_ndEntergy L.'ouisiana Holdings heldjall of Entergy Louisiana, LLC's common _m'em-b6rship interest*? All of the rofiimon mebefship interestsof Entergy Louisiana, LLC continue to be held by _E-fer) Lotiisiaiia" H1diiigs, -iid*11 of th- comiofni sf&k _f Ehfi -'g'L' Holdings, continues, to be held by Entergy Corporation. As part.of, the mergerrby-division, Entergy Louisiana Holdings succeeded to Entergy Louiiana, Inc.'s rights and obhgatons with respet to Enterg. Louisiana, Inc.'s outstanding preferred 'stock7, which has an aggregate par value of a-pproimately $100 Ilion. Withi three to nine months of the effecti'Wgdae %f the merger-bydivision, however, Entergy Lousiana Holdings expects to redeem or repurchase and retire the Entergy Euiisiana, Inc. preferred stock-ten outstandig and thereafter- amendlits charter to eliminate auithority'towiitue Oieferred stock.,',' .i.. ,.l.; ' p"i I* Any redemption of preferred stock by, Entergy Louisiana Holdings in connection with the proposed restructuring wrll be made at 'the'following respective redemption prices as provided in the Entierg Louisiana Hioldings amendedianid restated'aritiles of incorporation:_ '- -
.. . ..... ... ,.-, < .l, n Series of Entergy Louisiana Holdings Preferred Stock Redemption Price Per Share 4.96% Preferred Stock, Cumulative, S 100.00 par value $104.25 4.16% Preferred Stock, Cumulative, $100.00 par value $104.21 4.44% Preferred Stock, Cumulative, $100.00 par value $104.06 5.16% Preferred Stock, Cumulative, $100.00 par value $104.18 5.40% Preferred Stock, Cumulative, S100.00 par value $103.00 6.44% Preferred Stock, Cumulative, $100.00 par value $102.92 7.84% Preferred Stock, Cumulative, $100.00 par value $103.78 7.36% Preferred Stock, Cumulative, $100.00 par value $103.36 8% Preferred Stock, Cumulative, $25.00 par value $ 25.00 212
.,EntergyLouisiana Holdings, J.c. and Entergy,Louisiana,.LLC 2iManagemet's Financial Discussion And.Analysis rih)il;w;: Entergy-Louisiana .Holdings (also tholds :all ,offthe ,commonnrvembership, interests in EntergylLouisiana IProperties, LLC,,a Texas limited liability company that; as part ofthe restructuring, 3vas organized and allocated the Entergy:Louisiana,Inc.-assets notallocated to Entergy.Louisiana; LL..-i The assets allocated to Entergy Louisiana 11Properties iwere'two tracts of.undeveloped real estate,rknown:as the St.SRosaliq and WViltoni.Plant sites; and.Entergy
-.Louisiana,;Inc.'s :equity :ownership_interest in and a long-term ,note.receivable -fromSystem Fuels,! Inc.,,a company also..owned byEntergy Arkansas" Entergy..Mississippi, and Entergy1ewOrleansiwhich implements'and maintains ýcertain programs !for, the pI.rchase,'deliveryand ,storage oDf.fue *supplies ,forEntergy's utility; subsidiaries. ,ntergy -Louisiana. Properties, also assumed any *obligations,and liabilities relating to.:these .assets. IThe jbook *value .pff the ,assets, allocated.:toaEntergy 1 Louisiana,:Propert.ies .is :approximate]iyg$33 Imillion. -;,.Thbse;activities f.oEntergy Louisiana Properties that were subject to the LPSC's jurisdiction at Entergy Louisiana,-.nc.-twill continuetope subject to the jurisdiction of the LPSC. Entergy Louisiana, LLC and Entergy Louisiana Properties will be regulated ,bythe.LPSGon a,consolidatedbasis. ,I;.'.' ý!I " * ,-. t'no? .F.J , .f;' 4rii)'.!_jG Al iHurricane Rita and HurricaneKatrina *! -o , iu1i b w ' l:3a bof,.t1wfl i'; r,1 iiail(ssl1iVW tJ Iliii v/ i"vi' 1i1.f '.'uini", lrt n~i;%,,Or Ih .xii: k~~Lc !~ior grýi ,jiL'wit "irminq
,q'-'n[August and.September 2005,-Hurricane .Katrinaand Hurricane, Rita;-:along :.with :extensive 0flooding; that resulted from levee breaks in and around Entergyj Louisiana's service :territory,-,caused catastrophiedamage.; rThe storms and flooding resulted in widespread power outages, significant damage to distribution, transmission, and generation infrastructure, and the loss of sales and customers due'to mandatory evacuations- and;destruction: f homes and businesses due to wind, rain, and extended periods of flooding. Total restoration costs for the repair and/or replacement of Entergy Louisiana's electric facilities damaged by Hurricanes Katrina and Rita and business continuity costs are estimated to be $510 million, including $321.1 million in construction expenditures and $188.9 .million recorded as regulatory assets. The cost estimates do not include other potential incremental losses,,'suchlas the inability to recover fixed costs scheduled for recovery through base rates, which base rate revenue was not
- -recovered due toA loss of anticipated sales.-, -:,-!r.-, ,'II. c,; !4,b" li'ri vtr- L'.,~ri :i, x9'd Entergy Louisiana has recorded accruals for the portion of the :estimated ,storm ,restorationaeoztsnot.,yet paid. In accordance with its accounting policies, and based on historic treatment of such costs in its service territories and communications with local regulators, Entergy Louisiana recorded assets )because;1management believes that recovery of these prudently incurred costs through some form of regulatory mechanism is probable.
ýIn Decemberf2005; Entergy;Louisiana filed:3vith the.LPSC, fori interim recovery. of)storm restoration.gosts. The filing is discussed below in "Significant Factors and Known Trends." Because,Entergy, Louisiana. has lnot:.gone through the regulatory process regarding these storm costs, however, there is an element of risk, and Entergy is unable to predict with certainty the degree of success it may have in its recovery initiatives, the,,amouant. .of restoration costs and incremental losses it may ultimately recover, or the timing of such recovery.
Entergy Louisiana has restored power to customers who can'take service in mosF6-f its service te-ritory.
-Some customers in-the -most devastated areas: of Entergy - ouisianasz~ervjce territory are ab!e9,to.accept electric ,,seryice for a penod of time that cannot b6 estimated.,,,Entergy Lo-sanaestmaates .revenues that lost. on-fuel mi2q06 caused by the hurricanes will be approximately,39 mihon. Entergy_-Lousna's estimate of the yevenuelimpact.,9f customers who are currently unable to accept electric and gas service is subject to change, howecver, because of a range of uncertainties, in particular the.,timing of when individual customers will return to service. Restoration for many of these customers will -foll6y ij repairs or reconstruction of customer facilities, and will be contingent on validation by local authorities of habitability and electrical safety of customers' structures.
E.I UI I . I!t-31 I rt 0)l ' I-. Entergy is pursuing a broad range of initiatives to recover.storm.restoratjon and business continuity costs and incremental losses. Initiatives finclude obtaining reimbursement of' itain costs covered by insurance, obtaining assistance through federal legslation for damage caused by H'u'rricanes. Katrina and Rita, and, as noted above, pursuing recovery through existing or new rate mechanisms regulated by,"the ERC and local regulatory bodies. E .. (c.. I ) . '* lrrt'*Ei, t on: Entergy's non-nuclear tproperty insurance program provides coverage .vp,to $400 million on an Entergy system-wide basis, subject to-a1$20 million per occurrence self-insuredretentimn,,tor all risks coverage for direct physical loss or damage, incluAngg boiler and machinery breakdown. Covered property generally includes power plants,, substations, facilities, inventories, and gas distribution-related properties.. Excluded property .generally
.j c u eI , )'.I*. -, I1-:;st (l't -, ., C DI 'N l'0 'If. V .;, ,s)I t - l' (.:ex es includes aove-grouna f.W uI-1'j.,, . 1I i!
transrmssimnd an stnbutin tO Jies, poles, Ind
'l.)L towers.
I I .- The J),:. 1 ppmary
"
- i, property
.(3"1 ,.
propram jIJ J \!'.
ýexcess
.)]fi'1 1213
Entergy Louiiiana Holdings, ic: and Eniergy Louisiana; LLC Manage*nent's Financial Discusiidon and Analgis ,of the deductible) isplaced through OilInsurance Limited-($250'millibn.layer) with th'excess program ($150 million 1ýyer) pla:ed on a quota share-basis through Underwriters at Lloyds (50%) and Harifoid Steam Boil&i'. hispection and Insuranc6 Conipany, (50%). '"Coverage ii in place for.Entergy, Corioratioif;'E'itergy Arkansas;, Enteigy Gulf States, Entergy Louisiana, Eitergy Mis'sissippi,-Iand Entergy New Orleans. - There is'ahi aggregation limit of $17billionh for all parties-insured by OIL for! axfiy, one dccuirence, and Entergy hai beeri notified' by OIL that it expects claims f6r Hurricane' Katrina to materially exceed'this limit.! Entergy is currently Aialuating the amount of the cbveir&1 losses for Entergy and each of the: iffecied'don'iestib utility comipanies,,workifig with' iisumrance 'adjusteis, and preparing proofs of loss' fdr Hurricanes Katrina and Rita. Ent&'y Louisiina c6urrently estimates thkit its net insurance recoveries.for the losses caused: by the. huiricanes,, including: the :effect of the; OIL', ajgregation- limit- being, exc&eded, ;will- be approximately S40 million.1"i7 !fJ!.",!: : -, ,,.. '. *,- - .;,:;,, In December 2005, the U.S. Congress passed the Katrina Relief Bill, at hurricane aid package thlit includes
$11.5 billion in Community Development Block Grants (for the states affected by Hurricanes Katrina, Rita, and Wilma) that allows state and local leaders to fund individual recovery pri6ritid.:.':The bill includeg.jlanguagej.tht permits funding to be provided to publicly owned utilities. It is uncertain how much funding, if any, will be designiited'for utility reconstruction anrd the timing of such decisions is als'o uiirertain'. Entergy is currently preparing
.a'pplications to seek Community Development Block Grant funding:. ,
. r.......'j C ' L ' ' .' . ' . , " . *.. *-.*, * , , . , . . '
Results of Operations- 'I',. '*r':..: *' . . Net Income . :' ;...a,r,., fl , , .. ' " . . . .. - . 2005 Comnpared to2004.' 2I0 , *'7"*,$" "','-: . ... .;. ,., Net income increased slightly primarily due to lower other opeiatibn' and. maintenafice exp&nises, lower depreciation and amortization expenses, and higher other income, substantially offset by higher interest and other charges and a higher effective'income tax rate. t .... . . .,- '. . ... '7, .. T,1... . ,2004 Compared 2. , . Net. income- decreased, $18.7 million primarily due to lower net reven'ue partially .'offset 'by- lower'6ther operation and maintenince' epeenses.:-' -. . .. t,. .. ., NetRevenu .:,,- .-. 2005 Compared to 2004
... Net reveniue, which is Entergy Louisiana's. measure' of gross margin; consists of opeiating revenues netof:
t1)'fuel,, fael-relat-edexpensies, 'dgas. puxfch'ased for resale; 2) purchased* power ex'penses,, and 3)"other regulatory credits:'9Following ii an analysis of thlh change m, net revenue comparing 2005;to 2004:.
- .,,,.t..::
,y ,: . . : "" 2004 net revenue R~ese-r'v'e'equ-al'z'a-titon . ... *": $931.3
-:2 '" 1"1 :, ;,: ,* : :-; :
Y. "" Ra t.e r efj p i ns. ' .. . 2 . .
..- .*-Net'vholesalerevenue
.' , "10. ' '
'. ~ ~
,.,IVl *eather*;-"""
w '.... (31:5):" "'"-":; -' *" 2004 deferrals (15.2)
. .;,;/ " , ,,:2065'netr'evenue4. " ' ' ... $931.5 . " . - ,
pqi reiiO re-s,
- , ' The reserve equalizatiofn variance primarily ns due to, a rev' on o ries equaliation payments obetween Entergy companies duie to1 aFERC ruling-regarding t he inclusimn'of-interrupt'iruobe loas in' reserve equalizatin
*214
*Entergy Louisiana Holdings, Inc. and Entergy Louisiana, LLC Management's Financial Discussion and Analysis calculations and an increase in capacity due to the purchase of Perryville. b .
, , L-L, The rate refund provisions tvariance is prima.rily.due to higher accrualsfor potential rate actions and refunds in 2004. *; ' , bý i'.;;* c r'< i t' :i .; ,i.. r, iL'r'lo i >~ J; In*~
ý,i-" I'.:
The net wholesale revenueyariance is primarily due to an increase in volume as a result of the sale of a portion of Perryville generati6*-io Etefit-y-Guilf States. The volume/weather variance is due to a decrease of a total ,of-1 ,742 GWh in weather-adjusted usage in all sectors primarily due to Hurricane Katrina and Hurricane Rita, partially pffset býy the effect of more favorable weather compared to 2004 on billed sales.in-the residential and commercial sectors.ib, 1 Si'Ci (".S f) !(oi.iv(ol b i.; :, The 2004 deferrals variance is due to the deferral related -to!.Entergy!s lyoluntary severance program, in accordance with a stipulation with the LPSC staff. The deferrals.are being amortized over four years effective January 2004. . Gross operatingrevenuesfii~l iahipFfhise l power expenses, andother regulatorycredits f,?.,.-Gross operating revenues increased primarily due to:_ . '10 J"6;,J., 'P :-J an increase of $243.5 million in gross,wholesale revenue due tojncreased sales to affilhted systemi-sianiidthe sale of a portion of the generation from Perryville, which was purchased in June 2005; and Ijij ..:,an increase o,$201.3:millionin-fuel~cstirqeqoeryreyuesduet higherfuel rates.;ý h.)k';:j..u -'11, The increase was partially offset by the volume/weather variance discussed above. Fuel and purchased power expenses increased primarily due to a shift from lower priced nuclear generation to higher priced gas generation and purchased power due to nuclear plant outages in 2005 in addition to increases in ithe market prices,of.natural.gas and.purchased power. ,,l I C."MW v " . , Other regulatory charges (credits) have no material effect on net income due to recovery,..nd'or refund of such expenses. Other regulatory credits increased primarily due to the following: S.,the deferral'in 2005:ofcapacity.charges that arenot currently recovered through base rates but.are expected to be recovered in the future. See Note 2 to the domestic utility.companies aand System Energy.financial statements for a discussion of the formula rate plan filing that will be effective in 2006 for the 2005 test year; and ," .. ..
- the difference in the amount of amortization allowed by GAAP versus other regulatory bodies related to the Waterford 3 sale/leaseback 20-year life extension. , ,ti it:r irj L.>,',j;;: i:t Jr,;. ,r Jr *,"
The increase was partially.offset bythe 'deferral.in 2004 of $15.2 million.related to .Entergys voluntaryeverance program, as discussed above. II.vr,. j o; l;' r.)1;- lv--de3l. - li fl?:'Dn~ I ICA . rzi~t I0 u'~lhi 17.bl L :v.- Ii, 1 0
-215
Enitergy Louisiana Holdings; i6c. and Entergy Iouigiana; LLC Minageinent's Financial Discussioh and Anal 'Sis 2004 Compared to 2003 . . : ri .1t 1.':iJL*;
/8 *.,.*) c.:i i; .',; L, -;.)
Net revenue, which is Entergy Louisiana's measure of gross margin, consists of operating revenues net of: 1), fueli' f'iel-relatedi expenises', and gs`ýurchasedl fot resale, .2) purichaied power expenses, and 3)'0ther, egulatory credits. Following is an analysis of the change in net revenue comparing 2004 to 2003. fl - . ;., f!Li . ... :-i- *ý;,;-,2003Yn 1et're'ven u., ' . - *' 01 LJ I -: $973.7v ,..'J); ,.ý &. ,f ..:
. ,6:.
,Pric,,, eapjlied to u'nbilled sales s:a le:si."" (31.9);ru : I , ", <.18,8 , . ,,4:.,
Deferred fuelcdst reVisions '). '" " " " ' ' -" Rate refund provisions (12.2) 8 \To1ui'xe/1Wdther' LA-vi
- ID0 170 '.4-'
-, , , ,Sumier capacity charges - )g'..l :11.8
- Other 2.3 2004 net revenue $931.3
,j,.,, ", ( . l
- I..',,- .% I '.',)"".*.,, 1. ..l'. "3 , .: '.'\ ," *-'
The price applied to the unbilled sales variance is due to a decrease in the fuel price included in unbilled sales in 2004 caused primarily by the effect of nuclear plant outages i-2003'6oi averae fuelc'ost§. See "Critical Accountin2 Estimates" below and Note I to the domestic utility companies and System Energy financial statemff ents -fdr ffi nfi~erd lsussion of the acc oudnting'fdr u nbile revenuesk t , .. : ,.-: - .... .. .
;.', . 1 ~i 7OX .* L:#ff. . c . .' t.,' .q . *. c! u
." ~ .jf'i'
". 8'! t - . f:(r i The deferred fuel cost- revisions vriaanceresulted from a reAsýl uinbilled: sales pricinig estinatd;liAde in the first quarter of 2003 to more closely .° t;'j W
align,.,i'. the :fuel component of that pricing with expected recoverable fuel costs.
- ; i I ;.. `.':! "", ý,' lt O.r-gtI d : * ,.,( : - ", .Z ', I i*!'
2 004 ' omThe parrate ed t6refund 2003Aprovisions q i ,',V G ,1 iT variance 1 o*i t hl ifk Bis,O Jdue to; higher1./. ' accruals
" * '.
- for potential 0i ;. va, . , qý:: rate ,actions
, , * . :and 1;.*1.!o L:~refunds : :-jorecorded in I~~~~~,
ý-.i 4I'r f; r;.' I* f r ý;,n "_L :f]; o; The volume/weather variance is due to an increase ofa'tbtal bf 620jGWh inrweather-adjiistediusageii'all sectors, partially offset by the effect of milder weather compared to 2003 on billed sales in the residential and
-,com m ercial
. .. sectors..
.. . . ; , fo., ,(:, . .f.., ' i ( id. T-r
(.i.:d ) '-.i.,l "/ (,;dij'..(1 '*i O The summer capacity charges variance is due to the amortization in 2003 of deferred capacity charges for the sufimer'of 2001 .c6mpared to theiabsence of the amortization in 2004."' The amortiiationof these-c'apjacity charges bejan'in August 2602,and 8,r*.tA" "(,, .'.i ]* ,t ended inJulY,2003-'..
Ž r(:.. .;* . i~. ... 4"t . ic jl j~ ~j':,.:.
.l.8" " .', , . "
,,.2 ":ldi')o
;,,Jjp -: ,:..,*rl y*l'*2': ,di
- o' '-w i2?tI.*T **:
oI Gross operating revenuesfuel andpurchasedpower expenses, and otherregulatorycredits , --
. 5::i; ',:i' " PluM}. .) :-O.L.';I~r:..l "VI 1~ gal":5 if; t,V
!.v ) ,-
Iq*., .. I,'*; :WC h*i ~I5(G fl.;ir3V . :rl1JfY.'1, .,A. . "J: f,',
ŽP b 5r*1
)':7t Gross operating revenues increased primarily due to: '-': "t, "r.i . ..
"'-v'.".an inctease of$98.0 million ih, fuel~cost recovery r.evenuesdue td higher"Mel ratei; and. .
- an increase due to volume/weather, as discussed above. .
The increase was partially offset by the following:
- a decrease of $31.9 million in the price applied to unbilled sales, as discussed above;
- a decrease of $12.2 million in rate refund provisions, as discussed above; and
- a decrease of $5.2 million in gross wholesale revenue due to decreased sales to affiliated systems.
Fuel and purchased power expenses increased primarily due to:
- an increase in the recovery from customers of deferred fuel costs; and
" an increase in the market price of natural gas.
216
-)Entergy Louisiana Holdings, Inc. and Entergy Louisiana,.LLC eiMa~nagement's Financial Discussion and Analysis Other regulatory charges (credits) have no material effect on net income,due to recovery_.andorrefund of such expenses. Other regulatory credits increased primarily due to:
0 the deferral in 2004 of $14.3 million of capacity charges that are not currently recovered through base rates but are expected tobe recovered inthe future, ,?.0-, . f E-ruz,' iJn L.,b1) 0,,: 1 -t *':o* 1.,';
- the amortization in 2003 of $11.8 million of deferred capacity charges, as discussed above; and
. 'Atl'e.deferral iný2004.of$11..4niIlli6n related to Entergy's voluntary severance program, in accordance with a stipulati6nwith ttie I2PSC staff.
O thei~ i*,n~ me Stak 'fei~e t V ariancii. .3
- bh .*hqlo -tJwi ýni*, 7*:[ .tJDIO .*fj-ýf,'w h mv; JIF;"
2005 Compared to 2004 :(1o Lq1,-) v.( h-hi fto. ';,-n'f rf*: fý,1_(Other operation and maintenance eopenses decreased primarily due to: ,'iifr;vtil
/i (C*:), a decrease bfappirximate!y$12 million in labor~ahd contrdctcbsts lrimarily becau-e labor resources have been capitalized as storm costs due to Hurricanes Katrina and Rita; and
*7,9d decrease of $5.4Tfhillion inh*ofitra~t costs as a result of maintefiance obtages at fossil :plarts iri2004.,i)
-The decrease was partially, pffset .byan increase of $5.3 million in ptorm reserves in connection viththe MarchhI A r2 00 5 ratecase settlement.,) :z:,rP::' ., . r:,r tr'r,:,s'r. , Djj :xi~iu',il '-1 ;"' o,1,; 0 IC ,1 .,rrt, =,(f k fr;r')3A..01 .Tr ! r',j :[,"J rh .*_ l~r" t ui)L!I' I ;yin odt :;0)!1 uuil ft' 7~.I~ ?.
Depreciation and amortization ,expenses decreased, primarily,,due to -a, change ;in lthe depreciation trate.,for Waterford 3 as approved by the LPSC effective April 2005. Other income increased primarily due to: nor,1i h'proceeds of $4.6:milli6n received from th i-idwfasteettleInehi .'nhich is discussed below' under l:,?n *rl
.czo i"YSienifliaht Factors and Knowhn Trends 'i-'Cehitral Statis :Compact Claim; :',uo.ri oJ bý) -,r:,,Y ,q 9 an increase of $4.6 million of interest earned on deferred capacity costs; and 1'rit' :-an in'creasein all6wance'forequity.fun`ds uisedduritng c ns'frdctio6ndue to aincrease'iA consitriicion work 1Johi'iniprogr-ess ias A est ftHu ricafes'Kktrina1iradRita.. : n 'to I1_:.rt n*:dI" .ii. "i;i" " " il .. ,
The increase was partially offset by the write-off of $7.1 million in June 2005 of a portion of the customer care system tinvest 1 iie*t;and :the ir'elated 'all6 ',ince'*f6of *l'uit-yrftiridslih'ied" dKtii'ihg linhgtructi6ii'i dratpit- to 'n LPSC-a*i ppf 0v d se ttl e lln i ft. ýi .*4q1Jrý, er:l"i * 'if
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j hz19. "il a: : ; b ,. q vl bi
- i ' r d . , * ~ a m q1 -, 9 t a 9 x f-fm;I1 "IL :*.'C 1:,'I1 fl'r~jgill., 9* t~ii',' *. t r1*tf,)'iIIN., :.i~s'r:'..b 'ia ttizrnoi eiJ "to v;;iJ Ci ai
-'iIr:,., i Ž:;=',*or~ ci *. jriC,.!J?
I-, '.~,<°:Interes .'and :othe'r :'hairges' increased -pnimanly.!uie, to .imt&~rt accrudd 'on ~past :tranismimsion "conistrtction L.collectionstfrom a cogenerator iibae6odanceoVith a Ddceibet r-'-204TERC bder.ni . . . .. ..1,:. ,
, ",o'i"vb)ftit ~*, in. '*L. q-,fii ., . !-m, : o*l)0 ,flC iTrUIrl ".'f .' 1 'iirp:` h-i`nFlzc'to " t u:: '"h n2 06 0 4 ',Compa r ed to -200 3 t tzi , ).
- 6:if: ; >b : ~ n ' a * { v * *o iotE a'27 nn - !.iojo 3 n r . * , s
- o, s optration and nahitenian" '
0 & f"Optýer 'epnses'decfeased primarily iiue t 6'o6iuitryeverade*progra- accrum-als of $19.7 mllihon Ii 2003,.'partiAlly'offst by an inciease of $9A1 mhoillicn in iustoimrer service'support cobsts.- 'V" I'."'rJ 4lncome Taxes ni t:: r 1.%.I ?h. ~( bu~Inr~~v~pi~ nb~i.GO i
- r. lyf.¶,,, !C~eiT:i j:...... , .. *.llT, . .utnlo.' "i,.
',,: 'tJ*"o?rtoiilcu~kr. svio;q*,o ai*!:: -rU! Lt.Oi~'T.'iil,.Il bo3*i*tsi SJi The effective income tax ratesfor 2005, 2004,-and 2003 were,.43.0%, 38.4%;and 40.0%,.respectively--See
- ,Note ,3:to the domestic 'utility companies and System Energyfinancial statements :for areconciliationofithe federal
,statutory,rate of-35.0%,to the.effective income tax~rate.ý Tax.reservestnot-expected to.reverse~within the next year i are reflected as non-current taxes accrued on the.balancelsheet.fj foillhi I 1) ý, f'., i~r~r~j 'tM, ;,L 9I dflb
- : ,r, Y;.i, 1i1, . _,
W,!, :, ' nr.o 1 I..-
.... is.5t;,i!-Jub.utL. f-il.ii:t 0il-i-2 I; bn'; ,r,:&,O v.'V v,',.3,li P217
Efitergy Louiiiana Holdings; Inc. and Fhiergy Louisiana,: LLC Management's Financial Discusiion and Analysis Liquidityand Capital Resourcest .. :.. -.. . Cash Flow Cash flows for the years ended December 31, 2005, 2004, and 2003 were as follows:!.. -, ri f2005, . " ,2004-,-*;f,,' :. 2003. ilc (In.Thousands) ',-:. Cash and cash equivalents at beginning of period $146,049,, . $8;787 ' .$311,800;, Cash flow provided by (used in): _ C T : Operating activities 179,790 506,584 353,768 Investing activities '-1 ..; (549,453)-:,:',.,,; (283,780),,-,.u, i.(249,518) Financing activities 330,899 (85,542) (407,263)
. Net increase (decrease) in cash and cash equivalents . ( 3 8 ,7 6 4 ) 137,262 -...":-(303,013)
Cash and cash equivalents at end of period -'. .$107,285* :,;."i;'S146,049j-,;'ý!- A.$8,787 Althbugh."cash and cash equivalentsiat, end: of period and -a'sliflow-provided, ly"operatihgP activities for tle 'year ended December 31, 2005 for Entergy Louisiana, LLC as presented on the Statements of Cash Flows'differ byin immaterial amount from the table above, the analysis below applies to both Entergy Louisiana, LLC and Entergy Louisiana Holdings in all material respects;: except where specifically noted.- ' .:,. .-:. :.. Operating Activities Cash flow from operations decreased $326.8 million in 2005 primarily due to storm restoration spending, the receipt of an income.tax payment; of,$70:7.. million: in' 2004. throughi Entergy'sl inter-company. tax: allocation process compared to income tax payments in 2005. of $1 EL. million; and decreased recovery'of deferredfuel costs.
*.......... f , ,I 'U~f .' ..,.)
- T fl 1 Z "
- Cash flow, from+,operations increased. $152.8 million in,2004* primarily-due to, the, increasedcol!ection of deferred fuel costs and the receipt of an income tax payment. through Entergy's: inter-company taxallocation process.
,In addition to, the direct costs caused by.the storms,, HurricanesKatrina'and Rita have,had other, impacts that have affected Entergy Louisiana's liquidity position. The Entergy New Orleans bankruptcy caused. fuel and power suppliers to increase their scrutiny of the remaining domestic utility companies with the concern that one of them
, could suffer similar impacts, particularly. after Hurricane Rita.! As a result, some suppliers began requiring accelerated payments and decreased credit lines.!.In addition, the hurricanes damaged certain gas supply lines,,therebY decreasing the number of potential suppliers. The hurricanes also exacerbated a market run-up in natural gas and power prices, thereby increasing Entergy Louisiana's ongoing costs, which consumed available credit lines%more, quicklyj andl in some instances required the posting of additional collateral. Entergy managed througl ite-seevents thus far, adequately.,supplied Entergy Louisiana, with fuel. and power,, and as; a result of steps taken by, it.,regarding, its storm costs expects to, have adequate liquidity and credit to continue supplying Entergy Louisiana with, fiel'and power, 1* "to In 2003, the domestic utility companies and System Energy filed, with the IRS a change in tax: &ccountifig method notification for their respective calculations of cost of goods sold. The adjustment implemented a simplified': method ýof'allocati6ri" of 6Vdrhad; to the pi'oductioW ofel~ctricitywhichl is' provided und& the IRS !capitalization regulations.- The~cumulative adjustment placifig these cbmpanies'on the niew miethod0logý resfilted in a-$'. 13 *billion. deduction forEntergy 'Arkansas, a $641 million deduction for- Enierg, Gulf Stife";, a $474, million deduction for Entergy Louisiana, a $111 million deduction f6r Entergy! Mississippi, ad$32 millionw deduciion for Entergy New Orleans, and a $440 million deduction for System Energy on Entergy's 2003 income tax return. Entergy's current estimates of the utilization through 2005 indicate that Entergy Arkansas realized $115 million, Entergy Gulf States realized $46 million, Entergy Louisiana realized $64 million, Entergy Mississippi realized $2 million, and System Energy realized $138 million in cash tax benefit from the method change. The Internal
' 218
,)EntergyLouisiana Holdings, Inc. and Entergy Louisiana, LLC
*;Managements Financial Discussion and Analysis Revenue ;Service, issued'. iew.proposed;regulations,- effective;'in 12005;,whichh disallow, a.aportion iof:Entergy's metliod. Approximately $776 million of tax deductions have to be, reversed iand ;wiil:be' recognized in taxable income equally over two years, 2005 and 2006. Entergy Arkansas'shareofthisreyersal '* .
is is ...
$270
$27 million',- Entergy
;T... '
.1 . _... . t ? ., ... s
,, j , ,o f hii s, Gulf States' shard is $148 million, Entergy Louisiana's share is $145 million, Entergy Mississippi's share is $124 million, Entergy.JNewq.r~eans_',shares,$27 million, share is $6million. ,in 2005,,the domestic utility companies and System Energy filed a notice with the IRS of a nev tax accounting method for their respective calculations of cost of goods sold. It is anticipated that this new method will offset a significant portion of the previously stated adjustment to taxable income. As Entergy is in a consolidated net operating loss position, the adjustment required byrthe newregulations has the~cffect of reducing the consolidated net operating loss and does, .rot require a payment to ,theIRS ;atrthis time. .However,,to, the ,extent_ses, the inidivi .compamsjpkn.__
,election do not )have other deductins or othersufficient net iopertmg topayi-back, their thy,dwilluhave,
.......... -. '-- .. oeaigAoses, Jey w ihav tpy, -p4;thef benefits received to other Entergy companies under the Entergy Tax Allocation Agreement. At this e,. is estimated that Entergy Mississippi would owe $1 million, and System Energy would owe $9 million. The new tax accounting method is ialso subject to IRS scrutiny.'; Should the IRS fully deny the use of Entergy's tax accounting method for costof goods 'sold, the companies would have to pay back all of the benefits received.
Investing Acti4i1i(sý.- The increase'of $265.7 million in~ifet cash used by investing activities in 2005 primarily due to:
'"wa , "ntergyLousina purchasing the 718 MW Poi, r*.e poiwer'plant in June 2005 for $ 162ulioni "Eý'_ntergy "'
1--. 1 , 1 I -J r :,- t- -- ,,I r4 .: 1;*- It. 1 11. -. -
.- i.s'lania'will sell 75 percent of the.output to Entergy Gulf States under a'ong-term cost-of-service power purchase agreement. In Arpi1 '2O5,'tmeLPSC appr6oveltedicquisiton annd thelong-termcost-of-service t purchiasedpower agreemenund'errh-ich'Enntergy Gulf States will purchase 75 percent of the plant s output;
- an increase of $40.4 million in capacity costs that have been deferre dan'dare expected to be recovered over a period greater than twelve months;
- an increase in spending on certain transmission and nuclear projects; and 1' tJ l:).-3
- an increase in distribution and transmission costs due to Hurricanes Katrina and Rita. *.,,
The increases were offset by money pool activity. i ; ;WIc. 1,.;, rýIFil;y ,* l~li ... Y'-1. . [*i 'Lnc.l Lrv,: i*'.) I, Capital expenditures made during 2005 asa result of Hurricanes Katrina and Rita werel$151-9.million. The increase of $34.3 million in net cash used by investing 'ctivities in 2004 was primarily due to money pool,;activity rand increases in,spending ,on transmission 5projects .andjfossil plant.,projects, partiallyoffset by decreased spending on customer service projects.: , ,, -. ,:'iwgihi : , " ?i;'i-Financing Acti(itiies .i1 "1"'" ._" Entergy Louisiana's financing activities provided $330.9 million in 2005 compared to using $85.5 inilliofri in 2004 primarily'due to: .' 602' (U)hr.:, .ui lr.*q: (i? the net isstaince of $182.6 ihillion of long-terfim debt in 2005 "ompared to the net issuance of0$79 riillion of.', t-'AO.;long-term debt in 2004. The',2004 net issuance includes theprincipal payment of $14.8 million for,the P*? Waterford.Lease Obligation;,,,2 (;' . .. ,?m! l'jrit "i.1u"
- the issuance of $100 ..million of preferred stock in 2005; ' y...r q ( l ]"+' 1 h"(*
, ',+. iimone~jv no lacti itw ; * .. t':' .. ..n! ..... ttrJiPI *I)t 0,I,, :,i,: n.tillrt, U, t +ul T_£ v Jh: .t~' *(**o , a decrease of $64.9 millihon'm -commonstoicki 'dMdendspaid; ind -.... .. x ',l.] ,r., ,[,.
0 borrowings of $40 million on a credit facility in 2005. .rive':'2 a r,r,.,k:,; i'-l S' The'deirease of $32127 miolloni net cas'se bnyin g'actiwtes'in 2U4\vh -primarily due to'
.*. ,h the net issuance of $93.8*million bf l6ng-ierin debt'in 2004 dohipared tothe retirement of $261.0 million in 2003; J.,r*::Jl.:. : flav.,ilqF / **: .. b::u,:*
(219
nlntergy Louisiana Holdings,> iic; and Eniergy Lbuitiana, LLC Mhnhgeim'enn'sFinan6ia1 Discussionfand Analjis N -'t-' , .8ilhodn in 2004-f6r the Wateifordllease Obligatio onompared toapnrincipal,-, '.lf'yj 7iayifen f-$35h.4' ill','iAiN:20O*3 ;V,*'? nd , .' , /.;I "o ,.oi;lir,i ',}'>,J:i',(,Iq'." . ;L.s I 1.,4 _,,J.i[ ,rzoti),lirU . -, ".a1 ' .f1~..'.:", ( ~:*/:l* .U~o'lI UtJc A , ,-1 i-A=?2
- '* r*R liu
'96e Nbi'e (f~f 5:IIio the'domeiti'
~ d~J~ ,iiilityc'ompames
*.3I,*~~t, t .. , and Sysiem En&e
~...... * .... financial I~ .,' staitements 3 '1' !..-... f6r
.:.*[t....,'~ details
", "t.t; .. of longrm
,,1: der
.3;~cI~ta l,*).
1m;i.IOq F~eol r r i) Yonb ~hu!OZfflriwC c: ~L~(A 3: O IEnfrgyLouisanas capitahiiati6oi' is' balanzced' b(etweenequity and debt; -a-shon'inilthe. f6l1owgiiig table.
'Tl1iincrease* in the 'debt toIcaa iaget as 'of-Deembe 3-1, 2(d05" ' primarily te,resuilt o Increase debt ipercen 6utstan hng`.arlally offsef by an,increaidi'n&shareholders' equityresuiiltin gfi'o iheP'referred 'stock'i isuanc aind
;i',:',, .:= .:'v-,;rl'.k j 'ds { rd b V,).l . . .. December 31, f ,-"December31';;d r:.,ii,&,-
pi,ý i Net debt to net capital 48.4% 44.8% ' *o
- ,,*q v
- D Effect eb of¢itg subtracting tal)O_, jf:.i cash,',,, from debt ,,*.,. , 2.2%
.. , r*,50.6% ,.;,-,.--: ; .487 3.9% " , " -- " - .'
Net, debt consists of debt less cash and cash equivalents.., Debt consists, of notes payable,. capitallease obligations, and lon-temdebt, InC'ludin~gth curently i~maturing portn. Capital consists of debt ad shareholders' equity. Net capi'talconsists aal '!¥. t of capital i - J"'"*
,.t . '
cicondition
. j - . less ca a r cash
.U I i* .. ,a *.*I'Ir believes
'i. equivaLents.
* )
It, provides
*. I"' .. ,.> ergy usefulLouisiana mfrmatton
.. 1 . useis to
' 1 tn itsnetinvestors
/t.!. L.; . .0 debt to, net 111. 11,1-, "*.ý!
and capitalcreditors I'_J.,**..Dv ratio in in yaluating Enterg; Louis ana's'fiancial aoindition " . .w3. :,. " Uses of Capital hrt :?Jo'i " . ;!iti! L!!t": 1'O " ".... ..-1. . , Entergy Louisiana requirescapital'resources for: . ' "
- construction and other capital investments; .,'i..:; i,:, , ,*.,,l , J<H1.* .I:v: . , r't "..,'
" debt and preferred stock maturities;
-1iworkini.6pital'puq5obies, includihg the finah'cing of fuel and pdrchased power costi; and,.- ii,;')
- dividend and interest payments.
'v"~on *,!1cF'( ::~r ni e;b o.,;-O,)E*g., 1 q "ihg . *o ..... f i-i . ,iJ: ,.. '-' ..... , ,!..:. . 'i: .... !. *rn Ur'ri f',fvJ' ri"ni
,rPeill;:-
*g " .It;: t ".'" -* i*l' "'~1fl"'
the'amountsofi 6gare- t ntergf LOuisiana's' planned, construction and, other caipital investnments, existing debt and lease obligations, and other purchase obligations:-`;*-;'q "": -r:c::zr :;o gn:bn' b:V1'.":)h 2006 2007-2008 2009-2010 After 20l.,0,, ,,Tota,.a, (In Millions) Plafiiied eohsti'uction and.-,-...ýr Iou *.() f.i uuLi I~i~r: 11~;ýi_,':l ... [,i': ,l" L:q;', ... h *'.,:i.u _ .. :! capital investment (1) $206 $482 N/A :.n NtA( wrori"$688: v-i Long-term debt $- $- $229 $943 $1,172 Operating lea-desi .' ., .- i :.n s1 ,tA Li.$-I-., SI,4i ' , 1o noui, ,$9, '.'I .:-:t$ 9.2i ý)n ,,1! $40 Purchas6'obligati6ns (2)!.Wi";,. Ir ',-;-;`' $655,.!. $1,250J'),1 .,n $1r036" $4,146rnA'--1$7,087
'.t* l Nuclear fuel lease obligations (3) $23 $36 N/A'I:(:!(.;J , N]1y, .I( S59 (1) Includes approximately $127 to $170 million annually for maintenance capital, which. is plannedspending on routine capital projects that are necessary to support reliabilityen or to support
,Rqq~ab~l~~tof ,service, eqw~pmen or! sytem normal customer growth. . . :'(, ..;. 1('i. I? *.'*:,.
(2) Purchase obligations represent the minimum purchase obligation or cancellation chaige for contractual obligations to; purchase, goods 1or services.,c.. For Entergy Louisiana,. almost, all of) the total consists of unconditioinal 'fuel and purchased power obligations, including its obligations underthe Vidalia purchased iri *opbwer. agreement and the Unit Power SaleslAgreement, both of which are discussed in Note.8,to the domestic utility companies and System Energy financial statements.
'220
'Entergy Louisiana Holdings, Inc. and Entergy Louisiana, LLC 9Management's Financial Discussion and'Analysis
- .OOe Ili Ix!m:tu.:Io. V ,,61t35 j rijl'i n, jd'jb Cd-,1-.'. ?i. :d*i ,ir; *,',Au; ",i1 (3) It is expected that additional financing underthe leases will be arranged as needed to acquire additional fuel, to pay interest,-and to pay maturing debt: If such additional-financing cannot be arranged, however; the lessee in eah ase.must.r aseufficient ncl fuel tollowth-essorrto6mieet its 6bhigati6ns.
In addition to the "planned . spending
" " ;in ".the table, aboyejEntergy
........ , ....pt Louisiana also expects-to )make $164 Louisiana...
million of payments in 2006 related to:Hurricane Katrinajand ,Riajrestoration work. JAlso,-EntgI expects to contribute $54 million to its pension jpans and $8.4 million to other postretirement plans in 2006. ThRpdtInllo itheestmenretiremfor n206 The plannea capital ivestmentestimate for Entergy Louisiana :reflects capital required tosupport existing business and custonmer growth. The estiuiiied' capital expenditures are subject to periodic rewewand modification and may varbased onthe ongoing effts fregulatory constraints, environental compihnce, mairket volatility, economic trends;-business'-restructuring, and the ability to access capital. As a result of Hurricanes Katrina and Rita, Entergy, Louisiana is. currently reassessing its planned levels of construction and other capital investments. Enery -Lk nlame .Ile--I- .Itvels'";i, 1J.'vt gstrucuon expendltUres are expected due to the restoration'and'replacement of amagedr equipment and assets. Management provides morelnf6omaniaii on long-term dieb & preferred stoe maturities' in otes '5 and 6 to the domestic utility companies and System Energyflfinancial ) ~IY~jY1 statements. , f~i IfI*.I.C, 'IJf (J) .'(J, ;U!I ~I()i "(JIOIj[ Y,10 2I IJI I'.U ,].f:+;;1 tl~ .3 ' 1 ;'I ' lJ;,i*5" ",.*'I r *'I-
; (., ."*,
I*. ['
'i lrs of A].~l The Federal Power Act restricts the ability of a publit"e " 6ut 1 otalt its restructuring and the related accounting, Entergy Louisiana, LLC applied to the FERC for a declaratory order to pay divieedd ont common and preferre'd memersip'mterests fro e tolowig sourcesb"(1)'the 'amount of ea rnings -il m mfed late ty 'prior, to ts +restructun~n"g on "Lo elc e moer .+* . /oo2005 ; 't"/an "tnte rgy ,L oulsiana, Inc.'s're ta ied
ýmount ineexcess of the mori'n'(1) bver'a transition period not expectedto last more thain 3 yrs ý iias-long'as Entergy Louisiana, LLC's proprietary capital ratio is, andwill remain, above 30%; and (3) the amount of Entergy
. . .- I I ".. LLC's wLouisiana, - I," *r*,
'", retained . ""f earnings
" "" r" ýl11" a" restructuring.
I "A the after * ' " J,t 1. 1,The* , FERC granted the
-*,j ,,", declaratory. order
*. ", " -* - I ;,,,; '" , , f on January I 23, t
-2006.- Divide"n'ds'p aid'.Entergy ouisiniai,'LLtC on -its common meffibrhi' interests to' Entergy Louisiana oldih* *i6aI intn, be paid by Eniter*y Loiiian'Holdings "o EfiteirigC6rporiati6n writhotf the *ied *fo*-*RC fneirgy approval., "A~s a wholly)'o6%ed substay *Entergy Lo'uisiana ':Holdings +divdend .it -earrnmgs rEio o poration j at rcentage KfL determind monthly.- ...
Sources of Capital .0.. 1 ::iGQ!o tergyI.1uiana ourc toeet tapar irements inc : .. .. 9.wi.'+.:c, internally~generat'edfuhds; ipx vion;cAod lv+. .:lirn,,-,:,-. -*r:.i* :(*i!isrti ? *:t:tr -Jz:;+,
"v.:~:- I:*':t 2;tntr3:. "* J
.i jii~l: ash on hand';Ii I, ('l ti),lj r[) , 10 iL~ofmi hrt d1 dih m?:,,i
.+;) .) iii C'i hch4f(-C,. -t ,vttivS;'
V_ý1514_- d e'bt o r p~r e fie rre d 's t ob c k iss t la'n*ce's ; an d ,* . ,- J r , '* ] .I ! ,t a " , , o , o + nl , . , , . ," . : r
+"'anem-g"-...unaerF'* .... ew' an . .a ""'"' "k"faeiliti'e*s'.;-?etn o;,.9*i n~o ag*~,**-.7*:,i:al .:: .. ! zz+( - " . . ' -.oa .... . . ýin*:""
Ic. "r'd,.h The I. ' ?*; :,udt,* table
- !i following to lo ,,.*lists*,i'fFistfc!JC .*:t, {oiissued
,z:;,u~r~Bonds Mortgage by Entergy
~lJ2,;/.jj z',d t;*.*in 2005:
"o rxicux;Louisiana ,.. ';'u*,2;.J '&r;etrtr Issue Date Description Maturity :sAniiiitu ( t l" p ,._____
_ l--u: _______ (In Thousands) (*!:.':,te'Tol nip May 2005 4.67% Series June 2010 $55,000 August'200'2 (C5.56%'Series (ý'ý-S@iember205".:*) 100,000 August 2005 6.3% Series September 2035 100,000
* -I'nA*0i "o Mll Octobei.2005t Pý' rnI'MM5.3%' SefiesTy-1'-i lNdve&6hber 2010 r,(jrY Miili'W ':J;150,000A o: oi. :
$405,000 .ooq o)I "'i',,t ,.?i l!{J/1 *') D li ,I,'4A.i.iJ0oJ M' *9l.;3 '(
- u 'i ?,ili1;rji*, hfnic 3 niiw'o-,,,I ,i>,',"+ .b: YI:I+TJ.4] 'Jr *, i' i':t*:
('.rcxi~rc.l *,:J,:j'n rit :_q &.':.l.)i ,,:n;:rici v.iw'.:* :ir; t'-]O";.*;s5*Lt1, "lt ;.oral r.rJ*U.ij'Ll '1 1*-.. 0 + .1 ;. T~,;*( iru.i 5.,U1 T~ .D'l..rt.J ,,iutll. v+.,'i+lyri"- ~'(6*'wu:;:i ""ht~:~ ,~
... hiv'ir ~I~iW L! .jOli:!'~
n].<.it ,,:4.; rit rin ,I r. it[iU;
,0 rIau.niIl ,
*.:it'Ž (r1Ohr'i:s1: n"I':-rigrId 5i[ .').1_1 ,J,T,*i--i-,o.I v2{:')tnil '(i~ .*~yd rf!!2;
*221.
'Efitergy Louisiana Holdings, Inc. and FAnergy Louijiana, LLC Mhnagement's Financial Discussion and Analyiis The following table lists long-term debt retired by Entergy Louisiana in 2005:
'..RetirementDate Description i'. iaturity ',!r- r'-,1,I-'AmountV'". ' ..... ..... .'", . . ;..:-:.r ,. - :"(I n Thotijands):
September 2005 '.5%St'CharlesParsh . .'-June.202F1,' i- ' .' $50,000
. Septembe 2005 ' 7.05% StCharles'Parish - April 2022 .. " $20,000 '
September 2005'- '7.0% St Charle' Parish "' ". Decembei 2022,' $246000 September 2005 6.2% St. Charles Parish May 2023 $33,000
- . Septermber 2005' 6.875% St.`Charle'sParish' July 2024, ', ¶ $20,S401d",O
' Sdpt'emler 2005" 6375% St.i* arles'Parish "'o 2025 ,,.. ,'i6770. §,,,77
'In June 2005, Entergy Louisiafiap .urchased its. $55 milli6n f 4.9% Series St. Charles Pais" bond from'i the ano holdes, pursuant to a madtory tender prox'sin, and has not remharket~i the bonds at this tiae.
oC4,9%Serie St. Paovsish
' th Entergy Louisiana may refinance or redeem debt and preferred 'stock prior to maturity, to the'extenfinarket conditions and .interest
. and
. .dividend rates are
. .. ...I~r' *.
favorable..
. ..... .,, * *!'. .g~c :-J .;.:i, '.A
,l ,. :"t, .. ' ,s :P *:; .- 2 I All debt and common and preferred stock issuances by Entergy Louisiana require prior.regulatoryqapproqal.
Preferred stock issuances are also subject to issuance tests t fort i orporate charters, bond indntures, and other agreements. Entergy Lousna has, sufficient capac'ty under these tests to meet its forseeablecapitl needs., . . . -
..' ;q' , V: ' : '. 4 *,: . A'('JA)2;
*" .- , . ' ' * ". * "A *I-', ' .2I.*.*
'L¢ il: ~ l;' !, 1; * -" . ; * .,/] '*
In May, 2005, Entergy Louisiana entered into a credit facility for $85 million expiring April 2006 and Entergy Arkansas renewed its $85 milihon credit facil"ty with the same lender.. Either, conmpany can borrow, up tothe'fuU amount on its, respectie faciity, but at:no time can the combined aou ooutstandm ogborrowgs th two facilities exceed $85 million. Entergy Louisiana granted the le'nder a securýntmterest in, its accounts receivable, to secure its $85 million facility. Entergy Louisiana has outstanding borrowings on this credit fae~ty of $40 nilhion as of December 31, 2005. ,.' ;: -. a In July 2005, Entergy Louisiana and Entergy New Orleans renewed their 364-day credit, facilities with the same lender through May 2006. Entergy New Orleans increased the amount of its credit facil'ty to $t5 millon, the same amount as Entergy Louisiana's facility. Either company can borrow up tothe* fullI amount! on its-respective facility, but at no time can the combined amount of outstanding borrowings on the two facilities exceed $15 million. There were no outstanding borrowings under the Entergy Louisiana credit facility as of: Decembe-.*3 1, 2005. Entergy New Orleans has outstanding borrowings on its credit facility! of $15i million at. December, 31,. 2005 therefore no capacity is available on either credit facility. Entergy Louisiana's receivables from or (payables to) the money pool were as follows as of December 31 for each of the followiyng years: , - , ., , i.-t , , . -
*' ,2005 S,- 2004 2003 2002 (In Thousands)
($68,677),-. :%$40,549 ($41,317) S18,854..:. !J,' See Note 4 to the domestic utility companies and, System Energy financial statements for a description of the money pool. Prior to February 8, 2006, borrowings and securities issuances by Entergy Louisiana, LLC (as well as, prior to December 31, 2005, Entergy Louisiana, Inc., the predecessor to Entergy Louisiana, LLC's SEC financing authority) were limited to amounts authorized by the SEC. Effective with repeal of PUHCA 1935 on that date, the FERC, under the Federal Power Act, has jurisdiction over all of the securities issuances by Entergy Louisiana, LLC. After the effective date of PUHCA 1935 repeal, the FERC has issued two orders authorizing long and short-term securities issuances by Entergy Louisiana, LLC. The short-term authority extends through March 31, 2008 in an aggregate 222
"Entergy Louisiana Holdings, Inc. and Entergy Louisiana, LLC 0,:Managements Financial Discussion and Analysis Iamount, at any-jone time outstanding, of upto $250 million._rt,,,, . .Y), , 1 .w , ". , . -
The FERC does not have jurisdiction over the securities issuance transactions of Entergy Louisiana Holdings, [which mayiborrowfrom.the money-pool up to anaggregate of $100,million.at anyone time outstanding., SeeNote 4 ,tozthe,:domestic,.utility: companies and -System Energy financial I-statements for: further .discussion.. of: Entergy
,Louisiana's shortterm borrowing limits.- ., l I 'I6'I 'j!;'-JL ?
?2:.:,
'q rc~o ;( ~i w~ bi J ..- t.1i vm 'Ji 4Jf-1O~ i I.~ 9 '1:3-1:7 Sienificant Factors and Known Trends !j t. i .,:;2,.
-u lifi.' * " " :.:: :
,Stae and Local Rate Regulation , . The rates that Entergy Louisiana charges for its services are an important item influencing its financial
,position, resultsof operations, land liquidity., Entergy Louisiana is. closelyregulated and the rates charged to its ~custdmers aire dder~in'e rf'egulato;y procedings.7 A governfintal agency, the, LPSC, is prima'ily, responsible for approval'of the rates charged to customers. - ,,,J , , .. ;...,In December.2005, Entergy, Louisiana filed with the LPSC for.. nteim recovery of $355 million of storm costs. The filing proposes implementing a $41.8 million annual, interim surcharge,.including carrying charges, effective March 2006 based on a ten-year recovery period. The filingincludes provisions for upating the surcharge to reflect actual costs incurred as well as the receipt of insurance or federal aid. Hearings occurred in February 2006.
The LPSC ordered that Entergy Louisiana recover $2 million per month as interim storm cost recovery. For the period March 2006 to September 2006, Entergy Louisiana's interim storm cost recovery shall be through its fuel adjustment clause, with the total recovery for that time period capped at $14 million. The mechanism for the fuel . adjustment clause recovery,is he a retention by.Entergy.Louisiana of,15% of the difference between the February 2006 fuel ;adjustmentlause an iedjiustmeit clauseimthose successiv iimoths v. which the, fuel .adjustment
ýqu mcnxl.g djsmct.6u..,.toe u.~
clause is'lower than it was in the February 2006 fuel adjustment, clause., until !he.$14.million,cap is, readhed. Beginning in September 2006, Entergy Louisiana interim storm cost recovery of $2 million per month shall be through base rates. In addition, all excess earnings that Entergy Louisiana may earn under its 2005,fformularate plan, and any ensuing period in which interim relief is being collected,-will be used as an offset to any prospective.
§stormn ,r.estoration, recovery. ,l.he formula,.rate.;;.-, plan is discussedain *Note 2- to; the domestic;utility*companies and System E-i'iifcflstf&Ff£--7, . -
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 ,,yas attributable to the acquisition of a generating station and certain power purchase agreements that, based on current natural ga-spkrc*s, usubst-e. :.cusmr-s. that antn.y mitigate the impact of the requested base rate increase. Hearings concluded in December 2004. Based on evidence submitted at the hearing, the LPSC staff recommended approximately a $7 million base rate increase.,,The LPSC staff proposed the implementation of a formula rate plan that includes a pr6visio for'irthe rec6ver'of incrermental capacity
"§costs,including those related to the proposed Perryville acquisition,,.ithout*filing a traditional~base rate proceeding. In March 2005,tih--LPSC'.si ff.iid EritergY.7-tihisiana filed! iai&6.pd fesette'nte that in' .dedd a"-.hnual base rate increase of approximately $18.3 million which was implemented, su to refund, effective with May2005 billings. toje In May 2005, the LPSC approved a modified settlement which, among other things,-reduces ldepreciation and decommissioning expense due to assuming a life extension of Waterford 3 and results in no change ini "rates.
*ýSubs6filently;!in 'Jnine 2Q05, Enterg-Louisianatmade a. revised oiriapliriice filifig with the LPSCi supporting a revised idepreciatidn irate'foi'Wateiford,'3, -which reflects' the. removal :ofiterim-additions. and ,arate--icrease, from the purchase of the.Perryville poWer plantjv.which" results inififet $0.8 imilhioii 'annual rate feduction.'t*Entergy;Louisiana reduced rates effective with the first billing cycle in July 2005 and refunded excess revenue collected during May 2005, including interest, in August 2005. :.": iiJ
;;;dl is 4'ýThd'Maý' 2005 rate settliiemntliiclides the adoptiifn bf thie-'eeyar' .frrmula!rate"plan,.the teiim of which ciriclfid6rhii!ROEimid.Poinit"6f,10..25% for the'initialthree-yeart'ernm 6f the plan' and permit Enterg-yLouisina to
- ihiecie-inp-dficnt'a' ctity:&oýis i*!'p id&eof attraditi6ril ýb'ateia'roeeding.ý" Und6r the foi'riiula i-ate" plh,.'Ve'r-
'"Ia'hd cuh'nddii-n-ing-s' '6uf-side'-aiiill061v&d r'egu'l-tdo -"**riinigs rarfge 'of-*945%'-to011.605%'will ,be allocted -60% to customersand40%"to Entergy Ijousina... The ital fo Irularte pan filing will be in May 2006 based on 2005
;i223
"* rEtey Louisia.na Holdingsl Tic.`and Eniergy Louisifint'LLC Mamnagement's Finmincia Discussion and'Analysis test year with rates effective September 2006. In addition, there is ihj6 otential toexitend the formula rate plan beyond the initial three-year effective period by mutual agreement of the LPSC and Entergy Louisiana. In Marih 2005, the LPSC apjproved ajsktilement proposal-which'rsultedin'credits'of $14 million for retail
'electrility custbmers1 of Eiiteigy' Lotiisian*"yTht'e ettleiihentdiShissed,,a'rnng other dockets dbckeis establislied to consider issues concerning power purchases for Entergy Louisiana for the summ'irsof 200I , 2002i,2003,'and 2004, all prudence issues associated with decisions made through May 2005 related to the nuclear plant uprates at issue in these cases, and an LPSC docket concerning retail issues arising under the Systeri*nAgre'rment.:: The s'ttlemeiitdoes not include the System Agreement case at FERC. In addition, Entergy Louisiana agreed to forgo recovery of $3.5 million of deferred 2003 capacity costs associated with certain power purchaseaageente:- The' crTdiIs were issued in connection with April 2005 billings. Entergy Louisiana reserved for the approximate refund amounts.
addition to rate proceedings,- Jntier-g'ye Louisiana's fiel costs recovered nfim ousiomer are subjet'to egiiatdiy scrutiny.' This regulatory rit represents Entergy Loiiuiatna's larges't' enti'al exposure to price c anges in the commodity markets. I"'ll :; ol ; " ' dicsEntergy L6utsianoaesretail'rate matters'and proeedigs,, including ftielcost recovery-related issues, are discussed'n Notergy 2othedomiesieutlhty companile'i and System Energy financial statemenrts. *". F ed ralRegulationi'-'
- t :. '*H * {:-
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. .i 7:;.' , . ', "..'.
i,;, i.,. .. , ::,. System Agr'eemeit Proce&edings- :,:, . ,' -
- i , y .- i .i..."
,, See.. "Ssteii'Agreem-en Pr6ceedingis"Tm the "Sipnifiait Factors and Knoivn Trends" section ofEntergy *Coil6'ratioin'aind Sub'sidi~ri-s MWh rii-nt's Discussion and"'Analysis' fordisctissi6hfofthe proc'~ediiig'at.FERC mvolvmgthe System Agreement a;nd'of oitlei related roceedings - -Transmission ,
- r'T'I . 'r - ' . ';: , , .'*;fjj Sil "Independent'Coordiriat6o Of Tr'nsiisiomIsn" in the "Significant' Faceors' and Knoin Trends"'sectioniof Entergy Corporation and Subsidiaries Management's Discussion and Analysis for' firtheridisci§si6fi!i '-"
Inteicd6itiection Oideis,. §,j . '.,. . 4',', ,'i,.Ii .,,: . It..i ,2 , ji . . .. ,a§
" See(' "[i*terc6n'n&ciiifii O-d&ýs" iti'- thef "Siýiiifi e;*riti' Faýtfrs 'nd!"Kiihn' Trifids"1 ' si* of Entergy C6i*0ration aii-d SmibiiriesManiag'ment's' Di'sciisi6iir-idiAnaly'is foi"fiu-th&rdiscussi6in. : .
SA~iaiia'bldFlowvgate Capacit9 Proceedilig' '~'" -. '" ' , ."".'*;" 'r :* " .- **.**,', .:.. . ',,:t See "Avdilable Flowkate Capacifý Pr6ceeding" in the "Significant Factors and: Known Trenids" scti6n of
- Eniterg C6rpor6tion'6id'Subsidii'§es Mnairianieh't 'kDiscussi6on-,nd`Ahlysis for firlieiedigisussi6ii. " ' ' "
Energy PollyAct of2005V,r..: ) 44.,PJ .ii', :. 1 -t'.., ,/. h' , 0.-","'"'.
,'. I-.: See "Energy, Policy Act' of 2005'i irithe :"Significant, Factors and Known Trends"? section, of ,Entergy Corporation and Subsidiaries Management's Discussion and Analysis for further discussion; including a discussionof *the implications of repeal *ofPUHCA 1935 anid ongoing FERC regulation under the Federal Power-Act.i';..'
Utility Restructuring .- , ,, .j .
~~,i.I;n-November-2001,.the LPSC decided not to move forward with retail open aqcess for any customers at this
,.time.;The LPSC; instead. directed its staff'to hold collaborative group, meetings concemingopen access! from timeto time, and to have the, LPSC staff monitor, developments in neighboring states and to report tolthe LPSC regarding the progress 6f retail access, developme'ts inthose states.. In September:2004 ,n response to, a study, performeddby the
'.Louisiana.State University Center. for Energy: Studies that evaluated a. limited industrial-only retail choice, program, 224
")EntergyLouisiana Holdings, Inc..and Entergy,Louisiana, LLC
;M:Natagement's Financial Discussion and.Analysis rthe iLPSC- asked: the ,LPSC., staff .,t solicit icomments sandý obtain rinformation, from -utilities;, customersiland ,other
%,interestedparties, concerning :the,:`potential jcosts .and rbenefits iofta limited, choice, program,, ;the impact,-of;such-a program on other customers, as well as issues such as stranded costs jand transmission"service. -rComments' from interested parties were filed with the LPSC in January 2005. A technical conference was held in April 2005 and in
ýMay 2005 interested parties ýfiled reply.comments to arguments mad6 ht the technical confetence.-7%Entergy stated that
- it !believ6s, thattthere is nhbo
- newinformation ,br credible evidence ithat fwould rjustify altering the LPSC's ,previous in'the public intierest. j;, -iq *riu~.. ,,
{1I L,-.
,c6nclusion'~itr:.!; that bc.,r j1Lz~ retail .... c- is-not
~r access I~i~lrtJrV ~L~ I;')j.rI* :~ I~fJ~
,Central States Compact Claim:.,t)1.J:Jq~fl trtt Tt",-') ;r-(I; u ,.2:' r~b l*i'r. !r :-,l* ow-, The Low-Level Radioactive Waste Policy Act of 1980 holds each state responsible for disposal of low-level radioactive waste originating in that state, but allows states to participate in regional compacts to fulfill their responsibilities jointly. Arkansas and Louisiana participate in the Central Interstate Low-Level Radioactive Waste
,Compact (Central States Compact or;Compact)., Commencing in, early_ 1988, ;Entergy. Arkansas, Entergy Gulf I'States, .and 1 Enter Lg6uisiah* nmadea series of contribuionsto, the CenitraStatl c&-pacto find -the Central .States ompaet'fsd of adlow-level radioactive waste-isposal facility to be,located in oyd -County,
,Nebraska. [n December 1998, Nebraska, the host state for the p;`roposed Ctral State-sCompact d'spoatfadility, edentied -the compact's license apphcatin for the .proposed disposal facility .Several parties,, meudmgthe commission that governs the compact (the Compact Conmmission), iled a lawsuit against NebrasKaseeKing damages resulting from Nebraska's denial of the proposed facility's license. After a trial, the U.S.,District Court concluded that Nebraska violated its good faith obligations regarding the proposed waste disposal facility and rendered a judgment against:Nebraska in the amount of $151 dmillion. InAugust,2004,iNebraska agreed to pay the Compact $141 mýillion' in'seýttlement ofithe judgmbnt.,J n July,2005, the dim~p'a'c't'tm'i'i decided to distribute L:SUbstantia lpolrtiolIn, "o, f'-the-II proceeds fromi'hh:etm too he'nila'&ýpower, generators that had contributd funding for the Boyd County facility,,ncluding Entergy.ArKansas, -nte~rgyGulfStates, and E terg-,166islana..On
* ~~ ~ ~ ~ ~ ~ ~ * ' ."+. ll .l* 1.' . 1, ý,i1 llj,I)r . .,*; 1 1 *!' - ,)ti 11 I -, ÷.
-. - J , .ý i
- ll i f It August 1, 2005, Nebraska paid $145 milion, including interest, to the Compact,*and the Compact distributed from the settlement proceeds $23.6 million to Entergy Arkansas, $19.9 million to EntergyGulf States, and S19.P million to Entergy Louisiana. A liability was recorded for the portion of the proceeds preiously-recovered -from iratepayers,. with the remainder ofthe proceeds causing an increase.,in pre-tax\A earnings ..". t.... -1
__:*-.iL, of,$4.6 d.*, ., millionjat 'l.q ,*., Entergy
... *=.. ,'.., . *,J **.1-- , 1 ,*, ... 11.."... ,..J.1- 1.,1 1 ",1 .-. -
1Market and.Credit Ris-;" r., , i.i-:- - )r[uokz ' ,&rs' iil ni~i i*i Iaar ;Uf Enter Loufsiana hfcertain market aind eredit iis] ,inherent in 1its busineiss operatio*s. Market risks represent the risk of changes in i)Jhasiue'otf conmodityic, h fi'acialinstrulmen'ts,o'r in-fu-t'prc bperatingresiilts or cash flows, in response to changing market conditions. Credit risk is risk of loss from nonperformance by suppiuers, customers, or financial counterparties to a contract or agreement.
,Interest Rate and Equity. Price Risk -Decommissioning Trust Funds --.. :.
i l ' . F. 1 1 . J ýDt". . . . ..I'lI.. . L1. . .... .. .. .. . .. . . .. .......1 :.. b . ... , 1 ( , :).. o ). if ( : ';. .T " "-1* *. !7, }:
- E
.' Entergy Louisiana's nuclear decommissioningtrust funds expose WtO,fluctuations i n equttyprkes and interest rates. .The,*NRC requires Entergy. Louisiana to ,maintain trusts to, fund the costs of decommissioning .Wateritord,3 The funds are invested primarily in equity -securities; ,fxed-rate -fixed-income ;securities; and-. cash,,and cash equivalents. Management believes that its eposre to market fluctuations wit I not affect results of opertions fr he
'Waterford.4- 3'. I.trust *!funds lld;. , because*", JAIl, J.': -. al
,CI of the application
. "1110 '-" '
*;'~ of iii regulatory p/ ' 0 -l' accounting l *-I1 l.o'*l .i I-principles.
), . " "- t*J The $ I I decommissioning
ý . ,- :: d '. 2 I W-_- f trust funds are discussed more thoroughly i 'Notes '1-8, and 12 to te oestic utility companies'and System Energy financial statemfents. .. wl I-,, , ; * , ,. * , .. ..
Nuclear Matters :. * - rieLuisiifa'6na on and operates, through hnaiVffiliate, tfie-WAterf6rd 3,hila po,' -iepatfl1 Entergy Louisia 'is,' threfore,,§ubject'ft the iisks related to owvning anh operating a nuclea: f -- . h * , ,( J ! .:oý -" ,. ;-- -. '.>'J".0 "r*!t ' .*t 'l~~' .i*f, ** -,( . 1"'1' w-,,llI~ .*"N ",ll ' t,, .I*, planit. J . Tli.se"
'*;'s,**l*l;.'%t.;.i* ieclude l risks e use, storage, handlinig 'and low-level radioactive alerM~s1inauons on the amounts and types of insurance cornrnerclally avnle Ior' osses I, *'," IIý'f'/ I I'I "' , ]I
- ll ,1y':1!'..' .: I-.-f¢l'~ in rp~ lf connection
- I)* "-* ' vwith -ý nuclear, II')* ;-~ operations,
." _" r' and decommissimng nucleartplants -at the end -of their licensed
- 1 r*{*
I ), y/ , 'r 'l ;r r I" -f *1;;'
'i) f technologicaito
,225
En'tergy LouiSiana Holdings, Inc. and EFitergy Louiiiana, LIEC Management's Financial Discussion and Anaiiis li"'es,'including the sufficiency of funds'in decommissioning trusts-In the~event'of an unr'iticipaite'd carly sh§itdovrn of Waterford;:3, Entergy" Louisiana.. nriay.b required to piovide-additional,, funds 'or-'-credit.v support "to;:satisfy regulatory requirements for decommissioning..,: l: *, " :; w..... I- ' ., The nuclear industry continues t~r addressi susceptibility toi stress corrosion'cracking, of certainf: materials associated with components Withih itheý reactor coolant system.,, The issue, isi applicable. to. Waterfordi 3 and is managed in accordance with standard industry practices and guideliniesý.'A replacement reactor vessel:head is being fabricated for Waterford 3 at this time. Routine inspections of the Waterford 3 reactor vessel head have identified no significant material degradation issues for that component, and inspections willcontinueatllatindd iefbeli'nig outag~es. . ,, ... ,v .. ,.i. , , .... . . Environm enital Rkiss " * ., ii: . .. . . .- :c.* ,; ,.. .. .!:I.,*: -- *rj; .. ' . - Entergy Louisiana alties and operat are
'ins subject, to' regulation by'various governmetal aunthorities hhvingjunisdiction over air quaiiity w'vater quahlity,'cohtr6l of toxic'substancesan'dhazardoustand solidr wdastes,* and other, environmental matters. Manageient believes that Entery" o na is nsstanti omphianceiwth environmental r~egul'atifns currently apphici~le, 6ofit" facilitie~s anid operations, Because enw'ir'o-nmental regulations are subject' to chahge,` future compliance costs cannot be pre, isely etimated: '. .......
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.. . .. "..'-, . .') 2.";. '.!. -. 2.' ., ' <l .:"
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[-S.-' " .t' 2U . .. The state of Louisiana has proven to be'an unusually htigius environment.' Judges and juries in Louisiana have demonstmted a' iwingness togrant Iarge verdicts,'inmcudimg punitive cama es t piits i pirsona1 injury, property~ damage, and basine totaes.Enter Eouisiana uses egal'andapppropriate means to contest litigation thrieatened or filed against it, but the Ihiisation evironment poses businessrisk.'. ....... ' '
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, A.' s:)* . .- P. "i L A'r:7*
i , 6!', , "i;- .'(' . ' i"i*:;'" . Critical Accountinig .2 Estimates." ..... V .4 '.. [.. '
'- ' The preparation of EntergyILou i nas financil statements' in m c i'frnity' act accounting principles requires management to apply appropriate accounting policies and to make estimiaites" aind judgments that can have a significant effect on reported financial position, results of operations, and cash flows.
Management has identified the following accounting policies and estimates as critical beause"they are based on assumptions and measurements that involve a high degree of uncertainty, and the potential for future changes in the assumptions and measurements could produce estimates that would have a material 'eect on ethe preentatin of Eitergy Louiniaiusfinancialposition or results of operations.";f..... ' . Nuclear Decommissioning Costs . , .,2 (So, '-!'!,-,..--.,.-,2,2. -- - ,."' Regulations require Entergy Louisiana-to decommissilon the-watie6rdt3or-nuclear powerplant-after the facility. is taken out of service, and money is collected and deposited in trust funds during the facility's operating life in rder' toprovide.' for' this obligation.' Entergy' Louisiana conducts peri(ddi 2decommissonlng'ost studies i pdted e thre tfi a)o estimate t e costs tat will be icurrei t dt commission the faclhity. The following key asumptmins have a sigificanit effect on'these e s : .. : ,7, ... ... J.'....., OSt scalation Factors - Entergy Louisiana s decommissioning studies include an assumption that' decomrnissoning costs will escalate over present cost levels'y'a'nfannual fic'tor averaging approximately 4.4%. A 50 basis point change in this assumption could change the ultimate cost of dec'onmimissioning" -*'f facility by as much as 11%.
- Timing - The date of the plant's retirement must be estimated and 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 decommi'ssioingas permitted by pplicableregulations. Whild th effect of these'assumpuioncannot be determ~ndedWith precisionr assuming either license extension or use ofa safestore!' statu~scan poyssblydecr&ase the'presentvalue oftheseobhgatlons.. .
pntuel bsposa- ecerai regulations require the tDOE* to prov e a pe e r r th storage of'sent 'nuclea fielfad legislation has ben passed by Congress to'develop this repository at "226
°)Efitergy Louisiana Holdings, Inc. and Eniergy Louisiana, LLC
;',Management's Financial Discussion and Analysis Yucca Mountain, Nevada. Until this site is available, however, nuclear plant operators mustpro6vide for:`
interim spent fuel storage on the nuclear plant site, which can require the construction and maintenance of
- ':."Y'" drycask storaige siits *or otier facilities." The costs of.d6;eloising arid riaintfiining'these facilities can have a u .,:,;significanteffect (as minchas tI6%ofetimated decommissioning costs). 'Entergy Louisiana's
.:,'dmr decomriiiisionifig 'studies in6lude cost.estimatei for spent fuel storage., :However/these'estimates could *:m 4 ir.,;q -1cliangein'the future based On the' tiii"ifig of the openifng of theYuccaMountain'facility,: the schedule f6ir'-
,' shipments to that facility:vhenit is bpened,'or other .faciorýIda!:Th 1:ýu, rj , " .-' '."ri,'i' .. ;;
'. ,,Techniology. and Regulati6n "--Todate,'tthere iA'limited practical exieriehce in the United States With actual'
,J ,decom ssi6nirig'0f large-iuclharfaeilitie's.', As experience-i gained ah'd technology changes,cst Liw: t t "! V ~.-'J,-estimiates 'could als'change~ifregulations i'egardinig nultd~omsinn were to'change~ this'couild ".,~ :*-Aihavea potentially'significaht effect on cost estimates. [The effect ofthese potential chaniges is not presently determinable. Entergy Louisnaii's decomniniissioning cbstlstiudies assum icurrent technologiesand a '.*- *' regulations. Entergy Louisiana collects substantially all of the projected Costs of decommissioning Waterford 3 through
- rates charged'tocustoime'rs. Thea iounts collected~through rates, whichare ba'sed upon decommissidning cost itstudieys,' are ýdeposited"nris decomnmissiohing; trust rrfund.sx'u Thes'e&'c0llections: plus, earnings':6n, the trust .furid
..nv.estmnts are 'estin-ated to be sutficieht to fund th6 fuiuredecomimissi6ning costs..fdecommissioning cost.study estiniates arechainged and aipproved'by regulators; cllection6sfrotii'cUiistomers'would also chinge-'
Entergy Louisiana implemented SFAS 143, "Accounting for)A .dset -Retirement- Obligations,", effectiv'e January 1, 2003. Nuclear decommissioning costs comprise substantially all of Entergy Louisiana's asset retirement obligations, and the measurement and recording of Entergy Louisiana's decommissioning obligations ,'hanged significantly with the implementation of SFAS 143. The most significant differences in the measurement of these obligations are outlined below: "._'i, '"il ),.,' V*irt,--b n; 2::! , :': . i IAu,;y"J)i
- Recording of full obligation - SFAS lb43.r&juir~s thatthefiir:'ialue'6fan'aksse .bligaif etireinent on be recorded when it is incurred. This caused the recorded decommissioning obligation of Enitergy L-uisiana to increase significantly, as Entergy Louisianai had previously only recorded this obligation as the'related costs were collected from customers, and as earningswere recordedon the related trust funds., ,.
- Fair value approach - SFAS 143 requires that these obligations be measured using a fair value approach.
,. ,,,ATn6ngb6ther*things,;this entails the&'ssumption that the costs .willbe incurred by.a third party and will -i'*./ I .therefore include appropriate profit inargins-and risk premiirris., Entergy Louisiana's decommissioning:;
i -.-studies had beent based bh-Entergy bouisiana performing the work; ind did fiot include an, suchmargins or l.j:Z' :
!1i)*!¢ f 't i:Y%/r';*,,_i.'!d prem iums. .. .*I fl;,
,flJz Ff~J r'/l.
- Discount rate - SFAS 143 requires that these obligations be discounted using a credit-adjusted risk-free The net effe't-f implemefiting SFAS 5143 for Entergy Louisiana,'was c6d1 . irith'no asset, a riegdult6ry resulting oimp'act on'Entergy LbiIisiana's'net income.-,Ent~rgy'Louisiafia recbrded this regulatory'asset beca~iise its exiistifik rate vfi~iichanism is baseid 6n ~the' original or histoijeal' cost staffdard thht allo-ws'.Ediergy Lou isiaa 40'trecover all ultimate Icosts' of.debommiisionirig~existing assets from,'current and ifutur6 cuiistoiners. FUponlimplementationiofSFAS f.143 in 2003, assetsO!~~m and liabilities increased by $305 million as a result of iec~ordm'* th6 i~set -retirement ,,I -obligation
'1'.,, ,-.I ,i- 'at- its fair
.. )"
c- , value of $305 million as determined under SEAS 143, increasing total utility plant by $99 million, reducing otaccumulated impheton'Eteg L-hisiana's'net depreciation inoe'v andEtryousai by $82 million, .~recording., threlated ddti asset re- regulatory etltr
-of S 124 setbcheiseitigrt millio..;....
.~n,.-'I the'se'corid qiiahter of,2005,i Entergy, Loiisian~a'iiecorded a~-reviglon'to'its';esiimated dedommissioning cst
.liabiliiyin-ccrdahcewith anewvdeconiissidning cosj'study forWaterford 3 that asosumes'-lifeexensi6n for'the iplant.".The'reVised cstimite resulted in' aTS 153.6 million' iedu6tion'in itsdaecmmissi'oning -liability, 'along with a $49.2 thmillioniedticti6ninutility'nlani EitgyLi6siadnawo i ae'rlit~frdgulaiory asset.- - -fv11' S 13 f$104o.4i I lJi-n "227
*Entergy Louisiana Holdings, Inc. and Entergy. Louisiana, LLC
. Management's Financial Discussion and Analysis Unbilled Revenue, .. :J; . .,i .:***,*' -:. . . .- . o:,** .,, Jr.- I.'w,'i iio;.: fl. ::-!Aq iJ '1;'L noju~d !'
, li ,, As discussed in Note itO the'domestic utility companies, and, System Energy. financial, statements, Entergy Louisiana records an estimate of the revenues earned, for, energy:delivered since the., latest customer billing. Each month the estimated unbilled, revenue, amounts! are, recorded as revenue, anda receivable;.and the:prior month's estimate is reversed. The.difference between, the estimate of.the unbilled receivable at thebeginning of the period and the end of the period is the amount of unbilled revenue recognized duringihe period.iThe estimate, recorded is primarily: based:upon an estimate of customer usage during theunbilled-period and the billed price to;customers in that month, including fuel price.. There-fore, revenue, recognized may, belaffectedbyi the- estimated price and usage at the beginning andeid of each period and ifuel; price, fluctuations, in additionto changes. in certain, components of the calculation including changes ,to; estimates such as.line. loss,,which,.affects the estimate of' unbilled',customer usage, and assumptions regarding price such'as the, fuel. cost recovery. mechanism.! r. *'.:., I,,,
Qualified Pension and Other Postretirement Benefits
- ..:Entergy. sponsors,; qualified :,defined benefit pension, plans whichi.cover substantially)Ilall, employees.
Additionally;, Entergy currently provides postretirement health care and life insurance benefits.forsubstantiallyý all
.employees who reach retirement age while still. working for Entergy.- ,Entergy's reported, costs of providing. these benefits, as described in Note, 10, to, ihe 'domestic .utility, companies.and, System; Energy- financial statements, ,are impacted by numerous factors including the provisions of the plans, changing employee demogiaphics, and various actuarial calculations, assumptions, and accounting mechanisms. Because of the complexity of these calculations, the long-term nature of these obligations, and the importance of the assumptions utilized, Entergy's estimate of
.these.costsis a critical accounting:estimate;, ,.. A lt* L .: . :,: ,;,, r.-., ,.- j , -:.;ii
,Assum ptions, ,. ;*.. ;.* , _:, ., ", *',** ,,,m :. .*,',* ,'* ,,. :,.:,,,i J
Key actuarial assumptions utilized in deiermining these costs include: - . . ,;, (, .:::. .*
, Discount rates.used in determining thetfuture benefit. obligations;.;i_ - . ,, .
, :.,,Projected health care cost trend rates;:!'(,).:; .' , 'i' ":'.: .'T .T.,,i s ,i ,i.. ,
e:;i-Expected long-term rate ofreturn!on plan assets; and -.i n.- i; Y! ,-i i -i.,r:i',
- Rate of increase in fiture iomoerisation levels:' ....- 'o? .t'* :rCzi V j1/4' ,
0iv.:Entergy, reviews these assumptions, on an annual basis-and adjusts them as§necessary;nThe falling interest rate environment and worse-thani-expectdd performance of the. fihanciaFequity~ifiarkets, oVer the past. seeral years haveimpacted Entergy's fundifigi. ind reported.costs for,.these. benefits<,rInt'addition, 'these trehdsihave caused Entergy to make a number of adjustments to its assumptions. . t In selecting an assumed discount rate to calculate benefit obligations, Entergy reviews marketd yields on high-quality corporate debt and matches these rates with Entergy's projected stream of benefit payments. Based on recent market trends, Entergy reduced its discount rate used to calculate benefit obligations from 6.25% in 2003 to 6.00% in!2004 .and to-5.900/o%in: 2005,-* Entergy, reviews, actual recent cost ;trends* and. projected, fUturetrendg in
- establishing; health care,cost,trend rates..!,Based on this, review, Entergy, increased; its healthl care. cost, trend- rate assumption! used, in, calculating the. December, 31 2005.: accumulated, postretirement -benefit 'obligation.'.to, aX- 12%
increase, in:thealth caref costs, in! 2006 gradually, decreasing each. successiveyear:j until, it; reaches- a: 4.5%, annual increase in health care costs in 2012.and beyond.t,,, ,K..-. : :.i..il .... '*? id lr "-,: iriiMTh! ,, _
,.:1 ,:. [i~i ':ui;JPr t ' -',: ::r'(!q "' i[:: i' f ! ';n i?, 'Ji;':, . .:,P. c', " ,:5.... [J lilr'i~:*.b ?- TO ro li~tU *nC ' "? "h~~
In determining:1 its: expected, long-term, rate',of. return, on-, plan assets-, Entergyireviews,- pasti long-term performance, asset allocations, and long-term inflation assumptions. Entergy targets an asset allocation for its pension, plan: assets of roughly.65% equity securities,;3 1%. fixed, income. securities;' and. 4Vo other. investments. The
,_target allocation, for Entergy's other, postretirement benefit assets;.is.5 1%: equity, securities, and..49%, fixed: income ,securities.,.. Based on recent.market trends,: Entergy reduced itsIetxpected long-term rate of return on plan assets. used to calculate benefit obligations from 8.753% for, 2003 to 8.5% in both 2004, and 2005;,_The assumed rate of increase in future compensation levels used to calculate benefit obligations was 3.25% in 2003, 2004, and 2005.
228
.sEritergylouigiana Il61dings;'Inc. and Entergy Louisiana; LLC
.Manageinent's Financial Discussion and Analysis
.C-6Si Se siti'it j: `7 .;r- ),.% w;! , fi E. ;f o!i it ." :,1. - .; -_I,I:* ~ i.w~ boti..p*i-
;Ii),t,i I,'!.,I. - .,:[.v W',r ':i i3 ....)h ,.
- .,-'.'-*. The :followifi gchart,.reflebts-;the ;senitivity 6f 6tiilifieid perision-bst to .ibhang9cin, crtaifi'1actdarial
!assunilitioiis'(dollars in thosainds): 9'i_) ,0. r m:.. .1. [llirn .1.C. Impact on Projected
'. i*.: .,. Y?.0* 11 LAr;i~). I -;.-*.,':'.l Changein "rn,..r mii' Iiioact on 2005'-,'! I::LQualifiedd Benfit '.ptri :Acthirial Aisuniption b! *,.A Ci .I Assumiiption ',rti, Qfiialified Pension Cost ,:ir,!, t.Obligatioh. rio`ii
,,I1,W :U1, ',4- * . ;:.<" f!1i',o! ?..,:,):). 1!1ll.t* ,'d :,:,**: *ý I,* -!i-, t'rlnerfease/(D ecrease)._-,-; ,*J)_, . .. * . .,.u .. :. Rate of return on plan assietsildd- Ii.,' j:.,!(0.25%)'.',: LuX" i t-oý $798 A1 -i!t rn . I '." ri; k!; Rate of increase in compensation 0.25% $578 $3,393 The following chart reflects ,the.I2sensitivity of postretirement benefit cost to changes in certain actuarial
'assum tions (dollars'n thouisands) : '.- i- .... ' ... f I,...I.t1I flPi d1, J v rst . .. 03i . *. l.:... J ol.
\,fu93
- i. l., L:" i!( , ,'l'C A h* :i rr'> 1t*21 I").clr 1) *1 . ..... ac. o Xccim.a
',io I " -I r-.'P.:ichiifigein', ,i . bL',,mpaifth'if2OO5'"*t . eIiti~re~mentBeniffitl:;
b ')Ob lig atio n i,.',711il!,)
'.,)*.*ifi :c-A s 'u iit oh *.* 1-M,iiifsh dii 'fip tibn ,,: ,P o si r~ir. e m -e t B e nie tit t o*st-"9V ib bifl, p f! 1j, 1 .. I &(DecreiO:
-nci . D "Di .ou.i .... ' . . . . *
), .°,
(0o25%) , , f! .1-,..
.. r '
t!` i
"'1" ')L.'$264-0 1!2YJ- 1'i -.- ,( -1i$3,406"'.k1_11 fluc tuatiobn Ea'ch.;:r.![fitu bove assumes that 1he other components
,iI slM*'. . ,',.*>, I' cflculation
.,- ; of, siuodhfrn are
( '.').t),,v held constani6t/l;':.:a l.lr)l; ig>u~ o: ns-'t,:
- 'fl'3 ! ..l i-,,rrtr j3"1, 'r*. ls
,..b , L:i 2),>,*[ *"<.);~;
Accounting Mechanisms In accordance with SFAS No. 87, "Employers' Accounting for Pensions," Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized inio cost only when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. If necessary, the excess is amortized over the average remaining service period of active employees. Additionally, Entergy accounts for the impact of asset performance on pension expense over a twenty-quarter phase-in period through a "market-related" value of assets calculation. Since the market-related value of assets recognizes investment gains or losses over a twenty-quarter period, the future value of assets will be impacted as previously deferred gains or losses are recognized. As a result, the losses that the pension plan assets experienced in 2002 has had and may continue to have an adverse impact on pension cost in future years depending on whether the actuarial losses at each measurement date exceed the 10% corridor in accordance with SFAS 87. Costs and Funding Total qualified pension cost for Entergy Louisiana in 2005 was $9.6 million. Entergy Louisiana anticipates 2006 qualified pension cost to increase to $11.1 million due to a decrease in the discount rate (from 6.00% to 5.90%) used to calculate benefit obligations. No required contributions were needed to its qualified pension plans in 2005. Under current law, Entergy Louisiana projects 2006 contributions will be $54 million. This projection may change pending passage of pension reform legislation. The increase in pension funding requirements is due to declining interest rates and the phased-in effect of asset underperformance from 2000 to 2002, partially offset by the Pension Funding Equity Act relief passed in April 2004. Entergy Louisiana's qualified pension accumulated benefit obligation at December 31, 2005 and 2004 exceeded plan assets. As a result, Entergy Louisiana was required to recognize an additional minimum liability as prescribed by SFAS 87 at December 31, 2005, and 2004. At December 31, 2005, Entergy Louisiana increased its (229
Entergy Louisiana Holdings, Inc. and Entergy Louisiana, LLC Management's Financial Discussion and Analysis additional minimum liability for its qualified pension plans to $75 million from $39 million at December 31, 2004. At December 31, 2005, Entergy Louisiana decreased its intangible asset for the unrecognized prior service cost to $3.2 million, from $4.8 million at' December 31, 2004. Entergy-Louisiana. also increased its regulatory asset to $72.1 million at December 31, 2005 from $34.1 million at December 31, 2004. Net income for 2005,,2004, and 2003 was not impacted by the additional minimum pension liability.
;. Total postretirement health care and life insurance benefit, costs for Entergy Louisiana in 2005 were $13.2 million,;including $3 million in savings due to the estimated effect of future Medicare, Part D subsidies:. Entergy Louisiana expects 2006 postretirementhealth care and life insurance benefit costs to approxiriiaie million, including S3.5 million in savings due to the estimated effect of future Medicare Part D subsidies. The increase in postretirement health care and life insurance benefit costs is due to the decrease in the discount rate (from 6.00% to 5.90%) and an increase in the health care cost trend rate used to calculate benefit obligations.
New Accountinl Pronouncements In December 2005, Entergy Louisiana implemented FASB Interpretation,47,., Accounting for, Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143", (FIN 47), effective as of that date, which required the recognition of additional asset retirement obligations other than nuclear decommissioning which are-, conditional in nature. The obligations recognized upon implementation represent Entergy Louisiana's obligation to remove and dispose of asbestos at. many; of its non-nuclear. generating units if and ,when.those unpits are retiied froih commercial service anid dismantled. The n&t -effect of irfipldmienting FIN 47 for Entergy L6oisiana was recorded as a regulatory asset, with no resulting effect on Entergy Louisiana's net income. Entergy Louisiana recorded this regulatory asset because its existing rate mechanisms allow, the,recovery in rates of the ultimat~e costs of asbestos removal, either through cost, o. service or in rate base, from current and future customers... Upon implementation of FIN 47 in December 2005, assets and liabilities increased by S8.9 million as a result of recording the asset retirement obligation at its fair value as determined under, FIN 47, increasing utility plant by $0.9 million, increasing accumulated depreciation by $0.6 million, and recording the related regulatory asset of $8.6 million.
,J'
~ . ,
230.
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' I. ' . . . " - : * : : * - . * : : . . .
230
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REPORT OF INDEPENDENT REGISTERED PUBLI ACCOUNTING FIRM C ,....,Ai .
._ . l.P ,
w! To the Board of D-irectors- and -Sharhlo6lder-s i r.y-F Entergy Louisiana Holdifigs,;:nIcic'nd Subsidiaries: We have audited, the accompanying consolidated balance -sheets-of-lntergy--Louisfana -Holdings, Inc. and Subsidiaries - December 31,_2005-and-2004, and the related consolidated state mie'nts o6f income, retained earnings, and cash flows (pages 232 through 236 and applicable items in pages o302jthrough 376) for each of the three years in the period ended December 31, 2005. These -financial-staiemi eints are-'the r-esponsibility of the Company's management. Our responsibility is to express an opinion on these:finan6ial ,,,6 sttermients
,- .;.,V based on our audits. :,t , *r
*P.7,.
We conducted "our audits in accordance iwith :the standards of the Public :Company Accounting .Oversight Board (United States):.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the finanicial statei-nhtns are free ofiiaterial misstatement. An audit:ineludes examining,::bn a test basis, evidence supportiimg the amno'untds and discl6os'u'res in the financial statements.*An'audit als6'iicludes assessing the 1.0,14 n fi aii 1' *,1 by management,
ý1-. r'. " `
as well
. 4~ý, -
as 'evaluating the overall accounting pnrncipies-usef.anad-s.gnicant: estimates made financial stait6ent-pýreendtiio-n. Wbeli6-ve-tt *iir audits provide a reasonable basis for our opinion. ', '; V OK I,. 3 I C.i.:: In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position
*~'-ýo "r::.
of Entergy Louisiana Holdings, Inc. and Subsidiaries as of-DecemberK3i "200b5 *n*2004,-and Dece. ende......... .".o.-:. con.:' 1,* -the results of its operations and its cash floN for each of theýthree years in the peio d ended ! cemb 31,20 5iA'conformty with accepted in the United States of America. ;:.:' ... j ., accounting pfi'pls generally As discussed in Note 8 to the notes to respective financial statements, in 2003 Entergy Louisiana Holdings, Inc. and Subsidiaries adopted the provisions of Statement of Financial .Aco'unting'Standa'rds'N.'143, 4Accounting for Asset Retirement 6b61gations. ..-. i.'*o We have als6'aiidited, in~aedordance 3viththe standards of the Public Company Accounting lOversight Board (United State,s,.the effectiveness of the Company'sControl internal control-over financial reporting as of December 31,of 2005, based d6i'e established i internal - lntegrýiSeit d'o*kis'sued Committee Sponsoring Organizations .of.(the TreadwayQ Commission and our report dated March,9?, 2006, expressed an unqualified opiiiniii on mianaiige-me6it's -assý-sfeht of the effectiveness of the Company's internal control over financial reporting'and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting., DELOITTE&:TOUCHE LLPm..-, -. *'r ,'. New Orleans, Louisiana March 9, 2006 231
ENTERGY LOUISIANA HOLDINGS, INC. AND SUBSIDIARIES
,w . H CONSOLIDATED INCOME STATEMENTS For the Years Ended December31, 2005' '1 2.-
*, .i,*::* 2004 ..:,; I*'*
(In .Thousands)i* *0r !. 20035+)i,'; i 1:c'c-d *,i : !**!: ;I:;
,,. OPERATING REVENUES Domestic electric i'"$2,650 181$ "2165,570.
22,2,6986
" '"';. :: ', '.OPERA'iNGEXPENSES!
-t. f, Operation and Maintenance:,.J"- ,' '"'"t ;n
(( :..: 1 t, , " 4. .' *'"
- , , .. :Fuel, fuel-related expenses,. and rj"ý 916,779 671,549 525,645 j.
gas purchased for resale Purchased power 872:026 667,893 668,337 Nuclear refueling outage expenses,
)...?' :,-;.:, .,Other'op'eratio-n'andfihainitefanatcer,*,,<'.:[ . 15,351 13,633 11,130
...:" -135ii,084"',`'P-t- fý367,82,4 :.'.!! ',376,770)l.*:,,L ,.,
1! ,:.qj*i -1.- Decoinnissioning 'J:
.,J, ("1" 1*,)i),'::d . -' 8 2 69
- ",v,1'; ,785 j'},1,,,, . 1,958.fd:, .- ,'20,5 .,u .,.
Tax*es.other than income taxes-jb;. 1 , tU. * ,' i 7.3,8.60 -;i " .* 6.8,999.,.',.. 2! , "7.0,08,4 ; :) !,+ Depreciation and amortization . , ;.~ 186,281-, ~. ~:!...i fl 197,380
-*I
, .... "I: , 192,972 Ih ;:I" .,
6Other reglat6ry credits'- net lt**:./h '(70119). (43,765) (2,160)"Y"
' ;'* -*TOTAL ":-` : "': ': . r "" 2,369,047"t 1-,965,47 1',- ( "1,8631,3474 ,' l:t:, .
'f il4 ')', .* ".;:: 'I I , C( :*" .- '4 I': 'ii - '* ; *. 'ft)
OPERATING INCOME 281,134 261,515 302,223 fT; ,.f.0 S: ,,,,~OTIHER INCOME Allowance for equity funds used during construction. :" ' 10,251 "7J49 : : . 90, ': "6 (W Interest inddvdn income"~I. j [ -ý":19,882 ,8'2209"*L i1-" 8,8201' ,
* : (1,5301:L 2".'
",. ((J29)';"" % (3, 100)),h~,!::,
Miscellaneous - net :" , TOTAL 22,594 14,774 12,620 INTEREST AND OTHER CHARGES In:":ic; '!)
- I ('.o: t*44' : '
, 4d:'4*. I' .: '
Interest on long-term debt 7 ...,9 70 '210 .. 73,227) Other interest - net 11,727 3,931 .r. 3,521k '§ . Allowance for borrowed funds used during construction (6,591) (4,822) (5,475) H+::r,4 (i ,(!' .->:TJTAI ;'L ,./ .) *.,.(.') : 2,',!*( *: 78,827, . -',1). 69,319 ,: '-;71,281-A . t*
,f ;'r;r,9'.'t .:) ,, ::.* 'C1~ i.. *:' ,tl( ¶:Ju ]t'i~>
*INCOM1E BEFORE INCOM1E TETAXES 224.901 206,970 - 243,562 -' t-
'* (' Ki;'I'*3 +, .
Income taxes- ,.) 9 6 ,819*"",1 -'79,475,"' :' 9 7 **40
" "." NET INCO1lEl,. 'i '128,0821 -. ; 127,495 , '>i' 146,154, r 'y
- 42. * !4-,':;
Preferred dividend requirements and other 6,714 6,714 6,714 EARNINGS APPLICABLE TO COMMON STOCK S121,368 $120*7196 :-Hi A$:9440._,Y!."1....,f.).:. See Notes to Respective Financial Statements. 4;41' 4 -. 232
,MtIENTERGYLOUISIANA IOLDINGS;,NC.'AND SUBSIDIARIES" t CONSOLIDATED STATEMENTS OF CASH FLOWS eI F' Y".r Ende
.. : For the Years Ended December31.
2005 2004 2003 (In Thousands) 0) OPERT..NGAT,,iVT OPERATING ACTIVITIES Net Income 2127,495 $.. $146,154 Adjustments to reconcile net Income to net cash flowprovided by operating ', b:!, . activities: -? . i2 (13,674) 14,076, 1,858 Reserve for reguatorjadjuiinimts
- "4 , 765r)" (2.160)
Other regulatory credis - net 219,
, it 213,541 D epreciation, arn ertz t n , an deco nr Trssi* nni - -, - ... ..
75,078 859,157 Dcfrred kcono tax 's'e d inestbnt tax crei--: 22 5,5 88 ! Chanres inworking capka: Receivabls 1,'. (112,828) :4,364 (45,735)
.40,382e I! ,,u .. 4,455 30,174 Accountspayabl (Cei.t) (I-l.d) 40,832 b 89 ,0 79 A 1,":':::v." (804,805)
Taxesaccrued 1-. 10,004 (1,791)) (10,324) Iecrestaccrued i"bI.1 2-*..__ (13,231) Lf,:.,.*X 1-]'.,v 21,955? (56,211) DcE-rdolcost-
.(26,873) i!r',.;, ý1:.,,.20,693 10,395 Otbhcrl'rkibgcapiailaccouis 512 1, 6,119 12,194 Provisin forestimated bsscsadreserves ;ý ,i 9*, (111,641) )t.Jih, ' ,.: (14,456). 59,169 Changes inothe regubtorfssets .
,tr (122.310)... .- , (16.056);/ (59,639)
Other ?. ?.(.1 r4,,179,790,,,i ,;*.,....'..506,584.- 353,768 Net cash flow providedby'operating activities r. I.- rr, INVESTING ACTIVITIFS -"'1 OT (389,220) (240,283) (257,754) Constuction expcldtes .. Allowane¢ fr equity fivids used during construction
- 3*;j
'.- (13'1015,1,'IHJ J13'l (7,494 6,900 (54,498) ".'.
..- .- .(41,525)
Nuclear Uilpurchases, .- 1, 1f , i
. 54,158 l
- 41,525 Proceeds from the sale/laseback of*c lcar fuel '1
,(162,07 5) **
Payncit for purchase ofphnt " ,-) 353,479 Proceeds from nuclear dcconniissonhg ust d sales (115,552) (48 (70,985) Javesmort inn ar d corrintsini stng,. 40,549 (40,549) 18,854 Change i money pool ivab -nt . . ..
- 2,173 (12)
Changes in other ibnestmnts - net Other regulatory invcstmints - (549,453) (283,780), (249,518) Net cash flow used In Inesting activities
~'ý"FNANCING AdTIVITIS Proceeds from the Issuance of: L" - -
Long-term debt **-??".' ?.P. .o' 401,928 -V,1 I If1282,745 )'1
,, ., b; 97,982 ff,,,.: ,)It,,
;.'" .£,% -1 !', h -. 3.
Preferred stock '.,(.'T.t . Retirentofng-tenrmndebi , E t._I, . 1 ------ (219,374) - T:/, 1'(203,756) 1 (296,366) Change inmoney pool payable - net 68,677 (41,317) 41,317 fI Z 1f 0 (/,0,000 ti.".u (,..,.",', Changes in short-term borromwigs Dividends paid: (51,600) .. (I16,500)* (145,500) Common stock ' ., .,
-(6,714) .(6,714 ( )
Preferred stock , c .. ,' 330,899 ... . (85,542) .j (407,263) Net cash flow provided by (used in) financing activities Net Increase (decrease) in cash and cash equivalents (38,764) 137,4.6121) (303,013) 146,049 8,787..._. 311,800 Cash and cash equivalents at beglnnlng of period S107,285 $146,049 $8,787 ... Cash and cash equivalents at end of period . . . . . , . . . ., SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash pakl/(received) during the period for.
$71,831 $73,170 $84,089 Interest - net ofamount capitalizd SII,116 ($70,650) $35,128 Inconm taxes See Notes to Respective Financial Staternsts.
233
ENTERGY LOUISIANA IIOLDINGS, INC. AND SUBSIDIARIES
,'ý'CONSOLIDATED BALANCE SHEETS;'*
ASSETS
;oI"*
December 31, 2005 2004 (In Thousands) CURRENT ASSETS Cash and cash equivalents: Cash _ $107,285 S3,875 Tempnorry cash investments - at cost, which approximates market -142" 174'
.. Total cash and cash eluivalents 107,285 146,049 Accounts receivable:
Customer ., 176,169 88,154 Allowance for doubtful accounts (6,141) (3,135) A ... Associated companies . I,: 24,453 43,121 - . . Other f , ,.; 12,553 13,070 Accrued unbilled revenues .j., 149,908 143,453 .. Total accounts receivable *..,_ 356,942 284,663,.. Deferred fuel costs I 1. 21,885 -"- .',, 8,654 . . 9 Accumulated deferred income taxes 3,884 .,12,712;-, .: . Materials and supplies - at average cost- 92,275 77,665 Deferred fiuclear refueling batagi'costs ..... 15,3373;4?: " :-. -11':" 5,605".'",%w , '" "'"" Prepayments and other 185,416 6,861 TOTAL 7 83,024 1.'. 542,209. ....... OTHER PROPERfTYAND INVESTMENTS Investment in affiliates - at equity' 14,230 14,2302 " " ' 187,10i '"' .. 172,083 % ' s::" Decommissioning trust funds,' Non-utility property - at cost (less accumulated depreciation) 21,019',7 ' '
' 4 ;"9: "' " . .4':r.,.. . ..
Other, TOTAL 222,354 207,493 UTILITY PLANT 6,233,711 .,:.,,.,.58 9i .. *'&" ElectrC,7' . Pr6-perty under capital lease 250,610 250,964 Construction work in progress i.4.15,475 , ;j,: . . !8.8,848 Nuclear fuel under capital lease . 58,492'- 7. 31,655 .: :,.-;- - TOTAL UTILITY PLANTýa: 6,958,288 6,457,356 .... .. Less - accumulated depreciation and amortization 2,805,944 2,799,936 >... , ,,.. UTILITY. PLtNT- NET-r.:': 4,152,344 3,657,420-_:-.,, - , , DEFERRED DEBITS AND OTHIER ASSETS Regulatory assets: SFAS 109 regulatory asset*- neti 104,893 132,686 * .',
'. " - Other regulatory assets ' 498,542 302,456 *" 'i-q-'
Long-iern receivables . .:. Other 32,523 25,994 TOTAL' '644,180- -- - 471,872"*.)'" V, -.,W 9 9.k'. *i ,'.
.... TOT ASSETS - $5,801,902" " $4.878,994-"
.. See Notes to Respective Financial Statements.
;::*)' . ); 2 .9. 9*I,*'.,9 '.9 , I., i, . ..2t 9~
* .f. ':9) ,
234
*ENTERGY LOUISIANA HOLDINGS, INC. AND SUBSIDIARIES
,IV /.," *CONSOLIDATED BALANCE SHEETS I '.*")
LIABILITIES AND SHAREHOLDERS' EQUITY
-,0[f. ' ) December 31, 2005 2004 (In Thousands)
S'.
*" CURRENT LIABILITIES Currently maturing long-term debt i;5,000 Notes payable 40,000 Accounts payable: 57,681-r,*i -* [,6I Associated "cinpanies 5 *L'. 121,382 Other 398,507 128,523 Customer deposits 66,705 66,963 Taxes accrued 7,268 Interest accrued 28,442 A Obhigaiions under capital leases 22,753 67 k,22153 .
8,721 -+A,0,428 Irrt fj,_) flU? .. 4- I Other 0 .,j Ii1 %. 1 367,054-0,o' r 686,510
'fitTOTALi:,
NON-CURRENT LIABILITIES
. Accumulated deferred income taxes and taxes accrued 2,055,083' 1805,4f0 1..* 0 "':'*
Accumulated deferred investment tax credits 92,439 96,130 Obligations under capital leases 35,740 8,903 58,129 . 51,260 / Other regulatory liabilities Decommissioning 221,291 '347,255 Accumulated provisions 93,165 92,653 Long-term debt 1,172,400 930,695 Other 146,576 106,815 TOTAL 3,874,823 3,439,121 Commitments and Contingencies SHAREHOLDERS' EQUITY Preferred stock without sinking fund 200,500 100,500 Common stock, no par value, authorized 250,000,000 shares; issued 165,173,180 shares in 2005 and 2004 1,088,900 1,088,900 Capital stock expense and other (3,736) (1,718) Retained earnings 74,905 5,137 Less -treasury stock, at cost (18,202,573 shares in 2005 and 2004) 120,000 120,000 TOTAL 1,240,569 1,072,819 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,801,902 S4,878.994 See Notes to Respective Financial Statements.
;235
ENTERGY LOUISIANAIHOLDINGSO INC.'AND SUBSIDIARIES CONSOLIDATED STATEMENTS'OF RETAINED EARNINGS For the Years Ended December 31,
- ,. . 2005 2004 2003
- ,-, r ,,j (In Thousands)
Retained Earnings, January I .- --.-S5' 37 ' S856-- $6,916
*.t '.=q .,~'-,*
Add: Net income7: 128,082 r127,495i.r; 146,154 Deduct: ", .J.;..L'3q I: ' Dividends'declared: ~: Preferred stock
~-,
.6,1,.t:i**
,'=6714.*,* : 6,714 Common stock 51,600 116,500 aj,*L 145,500 Total.:. - , 58,314 123,214ý"' 152,214 Retained Earningsp, December31 .. ... *,$;T 74,905.;. -5;137':;T.. S856
- '. p,*1..'
-*: !::tr:<,1
>*,-*i f:)l'r*3" ; L ' ;, t :t.2:~l See Notes to Respective FiancialStatements.
,17 I! .*" 'hh~*" :,!ji. ,1 8F.I"
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ENTERGY LOUISIANA HOLDINGS, INC. AND SUBSIDIARIES AND ENTERGY LOUISIANA, LLC I, i 'SELECTED:FINANCIM,-DATk:JFIVE'VtAR COMPARISON,-T":-'i Y 2005 2004 ;'?"2003:----' ;";'*20021 '" -oi' (In Thousands) . ......
'o ,;ýr .i.iuif I v'Irt. in fj, 6un;Ind
ýt*.I* ,1ire 1$- ,815,,352,,.* $1,901,913
,';-$$,'70i p ..0- , ,,,ihrl.-
I., peratin bobilflO7.i)(l:.., I . Fe2,5!fi l Z7.. 'c. tll ,1 1ien2'uj9 Net IncomeIoic . , bh,- bob ,rl: o'$12 8 ,08 2 ".j -.; $146,154.
-$127.495,, ý ,,:$1,4,4,709- f;$132,550 Total assets ý,-Entergy*Louisiana Holdings, Ilnc.,iýj.. f:rjj.$5,801,902 ,,'?$
4 87 8 994
, , lde: $4 ,6 7 4. ,5 3 9 , j$ 4, 75 3 ,7 04 $*
.4,149,701 Total assets - Entergy Louisiana, LLC $5,855,053';u' j$4,845,59.7.u:e~d$4,641,142 !,;:S4,720,307, r(IS 4 ,116,304 Long-term obligations (1) $1,208,140 $939,598 $917,247 $919,319 $1,197,473
'jll ~I!f!*,i? 'r~, n I bir 1 it;UfnA
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%I , - t*r * ,- ' 20- 5- i j "id i wi ýfjlmAloq; o"I?. lli'i$ ,If:kCi fi%1"iL4-' lILj __1______11_ If05 r'2002
ý 00'j6 ..
., of.....
il~ j ot)t O (I1 "141ill
-
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£ .. ... . . . "(D.Olla's.In M illiOns)
AofiJ1 LIVý~. '~. ~ ~ IL3l Electric Operating Revenues: Residential,) ric.oq IL.ii iri:nf '7.di1ftt2,w:tý,.$Z?,2,"i erl; .rqjc' l(I p,$8.2.8 'nj Xfl*$ .. f638fti'( 3 "v :t.ko $658 Commercial e,*wof r11t.i býi,5, o,- ' 2;i 3 "" ,539.i jr O b1n501.,)tiL 4 *. -4 7 3 '21io P f:. *hf.4 2 9 Industrial: . .,,- iPo. Iu ;,:-
.. ....... o x.g.:. - riliw ',1 tinwlnr.m34 ?J)O£ P'0E , !l t. "*779r.:'0U(J bA2bn723 Ai'-'*q 9,it n. 6 3 7 :y( u9f, p,.760 60..,
Indutrial'f.InJ Governmental 41 -38 .;41 it . tId 36'"miU .,." r~i39 Total retail 2,242 2,088 1,976 1,714 1,886 gd1r !s r~.1 Yýii'ui'a~ ((1M f i rLi.f~jr~ jVL 2 i>,~A lH* I i -_ .i nJb Associated' ompahies 33. 02 . 25 Non-associated companies 14 12 11 23 coempaniest ",i-1**2 14 .. , *11-,
- otl iik, I j0' wi1I.l, fi~nf n . - '0 "~~6. ~, , 82 - (32)
.- Total-"
, ? ;TS* ,
,.,I .-. * ,*,, * $2,650 . %:_$2,227. $2,166 $1'815 , 1,902 Billed Electric Energy Sales. (GWh):)ob.hqn.,1 1,:! in "uo hn '0, ,ý itft!Ih.iT) oi, 1'b 9"T 4 zi': ...'r:i ,",,,',
Residehtial,,? larrrjni P.',ýrvqfoD wht lo r*'i 8,559 1o 4,itw'1 8 ,84 2 : *'j:-r8,795, fjo n6o8,780b !i[:'j:i8; 2 55 Cormmercial I" l,01,,1i lPr.i.n; *,',ycqio.) swlhlo F.. Bw-,5,554'*) oil od1 no5;762fo 1*'*1h5,622 bar 'l5;538,1i lni-,m'5;369 Industrial 12,348 13,140 12,870 14,738 .4t1tl4,402 Governmental 428 439 491 510 498 Total retail 26,889 28,183 27,778 29.566
'*,i..l 'i-lOJ0t :45 :]T T1l J_-Tt 28,524 Sales for resale:
Associated companies 2,451 1,129 1,344 146 381 Non-associated companies 109 122 132 ..- '." ... 139.,_ .. 334 Total 29,449 29,434 29,254 29,851F' r, ,I'29,239 S237
REPORT OFINDEPENDENT REGISTERED PUBLIC AC.COUNTING FIRM To the Board of Directors and Members - Entergy Louisiana; LLC:-. 7'- -. We have audited the accompanying balance sheets of Entergy Louisiana, LLC as of December 31, 2005 and 2004 and the' related'state'ments'of' micom~e, mebers" equity, and' cash flows (pages 239 through 244 iiid'pplhcabl&0 items-n pages '302' through, r376 for eaich'oýft the three"' years in the period ended December 31, 2005'-r These'*' f'inanicial statements are ther. Cspoohibilif'f~th6'Cfio'an',yi,'ianagemeni. Od'ýriponsibilityi is* to!express 'an,,.
"opinionion these finianicial Stteinenti basE'ibn bur audits.-. '.' * ' .. . . t.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that ,we plan and perform' the audit, to obtain, reasonable, assurance about;* whether the financial statements are free of material misstatemiient. An audit includes examining, on a test basis, evidence supporting the amounts, and disclosures in the financial statements. An audit also includes assessing the Saccounting- principles- used- andsignifican-' estimates- maice- by- management, as well as evaluating the overall financial statement presentaton:. We believe that our audits provide a reasonable basis for our opinion.
'In our opinion; such finan`il statements present fairly', im'all material respects, the financial position of-Enterigy Louisiana LLC, as of Dec~itiber 31, 2005 'aind 2004, andrthe results of its operations and its cash flows for each- of' ".thethree years in the period ehded December 31, 2005 in conformity with accounting principles generally acceptedi in the United States of America. , ',. ,
As discussed in Note 8 to the notes to respective financial statements, in 2003 Entergy Louisiana, LLC.adopWted.th provisions of Statement of Financial Accounting Standards No. 143, AccountingforAsset Retirement Obligations. 7We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United- States)rthe- effectiveness. of-the'Company-s internal control over financial reporting as of December 31; 2005, based: on the criteri'a'esiablished in'Inter.hal.Conitr-.IntegratedFramework issued by the Committee' of Sponsoring Organizations of the Treadway Commission and our report datedtMfiich: 9,;2006 -xoressTdý an 'i, unqualified 'opinion on mhnfagement's assessment of the, effectiveness of the Company's internal control over!
*financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over.financial) reporting. . . - : ... " , . :, . .
DELOITrE & TOUCHE LLP M Louisiana.. _-.0New.'Orlean,. ,.*..' ' ' March-., 20b6"-?. - -,K2' 2j8
ENTERGY LOUISIANA, LLC INCOME STATEMENTS For the Years Ended December 31, 2005 2004 2003 (In Thousands) OPERATING REVENUES Domestic electric $2,650,181 $2,226,986 S2,165,570 OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 916,779 671,549 525,645 Purchased power 872,026 667,893 668,337 Nuclear refueling outage expenses 15,351 13,633 11,130 Other operation and maintenance 356,084
- 367,824 376,770 Decommissioning 18,785 21,958 20,569 Taxes other than income taxes 73,860. 68,999 70,084 Depreciation and amortization 186,281 197,380 192,972 (43,765) ' (2,160)
Other regulatory credits - net (70,119) 2,369,047 1,965,471 ,1,863,347 TOTAL OPERATING INCOME 281,134 261,515 302.223 OTHER INCOME Allowance for equity funds used during construction 10,251 7,494 6,900 Interest and dividend income 19,882 8,209 8,820 (7,539) (929) (3,100) Miscellaneous - net 22,594 14,774 12,620 TOTAL INTEREST AND OTHER CHARGES . i :; . Interest on long-term debt .73,, !1 70,210 73,227 Other interest - net 11,727 3,931 3,529 Allowance for borrowed funds used during construction (6,591) (4,822) (5,475) 71,281 TOTAL 78,827 69,319 224,90"1 206,970 243,562 INCOME BEFORE INCOME TAXES Income taxes 96.819 79,475 97,408 NET INCOME AND EARNINGS APPLICABLE TO COMMON EQUITY $128,082 $127,495 $146,154 See Notes to Respective Financial Statements. 0-239
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,240
'. ENTERGY LOUISIANXA,LLC STATEMENTS OF CASH FLOWVS For the Years Ended December31, ti "r
__.___._ j,ij 2005 2004 2003
- 4-: ,(nTbousands)
OPERATING ACTIVITIES Net Income S127,495 $146,154 Adjustments to reconcile net Income to net cash flow provided by operating activities: 'e "I " ")1 Reserve for regulatory ;djustm.nts **(13,674) 1. , 14,0V6
- 1,858 (70,' 19)" "-(4375 (2,160)
Other regulatory credis -net Deprecltirn, arnra ,anm d dccorsnrssing - .
.----- 205,066" -':2i9,338 ' 213,541 Dcfirrd income txesi i-snr-i credits.- ..... itt24 , 6 79 f , 75,078 859,157 (112,82, ) (45,735)
Chauges in working capialt Receivables Accounts payabli.) .(1ti,) 40,3821 Y C h`I"A ! ;.,4,455',17i 30,174 141,741 2%~'1 ig oj,;.;3 /909*.. (804,805) Tasesaccnrd 1I.. Interest accrued l*Of*, 10,004 (1,791) iO (10,324) (13,23 1) P' L:;.*b,'*195* (56,211I) ed folcosi .'Aid, I (26,873) - 1r."0,693 'oT'
- ON!;:::= 10,395 Oth working ciphla ous'. ,.=?. ......
Pro-ison for estbitekd lasses and reserves ?,, 12 512 ',ta F,6,119 'K.U 12,194 Changes in other rigýiatory assets
- 11,641)'a.':*,r
( ,* L (14,456)t'rru'. 59,169 "t;,(131,024) t- P,-.. ... - t22770))ILIJ (66.353) Other (A V i'TYlc* Net cash flow provided by operating activities t-071,0761, ; ;; -- 499,870 -,trn 347.054
',M* (* .INVESTING ACTIVITIES Constnanirn expendiures .(389,220) (240,283) (257,754)
*r;':t T;:-'t.)'!q i'J,]74946,900
,"r3,/111,25 AIince for equity finids used duting constrction (41,525)
-- {4,9)
- Z:*:,qoi,,nj:.]'/
Nuclear fiel purchascsr.f* r tO 1.r ' I Proceeds from the salaf, ascback ofmicsar f*cl ,1 -.-. 5 , :t' 41,525 Payment fr purchase ofplant (162,075) " Proceeds from nnclar decorwinissining trust find sales 7.... 107,291 35,987 53,479 Investmnt in nkr'dc"Coninissioning tust fink--! (115,552) (48,602) (70,985) 40,549 ' (40,549) 18,854 Change in mrcuy pool receivable - net
.I-2,173--- (12) rsnet- (40,357) 3,,:
Chgentckws Net cash flow use~d In Investing activities , (549,453) " 283780)fj"l (249,518)
.I. FINANCING ACTIVITIES -......
'1/.,Ji 'f 11 I T'iJ .IT?:Y1' Proceeds from the isuaince of: t~ia;h*;g,2 iv: L':4; ;282,745',"*
Lon6-termdebt ', , Prefrred stock **-' ,. 1* . [ 97,982 T --'. ..11 T"i '-l 11TIU Retirennt of ion-tcnn debt (219,374) (203,756) (296,366) Change inmoney pool payable - net . ~i-AJl'TQ (68,677 1 I*3I!ll .W.(41.317) Y,'l* 41,317 Changes in short-term borrowings Dividends paid. 0'1,M 4! Conyrnequity i)*,:0. (51,600) ( ...... , (116.500) *( (145,500) 337,613 .?4 (-":-78,828).rV,i (400,549) Net cash flow provided by (used In) financing activities Net Increase (decrease) In-casband casheq vIalnts (40,764) (303,013) Cash and cash equiyv!eh.nt, btbeginning of per.io . 146,049 .8,787.. 311,800 Cash and cash equivalents at end of period $105,285 $146,049. $8,787 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash pail,(received) during the period for. Interest - net ofamornt capitalized $71,831 $73,170 $84,089 Income taxes $11,116 (S70,650) $35,128 See Notes to Respective Fhiancial Statements.
.241 L!-"
ENTERGY LOUISIANA, LLC
- BALANCE SIIEETS *:)
ASSETS December 31. 2005 2004 (In Thousands) it~ S- CURR*E*NTASSETS Cash and cash equivalents: Cash $105,285 $3,875 "*' Temporary cash investments - at cost, which approximates market"
-_________ _ :iJ42,114' Total cash and cash equivaln ts 105,285 " 146,049 Accounts receivable:
Customer , 176,169 88 ,5' Allowance for doubtful accounts, (6,141) (3,135),.
- Associated companies .. -, 24,453 43,121 Other .,'At ,'! 12,553 13,070 .... _
Accrued unbilled revenues (t m..:) 149,908 143,453 . Total accounts receivable ,'.. 356,942 -. 284,663 Deferred fuel costs 21,885 .. * ,. L.,, _.,,8,654 .- , * * * . Accumulated deferred income taxes ) 3,884 --. ,-12,712-7
-Materials and supplies- at aveiage'cost... 92,275 77,665 *.*
Deferred nuclear refueling outage'ddsts____ 15,337'*:,i," .: ý;_" "i" 1 0.- Prepayments and other 173,055 6,861 TOTAL .. .. -768,663 i1.:.I. 542,209 .... I OTHER
& PROPERTY`'AND INVESTMENTS Decommissioning trust funds' 187,101 172,083:
":Non-utility property - at cost (Iess'ccumulated deprecial 1,852' '2,009
'**,' . . ,.4 Other 4 .,'l 4I "' '
"" TOTAL. 188,957 .174,096'.........
UTILITY PLANT 5,985,889 ., . Electric :,; ',-: 6,233,711
- Propcrty under capital lease7-7*; -- 250,610 ,.,:.250,964 ".
. Construction *ork inprogress . 415,475 188,848 Nuclear fuel under capital lease 58,492-%,.......... 31,655 TOTAL UTILITY PLANT --6,958,288. 6,457,356-:11,.
Less - accumulated depreciation and amortization 2,805,944 2,799,936. UTILITY PLANT- NET .,. 4,152,344 3,657,420
. ~ 1e~
L)..' , ' , . ?' , DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: t: I).- SFAS 109 regulatory asset - net 104,893 132,686 %-') ' "'. Other regilatory assets, - 498,542 302,456 , ' I'. _ *.'"_.'.. Long-terniieceivables _iS.'..... 8,222 .* "t, 10,736r, " Other 133,432 25,994 TOTAL- ' 745,089;'1'!'-1: ' .. ' *471')872 ý;"'" * ' "*
',: : ei TOTA6L'SE'IS , " S5,855,0531 :: ,;.,: '$4,845'507". '. "111 )
See Notes to Respective Financil Statements,- bai.% l-i~a'l*'),")* I l:'d:
'-I: .'. 2:,4 i,I..
4' Il., 11 242
ENTERGY LOuISIANA, LLC BALANCE SHEETS LIABILITIES AND MEMBERS' EQUITY December 31, YT"I'Jo. 'R 33af. r '10.IV, 2005 r'* 2004 (In ThouSands)
..... CURRENT!LIABILITIES
.O*.tCurrentlyfmaturing Iong-term debt-'"- $55,000 Notes payable r, 1"l) 40,000 Accounts payable:
121,382 57,681 07, 0:I*..Othe) I'V.Icompanies Associated ý(). t ;" EO V._fO. ! C', 398,507 [ V;:,Jr,.128,"523?1c2td Customer deposits 66,705 66,963 Taxes accrued 88,548 7,268 AA., Interest accrued 28,442 18,438
.. ,i Obligaiionis*uixder capital -IWs'6 22,753 22,753 OJ! .':'
l+-I. -Other ý (!.+.I *,.c 8,721 10,428 lj: TOTAL 775,058 367,054 NON-CURRENT LIABILITIES Accumulated deferred income taxes and taxes accrued 2,055,083 :bl,805,410 ', ,: (I
) *l [ Accumulated deferred investment tax credits 92,439 96,130 1 ,963 j Obliga'tionis'under capital Ieases; - 35,740 ---.- Other regulatory.liabilities _t___. 58,129 51,260 *-,,*)
- '.", . Decomniisioiing L_i
_ ,_+ 221,291 347,255 hn.o]
-~Accumulatedpro~vis__-s-93,165 92,653 Long-term debt
- 1,172,400 930,695, ,
O her,~ TOTAL 3,874,823 3,445,840 Commitments and Contingencies MEMBERS' EQUITY Preferred stock without sinking fund 100,000 Membcrs' equity 1,105,172 1,032,703 TOTAL 1,205,172 1,032,703 TOTAL LIABILITIES AND MEMBERS' EQUITY S5,855,053 $4,845,597 See Notes to Respective Financial Statements. 1-243
f, 1L A ." ý ?; '".'If , T*'I'AI'I. 1.
,, ,,,.. ; ENTERGY LOUISIANA, LLC STATEMENTS OF MEMBERS' EQUITY
.... " For the Years Ended December 31,
.......:;.2005 ,.:2004 T;- 2003 (In Thotisands):c,"
Members' Equity, January 1 $1,032,703 $1,021,716,.:o $1,021,070 Net income., 128,08Z , ......127,495-,ý, J,: 146,154 Total K _ 128,082 127,495 -1,f 146,154
- 7"" .*r_
Deduct: Dividends declared:
,0,A": " 5 1 6 00' "16, 1 5 0."0"' 145,500 Common'eqiiity Other Total 55,613 -.116,508,-,',. U 145,508 c:*,. * ,,, tr, Members' Equity, December 3 $1,105,172 $1,032703 .iT2$1,021,716 9T Ik See Notes to Respective Financial Statements.
'; sjI* *.f !*,* l,,,':A.,- A ul .I AlA*! .* tA - U*'
*244
I ENTERGY MISSISSIPPI, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS ! i*)" Hurricane Katrina .z, >.'.* crrio~tjix ELtII j"rh ?.,/:;. :r+(!'~ir J+'t "1'YII
+'::U1/X A:,oi :,i'! +l~hD.r:itrirn~i~Iim L.I I? bo+:r.' r+'.[, *..:q+I, In August 2005, Hurricane katrina hit Entergy Mississippi's'*eryice territory causing power-outagesand significant infrastructure damage to Entergy Mississippi's distribution and transmission systems. Total restoration costs for the repair and/or replacement of Entergy Mississippi's electric facilities damaged by Hiurricane ,Katrina, and business continuity costs, and a small amount of damage caused by Hurricane Rita, areiestiiaecd Itobe'$120 imfillion;min6luding:$38.8!iTmillion:miconstruction' expenditures ¶and $81.2 ffiillion recorded as iegulatoiy assets. The cost estimates do not include other .potential )increrniental closses,'trs&chV s ithe inability, to, recover t.fixed,,costs scheduled for recovery through base rates, which base rate revenue was not recovered due to a loss *:l'o+ of anticipated sales. .'
Entergy Mississippi has recorded accruals for the portion of the estimated storm restoration costs-n6t, t paid. In accordance with its accounting policies, and based on historic treatment of such costs in its service (tefritories'and comrmunicafionsý.vith, local :regulators, ,Entergy +Missiisiopi recorded iaisets' because management 1 '<belidves thattrec&'o*'y of theseprudentlylincuhred ;cýsts.throughtsbme form of regulatory mechahisni 'is po0bable. In December 2005; Efitbrgy Mis-sissiplifiledwith itheMPSC, a'fioti66'of intentito changerafes7byý,irfiplementing a storm damage rider for costs incurred through November 30, 2005 and intends to make a second filing in late spring of 2006 to recover additionalistorm restoration costs incurred after November 30, 2005. The filing is discussed below in "Sibnificant'Fiietdrs'and Known Trends." Because Entergy Mississippi has not gone through the regulatory process regarding these storm costs, however, there is an element of risk, and Entergy is unable to predict with certainty the degreedhbf uccess it may have in its recoveryinitiatihesthe amount of restoration costs and incremental losses it may itltimately recover, or the timing ofsiich'iecoPery:t,-.5iY (I. *u *> Ii,:!i.-u Ol hbiiutr;.': ri,:q Entergy is pursuing a bidad range of initiatives to recover stor'mirestoratioi irind business continuity costs and incremental losses. Initiativelinelude obtaining reimbursement of certain costs:'dbvered by insurance, obtaining assistance through federal legislation for damage caused by Hurricanes,.Katrina rand Rita, and, as noted above, pursuing recovery through existfg or new ir te mechanisms regulated by the FERC and local regulatory bodies.
*-,m",*d *. trrr~q rfoM 52xi '*i2 *':'i*.C' 'o fIoi.'- r r, oU*.*iE. .(L1*:nE~tl ri *srti'sri'i cto;\!il~U, l >r,¢'i*.*'r wit 0,) Jjxji j,;Entergy's pnon-nuclear,.property insurance iprogram provides jcoverage, up :to- $400 i millionxpn anEntergy system-wide lbasis;,subject fto a;$20, nillion ,per, occurrenceselfin.sured retention.i foraIlrisks.coverage-for idirect physical loss or damage, including boiler and machinery breakdown. Covered property generally includes power I~plants,-fsubstations.i facilitiesi linventories,-, and gas :distribution-related iprPperties.-,.. Excluded' propertyj generally
-,fincludesabove.-grundtransmission.and distribution jines; poles, and towers.:The primary,property program,(excess
.6f the deductible) is placed throughQI nsurance xnillion layer) .ith the excess program ($150,omillion
-Limited:($250 layer) placed on a quota share basis through Underwriters at Lloyds (500/o) and Hartford Steam BoilerjInspection and Insurance Company (50%). Coverage is in place for Entergy Corporation, Entergy Arkansas, Entergy Gulf States,
-,Entergy.Louisianai;EntergyMississippi,.and Entergy NewjOrleans.-ljrhere is an aggregation limit of1 $1 billion for all parties insured by OIL for any one occurrencei; and,,Entergyfhas' been notified:by .OIL that, itexpects ,claims -for Hurricane Katrina to materially exceed this limit. Entergy is currently evaluating the amount of the covered losses for Entergy and each of the affected domestic, utility,companies,,Working Iwith nsurance adjusters, and preparing proofs of loss for Hurricanes Katrina and Rita. Entergy Mississippi currently estimates that'limit its net insurance recoveries for the losses caused Lby.,the .hurricanes; :including 'thel,effect *pf -thet9IL,-aggregation :being ,exceeded ,will "be:
approximately $4 million. ... I.fim
.ojV0'.";,* h);'o 6~,!f+ji"" .,,* lo *,+ 0; :);1) vhr~mi~r, Lwl*+ i et"+It,"/
1.."2, btor,:niiIn, Decernber2 2005,,the ýj.S:.*Congress passed 'theýKatrina R.elief1 Bijl, *a hurricane aid package, that'includes 1$1.15billionIin 1Community,-Deyyelopment [ Block+-Grants .(for Ithpstates affected,ibyr:Hurricanhes iKatrina, .Rita,..and Wilma) that allows state and local leaders to fund individuali recovery, priorities. .f.Thebill inchides, language that permits funding to be provided to publicly owned utilities. It is uncertain how much funding, if any, will be zdesignated iforutility reconstruction:an.d the timing of such :decisionsJs also :gcertain. ,IEntergy~is currentlylpreparing Lapplications to seek Community.Dgvelopment Block Grantfunding,1i- q i ., m *iV . oq f!!3ii.Ui I)
'245
Entergy Mississippi, Inc. Management's Financial Discussion and Analysis Results of Operations ' r. Net Incom e l',t ' * ,.".: .', .. .. , .... 2005 Compared to 2004 "anid higher Netde'p'rec'ition"a'n'd income decreased $11.4 million am-orhitiath primarily due to lower net revenue, higher taxes other than income taxes, expenises.'"*: :*'"" .. :" '.. . 04Comparedt1003i
* " " ' '.00;' ... ..
.7 - Net, income, increased, $6.4f million primarily due, to higher. net-: revenue, partially offset, by: higherother operation and maintenance expenses and higher taxes other than, income taxes. ,!o,..<: :. , *..
, - : 0 * '.* ! . ". 7 .' .K,.-*', ., . '." .. "*
... *.1/4 Net Revenue Q2005 Comparedto 2004 .. ,:- :.'..:.. v.: . .. .. : ,.. >-. " l:
; ,',, .... Net revenue; which is Entergy Mississippi's measure of gross margin,, consists of operating revenues net of:. 1) fuel;'Tfuel-related; expenses;, and: gas, purchased- for resale, '2) purchased power, expenses; and 3): other; regulatory chaiges: (credits):- Following is an analysis of the change in net revenue comparing 2005 to 2004., *.-' .-. ,.J
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......... ~ ,..~ ~.. ~.. ; ~ '."."'i;. , . -.: - :-. ,:A m ount.,!
~:.** ~~~~V :.(Millions) ' -7,.. . ,.
,.2004, net revenue. .,'.. . $443........ -..
Reserve.Equalization ., (3.0) . - : Price applied to unbilled sales (2.1)
. -:a, ., .. b-Volumeiweather.;, -.,.- t. J. * ,. .6.0: L; , jt '..
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- , ;.2005 net revenue *-' . .,. $439.57ti.!al
"':1j 1 x- II ~ *.I., "o.. *.' i' '~*4*i~
The reserve equalization variance is primarily due to a revision of reserve equalization payments between Entergy :companies due' to. ar FERG: ruling- regarding the' inclusion-of interuptible! loads in, reserve,'4ualization calculations, and Entergy-Louisiana's purchlase of thi Perryville plant,, whichials6affected the reserve calculation'; -/k
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'.,:.' ; L.s'r,-,dh-.* -t n to .,f h .v
- K;fs,'*.*The'price applied to unbilled sales *,ai'nceis~due' tclower cost per kWh thit occu-s whensale* ihcrease ind
, decrease" ifn Grand Gulfrates'applied to unbilled sales in 2005. See'"'Critical'Acc'ounting"- Estimates" bel6N and SNotdienlt&thd"domestic utility' companies and1 System- Energy- financial :stat~nients, for'. fifther 'disciussioh of ihe accountingf6runbilled revenues ;.' . .":', :... ; :J', o-.!) *,;' - :A-,. .' . CxoY.v... tjoviI
- ,rThe"volume/weather variance'is primarily due t6moie favorable weather on billed sales in.2005co'mpared. o "2004:' Billed usage increas~la toial' of 363 GWh int ther se. se.)rvwcej... te tr . .: *,*. ' :'.i;,',:
,')"';,/ . ,:-j .-, *... 'Th 0othervariance includes'several individually insignificant items. . . .
GJs ,oper'ating revemi'es ,d A and purc"ases '."oivr expenses, and otier regulatorycharges'(crddits)-,c. ';Vil Cýit Gross operating revenues increased primarily due to an increase of $48.6 million in fuel cost recovery revenues due to' higher'fuel rates and an"increase of $3035 rfiillion in gross whoIksale ievefiie"as i resulirof,increased
.volumnidue to higher ndt-geýierti6nh'nid'purchases ifi ex*ess of naet area 'demand1esultingin more e'heigy ai,,ilabl "f6r
- resale sales'coupledwain ihcrease in thd average pn:ce'of enc;rg y'a'vailable fo:rreale. " '"
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- i' :,.t'iv" Fuel'and-purchased'power' expensds ificrea'sed- primarily due to in4reases'in the market.rprices: 6f'naturalghs and purchased power. The increase was partially offset by the under-recovery of fuiel and purchased power costis as' a
.246
ýEntergy Mis~issippi, Iic.
e:Manakirments'Financial Discussidn and Anal*iis result of highei.fuel c6sts'.,iRefer:to&Note 2 tothe'domdsti6;and SyitemEnergy finacfiial'stitemients 'for.dis'ussion of the energy cost recovery rider. Other regulatory charges increased primarily due to the over-recovery of costs through the power management recovery rider as a result ýf'gaini"recordd :on ,gai hedging contracts" in ddition' to the o'6-recovcry through the Grand Gulf rider of Grand Gulf capacity charges. The rider have no material effect on net income due to the refund and/or recovery through quarterl adjustments'to the rider' vxmoI., ni ; oirxi "0." f r"
.8i!srd ni noi!Ii~n \" ( ,.c:;- ,
2004 Compared to 2003 Net revenue, which is Entergy Mississippi's measure of gross margin, consists . " *so x~~Ul,net 6f: of operating revenues J) I"k;.o1, fuel, fuel-related, expenses, and gas purchased for resale, 2) purchased power expenses, and 3)other" regulatory charges (credits). ,Following is an analysis of-the change in netrevenue comparing 2004 to 2003.-...,- Amount (In Millions) 2003 net revenue. $426.65
* ,)r , .,, eftý hol esaervenue,' , .. ,,.. * ,5.0 * . . * *
"v ;; Other . of 24,, G , i 5.5. 6h . * ." se usg, pauk .i
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- vainersle fro an inres
.olume/weather 2004 net revenue $443.5 The volume/weather variance resulted from an increase of 247 GWhm.... ::* ... -..
`h-Veather-adjusted* ... "*partially" usage,'
offset by the effect of milder weather on billed sales. The net wholesale revenue variance xesulted from an increase in energy available for resale sales, partially offset by a decrease inthe erage price ofenergy suppedfr affihated sales. ' ross operatingrevenues,fuel andpurchais'edpower expenses, andotherregulatorycharges (credits) 4ý,,- operating rý.Gross revenues ,t.-
. increased " * ¢ ,T,,r)im r l due to an.increase primarily of ,,$174.0
;--.,t? ... ,,,, in fuel..- cost
',million )
'.,-,. t,-recovery revenues due to hihgerI6e rates andan'increase of $26.3 mi .lin g rTheincrdase was partially offset by a decrease of $37.6 million in Grand Gulf revenue as a result of the cessation of the Grand Gulf Accelerated Tariff in July.2003. :ir k.i) w) *,,,: woti tL..
ue and purchased&power expenses increased primarily due to the over-recovery OflfUel anid purchnad power costs as a result of higher fuel rates.*--Entergy Mississippi's fuel rates include an energy cost recovery idto i recover prjected"'energy costs.:Actual fueland purchased ploer swerower tian-thoseprojectemthe'omputation of the energy cost factors for the third quarter of 2004 which contributed to the over-recovery of fuel and purchased powerdcosts._The MPSC has .allowed Enitergy. Mississippi to refund thes ver-recoveries 1n !lieseconfi'9inid-third quarters of 2005. Refer to Note 2 to the domestic and System Energy financial statements for discussion of the energy cost recovery rider.
. -r* r'igatory *iedits 'imri"td tiiarifly'due 'to the uder- 'overy, of costs'throiiugthe" Grand Gulf rider of Graiid Gulf-apaity charges- IThe rider has§no material IbffektronAetinme due-tothe!r efun'd 'aid/or, recovery through quarterly adjustments to the rider.
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2005 Compared to 2004
*" br 5 oither than' income txs e--Ts in se prizmiiarl'due lb ghee hssessed values foi ad valorem ax purposes Irlalhhigh&ft*h:2ak7
.I _ -m205 14 i *. :.
Entergy Mississippi, Inc. Management's Financial Discussion and Analysis tE', yi-: Depreciation and amortization expenses increased primarily due to an increase in plant inservice.-.ilIII:.I 2004 Compared to 2003 J; Other operation and maintenance expenses increased primarilydue to: I -o'* n .- :. < t~ivl .:.i ;r:.r-'.,t,',r[1 'A 2:' ,**, *.>: 'r*jyI i OU-~ C ,i'2I~fC c)r:! I JZ i' 1,hi**.'~ 1 ' * *i!L&;'0 Ii'*=rC, Th ) L'r C *i-):: . t :,:"...r), l ' ': *ii) ;c ....: I, 2:y '0 t
- an increase of $6.6 million in customer service support costs;and',I p::,ip . v-. 'v". i, :.
- an increase of $3.7 million in benefit costs.
The increase was partially offset by the, absence of. the voluntary severance program accruals of $7.1 million that occu~rrca in 2-003 -
- J ; * - * . -
Taxes othertthn income'taxes mcreased'primarily due to ahigher assessment of ad valorem and franchise taxes compared to the same period in 2003. Income Taxes .*, ,!' The effective income taxirates for 2005, 2004, and 2003 we're35J3%;33.5%, and 33.9%, respectively. See Note 3 to the domesc utlity companies and System Energy financial statements for a reconciliation of the federal statutory rate of 35.0% to the effective income tax rate. Tax resives not' expected ioreverse within the next year are reflected as non-current taxes iccrued on the balance sheet. Liquidity and Capital Resources . D;.* ... -. '.' '2 mof" bC.h,:2:. ., .. ,:, .'::,* ,; Cash Flow Cash flows'for the years ended December31, 2,005 2004, and 2003 iwere as follows:,
,.-" :. *.': ",. .,... .* ... . 2005 , 2004 ., . 2003
.(In Thousands)
Casheqvalents atbegnnmg of period $..". 6. $147,721_ Cash flow provided by (used in): l,0 *-,rl r: "lii.;I 'r*--l:'66 Operating activities 4,935 257,687 266,662 SInvesting activities ,, ***,, .- (138,510) . (151,013) n, (277,869)
...... ., Fia
. ncn . .a. . .t*' " .. . ,. . . " "1; ".. 57,702. ,...
., .`57'70. ,~. ,.' (90,1 -1 616)(
f , (72,676),,
* .iN ieceaseret (decrease) in cash and cash equivalents ,., ;r(75,873) r, . 16,558 , (83,8
,,jgt
.Cash. nd cash equivalents at end of period,,,,,,!,,, $4,523_",, ..... $80,396 .. $63,838,a
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)' J' O pe ra tin g Ac tiv it ies
,t.t"i,.Cash flov, from.operations, decreased by $252.8 millionin 2005 primarily due.to a decrease-in'recovery of deferred fuel and purchased power; costs and also due to storm restoratiorl'spending caused by Hucane K.trina.,,-
I- Y'i "il
. 1 ,! ti:jr. V* 7rIuIp fliuo,1li Cash flow from operations decreased by $9.0 million in 2004 primarily due to a $12 million ihcome tax payment in 2004 compared to a $78 million income tax refund in 2003 anddqecreased collections- ofscustomer receivables, almost entirely offset by an increase in recovery of deferred fuel and purchased power costs.
In addition to the direct costs caused by the storms, Hurricanes Katrina and Rita hav-e had othei ifnpacs iht -haye. affected. Entergy, Mississippi's, liquidity.position.; jThe Entergy New. vrleans~banruptcy.caused fuelC and power supjplieis to increase their scrutiny of the remaining domestic utility companies. withthe concern ethat one, fthem could suffer similar impacts, particularly after Hurricane Rita. As a result, some suppliers began requiring accelerated payments and decreased credit lines. In addition, the hurricanes damaged certain gas supply lines, thereby decreasing 248
.zEntergy Misiissippi,' fic.
?1Manairment's Finanitlal Discusii6n and Analyiis
!the nudmbero6f potential tupphers ',The hirricanes also ex'acerbated a'marke irun-up in lnatural'gas ind power prices, thereby increasing Entergy Mississippi's ongoing costs, which consumed avaiilable'ce'dii, lines§ more^quickly'aiii in some instances required the posting of additional collateral. Entergy managed through these events thus far, adecquately'sjpplied E nt6i&'gMississippi 'ith fitel and power,,and a§a result of steps taken by if regdraiing its storm costs expects to have adequate liquidity and credit to continue supplying Entergy Mississippi with fuel and power'.[Lb In 2003, the domestic utility companies and System Energy filed, with the IRS a change ini:tax~h'c6i0ntifig method notification for their respective calculations of cost of goods sold. The adjustment implemented a smlmpified methodd bfa i
- to the productionrf electity,:whilihis :provided1:under the IRS L'eapitfliz'atiofii-e*,uliticis. *thie umUathiia'adju'stmentfpla'dirig these c'6mpanies on the riev%.xietlhodilogy resflted in a $1.13 billion deduction for Entergy Arkansas, a $641 million deduction for Entergy Gulf States, a $474:million deduction for Entergy Louisiana, a $111 million deduction for Entergy Mississippi, a $32 million deduction for Entergy New Orl~insa,'ln'd.. '$440 inilii6:iedti', iion for System Energy on Entergy's 2003 income tax return.
Entergy's current-estiimaes of the utilizaton -through 2005 indicate that Entergy Arkansas realized $115 million, Entergy Gulf States-realized $46 million, ,Entergy Louisiana realized $64 million, Entergy.Mississippi realized $2 million, and System Energy realized.$138 million in cash tax,.benefit fromrthe method change. The Internal Revenue Servi&esiis-ud new prop-qgdifjtilati6nK, effective in 2005, which disailov ,a.portion of Entergy's method. Approximately $776 million of tax deductions have to be reversed and will be recognized in taxable
,incomeequally,,oyer.,two years, .2005 and "2006., Entergy A#ikaias' ,share ofi this reversal is $27,0 million,.Entergy
'"tGulf States' share .is'$148 million,,Entergy14ouisiana's share is $145,million, Entergy Mississippi's share ýis $124 nmlllion,Ente e Oshare'anis$62 ', an System nergyi l In 2005t. the
ýJdomestic utility companies and System Energy, filed a notice with the IRS of a newtax accounting method for their respective calculations of cost of goods sold. It is anticipated that this new methodwvill offseta signficant portion of the previously stated adjustment to taxable income. As Entergy is in a consolidated net operating logs position, the adjustment required by the new regulations has the effect of reducing the consolidated net operating iloss and t making this does not require a payment to the IRS at this time. However, to the extent the individual compamnes election do not have other deductions or other sufficient-net operati'nhglosses, Lthey will haVE'*to'ýpay 'back their benefits received to other Entergy companies under the Entergy Tax Allocation Agreement. At this time, it is estimated that Entergy Mississippi would owe $1 million, and System'Eneigy would 6wd $9 million!: The new tax accounting method is also subject to IRS scrutiny. Should the IRS fully;deny the'use of Entergys ,takx ccounting method for cost of goods sold, the Companies Would have to payback~all:of the benefits received., ,
Investing Activities Net cash used in 'investing
.
- activities decreased
. * $12.5 million-i 2005 . primaryoilý'ue *i 1"'- I l, t . poo
., ,' tomioney , activity,
.*lj - v -'.:
partially offset by the maturity in 2004 of $7.5 million of other temporary investments that had ben' maidein t20O3, which provided cash in 2004. Capital expenditures incurred during 2005 as a result of Hurricane Katrina were $22.4 million. c:*l Net cash iie'd in investing'-<:A"6ivities decrea'ed'$126.9 milli6hn'i 2004 primarily due tbW rrv i !i.:: u:"*,.oi-
**1 " 2 2 (;f,11 -* l jl*j cash usedin 2003 for otherF egulatory investments of $72.6'i'illion as a result of under-recove'red fuel and.)
C,,'<purchasedp6Wer costs; ý,' 0Ji;? i l*. (OFI ln'P ,I-u 0 a decrease of $25.6 million in capital expenditures in 2004 due to decreased'spending on customer care fto iý_'ariS'Iprojects dnd le~sstransmnission upgradework requested by merchant'generators; and ,-xx. i m,,i ,b,1 (1) r).1tbie .?the maturity in'2004 of $7.5 million .of other temporary'investments that had been made in 2003;:which provided cash in 2004. ... ,,;.. 1.rri' '*s. o. i I oqrpt,
-Financing Activiti.s.lo 1.
hi: .i-oia' Finanbing activities provided ,$57.7,-million, of; cash (in e200$ -compared :to "using $90. 1:( million: .in 2004 primarily due to money pool activity, the net retirement of $39.9 million in' long-term debt in 2004, and a decrease of
$24.9 million in common stock dividends paid.
02Y49
Entergy Mississippi, Inc. Management's Financial Discussion and Analysis . .Net~cash used in financing activities increased S17.4 millionin, 2004 primarilyduet0,an increase, of ,$15.1 million. in common stock dividends'paid.,-, . ':,;., ',. ' .' ; , ..;rlc;:;.::., "j.-;'.JU * .; 'Jr , ',, . .. See Note.5 to the domestic utility,companies and System Energy financial statements for,details on long-term ,Capital Structure , ,. ,.. <, " " ,.
""; Entergy Mississippi's.capitalization! is balanced, between equityanddebt,.as shown in the following table.
The, decrease in the. debt, to capital-_ percentage, as of December, 31;) 2005ois primarily due to, increased retained
.earnings'- . * ... . .. , ,; -t ,. ', ,. , .. .; * , ,,: *. *. .,: , ' :.: .,, :i ",
.. ... * . .. ' ., - ¢* :C. r'-.,-w i*'i[** v -",. " . . , ,..'2- Th....
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Deceiber.31, , December31,(
-;Netdebttonet capital ' ',2.6"/ 51.1. o Effect o0 De-" ofsubtractifigc*st~l sl from debt ro5e2.7.,'. ,:%:,. . 5.. 3:1%',
.2% )- .
Net debt co6nsists of debt less6ash 'and cash eiuivalentsI Debt consists of capital leaseobligatibns and ibng-term debt, including the 7currently .maturin hportio&Capital consists of debt and sh~eholders equity. :Net'capital consists of capita-less cash and cash qui vaents' Enitergy"Misisssippil uses the-net'debt to n detcapital .atio in aiialyziig..its financia coniditioiiad'beliheves ,itproVides' useful information to its* investors and creditors in evaluating Entergy Uses 'of(TCapital:'" . "' .. .'iq' -;"";L' '. . '1 '. . ' . ", Entergy Mississippi requires capital resources for: :*,'. . a " a,',j, , . *. ,,-
*. construction and other'capital investments;.-. :!i
.. . ! . . ,. . .e.-
*.;debt and preferred stock maturities'!;i `1 . .. '. . . ."iI , j . -_ .. .i !:,,I"' : ,,
working capital purposes,inclIdiig tlie.financing of fuel and purchasedpower. costs; and., ::v .,.; w
- dividend and interest payments.
*~~~ ' Following,'!°I-.: are ." the
- .- JI*amounts I- * '* - of
- Entergy
". _". ,- ., Mississippi's
. ' planned
- t .,, R... .!' : 1 construction "1
, ' *l I ' '2 and l 'o other l ,!'I: capital
'- 1 1"lC',, investments,
D and ex istin g daeb t ob lig atio ns : ' .. ,. '. !1 1 . . t. . .. '
2006 2007-2008 2009-2010 " ter 2010" "Total f
.... (QI#M illions) ,. !r't .;, '
Planned construction and capital investment (1)' ,;,..; $219*,i U70.....!,,-:) .N/A, $489 Long-term debt $- $100 S-
$595 $695 Operating leases ..... , . ..
- jj jji $8,
$%. " $9 , *: .. $6 m c $32 Purchase obligations (2) $186 $330 $328 ':.r, -$1,839 ,:, $2,683
*:y ~ C) o
--n43/4~~j I. - ;J!L-> f -,t2. J1:1,£~ .~ ;:-.
(1) Includes approximately, S 10 to $1231 million annually for maintenance: capital,,which.i§ planned.spending on routine rcapital projects, that-'are: necessary,, to support reliability; oflservide,' equipmentj or: systems, and to support normal customer growth. i6,; .,: t.,o°i.i,, 1 (2) Purchase obligations represent the minimum purchase obligation or cancellation charge for contractual obligations to purchase goods or services. For Entergy Mississippi, almost all of; th.e', total_consists-of unconditional fuel and purchased power obligations, including its obligations under the Unit Power Sales Agreement' wihich:is; dicu ssed; in'Nbie 8 to the. domestii&utili(fr ioinpinies and' System! Energr financial
, 250
Entergy Mississippi,-Inc. Managerment's Financial Discussion and Analysis a ':i:-, In addition to the planned spendingin the table above,)Entergy;Mississippi also expects to make $7 million Iof payments in 2006 felated to:Hurricane Katrina restoration work:.!Also,;EntergyMississippi expects to contribute 1$16.4 million to its pension plans and $5 mnilliofi to other postretirement :plans in 2006. ;/*. v, * .: ,.", The planned capital investment estimate for Entergy Mississippi.reflects capital required'to support, existing business, customer growth, and the anticipated acquisition of additional generation supply resources. The estimated .capital expenditures are subject ýto iperiodic review andmodification'and may, yary based on ýthe ongoing effects of '.regulatory.constraints,-environmental compliance, market volatility, economic trends,-and the ability toaccess capital. .,Management provides more information on long-term debt and preferredstock maturitiesin Notes.5 :and 6 to the
-domestic utility companies and System Energy financial statements. iz-o L , : , ,,: .,
natural
-";'- j:)Iln :January 2006, EntergyMississippi purchased for $88"mil..on the Attala power plant, a 480 MW (CMGC).
"1gas-fired, .combined-cycle, generating facility., owned by,-Cnral*MississipptiGenerating ,-Company Entergy Mississippi plans to invest approximnaiely $20 million.An :facilityupgrades at the ,Attala plant, plus $3 million in other costs, bringing the total capital cost of the project to approximately $111 million. In N6'iember i20Q5;.the MPSC issued,an order~approving the acquisition of the Atta..lalnt. InDecember 2005, the MPSC issued an order approving the investment cost recovery through the pdwer management rider ana limited th* recovery to a period that begins with the closing date of the purchase and ends the earlier of the date costs are incorporated into base rates or December:3 1,t2006. The planned construction and other capital investments line includes the majority of the estimated c6gt-of the-Attdila aei-itiihas-a-2006 capital coinnfitinent. As a wholly-owned, subsidiary; (Entergy Mississippi dividends ,its,,eaamings to Entergy Corporation at a percentage determined monthly. Entergy Mississippi's long-term debt indentures restrict the amount of retained earnings available the payment -ofash for'.".rt dividends
. d orbother
..... distriutions d r
.......... - -, v its on . common "i. . and
- ... "1 .. . stock..
11preferred . .- As"of-
-... -_. ". f ... hdiie December31, 2005, Entergy Mississippi had 'restricted retained earnings unavailable for distribution to Entergy Corporation of $68.5 million.
Sources of Capital Entergy Mississippi's sources to meet its capital requirements include:
',*.(f-le,linternallygenerated fundsi;:,: . .. , .. * . * . " , -
. e;e.cashonhand;,jq...i . , '. ; _. ,'..,'::,., : A ')1. "'
" debt or preferred stock issuances; and '.,;,:. , b . rlj' ':;.'.;'1 2
- bank financing under new or existing facilities.
i, r., EntergylMis'sissippi -may refinance or:redeem debt and -preferred stock prior, to' maturityi, to ,the .extent Itmarket conditions and interest~and dividend rates are favorable. ,.': nOlirf,, 4 . ,,' .'.T:-, . ,, .':, i- i,,. wt o00r! 'All debt and commin Iand 'preferred stockrissuanies',by.',Entergy. Mississippi 'require: prior regulatory approval. Preferred .stbck and debt, issuances -are also :subject rtoissuance .tests set forth' in corporate 'charters,' bond indentures, and other agreements. Entergy Mississippi has sufficient capacity under these tests to meet its ec* iit 4;or eebeehsitlneab i _l :'.:h ..;a.l t,'n-eeds.:r ,n t;,.m .., ,;;.: .. . "!.
.. 1.:,,.r. .-
3_051!)tuIn*iune 2005;;Entergy Missis'sippi issued il,200,000'shairýsof $25 par value 6.25% Sefies Preferred Stock, all of which are outstandinrg M of De6eimber 31 ,..2005.ý The dividehids 'aie cumulative' and ire paiiable quartely. The preferred stock is redeemable on or after July 1, 2010, at Entergy Mississippi's option, at the call price of $25 k*per 'slihre.v.The proceedsifromthis isshance were usedin thethird quarter of 2005 to redeem $20'million 'Of Entergy cMississippi's*$100 par~viltle 8.36%"Series:Preferied Stock ind $10 nbillion of Entergy Mississippi's,$100 parralue 7.44% Series Preferred Stock? h;,.;,. - ' -' .* , . . ., . zU,oh' In January 2006, Entergy Mississippi issued $100 million of 5.92% Series of First Mortgaige Bonds due February 2016. Entergy Mississippi used the proceeds to purchase the Attala power plant from Central Mississippi Generating Company, LLC, discussed above, and to repay short-term indebtedness.
'251
Ehtergý Missiisippi, Inc. Manageinent's Financial. Discussion and-Analýsis wtriif.,i-Prior' to, February 8;12006,:borrowingsIand: securities:issuauicesiby..Entergy Misgissippiw~re, limited to
.ambunts authorized, by the: SEC.,.,Effective ivith iepeal' of PUHCAiI1935 on that date, the FERC,'finder the-Federal Power Act, has jurisdiction o&er its 'securities, issuances. Entergy Mis~issippi, has obtained a-shoit;terni borrowing authorization from the FERC under which it may borrow through March 31, 2008, up to the aggregate amount, at
- any one time'outstanding, of $1,75 mill,'-n."r- ,', " -
.' . Under-t.a savings provision i. PUHCA;,2005 which repealed-PUHCA 935,,Entergy.Mississppi can rely, ahter the repeal t oii'ille lori*-termi secibritiesfissuan'e" authority in: its SEC PUHCAI 935 order unlesssuperceded by FERC'ahtlhoiizatioii., Under': its SEC order; Entergy Mississippi cannbt incui additional indebtedness or issue. other securities unless (a) it and Entergy Corporation. maintain'a comm6n.equit*, ratioJof at least 30%/oan&f(b) with the exception of money pool borrowings, the security to be issued (if rated) and all outstanding securities of Entergy Msssippi as we all ottandIg rcuities'of Entergy Corporationithat arerated; are rated investment grade.
See Note 4to. the `dm6estiuttil*ity companes and Sys-em Energy_ finaiicialtatements for furthe'discussin 'f Entergy .Mississipp,ý'ssloiot-te'r'm',o-r-r-o wmv-g h'm its .... I,* . .5.. .. .. ,*. ... * , '., **:, :., '
-" EhtergiiMi!s F ~si or (payables to) the rizney'pool-were as follows as'of D eib'mi31 f6" each6f the foll6%ingye r ' , 8",igI:::" . "*" ,' "'. .. ,I .- , ¶,, , . ,.A , , -, . . .
" ':':i" ' ;! "" '" " 2005 '"" '"12004ý : ! :' b2003' :.1 '. 2002:- .
,' (In Thousands) - :"
.. .. " * '": . .. =' "'($84:066 :;,",11 '1$21;584 " ' ' : " . .
See' Not64 tO the' ddmestic iUhtyit o mpa6ies' anid System Energ'y eincii statiemintsi for" a "deeriptioni' of the "'moneiiy pool.,-, )81 A/al' ~ 'A8 A'1 '*i Significant Factors and Known Trends State and Local Rate Regulation The rates that Entergy Mississippi charges for electricity significantly influence its financial position, results of operations, and liquidity. Entergy Mississippi is closely regulated and the:rAte&charged toit§'customers are determined in regulatory proceedings. A governmental agency, the MPSC, is prinriarily, responsible for approval of the rates charged to customers ... ,- ,, -n In December 2005, Entergy Mississippi filed with the MPSC a Notice of Intent to change rates by limplementing a Storm Damage Rider to recover storm 'damage'restorationc6sts associated kvith Hurricanes Katrina and Rita totaling approximately $84 million as ofNovember'30,b2005:ib Thei notice 'proposesI recovei'y:z of approximately $14.7 million, including carrying charges, annually over a 60-month period. A hearing on this ,matferlis expected in:Aprii 2006P/.Entergy]Mississippi planis,to rmakea- second ,filing in late spiringWof 2006 to Irec6ver additional restoration costs' associated, withthe hurricaries incurred afterN6vemb&.,30,'2005.'.-! it Entergy Mississippi made its annual formula rate plan filing with the MPSC in.March,2005.based,.on a 2004 test year. In May 2005, the MPSC approved a joint stipulation entered into between the Mississippi Public Utilities Staff andi Entergy, Mississippi; that, provides- for no,'change in 'rates,based, on a performance-adjusted ROE mid-point of,10.50%, establishing, an allowed regulatory earnings rangeof .9.,I%.to,l l 9 %.;>f., .'. :2h I-) 118
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.Mississippi's: retail' rate 'matters.and; proceedings,') including7 fuel icost :recovery-related: issuesi are7 discussed. more thoroughly in Note 2 to the domestic utility companies and System Energy financial statements..:,,-I' I . ;,i- ..'...
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- Entergy Mississippi, Inc.
.;.Management's Financial Discussion and Analysis Federal Regulation iT . .- ri' o , 5T ,. .: .i .,driu'to :w., *vi: , - ., ,% ,,
,SystermAgreement Proceedings:;it,; Li'.1, :l i'- -&3 *7 "(.;r b'x<.,; - ,,'.! .rh. ,:w' iv;ri
, See "System-Agreement Proceeings" in the "Si nificant Factorf anil Known Trends" section 6f Ene'ry See,"S~ysemtergyi Corporation and Susidiaiies Manaigeimt's Diiusn and Ainialysisfor discussni6 of the pr6ceeding at FERC involving the System Agreement and of other related proceedings.
Transmission . , 'jC- " ,. Uf, ;,See 'Independent Coordinator of Transmission" mithe "Sisnificanit Factors 'and Known Trends" section ofEntergy C~orporation' antd Suibsidines Managiement's' D uson paldlysis for frtherdisciussion ." 1nterconnection Orders0, ;",P- ", ,
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,,., *See . "Interconnection Orders" m theF ."'S1gnieant Factors and .Known Treiids" section of Enter Corporati'on'arid SuDsidiarils Mainagemeinrts DiscUSsiOn anid Analysl16i furrther discussion.,,. . ,
Available Flowgate Capacity Proceeding See "Available Flowgate Capacity Proceeding",in the ."Significant Factors and Known Trends". section of Entergy Corporation and Subsidiaries Mainiaement'sDiscussion aidAfialysis for further discudison.- Energy Policy Act of 2005 , "Fr:-)x j;s r Pfl ,,i ,
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See "Energy Policy Act of 2005" in the "Signifieant:Fai~tors and)iKnown iTrends'! gectionof Entergy Corporation and Subsidiaries Management's Discussion and Afialygisfor further discussiori,.including a diseussion of the implications of repeal of PUHCA 1935 and ongoing FERC regulation under the Federal Power Act. .Utiliity Restructurihig m r~Jo
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,Entergy, Mississippias certain.market ahd credit risks inheentinits businet ii has'c~tal* 6d' a.,' SFpjnt buinss operations.. Market isl's reesent tfibe risk of c,.nge.in the.ya.ue of commodity and financial instruments; or in luture operating results"or ah ows,mresponse jto -changing market conditions., fCredýit risk isjisk of loss from nonperformanceby
,supphiers, customers, or fmancil counterparties to a contract or agree:ment., .,,'
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Critical Accounting Estimates . . ' Iar (" ... ' "' 3-" The preparation of Entergy Mississippi's financial statements in conformity, with generally accepted accountingcp e reqresounting polii&s danadtioaiike estimates and
'judgments hat an a sgnficant eect n resultsh opeaos, ncasn non, lows.
`Managemnt&h hasdetifiedithe f011wg{aeountig'pohces'as criticalbecase tiheyare based, on 3assdmptkons and surements that ivolve a 'high degree of uniicamty and there'isýthe potentialf6r futuirie inctetmo'ie mn'could lrdgeti'*mates that wobuld h'ave a material impact 6onthe p r 'es iet aioAn 6 E nitegy Mississ sip pi s fi ni c' ial "po si ti o n or re suilts of op e r ati o ns .0.
Unbilled Revenue As discussed in Note 1 to the domestic utility companies and System Energy financial statements, Entergy Mississippi records an estimate of the revenues earned for energy delivered since the latest customer billing. Each month the estimated unbilled revenue amounts are recorded as revenue and a receivable, and the prior month's estimate is reversed. The difference between the estimate of the unbilled receivable at the beginning of the period
-253
Ertergy Mississippi, Inc. Management's Financial Discussion and Analysis and the end of the period is the amount of unbilled revenue recognized during the period. The estimate recorded is primarily based upon an estimate of customer usage during the unbilled period and the billed price to customers in that month. Therefore, revenue recognized may be affected by the estimated price and. usage at the beginning and end of each period, in addition to changes in certain components of,the calculation including changes to estimates such iasline loss, whichoaffects-theesimate of unbilled customer, usage, and assumptions regarding price such as tne*fuel cost recovery mrecnfiatism. f ... Qualified Pension and Other Postretirement Benefits Entergy sponsors qualified, defined benefit pension plans which cover substantially all employees. Additionally, Entergy urrently provides postretirement health care and life insurance benefits for 'substintially. all employees who reach retirement age whilzestil working for'Entergy.` Entergy'sreported costs of providing these benefits, as described in Note 10 to the domestic utility companies and System Energy financial statements, are impacted by numerous factors including the provisions of the plans, changing employee demnogra'phics, and v-ariiu's actuarial calculations, assumptions, and accounting mechanisms. Because of the complexity of these calculations, the long-term natureof 'these obligaions; and-thqe inimpoance' of tQe assumrptions utiiized;rEntergy s estimate of these costs is a critical acbounti e..ma.te..- Assumptions i' *, Key actuaria assumplons utizedlnMertemgninig these costs inclde: .... -
" Discount rates used in determining the future benefit obligations; ..
- Projected health care cost trend rates;
. ... .Expected long-teqrmrateof retum on p!an assets; and .. I'*iy*. : * *,. .. . -
,t Rate of increase in, future compensation levels. m
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Entergy reviews these assumptions on an annual basis and adjusts them as necessary. The falling interest rate environment and worse-than-expected performance of the financial equity markets over. the past several years have impacted Entergy's funding and reported costs for these benefits. In addition, these trends have caused Entergy to make a number of adjustments to its assumptions.-,, ' t , V/ In selecting an assumed discount rate to calculate benefit obligations, Entergy, reviews.market.yields on high-quality corporate debt and matches these rates with Entergy's projected stream of benefit payments. Based on recent .markettr Entergy reduced its discount rate use 1to' caculate benefit obligatitis from 6.25%0 in 2003 to 6.00%-i'n 2004iand'f6'5.90%'i'n2005Y° Entergy irViewes actul recent cost trendsiiandprojected future- trend'im establi'shliig iealth care cost'treind rates: Bsdd-h c this-i-eview,' En~te*jf""'g9 1 mcireased its hilthi-dcre '. cost. trend: rate assumption used in calculating the Deceb- 31r . "' . tetiren.ligtio ben o to a 12% increase in health care costs in 2006 gradually decreasing each successive year, until it reaches a 4.5% annual increase in health care costs in 2012 and beyond. *. "I*'. '.I.';'l_'.i. .'fl i1)
;, rhLdetermining, its expected long-term rate of, return.. oi plan,, assets,. Entergy reviews, pastlong-term performance,,,asset allocations, i4ndjong-tcrm nflation'assumptions... Entergy targetsn t and log-tera. -,o an.asset for its pension plan assets o roughly 65equitysecurties, 31%w fixed income securities,, and 4%6 other mvestments2'.The
.target allocation for,Entergy's! other postrietirement benefitassets is.51% equity scurfities anti,49% fixed. income securities. 'h-*sed 6n recnt~market trfds, Entergrdd.........edi~i' I trend, Energy uce ts-expected long-term rate of return on plan assets used to calculate benefit obligations from 8.75 % for.2003,to 8.5 in both, 2004 and 2005., Th assuimd s rate of increase 2004. and 200 55.. . in future compensation levels used to calcul'ate benefit obliga tions was 3.25% in 2003,
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Entergy Mississippi, Inc. Management's Financial Discussion andAaiialis ,,CostSensitivity, r;m,,rx.'. i,.. , o ii ,-..! Oj i-,i' z.i ;.-, ,,::j t .in~o:xmJ , , ,f . "irtmii:. '., iYbyt:
- .>, . The following -chartreflects ,the, sensitivity: of :qualifiedpension; cost to:changes .incertain actuarial assumptions (dollars in thousands):
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. t "!,Chanhge in'..: ý'ji 1Impacton 2005 rifl.i:!: :Qualified Benefit --;ý
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n ii ,, .. A, :rfIncrease/(Decrease), f- nio! i £n E2, Discount rate I' .- !, t... rnd j!r1(0.25%) :'-)>, 2!`;1 L.rm-a jeos $6071 ThIfn;' :-f.,i),,i$6,909 ( Rate of return on plan assets (0.25%) $420 Rate of increase in compensation 0.25% $289`- 0'.'9:'_ C'fO.'. A 1' 594,.", The 'followiig-'chart Xrefle i'the t sensitivity of postretrement 'benefit costto chang 6&i certain actuarial tl rs iassunn m thousands):. ... i .. ,,b ioi .:I q1 ,:, ,. <.. . : ),. iu, 5.,. .
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1 bjcouitnfateIrrI ~ (020 ~3~- t U I '2.$ 1 ,7 4 3 I 'f Each fluctuation above assumes that'ihe other components of the calculation are held constant.' m . -. Accounting Mechanisms In accordance with SFAS No. 87, "Employers' Accounting for Pensions," Entergy utilizes a number of accounting mechanisms that reduce the volatility of reported pension costs. Differences between actuarial assumptions and actual plan results are deferred and are amortized into cost only when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets. If necessary, the excess is amortized over the average remaining service period of active employees. Additionally, Entergy accounts for the impact of asset performance on pension expense over a twenty-quarter phase-in period through a "market-related" value of assets calculation. Since the market-related value of assets recognizes investment gains or losses over a twenty-quarter period, the future value of assets will be impacted as previously deferred gains or losses are recognized. As a result, the losses that the pension plan assets experienced in 2002 has had and may continue to have an adverse impact on pension cost in future years depending on whether the actuarial losses at each measurement date exceed the 10% corridor in accordance with SFAS 87. Costs and Funding Total qualified pension cost for Entergy Mississippi in 2005 was $5 million. Entergy anticipates 2006 qualified pension cost to increase to $6 million. Entergy Mississippi contributed $1 million to its qualified pension plans in 2005, and under current law, projects 2006 contributions will be $16.4 million. In January 2006, $2.2 million was funded. All of the amount funded in January 2006 was originally planned for 2005; however, it was delayed as a result of the Katrina Emergency Tax Relief Act. The rise in pension funding requirements is due to declining interest rates and the phased-in effect of asset underperformance from 2000 to 2002, partially offset by the Pension Funding Equity Act relief passed in April 2004. Entergy Mississippi's qualified pension accumulated benefit obligation at December 31, 2005 and 2004 exceeded plan assets. As a result, Entergy Mississippi was required to recognize an additional minimum liability as prescribed by SFAS 87. At December 31, 2005, Entergy Mississippi increased its additional minimum liability for its qualified pension plans to $42.9 million from $23.5 million at December 31, 2004. Entergy Mississippi
,,255
Eniteirg Mississippi, Inc.
'Management's Financial Discusison-andAialysis decreased its intangible asset for the unrecognized prior service cost to $2.4 million at December:3 l$,2005'fr6in S3.3 million at December 31, 2004. Entergy Mississippi also increased the regulatory asset to $40.5 million at 1D766eFiber&i3l', 2005- fioin $20.2 'nillibn'ht De~efi.~er 3l,- 20040i Net inC66m"for 2005,,2004,, arndl2003 was not impacted. , -' : ! " . "
bA-.,Totil postretireinent health care and life insurance benefit costs for Entergy Mississippi in 2005 were $4.4 milli6h; includihg $1K8 million iii'§vings due.to the estimat~d: effect of future Medicare Part D subsidies. Entergy Mississippi: exp*ets 2006 postrtetirement health care and lifeinsurance benefit costs tor approximateý $5 million, including $2 million in savifigs.dueto the estimated effect of future Medicare Part D subsidies. The increase in postretirement health care and life insurance benefit costs is due to the decrease in the discount rate (from 6.00% to 5.90%) anfd an increase in the health-care cost trend rate used to calculate benefit obligations. ..... ,-, 1 New Accountine Pronouncements:.'* *" A" . . '
;,, In December 2005, Entergy Mississippi implemented FASB Interpretation 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143", (FIN 47),1 effetitve as6o that date, which required the recognition of additional asset retirement obligations other than nuclear decommissioning which are conditional-in. nature. The obligations recognized upon implementation represent Entergy Mississippi's obligationo remove a dispose of asbestos at many of its non-nuclear generating units if and when those units are retired from commercial service and dismaniti e. The net effect of implementig FIN 47. for Entergy.Misssispp was- rcorded as a regulatory ,asset, no resulting effect- on"Ente'ry Mississippi's- net! income. Entergy Mississippi recorded this regulatory asset' because its existing rate mechanisms allow the recovery in rates of the ultimate costs of asbestos removal, either. through cost of service or in rate base, from current and future customers.
Upon implementation of FIN 47 in Decembir 2005, assets and liabiliniis i~creased by $4.0`mlrillhon" "as' a resiult, of recording tfie asset retirement obligationdat its fair value as determinediiniier FIN 47, increasing utility plant by
$0.4 million, increasing accumulated depreciation by $0.3 million, and recording the related regulatory asset of $3.9 million.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board ofDirect'ors andShaeho3lder'sj " Entergy Mississippi;-Inc.: . We have audited the accompanying balance sheets of EntergyMississipp iInc.,as of.December 31, 2005 and 2004, and the related'statements of:iri6mie, retained6earhings, and cash flows (pages 258-through -262 and applicable items in pages 302 through 376) for each of the three years inlthe~period'endedDecember 31, 2005. These financial statements are the responsibility of the Comn+ahfy's managemen-tS7:uO r-spffi-s-0nibility~is to express an opinion on these financial statements based on our audits. Li:: . :: , ,L.- We conducted our&audits ac~co'rdance wfh ihe standards of the Public Company-Accountmg Oversight Board (United States): Those standardsrequire that -We plan and perform the auihtct6oiaitrleasionable assurance about whether the financial statements are free oremaiterial misstatement. An audit micludesexaminig, on a test bass, evidence supporting the amounts and disclosures in the financial statements.,,An.audit-also, includes assessing the accounting principlesused and.,significant ?estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
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t/ C~c i~.. ;'I-)! I I 51AP(0 In our opinion, such financial statements present fairly, in all materialrespects, the financial position of Entergy Mississippi, Inc;-as of December 31, 2005 and 2004, and the resultsof6i6t 9pperations.and itscash"flows for each of the three years in the period ended December-31, 2005 in conformity with accounting principles generally accepted in the United States of America. .... n..)(C.tJ) , ..... + ' ., _______.11 44-J.OT We (Uie* also audited, have tae) in accordance h effective+ Company of thewith the standards of the Public.]i*).flccounl"g fccounting Oersight Board Oversight Boar (United States),:the, effectiveness of the Company's internal -ontrbl-over financfilr-portmng-as of December 31, 2005, based on!.the criteria staiblished in Internal Control - Integrated Frameworkjois'sued. byjhe Committee of Sponsoring Organizations of!the Treadw~ay Commission-,and our.treport ,dated.,March.9i ,2006 expressed an unqualified opinion-on-matigemnent's assessment-of the effectiveness of the Company'sIinternal control over financial reporting and an unqualified opinion on the effectiveness of the Company's intemal control over financial reporting. , i . .P!1Zf.,L IIli3.i U3 .1 l'();.l DELOITTE & TOUCHE LLP r . :.," ru:': New Orleans, Louisiana OT . l)'i I. Zifi: March 9, 2006, :,p . ).Je IO..I,
?257
ENTERGY MISSISSIPPI, INC. INCOM E STATEMENTS' C(!Vý,- "[" *. [' For the Years Ended December31, - 2005 2004 2003 (In Thousands) . . 777-" .. OPERATING REVENUES' Domestic electric? " . . ':.,Et r. $1,306,543 i,}yT S$1,213,629, . $1,035,360;. . i: OPERATING EXPENSES"T ' Operation and Maintenance: .: Fuel, fuel-related expenses, and gas purchased for resale 136,870 335,271 155,168 688,800 . 436,013 449,971 , ,. Other operation and maintenance .;; 176,202 , S . 178,007 174,192 Taxes other than income taxes '58'540 ' "53,443 :' ".r47,734" :. . . Depreciation and amortization . i, :.!7 2 ,0 28 tV -'.". 65,452 " 62,984 ' :: "
.:, 41,414d 4"' i -ý;;i : , (1, 17 1)'*-03,66ý ,, .' ., " .- :i Other regulatorycharges (credits)- net
! TOTAL 11-., t ~~i 1,173,854 U;Ži-nr, 1.067,015 . 893,7131-9 ,.';12;:.
OP A T . INC .I.,ING OPERATING INCOME 132,689 146,614 1A1.,647' "
. - '_TIIERINCOME " .. ,.I. ;.., :.. '" " 'Allowance for equity funds used duringconstruction ; 3,4901.... - 4,402; -' " 4,576' ,
Interest and dividend income,". ' ., ' . 2,560J.M",.1] 1)2',550 `l,;',030-,,,,-"' ,..i Miscellaneous-net (1.613) (l,508)'r.'. ,(2,242): ! ' TOTAL 4,437 5,444 3,364
.* ' - I1
-'1 '* -- ,'i I 6, "INTEREST ANDOTlIER CHARGES Interest on long-term debt . ..... 41,681' ý"4Si79 e
*Other interest- net" * . .
;'Allowance for borrowed findsused during constructk 4,36
)n ':':-(2.636) jj-.06) -it-;*!:j3.942)
. ,. , . .TOTAL. .o. .. t 10 .') .,- , 41,071 4l.52I-..;,--! 43.522
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INCOME BEFORE INCOME TAXES 96,055 110,537 101,489 Income taxes 33,952 37,040 34,431 NET INCOME 62,103 73,497 .; '.- " ! 67,058 - - : ý I -( ý-i. :ii Preferred dividend requirements and other 3,316 3,369 3,369 EARNINGS APPLICABLE TO COMMON STOCK $58,787 $70.128 $63,689:ý See Notes to Respective Financial Statements. 258
.2,ENTERGY.MISSISSIPPI; INC.
STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2005 2004 2003 i t,-' . ..- (In Thousands) OPERATING ACTIVITIES Net Income 612.,I037. S*S73,497 $67,058 Adjustments to reconcile net Income to net cash flow provided by operating activities: Other reulatory charges (cirdits)- net 41,414 (1,171) f 3,664 Depreciation and amortization 72,028 65,452
,1 62,984 Defered income taxes and investment tax credits 158,004 . ' 61,829" :" 34,836 Chauiges in working capital: -" *-
Receivables (33,549) (15,386) '(9,805) Fu'lfinvnitory . I 1,050 940 :' : 75 Accountspayable .- j 37,204 '432 "-' - '.' ,!*', 1,244 (69,377) (27,759) :/" ' '-74,487 1. lntireit iccrucd -1,164 (1,285) v.-) '(5,922) Deferreid fuel costs I (136,749) .111,871 ,':.:,. -:/21,669 Otheicwoiking capital accoifits **I 4,487 2,684, T: 11,255 (3,283) 2,789 .-. ,. - .(!,137) Provision for estimated losses and reserves Changes in other regulatory assets (63,618) .,* . : , i 9,401 , !. , :.,(9,061) f " (65,943) (25,607) ,*.. . .14.815 Other- I ;.-. 4,935. . 257,687 .... . 266.662 Net cash flow provided by operating activities
-*o*7-..... NV'ESTING'ACTIVITIES Construction expenditures--------- . (163,584) (163,413) (188,995)
Allowance for equity funds used during construction S:.'- .'3,..9 . ,, A.4,402. ) 4,576
... 21,584- . .. -.
.492 .. . * -13,374)
Change in money pool receiyable.- net Changesin"other temporary investments - net 7,506 (7,506) Other regulatorynvestments 7--. 3500
-(72,570)
. (138,510) (151,013) "(277,869)
Net cash fliw used in Investing activities-- FINANCING ACTIVITIES .... . Proceeds from the Issuance bf..... 178,510 ;""14~'~2,393 Loni'ierm debt o Preferred stock _- ~ 29,151 Retirement of iong-term debt , - i :-(218,457) i; ,it (330,000) 0'.(30,269) lj'- . :' " , . .' . I - Redempiifin fpreferred st -
"84,066 i..' - 5.'. ,'(i-
"i ; J Chanie in zoniy pool payable, - jt....
Dividends paid: Common stock r: .I$ : *fl(2l~900)9tt~ -,:'(46,800) (3_.. 1,;700) Preferred stock '(3,346) (3 3 .r -69.)' -.. (3,369) Net cash flow provided by (used In) financing activities - 57,702 t-. . .- (90,116) .. ,, o,' '.' -(72,676) 1 7e, ýý VC,41 1.% (75,873) 16,558 ..... ,, (83,883) Net increase (decrease) In cash and cash equivalents histbigtinfi-go f period 80,396 63,838 * .,147,721 Cash and cash equivalents at end of period S$4,523 S80,396 .S, .... S63.838 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paidl(received) during the period for: Interest - net of amount capitalized $40,445 $43,824 $51,126 Income taxes S4,446 $11,995 (S78,091) 0259
ENTERGY MISSISSIPP`, INC.
.'I BAUANCE SIlEETS&', -
ASSETS December 31, 2005 2004 (In Thousands) SETS ,.....t..
* ' 'CURRENTA§ss Cash and cash equivalents:
Cash ). $4,523 S 4$4'716+ +
..Temporary cash investment - at cost, S 75,680 which approximates market Total cash and'cash equivalents 4,523. . 80,396 Accounts receivable:
Customer . 102,202 :, 68,821 Allowance for doubtful accounts -; ~~~(1,826) .. .. (,[6), Associated companies , 5,415 ... 22,616. Other 9,254 .11,,2 ,13 3 ,,:
, Accrued unbilled revenues , 33,712 .,... 34,348. fi I Total accounts receivable 148,757... .W,-. 136,792"G Deferred fuel costs'.,'.
' Accumulated deferred income taxes ";."* " "+:~~%
- :+ : '*, ..',: 27,924 ,o, A, Fuel inventory .itf aemrage cost. 3,087 4,137.';'I
- Materials and supplies - at average cost,"'s
- . -'*,)I ,'*:1-1,"21521 i,-! -"'-'
"; , 18,414, ";
Prepayments and other 62,759 15,413 TOTAL "' LJA..354,60J,; . 283,076-.... OTHER PROPERTY ,ND INVESTMENTS '). -:.. . .. , " .72..','. Investment in affiliates - at equity .. .. j53jj; 5 . 5,531 ;r Non-utility property' - at cost (less accumul ated depreciation) . "'6,199":' ý, '6,45' TOTAL - 11,730 ...... 11,996 UTILITY PL, Electric ................- 2,473,035§'--.-- *238,465
* . .Property under capital Iease 50,. ,..:.5 ,
Construction work in progress 0_" 119,354 -, 89,921-.:.. TOTAL UTILITY PLANT 2,592,439,+, -"2,475,481,;,.
- - i Less - accumulated depreciation and amort ization 886,687 !. t,- -- 870,188, :.,
UTILITY PLANT -NET ... I 1,705,752.:..-. ,605,293,:
+;I DEFERRED DEBITS AND OTHER ASSETS 4,,:. ..- ',
i :'-.Regulato~ry assetg.-.:'. r-i __-.-_ f r'"t"_ SFAS 109 regulatory asset - net .u" *.~~~~~~
. .vi
,IU + ~~~ , (t:.
'17,073" -,'i-,,,, 17,6289 :':
Other regulatory assets 186,197 82,674 " Long-term receivable" "*l +j,:¢l.,'04"(Fd, ,.+
) br 3,270 r.i X11.'i.l) '..'r4,5 10i:],
Other 32,418 31,009 TOTAL " <. - . 238,958 "T-'1,35821':;
. TOTAL ASSETS. _I "; ..
See Notes to Respective Financial Statemet its. k 7t *' 14- - (-260
LBL *..) o,BALANCE SIEETS,- ...
?;LiAB'LITIES-AND SIIAEHOl I"*RS6E December 31, 2005 2004 (In Thousands)
CURRENT LIABILITIES
" -Accbunts pa~ible. -
I .1L-:I.i7I.-A b.ixia1S1 Associated companies $158,579 $65,806 Other 83,306 25,5.413;j Z , ,Customer deposits r- 44,025 33,121 " 37,333,,
*': 6 Taxes accrued Accumulated deferred income taxes 13,233 Interest accrued 13,651 144030 (0b ,eferred fuel Eots 6 i ,&" Auilbrn an pi*!tL bux22393 O(!7. Obligations under capital leases-\'¢, [I Other 2,739 .. 8,341
-'TOTAL-- .. 348694 ....... 212,452 NON-CURRENT LIABILITIES 32 e,, LAc-imulated defeired income tixes ind taxes accrued S-.A91,857XI ,x.:l;ai-.438, 1s:.!
- 12,358 13,687 Obligations under capital leases 11 52 Other regulatory liabilities 34,368.
Retirement cost liabilities Accumulated provisions 9,436 12,718 Long-term debt 695,146 695,073 Other 91,588 76,071 TOTAL 1,338,780 1,235,922 Commitments and Contingencies SHAREHOLDERS' EQUITY Preferred stock without sinking fund 50,381 50,381 Common stock, no par value, authorized 15,000,000 shares; issued and outstanding 8,666,357 shares in 2005 and 2004 199,326 199,326 Capital stock expense and other (682) (59) Retained earnings 374,544 338,164 TOTAL 623,569 587,812 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,311.043 $2.036,186 See Notes to Respective Financial Statements. If261
ENTbER'**MISSISSIPPI, INC. STATEMENTS OF,RETAINED EARNINGS For the Years Ended December 31, 2005 2004 2003 (In Thousands) Retained Earnings, January I $338,164 $314,836,. ,.,$282,847
,r. ,. .
Add: Net income 62,103 73,497'.- 67,058
,.'.4. .- J*, IC..
Deduct: Preferred dividend requirements and other 3,316 3,369,,1 3,369 Dividends declared'on common stock 21,900 46,800,' 31,700 Capital stock and other expenses 507 - ' -
-Total 25,723 50,169 35,069 Retained Earnings, December 31 . .- $,:--$-374,544,l64, .7$33864;7,,$314,836 See Notes to Respectie Financial Statements.
7t;'" * ) ,,';a It,*o
":IQ
+ . . .. . , * ! +.*+
262
ENTERGY MISSISSIPPI, INC. SELECTED FINANCIAL DATA-'FIVE-YEAR COMPARISON 2005 2004 2003 2002 2001 (In Thousands) Operating-'e,,,es .' ,v:', ',,.., $1,306,543 $1,213,6293 1'$1,035,360 $991;095- '--$1,093,741 .
- iw
, 1 . . ..
,.W, .-, . 1. , -
_V:. ..
%:.. _ ._ , .. . ) , .i .
Income . 63 $7 3, 4 9 7.. ' $67,8 ,,. $52,408 - $39,620 Totalassets ... ., ..' f... 6515 ,: $2,036,186
-.$2,311,043 $ 9 i2 [*3,.$1,952,352.,,.$1,832,372
$ 5 ,5 :, $510,240 ,.$l,683,9026 "- " $59,937 6 9 2 6 55,5l $ ,"89
,Long-term obligations.(1)y. . . _$95,157, $ 5jl Sj'j-ff$
',(1)InclUded long-term debt (excluding tcurrently maturing debt) and nondirretit capital lease obligations.,' . -i
.... 2005 ~ ' '2004 , '2003 ' '...,'2002' 2001"
- *. . ,.(DollarsInIiMillo*i),,.. , . f,;
Electric Operating Revenues: : ' 2 I: oii-;,, Ir;... . Residential $503 $467 $410 $375 $391
- -rC6mmmercialý.:!r*: '.j- rAr i r,' ."-:::. ' :',421 .' ',.. ,,.397;-o
, itii;.:,342 r;Il b_, 310-'u !:fT 328 J':Indutrital .,,r!") ,; ,. :209 ' '204! '! 174 '
- p. 1 65 : ,- -' 191 "Governmentalj..... V! 3 .- "'.. ... .
'"'::To1ital. air. - ",I'*I Vd '. 1 174-' "1106-4" "' 958 '. 879' 941 Sales for resale: .. tr'. :.-; ,f ,'L l :; b 'i',.. b:. k,)"
Associated companies 62 39 21 63 111 FTi (N~ i-t;nass66iated-edorhiphniesi'i...*. -_ifit 'C) , ,.-. ..37 i-',.".;'.* 0 ,nr ir1r.h o/5 :;;,;- 21 o ,,s:*i~ u. v" $1,307" " $1,214;"::'`k;$1,035 - $991" ','$1,095
'Billed Electric Energy.Sales (GWh): *, .. ' ,- . ., . " ., .. < , ,
. 2 rl ', -: o ,(y<;, .5,333, , ,, .- ... . . .. . ,5. .. ,..
.. . 4,867
,!(Residential, N:1Comn ercial .;rtjno.:)i t!: v'!,). iL r ,4,630 V .,'-':. -,,.4,518 jic ii;. 4,476 ij; ni .4,445 :',: j; ýA4,322 Industrial 2,967 2,977 6'j', f`!,-2,939 , -rr 2,910 :.,r v! 3,051 Governmental 411 . 398 384 382 381
.:Tota1 retail- . ? 11~1C-'13,341 '2,7" -1891,29>' 12,621 1'.J
,,,,Associatedcompanies " - , 516 *'i.7, 3O 5 .. .,:112 *. -. . 3,., ,,, l1#72
.*_.Non-associatedcompanies,,ý.. :< . 420' .. ; '.,393 ,I'., ; 331 -, .. 1 9 7 '-,,'. .-. 289 6*'i fTotal),. ,n>- oi %Ws;' ' <
. 2" 4 114 277, .,,13,676,.i.
1 .. 13,334 -1 1.:14,149 '1! _,.'- 14,638 n' rr !'2r [fA j- "~:.;,'"r ~ ,(*., I ti,/; ,L,)'..'i ji' '~li.2.*: 7',/-b , .' ' , ','IJK.,L~
;.:$/'.2C*'
jr,*l.: "t 1,;[£;,~ 2', :':'> ~;.' ;-r J.'i,,,., *,, ". 'i *f'i
- 2 )l"; "..;;:):'"
22;*' 2
;i
- CI~ '~i .~ ~ ~ Ei .f ,.~!c!r~.A2". I 2-!v'!t ,.',11->. ' U;Jlt;:
*:';,-f:'Iq. ,*R.2I.Yzol-.f:;. z:' *'1 t;;iL,) F: .*'&B v;. '1: *:'aI:(,.*'J, a;r1S13)r Iij-i IrJ;,Jb lr~l *',,",~"*'fOl i
-.1[;,"' ..: .',: , '.- /
-j! 11..,,,,hjjr!_j,,.jv.5
.;.'o)'r Uij)c:' s.'7 ,b)'! .12!.f tV rw. ;;';:j" <: r . . )L*, .)":Jo .. .
I $, )* LIfW ")37:7; * ,. ..' ', .. . . '.2 > ' , ' ,J 2' J/ "3' .2' 2 2)('4~" .j(2 M.2.7 WA 6 U
!!263
AO ENTERGYV NEW ORLEANS; INC. (Debthr-ixi-pdssession)Ai? MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS Hurricane Katrina :.,d-:'a,[ tl) 0 .In August 2005, Hurricane Katrina caused catastrophic. damage to Entergy New Orleans, service territory, including the effect of extensive flooding that resulted from levee breaks in and around the NewOrlean area. The stormis and fltop*Ang-resulted im power outages, significant 'amage to electric distribution, transmission, aind genertion and-gas ifrastructue,'and the loss:'of'§ales anidcust"fomiers due to mandatory evacuati6oisand* the destriction of ho6mes' and businesses: .,Total restohition costs 'forth'e repair and/or replac'ement' of'Entergy-Ne w, Orleans' electric and gas facilities damaged by Hurricane Katrina and business continuity costs are estimated to be
$275 million,, including $184.:lq million: inr construction. expenditures., and, $90.9) million recorded[ as! regulatory assets. The cost estimates do not include other potential incremental losses, such as the inability to recover fixed costs scheduled for, recovery through base rates,.which base rate. revenue was not recovered due to a loss of
--anticipated sales;-- FominstanceiEnterfgy-New.,rlans estimatesthat- lost- net revenue due to Hurricane Katrina will total approximately $320 million' through 2007. In addition, Entergy New Orleans. estimates that the hurricanes caused $22 million of uncollectible U.S. Utility customer receivables. . ._,i -;r: . -,=-..:ri C The estimated storm restoration costs also do not include the longer-term accelerated replacement- of the gas distribution-system in New. Orleans that Entergy New Orleans expects will be necessary due to the massive salt water intrusion into the system, caused by the. flooding in New Orleans. The salt water intrusionis expectedto - shorten the-life'of the gas- distiibution- system;-making- it-necessary to-replace that system over time.". Ene-rgy.New Orleans currently'expects the cost of the gas system replacemient' to be $355 million, with the project beginnihg in 2008 and extending for many years thereafter. " 1 " :' ."
- i I: Entergy. INew Orleans :has recordedudccruals for the portion of the estimated-$275rmillion. ofstorm restoration costsmnot yet paid. 7In accordance~with its accounting policies, and based on historic treatment of.such
"'cqs-!ý-o*'i -ifs-servicfet-rf-ff ries-,a-i-nddlc--ufictiEnsi r ith Id,17Tgila-tl5rs, Entergy New Orleans recorded assets becauseý management:believes thartrecovery-'of these* prudently incurred costs through,some form of regulatory mechanism
ýV I is probable.
,' :ý ;i
" Because Entergy
, .. ,q;ý New- Orleans
-I*' "*-.
ý. has notr '-,-,*.
gone through the re'ulato:process
.- .. 'regar'ng'these storm costs, however, there isfi-' element of rislk, and Entergy, is unable to predict with certainty thldeki e of suiccss it mayhhave in its re`V&y initiatiV6;- the amount. 6f- restoration costs and incremental 10sses'iit niay ultimately recover, or the timing.of such reco',ery.r r+ -'.'
-teg g ailbletb custbifoeis-vh?-can take service in most areas of its service territory. Some customers in the most devastated areas of NewVOrleans are unable to accept electric and gas service for a period of time that cannot be estimated. Entergy New Orleans estimates that lost non-fuel revenues in 2006 caused by Hurricane Katrina will be approximately $123 million. Entergy New Orleans'sestimate of httierevenue i" act of custp~whoare cdr5ntly unable Uarccept electric and gas service is subject t6change;,howeveri because
-f ra'iinge of un'riýitiities, in pihrticuilar the timiig 6fiwhen indi~fdudl customers will return to service. Restoratioh for niyiiof the customers will f6llowi'Tmaj& iepairs or reconstrfiichnbfbcustomer facilities, and will be contingent on validation by local authorities of habitability and electrical safety of customers' structures. As a result of the power outages associated with the hurricane, revenues and receivable collections were significantly lower than normal from September 2005 through December 2005. Because of the uncertainty regarding the collection of its outstanding accounts receivable related to the customer losses, Entergy New Orleans increased its allowance for doubtful accounts by $22 million, with a corresponding increase in regulatory assets.
Entergy is pursuing a broad range of initiatives to recover storm restoration and business continuity costs and incremental losses. Initiatives include obtaining reimbursement of certain costs covered by insurance, obtaining assistance through federal legislation for damage caused by Hurricanes Katrina and Rita, and, as noted above, pursuing recovery through existing or new rate mechanisms regulated by the FERC and local regulatory bodies. Entergy's non-nuclear property insurance program provides coverage up to $400 million on an Entergy system-wide basis, subject to a $20 million per occurrence self-insured retention, for all risks coverage for direct 264
f JEntegy New Orleans,.Inc. (Peb.torin-possession)
,iManagementS F.ina'ncial Discussion and Analysis lphysical loss ,or:idamage, iincludingý-boiler. and machinery!breakdown._ Covered propertygeraFly includes power plants, substations, facilitiesir invenforks, ad asdistribution-rrelatay 1 icudspoe includes above-ground transmiission and distrilution line's, pqles ,:ad towers.,-The'riiaryýprpetyt p-hgm (excess of the deductible) is placed through Oil Insurance Limited ($250 million layerg?,with the excess,program ($150 million layer) placed ., *~~ on a quota share ~ basis s~l. ~~,;*.'"t, v A+ ., JViUn1derwnvters
-*^througfi I Ojj 1.,1*.*r'1 iati* Lloyds I.*) *'k ~ti;1 I4V (5O%) ýJ ) .W 'iHartford
'and r v)el
; 2 .2Stea l Boil""r Ijnpction 1.1:l~l L,* and Insurance Company (50%)." Coverage is mi place f6r hntergy 'CorPgrati6n, Vintergy Arkians'aEntergy JutGlf States, Entergy
,l.!1,11.. .*" Louisiana, Y0 t+, . Entergy,Mississippi,
+ i'I, r +*.
- .. _,_j *+-;i and Entergy X.-,..ill-I I+I :,+ ..++
New110`1 Orleans, J; l 0) 11.t "
,There is an aggregation limit of $1 billion for all kl+ilt)l. )-, t .), , tP,*il *I 'L**..JI
,parties insured by .OIL foranyone occurrence, and tntergy has been notified.by, OIL that ,it cxpecs claims for h teurrlcane ,,atrinia to"materlalty exceed-tii i _t s ciurrently.evaluaing the aamount oftne covered l6sses for l, + '. - ,! and~o"mieis eho +;'Ij.1.+' to . ttectieti A. , , ,,)" tie**, " \'companies,
". u t+li.ty,.
*t i A'." .,T't _11O* i worng,with
,-. "Itl, . A '; insurnce
.I 5+11* AAII adajuistrs,,an-'preparingpr6ofs I+1" i* LA. i 11 I- 'Jt".. ,3. Ail . -- lI; I _ +.'9 -. -, . -,A . ofI loss " .
J+* for ita, E %Nitrgew Orleans currently estimates .l.d+ itS net
*that
- I?insurance recoveries o'r hn* losses t-Hurrlcanes rKatrma *k*+~~~~~~~~~~~~~~~~~~~~~
and I.** lJl' '*.* T+++l ",'O .J 't**
,,' ,'.'*,lt A At*.tJ)* . ,J ,
,+tlt I"J+/+ I . A iA'l,i 'ý; -.
+ , A I VI caused by Hurrlcane' kaltdrin6a, l'ulngth tOf thei., OIL regationmit ng eel be approximately
$250 million. - "" " .
In December 2005, the U.S. Congress passed the Katrina Relief Bill, a hurricane aidpphakjc'that imhfdes
$11.5 billion in Community Development Block Grants (for the states affected by Hurricanes Katrina, Rita, and Wilma) that allows state and local leaders to fund individual recovery priorities. The bill includes language that permits funding to be provided to publicly owned utilities. It is uncertain how much Jfunding, if any, -will be the timing of such decisions is also uncertain. Entergy iscurrently prepring designated for utility reconstruction and Grant fundin.'
i plcation~stosekComuityDevelopment .Block
?,','.:-t;1i "+E3/'I.o ti,: &J*-r)ti:'.) 33ittA £: tiitri L!.+ ;,,is ;uO' CV *'),d'," :;n&I. i *(c!" jjii (} I~i:tZ: ; z:t *1 r 'r nr: :;:,il r;!l.n Bankruptcy Proceedings" As a result of Hurricane Katrina Entergy New Orleans' cash receipts were significantly.below normal levels due to the number of customers displaced by the storm and the extended interruption in customaers' ailht totalke power. Entergy New Orleans' need to ;nake cash payments continued, however, due to costs associated with fuel used before the hurricane outages along with recurring payments associated rth fuel an purchasd epower contracts, in addition to storm restoration costs and other obligations. On September 23, 2005, Entergy New Orleans ,filed.-a voluntary petition in the United States Bankruptcy Court for the Eastern District of Louisiana seeking reorganization relief under the provisions of Chapter 11 of the United States Bankruptcy Code. Entergy NewyOrleanscontinues to operate its business as a debtor-in-possession (DIP) under the jurisdiction of the bankruptcy-court and in accordance j~with the applicable provisions of the Batnkrupty Code and the orders ofithe bankruptcycourt..,
On September 26,,2005,,Entergy.Newv.Orleans,,as borrowerand Entergy,Corporation.s lender, entered into the Debtor-in-Possession (DIP) credit agreement, a debtor-in-possession credit facility t6 provide furnding to Entergy New Orleans during ijs business restoration efforts. The facility provides the ability for Entergy New Orleans to request funding fromt Entergyi Corporation, but the decision to lend money is at the sole discretion of Entergy Corporation. On December 9, 2005, the bankruptcy court issued its order giving final approval for a $200 million debtor-in-possession credit (facility and the priority and lien status of the indebtedness under the DIP credit agreement. The indenture trustee/of Entergy New Orleans' first mortgage,bonds, appealed the final order, and that appeal is pending. Subsequent tohthe indenture trustee filing itscour notice of.appeal,,.Entergy New Orleans, Entergy Corporation, and the indenturejtmstee filed with the bankruptcy1 a motion t, approve a settlement among the parties. The settlement would result in the dismissal of the indeniiure trustee's appeal.*-Ihe settlement is set for hearing in the bankruptcy court on Marc,-22 2006_The DIP credit agreement is discussed in further detail in the "Liquidity and Capital Resources" sectioribelow.- The bankruptcy, court'°"tll* has':alsof, ri issued: orders,'allowtng
. j.t :Itr.lI C, * .*a'"Entergy s.New l.P' f+ V Orleans r' 'D* "+*t*L' .r.')l.*-,. certain, .~'t,'*+
to,pay flf) .'I*; pre-petiton " '1" t+ t . .*+i+.".* vendors deemed critical to its restoration efforts and allowmng Eterg6yNew' Orleans to pay certain pre-petition'wages, employee benefits, and employment-related taxes. . Z)CV ,5 1 i tI ,'F AI, t
.1 , IA, A 1 . V I ),J,.*liI* J 1 Ii*' it I.JAi fi Entergy continues to work with the federal, state, and local authorities to resolve the bankruptcy in a':manner that allows Entergy New Orleans' customers to be served by a financially viable entity as required by law. Key factors that will iiuenic he iming and outcorile of the' ntergyNrew"k oreans anKruptcy finclude:
The amount of insurance recovery, if any, and the timing of receipt of proceeds; e,265
Entergy New Orleans, Iriý. (Debtoi'-in-.ossessi6'n) Mxngement's Financial Discussiori and AnalSis
" The amount ofassistanc&; if any, from federal and state govemmentandthe tihiingof that flujiding, including Entergys inteinded aipplication f6r Coimmunity Dev'elopment Block Graht funding;
- The level n'rb& "ofhcusto .. ..me. h. of.....
ofeco'no6mericovery New
' i Orleans;i v " le .... ns 'ah'k'........t" " ' "h.... "f'< .... ., " . .... '
'.Th'e number of customers that return to New Orleans,andttienmmgoftheirreturn;'and .........
, - ;., - " 1,- "1 ) ;', f , ",- , .: , - ., " ..... . .. . ! i. '
The'amount and
."'.T tining
;A -
of any
. t.i regulatory
*' '. :*. k .,: "
recovery approved' byi the
) V -.. £ "
City Council.
* " / ' , ,}.3 ; 4 ., ! * " .. . . ':
o The eeclusivitn priod for filing a final pla'ofr eorgani*Ation by Entergy New Orleasi tscurrietlyr scheduled to end on Aprl 21, 2006, with solcitatin of acceptances-of ihe panischeduled to be complete by June 20, 2006. Ifar party tote ankruptcy proceeding, icluding EntergNew Orleans, requests'it, the banknitcy court astheauthority to extend thsedeadlines. In addition the banilruptcy judge has set a date of Apil'19, 2006 by which crditors with prepeton'claims againstntergyNw Orlens must th'ertain exceptions," file their proofs 'of'clai in the banriuptcy case. ., Results of Operations . . -. . Net Income .. " ' 2005 Copared to' 2004. Net income decreased S26.8 million primarily'due' to lower net revenue' and higher deprciatinii 'i. ad amortization expenses, partially offset by lower other operation and maintenance expenses and lower interest charges. '2004 Conardto 2003 " ' ' " Net income increased $20.2 million primarily due to highei net reviuue*."
'Net Revenue. ... ... ... - . .*
2005 C6mpdied'to 2004 '44 Net revenue, which' is Eititrgy New Orleans' measure of gross margin, consists 6f operating revenues, net of. I) fuel, fuel-related, and gas purchased for resale, 2) purchased power expenses, and 3) other regulatory charges (redits). Following-i' ainianaiysis'of th,'c'hange in net rev'nue comparirig 2005 to 2004: *-* '"'"
* ' .,,' . .. ':... ."A m Shi , ;< : .,,,.'.
4,.4,'.. J. , ii'
..:' ..... . ,;*- Am:"onX
.it$ 3
"., ,.:.,. S2004nte*enue
'*,. . ,"VoIfin1 /w*tl*i(r ': "i'," ' $239.e
' i(59.7)'3 2 3.0 ' " .4..."
4::*
, Net g(srevenue ' 16.2) "
' (2, ......
!:x5 ' -. ' 2005 net revenue ' $179.2. 4' .- ;.-..- -
The volume/weather variance is due to a decrease in. electricity usage in the service territory caused by Hu1icane Katrina. Billed electricity usage decreased a totalof 1,343 GWh compaed to 2004.. The net gas revenue variance is due to a decrease in gas usage in the service temtory caused by Hurtricane Katrina. The net wvholesale variance is due td an increase, in volume as a"t'fs o*f i"icreasegen."tin resu.lting.. iin more energy available for'reale sales in early 2005. 266
(Entergy New Orleans, Inc. (Debtor-in-possession)
- .'Management s Finaincial Discussion and Analysis Gross operatingrevenues, fuel and purchased power expenses, ,an.dhqr rgula.torychrg. (credits) ,,.
,-r I .. .- , I) -lr , ~. Z 0. xb j.ri -. c Gross operating revenues decreased primarily due to the net revenue items mentioned above.,
Fuel and purchased power expenses decreased primarily due to a decrease ,in, electricity generated and power purchased as a result of Hurricane Katrina, partially offset by an increase in the market prices of purchased power and natural gas. " ii'--.) . Other regulatory charges,,(credits),haye no material effect on.pet jncome ,due to, recovery and/or rrefund of such expenses. Other regulatory credits indecreasedprimnarily due to'tfie deferral in 2004 of voluntar'y severance plan and fossilplant maintenance expenses accordance1 with a stipulation approved by the ,City Council in August 2004. The stipulation allows for the recovery of these .costs through amortization of, a regulatoryj.asset. The voluntary severance plan ,and, fossil,plapt,maintenance expensesiare.being amortized over a. five-year, period that became effective January 2004 and January 2003, respectively. r' : " 'j -, i.1alflIir; , 2004 Compared to 2003 . lI.. (,: .-;icii ,. 1*, .'.,- Net revenue, which is Entergy New Orleans' measure .of-Voss ýrmargin, consists of operating revenues net of: 1) fuel, fuel-related, and gas purchased for pe,2)purchased power expenses, and 3) otherreglato harges ,,(,credits). .Following is an analsis of the change in net revenue comparing 2004 to 2003. , b*: .);r.l;l "/lilp.;. "f ii ",'jj.) ':o1 * ..:ug l t'A *.-.*;,t , .i ,r iIti')I :.: iil c't,,
.':! P I :rjq. )~rL b
?;.WK - fit, .-(InAmnount Millions)
~ lo~ *.- ~ *:: vIi.l ') ,:,i : . L... ;fi.,ri1. 12*.*
- 208 rr... -.rm,, r'. . ,....
08 .$3'r ..i ; . .:-.,, ,
.'*.:. ,", "'jj..*.q ,20 93 net revenue , .*,, r" *S Base rates 10 6 f l. ,..
Volume/weather 8.3 2004 deferrals 7.5 y,'r L ' Price applied to unbilled electric sales 3.7 VhI.,,i,IO, :vuil r~ V: ;*. !:h (.; i i::'*yt~ :h [i.. l..i ;*.1 * &...r:sqr- ... Ul" .. 0.6 ' r,: fmlJl L t1)o *2: ,().
, , .. , $239.0.. , ., .
.... * , .- , 2004net revenue .,
The increase in base rates was effective June 2003. The rate increase is discussed ini Note 2 to the domestic it *P*:mr,-,* utilitycompanies ..and System Energy financial statements.", i q *i -,,,'.,, ;. , ::Ir;t cd-
"is:,,, volume/weatherrvariance is primarily, due to increased; b'led, electic.usage, f,-j162*.Gy.W in the industrial service sector. The increase was partially offset by milder weather in the residential and commercial sectors.
The 2004 deferrals variance is due to a stipulation approved by the City Council in August 20049 dise-uiseid
-above:%.', ; "*jjJ , h*,.ti .,q . 3?.. vI ' j.5OC J i x'¢ P!! ",.- " .-
The . pp..ed ..................................... . . .......... " ,.... f- ... ............ "
- H6.-nepprtceo aunollle' ele tricsales 'variance is due to an increase inthe fiUel price applied to unbilled sales. See "Critical Accouniting Es/timates'" oeslow' and N l*ote 1 toIthe iomesttie utility companiesandf System Energy financial statements for further discussi6iin tt accounting for uieibilled revenues.
Gross operatingrevenues,fuel andpurchasedpower expenses, and other regulatorycredits Gross operating revenues increased primarily due to an increase in gross wholesale revenue as a result of an increase6of,$32.4'milliohon isales 1toiaffiliAtes and anmi'crease:of,,$28.7 rmilhion'im fuel 'revenues due to higher fuel h :A) ",p 41 X Iii))V.; 0".,X( - rates, in addition to the net revenue items mentioned above. S*.... ueland :purchased'power "expens~eseincreased' pn'*miainly Fdue,to.an iicreisemin electricity: generated and fpow*"piifihasedc6iupled w'ith'an increase -in the'mar'kh'pricfes ofnatuial gas aind 'utirchaid povrer..;
- b...
b~if..; ":Tot l/3q:) Cvboi o, -1'; tvj:,]i ;J. [f_1Tl:*b ' , Ht1" ,I.)91,On lr, .
. ::,")\ l:HO ",y) Oif; I'Ig! w ff *)'. :.' 11", - ir l.
.' fBIj.r!
"' rtc:.I i *..'i' v*L t . c,!:A: ;:Ii r; 2( 6. .,*3 bC) I . ,U7/. ,VICU:!VL
,hIc .¢::L iU ,". cc
*267
EAnter New Oi'lens IMLc. (Metor-i-'p6oissson) M Svf nagemnt's Fi iancmDThsiusiond anAnalys'zs Other"re'guatoiy!crdit liahve noimiterial effect on net incomei due to' tec6ve'i-y'of'such, ex enses; Ottiir regulatory credits increased primarily due to a stipulation approved by the City Council in August 2004, as discussed abovE" , b .,,,'3: +, f4 b 0 !Oth*i'iliieo fieS~tatfeiile~nt!V firi nic-e'-s a o J ) ,r-. .,... ... . .+ ,..., .: ,;;.:,, iq lg ,j-e 5.':,[r2"1:q IC, :"".'.! i .) W ,'i t ,I %;t1! , :. *. ': ;." . .A .! 1:.ta;.. 1!,. : ft ",. r! 2005 Compared to 2004 ... In.
* '" ' Oth r6periitorroAd fmiaitenance expenses decreasedpmriiiiailydueitothe following: V,.;. i, a eLrj 6 of$1 $11'6 ffilli6n 'duýo'aisi'sl iii lab6i&hd'iimateraIa'coios'fr6mii'fifriril im nifin-ade work'to".
stor " .' re... "'"'." a*ý +". . .i ,,,v. .. " . ." + .. P , "" .O . ,i*d .", t.:mr ! o'*ill ' ,G " iuq
'
- storn'restora tion workas a result of Hurrmcane Kitrhla;i '- 4o, t.,qi, =nVI" ad f 7 illioin contract and c plantas a'rsult o por yr saterial maintenance outages; and.- . ,,:: i:n+ .', 2 ;<.*';'A .
" a decrease of$ 1.6 million in payroll costs. , ., ,....... , _,,
Depreciation and amortization expenses.increased due to an adjustment in 2005 in the estimated salvage VMalues icluided O th"e income in'the depreciation'calc'u'latfori dec-r i i i-,s,"""a'roI,,;q of c *ia"'-, depreciable ,i- ;--., j .", assets.
) .. , , - , .. Ii c, ...
-)t ," ,w , "' . -. "
lo "r r Other income decreasd pnmftaniy' ue to azder~ea'se' I th+metetm ecsoer service system'in accordance with a formula rate plan settlement partially offset by an increase in the allowance for equity funds used during construction as a result of ai"'cdease in construction work in progress due to Hurricane Katrina. Interest on long-term debt decreased primarily due to the cessation of interest accruals as a result of the bankruptcy filing in addition t6 loiwer interest recorded prior to the bdin]iiitcy fiiing as a result of the refinancing of long-term debt in 2004. . 2004 Compared to 2003 " V, ..
,r * . ~ ~ 2 . . -j ,a :*:iir Other operation and. nmaitenance. expenses decreased slightly primarily'due to the $4.7 million voluntary severance program accruals-nn.0 03'SThe.decrease was offset by icireas t iii customer service support costs and maintenance and outage costs at fossil plants.
The increase in miscellaneous income is primarily duet6oahansbestos iiburance settlement in'April-2004i'l
"-rfi"'*
ai ;ri:o"..6hg;.t.r. d&t .... "' ":........i.rily due t6lIoiig4&ri debt refinancing' !the',thitdl quarter of Income Taxes The effective income tax rates for 2005, 2004, and 2003 were 58.9%, 37.5%, and 42.8%, respectively/cs'ee Note 3 to the domestic utility companies ~and System Energy financial statementq for a reconciliation of the federal 0 ).,VJ I f ]1 ; I*ý; t Il; . ', - 6fI ", 11, l, *,,o'l
,;,+ I.. 1. +J 11 1)d
, 1,. *.'I'+
*I, +* l. 1 i* ,*j,,iI toI -;Mrl4,,.-* l "w!r1i.
Lstatutory
,I '
rate of 35Yo to the eftec tiveIn.'. iicomteiax N,,i*.J l." l p ') V'/ l :111 "4fJeZ;,*( 1 il)a : t - , -)'. rate. Tax reserv I, -1* 4,:,(;!,-. ' 2g ., el; t o l+:1tl*'9 e treversewnm
\ :U i* .+ 3 4; enexyear1 are
;.* I tll*'
refleced as non-cunoent taxes accrael on the alance, seet,.." -- Preferred Dividends ?*D3I' ., -\-. 3/4,
.. ., ,.,-. . .. , '. ,,. ',+.; ::* u, ,a, \jj'., -,.,
- ..io th~r*.
- i P ).* fV','?' Ikl'.A!;.I, I,,V r-L,ti -j+Z:," , ,,'. .I:. i:I,, . {!.b'*caJ tuji &~:,tU,;'Y. :1it:*.*o ,'Lroi.)
l :kAs a result of*Entergy; Ne~w, Orleans' bankruptcy filingi. no preferred-dividends were dec.lared:duringthe third In and fourth quarters of 2005...:rh :, i .rt , -:.1,1'iP.*,*.';: , o* iii!,[ i; rti ,;:. banr. M.i EntergyNew, Orleans-hasý77,798. 3 /*4, Preferredpis shares of SI100.parvalue,*:4, 3 A%,series, preferred stock. ('L4j 4% Preferred") issued and outstanding: oThe non-voting,a limited and preferred asoto*e*gt andt*0ha preference in liquidation over the common stock equal to its par value (S100), has redemption rights equal to '10%-of its issue' price and is not convertible into any other class of stock. The 4 3/44% Preferred is entitled to a quarterly dividend to be paid on the first day of January, April, July, and October. Due to its bankruptcy, Entergy New Orleans did not pay the 268
(iEntergy New Orleans, Inc.. (Debtor-in-possession)
*iManagement's Financial Discussion and Analysis 1prefended stock dividends due October 4 2005 6ilJanuiary 1.2006.,ilf dividends7vith respect to the 4?A% Preferred are not paid by July 1, 2006, the holders of these shares will have the right to elect a majority,of thc'Entergy New Orleans board of directors. If the 4 %%Preferred obtain the right to elect a majority of the Entergy New Orleans board of idirectors; IExitergy'New. Orleans !will no il6figer:be :5 member.-ofith&Entei'g Consolidated ,TlixiReturn Group. If
',Entergy'iNew'Orleansis'not a'iniemnber 'of the-Enteigy 'Consolidated iTax ;Return'Group;,Enteigy iNew, Orle:ns is not
- entitled to benefits undei the EntergyJncome TaxAllocationAgreement.,voD "f, .!*.) ,'/,-/,
w.'i, f H *'!". J':*hri, :J* ~ u1J:.ol*-Yi"*o zrh;'h() v,* H 'InK!,*..r.o, ,*'ri'.. a*o':'rAt l [,i;'~l~~thvr, . .,Kq
'{/r ~ Ii ;* I7',"* £kiw:it -:.r,'.T;,:'o.
iLiquidity,and Capital Resources .;ýcir, ;,Io t "*.wr.r1'.' .r tiJii taorlliW jv/rh::;i ,1Luf.A, IL!.'-- V.') r1 . s t1C., io 't'J:jl-2KlJ Y*b;1i' o'0,2J f* ot e*r:o I l igi'ui':.' ',:'.sth t) wi'o v.:to!.l lu nnto tOl ' ' ..a ,*x',oe;.!. ...... r '.:i;. .. . d;i'n*
,Debtoi-in-Possession Credit Agreem e i! .i.a'iD i (J tobiio lr;rirl "10 fil1.1'I; "'(i LL .'j'.'Jl " ',r1.)]
On September 26, 2005, Entergy New Orleans, as borrower, and Entergy Corporation, as lender, entered into the Debtor-in-Possession (DIP) credit agreement, a debtor-in-possession credit facility to provide funding.to;Entergy New Orleans during its business restoration efforts. On December 9, 2005, the bankruptcy court issued its final order approving the DIP Credit Agreement.', The indenture trustee-of.Entergy'.,NeW.,Orleans' first imortgage bonds appealed the final order, and that appeal is pending. Subsequent to the indenture trustee filing its notice of appeal, Entergy New Orleans; tEntergy Corporation, and the 'indenture trustee filed with the bankruptcy court a motion to approve a sefikiiieimn amro-ng *ih*] pariies_*IThs-i tl t-would result in the dismissal of the indenture trustee's appeal. The settlement is set for hearing in the bankruptcy court on March 22, 2006. 7.-o V> . I, *Irr,'i VLLIJ rl:;c bQ d-. The credit facility provides for up to $200 million in loans. These funds were requested to enable Entergy New Orleans to meet its liquidity needs, including employee wages and benefits :and payments underpower purchase and gas'supply agreements, and to contnueits efforts to repair and restore the facilities needed to serve itselectric and gas,. custpmers. The jfacility providesqthe ability for Entergy New Orleans to request tifundinig.-fromri Entergy Corporation, but the decision to lend pmoney is at the sole discretion of Entergy Corporation..i IAs of-December 31, 2005,Effi7rg-y NewNOi'l-isha-d $90fiilino-f-6futstanding~borroyingsundertheDIP credit agreement. Management cuiri-ntl:F-e-cts l':b-fdfil--ptcy c6 't-ih'fized funding level to'be sufficient to fund Entergy New Orleans' expected'jevel of operations through'2006.-. bolwq'to lr'l -;t 'I..riupo {,, Lin r') Borrowings under the DIP credit agreement are due in full, and the agreement will terminate, at the earliest of (i) August 23, 2006, or such later date as Entergy Corporation shall agree to in its sole discretioni,(ni) the a~celeration pofthe loans and the termination of the PIP credit agreementdjn.accordance with.its terms, (iii) the date of the closing oa*sale 1of all or substantially,.all of Entrgy, Nyew, Orleans'.-assets,,pursuqnt .osection 363 ,of !ne. States
,Unted LBankruptcyCode or; at confirmed, plan of reorganizationi eqatc pa n
.Ecntergy..ew, Orleans'bbankruptyY,..*se-.ii r,,; vc ioi-io I !liilt.r ,cOOM lhqA nri tli:;fl fl1,,t!i( 1 I?'v.' o If iI;,lo'v iibA
*FI As security for Entergy Corporation as the lender, the terms of the December 9, 2005 bankruptcy court
*grderprovyide that gtll ,borowings, by1iEnte1rgy, eruthe, D.I Credit Agrement are: 1(i) entitled to uNedWrtrlen superpriority administrative claim status pursuant to section 364(c)(1) of the Bankruptcy-Code;; (i,) ;secured :bya perfected first priority lien on all property of Entergy New Orleans pursuant to sections 364(c)(2) and 364(d) of the IBankruptcy Code,, except on 1any, property of Entergy1New Orleans subjectt ,valid, perfected and non-avoidable ihens .ofthelender, ntergy-NewL, rleans' S 15, milloin credit facilhty; and (inQ)tsecurd bvap.rectidjunohen
ýpursuant to section 64(c)(3) ;qf,the 9 Bankruty,Codejon.allprpe oEnt New Orlean jct jytoyliad, 4.1 ~~ ~ __,o 9- .yalidT0. Oreas sujctt perfcted, .and nn-.a oldabeiens nfavor of,the enderonEnterg*Ne*'w-Orl'e~ans' $15 million credit facility that
*perlsted asndfthe d ate Entirleansfi led it anrupt c*p .
iol .'A. fojlt,'; r i 1uoillirri ii , ! voI:,h1d Io' .nr, ioubv.b i3l 1'1 rv.u II 17 r .L..r, i,*ilio-1. - is,z:IS
.r-Ji.t ,Thelienrgranted by theý,bankrupicy .ourt under ,sctsons,3nd,3.64(d) jpriminý,the. liens ,that secure Entergy(N.ew ,0rleans' obhgatons under itS mortgge bond.lndenturelthat existed as of.the date Entergy Ne)vOrleans (filed its bankruptcy, petition. ,To, secure, ntergyýNew.Orleans' obligations )underý its mortgagei*bond indenture,!the kiar.ptcy-cot Deceber 9, 2005order. grants in, favor ofhe, bondt itee,.for,1the bcncfit of itselfand the bondholders, a lien -on all Entergy New, Orleans property that secures its obligations undar the.DiP CreditAgreement.
.JThe lien in favor*of the bond trustee is seniorj jtoall other liens .in favor.of the lender- onEntrgy n,".
,t~eOr~ans' $5 :million credit facility~and Entpgy qor~oain*.(0 ~**r,*. ;.-,,.!***vf*J, l,--1I a. 'v* ia ~iqri~;z:?.i...
a vtf!~t 1 .. oilirf *.*1? .i &z.i. iu6.
!9i,1;, . .bari U>.L ,, ? .4 i aJ
; , !'rti, "i.fD "lth U_'The interest rate on bbrrp.wingsunder the.DIP,.credit agrcementw 11-be the average, interest rate ofbo!rro.ings C269
Entergy New Orleans, Inc. (Debtor-in-possession) Management's Financial Discussion and Analysis outstanding&under Entergy Corporation's, $2i billioh revolving credit,,facility,, which: was approximately 4.7%, per annum at December 31, 2005.i -j..i. . ,.:' , . -- . " ;i . .' z . :'., , >'.;Y 1 sf: ., . ..*::L yd Lia,
!':Events. of default under the DIP. creditiagreement include:%,-failure, to`1mnakeipayment;bf any. inrtallment'of principal or interest when due and payable; thd'6ccurrence of a-change of control: of Entergy:New Orleans,' failure by either Entergy New Orleans or Entergy Corporation to'receive Other recessary'goyernmental -pprovials arid consents; the occurrence of an event having a materially adverse effect on Entergy New Orleans or its prospects; and customary bankruptcy-related defaults, including, without limitation, appointment of a trustee,."r.e._sponsible'persogn,."or examiner with expanded powers, conversion of Entergy New Orleans' chapter 11 case to a case under chapter 7 of the Bankruptcy Code, and the interim or final orders approving the DIP Credit:Agreement being stayed, or modified or ceasing to be in full force and effect.
Cash Floaw , '" ' .' , ?) ' .. ," , .i'::, ' . " ,:.f . .. :;
... -Cash flows for the years ended Deben iber 31', 2005, 2004;ý and 2003 wereas follows::, .'"1 '* ,
* ' ". * - : ,' -+ " ',
* >" u:*,!:w2005d' , !"2004"'-+
' - ":20 3, ,'-
, .t -* (I.On Thousands)
Cash and cash equivalents at beginning of, ieriod $7,954 $4,669 $66,247 Cash flow provided by (used in):+ ,+"' Operating activities' , * ., ' ': '. *u*.] 41,52) v: "-.":+63,207-"T-,,-'z :f**'. ._.5,477,f*:;
. Investing activities " " . .wL
.... '(52,998):. C'(48,910) " 1x (63,089)z '
**..;:' , . :: "d"(134;252"U" '* 0:(11,612)!t `-; 'j-(3 -966)')
. Financing activities ,' : '- ',*'ý Net increase (decrease) imcash' and' ca shequivalents "'- "1140,102">', .'.3;285W fA" (61F578)'
Cash and cash equivalents at end of period $4 8 *bJ56z'11 _$7,954;` __-_$466 "A"'..... Entergy New Orleans' operating ativitks used $41* 2 iiillioni in '20()65. coiimpar'p rovitdmig' $63*-2 million in 2004 primarily, due6 to the' effects "ofHiiuricaiie Katiiria incltiding.lower net incom',: storm restoration spending, 'de&&e'a-sd r~covery of 'deferredfliel costs. ýanidl decieaisedý6lkc1ti& o*6 f~rec'vaible~s iii' idditi6h toý a- pension nii~ contribution of $12 million made in April 2005, partially offset by an inrei Sleb:$1'2.3!m'illi'boAn'iii*comei tax refunds in 2005.
-" ; .... Cash flowt6ffmiolerations increasesl' $57.7 millionf in 20064pnarilydiue.'td'increased nethIniome anfdthe
'timing of ion of . I'ia
. .In 2003,-the dohiestic' utility coimpa'nies' and System Enierigy filed,'with'thei IRS, a"change in taxngccouiitiig
'meth6d -notificationr for theiri respective '1culations of cos of god adjust' en implemented.i a simplified method ofI 'allocationof'oVerhead to th 'pr6dutihon of electricity,' wmhich i'provided ,ini the+IRS apitalizatmin riegulatflonsi. The cuhm'uiative adjustenit'placing thlesecompanies on the newmethiodbl6gyrresulted in a $1.13 billion deduction for Entergy Arkanisa's*i; $641 millioni deduction' ft6rEntery Gufl StatesIa $474'mihioiin deduction for Entergy Louisiana, a $111 million deduction for Entergy Mississippi, a $32 million deduction for
-Eitergy New' Orleans 'and a,$440 million' deductioin for System: Energy'on Entergy' 2003 income' tax return. Entergys curent estimates, tlzatln thriough'2005 indicatedthat3 Entergy Arkansas realized $1lI5 rmlhon, Entergy Gulf States realized $46.million' Entergy L'uisiana-realized $64fmiillion; Entergy' Mississippi realizd: $2 miilli6h ,'and Systen Enery'reahzed' $138 million m' cash tax-'benefit"fro m'i the method" change The Internal ReVntdd-S~ivice issuednifew pi'opodd('regiilati6ns:, effective ,ih 2005 whi!" disallw a portion o Eni~ys meitli6l". Approximately $776 million of tax deductions haVe tobel rieversed'and 10ill be recognized in taxable income equally over two years, 2005 and 2006. EntergyAkansa a f this reAerak is $270 million!,,intergy Gulf States' share is $148 million, Entergy Louisiana's share is $145 million, Entergy Mississippi's share is $124 iilli6hi,'Eniergy New Orleans' share" is' $27: million, and System Energ~ysshare is $62, mhillibn. In 2005, the 270
(1 Entergy New Orleans, Inc. (Debtor-in-possession)
;'Management's Financial Discussion and Analysis ,domestic utility;companies and System Energy~filed a potice-with.tbe,IRS.of a newitax accounting method for their respective calculations of cost of goods sold. It is anticipated that this new. method mwill,offset a significant~portion of the previously stated adjustment to taxable income. As Entergy is in a consolidated net operating loss position, the adjustment required by the new regulations has the effect of reducing the consolidated net operating lossand does not require a payment to the IRS at this time. However, to the extent the individual companies'making this election do not have other deductions or other sufficieit :net ioperatinrg osses;they.;willnhave to*pay.back their benefits received to other Entergy companies under the Entergy Tax Allocation Agreement. At this time, it is estimated that Entergy Mississippi would owe $1 million, and System Energy .wouldoweS9, million.- The new tax accounting method is also subject, o,)RS scrutiny.._.;Should ,1heIRSý fuullydenythe use iof,Entergy's. tax ;accounting method for cost of goods sold, the companies would have to pay back all of the benefits received.,. f). :,.
i1nvesting Activities i-:- i r, rioil nP] ;: I" ,i:J " -. :' tO *:i>* y, "i . , '2, Net cash used in investing activities increased $4.1 million in 2005 primarily due to increased capital expendiptures related .to-distribution.:prjeýts as a,result 3of Hurricane XKatrina. Capital expenditures made during
-2005 as a Tesult of Hurricane Katrina were $26.5 million.
. ( Net cash used in investing activities decreased $14.2 million in 2004 primarily due to caital expnditures related1c'".
to a turbinejispection projec'tat 3* 4Jcj* a fossil planii '.'t,' tin 2003 and -*, dei6reased"J;'.. customer service spending. r:, 'f"'"t f,." J':r:oJ Financing Activities,,!
. Financing activities provided $134.3 million of cash in 2005 compared to using $11.0 million of cash in 2004 ...
41, -- I . p," t, "--...... -- -,I ,I f--.. wt-*,. '.," ' , 1.:* : . , .
- -0 due to 1he borrowing of $90 m1lhonuunder the DIP credit 'ageemnt mifiaditicon to money pool p actviMty and a $15 milhio borrovi-"nder l ?u:xri5,'nh 9 TIi'
- lf;a; 0002
,q 364-da"ycredit ~2) 0 ~ifacilityr
[Ir.+*-J :; ;'t ., '} J.., fflurliiit:~3fl
" " l;.;cx3":J"; ,o)3'V) 30io,*! (,i, ]t';iD'; " , ' iIco'* *,t¢":w(i
,.... *.:,io ' U.)
. Net'cas'sed innfinancing actiltes increased $7.0 nufton'm 2004 pnr yf$ldue-to the costs and expenses
. lge debt in 2004 and Anincrease of '$2.2. milon'm ^oiion stock n!~(.
divid&d~$ai Jtu ~5i~i~qrzi~ ~,LIJ. J,. j.'J'!1 01 ", j1)0e. fiiiC. 1)t L .£i In July 2003, Entergy New Oleans issued $30 million of 3.875% Series First Mortgage Bonds due August 2008 and $70 -6lion-f5.25%'Senies Fifst Morttgage' Bondsde tAugust'2013. 1 "The p~roceeds ftm'tliese !issuances were used to redeem, prior to maturity, $30 miifion of 7 Sne;'Fitrjst e Mortgage'Bonds ddJuley2008,$40 'million of 8% Series bonds due March 2006, and $30 million of 6.65% Series First Mortgage Bonds due March 2004. The issuances and 'i6'd'emptiionstr not' hown -ondthe cash flow-- siaeýG 5Qause the 'proceeds frmth siacswr I /I r r- r* ..... )'1a1 ~.f11itrJ; 1 ,' - '.1'f Orleans: .. r ~ "-.*; oI*r f') 1:'t4 placed'in
. (""
lf ¢') a trust ~*v~ for
*' ""0IU " ;use:~in 1"'1 the- 'elemptions fn *ru:-;¶ and " "f:never l p'.~ held ~ffT
~ asd ?as,f' 0 I inergyNew I,+ "1 r*' - h 2-7. 1 1.
0 W *" ' fO
"'00 See Note'5 tothe'domies t ic uhiity co"6iaes and Sy'stem Energy'finajicial statements-for details on 'long-
- rJn '1 i:2fl0117Yp~pl I ~'iir LT.f~ V!!11III Zi?j- '2: ) f i G, 1.': ( ,,!' .;C jI ,;7.i1 term debt: -'-"
vx-'.,*:.. x ; .'m jffImf j, t A*iZ, t-:uJ') ; " +Ii'*._,0:~m:. Ji'2.iuo') vfii. ;::'U' ,*_ ~ j.'.,:,-:lp ; .:.2 1/-.
,Capital Structure _ . - -* " 03 - / l
* .t - Entergy 'New Orleans' capitalizationis's s6wn in the, fboloing'table. The increase in 'the'debt to ' 'capital l.it-p -1,1
;pretg 1 a* of " t r I ",' "I" -T l~f December 31-2006 -' .
is ?t,,11 primarily lt*. ý *r *: the', reult -1 r ** - ** '. '. of6IAicrased '+,
) -0 --.
"debt "r,
", . , ,-",+
-ottandin due ,-",7' to ai'dditional "'
'borrowings on hDIP cedttfacihty and 364-dayeredit facility.'. -( , ,
'I L~o'!')-no i;n.i
1P :. .o .-. up, m, ~ 'r ý- l 11 vet 14 '.Dv LU - i o fn It nll December31 De1-e&mber31;,1 P Lo", .r,.Net 1* ýdebt~to~net capital, I., ,*' *. 'bi*28 'o*I.. _r.m
,,'56.'0% ,. .. .,
.,; ,*+ .... Effct ofsubtractmni cash from debt-
,,... ,...... 3,.6%* ... ,,.,,0*9%* .... -. T..,+
+-
Debt io capital 66.4% 56.9% .:,., Net debt consists of debt less cash and cash equivalents. Debt consists of notes payable, the DIP credit facility, and long-term debt, including the currently maturing portion. Capital consists of debt and shareholders' -equity. Net capital consists of capital less cash and cash equivalents. Entergy New Orleans uses the net debt to net capital ratio in
- 271
EnE*tergy New Orleihs, ln.,(Debtor-iniý-osses~i6n) Managemnent's Financial Discussidn' and2Analjis analyzfng it's financial condition and believe*r it provides'useful infohmation io-its investors andcreditors in ev'aluatinig 'Entergy New Orleans' finaikial'coridition )fl , .! I.. 1 ,11:. , " ' i Uses of Capital> !..:' :r. *_i-i *u .:.* . v
'<A inh ,. - , . ,.
Entergy New Orileans'rdquires capitail resources for:-,'" , . coinstruefiont indothe.a c pital inveitments;'" :.':1: mi , v ... .... t.': , ... . ' r
.:`ý1's,.working 'capital purposes,, including"the fTnancing of fuel and'purchased power costs; and:; T
- dividend paym'ent.'s'.- -i. i-,to !: ,*C', , , ...
Following are the amounts of Entergy New Orleans' planned construction and other capital inVestm&fits anrd existing debt obligations: IN;K vU Vl !i.C i Il). noill! 1 In 1 "
,r..*r: .p,
*. 1i,3) .r'ri,' 2 OO 6 'J,'.' 2007-2008?, "-.2;09.2016' 0u1,After2010-'.,'Total (In Milli6ns). ..
Plannedt.,r.v,..' construction and , " ,- " - ,,. f) ;.n ;i I',i i'..I't'/i, ;, " ; *'. I'.A"
;,**.3*t*hZt capita
, j .- ,:i, investment, "- ()q.;,- .,,., -A+,%[f,
+*+*~ $21 .'! ,.*, .S . ,. L; . ... N ,... ý$93_.
Long-term delt`' S $$30 $3 6"i $1/7.. Sý230" Operating leases $2 $2 S1 S7* , : -$5 Purchase obligations (2) $209 $337 $284 S1,217'- $2,047'
"-0,1£ !T: ;
()Consists ,,('c :*i:,-ýI l 0I. 1t-0 almostentirely ...of maintenance 1.(A b*+*' :Icapital, ?.+)j!)r*z °; r.,::.r,'T:is plajnned'spending which :*[, !* : lr'. J." -J)ji'/.,' ".. .*i *I-+,,, -.i-rprojects on routineicapital -r,111 that are necessary to support reliability of service, equipment or systems and to support normal cuistomr growh.r,,, (2) Purchase obligations represent the minimum purchase obhi'gaton or cancellaiion 'charge for contractual
.obligations to purchase goods, or services.. For. Entergy, New, Orleans, almost all.of thetotal. consists of
.lJ" ,, unconditional
._! + 'L, l* , *. fuel.
1 1and , purchased--
- si *',. powerobligations,
,4, t t .,¢ i -l.-.7'+. I.-tf , I L L'H11obligations'
-I 11 I,
+. I-tI under"
'10 ' § " tie "tdng Uxt1its, I ti- +*** ) Power 1 f _ ". Sales L I -. i _
Agee'ment, 'whn chis discussdeain ote gt'o lte domestic uttty companies and ystem Energy financil statements.
. addition to the pianned'spenhdifg inmthetabtle above,, Entergy.New Orleans also'expt make $46 minllion of payments in 2006 related t Huficane a a restoration work.; .;,. ' . ma. $46 The planned capital inestment estffiate for, Enter New Orleansrreflects, capital required, to support existing business. The estimated, capital ex~penditures are. subject, to. periodic review and modification and mayvay based on the ongoing effect's"otregulatory constraints, enviroinenita Ioipliance, market volatility, econoniiuc trends,
-and the ability to access capitaL. Management provides more. information on long-term debt and preferred stock maturities in Notes 5 And 6 and to the domestic utility companies and System Energy financial statements;, .. b At the September 27, 2005 City Council meeting, the City Council adopted a number of emergency measures proposed by Entergy New Orleans to address the effects of Hurricane Katrina on Entergy New Orleains' ,operations and load, These-included the approval of, the temporary, sale byEntergy New Orleans ofI the output d ., ,,I - e. %1, f ,1. L(I ,
,related, to certain purchased, p-ower, agreements to ,Entergy Gulf States andftterLoui'iian',as wenllras the I
temporary sale into the w hulIesaile'maret 16f Etergy NewiOrleans'-shre or-teioutput of Grand Gul'-Th City Council also granted Entergy New Orleans' request to suspend temporar'yili the generation performance-based recovery plan effective, withjthe September,,20051 operations month. In addition, the City Council authorized Entergy New Orleans toý*unwind certain financial gas hedging transactions that had been executed for the 2005-2006 winter heatinigseason to refle*tEfiiiFi- Ne Orleans' reduced gas resale customer load as a consequence of Hurricane Katrinat'Tie proceeds of theuiinwinding, or early settlement, of these'ga§ hedging transactions were used for storm efforts and accounted for as credits to varius'iresale rgas custdioerobhgato6ns owed to Entergy New Orleans. , ' .;, '4 j I"! L; r.) A ,IV
*272
(Entergy New Orleans, Inc. (Debtor-in-possession) ,Sources of Capitalf% . , , '
*-' r; ,ia ,f-'> : rlq m1m i:!w:m'; : :1/2 riiL 1If1~r,,) " :4 * .*- .EntergyNew.Orleans'rsources to meetits capital requirements include:., . * .. t.," .. ;
internally*geh iiieted fdnds;J
--5
,,4 er. - ) .i,./..:trl=-n, t)1,c!
r -' )" ,' ,ti . ioc t:us:. :,*t~d
. cashnonnhand;-,land -
(".- - .. l!Ii ~ 2005i" follows" t' r., . .... i f:o~tf t [V'1?, SEntergye*ew
~
Orleans issued $30mllhon ofFirstMorgage Bonimq.+/-2005Tas Y~ . 1 , ..Z t . '...l ~ +,+,.'i ; ,,: itic r.g CrI: il il,;tI'd~, V.+t* - i-l *11ri+t
;pr ~-.Issue Date 1 " .~ escription "'Maturity- ' Amount*
i~~i-F)I1 J i1O0 t/ f4 9 Yo1k ' ij y1311 fo k ij ,CI iI') ~l~ U) " 1 j ii i i Proceeds from the issuance in June 2005 were used to retire the followving First Mortgage Bond:
... lune,.:a... s, .. f.2ovooenes .',yi+ u f~) .-+I. .. j3 ~ 'tuh
. Retirement Date Description Maturity. Amount, '
.. . 1 :1; (IiihIusarids) ,ZS J.)1 .
,.* .v:u d i kt .÷i-,.. ...
n-I
- a;" la r .
'ate 1"r.l~io. . .Am un j 1 .. "j+:; ",-rtI-
,it~
,';.rj `f..
- elem _,il ",2005
.'Ju 8 lS*. Series' Jul",2005 $30'000 fr.,l'.,n
.- lqIIf i Ný~~La' h1- 11* t.- f, . I-I'- - 1, Ii-nousanas), . .
P edrom theissuance L isiana and Entergy New irT'.-' Orleanstrenoo ewed1I ,-thFirt364day credit facilities'Withhe -" , I I.
.,, . '. , J'*f I l PJ.*
_Vt I' -: , '.f '. j--*',- ir *I.' ;f ' 't- 1 . '.. , II.I IUI .
- .' . "I ,,.0 !;
*$1i5.illion, the samf6 "13,; .J ,*J, e'nl~dthi-~ighM
* ,'I 1 !.1 1 ,, , 1 1" ;'!). ...1, - I, My2006'. , = Entergy
- .q :I )
New
, W . '(
Orleanis.increased
'I. , I-.. , I- I. it the
'+, , amount'of -.. . its
*+ : credit}}