ML20073D152
| ML20073D152 | |
| Person / Time | |
|---|---|
| Site: | Waterford  |
| Issue date: | 12/31/1990 |
| From: | LOUISIANA POWER & LIGHT CO. |
| To: | |
| Shared Package | |
| ML20073D148 | List: |
| References | |
| NUDOCS 9104260189 | |
| Download: ML20073D152 (44) | |
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A Louisiana Power & Light Company /1990 Annual Report 3
3 A
Pen R
AD 00 2
LOUISlANA POWER & l.lGilT CONIPANY Louisiana Power & Light Company (LP&L) operates in 46 of the 64 parishes of Louisiana - a 19,500-square mile area and employs a total of 2,351 people.
LP&L is a wholly owned subsidiary of Entergy Corporation, the public utility holding company for the Entergy System. For the past 42 years, the Entergy System has been the leading electric energy supplier to a 91,000-square-mile region along the lower reaches of the hiississippi River, The System's vast network of interconnected transmission and distribution lines and diversified i
grid of fossil fuel and nuclear generating plants provide electricity to more than 1.7 million retail customers in Arkansas, Louisiana, hiississippi, and hiissourt.
lieadquartered in New Orleans, Louisiana, Entergy Corporation includes four retail operating companies: LP&L, Arkansas Power & Light, hiississippi Power & Light, and New Orleans Public Service Inc. System Energy Resources, Inc., a nuclear generating subsidiary of Entergy has a 90%
interest in the Grand Gulf Nuclear Station. Another subsidiary, Entergy Ser ices, Inc., provides various technical, administrative, and corporate services to Entergy Corporation and the System companies. A new subsidiary, Entergy Operations, was formed on June 6.1990, and is responsible for operating the System's four nuclear units. Entergy Power, a wholesale generator that purchased Arkansas Power & Light's interest in the Independence 2 and Ritchie 2 generating units and will sell the capacity and energy from these units outside the Entergy System, was formed as a subsidiary of Entergy Corporation on August 25,1990.
TABLE OF CONTENTS DE Defmitions 2
Report of hlanagement 4
Audit Committee Chairman's L.etter.
5 hianagement's Financial Discussion and Analysis 6
Independent Auditors' Report 11 Financial Statements, 12 Notes to Financial Statements.
17 Record of Progress,
42 Directors and Officers 43
LOUISIANA POWER h LICllT CONIPANY DEFINITIONS Certain abbreviations or acronyms used in LP&L hlaragement's Financial Discussion and Analy.
sis. Finanelal Statements, and Notes to Financial Statements include the following:
Abbreviation or Aeronym Term A F U DC......................... Allowance for Funds Used During Construction A l gi e rs............................ 15th Ward of the City of New Orleans Louisiana Algiers Rate Settlement........... Council resolution adopted on July 6. IDW AP&L.........................
Arkansas Power N Light Company April 1948 Decision.............. Loulslana Suprenne Court's April 11.19% decillon
- April 19% Order LPSC rate order issued on April 27,19%
Co u n cil.......................... Council of the City of New Orleans. Louisiana D.C. Ci rc u i t....... m.. 4........ United States Court o Appeals for the District of Columbia f
Circuit District Court -................. - United States District Court for the Eastern District of Louisiana DOE...................._....... United States Department of Energy Entergy or Entergy Corporation.... The public utihty holding company for the Entergy System i
Entergy Operations............... Entergy Operations. Inc. a subsidiary of Entergy Corporation that has assumed operating responsibility for Grand Gulf 1. Waterford 3, and Arkansas Nuclear One Steam Electric Generating Station Entergy System or System......... Entergy Corporation and its various direct and indirect subsidiaries
- FASH............................
Financial Accounting Standards Ibard '
FE H C............................ Federal Energy Regulatory Commission FEHC Settlement... o............ Settlement offer fded with the FEHC on June 9.1989 by APkL. alp &L, NOPSI. System Energy and LP&L and approved by the FERC on July SL 1989, to settle, among other things certain thensending Ctand Gulf Station-related issues, litigation ind rate matters Fifth Circuit.......
United States Court of Appeals fw the Fifth Circuit
' Fourth Circuit ;................... Fourth Circuit Cmirt cl Appeal for the State of Loulslana
- Grand Gulf Station...,,........... Grand Gulf Steam Electric Cenersting Station (nuclear)
Grand Gulf 1 i................... Unit No. I of the Grand Gulf Station Grand Gulf 2...
- Unit No. 2 of the Grand Gulf Station June 13 Deelslon................. The FEHC's June 13.19% decision allocating Grand Gulf I costs 'among the System operating companies KWil...........................
Kilowatt llour(s)
Loulslana Public Service Commission
(
i LPSC Settlement Agreement...,.. _ An agreement between the LPSC and LP&L effective-l July 21; 1989 that settled certain retail rate issues involving Grand Gulf 1 hiarch 1949 Order.......
LPSC rate order issued on hiarch 1,19S9 hlP&L...........................
hiississippi Power & Light Company N EI L.......................... Nuclear Electric Insurance Limited NOPSI...............
........... New Orleans Public Service Inc.
NHC.,.........i................
' Nuclear Regulatory Commission 4
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LOUISlANA POWEll & l.lGIIT CONIPANY DErlNITIONS - (Concluded)
Al,timi uon or Acronnn
't erni Owner Participant A corporation that, in connection with the Waterford 3 sale atel leaschack transactions. has acquired a benefielal interest in a trust that is the on tier and letisor of an undivided interest in Waterford 3 Owner Trustec....
Each institutiori and/or indisidual actitig as ow ner trustee under a trust agreenient uith an Owner Participant in connection with the Waterford 3 sale and leaschack tsaatuctioris Project Olis e liranch..........
The Splein's 1959 effort to settle certain outstanding issues and litigation involving Splem Energy, the Sptein operating coinpanies, and the Grand Gulf Station, and to stabilire i
retail rates in the Systern's sersice area which cultnitiated iti the FEBC Settlettient and related state and local settlernents SEC......
Securities and Eschange Conunission SEAS....
Staternent of Financial Accounting Standards protnulgated by the FASB State District Court.............
Nineteenth Judicial Distr 6ct Court for the Parish of East Baton llouge Louisiana Splein Agrectnent.
Agreetnent effectise January 1.1943, as inodified by the June 13 Decision. arnong the 39tein operatitig coinpanies relating to the sharing of generating capacity and other power resources Sptein Fuch Spteni Fuels. Inc.
Splein Energy,
Sptm Energy llesourecs, Inc.
Splein operating companies...... Athi,, LP&L. MPhl, anel NOPSI. collectively Splem or Entergy Splem........ Entergy Corpolation and its various direct and itidirect subsidiaries Unit Power hales Agreement....... Agrectnent. dated as of June 10. 1952. as arnended, atnong the Sptem operating companies and Sptem Energy, relating to the sale of capacity and energy from System Energy's share of Grand Gulf 1 Waterford 3.........,
Unit No. 3 (nuclear) of LP&L's Waterford Steam Electric Generating Station 3
1 LOUISIANA POWEll & LIGi!T COhlPANY lit:POltT OF hlANAGENIENT The rnanagernent of Louisiana Power & Light Company has prepared and is responsible for the financial stateinents and related financial infor: nation included in this annual report. The financial statements are based on generally accepted accounting principles. Financial information included elsewhere in this report is consistent with the financial staternents.
To meet its responsibilities with respect to fmancial information, management innintains and enforces a 6ystem ofinternal accounting controls that is designed to provide reasonable asmrance, on a cost-effective basis, as to the integrity. objectivity, and reliability of the finanetal records and as to the protection of assets. Tins system includes communication through written policies and procedures, an employee Code of Conduct, and an organirational structure that provides for appropriate division of responsibility and the training of personnel. This system is also tested by a comprehensive internal audit prograin.
The independent public accountants provide an objective assessment of the degree to which management meets its responsibility for fairneu of Imancial reporting. They regularly evaluate the system of internal accounting controls and perform such tests and other procedures as they decin necessary to reach and espress an opinion on the fairness of the financial statements blanagernent believes that these policies and procedures provide reasonable assurance that LPhl/s operations are carr!cd out with a high standard of business conduct, h $f n
Jerry L. hiaulden Doi.ald E. hiciners Chairman of the Board and besident and Chlef becutive Oficer Claef Operating Oficer v
da hl.11. hieLetchie i
Senior Vice l'rcsident-Accounting b Finance 1
LOUISlANA POWEll & LIGilT CONIPANY AUDIT COMNil'ITEE CilAllBIAN'S LETTEll The Louisiana Power & Light Cornpany Audit Conunittee of the lloard of Directors is comprised of four Directors who are not ollieers of LP&L: Joseph J. Krebs. Jr. (Chairinan) Tex it. Kilpatriel,11.
Duke Shackelfoul, and Woi. ClitTord Smith. The coininittee held four ineetings during 1990.
The Audit Committee osersees LP&L's financial reporting process on behalf of the floard of Directors and provides reasonable assurance to the Board that sufficient operating, accounting atid financial controls are in existence and are adequately reviewed by programs of internal and external audits. The Chairman of the committee meets with LPkL management and LP&L's independent public accountants on a quarterly basis for the teslew and esersight of the quarterly financial reporting process.
The Audit Comtnittee discussed with LPht's internal auditor and the independent public accountants (Deloitte & Touche) the overall scope and specific plans for their respectise audits. as well as LPhl's financial statements and the adequacy of LP&L's interne1 cuttirols. The committee met separately with LPAL's internal auditor and independent public accountants. without inanagement present, to discuss the results of the audits, the esaluations of LP&L's internal controls and the userall quality of LP&L's financial reporting. The meetings were designed to facilitate and encourage any private conununication between the committee and the internal auditor or independent public account ants.
")
1 Joseph J. Krebs, Jr.
Chairman. Audit Committer l
5
LOl'ISIANA POWEll & LIGilT CONIPANY hlANAGEhlENT'S FINANCIAL, DISCUS $10N AND ANAIX%Ih itESl*LTS OF OPI:llATIONS Listed in the table below are certain significant factors affecting results of operations for which changes base occurred between the y ears 1990 and 1989, and 19S9 und 1955. The principal reasons for the significant changes from period to period are discussed following the table, 1990 to 1949 1949 to 1944 lucreasel increasel Dewrlption 1990 1949 1944 (Decrease)
(Decrease)
IDullars in %1illi..no Net income 4 155 0 6 196 6 $ 113.h 6 44.4 45 l (7.2)
(6)
Operating resenues 1.455.6 1,426.h 1,377.1 55 h 4
49.7 4
l'uel and fuel.related expenses.
2M 2 2W4 216 6 7.h 3
33.6 16 hiaintenance expense.
96 h 95 6 73 6
( 1,6 )
(2) 25.0 34 lacome tases...
79.2 57.7 34.3 21.5 37 19,4 51 Waterford 3 expenses recovered - net.
28.4 25 4 22 6 5.h 26 Miscellaneous income - net I '.6 20,6 0.6 (9 0)
(44) 20.0 Interest on long. term debt.
154 4 151.0 179 5 (26 6)
(15) 1.5 l
Other interest - net.
9.9
'3X 20.4 (3.7)
(27)
(6 h)
(33) i Operating revenues:
Residential.
$ $20.6 6 4963, S 4h5 0 6 24.0 5
6 11.6 2
Commercial.
314.7 305.1 291.5 9.1 3
14.1 5
Industrial........
532.h 541.1 511.3 (h.4)
(2) 29 9 6
Cosernmental.
26 5 25.s 32 4 07 3
(6.6)
(20)
Total retad.
1.394.6 1.369.4 1J20.2 0,54 2
49 3 4
Sales for resale 41.h 35.1 34.0 3.7 10 4.1 12 Other....
49.0 19.3 22 9 29 7
,1 54 (3 6) y)
Total
. 41.4%5 6 _$1_,42.6 h. 61.377.1 6 $5.h 4
- 4. 4_9.7 4
m m__
m Retail energy sales:
( Alillions of KWil)
Residential.
7.169 6,665 6.762 308 4
103 2
Commercial..
4,299 4.175 3.972 124 3
203 5
Industrial...
14.170 14.025 13,253 145 1
742 6
Governmental.
382 369 504 13
_i (139) y)
Total retail....
26.000 25,434 21.525 586 2
909 4
Sales for resale.,
1,149 1,014 949 135 13 65 7
Total.
27.169 26 44s -25.474 721
_3
_974
' Over 1,000%
Net income The increase in 1990 net income was due primarily to an increase in operating revenues, a decrease in interest on long term debt, and the recording in 1959 of the $11.1 million effect of the LPSC Settlement Agreement. The decrease in 1989 net income was due primarily to recording the
$11.1 million effect of the LPSC Settlement Agreement and to increased maintenance expenses, partially offset by the amortization of gas supplier judgment proceeds and the related interest earnings on such proceeds in accordance with the klarch 19S9 Order. These and other factors resulting in the changes in net income are discussed below.
6 c_________._
l LOl'thlANA POWl:lt & l.lGitT CONIPANY hlANAGE% LENT'S l'INANCIAL DihCt'S$10N AND ANAIJhi$ - (Continued)
Operating flesenuen Operating resenues increased in 1990 due priinarily to increased base resenues of $20.0 million and increased fuel adjustment resenues of $14 million as a result of an increased volume of residential and conunercial energy sales and sales for resale. Operating revenues also increased in 1990 due to a reduction in tevenues in 1959 of $15.4 million in connection with the LPSC Settlement Agreement and an increase of $$.3 million in the amortiration of gas supplier judginent proceeds into revenues.
Additionally, operating resenues increased in 1990 due to the refund of $6.9 million in 1959 to LPSC jurisdictional customers (reflecting the LPSC jurisdictional portion of a credit tecelsed from System Energy in connection with the FEllC Settlement) in connection with Project Olise Ilranch, Operating resenues increased in 1959 due primarily to an increase in the volume of energy sales to retail customerr and the amortiration of $216 million of gas supplier judgment proceeds into revermes. The increase in operating resenues for 1959 was partially offset by the refund of the $6.9 million mentioned abose, and the reduction la resenue of $15.4 million in connection with the LPSC Settlement Agreement, also mentioned above.
l'uel and Fuel telated Espenses The increase in fuel and fuel related expenses in 1959 w as caused principally by a 16% increase in the volutne of nuclear generation due to increased energy sales to retail customers and higher average per unit costs of fossil fuel, Slaintenance Espense The 1959 increase in maintenance expense was due mainly to the capitalization in 19% of $18.7 million of materials and supplies itnentories that had been previously expensed and increased amortization of $19 million in connection with a scheduled refueling and maintenance outage at Waterford 3 in 1959.
Income Tases Total income taxes in 1990 and 1959 increased due to increased pre tax hook income. In addition, total income taxes increased in 1959 when compared to 19% due to the amortization in 19% of $9.9 million of previously unamortired intestment tax credits pursuant to an agreement between LP&L and the LPSC.
Waterford 3 Espenses itecoscred - Net Waterford 3 expenses recoscred increased for 1959 when compared to 19% due mainly to adjustments in 19% to previously unamortized investment tax credits pursuant to an agreement between LP&L and the LPSC and recognition in 1959 of a full year's amortization of previously deferred costs pursuant to the April 19% Order.
Nilscellaneous income - Net hiiscellaneous income - net decreased in 1990 primarily due to a decrease in interest income of approximately $$.4 million resulting from lower average temporary cash investment balances during the Scar. Temporary cash itnestments in 1959 included certain gas supplier judgment proceeds. The majority of these proceeds was used to retire certain high-cost debt issues in 19S9 and 1990. The increase in miscellaneous income - net in 1959 was attributable primarily to increased interest income from temporary cash investments as a result of LP&L's utilization of certain gas supplier judgment proceeds.
7
1 LOUISIANA POWER & LIGilT C051PANY hlANAGDIENT'S FINANCIAL DihCUSSION AND ANALYSIS-(Continued)
Interest on Lmig term Debt Interest on long term debt decreased in 1990 primarily as a result of the redemptions and retirements in October and December 1959 of high-cost first enortgage bonds. Also contributing to the decrease was the refunding in early 1990 of higher cost debt with lower cost debt.
Other Interest - Net Other interest - net decreased for 1940 due principally to higher interest expense in 1959 of approximately $4.2 million in connection with a state income and franchise tax audit. Other interest -
not decreased for 195i9 due principally to at: agreement reached in August 1955 with the Internal Revenue Service and the State of Louisiana that required LP&L to record $103 million of interest expense in 1955 relating to the income tax treatenent of the proceeds from a 1952 settlement agrectnent with a gas supplict, Partially olTsetting this decrease was 1989 interest expense in connection with the state income and franchise tax audit and interest expense relating to sales tax on nuclear fuel.
Itetail Energy Sales Retail energy sales increased in 1990 due primarily to increased energy sales to residential, commercial, and industrial customers. The increases in residential and commercial sales were due to warmer than normal w cather and a general upward trend in average usage. Industrial sales increased as a result of higher sales to customers in the chemical and refining industries. The increase in retail energy sales in 1959 was attributable to an increase in the volume of energy sales to industrial customers as a result of various sales incentise programs implemented during 1959.
FINANCIAL CONDITION General LP&L's net income for 1990 of $155 million represented an increase of $45.4 million, or 45 percent, oser 1989. Earnings coserages for the year ended Decen.b4 r 31,1990 for the issuance of first mortgage bonds and preferred stock have also improsed when compared to the corresponding period in 1959.
LPkL's improved financial conditien at December 31, 1990 reflects net reductions in interest requirements on long-term debt and the resulting positive effects of rate and other settlements in l959 with the LPSC, the Council, and the FERC (See "Results of Operations" for further information regarding various factors alTecting LP&L's net income.)
Pursuant to the terms of the hlarch 1959 Order, LP&L is currently operating under a five y ear base rate freeze. The remaining three years of the rate freeze will not affect LPh!!s financial condition to the extent that LP&L can maintain costs at current lesels or reduce costs. To the extent that LP&L's operating expenses significantly increase, net income could be unfasorably impacted unless a rate increase could be requested based on one of the exceptions to the rate frecre. (See Note 2 of LP&L's Notes to Financial Statements," Rate and Regulatory hiatters.")
Liquidity LP&L's primary cash requirements for 1990 included, among other things. dividends paid on
- preferred and common stock, construction expenditures, payments to System Energy for Crand Gulf I capacity and energy, and refunds to customers in corinection with a settlement agreement with a gas supplier. LP&L's cash requirements during 1990 were satisfied primarily with internally generated funds and cash on hand.
l 8
.a-
LOUthlANA POWEll & l.lGilT CO\\lPANY hlANAGDIENT'S FINANCIAL DISCUSSION AND ANAL.YhlS - (Continued)
At Decernber 31,1990, LP&L's cada and cash equivalents totaled $16$.6 inillion, an increase of $$7 inillion froin Deceinber 31,1959 Net ensh flow provided by operating actisities totaled $152.0 inillion for 1990. As detailed in the Statements of Cash Flows, cash flow from operating netisities was affected by a nurnber of factors representative of nottual operations. Defnred interest telated to the Waterford 3 sale and leaseback obligations is included as a nonensh reconciling item on the Statement of Cash Flows and on the balance sheet as a deferred credit as no lease payinen's were re(piired in 1990 Other factors of an unusual and nonrecurring nature were not significant. Insesting activities for 1990 resulted in a net cash outilow of approximately $127.5 million due primarily to construction expendi.
tures. Financing activities for 1990 resulted in a net cash outflow of approximately $167.5 million due pritnarily to dividends paid on comruon stock, the redemption and retirement of, and dividends paid on, preferred stock, and various other factors as detailed in the Statements of Cash Flowt Capital and liclinancing flequirements Construction expenditures (including AFUDC but excluding nuclear fuel) for LP&L are esti-mated to be $143.6 million, $151.9 inillion, and $161.7 million for the 3 cars 1991,1992, and 1993, respectively, Pursuant to its phase in plan, during 1991-1993 LP&L will be collecting in rates a portion of the Waterford 3 costs incurred but not collected in previous years. These collections constitute cash available to natisfy, among other things, construction expenditure requirementr,. In addition to the abos e capital requirements, LP&L will require $250.4 million during 1991-1993 to meet long. term debt maturities and to satisfy sinking fund requirements.
LP&L plans to meet a r,lgnificant portion of its capital and teIinancing requirements dt. ring the period 1991-1993 with internally generated funds and cash on hand, supplemented primarily by the l
issuance of long. term debt and preferred stock. On November 14. 1990, LP&L issued and told 12.b93,4hD shares of its common stock, no par salue, to Entergy Corporation for $$5 million.
On hiarch 1,1990, LP&L redeemed and retired $100 million aggregate principal amount ofits 12%
Series First hjortgage llonds due hlarch 1,1993, at a redemption price of 101.43% of the principal -
amoutit thereof, plus accrued interest to the date of redemption aggregating $6 million. In addition,in December 1990 LP&L acquired, by means of open market purchases, and retired $11,25 inillion aggregate principal amount of portions of certain series of its First hlortgage llonds for $11.1 million plus accrued interest through the date of acquisition.
On April 11, 1990, LP&L issued and sohl $100 million aggregate principal amount of First hlortgage Ilonds,101/64 Series, due April 1. 2020.
LP&L has requested, but has not yet received, regulatory approval from the SEC allowing the l
Issuance through December 31,1992 of up to $200 million of first mortgage bonds and up to $200 million in aggregate par salues of preferred stock for refunding and other corporate purposes. LP&L has also requested regulatory authorization to enter into agreements with the Parish of St. Charles, Louisiana (Parish) whereby the Parish would issue and sell up to $200 million of tavesempt revenue bonds in order to reimburse LP&L for, or to permanently finance, the costs of certain solid waste disposal, sewage disposal, or pollution control facilities.
Capital flesourr n LP&L's minimum carnings coverage requirements for issuing first snortgage honds (other than for refunding purposes) and preferred stock are 2.0 times annual bond interest requirements and 1.5 times annual interest and preferrd dividend requirements, respectisel), on a pro forma basis. For LP&L's first mortgage bonds and preferred' stock, the earnings coverages for the twelse months ended December 31,1990 were 3.92 tirnes nnual bond interest requirements and 1,67 times unnual interest 9
i n
E
l.Ol'IhlANA POWEll A LIGilT COSIPANY l
NI AN AGI31ENT'S FIN ANCI AL DlhCL'hblON AND AN Al,Yhth - (Concluded) and preferred disidend requirernents, respectisely. llased upon these earnings coserages and an assuined annual interest or dividend rate of 10%, LP&L had adequate cainings cos erate and sufficient unfunded bondable property to support the issuance of approximately 650%.7 million of first rnortgage bonds or adequate earnings cos erages to issue $223.0 million of preferred stock, in addition, LP&L had the ability at December 31,1990, subject to inceting certain conditions, to issue bonds against the retirement of bonds without satisfying an earnings coverage test. Pursuant to an order issued by the SCC in December 1990, LPAL had short term borrowing authorization for up to 6125.0 million at December 31,1990 (see Note 4 of LPhl's Notes to Financial Staternents. " Lines of Credit and llelated Borrowings").
ACCOUNTING 15ht'13 SPAS No. 96 In December 19h7, the FASin issued SFAS No. 96. " Accounting for incoine Taxes." which was scheduled to be effective for years beginning after Deceinber 15.1955. The FASB subsequently inued statement numbers 100 and 103. which delay the effective date of SFAS No. 96 to fiscal years beginning after Deceriber 15,1991. The FASil is expected to issue a new exposure draft in the second quarter of 1991.This exposure draft may further delay the effective date and simplify the implementation of SFAS No. 90.
llesed on a preliminary study, LPhl expet ts that the adoption of SFAS No,96, in its present form, woulJ result in a net increase in accumulated deferred income taxes with a corresponding increase in 4
asse's, it is not expected that results of operations for LPhL would be significantly impacted by the adoption of SFAS No. 96 in its present form (see Note 3 of LP&L's Notes to Financial Statements, "It come Taxes").
FFAS No,106 in December 1990, the FASB lisued SFAS No.106. " Employers' Accounting for Postretirement Benefits Other Than Pensions," which is generally effectise for fiscal > ears beginning after December 15,1992, The new standard requires a change in accounting requirernents for postretirement ber.elits other than pensions from a cash method to an accrual method. The innpact of this new standard has not been fully determined, but the change likely will result in significantly greater expense being recognized for provision of these benefits. The effect of the increased benefit expense on net income could be reduced to the extent such increased costs are recovered through rates or through the recording of a regulatory asset to be recosered in the future. LPhl plans to adopt thi: statement in 1993.
10 l
l
INDEPENDl:NT Al'DITOltf llEP0ll1 To the Shareholders and the Board of Directors of Louisiana Power & Light Conipany:
We base audited the accotopan)ing balance sheets of Louisiana Power & Light Cotopan) (LPhl) as of Decernher 31,1990 utid 1959, atid the related statetnents of ineoine, retained earnings and cash flows for each of the three years iti the period ended Deceniber 31,1990. There finaticial staternents are the responsibility of LPhL's inatiagernent. Our responsibility is to exprers ari opinion on these financial staternents based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perforrn the audit to obtain reasonable assurance about whether the financial staternents are free ofinaterialinisstaternent. An audit includes exarnining, on a test basis, evidence supporting the atuounts and disclosures in the fitiancial staternents. An audit also includes assiessing the accounting principles used and significant estiinates niade by inanagernent, as well as evaluating the oserall finaticial staternent presentation. We beliese that our audits provide a reasonable basis for our opinion, in out opinion, such financial staternents present fairly, in all inaterial respects, the financial position of LPhb at Deccinber 31,1990 and 1959, and the results of its operations and itt, cash flows for each of the three years in the period evided Decernber 31,1990 in confortnity with generall) accepted accounting principles, j
Deloitte & Touche New Orleans, Louisiana t
l'ebruary 15,1991 11
1.OUISIANA POWl:lt & !.IGilT CONIPANY IMI.ANCE Sill:ETS AhhETS linember 31.
nm low.
(in huundo Utility Plant (Note 1):
Electric.....
64.307.965
$4.176.175 Electric plant under lease (Note b)..
221.792 219.971 Property under capital leases (Note h)....
b.051 9.200 Construction w ork in progress.....,..
101,752 112.954 Nuclear fuel under capital lease (Note 6)........
51.999 -
101.497 Nuclear fuel.......
4.hh0 3.117 To t al..............................
4.726.429 4.622.923 Less - Accumulated depreciation and amortiration.....
1.144 h59 1.015.640 Utilit y plant - net..............
3.541.570 3.607.243 Other Property and imestments:
Nonutility property..
20,000 20.060
................. =...
investment in subsidiary company-at equit) (N W 7) 14.230 14.230 Other..
h00 74h To t a l...................
35.090 35.034 Current Anets:
Cash and cash equivalents (Note 10):
Cash.
33 65 Temporary investments - at cost, w hich approximates markett Associated companies (Note 4) 3.h29 4.230 i
Other (Note 4)...
161715 107,323 Total cash and cash equivalents 16S,577 111.618 Special deposits 8,39%
9,116 Not es receivable........................,.
2.672 1,02h L
Accounts receivable:
Customer and other (less allowance for doubtful necounts of (in thousands) 51.956 in 1990 and 19S9)......
67.297 64.351 Associated companies (Note 11) 6649-0,549 l
- Accrued unbilled revenues.
50,215
$4.009 l
Deferred fuel costs....
5,566 Accumulated deferred income taxes (Note 3) 5,0$6 i-Materials and supplies - at us erage cost =............
67,269 77.774 l
Deferred Waterford 3 expenses - net (Note 1)..
8.422 2S.422 l
Prepy ments....
4.64S 5.391
(.
Other..................,...........
10.053
_ 27,035 To t al.....................
442,656 413.859 I
Deferred Debits:
Deferred Waterford 3 expenses - net (Note 1)......
139,29$
167,720 Pension obligation - assoelated company (Note 9) 16.012
-13,031
- j Other...
47,468 43.583 i
Total..
202,77h 224.334 TOTAL...
51,262.124
$4.
m _25_0,,4_7 4
- See Notes to Financial Statements.
12 i
1 A
l LOl*lSIANA POWl:ll & LIGilT CONIPANY ll AI ANCE. 5110.ETS CAPITAL.17.ATION AND LI AlllLITil'.S IMember 31.
lWa HAtt (in 1 huuundO Capitalization:
Common stock, no par value, authorlied 250.0001KK) shares issued and outstanding 150,004.340 shares in 1990 and 137,110.900 shares in 1959 (Note 5).
$ 9%.900 $ 903 900 Iletained earnings (Note 5).
46.5k3 37.762 1.035,453 911.662 Total common shareholder's equity Preferred stock net of premium without sinking fund (Note 5) 145,652 145,%2 Preferred stock, net of expense with sinking fund (Note 5) 107.721 131.727 Long-term debt (Note 6).
1,701,759 1,717.217 Total 2.990h 45 2,93fi,4%
Other Noncurrent Liabilities:
Obligations under capital leases (Note 8) 50.926
$7.%7 Accumulated provision for property insurance (Note 1) 7.463 6.010 Accumulated provision for injuries and damages (Note 1) 6,153 6.153 Total 61.544 70.050 Current Liabilities:
Currently maturing long term debt (Note 6) 4.427 20 012 Accounts payable:
Associated companies (Note 11) 32,460 31h03 Other 93,067 90.9 %
Customer deposits..
42.900 40.054 Taxes accrued........
24.hS9 23,62S Accumulated deferred income taxes (Note 3) 6963 Interest accrued.....
44,901 37,902 Dividends declared 6.654 7,451 Cas contract settlement -liability to customers (Note 7) 56.403 56,403 Deferred revenue - gas supplier judgment proceeds (Note 2) 35,663 33.602 LPSC Settlement Agreement -liability to customers (Note 2) 3.960 3.966 Deferred fuel costs (Note 1)..
3.659 Obligations under capital leases (Note b)..
39.354 52.816 Other 4.612 11,034 Total.....
393.179 424h52 Deferred Credits:
Accumulated deferred income taxes (Note 3),
324.552 319,159 Accumulated deferred investment tax credits (Note 3) 194.520 175,059 Cas contract settlement -liability to customers (Note 7) 112.430 168.761 Deferred resenue-gas supplier judgment proceeds (Note 2) 103,749 139,597 Deferred interest - Waterford 3 lease obligation (Note 6).
23,791 LPSC Settlement Agreement -liability to customers (Note 2) 5,930 12.919 Acerned pension cost (Note 9) 21.577 16.603 Other 23.707 14.966 Total..
613.556 649,054 Commitments and Contingencies (Notes 2 and 7)
TOTAL.
54.26 _2,12._4
$_4_.2_50__.4_74_
See Notes to Financial Statements.
13
1 OUl51 ANA POWEll k 1.lGilT COhll'ANY STATEhlENTS Ol' INCO\\lE tor the Y an raded ticiemt.cr at.
_ _ J utN>
19w 19 %
(in Thouundd Operating iterenues (Notes 1. 2 and 11).
$1.4W572 61.426.506
$1.377.10h Operating Expenses:
Operation (Note 11):
Fuel and fuel related expenses (Note 1) 255.235 250.374 216,598 Purchased power (Notes 1,2 and 7)..
292.259 296.5 %
317.946 Other operation expenses................
243,017 238,799 224,049 hiaintenance (Note 11).........
90.779 9S.609 73.559 Depreciation...........
131.657 126.651 122,339 Taxes other than income taxes 50,011 S t.34b 48.323 Income tat expense (Note 3).
60.032 63.60$
53,225 Hate deferrals (Note 1):
Waterford 3 expenses deferred..
(16.800)
Waterford 3 expenses reemcred...
25,422 28.422 41,435 Income tax benefit (Note 3)
(14.043)
- (14.043)
(12.267) q Tot al..........
1.172 602 1,140.hs6 1,066 407 Operating income 312.970 2 W 920 310,701 Other income:
Allowance for equity funds used durinit construction (Note 1)......
1,155 1,595
($74) hiiscellaneous - net......
11,642 20.560 551 incoine tax (expense) benefit (Note 3).
(7.239)
(7.966) 2.665 Total...
5.561 14.209 2,672 Inter (st Charges:
Interest on long-term debt.
154.357 181.040 179,532 Other interest - net....
9.h62 13.554-20,421 Allowance for borrowed funds used during construction (Note 1).
(737)
(1,los)
(406)
To t al.......,......
163.452 193.516 199,547 N e t i n co me.......................
155.049 106.613 113,826 Preferred Stock Dividend Hequirements.
27.762' 36.910 47,516 Earnings Applicable to Common Stock.
,$ 127,267
$ 69.703
. _6,31,0 6
See Notes to Financial Statements.
14
LOUISIANA POWEll & LIGilT COhlPANY STATENIENTS OF llETAINED EAltNINGS l'or the Years I.nded Deteniher 31.
Ilm 116 9 1944 (In 'I housandi)
Retained Earnings. January 1............
$ 37,762 5 49.265
$ 16,076 Add. Net income..............
155 049 106.613 113.626 To t al..............
192.611 155.576 129.902 Deduct:
Cash dividends:
Preferred stock...............
27.762 36.910 47,516 Cornmon stock........
116,565 69.218 33.169 Cap;tal stock expenses (Note 5) l.601 11.9S5 (46)
To t a l.......................
146.225 118,116 60,637 lietained Earnings, Deceinber 31, (Note 5)
$ 46,583
$ 37.762
$ 49.265
- See Notes to Finanetal Stateinents.
s P
1 l
15 I
J
l l
LOUlstANA POWEll oc LIGilT COMPANY STATEMENTS OF CAbit l't.OWS l'or the Yean I:ndest Dmmber 11.
Hoo 19su 19s4 (in 1 houundo Operating Activities:
$ 155.049
$ 106.613
$ 113,526 Net income.
Noncash items included in net income:
131,557 126,651 122.339 Depreciation....
Amortiration of capitalleases 51,669 46,766 40,433 Amortization of nuclear fuel assemblies 1.276 6,45S Amortitation of deferred revenues.
(31%5)
(25.611)
Deferred income tases...
(9,656) 7.841 62,919 19,461 20,619 (14,334)
Im estment tax credits - not.....
Amortization of deferred Waterford 3 expenses - net 25,422 28.422 22.635 Allowance for equity funds used during construction (1.155)
(1.595) 574 Provisions for estimated losses.
3.760 1,749 4.293 Deferred interest Waterford 3 lease obligation.
23.791 Changes in working capital:
Receivables.....
19A45 (30.405)
(15js4)
Accounts payable 2.561 25.631 (26,73S)
Deferred fuel costs.,
9,425 (3.513)
(23.367)
Tases and interest accrued....
6,260 (1.409) 1,837 Other current assets and liabilities...
5.142 (2,457)
(24.501)
Cas supplict judgment proceeds -liability to customers 196.635 Refunds to customers - gas contract settlement.
(55.979)
(56,122)
(56.004)
LPSC Settlement Agreement.......
(3.995) 16,h55 Decommissioning trust contributions....
(2,095)
(2,133)
Other.
Lh')6)
(15M2) 17,177 Net cash r,rovided by operating activities.
351,991 246,905 423.3ss Investing Activities:
Reduction of investment in subsidiary 35,294 Construction expenditures (126,700)
(131,244)
(117,497)
Nuclear fuel expenditures.
(8,h61 )
Allowance for equity funds used during em.struction.
1,155 1.595 (574)
Net cash used in in esting actisities..
(127,542)
(129,649)
(91,635)
Financing Activities:
Proceeds from sale of first mortga,.c bonds...
100,000 75,000 Proceeds from sale of a portion ol' Waterford 3.
353.600 5.741 Proceeds from sale of other long term debt..
Proceeds from sale of common stock..
65,600 Proceeds from sale of nuclear fuel..
29.666 Retirement of first mortgage bonds (131.250)
(415 000)
(45.000)
Retirement of other long term debt...
(4.224)
(4,560)
(5,656)
(25,500)
(97,200)
(16.773)
Redemption of preferred stock...
Principal payments under capital leases.
(46.062)
(40.055)
(47,867)
Dividends paid on common stock...
(!!6.565)
(69,216)
(33.169)
Dividends paid on preferred stock....
(25,569)
(41,120)
(47,920)
Net cash used in fmancing activities.
(167.490)
J2h4,217)
(115,574)
Net increase (decrease) in cash and cash equivalents,
56.959 (166,955) 215.876 Cash and cash equivalents at beginning of year.
I i 1,6t h 276,576 62,700 Cash and cash equivalents at end of year.
$ 165,577
$ 111,616
$_ 278,576 See Notes to Financial Statements.
16
LOUISIANA POWl:ll & LIGitT CONIPANY NOTES TO FINANCI Al STATDilNIS NOTE L SL' alm AlW OF SIGNIFICANT ACCOl'NTING POI.lCib negulation LP&L is subject to regulation by the LPSC, the Council (in connection with LP&L's Algiers operations) and the FEltC and inaintains its accounts in accordance with the Uniform System cf Accounts prescribed by those agencies.
Revenues and Deferred Fuel Costs LP&L recognizes revenues as billed to customers on a c> ele-billitig basis in addition to an accrual for estimated unbilled revenues. Unbilled resenues result from energy delhered since the period covered by the latest billings to customers.
The rate schedules of LP&L include fuel adjustment clauses under w hich fuel costs are billed to customers. LP&L defers underloser recoseries of fuel costs that occur through operation of the fuel adjustment clauses until these costs / credits are reDetted in billings to customers.
Utility Plant and Depreciation Utility plant is recorded at original cost. Partial disallowances of plant cost ordered by the regulators hase been recorded as an adjustment to utility plant. The cost of additions to utility plant includes contracted work, direct labor, materials, allocable oserheads, and AFUDC. The costs of units of property retired are remmed from utility plant, and cuch costs plus removal costs less salvage are charged to accumulated depreciation. Maintenance and repairs of property and replacement of items determined to be less than units of property are charged to operating expenses. Principally all of the utility plant is subject to the lien of LP&l/s first mortgage indenture, in addition, certain assets of LP&L are subject to the liens of second mortgages related to pollution control resenue bonds.
Utility plant includes approximately 6222 million (recorded at book value) of electric plant representing the portions of Waterford 3 that were sold by LP&L in 1989 and are currently under lease by LP&L. LP&L retired such property from its continuing property records as formerly owned property released from and no longer subject to LP&l/s Grst mortgage indenture. LP&L is reDeeting such property on its books and records for Gnancial reporting purposes as property under lease from others. The nroperty is being depreciated over the life of the basic lease term. The transactions are treated as sale and leaseback transactions for income tax purposes, as opposal to fmancing transactions for financial reporting purposes, and constitute sales and leases under applicable Louisiana law.
Depreciation is coinputed on the straight line basis at rates based on the estimated service lives of the various classes of property. Depreciation rates for Waterford 3 include a provision for nuclear plant decommisrioning costs. Depreciation provisions on aserage depreciable property amounted to approximately 3.1% in 1990,2.9% in 1989 and 23% in 19%.
Postretirement Benefits LP&L has postretirement benefit plans cosering substantially all employees. LP&L amended its defmed beneGt pension plan on October 1,19% to designate an associated company as a participating employer, LP&L has vlopted a pension expense allocation policy such that pension expense recorded on its books is substantially the same as the expense that would have been recorded if LP&L had not designated an associated company as a participating employer Pension costs are funded in accordance with guidelines established by the Employee Retirement income Security Act of 1974, as amended, and the Internal Revenue Code of 19%, as amended. The costs of postretirement health care and life 17
LOUISIANA POWER & LIGilT CON 1PANY NOTES TO FINANCIAL STATEN1ENTS - (Continued) fusurance benefit plans are recorded on 9 cash basis. (See LP&L's Note 9,"Po>tretirement Benefits" for additional iriformation with respect to postretirement benefits.)
Income Tarcs LP&L Joins its patent and afilliates in the filing of a consolidated federal income tax return.
Pursuant to an intra System income tax allocation agreement. Income taxes are allocated to LP&L in proportion to its contribution to the consolidated taxable income. In accordance with SEC regulations, no System company is required to pay more income taxes than it would have paid had a separate income tax toturn been filed by it.
Deferred income taxes are recorded based on differences between book and taxable income to the extent permitted by LP&L's regulatory bodies for ratemaking purposes. Investment tax credits allocated to LP&L are deferred and amortired based upon the average useful life of the related property in a manner consistent with ratemaking treatment. In addition, LP&L files a separate state income tax return.
Allowance for Funds Used During Construction To the extent that LPkL is not permitted by its regulatory bodies to recover in current rates the carrying costs of funds used for construction, LP&L capitallres, as an appropriate cost of utility plant, AFUDC, which is calculated and recorded as provided by the regulatory system of accounts. Under this utility industry practice, construction work in progress on the balance sheet is charged and the income statement is credited for the approximate net composite interest cost of borrowed funds anii a reasonable return on the equity funds used for construction. This procedure is intended to rersove from the income statement the effect of the cost of financing the construction program and effectively results in treating the AFUDC charges in the same manner as construction labor and material costs in that each is capitalized rather than expensed. As noncash items, these credits to the income statement have no effect on current cash flows. After the property is placed in service, the AFUDC charged to construction costs is recoverable from customers through depreciation provisions included in rates charged for utility service The composite AFUDC rates for LP&L were 8.37%,8.79%, and 6.6% for 1990,1959, and 1985, respectively, llate Deferrals In order to mitigate the immediate effect on ratepayers of the inclusion of Waterford 3 costs in i
retail rates, LP&L has deferred for future recovery a portion of Waterford 3 costs incurred through January 1958. The costs that were deferred in the early years of commercial operation are being collected in later years through increased rates to customers. Because the actual collection of revenues to recover the deferred amounts was not to occur tmtil the future, LP&L recorded a deferred asset representing the amour,t of the deferral and, at the same time, incurred additional capital requirements to fmance this deferral. During periods when deferred costs are recovered, revenue collections will exceed, to the extent of such current recovery, cr.rrent cash requirements for these costs. Recovery of previously deferred amounts does not increr.se net income because the related deferred costs are
- concurrently amortized as a component of r xpense. Recovery of the deferred amounts began in April 1958 and will extend over a period of approximately 6.6 years at the annual rate of $28A million.
Materials and Supplies inventory In 198S, LP&L made an adjustment to the materials and supplies inventory at its fossil fuel plants.
This adjustment resulted in the recording in 1955 of approximately $13.3 million of materials and 16 4
i-
_____._mm..__m--______-
I OUISIANA POWl:ll & IIGitT COMPANY NOTES TO l'INANCIAl STATEMINIS- (Continued) supplies insentory for its fossil fuel plants and a corresponding reduction to opeiation and niainte-nance expense. This resulted in an inercase to net incoine of approsituatel) $$.1 inillion.
Other Noncurtent Liabihtics LP&L provides for uniin uted p.sperty risks and claims for injuries and darnages through charges to operating expenses on an accrual basis. Such expenses bas e been allow ed for ratemaking purposes.
NOTE 2. IIATE AND lli:GULXIOllY MNITFilS FEllC's June 13 Decision The June 13 Decision allocating the capacity and energy from System Energy's share of Grand Gulf I and tlic costs associated therewith among the System operating companies was reaffirmed by FEllC in its Nosember 30,1947 ordt r. The challenges to this decision terminated on April 16,1990, when the U.S. Supreme Court denied a petition for writ of certiorari seeking resiew of the D.C.
Circuit's affirmance of the Nm ember 30,1957 order, thereby ending the appeals process with respect to the June 13 Decision.
Waterford 3 and Grand Gulf I - LYSC Jurisdiction On Ma> 17,1955 and September 23.1955 LP&L filed with the LPSC general retail rate increase applications to tellect, among other things. costs associated with Giand Gulf I and the expected connuercial operation of Waterford 3. In a series of LPSC orders, court decisions and agreements between Nmember 1955 and June 19%, LP&L was granted certain Grand Gulf I and Waterford 3 rate relief on specified terms and conditions.
With respect to Waterford 3, in Nmember 19%. LP&L agreed to permanently absorb and not reemer from its retail emtomers the LPSC jurisdictional portion of $2hI million of LP&L's investment in Waterford 3. In December 19s7, LP&L implemented SFAS No. 90, a new accounting standard that resulted in restatement of its financial statements for 1955 and 1956 to reflect, as a Ims in 1945, the write off of these costs. LP&L was granted. pursuant to certain judicial decisions and LPSC rate orders, net annual base rate increases of $106.7 million in November 19%, $4h million in July 19S7, and $40 million (of which the LPSC, in April 19%, directed LP&L to apply $231 million to the reemery of previously deferred Waterford 3 costs) in February 19%. In addition. LP&L in acce,rdance with certain judicial decisions and LPSC rate orders, deferred a net amount of $266 million of its Waterford 3 costs that u ere related to the period November 14,1955 through January 31,19%, Of this amount, $18.1 million w as amortized in 19% as a result of the amortiration of certain imestment tax credits, and the remainder of $247,9 million is being reemered mer apprmimately b.6 years at the annual rate of $231 million. net of deferred taxes, beginning in April 19h5.
With respect to Grand Gulf 1, in Nmember 1935. LP&L agreed to permanently absorb, and not recover from its retail customers,18% of its FEllC-allocated share of the costs of capacity and energy of Grand Gulf 1, llowes er, LP&L was allow ed to recover, through the fuel adjustment clause,4.6 cents per KWII for the energy related to the permanently absorbed percentage, with LP&L's permanently retained percentage to be available for sale to non-alIlliated parties, subject to LPSC approval (see
" Project Olise Branch" below with respect to a temporary reduction in these recoveries).
March 1989 Order-LPSC Jurisdiction in a separate proceeding. LP&L filed a retail rate application with the LPSC on February 19,19%,
and updated the filing in July 19%. requesting an increase in annual base rates with respect to LPSC jurisdictional customers of $107.4 million. Subsequently, consultants for the LPSC recommended 19
i LOUISIANA POWEll & LICilT CONIPANY NOTES TO FINANCI AL STAT 13 TENTS - (Continued) adjustments that,if adopted, would produce a $45.9 million annual rate increase based upon a 12.70%
rate of return on common equity.
On klarch 1,1989, the LPSC issued an order that, in effect, provided, among other things, that LP&L was entitled to ali annual inercase in tetail rates of appioximately $45.9 million flow ever,in lieu of a rate increase, the hlarch 1959 Order provided that LP&L retain the LPSC jutisdictional portion of
$193.7 million of proceeds (stated to approximate $168.6 million) received by LP&L in October 19% as a result of litigation with a gas supplies, and for the tienefit of ratepayers, to begin in hlarch 19S9 to amortire such jurisdictional proceeds plus interest thereon acerned through February 28, 1989 pursuant to a rate amortization schedule that currently is scheduled to extend for 5.3 years. At December 31,1990, the unamortired balance of such jurisdictional proceeds was approsimately $139.4 million, excluding $LO million that represents the balance of the Council's jurisdictional portion of the gas supplier judgment proceeds.
LP&L believes that the hlarch 1989 Order should have the effect of providing approximately the same arnount of additional net income available for common stock as would an annual rate increase of
$45.9 million (the amount of LP&L's revenue deficiency as determined by the LPSC) mer the 5.3 year
. period. LP&L agreed to a five year base rate freeze, at the then current lesel, subject to ecrtain conditions. These conditions include, among others, a provision that would allow LP&L to apply for rate relief during the five year period to reDeet a change in the federal tas law or any net increase in its costs associated with Grand Gulf I resulting from proceedings commenced at the FEllC by the LPSC.
I In addition, LP&L could request a waiver of the f!se. year frecre if a catastrophic event causes a drastic change in costs, Further, the five-year freere would not serse as a bar to flowing through to retail ratepayers any net decrease in LP&L's costs resulting from proceedings at the FEHC relating to the Grand Gulf Station or any decrease related to changes in the federal tax law. The impact of the klarch 1989 Order was to increase net income in 1990 and 1959 by approsimately $27,7 million and
$23.1 million, respectively.
While the hlarch 1959 Order purported to address virtually all the issues presented in LPhl/s rate application, the LPSC determined that several issues warranted further investigation, Specifically, the LPSC established subdockets in the proceeding to consider, among other issues, the propriety of the use by LP&L of an automatic adjustment clause for reco cry ofits Grand Gulf 1 related costs and the level and appropriateness of the Grand Gulf 1 related costs being charged by System Energy to LP&L.
On April 17,1989, the Louisiana Energy Users Group (LEUG), a group of LP&L's large industrial customers, and the members of such group individually, filed a petition for appeal and Jadicial review of the hlarch 1959 Order in the State District Court. The LEUC contends that the LPSC was without jurisdiction or authority to permit LP&L to retain the judgment proceeds. Further, the LEUG requests that. LP&L be directed to keep and maintain in a separate account, pending a decision of the State District Court, the judgment proceeds, or alternatively, the remainder of the proceeds after payment of the initial amount required to niert the first year's revenue requirement of approximately $45.9 million. Trial of the appeal had been scheduled for hlarch 22,1990. Ilowever, on klarch 1,1990, the LEUC fded a motion with the State District Court requesting continuance, without date, of these proceedings. LP&L did not oppose this continuance and the State District Court granted such -
continuance on hlarch 1,1990 LP&L will defend the appeal vigorously if it is prosecuted. The LEUG has stated its intention to offer a witness at the trial of the appeal. If this occurs, LP&L intends, and the LPSC has stated its intention, to offer countervailing witnesses. The trial judge has stated his intention to send a transcript of the proceeding to the LPSC for its consideration. Should this occur, the LPSC may take further action in accordance with the additional evidence. As permitted by the hlarch 1959 i
Order, LP&L is expending the judgment proceeds in the normal course ofits business. LPAL believes the intent of the hlarch 1989 Order is that the LPSC recognizes that LP&L is entitled to an annual 20 f
.. - -.. - - - - ~ _ - - -
LOUISIANA POWEll & LIGilT COhlPANY NOTES 10 l'INANCIAL STAT 13 TENTS - (Continued) resenue inercase of approximately 445.9 million and that such intent and the Alarch 1959 Order will be upheld by the courts if the matter is prosecuted. The matter is pending.
Algiers flate Settlement - Council's jurisdiction On July 11, 1956, LP&L filed with the Counell. with respect to Algiers, a general retail rate increase application to reflect the costs associated with Grand Gulf L to reflect the in service status of Waterford 3 and to produce a just and reasonable rate of return. On hiay 1,1959, LP&L filed with the j
Council a comprehensive rate settlement proposal including all matters related to (!) the Counell's prudence investigation of Waterford 3 initiated in February 1957, (2) the disposition of the gas supplier judgment proceeds (discussed above) allocable to Algiers, and (3) the retail rate increase application filed on July 11,1956.
Ily resolution dated July Gi 1959, the Council accepted LP&L's hiay 1,1959 rate settlement proposal, thereby allowing a $9.5 million base rate increase to be implemented over a two-year period I
beginning July 6,1959. The Algiers flate Settlernent provides, among other things, that LP&L may increase its base rates on an annual basis by an additional $3.8 million for service rendered on and after each July 6 in 1989 and 1990, and an additional $1.9 million for service tendered on and after July 6, 1991. Itates for LP&L's Algiers customers will remain froren at the July 6,1991 level until July 6,1994, subject to certain conditions. These include, among others, a provision that would allow LP&L to apply for rate relief during the period to refleet a change in the federal tax law or any net increase in its costs associated with Grand Gulf I resulting from a proceeding at the l'EllC, In addition, LP&L could request a waiver uf the freeze if a catastrophic event were to cause a drastic change in costs.
Further, the freeze would not serve as a har to flowing through to retail ratepayers any net decrease in LP&L's costs associated with Grand Gulf I resulting from a proceeding at the FEltC or any decrease related to changes in the federal tat laws as may be ordered by the Council, in addition to the aforementioned rate increase, LPhL was allowed to retain the Council's jurisdictional portion of the gas supplier judgment proceeds (stated to approximate $4.2 million) and to amortire such proceeds, plus interest accrued thereon from February 25,19h9, into revenues over a two year period ending July 6,1991. At December 31,1990, the deferred revenue balance with respect to the Algiers portion of the gas supplier judgment proceeds was $1,9 million.
The Algiers Rate Settlement also provides that LP&L permanently absorb and not recover from its Algiers ratepayers (1) previously expensed and unrecovered fixed costs of approximately $17 million associated with Waterford 3 and Grand Gulf 1 incurred through July 6,1989, (2) $5.9 million of LP&L's imestment in Waterford 3 representing the CounciPs jurisdictional portion of the $284 million Waterford 3 disallowance, for which LP&L recorded a write-off of approximately $3.7 million, net of tax, as of June 30,1989, and (3) the CounciPs jurisdictional portion of the 16% of LP&L's FEftC-mandated share of the costs of capacity and energy from Grand Gulf 1 incurred after July 6,1989.
Ilowever, LP&L is allowed to recos er 4.6 cents per KWil or the avoided cost, w hiehever is higher, for the energy related to the permanently absorbed percentage through the fuel adjustment clause or to sell the permanently absorbed percentage to non afilliated parties, subject to the Council's r;ght of first
- refusal,
' Project Ofice Branch In connection with an elfert, referred to by the Entergy System as " Project Oliv firanch," to settle outstanding issues and htigation involving System Energy and the Grand Gulf Station and to stabilize retail rates in the area served by the Entergy System, System Energy and the System operating companies filed with the FEllC on June 9,1959, an offer of settlement to resolve certain FEHC-related issues in a way that would be beneficial to the System, its investors and its customers. The offer of 21
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~.
LOUISI ANA POWEll & LIGitT CO\\tPANY NOTES TO FINANCIAL ST ATEstENTS - (Continued) settlement was subsequently supported by the FEllC stali, state and local r"gulators and olheials, and other interested parties, and was approved by the FEllC on July 21 1959.
The implementation of the FEllC Settlement in the third quarter of 1959 resulted in, among other things, a $900 inillion pre tas write-off by System Energy of its imestment in Grand Gulf 2 (construction on which had been suspended since September 1955) without seeking rate reemery from its customers, the System operating companies, including LP&L Additionally, System Energy made a one time credit to the System operating companies' bills in an agoegate amount of 550 million, which was allocated among the System operating companies in accordance with their respectise percentage allocations of Grand Gulf I capacity and em rgy LP&L's share of this credit totaled $7 million.
While all parties to the FEllC Settlement agreed not to pursue any prudence disallowance of Grand Gulf I construction costs and operating and maintenance expemes recorded through June 9, 19S9, the FEllC Settlement, among other things, does not prejudice any party's right to seek disallowance of such costs recorded after that date or the right of the parties to seek futme changes to the Unit Power Sales Agreement that are not inconsistent with the FEllC Settlement, in addition to settlement of FEllC-related issues embodied in the FEllC Settlement, the LPSC Settlement Agreement, effective July 21,1959, provides that LP&L temporarily reduce its recovery f om retail ratepayers of certain Grand Gulf 1-related costs. In 19%a, (as disemsed ahme) LP&L had agreed to permanently absorb, and not reemer from its LPSC jurisdictional retail ratepa)ers,18% of LP&L's FEllC allocated share of Grand Gulf I costs of capacity and energy, except that LP&L was allowed to recover 4.0 cents per KWil for the energy related to such retained portion through the fuel adjustment clause. Under tiu terms of the LPSC Settlement Agreement, the amount of such reemery is being reduced to 2.55 cents per KWil until such time (projected to be approximately February 24, 1994) as this reduction provides net present salue savings of 614.5 million to LP&L's retail ratepayers.
LP&L retains the right to sell such energy to non affiliated parties at inore tha. 2.55 cents per KWil, subject to LPSC ap;>roval. The LPSC Settlement Agreement resulted in a reductmn in net income of
$11.1 million for 1959, of which $10.5 million was recorded in December 1959. representing the remaining future years' impact of the temporary revenue reduction under the LPSC Settlement Agreement. LP&L does not believe that the LPSC Settlement Agreement has had or will base a material adverse effect on projected cash flow, in addition, the LPSC Settlement Agreement provided for a refund of LP&L's $7 million credit from System Energy, described abme, by means of a credit to bills rendered to LP&l/s jurisdictional customers. Such credit to customers was made in September 1959.
LP&L is a party to certain agreements concerning System Energy and the Grand Gulf Station (see LP&L's Note 7, " Commitments and Contingencies").
Nuclear Management ConsolidaHon In June 1959, plans were announced whereby a nuclear management service company, Entergy Operations, would assume operating responsibility for Waterford 3, AP&L's Arkansas Nuclear One Steam Electric Generating Station ( ANO), and Grand Gulf 1, subject, respectisely, to LP&L's, AP&lls, and System Energy's oversight, Under the proposal, LP&L AP&L and System Energy and the other Grand Gulf I and Waterford 3 co-owners would retain their ownership interests in the respective nuclear generating units. Further, LP&L AP&L, and System Energy would retain their associated capacity and eneigy entitlements and would pay directly or reimburse Entergy Operations for the costs associated with operating these units in accordance with applicable rules and regulations of the SEC that require that such services be rendered at cost. Approvals for the proposed arrangements 22
..~.
LOUISIANA POWEll & LIGilT CO\\tPANY
- NOTES TO l'INANCI AL STATE.\\lENTS - (Continued) were obtained from the LPSC, the Arkansas Public Service Commission (APSC), the Council, the SEC and the NRC. The LPSC approved the proposal, subject to LP&L's acceptance of certain conditions.
The conditions, accepted by LP&L in writing. Include, among other things, a requirement that LP&L flow back to LPSC jurisdictional ratepayers, through LPhl/s fuel adjustment clause, a portion of the projected savings for the duration of the current rate frecre, The order of the APSC approving the proposal has been appealed. On June 6,1990, an organizational inecting of the board of directors of
- Entergy Operations was held to form Entergy Operations as a new subsidiary of Entergy Corporation, and Entergy Operations has now commenced the operation of ANO, Waterford 3 and Grand Gulf 1, Proposed Negotiated Butout and Other Coraiderations On March 29,19SS, the Council proposed to Entergy Corporation to discuss a negotiated buy out of NOPSI (and of LP&L's. distribution facilities in Algiers) by the City, Entergy Corporation responded by indicating a willingness to consider any alternatives that the Council inight propose if I
they are in the best interests of Entergy's stockholders, customers, and employees. In early March 1990, discussions by the City and Entergy culminated in a conceptual proposal setting forth the terms and conditions of the negotiated buy out proposal This proposal was the subject of public hearings by the Council in April 1990, and at a Council public eeting held on May 17,1990, the Council voted against the adoption of a resolution to proceed with the buy out proposal, in July 1990, the Council adopted a resolution that provided a frarnework for further discussions and research concerning severalissues ofinterest to the Council NOPSI, and LP&L. Each of the three tnembers of the Utility Committee of the Council was assigned specific areas of study: rate matters, including rate disparity, deferral collection and consolidation of LP&L and NOPSl; capacity matters, including least cost planning, and NOPSI's gas distribution properties; and socio economic develop-ment, including industrial development. Each working group is meeting with NOPSI and LP&L, and l
discussions are continuing with regard to all three areas of study.
23
_ -. ~.. _ _, _
LOUlstANA POWEll & l.lGilT CONIPANY NOTES TO l'IN ANCI AL STATENil.NTS - (Continued)
NOTE 3. INCONIE TAXES Income tax expense (benefit) consists of the following-I or the Nn i nant t>neniber :n, _.
1990 (9%9 19 %
o n 'I houund4 Current:
Federal..
6 51,961 6 9.219 6(13 156)
State.
10.276 19 N>0 2.h64 Total...
62.237 29 069 (10.292)
Deferred - net:
Liberalized depreciation SkX>h 28.365 67,106 Deferred fuel costs.
(3.702) 407 11.31 b Unbilled resenue.
(4.352)
(6.612)
(12c252)
Decominissioning expenses.
(96)
(1.050)
(1.155)
Deferred Waterford 3 expenses.
(14.013)
(14.043)
(12.267)
Adjustinent of prior years' tax provisions (1.254) 6.061 16,469 Waterford 3 sale and leaseback..
(10,920)
(76 497)
LPSC Settlement Agreement 1.656 (6.632)
Loss carryforward utilization 54.114 61,912 Nuclear fuel.
( 2.6so )
9.915 6.646 Cas contract settlement - liability to custoiners.
13.325 10,45%
(76,734)
Accrued interest expense 2.590 (2.b90)
Maintenance and refueling expenses (6,401) 3.911 3.36%
Materials and supplies insentory adjustments 4.021 (939) 7,654 Pension expense (925)
(460)
(1,604)
Alternatise miniinum tax.
(43,177) 6,156 (2,935)
Contract deferred revenue..
(3.309)
Other.
3474 (2 267)
(1,651)
Total.
(9.655) 7.640 62.919 Investment tax credit adjustments - net.
26 616 20.522 J14X31)
Recorded income tax expense..
$ 79.22%
$ 57. 31,
$ 3kj93 J
Charged to operations
& 71.989 6 49,765 6 40,955 Charged (credited) to other income 7.239 7,966 (2M5)
Recorded income tax expense 79,225 57.731 35,293 income taxes applied against the debt component of AFUDC.
477 717 263 Total income tax expense
$ 79.705
$_h443
$ asX>6 24
LOl'lhlANA POWl:ll & LIGill COhlPANY NOTES 'IO l'INANCI AI STATEhtLNTh - (Continued)
Total income taxes diller froin the amount computed by applying the statutory federal income tas rate to income befote tases. The reasons for the differences are as follows (dollars in thousands):
I or the ) cars 1.nde d Dec ember 31, nao 19w 19w
% of
% of
% of I're/l as l't e l as h e/l us A rnount Imume Amount im ome 4 mount int ume Computed at statutory rate
$79451 34.0 655.577 34.0 651,701 34.0 Increases (reductions) in tas resulting from:
State income tases het of federal income tas eIIect.
4.654 2.0 (1.846)
(1,1 )
(1,142)
(0.7)
Depreciation,
3.739 1.6 5.700 3.4 5,697 37 Impact of clouige in tas rate.
(3.060)
( l.3)
(1,635)
( l.0 )
(l.001)
(l.1 )
linestment tak etedit ainortiration(l).
15,772)
(2.5)
(5.245)
(3.2 )
(14.334)
(9 4)
Adjustment of prior years' tax provisions (l,753)
(0.7) 3.21 h 2.0 (l.095)
( l.1 )
Other - net 1.736 0.7 I Mi2 1.0 (353)
(0j) llecorded incoine tax espense 79,22%
33.h 57,731 35.1 3%,293 25.1 income tases applied against the debt component of AFUDC 477 0.2 717 05 efi3 02 Total income tases 579,705 34.0 55% 44h, 35 6, 5._3h._55_6 2_5.,3 m.m m
r (1) 19% includes the amortization of $9.9 million of previously unamortited itn estinent tus credits pursuant to an agreement between LPAL and the LpSC.
Urmsed imestment tax credits at Deermber 31, 1990 atuounted to $13.9 million after the 35%
reduction required by the Tax Reform Act of 1946. These credits inay be applied against federal income tat liabilities in future years. If not used, they will expire in the years 1992 through 2003.
Curnulatise income tax tinung differences for which deferred incoine taxes base not been prmided are $155.0 million,6142.9 million and $100.3 million as of the end of 1990.1989 and 19%,
respectis ely, The alternatise minimum tas credit at December 3L 1990 is $43.1 inillion. This credit can be carried forward indefinitely and will reduce LP&L's income tax liability in the future.
In December 1957, the FASil issued SFAS No. 96. " Accounting for locome Tases/ which was scheduled to be efTectise for fiscal years beginning after December 15.19%. The FASin subsequently issued Statement Nos.100 and 103, which delay the effectne date of SFAS No. 96 to fiscal years beginning after December 15,1991. The FASil is expected to issue a new esposure draft in the second quarter of 1991. This draft may further dela) the elTeetise date and simplify the implementation of SFAS No. 96. SFAS No. 96 expands the requirement to record deferred income taxes for all temporary differences that are reported in one year for financial reporting purposes and a different year for tax purposes. This will require the recognition of deferred tax balances for certain items not previously reflected in the financial statements, such e a deferred tax liability relating to AFUDC. Under the liability method adopted by SFAS No. 96, deferred tax balances w ill be based on enacted tas law s at tas rates that are espected to be in effect when the temporary differences reserse.
25
1 OUl51ANA POWl:lt h 1.lGill C05tPANY NOTES TO l'IN ANCI AL STATI'AIFA"t h - (Continued)
It is expected that reductions in deferred lates resulting frotn the lower corporate federal tax rates will be tellected as liabilities to custoiners since LPhlfs regulators ina) require any such sasings to be paned on to the ratepa) cts, lloweser, based on a ptelitninary ttudy, LPhl expects that the adoption of SFAS No. 90 in its present forin would result in a net increase in accuniulated deferred ineoine taxes with a corresponding increase in assets. It is not expected that results of operations for LP&L would be significantly itupacted by the adoption of SFAS No. 96 in its present fortn.
NOTE 4. 1.lNES Ol' CllEDIT AND lli:LATI:D llO!\\llOWINGS Pursuant to an SEC order issued in Deceinber 1990, LPkL is currently anthoeired, through Nmeinber 1992, to effect short terin borrowings in an ageregate principal annount outstanding at any one tiene of up to $125 inillion, subject to increase to a inaxirnutn of 6260 inillion with further SEC approval. At December 31, 1990 LPhL had with Louisiana banks approsituately 67l inillion in asallable lines of credit that are scheduled to expire on September 30,1991. LPAL had no outstanding borrowings under these lines of credit as of December 31,1990 LPhL aho participates with certain other conipanies of the Entergy System in a inoney pool arrangement (Mone) Pool) whereby those cornpanies with mallable funds make short terin loatis to other participating companies in the System (other than Entergy) hasing short terin borrowing te'luirements, thereby reducitig the Systein's dependence upon enternal short terin borrowings. LPhl roay borrow from the Mr>ney Pool and other available sources subject only to its snatitnum authorized lesel of short term borrowings and the availability of funds. At Deccinber 31, 1990. LPAL had no outstanding short term Mone) Pool borrowings.
LPhL had no short terin borrowings at year end 1990,1959 and 1985 llowever, during 19% tts short term borrowings and the interest rates thereon (determined by dividing applicable interest expense by the userage amoutit borrowed) were (in thousands): maximum botrcwing of $50,300, userage borrowing from banks of $20.909 with an average interest rate during the period of 9.21: and as erate borrowing from associated companies of $9,195 with an us erage interest rate during the period of6.64.
20
l.OUISlANA POWEll & LIGitT CO\\lPANY NOTE;S TO FINANCIAL STATENIENTS - (Continued)
NOlr 5. PilEIT.llllED STOCK AND COhlNION SilAllEllOLDElf$ EQl'ITY Preferred stock at Deceinber 31,1940 and 1959 consisted of the followint Shares hhares Outstanding p g p,g, Authorlied at "IU"""h M' Per hhare at December 31. lim 1 19W 19W Dn en.hcr 31.1990 Cumulathe 8100 l'ar Value Without sinking fund:
4.96% Series.
60.000 60.000 60.000
$104.25 4.16% Series 70,000 70.000 70.000 104.21 4.44% Series..
70.000 70,000 703)00 104 06 5.16% Series 75.(KK) 75JKK) 75.000 101.16 5.40% Series 603K)0 50,000 80JKK) 103.00 0.444 Series,..
60,000 b0,000 50.000 102.92 9.52% Series...
70.000 70,000 70.(KK) 104.20 7 b4% Series 100,000 100,(KK) 100 0(K) 103.Th 7.364 Series 100.000 100J)00 100AKK) 103.36 6.56% Series..
100,000 100,000 100jk)0 103.14 9.44% Series..
300J)00 300.000 300JKK) 106.72 11.45% Series 350Axx) 350.000 350Jxx) 105.24 To t al.............
1,455,000 1,455.000 1.4rA000 Unissued.......
3.045j)00 Total..
4.500fxx) 1,455.000 1 4. 55.J.uxi Cumulathe,425 For Value With sinking fund:
10.72% Series 1.110.211 1.110.211 1 XA).211 26.34 13.12% Series 541.121 541.121 701,121 26,64 15.20% Series.
235.160 235,160 355.160 26.90 14.72% Series 600.416 600,416 h00.416 27.76 12.64% Series 2.100.370 2.100,370 2,4(Wh370 27.37 Total.
4.567,278 4,557.278 5.607.278 Unissued 9.h00fKi0 Total...
,_14.3_47,27h.
4._.587 _27h 5._ _.607.27_5 imm 19w O h 'I houupds)
Without sinking fund:
Stated at $100 a share.
$ 145.500
$145,TAK)
Preinturn.
352 352 Total preferred stock and prerniurn, without sinking fund.
.$3h3
$145.h52 With sinking fund:
Stated at $25 a share.....
$114,652
$140.162 Issuance expense (6.061)
(h,455)
Total preferred stock and issuance expense, with sinking fund.
$107,721
$131.727 Cash sinking fund requirernents for preferred stock outstanding at Decen.ber 31.19(K) are as follows (in thousands): $12,750 in each of the years 1991 through 1993. $12,629 in 1994, and $11,250 in 27
LOUIhlANA POWEll & LIGitT CONIPANY NOTES TO FIN ANCIAL STATENIENTS - (Continued) 1995. In addition, with respect to series of preferred stock having sinking fund requisernents in effect, LP&L has the non-(umulathe option to redeem at par in accoidance with its llestated Articles of incorporation, as amended, certain additional amounts of such series of preferred stock outstanding.
The numbers of shares of $25 par value preferred stock setired during the years 1990,1959,and 1958 w cre 1,000,000, 3,855.004, and 670,935, respeeth ely.
During 1990, pursuant to the sinking fund provisions mentioned abose. LP&L redeemed at par
$25.5 million of its $25 par salue Preferred Stock. Issuance expenses on preferred t.tock aggregating approximately $1.6 million were charged to retained earnings in connection with the redemptions.
In April and June 1959 LP&L redeemed and retired $15.6 million of the 14.72% Series and $9 million of the 15.20% Series of its $25 par value Preferred Stock. In addition. in August 1959 LP&L redeemed and retired all outstanding shares of the 19.20T Series of its $25 par value Preferred Stock aggregating $50 million. In connection with these redemptions LP&L recorded charges to retained earnings of upproximately $12.0 million (of which $6.4 million relates to the 19.201 Series), consisting of $7.2 million of premiums paid in excess of par and $4.S inillion representing the issuance expenses included in preferred stock.
LP&L has requested, but has not yet reeched, regulatory approval from the SEC allowing the issuance and sale through December 31,1992 of up to $200 million of preferred stock for the possible acquisition, in whole or in part, of certain of LP&L's outstanding securities ae'l for other corporate In connection with the foregoing LP&L has sought authority from the SEC to acquire,in purposes.
whole or in part through December 31,1992. up to $75 million in aggregate par values of certain outstanding series of its preferred stock, includir.g. but not limited to. the 15,204 Series, the 14.729 Series, the 13.12% Series, and the 12.6Pfr Series of its $25 par value Preferred Stock.
On November 14. 1990, LP&L issued and sold 12.893,450 authorized but unissued shares of its common stock, no par value, to Entergy for $55 million.
LP&L's llestated Articles of Incorporation, as amended, and certain of its indentures contain provisions restricting the payment of dividends or other distributions to conunon stockholders. At December 31.1990, all retained earnings were free from such restrictions.
28 A
LOUISIANA POWER & LIGitT CO: 'ANY NOTES TO FINANCIAL STATEMENTS 4 - tinued)
NOTE 6. LONG.TElBI DEUT Long. term debt at December 31,1990 end 1959 consisted of the following:
1990 1949 (in Wuw.nds)
First Mortgage Bonds:
5.000% Series due 1990...
6
$ 20.000 10.500% Series due 1993.
200.000 200.000 12.000% Series due 1993.
100.000 4.625% Series due 1994.
25.000 25.000 10.360% Series due 1995.
75,000 75.000 5.750% Series due 1996.
35.000 35.000 5.625% Series due 1997 16.000 16 000 6.500% Series due 1997 16.000 18.000 7.125% Series due 1995.
35,000 35.000 9.375% Series due 1999..
25.000 25.000 9.375% Series due 2000...
20,000 20,000 7.675% Series due 2001 25,000 25.000 7.500% Series due 2002...
25.000 25.000 7.500% Series due 2002.
25,000 25.000 6.000% Senes due 2003.
43,750 45.000 8.750% Series due 2004.......
45,000 45.000 6.750% Series due 2006..
40,000 40,000 10.000% Series due 2005..
60.000 60,000 10.375% Series due 2016....,
275.000 250.000 10.125% Series due 2020..
95,000 Total First Mortgage Bonds 1.052.750 1,114,000 Other:
St. Charles Parish Pollution Control Revenue Bonds. Series 1954, 6.25% due 2014 115,000 115,000 St. Charles Parish Pollution Control Resenue Bonds, Second Series 1954,6% due 2014.
105,000 105 000 Other pollution control and industrial revenue bond obligations, 6.4%-8% due 1991-2009 15.930 16,120 Principal amount of municipal revenue bond obligations. 2.75U 8% due serially 1991-2004 and other future obligations under operating agreements 17,464 20,466 Purchase obligations under an inventory supply agreement.
s ariable rate (h.07% and 8.9$% average rate).......
25.132 26.163 Waterford 3 lease obligation. 6.76% (Note 8)....
353.600 353.600 Total Other 632.126 636.349 Unamortized premiums and discounts on long. term debt - net.
(8,690)
(7,120)
Total Long Term Debt.
1,706,156 1,743,229 Less-Amount due within one year.
4.427 26,012 Long Term Debt Excluding Amount Due Within one Year.
$ 1.701,759
$1.717,217 29
1 LOUISIANA POWER & l.lGitT COhlPANY
- NOTES TO FINANCI AL STATENIENTS - (Continued)
On klarch 1,1990. LP&L redeemed and retired $100 million aggregate principal arnount ofits 12%
Series First biortgage Bonds, due klarch 1,1993, at a redemption price of 101.43% of the principal amount thereof, plus accrued interest to the date of redemption, aggregating $6 million, in addition, in December 1990 LP&L acquired, by means of open market purchases, and retired $11.25 million aggregate principal amount of portions of certain series of its First hjortgage Bonds for $11.1 million plus accrued interest through the date of acquisition.
On April 11,1990, LP&L issued $100 million aggregate principal amount of First hjortgage Bonds, 10%% Series due April 1,2020.
LP&L has requested, but has not yet received, regulatory approval from the SEC alloeng among other things, the issuance and sale of up to $200 million of first mortgage bonds through December 31, 1992 for th6 possible acquisition,in whole or in part, of certain of LP&L's outstandlug securities and for other corporate purposes. Additionally, LP&L has requested regulatory authorization from the SEC to anter into agreements with the Parish of St. Charles, Louisiana (Parish) whereby the Parish would issue and sell up to $200 million of tavexempt revenue bonds in order to reimburse LP&L for, or to permanently fmance, the costs of certain solid waste disposal, sewage disposal, or pollution control facilities. In connection with the foregoing. LP&L has sought authority from the SEC to acquire, in whole or in part, prior to their respective maturities, up to $250 million ofits outstanding first mortgage bonds, including, but not limited to, the 10.50% Series due April 1,1993, the 10.375% Series due November 1,2016, the 10.36% Series due December 1,1995, and the 9.375% Series due November 1, 2000. LP&L has also sought SEC approval to acquire up to $75 million of outstanding pollution control revenue bonds, including, but not limited to, the 8.25% St. Charles Parish Pollution Control Revenue Bonds, Series 1954, due 2014 and the 6% Second Series 1954 Bonds due 2014.
Sinking fund requirements on first mortgage houds and maturities under long.tm debt instru-ments in effect at December 31,1990 for the years 1991 through 1995 are as follows:
M Sinking Fund' staturities (In Thouunds) 1991....
$7,190
$ 4,427 1992.
7,290 4,073 1993....
7,290 203,675
-1994.,,
7,290 29372 1995...
7,040 95,753
- Sinking fund requirements may be satisfied by certification of property additions at the rate of 167%
of such requirements, NOTE 7.
CONINIIThlENTS AND CONTINGENCIES
' Capital Requirements and Financing LP&L's construction program contemplates expenditures (including AFUDC but excluding nuclear fuel) of approximately $460.2 million during the period 1991-1993. Pursuant to LP&L's phase-in plan, during 1991-1993 LP&L will be collecting in rates a portion of the Waterford 3 costs incurred but not collected in previous years These collections constitute cash available to satisfy, among other things, construction expenditure requirements. In addition to the above capital requirements, LP&L will require $250.4 million during the period 1991-1993 to meet long, term debt maturities and to satisfy sinking fund requirements, LP&L plans to meet a significant portion of its capital and refmancing requirements during the period 1991-1993 with internally generated funds and cash on hand, supplemented primarily by the issuance oflong term debt and preferred stock.
30
I OUISIANA POWER & LIGitT CONIPANY NOTES 'l O l'INANCI Al STATChlENTS - (Continued)
See LP&L's Note 5," Preferred Stock and Common Shareholder's Equity" and Note 6. "Long term Debt" for a discussion of pending applications before the SEC regarding the issuance of preferred stock and certain long term debt securities and the possible redemption, purchase or other acquisition of outstanding securities.
Unit Pouer Sales Agreement Pursuant to the allocation specilled in the Unit Pow er Sales Agreement among System Energy and the System operntlug companies as ordered by the FERC in its June 13 Decision. System Energy sells to the Syttem operating companies all of its 90% share of the capacity and energy from Gtand Gulf I in accordance with specilled percentages (LP&L I4%: AP&L, 30%; hlP&L 33%; and NOPSI,17%).
Charges under the Unit Power Sales Agreement, which are billed monthly, are based on System Energy's total cost of service, including System Energy's operating expenses, depreciation, and capital costs (including a return on common equity). LP&L's monthly obligation for payments to System Energy for Grand Gulf I capacity and energy is approximately $9.5 million. The Unit Power Sales Agreement will remain in effect until terminated by the parties and apprmed by the FERC. whleh most likely would occur after Grand Gulf 1 is retired from service.
Acallability and Reallocation Agreements The System operating companies are severalh obligated, under the Availability Agreement in accordance with stated percentages (LP&L 26.9% AP&L 17.1% hlP&L 31.3%; and NOPSI,24.7%), to make payments or subordinated advances in amounts that, when added to any amounts received by System Energy under the Unit Power Sales Agreement or otherwise, are adequate to enver all of the operating expenses, including depreciation and interest charges, of System Energy. System Energy has, with the consent of the System operating companies, assigned its rights to payments and advances from the System operating companies to certain creditors as security for certain indebtedness for borrowed money, Payments or advances under the Availability Agreement are only required to be made to the extent System Energy's receipts from all sources, including the Unit Power Sales Agreement apprmed by the FERC (of which LP&L's share is 14% L are less than the amount required under the Availability Agreement.
In June 19S9, System Energy and the System operating companies, with the prior consent of such creditors, amended the Avallability Agreement so that the Grand Gulf 2 w rite oiT (discussed in LP&L's Note 2," Rate and Regulator %tters") would be amortized for Availability Agreement purposes over 27 years rather than in the month the write olf was recognized on System Energy's books, This amendment was made so that the write off of Grand Gulf 2 in September 1959 would not cause a payment by the System operating companies to be required under the Availability Agreement Since commercial operation of Grand Gulf 1, payments under the Unit Power Sales Agreement (which include a return on equity) have exceeded the amotmts payable under the Availability Agreement (which does not prev!de for a return on equity). Accordingly, no payments have eser been required under the Availability Agreement, if a System operating company other than LP&L becomes unable in whole or in part to continue making payments to System Energy under the Unit Power Sales Agreement.and if System Energy were unable to procure funds from other sources sufficient to emer any potential shortfall between the amount owing under the Availability Agreement and the amount of continuing payments under the Unit Power Sales Agreement plus other funds then available to System Energy, LP&L could become subject to claims or demands by System Energy or its creditors for pay ments or advances under the Availability Agreement or the assigmnents thereof. The amount, if any, that LF&L would become liable to pay or advance over and above amounts it currently pays under the Unit Power Sales 31
LOUISlANA POWER & LICilT COMPANY NOTES TO l'INANCI AL STATEMENTS - (Continued)
. Agreement for capacity and energy from Grand Gulf I would depend on a variety of factors (especially the degree of any such shortfall and System Energy's access to other funds). LP&L cannot predict whether any such claims or demands, if made and upheld, could be satisfled.
In November 1961. the System operating companies entered into a Reallocation Agreement, which would have allocated the capacity and energy available to System Energy from the Grand Gulf Station and the related costs to LP&L, MP&L, and NOPSL These companies thus agreed to assume all the responsibilities and obligations of AP&L with respect to the Grand Gulf Station under the Availability Agreement, with AP&L relinquishing its rights to the capacity and energy of the Grand Gulf Station. Each of the System operating companies, including AP&L, would base remained primarily liable to System Energy and its assignees for payments or adsanees under the Availability Agreement and assignments thereof. AP&L was obligated to make its share of the payments or advances only if the other System operating companies were unable to meet their contractual obligations. However, the FERC's June 13 Decision allocating a portion of Grand Gulf I capacity and energy to AP&L supercedes the Reallocation Agreement insofar as it relates to Grand Gulf 1.
Responsibility for the Grand Gulf 2 amortization amounts described above has been allocated to LP&L., MP&L-and NOPSI under the terms of the Reallocation Agreement. LP&L's share of such amounts is 26.23%. AP&L is liable for its share of such amounts only if the other System operating companies are unable to meet their contractual obligations. No payments of any amortization amounts will be required as long as amounts paid to System Energy under the Unit Power Sales Agreement, together with other funds available to System Energy, exceed amounts required under the Availability Agreement, which is expected to be the case for the foreseeable future.
Entergy Sharelmider Litigation Entergy and certain other System ce panies (including LP&L) and individuals were defendants 1
in a consolidated purported class action suit fded in District Court in 1985 by Entergy shareholders (purporting to represent classes that purchased Entergy common stock). On October 5,1990, the parties to the suit entered into a settlement ngreement, subject to the approval of the District Court.
providing Dr, among other things, payment to the members of the asserted plaintiff classes from an interest-bearing $15.3 million Settlement Fund, established by Entergy. On January 30,1991, the District Court entered an order and fmal judgment approving the. settlement agreement and on January 31,1991 the suit was dismissed with prejudice. The time for fding appeals of this order expired with no such' appeals being filed.
System Fuels LP&L has a 33% interest in System Fuels, a jointly owned subsidiary of the System operating
= companies. System Fuels operates on a non prollt basis for the purpose of planning and it.sementing programs for the procurement of fuel supplies for all of the System operating companies and System Energy, its costs are recovered primarily through charges for fuel delivered.
Fuel exploration and deve'oment activities of System Fuels have declined over recent years and some fuel programs are being poased out or transferred to others. In this connection, certain charges and credits relating to System Fuels' investment in the fuel programs may be allocated to the System operating companies', including LP&L Any such charges or credits allocated to LP&L are not expected to significantly affect future results of operations.
The parent companies of System Fuels agreed to make loans to System Fuels to finane its fuel supply business under a loan agreement dated January 4,1976. as amended through Decembe-31, 1983. The rate of interest that is charged pursuant to this loan agreement is adjustable and is tied to 32
LOUISI ANA POWER & LIGitT COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) the highest annual rate ofinterest on outstanding short term bank borrowings of LP&L or to the prime commercial rate if LP&L has no such short term bank borrowings outstanding. At this time, no further loans may be made to System Fuels by the parent companies. At December 31,1990 and 1959, LP&L had remaining loans outstanding to System Fuels of $14.2 million. The loans mature in 2005.
System Fuels' parent companies (including LP&L) hase cosenanted and agreed, severally in accordance with their respectise shares of ownership of System Fuels' common stock, that they will take any and all action necessary to keep System Fuels in a sound financial condition and to place System Fuels in a position to discharge, and to cause System Fuels to discharge, its obligations under various long term leases by System Fuels of oil storage and handling facilities and coal bopper cars. At December 31,1990, the aggregate discounted value of these lease arrangements was $63.0 million.
On October 3,1959, System Fuels entered into a resolving credit agreement with banks that provides for up to $45 million of borrowings to finance System Fuels' nuclear materials and sersiees inventory. In connection with these arrangements, LP&L, AP&L, and System Energy, as purchasers from Sptem Fuels of the nuclear matuials and services, agreed to purchase from System Fuels the nuclear materials and services financed under the agreement if System Fuels should default in its obPgations thereunder. The purchases under thes; circumstances would be of percentages agreed upon among the parties but, in the absence of such agreement, LP&L, AP&L, and System Energy would each be obligated to purchase one third of the nuclear materials and services.
Nuclear insurance The Price-Anderson Act provides for a limit of public liability for a single nuclear incident. As of December 31,1990, the limit of public liability for such type of incident is approximately $7,607 billion.
LP&L has protection with respect to this liability through a combination of private insurance (currently $200 million) and an industry assessment program. Under the assessment program, LP&L will be required to pay, with respect to each nuclear incident at a licensed nuclear facility, up to a maximum of approximately $66,15 million per reactor (such amount to be indexed every five years for inflation, and includes a 5% surcharge in the esent the total public liability, claims, and legal costs approach or exceed the limit of protection otherwise established), payable at a rate of $10 million per licensed reactor per incident per year LP&L has one licensed reactor.
LP&L, on behalf ofitself and other insured interests (including the co owners of Waterford 3),is a member of certain insurance programs that provide coverage for property damage, including decon mination expense, to members' nuclear generating plants. At December 31,1990, LP&L is insured against such losses up to $2.185 billion, increased to $2.325 billion as of January 1,1991, with a
$200 million sublimit for premature decommissioning coverage that was effective January 11,1991.In addition, LP&L is a member of an insurance program that provides insurance coserage for certain costs of replacement power incurred due to certain prolonged outages of nuclear units. These coverages are subject to assessment provisions iflosses exceed the accumulated funds available to the insurers. At December 31,1990, the maximum amount of such possible assessment for LP&L was $17.61 million.
The amount of property insurance presently carried by LP&L exceeds the NRC's minimum requirement for nuclear power plant licensees of $1.06 billion per site. Effective April 2,1990, NRC regulations provide that the proceeds of this insurance must be used, first, to place and maintain the reactor in a safe and stable condition, and, second, to complete required decontamination operations.
Only after proceeds are used or dedicated for such uses and appropriate regulatory approval is obtained would the balance of these proceeds, if any, he available for plant owners' or their creditors' benefit.
33
l LOUISIANA POWEll & LIGilT CONIPANY I
NOTES TO FINANCIAL STATENIENTS- (Continued)
Spent Nuclear Turl and Decommissioning Costs Under the Nuclear Waste Policy Act of 1952 (NWPA), the DOE is required to construct storage facilities for, and to dispose of, all spent nuclear fuel and other high-lesel radioactive waste generated by dmnestic nuclear power reactors for a specified fee. The NhC, pursuant to the NWPA, also requires operators of nuclear power reactors to enter into spent fuel disposal contracts with the DOE. LP&L has entered into such a contract with the DOE whereby the DOE will furnish disposal service at a cost of one mill per KWH of net generation.The fees payable to the DOE may be adjusted in the future to assure full cost recosery. A 1959 federal court ruling elTeetisely changed the *ds for the fee to 1 mill per net KWH sold rather than generated, w hich could reduce LP&L's payments. LP&L considers all costs incurred or to be incurred in connection with disposal of spent nuclear fuel to be proper components of nuclear fuel expense, and provisions ;o recover such costs have been accepted by the LPSC.
Under the NWPA, the DOE was to begin accepting open; fuel in 1995 and to continue until the disposal of all spent fuel from reactor sites is accomplished. Howeser, the DOE's rcpository program has been delayed, llased on the DOE's current schedule for acceptance of spent nuclear fuel, LP&L's initial shipment of spent fuel to the DOE's storage facilities will occur in 2016. In the meantime, LP&L will be responsible for storage of spent fuel. Entergy Operations estimates that on site spent fuel storage capacity at Waterford 3 will be sulIIcient to store fuel from normal operations until 2000, it is expected that any additional storage capacity required due to, among other things, delay of the DOE's repository program will have to be provided by LP&L. Entergy Operations estimates that the cost of providing the additional on-site spent fuel storage capability required at Waterford 3 by 2000 will be approximately $10 to $15 million (in 1990 dollars). In addition, approximately $5 to no million (in 1990 dollars) will be required every two to three years subsequent to 2000 until DOE's repository begins accepting Waterford 3 spent fuel.
In order to provide reasonable assurance that fuods will be available when needed to pay the costs of decommissioning. the NRC requires each company to establish an external fund that can only be used for future decommissioning costs. The qualified nuclear decommissioning trust established by LP&L in hlarch 1959 to meet IRS regulations satisfies the new NRC regulations. The decommissioning costs for Waterford 3 are currently estimatad to be approximately $203 million based on 19S8 dollars.
The estimated cost oi decommissioning for Waterford 3 will be periodically reviewed during the licensed operating life of the unit.
In order to meet this NRC requirement, on Aprd.1,1990 LP&L filed a request with the LPSC for approval of a decommissioning plan for Waterford 3. In orders issued Niay 29.1990. the LPSC required that LP&L maintain a qualified nuclear decommissioning trust including approximately $-l/2 million of presiously insested decommissioning funds. In its hlay 29,1990 orders the LPSC further authorized LP&L to increase its funding for Waterford 3 deconunissioning costs from $2.1 million to $-l.0 million annually, effective Stay 29.1990 through 1993, as part of LP&L's existing cost of service. The recording of the increase to the new annuallesel of $1.0 million became effective as of June 1,1990. In 1993, the LPSC will review the 01.0 million funding level and future funding levels to determine their appropriateness.
Settlement Agreement teith a Cas Supplier A dispute between a gas Supplier and LP&L arising from the gas supplier's claimed inability to deliser the full quantities of fuel gas due LP&L under sescral n,tural gas contracts was settled upon the execution of a settlement agreement in 1952. The settlement agreement provides for the payment of $1.057 billion in cash (which was paid) plus a guaranty of savings of at least $555 million in certain gas acquisition costs between 1952 and 1996, In 1953. the LPSC ordered LP&L to refund the settlement 31 1
LOUISlANA POWER & LICitT CONIPANY NOTES TO FINANCIAL STATEMENTS - (Continued) proceeds to customers over the period 19S3-1993. At December 31,1990, the remaining liability to customers was approximately $16S.b milhon (of which $56.4 million was classified as a current liability).
Long.lerm Contracts Purchased Poteer LP&L has entered into a long-term purchase agreement with the owner of a hydroelectric generating facility, consisting of eight separate generating units. to purchase, at specified prices, certain percentages of the energy generated by and made available from the plant from the date of commercial operation through 2031. The plant began commercial operation with certain of the eight generating units in hiay 1990 and the remaining units went into commercial operation in the third quarter of 1990. During 1990, LP&L made payments under the contract of approximately $13.4 million.
If the maximum percentage (9490) of the energy is made available to LP&L, and based on current production projections, required payments under the contract are estimated to be $47.2 million, $47.2 million, $47.2 million, $46.7 million, and $46.7 million, for 1991-1995, respectively, and a total of $3.6 billion for the years 1996 through 2031, LP&L recovers the costs of purchased energy through its fuel
. adjustment clause pursuant to LPSC authorization.
Fuel Supply in May 1955, LP&L and a fuel supplier agreed to a 25-year natural gas supply contract Under the terms of this contract, LP&L has agreed to purchase natural gas quantities in annual amounts equal to approximately one-third of its projected annual fuel requirements for certain of its generating units.
Annual demand charges associated with this contract are estimated to be $7.2 million in 1991 and 1992,
$5.3 million in 1993 and $9.0 million for the years 1994 through 2013. Pursuant to LPSC authorization, LP&L recovers the cost of fuel consumed during the generation of electricity through its fuel adjustment elause. LP&L, System Fuels, and the fuel supplier also agreed to cancel a contract previously entered into by System Fuels and the fuel supplier, with System Fuels' performance guaranteed by LP&L, to provide coal for LP&L's then proposed Wilton Station. As a result, LP&L moved for dismissal ofits application for a certificate, filed with the LPSC, authorizing construction of the Wilton Station. In 1945, the LPSC granted LP&L's motion for dismissal. Accordingly, LP&L recorded, in 19S8, adjustments decreasing Construction Work in Progress and increasing expense by
$5.4 million (before tax) to write oli Wilton Station costs, including related AFUDC.
Other Ctmunitments and Contingench Reference is made to LP&L's Note 2. " Rate and Regulatory Matters." for information with respect to the March 1989 Order, the Proposed Negotiated Buy out, the June 13 Decision, and other commitments and/or contingencies.
l 35
Y
.t LOUIStANA POWER & LIGitT COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE 8, LEASES Capital and Operating Irase Commitments In accordance with SFAS No.13. " Accounting for Leases," LP&L records the assets and related obligations applicable to capital leases as required by SFAS No. 71, " Accounting for the Effects of Certain Types of Regulation." The assets and liabilities associated with these leases at December 31, 1990 and 19S9, are presented below:
1990 19s9 (in *1housande Assets:
$24,751
$25,811 Utility plant,
16,700 19,605 Accumulated amortization.
Net properties under capital leases
$ h.051
$ 9.206 Liabilities:
Noncurrent o! ? gations under capital leases
$ 5.413
$ 6,613 Cmrent obligations under capital leases.
243S 2,593 Total obligations under capitalleases
% S.051
$ 9.206 Excluded from the abuse amounts at December 31,1990 and 1959 are approximately $52.0 million and $101.5 million, respectively, which amounts base been recorded in connection with LP&L's nuclear fuel lease.
Future minimum lease payments, by period and to the aggregate, of LP&L's capital leases (excluding the nuclear fuel lease and nuclear plant lease obligations) and noneanceliable operating leams consisted of the following at December 31,1990; Capital Operating lxam
- f. eases __
g (in Thousand4 6 3,767
$ 5.969 1991,
3,759 5,761 1992 3,144 4.211 1993.
779 4,125 1994.
1995 3,715 For years thereafter 15.955 Minimum rental commitments.
I1,449
$39.766 3.395 Less: Amount representing interest.
Present value of future minimum lease payments,
$ h.051 At December 31, 1958, LP&L had in elfect a nuclear fuel lease under which $517 million of nuclear fuel was financed. In February 1959. LP&L entered into a new nuclear fuel lease agreement pursuant to which up to $160 mi on of nuclear fuel may now be leased, Approximately $47.6 million of nuclear fuel remaining under t'.
former lease and approximately $29.7 million of nuclear fuel owned
~
by LP&L were placed under the new lease agreement, at which time LP&L's former lease was terminated.The lessor finances its acquisition and ownership of nuclear fuel under a credit agreement and through the issuance ofintermediate term notes.The credit agreement has a term of fhe years and the intermediate term notes have varying maturities of up to 10 years. It is contemplated that the credit arrangement will be extended or alternative financing will be secured by the lessor upon tht maturity j
36
../
LOUISIANA POWER & LIGilT CONIPANY NOTES TO FINANCIAL STATENIENTS - (Continued) i of the current arrangements based on LP&L's nuclear fuel requirements. If the lessor cannot arrange for alternative Ilnancing upon the regularly scheduled maturity ofits horrowings, LP&L must purchase nuclear fuel in an amount equal to the-amount required by the lessor to retire such borrowings, i
Nuclear fuel lease expense consists of amortization of the nuclear fuel lease, administration costs, and interest on the obligation. Amortization recorded in connection with the nuclear fuel leases for 1990, 1989, and 1958 was $49.0 million. $43.9 million, and $37.1 million, respectively, Interest expense related to the nuclear fuel leases for 1990,19S9, and 19SS was $8.8 million, $9.5 million, and $5.3 million.
- respectively, The unrecovered cost base of the leases was $s2.0 million, $101.5 million, and $51.7 million at December 31,1990,1989 and 19S5, respectively, Rental expense for capital and operating leases (excluding the nuclear fuel lease) amounted to approximately $5.9 million, $94 million, and All.3 million in 1990,1959, and 1985, respectively.
Waterford 3 Lease Obligations On September 25,19S9, LP&L entered into three substantially identical, but entirely separate, transactions for the sale (for an aggregate cash consideration of $353 6 million) and leaseback of three undivided portions of its 100% ownership interest in Waterford 3. The three undivided interests in Waterford 3 sold and leased back exclude certah transmission, pollution control, and other facilities that are part of Waterford 3. The interests sold and leased back, as described above, are equivalent on 4
an aggregate cost basis to approximately 9.3% of Waterford 3. The sales were made to an Owner Trustee under three separate, but identical, trust agreements with three Owner Participants, LP&L is leasing back the sold interests from the Owner Trustee on a net lease basis over an approximate 25 year basle lease term. LP&L has options to termitiate the lease and to repurchase the sold interests in i
Waterford 3 at certain intervals during the basic lease term. Further, at the end of the basic lease term, LP&l has an option to renew the lease or to repurchase the undivided interests in Waterford 3.
t l
The Owner Trustee acquired the interests with funds provided by the Owner Participants and with funds obtained from the issuance and sale by the Owner Trustee ofintermediate-term and long-term bonds. The lease payments to be made by LP&L will be sufficient to senice the debt incurred by the owner Trustee.
Pursuant to the terms of the sale and leaseback transactions, if LP&L does not exercise its option to repurchase the undivided interests in Waterford 3 on the fifth anniversary of the closing date of the sale and leaseback transactions LP&L will be required to provide collateral to the Owner Participants for the equity portion of certain amounts payable by LP&L under the lease. Such collateral requirenients are to be in the form of either a bank letter or letters of credit or the pledging of new series of first mortgage bonds issued by LP&L under its fir t mortgage bond indenture.
Upon the occurrence of certain adverse events (including lease events of default, esents ofloss, deemed loss events or certain adverse " Financial Events" with respect to LP&L), LP&L may be obligated to. pay amounts sufficient to permit the Owner Participants to withdraw from the lease transactions arid LP&L may be required to assume the outstanding bonds issued by the Owner Trustee to fmance its acquisition of the undivided interests in Waterford 3. " Financial Events" include, among other things, failure by LP&L, following the expiration of any applicable grace or cure periods, to maintain.(1) as of the end of any fiscal quarter, total equity capital (including preferred stock) at least equal to 30% of adjusted capitalization or (2) in respect of the 12-month period ending on the last day of any fiscal quarter, a fixed charge coverage ratio of at least 1.50. At December 31,1990, LP&L's total equity capital (including preferred stock) was 41.78% of adjusted capitalization and its fixed charge coverage ratio was 2.42.
In accordance with SFAS No. 9S, " Accounting for Leases," due to " continuing involvement" by LP&L, the sale and leaseback by LP&L of the undivided portions of Waterford 3. as described above, is i
37
l LOUISIANA POWER & LIGitT COMPANY NOTES TO l'INANCIAL STATl31ENTS - (Continued) required to be reflected for financial reporting purposes as financing transactions in LP&L's financial statements even though such portions are no longer owned by LP&L See LP&L's Note I," Summary of Significant Accounting Policies," for further information regarding financial reporting treatment.
LP&L has future minimum lease payments (reflecting an overall implicit rate of 8.70'4) in connection with the Waterford 3 sale and leaseback transactions as follows:
Minimum 1. case Payments (In 'I housands) ven
$ 32.571 1991.
32.569 1992,,.
1993.
32,568 32,569 1994..
32,569 1995.
Years thereafter 843.159 Minimum Lease Payments,
$1,006,005 NOTE 9. POSTRETIR131ENT HENEFITS LP&L sponsors a defined benefit pension plan ecvering substantially all of its employees. The pension plan is noncontributory and provides pension benefits that are based on the employees' credited service and average compensation, generally during the last live years before retirement.
Pension costs are funded in accordance with guidelines established by the Employee Retirement income Security Act of 1974 as amended, and the Internal Revenue Code of 1956, as amended.
Eliective October 1,19S8, LP&L amended the defined benefit pension plan it sponsors to designate an associated company as a participating employer. EITeetive June 6.1990, Waterford 3 nuclear employees became employees of Entergy Operations. Ilowever, the employees still remain under LP&L's plan, and no transfers of related pension liabilities and assets have been made, Pension costs are allocated to the associated companies based on an actuarially-determined evaluation by an independent actuary.
LP&L's total 1990,1959, and 19% pension expense (benefit) was comprised of the following components:
1990 19%9 _
10 %
(in Thouunds)
Service cost - benefits earned during the period.
$ 6,736
$ 5,610
$ 4,831 Interest cost on projected benefit obligation 13,422 12,525 10,272 Actual return on plan assets.
565 (33.851)
(19,329)
Net amortization and deferral...
(17,449) 17,327 2,310 Early retirement program.,,
6.638 Pension expense allocation to associated companies..
(3.047)
(2,372)
(639)
Net pension expense (benefit)..
227
$ j 761)
$ 4.053 38
LOUISIANA POWER & L1 Gilt CONIPANY NOTES TO l'IN ANCIAL STATDIENTS - (Continued)
The assets of the plan include an interest in the insestment accounts of a master trust maintained by Entergy and a participation interest in an unallocated insurance contract. The funded status of LP&L's sponsored defined benefit pension plan at December 31,1990 and 1989 was as follows:
1990 _
19w (in Thouwndo Actuarial present value of accumulated pension plan benefits:
Veste d.
$113,759
$111.385 Nonvested.
920 7,570 Accumulated benefit obligation 123 409 118.955 Projected benefit obligation *.
167.297 162,601 Fian assets at fair value.
175.051 190.160 Plan assets in excess of projected benefit obligation.
10.757 27.576 Unrecognized prior service cost.
6.531 3,212 Unrecognized transition asset.
(32,521)
(35,625)
Unrecognized net gain (6.341)
(13.563)
Accrued pension cost.
$ (21,577 )
$(18 603)
- Includes approximately $16.9 million for 1990 and approximately $14.1 million for 1959 related to pension obligations of an associated company in connection with the plan amendment of October 1.
1955.
The significant actuarial assumptions used included a weighted average discount rate of 6.75% for 1990 and 6,5% for 1939 and 1955 and a rate ofincrease in future compensation of 5.6% for valuing the wojected benefit obligation for 1990 and 1059. An assumed expected long term rate of return on plan assets of 8.5% was used for 1990,1939, and 19ss. Transition assets are heing amortized over a 15. year period.
LP&L also provides certain health care and life insurance benefits for retired employees.
Substantially all employees may become eligible for these benefits if they reach retirement age while still working for LP&L The cost of providing these benefits for retirees is not separable from the cost of providing benefits for active employees. The cost of providing postretirement health care and life insurance benefits is recorded on a cash basis. The total cost of providing these benefits and the number of active employees and retirees for the last three fiscal years were as follows:
1990 19w 19ss Total cost of health care and life insurance (in thousands) 812,026
$11.615
$10,360 Number of active employees 2,60l*
3,262 3,277 Number of retirees,
914 839 608
- The decrease in the number of active employees for 1990 was due primarily to the transfer of all Waterford 3 nuclear employees from LP&L to Entergy Operations on June 6,1990.
In December 1990, the FASB issued SFAS No.106, " Employers' Accounting for Postretirement Benefits Other Than Pensions." which is generally elTective for fiscal years beginning after Decem-ber 15,1992. The new standard requires a change in accounting requirements for postretirement benefits other than pensions from a cash method to an accrual method. The impact of this new standard has not been fully determined but the change likely will result in significantly greater expense being recognized for provision of these benefits. The effect of the increased benefit expense on net income could be reduced to the extent such increased costs are recovered through rates or 39
v
/
LOUISIANA POWER & l.lGilT CONIPANY l
NOTES TO FINANCI AL STATEN1ENTS - (Continued) through the recording of a regulatory asset to be recosered in the future. LP&L plans to adopt this statement in 1993.
NOTE 10. CASil AND CASil EQUIVAl.ENTS For purposes of the Statements of Cash Flows, LP&L considers all unrestricted highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The supplemental disclosures required by SFAS No. 95," Statement of Cash Flows," are shown in the table
- below, l'ur the ican l',nded Detember 31 IM9 19 %
lino _
Un 1 houunds)
Cash Paid (Received) During the Period; interest (net ot' amounts capitalized of $737, $1,108, and $406 in 1990,1959 and 1985, respectively)
$129,260
$203,076
$203,500
$ 61,535
$ 13,729
$ (6,650)
Income taxes Noncash Imesting and Financing:
$ 30,357
$139,262
$ 7.276 Capital lease obligations incurred.
NOTE 11, TRANSACTIONS WITil AITILIATE5 LP&L bup electricity from and/or sells electricity to the other operating subsidiaries of Entergy, including System Energy, under rate schedules filed with the FERC,in addition, LP&L purchases fuel from System Fuels and receives technical and advisory services from Entergy Services, Inc.
Operating revenues irclude resenues from r, ales to alliliates amounting to $1,5 million in 1990, $5 million in 1969, and $6.6 million in 1955. Operating expenses include charges from affiliates for fuel costs, purchased power and related charges, and technical and advisory services totaling $295.2 million million in 19S9, and $350.1 million in 19S5, Also, pursuant to an operating agreement, in 1990, $308.5 effective June 6,1990, Entergy Operations has been authorized to act as general agent for LP&L and has assumed operating responsibility for, but not ownership of, Waterford 3. In return, LP&L pays directly or reimburses Entergy Operations for the costs associated with operating Waterford 3. In 1990 such charges amounted to approximately,79.5 million and $7,0 million for direct and indirect charges, respectively, 40
LOUISIANA POWEll & LIGilT COhlPANY NOTES TO FINANCIAL STATE %lENTS - (Concluded)
NOTE 12. QUAllTEllLY llESULTS (UNAUDITED)
Unaudited operating results for the four quarters of 1990 and 1959 follow:
Net Operating Operating Income Quarter Ended Res enues Income (tou)
(in Thouund0 1990; hlarch
$329,926
$ 55,540
$20,265 June.
364,596 87,612 45,203 September 457,560 120,513 81,878 December.
333,490 45,805 4,6SO 1959; hlarch
$316,347
$ 59,430
$15,3S7 June.
360.338 78,836 30,893 September 421,569 110,255 63.549 December (l)..
326,252 37,397 (3,216)
(1) The fourth quarter of 19S9 reflects a nonrecurring decrease in operating income and net income of $10.9 million, net of tax, in connection with the final recognition of the effect of the LPSC Settlement Agreement.
The business of LP&L is subject to seasonal fluctuations with the peak period occurring during the summer months. Accordingly, earnings information for any interim period should not be considered as a basis for Gtimating the results of operations for a full year.
41
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DIRIX: TORS AND OITICERS louisiana Power & Light Company DIRECTORS OITICERS JAMES M CAIN JERRY L MAULDEN (R)
DONALD R WELLS Vice Chairman.
Chairman of the Board and Vice Presulent -
Entergy Corporation Chief Executhe O$cer lluman Resources &
WILLI ANI CAVAN AUGil,111 DON ALD E. MEINERS President and Chief Executne O$cer, President and M A.CARU5O Enterg> Operations, Inc.
Chief Operating Otlicer Treasurer WILLIAM K.1100D WILLI AM CAVAN AUGil 111 N1 J.RIILEY President, Executhe Vice President Anistant Secretary and flood Motor Company, Inc.
and Chief Nuclear O$cer Anistant Treasurer TFX lt KILPATRICK ( A)
JOffNJ.CORDARO CAI Y J. DUDENilEFER President, Group Vice President -
Assistant Secreta 3 Central American External Affairs TRANSFER AGENT AND Life Insurance Company DON ALD C. HINT 7 REGISTRAR FOR JACK L KING Group Vice President - Nuclear PREFERRED STOCK Executhe Vice President - Operations.
Rank of Montreal Trust Company Entergy Senices, Inc.
.. Water Street Senior \\.. ice President --
New York. New York RK105 JOSEPil J. KRERS. JR. ( A)
Rates & Regulatory Affairs M 70m*
Chairman and Chief Executne O$cer, DON ALD llCNTER J. J. Krebs & Sons, Inc.
TRbTEE Senior Sice President -
FOR FIRST MORTGAGE RONDS EDWIN LUPBERGER Fossil Operation' Rank of Montreal Trust Company Chairman and Chief Executhe O$cer
.11. McLETCillE 77 Water Street Entergy Corporation Y ce President -
New York, New York 10005 JERRY L MAULDEN (B)
Accounting & Fmance (212) 701 7673 Chairman and Chief Executne O$cer.
Louisiana Power & Light Compann T1 OM AS J. WRIGitT CORPORATE ADDRESS ce President -.
LOUlsIANA POWER & LIGltT Arkansas Power & Light Company, Customer Senice CONIPANY Mississippi Power & Light Company, and New Orleans Pubhc Senice Inc.
WILLIAM E COLSTON New Orleant Louisiana 70112 Group President.
Vice President -
Entergy Corporation, and Division Manager LP&L's l9x) Annual Report to the Entergy Senices, Inc.
Securities and thchange Commluion System Executhe - Dutribution and JOllN D ERVIN on Form 10-K (imhnhng financial Customer Senice, Y'ce President -
statement schedules) is asailabic to Entergy Corporation Marketmg any stockholder without charge.
S' "C ""' "" C d" "h'd'" d C"PY b DON ALD E. MEINERS RICilARD C. GUTilRIE President and Chief Operating O$cer, Vice President - Pubhe Atiairs CdU"'g coHect m w runig to.
Louisiana Power & Light Company' DOROTilY J. W. Kl.YCl Lmnsiana Power & Light Company and New Orleans Pubhe Senice Inc.
\\~see I, resident -
P.O. Hos G m o II. DUKE SilACKELFORD ( A)
Pubhc Relations Mail Unit C.0760 President.
New Orleant I.A 70160
{
T. O LIND Shackelford Company, Ine' Vice President -.
Telephone. ON@m WM CLIFFORD SMITli ( A)
Regulatory Counsel.
'#9""
"""PI b"'"EY President, Secretary and Assistant P"d'*"^"""
"P"' CdU "
T. Baker Smith & Son, Inc.
Treasurer write to (A) Mernber of Audit Committec GEORGE L MONTEVERDE Entergy Corporation (B) Elected Effectne 2/1/91 Vice President -
S> stem insestor Relations Dnision Managar P.O Ros 6U)05 New Orleans, LA 70161 JERRYJ SAACKS i,gg)
Vice President -
Transmission 43
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