ML20083P718

1994 Annual Rept, for Entergy Corp

ML20083P718
Person / Time
Site:	Waterford
Issue date:	12/31/1994
From:	Burski R ENTERGY OPERATIONS, INC.
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
W3F1-95-0083, W3F1-95-83, NUDOCS 9505240368
Download: ML20083P718 (60)

Text

{{#Wiki_filter:_ g / = ENTERGY Efi2?""" """~ Kaiona LA 70066 Tel 504 739 6774 R. F. Burski onma %$u Safo'y Wa!mRxd 3 W3F1-95-0083 A4.05 PR May 18, 1995 U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, D.C. 20555

Subject:

Waterford 3 SES Docket No. 50-382 License No. NPF-38 Entergy Corporation Annual Report Gentlemen: Pursuant to the requirements stated in 10CFR50.71(b), please find attached a copy of the Entergy Corporation 1994 Annual Report. If you have any questions concerning the report, please contact 0.P. Pipkins at (504) 739-6707. Very truly yours, R.F. Burski j Director Nuclear Safety RFB/0PP/ssf Attachment cc: L.J. Callan (NRC Region IV), C.P. Patel (NRC-NRR), i R.B. McGehee, N.S. Reynolds, NRC Resident Inspectors Office i 9505240368 950518 PDR ADOCK 05000382 08 '\\\\ l

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r more than the electric utility cverage and that we did not meet our top-quartile total return objective.The industry average dropped primarily 45 cents per share is appropri-l because of rising interest rates. ate. Future dividend growth Entergy dropped further will be tied to sustainable earn-because the market anticipated ings growth.Our business, our 1994 carnings per share plans show earnings improve-would belower than in1993 and - ment from current levels. Both that future dividend growth our core utility business and would be slower thanin the past. Our noncore business expan- [ Regulatory actions in sion activities contribute to the l ~' Mississippi, Louisiana, New improvement. Dear Fellow Orieans,and texas reduced - There are severai aspects of i I our 1994 revenues by about our 1994 operating perfor-Shareh0IderS $180 miiiion.These actions will mance that give me confidence also cause revenue reductions about the future. 0ur sales in1995of approximately were up a strong 3.4 percent, I hope the questions on the $80 million. It is not possible ongoing operation and mainte-inside front cover touch on to immediately offset such nance expenses were down some of the things you want to large revenue reductions. As a 2.1 percent, and we cut total know about Entergy.This year result,1994 earnings per share interest and preferred dividend we are using a question and were down from 1993, and dur-charges by 6.4 percent. Cash answer format to present the ing this period of decreasing flow was a healthy $1.5 billion, Entergy story.The basic ques-revenues we felt that holding which let us continue building tion is "Why Entergy?"- or the dividend at its current level our noncore businesses with more precisely,"Why invest in would be prudent.1 believe the investments in power genera. Entergy?* In the pages that fol-current quarterly dividend of tion and energy services. Iow we will try to answer that question and others relating to our 1994 operations, financial performance, and strategy. Financial Highlights gnrergy g, G5u 1994 was a year of mixed ?sb t? Entergy corporaron ondsubsideries 1994 performance. First,1 was very pf,,gn,m,,,,s exeprper shore ammi tv disappointed that Entergy's stock price fell considerably Financial Results Total operating revenues $5,963 $6,302 $4,485 Ongoing operation and maintenance expense $1,418 $1,448 $1,044 gy*g""*l Ongoing net income $ 496 $ 554 $ 476 To shareholders Ongoing earnings per share $ 2.17 $ 2.39 $ 2.69 Consolidated net income $ 342 $ 595 $ 552 38 - Consolidated earnings per share $ 1.49 $ 2.57 $ 3.16 Average shares outstanding 228,734,843 231,583,280 174,887,556 Net cash flow provided m by operating activities $1,538 $1,330 $1,074 Operating Data Retail kilowatt-hour sales (in millions) 89,544 86,635 59,142 Peak demand (megawatts) 18,028 18,470 12,858 a,, Retail customers served at year end 2,359,514 2,337,081 2.337,081 Year-end employees, core business 15,543 16,501 16,501 Year-end employees, business expansion 494 178 178 ms m era s,.n a, s ea,, y,me, r993 Entergy ond GSU resutts are combined m the second column for compoceson with 1994 results and Entergy's '"y** '**[yy"" reported 1993 results appear in the third column. See page 16 for o five-year summoryshow&g both reported and earn erus comboned operatung results 2

E Our larger size will make us a formidable competitor in the future, both in our traditional utility business and our new non-Company, to be a part of this core electric power endeavors. year's report. Dan follows I beheve we are doing the Entergy and the electric power right things to prepare for the industry. His job is to ask the coming tough, competitive envi-right questions, analyze the Another positive is how ronment. Entergy employees answers, and then make buy quick!y we have integrated Gulf from the top down are working and sell recommendations on States Utstiesinto Entergy As very hard to find better, smarter specific stocks. Wilmington you know, we completed the ways of runn;ng our business. Trust Company was an industry's largest merger on The financial markets will recog-owner of Entergy shares at December 31.1993 I was pleased nize our efforts. year-end 1994. with the improvement in GSU's The Q&A that follows underlying business operations. will give you a better under-Sincerely, Electric sales were up 4 6 percent standing of our performance, and ongoing operating costs both positives and negatives. were down significantly. We have To be sure we cover all of the / begun ach:eving the merger sav-right questions, we asked Ed Lupberger ings we totecasted, and they wol Daniel J Goldfarb,a security Chairman and CEO accelerate in 1995 analyst with Wilmington Trust March 24,1995 l l l l l 3

Our larger size will make us a formidable competitor in the future, both in our traditional utility business and our new non-Company, to be a part of this core electric power endeavors. year's report. Dan follows I believe we are doing the Entergy and the electric power right thirig3 to prepare for the industry. His job is to ask the coming tough, competitive envi-right questions, analyze the Another positive is how ronment.Entergy employees answers, and then make buy quickly we have integrated Gulf from the top down are working and sell recommendations on l States Utilities into Entergy. As very hard to find better, smarter specific stocks. Wilmington you know, we completed the ways of running our business Trust Company was an industry's largest merger on The financial markets wi!! recog-owner of Entergy shares at December 31,1993.1 was pleased nize our efforts. year-end 1994. With the improvement in G5U's The Q&A that follows underlying business operations. will give you a better under-Sincerely, Electric sales were up 4 G percent standing of our performance, and ongoing operating costs both positives and negatives. ( were down significantly. We have To be sure we cover all of the begun achieving the merger sav-right questions, we asked Ed Lupberger ings we forecasted, and they will Daniel J. Goldfarb, a security Chairman and CEO accelerate in 1995. analyst with Wilmington Trust March 24,1995 3

The following questions were asked by Daniel J. Goldfarb, an investment analyst who follows the electric utility industry and mskes stock recommendations for Wilmington Trust Company. and reductions in revenue by our regulators. Unusualitems can either increase or decrease consoli-Earnings Performance datedeetinceme.iese93 severallarge unusual account-6 ing items increased Entergy's y*+ lt is a bit difficult to compare consolidated net income by .D' Entergy's 1994 and 1993 $41 million to $595 million. On operating results because of the other hand,1994 consoli-in the GSU merger. Where is dated net income was reduced What caused the targe the best place to < tart? by $154 million because of decrease in 1994 consohdated The major problem in comparing unusual items. net incomer' the two years is that Entergy's reported 1993 operating results What were the unusual pow w awo do not include G5U. This is items in 19947 j because the G5U merger took Of the $154 million total, there place on the last day of 1993. It were three major items first, was accounted for as a purchase $44 million relate to one-time of assets and 1993 financial merger charges-primarily per-results were not restated. sonnel costs for reiocation and To help compare the two various separation programs. years we have developed the Second there were $27 million income Statement Comparison for restructuring our Fossil and table on page 5 that shows Customer Service organizations 1993 Combined Entergy and to make them more efficient GSU operating results. This and competitive. And third, a adds together Entergy and G5U $24 million settlement with 1993 operating results. Those N0P$l's regulators. are good numbers to use when By adjusting consolidated comparing 1994 and 1993. net income for these unusual items,you get a picture of what What caused the large we call ongoing net income, decrease in 1994 consolidated Ongoing net income shows the net income? underlying earning power of Two factors affect comparison Entergy's businesses by of 1994 and 1993 consolidated removing the distortion caused net income: unusualitems by unusual items. I 4

Income Statement Comparison 19n r994 Inrergya asu . !ntergy Corporation anJ 5ubsdores Entergy Comornett (in mtlhont enceptper shore duroj Consolidated net income $ 342 $ 595 Unusua: items $ (154) $ 41 controf and,in fact, reduced Ongoing net income $ 496 $ 554 ongoing operation and mainte-Consolidated earnings per share $ 1.49 $ 2.57 nance expenses by 2.1 percent or Unusualitems per share $ [68) $.18 $30 million. Third, we continued 1 Ongoing earnings per share $ 2.17 $ 2.39 to reduce capital costs by retir-Shares at year-end 227.4 231.2 ing and refinancing $550 million See page r6 tor o r* tw summary soon.ng borb reponed ond romNned overor<ng results of high-cost debt and preferred stock. During 'l994 interest expense and preferred dividends were $51 milhon lower. Finally, our cash flow from operations i exceeded $1.5 billion.This provides Entergy with a major resource to strengthen its operations and meet competi-tive challenges. Why was ongoing net income Why were your ongoing down by $58 million? earnings per share down 1994 ongoing net income was by 22 cents? down by $58 million for one The reduction in ongoing EPS major reason: $183 million of was caused principally by the revenue reductions by regula-targe regulstory revenue reduc-tors in Mississippi, Louisiana, tions. 0ngoing EPS decreased Texas, and New Orleans. As the from $2.39 in 1993 to $2.17 in table below shows, these rev-1994. This 22-cent decrease enue reductions caused ongo-includes a 38-cent decrease ing net income to be $88 million from regulatory revenue reduc-lower. Stated another way, tions. This was just too large to ongoing net income before reg-overcome in one year, even ulatory revenue reductions was though we had significant $30 million higher than 1993. cost reductions. 7he smart investor in electric We simply could not offset The Entergy 1994 and utdity stocks today wants a those regulatory reductions in Entergy-GSU combined 1993 company's management to do one year even though we had EPS reflect the 56.7 million the right things to succeed in excellent sales growth and new shares issued to acquire tomorrow's more competitive made good progress in reduc. GSU. During 1994 we repur-environment. Obviously.1 ing costs during 1994. chased 4 million shares as beneve that Entergy's manage-part of our ongoing common ment b domg those thin 95." Other than regulatory stock repurchase program. Oc<oedD Udnvore issues, how did Entergy Sen,o, we r n,genr"' d perform in 1994? 1994 Regulatory Reductions Entergy's basic underlying busi-l'" "'"*"'I 0 8 y,,"n [,"$ nte ness was strong in 1994. There MP&L $ 22 $13 were several positive factors: 9g LP&L 28 17 Fhst, we sold more electricity. GSU 81 49 Our 1994 electric sales were up NOP9 52 9 3.4 percent over 1993. This is TAal $183 $88 considerably above the 2 to 2.5 percent national average. Regulatory octoons in fourjuris@ctrons reduced rwreven esondongoing Second, we had costs under ner 'n="e u 1 5

E-I Stock Performance Why did Entergy's stock price fall so far in 19947 There was a 39 percent decline in our 1994 share price, from $36 to $21%. This was the s result of several factors, some g of which applied to the entire < j@ ' ' b'4 industry and some of which were specific to Entergy. l_ r M -M t Okay, what happened in the industry? d Electric utikty stocks generally S dechne when interest rates rise. _U M 'why did Enrergy's stock in 1994 the Standard & Poor's price fall so far in 19947" Electnc Utihties Index fell 19 q___ percent and the 30 tear ps, tec> osere Treasury bond yield rose from g --d 6 35 percent to 7.87 percent. ~~Z Also contributing to the general 5 \\ dechne in electnc utility stocks was investor concern about increased industry competition. Finally, there was concern about dividend safety Several utihties regulatory and legal issues. objectives are much the same as cut their dividends in 1994. Itiese factors caused analysts other electric utilities who are and investors to project slower preparing for a more competitive And what about Entergy's dividend growth for Entergy environment:1) Reduce prices performance? than the double-digit trend and costs to retain customers The positive outlook for of the past five years. This, and profit ma' gins; 2) Better Entergy's earnings and dividend in turn, caused a reduction in understand customer needs;3) growth was revised downward Entergy's stock price. Develop alternative products and in mid 1994 because of several services that will build revenues f actors. /irst. regulators were Are the challenges Entergy and profitabihty We are making reducing Entergy's revenues. faces different from other good progress on all three. Second, there were questions electric utilities? (Seepages 14 and 15 for o I about whether the G5U merger Because Entergy recently review of Entergy's investments l would produce anticipated completed the largest electne in nonregulated businesses and cost savings And third, there utility merger in history,it faces of thecompany'scostperfor-were uncertaintees regarding chauenges other electncs do mance, as measured ogainst R.ver Bend nuclear station not have. However, Entergy's peer utshries J 0

'f a 4 Stock Performance ~ i ) Why did Entergy's stock price fall so far in 1994? 1 Inere was a 39 percent decline in our 1994 share price, from $3G to $21 %. This was the .' ) result of several factors, some e e g l "" Y of which apphed to the entire 'i, industry and some of which were specific to Entergy. f t% l+ w. Okay, what happened in the industry? } y Electric utiiity stocks generally g, 4 a dechne when interest rates rise. p ', "Why did Entergy's stock In 1994 the Standard & Poor's g .p-price fall so far in 1994T' Electric Utilities index fell 19 f 3 percent and the 30$ ear rmeu ceo N ~,'.. Treasury bond yield iose from wp. . y 6.35 percent to 787 percent. M f I-.: Also contributing to the genera! ) decline in electric utihty stocks ( was investor concern about m increased industry competition. Finally, there was concern about dividend safety Several utilities regulatory and legal issues. objectives are much the same as cut their dividends in 1994 These factors caused analysts other electric utihties who are and investors to preject slower preparing for a more competitive And what about Entergy's d;vidend growth for Entergy environment:1) Reduce prices performance? than the double-digit trend and costs to reta:n customers The pos.tive outlook for of the past five years. Th;s, and profit margins; 2) Better Entergy's earnings and dividend in turn, caused a reduction in understand customer needs; 3) growth was revised downward Entergy's stock price. Develop a!ternative products and in mid 1994 because of several services that will build revenues factors. first regulators were Are the challenges Entergy and profitabiilty We are making reducing Entergy's revenues. faces different from other good progress on all three. l Second, there were questions electric utilities? (See pages 14 and 15 for o l about whether the G5U rrerger Because Entergy recently review of Enterg/sinvestments I would produce anticipated completed the larget electric so nonregulated businesses and cost savings And third,there ut?ty merger in history,it faces of thecompon/scostperfor-were uncertatntaes regarding challenges other eiectrics do mance, as measured ogornst River Bend nut! ear station not have. However, Entergy's peer utilities.) 1 6

-~ \\ Independence coal plant's Unit I turbine generator $s inspected and plant a maintenance performed. Malung more effective use of plant mentenance is an important element of the fossd organuation's Best-in-rmd-1993. However, we have cass improvement program. appealed the LPSC's regulatory decision on G5U to the appro-priate court, and have asked the Public Utility Commission of Texas for a rehearing on its March 20,1995, G5U order. What is your strategy for dealing with regulators in the future? It is most important that we cooperate with our regulators at Regula tory Activity thestateandfederaileveito + + bring about an orderly transition from the present cost-based Why was there so much regulation to the future market-regulatory activity in 19947 based competitive environment. A combination of circumstances We believe regulators should occurred. First, there were five-encourage utilities to cut costs i year rate freezes at MP&L and to operate more efficiently, LP&L that were negotiated in and that incentive-based plans the late 1980s and expired in are the right way to do it. 1993.During this period we had We have such a plan at MP&L no significant rate decreases and are developing one for 4 even though the companies sig-LP&L The merger plan also has nificantly reduced their operat-cost-cutting incentives that ing costs and interest expenses. were approved by Texas and "We've been able to anticipate from a regulatory standpoint, Louisiana regulators. Some of the changes in our 1994 and 1995 are " catch-up" We are pacesetters in working industry. We've even been able years. Second, at G5U the large with the Federal Energy Reguta-to turn Mme of the changes regulatory revenue reduCtrons tory Commission to encourage into opportunities. We aren't were based on its operations in competition in the area of open planning on just bemg around 1992 and 1993 - the two years access transmissio t as the industry evolves, we prior to its merger with Entergy. But regulators i~ist revise plan on being leaders" These reductions also were outmoded, costly, and cumber-based on cost improvements some regulatory processes ,,g., imwme wm G5U achieved during those if there is to be an orderly f$,7,[, Years. Finally, at NOPSI there transition to a competitive tegv cwneen was an adjustment to the 1991 marketplace. We will be working settleme at agreement with the to repeal the Pubhc Utility New Orleans City Council. Holding Company Act of 1935. ( It regulates only 11 electric Do you expect major regu-utilities and severely restricts latory actions in 19957 their abihty to compete on a Hear ngs before the Louisiana level playing field with the Pubhc Service Commission on other 85 major investor-owned LP&L's earnings review ended e!ectnc utaties

GSU Merger "What is Entergy's dividend policy and how safe is the How did the merger affect current dividend levelr-Entergy's 1994 operating performance? First, GSU's underlying busi-ness operations showed signif-icant improvement over 1993. Electric sales were up 4.6 per-cent, ongoing O&M expenses were down about $20 million and interest and preferred divi-dends were down $12 milhon. s Second, GSU's River Bend nuclear station also showed I good progress in 1994. A three-year improvement plan was ahead of schedule and the Nuclear Regulatory Commission noted improve-ments in previously identified weaknesses at the station. l But the impact of $81 million in revenue reductions from GSU's Texas and Louisiana regulators reduced Entergy's ongoing net DIVIClerid Policy ,n_.b,$4emen. Also, there were one-time merger charges that reduced What is Entergy's dividend consolidated net income by policy and how safe is the $44 million. We do not expect we re i,ng,oving our current dividend level? further s gnificant merger inte-performance our delivery of Management believes that, over gration expenses in 1995. services, and our position in t;me, dividends should reflect And finally amortization the industry. We're heading in a payout of ongoing earnings of the merger acquisition the right direction and I'm in the 65 to 75 percent range. premium added an additional convinced we re going to reap in addition, growth in divi- $16 million to Entergy's 1994 significant benefits? dends should be tied to growth expenses. in ongoing earnings Even

• "r t heca glr though the current payout Do you still expect to cme g r

ratio is higher than 75 percent, achieve the merger savings M ergrcm emron we believe the current quarterly you previously targeted? dhidend of 45 cents per share Yes. During merger testimony is appropriate. In the future, before state and federal management will make d:vi-regulators, we targeted non-dend growth recommendations f uel operating savings of to the Board of Directors based $670 million and fuel savings upon sustainable growth in of $850 milhon over 10 years. ongoing earn:ngs. We expect to achieve these. 6

next-door neighbors, with many interconnections. This made the integration of our systems easier. Third, the com-bined companies rnake Entergy about a third larger than it was, and this lets us achieve economies of scale by spreading operating costs over a larger revenue base. Fourth, we felt we could operate River Bend con-l siderably more efficiently and i realize the benefits of a multi-site nuclear organization. The one-time merger inte-gration expenses are largely behind us and we believe we'll deal successfully with the River Bend regulatory and litigation issues. N What is the status of g the two River Bend issues? ' 4 Abeyed casts. Currently 4 $463 million of River Bend ,i plant costs and other costs

g.,

i F~T i (net of taxes and depreciation) N ' ) have been excluded from GSU's L' ~ regulatory assets by Texas reg-ulators. GSU believes these a d costs should be included and has appealed this to the Texas Supreme Court. A full discus-435 page 34 nd 35 of the otes ta the Financial statements. Cajun lawsuit. In June 1989 Cajun Electric Power Cooperative, a 30 percent owner of River Bend, fded a civil action against GSU a!Ieging, among other things, fraud and error in Entergy wiH revamp its Everything considered, connection with the River Bend buymg. inventorymg. and was your merger with G5U plant. GSU believes the suit is warehouung practices for an a good idea? without merit and is contesting matenek and suppnes com-There were four major reasons it vigorously in December 1994 ing mto the Entergy system. the merger was a good idea, Cajun filed a petition seeking includ,ng these at the central and one year into it we are stdl relief under Chapter 11 of the Dktiebution Warehouse m very comfortable with them. U S Bankrupter Code. The matter Ottle Rock, Arkansas first, we acquired attractive and is continuing A full discussion of synmcant annua savings grow:ng markets in the Baton these issues appears on pages 45 wot be reannd. Rouge and the north suburban and 46 of the Notes to the Houston areas. Second, we were Financial 5tatements l 3 1

"is Entergy financially prepared for competition?" Gnu G<Mwn 1 Will you continue your F m+ a n ci a l S t re n g th common stock repurchase + p,eg,amz Yes. This is another use of our f ree cash flow. During 1994 is Entergy financially Entergy used about $120 mil-prepared for competition? Iion to buy back about 4 million One of our major financial shares. We believe that buying strengths is our large cash flow. Entergy shares at current prices in 1994 we had $1.5 billion of is a bargain and we expect 'o operating cash flow. We used continue the program in 1995. about $1.1 billion of this to make investments in our core You have many large electric business to remain industrial customers who competitive and to pay dividends could generate their own to our 250,000 shareholders electricity. How many of After meeting those require-them may leave Entergy? ments we had about $400 mil-We have developed strong lion in f ree cash flow available relatioriships with our major to prepare for competition. industrial and commercial "No matter how good you are, One use is to keep our customers. Since the mid-balance sheet strong by retinng 1980s we have offered both "9 ' " ** or refinancing high-cost debt. flexible pricing and partnering improve. We've found many We have set targets for equity options to meet their needs We ratios that assure a sohd invest-have had no significant loss of the way we do work through Net Cash flow rnent-grade credit rating for customers to togeneration or to ["(U ",'h "5 each of our operating sub-otner forms of competition, P ,g sidianes. Anotheruseis to make although G5U did have some ' " " ~ * " sw investments in businesses defections in the late 1980s closely related to the electric Our competitive electric s'w power business that have supe-rates have helped customers MacNe ems si r rior profit and growth potential. expand their businesses and '[, M# Entergy has the size, stability, increase their use of eiectocity. f orem smm Inc at mind-set, and financial strength The large revenue reductions to be a fierce competitor. We do ordered by our regulators in not expect to lose market share 1994 and 1995 will result in to predators. in fact, our finan-further price reductions to cial strength a! lows us to expand these important customers a_ beyond our current service terri-This will make Entergy more ? tory mto attractive new national competitive with alternative M.NNEY and international markets. sources of electricity - A o i N I

.. - -. - _. ~ _ - - _ _ "Our current involvernent with international and domestic power projects demonstrates j our strategic direction. We will be a major player in the worldwide growth of electric energy." Ten og erree Esecutw V,ce Pres dent, Enrergy Enterpnn Inc. I v A .b Business Expansion ~ You have stated that you would like to invest about cent,ahno phone answering $150 million annually in centers such as this one business expansion activities. in Beaumont. iesas, where Are you following this plan? Anita Smith responds to a These targets have not calier's question. provide changed. At the end of 1994 What about the risks customers with better service our business expansion invest-involved in overseas through new technology ments totaled about $472 mil-investments 7 and increased capabmties. lion. Dunng the year we We recognize that risk is higher 4 invested $50 million in a overseas, which is why the ) Pakistan power generation proj-returns we expect are higher, as ett and about $66 million in well Moreover, we manage the our energy services business, risk by working with partners Entergy SASI. By 1998 we knowledgeab!c about the f would hke to have about countries in which we are 1 $1 bi! hon invested in noncore investing, by assessing each electric power ventures. These project individually, and by lim-would have a long-terrn profit iting excessive exposure in any potential considerably above one country. Also, we're struc-the 11 to 12 percent return we tured so that our core business get from our core regulated is insulated from our nonregu. i business. (Seepage N for a lated ventures, which are man-discussion ofEntergy's business aged by separate legal entities expansion actiwttes) and personnel. d j 11 4 -c----m---- - - -,,, - - -. -.,,,,-,w-m m,--- - - + - - - -

htera Burra, lef t, and Caroline Page assemble electronic ballast components for use in energy-efficient I ) lighting systems installed by intergy Systems and 5ervice, Inc., which has 17 , ( sales offices from Houston "Where does Entergy plan t to chicago and to be Sve years hem nowP the Eastern Seaboard. OmrtJ Gwarb Ve Srs rapidgmwth in We do not underestimate the challenges ahead and will be flexible as we deal with C o m p e ti tive To m o rro w ,o,stacles and tough competi. ob , eu,,he p,o,pect o, competition presents us with opportunities to improve our Where does Entergy plan to business, succeed in attractive be five years from now? new markets, and diversify with We will be a major competi-new products and services. The tor-whatever form the new actions we are taking now are competitive environment takes. based on the value-driver While we are not able to pre-framework we have discussed d;ct precisely the changes that in the past. Using this frame-will occur between now and work keeps our attention on 2000, we have begun preparing the bottom-l;ne issue; creating for them in six key areas: shareholder value.

• We have Best-In-Class programs to become low-How are you getting cost producers in our fossil your costs down?

and Nuclear generat;on Are you a low-cost j organizations producer of electricity?

• We are aggressively reducing We're not there yet but we're costs and improving making good progress. On page i

ef ficiencies in our other 15 we review our improvements business units in cost competitiveness. Bench-

• We are reducing our prices marking shows Entergy's per-

"Our Best-in-Class initiative to be competitive with formance already ranks in the atternative sources of top 25 percent of electric utihty electricity companies Our individual busi-and 85 plants are well on 9

• We are building a new ness units are making good their way to becoming the culture that chaHenges headway when measured agarnst very best in the industry "

and empowers every similar units in peer companies. employee. Over the past five years we horn oowr

• We are checking every have streamhned our organiza-f*'[$"((

aspect of our regulatory tion, reduced staf fing levels, and fere g+weunc j environment for ways to made our business processes improve or stream!;ne it. more efficient. During this period,

• We are making significarit employment in our core utikty e

investments in electric business has dechned from more energy businesses that than 18,000 to about 15,500, and i should produce growth and our ongoing operation and returns superior to our core ma ntenance expense rs down electric utihty business. approoma'ely $100 mdhon i i 12

" Employees in Entergy's nuclear organization have achieved outstanding results in three performance areas: operations, cost, and regulatory and safety. Our new goals will make our plants the best in the nuclear industry and will strengthen Entergy's position for the future." DorWd C Hmtt Earcutw ur Prevdentand ChortNuclear officer, Entergy Corporatron l l l L w ,,7 ( independent power producers, wholesale wheeling, and the prospect of retail wheeling, Entergy willimprove what is already excellent performance. In 1994 goals were set to move ANO, Grand Gulf 1, and Waterford 3 into the top 10 per-cent of U.S. nuclear sites in each What role will Entergy's and safety /regulatoryas performance area by 1998. nuclear plants play in the measured by the NRC's 5 ALP A three-year River Bend competitive tomorrow? (Systematic Assessment of improvement plan was also Entergy has a major investment licensee Performance) scores established in 1994. Over the in nuclear generation and an and by INPO (Institute of period 1996-98, operating and international reputation for run-Nuclear Power Operations) cost targets willimptove the ning the plants well. Nuclear evaluations. By these measures plant's capacity factor and reduce plants produced 30 percent of Waterford 3 was in the top 25 production cost, Significant Entergy's 1994 electricity percent of ailll; nuclear plants improvement in the safety /regu-in 1990 Entergy's auclear with its 1994 performance, and latory measures is also targeted-I organization began a program Arkansas Nuclear One, Units 1 In achieving 1998 perfor-to raise performance in three and 2, and Grand Gulf 1 are mance objectives, Entergy's strateq'c areas: operations as projected to attain this level by nuclear organization will provide measured by capacity factor, cnst year-end 1995. customers with low-cost, safe 7 measured by production cost However, to meet the increas-electnc generation unequaled by in cents per kilowatt hour, ing competitive pressures from any other source. 13 e T

Business Expansion the U.S., Argentina, and Pakistan, total 4,180 megawatts g Entergy Power,Inc., markets 809 megawatts of merchant %,, o intergy Po*ce. inc., so9 mego*arn me power into the U.S. wholesale market. 0f seven long-term n$rN'"2Y e"[,d;$ '"'8-Q contracts for about 500 megawatts, three are currently gen-5 *'9 a Argentina detreuten.19 mdhon customers 5% erating revenue, and four more, totaling about 300 Argentina transmimm. Ear;0 mdes of h,gh-vo oge hnes 9 f/* n megawatts, win begin generating revenue in 1995 and 1996. P&stan gen **stson.1.292megonotts We Entergy is an aggressive player in overseas power devel-Energy services Entergy systems and service,Inc-100 % opment projects because of the superior risk adjusted systems and servwe It'ternatione. Ir<. 9We returns these opportunities offer. Entergy is one of the few First Par ofic feetwar4 inc. 79% transmission, and distribution markets. Future power development will likely occur in foreign arenas in each of Entergy's core areas of expertise. Entergy Power Group earlier invested $90 million in the privatization of Argentina's electric energyinfrastructure, and in 1994 invested $50 million to join an international C a ptu ri n g Ex p a n d i n g consortium developing the Hub River Project near Karachi, Pakistan.The consortium funded the majority of the Opportunities equity for tne project through Hubco, a publicly traded company in Pakistan, Europe, and the U.S. Entergy plans to continue pursuit of the privatization and greenfield devel-opment markets, and is currently active in China, India, Indonesia, Brazil, and Australia. I Total Assets Core Electric Business Energy Services. Much of the 1994 investment in non-Entergy Corporation is a holding company that provides regulated ventures went for the continued rapid domestic electric service to 2.4 million customers through its five expansion of Entergy Systems and Service,Inc., a sub-Om operating companies - Arkansas Power & Light, Gulf States sidiary providing energy-efficient lighting, heating, venti-st m Utilities, Louisiana Power & Light, Mississippi Power & Light, lation, air-conditioning and refrigeration systems, and and New Orleans Pubhc Service Inc Gas service is also energy controls. Entergy SASI serves commercial cus-provided in Baton Rouge and New Orleans, Louisiana. tomers in a wide area, extending from Houston to Chicago (Serviceoreo mop appears on page 56) and ta the East Coast. Entergy SA51 also offers energy l Entergy's core retail utility business is organized along management services to traditional utilities. In 1994 it l functionallines. A Fossil group manages all aspects of gen-won a three-year $80 million contract from Texas Utilities eration at the company's 88 fossil-fueled units. A Nuclear Company to reduce TU customers' demand for electricity Retail Electric operstmg Revenues group manages Entergy's five nuclear units. An Operations by 24 megawatts. Additionally,1994 marked an expansion group manages the transmission and distribution of elec-in service from a base of commercial customers to an tricity, as well as customer service. By organizing along entry in institutional markets by acquiring the assets of un m functional rather than geographic lines, Entergy has been Hospital Energy Services, Inc., of Baton Rouge, Louisiana, able to perform as a single, efficient company. and to an entry in governmental markets through an alliance with Public Technologies,Inc. Expanding Businesses Entergy also has a pilot project with First Pacific Entergy also is expanding into businesses that are closely Networks, Inc., for development of a " smart" telecommu-l related to the generation and sale of electricity and that nications switching technology that would enable cus-offer risk-adjusted rates of return and growth opportuni-tomers to program appliances for cost efficient energy ties significantly higher than in the core business. usage, and, ultimately, to control all kinds of telecommu-Retail Electric Customers Since 1990, Entergy has invested $472 million in nications coming into their homes or businesses, two areas:

• Power development ($374 million) information Services ww i..
• Energy services ($98 million).

Entergy is also exploring opportunities to exploit its aw = Current investments are shown in the chart above. communications and information services assets, With Entergy's target is to invest about $150 million a year in close to 1,000 miles of high-capacity fiber optic cable con-these businesses and other projects, reaching a total necting system facilities, Entergy operates a major inter-investment of about $1 billion by 1998. By that time, tne company telecommunications system that could generate investments shou!d be self-sustaining in terms of leverage revenues by allowing outside parties to transmit data m,, and cash flow. Within the service area Power Development. Entergy Power Group has a net ownership of 1,140 megawatts in five generation projects in operation or under construction. These projects, situated in 14

Genersting Capability 1994 Sources of Electricity operating statistics for GSU's River Bend nuclear plant. 22.604MW During 1994 Entergy initiated a program to raise River Bend's operating performance to near that of Entergy's a= =m O, was a top-quartile performer in ~993. four other nuclear units. Excluding River Bend, Nuclear us With an eye toward competition, Nuclear redefined its goals in 1994. The group's new vision is for Arkansas uvai,m Nuclear One Units I and 2, Grand Gulf 1, and Waterford 3 to collectively move beyond the best, taking the lead in the nuclear industry. The Nuclear group plans to meet this wuw n goal,in part, by reducing nonfuel 0&M and capital spend-ing levels $80 million annually by 1997.1hese savings will be achieved by reducing the cost of meeting licensing regulations, by making outages more efficient, and by improving work processes. N Na Transmission, Distribution, and Customer Service This group delivers reliable power from generating plants and Cost. Goals te men eustomers over ii 5,000 mnes onnes. its cost-performance ranking improved in 1992 and entered the top quartile in 1993, primarily due to lower capital expenditures. 0&M expenses increased but at a lower rate than tne benchmark group. To continue to lower costs, the customer service group has undertaken a multi-faceted Entergy's cost performance is top quartile when measured program that includes eliminating customer payment against a comparable group of 45 electric utilities and all U.S. centers and consolidating phone centers. These actions nuclear plants. As the chart at lower left indicates, Entergy's and the outsourcing of meter reading and otner labor-overall cash costs, as measured in the areas of 0&M, capital intensive functions will enable Entergy to reduce the cus-expenditures, fuel, and purchased power, reached top quartile tomer service workforce by 20 to 30 percent by 1997. This in 1993 - the latest year for which data are available - after shuuld reduce operating costs by $100 million annually by performing in the upper second quartile in 1992 and 1991. the end of 1997. The 1993 data include GSU for the first time. In addition to benchmarking total company perfor-Administrative and General Office mance, Entergy also measures the performance of individ-This category includes the financial, legal, human ual business units. The following is a review of how each resources, and other support functions for the entire contributes to Entergy's overall performance. Entergy system. Reduced 0&M expenses, resulting from restructuring and from workforce reductions, continued fossil to improve this category ranking in 1993 - moving it well Achieving Top-Quartile These 88 coal, gas, and oil-fueled units provide generation within the second quartile. [* flexibihty by supplying a combination of base load and intermediate, stand-by, and peaking power. The Fossil Entergy has also instituted a program to revamp the group, a consistently strong performer in the O&M and capi-way it buys, stores, and uses materials and supplies. Dan

• tal areas, launched a new three-year Best-In-Class initia-This program, called SOAR (Supply Optimization and tive in 1994 to close the gap between the operating costs Reengineering), has the potential for significant savings of Entergy's fossil plants and the very best U.S. plants in because Entergy spends about $1 billion a year for the cua*

each fuel category. This goal will be achieved through fur-thousands of items that keen the company up and own* ther reductions in capital spending, outage expenses, and running. The SOAR team will target areas in all functional ~ staffing, as wa!! os ihmugh improvements in work processes. groups to achieve savings. 'Y, These are expteted to p oduce a $55 miHion reduction in o ~ annual operat ng cost 3 by 1997. In a second component of the Fossil ine..ative, a team has begun a program to appre-MC5 ciably rectce the company's fuel and purchased power 7 # "j'".""" costs laitial savings from the fuels component will be em-w um realized in 1995 and will increase through 1997. sp pewa pn i.pf,rr 4 meMN ** the Tw4 & ow w'"em Nuclear we%- for the system by running as close to cap 1 city as possible. A consistently strong per former, Nuclear dropped into the second quartde in 1993 because of the inclusion of is n v,,-.- r

FlVE-YEAR

SUMMARY

OF SELECTED FINANCIAL AND OPERA 11NG DATA AS REPORTED On thouwnds except per shore amounts) 1994 1993 1992 1991 1990 Selected Financial Data: Operating revenues $ 5,963,290 $ 4,485,337 $ 4,116,499 $ 4,051,429 $ 3,982,062 income before cumulative ef fect of a change in accounting ponciple $ 341,841 $ 458,089 $ 437,637 $ 482,032 $ 478,318 Earnings per share before cumulative effect of a change in accounting principle 1,49 2.62 2.48 2.64 2.44 Dividends declared per share 1,80 1.65 1.45 1.25 1.05 Book value per share, year-end 27.93 28.27 24.35 23.46 22.18 Common shares outstanding: At year-end 227,409 231,220 175,137 178,809 185,257 Weighted average 228,735 174,888 176,574 182,665 195,877 Total assets $22,613,491 $22,876,697 $ 14.239,537 $ 14,383,102 $14,831,394 tong term obligations $ 7,817,366 $ 8,177,882 $ 5,630,505 $ 5,801,364 5 6,395,951 Preference and preferred stock $ 1,000,901 $ 1,050,008 $ 718,560 $ 702,934 $ 653,440 l.ong-term debt (excluding currently maturing debt) $ 7,093,473 $ 7,355,962 $ 5,149,344 $ 5,282,906 $ 5,765,885 Cash f rom operations $ 1,537,767 $ 1,074,387 $ 831,226 $ 961,935 $ 1,024,845 Return on average common equity 5.31 % 12.58 % 10.35 % 11.61 % 11.4 7 % Electric Revenues: Residential $ 2,126,260 $ 1,596,480 $ 1,440,360 $ 1,463,281 $ 1,449,768 Commercial 1,499,206 1,072,583 1,007,420 996,619 988,409 Industnal 1,832,916 1,199,172 1,097,023 1,068,802 1.051,796 Governmental 159,694 136,649 127,753 128,762 12_4J97 Total retail 5,618,076 4,004,884 3,672,556 3,657,464 3,614,570 Sales for resale 311,018 293,894 252,288 220,347 212,504 _ (131,325)_. 95 S68 Other $ 5,797,7_69_ _ $ 4,394,346 $ 4,043,555 $ 3,974,478 $ 3,894,119 Total electric 118,711 96&67 67,045 t Electric Energy Sales: fwhonsomh/ Residential 26,231 18,946 17,549 18,329 18,174 Commercial 20,050 13,420 12,928 13,164 12,977 Industnal 41,030 24,889 23,610 23,466 22,795 Governmental 2,233 1187 1,839 1,903 1,831 Total retail 89,544 59,142 55,926 56,862 55,777 Sales for resale 7,908 8,291 7,979 7,346 6,292 _ Total sales 91,452 67,433 63,905 64.208 62,069 ENTERGY & G5U COMBINE 0' pn thousands ewept per shorc amounts / 1994 1993 1992 1991 1990 Selected Financial Data: Operating revenues $ 5,963,290 $ 6,302,341 $ 5,870,971 $ 5,746,489 $ 5,658,300 income before cumulative effect of a change in accounting principle $ 341,841 $ 491,969 $ 527,348 $ 531,353 $ 379,177 Earnings per share before cumulative ef feet of a change in accounting pnneiple 1,49 2.12 2.26 2.22 1.50 Common shares outstanding: At year-end 227,409 231,220 231,832 235,504 241,952 Weighted average 228,735 231,583 233,269 239,360 252,572 Total assets $22,613,491 $22,876,697 $21,403,984 $21,566,221 $21,966,793 tong-term obligations $ 7,817,366 $ 8,177,882 $ 8,429,273 $ 8,617,941 $ 9,059,200 Preference and preferted stock $ 1,000,901 $ 1,050,008 $ 1,124,391 $ 1,301,958 $ 1,328,515 tong-term debt (excluding currently maturing debt) $ 7,093,473 $ 7,355,962 $ 7,523,802 $ 7,576,888 $ 7,839,997 Cash from operations $ 1,537,767 $ 1,329,822 $ 1,178,754 $ 1,395,680 $ 1,344,523 Electric Revenues: Residential $ 2,126,260 $ 2,182,279 $ 2,000,912 $ 2,010,428 $ 1,973,679 Commercial 1,499,206 1,487,850 1,408.223 1,380,502 1,366,662 Industnal 1,832,916 1,849,402 1,739,321 1,651,370 1,630,724 Governmental 159,694 162,767 153j48_ _153154 148,698 lotai retail 5,613.076 5,682,298 5,302,404 5,195,854 5,119,763 Sales for resale 311,018 315,176 257,871 257,308 246,182 Othe t _ _ _.(131,325) _ _ 134,217 158,914 138,100 110,362 Total electric $ 5,797,769 $ 6,131,691 $ 5,719,189 $ 5,591,262 $ 5,476,307 Electric Energy Sales: ofahumomb) Residential 26.231 26,138 24,374 25,254 25,008 Commercial 20.050 19,131 18,402 18.624 18,365 Industnal 41,030 39,183 38,023 37,095 36,142 Governmental 2,233 2,183 2,141 2,198 2,11 6 Total retad 89.544 86,635 82,940 83,171 81,631 Sales for resale 7,908 8,484 7,488 8 081 6,749 1 lotal sales 97,452

• Cchknhi&da is fih5r}biasefvT&Ke5GoNinin~or iiq 5'witOr~poileddha.

~ 95,119 90,428 ~ 91,252~ 88,380 i w En tergv Curporatoon and 5ubs>dtones

Financial Review Consolidated Balance Sheets 18 Statenents of Consolidated Cash Flows 20 Management's Financial Discussion and Analysis-GLOSSARY Liquidity and Capital Resources 21 Entergy or System-Entergy Corporation and its various Statements of Consolidated Income 23 direct and indirect subsidiaries. Statements of Consolidated Retained Earnings Entergy Operations-Entergy Operations, Inc., a PM @l N subsidiary of Entergy Corporation that has operating responsibility for Grand Gulf 1, Waterford 3, Arkansas Management's Financial Discussion and Analysis-Nuclear One, and River Bend nuclear plants. Results of Operations 24 Entergy Power-Entergy Power,Inc., a subsidiary of Significant Factors and Known Trends 25 Entergy Corporation that markets capacity and energy for resale from certain generating facilities to other parties, Report of Management / principally non-affiliates. .s letter 30 Merger-The combination transaction, consummated on Report of Independent Accountants 31 December 31,1993, by which GSU became a subsidiary of Entergy Corporation and Entergy Corporation became a Notes to Consolidated financial Statements 32 Delaware corporation. 1991 NOPSI 5ettlement-Agreement, retroactive to October 4,1991, among NOPSI, the Council of the City of New Orleans, Louisiana (Council), the Alliance for Af fordable Energy, Inc., and others that settled certain Grand Gulf 1 prudence issues and pending litigation related to the resolution (including the Determinations and Order referred to therein) adopted by the Council on february 4,1988, disallowing NOPSI's recovery of $135 million of previously deferred Grand Gulf 1-related costs. Rate Cap-The level of GSU's retail e!ectric base rates in effect at December 31,1993, for the Louisiana retail jurisdiction, and the level in ef'ect prior to the Texas Cities Rate Settlement for the Texas retail jurisdiction, that may not be exceeded for the five years following December 31,1993. System Agreement-Agreement, effective January 1, 1983, as subsequently modified by FERC, among the Systern operating companies relating to the shanng of generat;ng capacity and other power resources. System operating companics-AP&L, GSU, LP&L, MP&l, and NOPSI, collectively. 17

l CONSOLIDATED BALANCE SilEETS 1 ASSETS December 3I, (In thougnds) 1994 1993 Utility Plant: Electric $21,184,013 $20,848,844 Plant acquisition adjustment - G5U 487,955 380,117 Electric plant under leases 668,846 663,024 Property under capital leases - electric 161,950 175,276 Natural gas 164.013 156,452 Steam products 77,307 75,689 Construction work in progress 476,816 533,112 Nuclear fuel under capitalleases 265,520 329,433 Nuclear fuel 70,147 17,760 ~ Total 23,556.567 23,179,707 less - accumulated depreciation and amortization 7,639,549 7,157,931 Utility plant - net 15,917,018 16,021,726 Other Property and Investments: Decommissioning trust funds 207,395 172,960 Other 240,745 183,597 Total 448,140 356,557 Current Assets: Cash and cash equivalents: Cash 87,700 27,345 Temporary cash investments - at cost, which approximates market 5/6,207 536,404 Total cash and cash equivaients 613,907 563,749 Special deposits 8,074 36,612 Notes receivable 19,190 17,710 Accounts receivable: Customer (less allowante for doubtful accounts of $6.7 million in 1994 ) and $8.8 million in 1993) 325,410 315,796 j Other 66,651 81,931 Accrued unbilled revenues 240,610 257,321 Fuelinventory 93,211 110,204 Materials and supplies - at average cost 365,956 360,353 Rate deferrals 380,612 333,311 Prepayments and other 98,811 98,144 Total 2,212,432 2,175,131 l Deferred Debits and Other Assets: Regulatory Assets: Rate deferrals 1,451,926 1,876,051 SFAS 109 regulatory asset - net 1,417,646 1,385,824 Unamortized loss on reacquired debt 232,420 210,698 Other regulatory assets 316,878 283,846 Long-term receivables 277,830 228,030 Other 339,201 338,834 i Total 4,035,901 4,323.283 Total $22,613,491 $22,876,697 See Notes to Consohdaced Fnonceal Statements 18 Entergy Corporotron and Subsidour,es

\\ l CONSOLIDATED BALANCE SilEETS A CAPITAllZATION AND LIABILITIES Decemtier 31, un thousands) 1994 1993 Capitalization: Common stock, $0.01 par value, authorized 500,000,000 shares; issued 230,017,485 shares in 1994 and 231,219,737 shares in 1993 2,300 2,312 Paid in capital 4,202,134 4,223,682 Retained earnings 2,223,739 2,310,082 Less - treasury stock (2,608,908 shares in 1994) 77,378 l Total common shareholders' equity 6,350,795 6,536,076 Subsidiaries' preference stock 150,000 150,000 Subsidiaries' preferred stock: Without sinking fund 550,955 550,955 With sinking fund 299,946 349,053 Long-term debt 7,093,473 7,355,962 Total 14,445,169 14,942,046 Other Noncurrent Liabilities: Obligations under capitalleases 273,947 322,867 Other 310,977 296,572 Total 584,924 619,439 I Current Liabilities: Currently maturing long term debt 349,085 322,010 Notes payable 171,867 43,667 Accounts payable 471,120 413,727 Customer deposits 134,478 127,524 ] Taxes accrued 92,578 118,267 l Accumulated deferred income taxes 40,.113 73,933 Interest accrued 195,619 210,894 Dividends declared 13.599 13,404 Deferred revenue - gas supplier judgment proceeds 14,632 Deferred fuel cost 27.006 4,528 Obligations under capitalleases 151,904 194,015 Reserve for rate refund 56,972 Other 327,330 233,313 Total 2,031,951 1,769,914 Deferred Credits: Accumulated deferred income taxes 3,915,138 3,829,041 Accumulated deferred investment tax credits 649,898 793.375 ~ Other. 986,411 922,882 Total 5,551,447 5,545,298 Commitments arid Contingencies (Notes 2,8, and 9) p Total $22,613,491 $22,876,697 See Notes to ConsoMated finanool Staterrents Ente *gy Corporotocr ond Sabudro?>es 19

STATEMENTS OF CONSOLIDA1ED CASil FLOWS for the Yearsinded December 31, (In thoswnds) 1994 1993 1992 Operating Activities: Net income $ 341,841 $ 551,930 $ 437,637 Noncash items included in net income: Cumulative effect of a change in accounting principle (93,841) Change in rate deferrals / excess capacity - net 394,344 200,532 109,153 Depreciation and decommissioning 656.896 443,550 424,95R Deferred income taxes and investment tax credits (123,503) 17,669 118,562 Allowance for equity funds used during construction (11,903) (8,049) (7,355) Amortization of deferred revenues (14,632) (42,470) (38,646) Gain on sale of property - net (19,612) Changes in working capital: Receivables 22,377 (40,682) (19,150) fuelinventory 16.993 (1,161) 20,008 Accounts payable 57,393 (9,167) (54,559) Taxes accrued (25,689) (32,761) 28,561 Interest accrued (15,255) (758) (10,845) Reserve for rate refund 56,972 Other working capital accounts 144,297 51,16J (12,428) Refunds to customers - gas contract settlement (56,027) (56,066) Decommissioning trust contributions (24,755) (20,402) (20,896) Provision for estimated losses and reserves 22,522 20,832 (24,911) Other 39,869 94,092 (43,185) Net cash flow provided by operating activities 1,537,767 1,074,387 831,226 Investing Activities: Merger with G5U - cash paid (250.009) Merger with GSU - cash acquired 261,349 Construction / capital expenditures (676,180) (512,235) (438,845) Allowance for equity funds used during construction 11,903 8,049 7,355 Nuclear fuel purchases (179,932) (118,216) (60,359) Proceeds from sale / leaseback of nuclear fuel 128,675 121,526 62,332 Investment in nonregulated/nonutility properties (49,859) (76,870) (35,189) Proceeds received from sale of property 26,000 67,985 Decrease in other temporary investments 17,012 114,651 Net cash flow used in investing activities (739,393) (549,385) (282,070) Financing Activities: Proceeds from the issuance of: First mortgage bonds 59,410 605,000 637,114 General and refunding mortgage bonds 24,534 350,000 65,000 Preferred stock 120,999 Other long-term debt 164,699 106,070 48,067 Premium and expense on refinancing sa!c/ leaseback bonds (48,497) Retirement of: first mortgage bonds (303,800) (911,692) (1,009,320) General and refunding mortgage bonds (45,000) (99,400) Other long-term debt (148,962) (69,982) (17,412) Repurchase of common stock (119,486) (20.558) (105,673) Redemption of preferred stock (49,091) (56,000) (109,369) Common stock dividends paid (410,223) (287,483) (256,117) Changes in short-term borrowings 128,200 43,000 Net cash flow used in financing activities (748,216) (341,045) (626,711) Net increase (decrease) in cash and cash equivalents 50,158 183,95/ (77,555) Cash and cash equivalents at beginning of period __ 563,749 379,792 457,347 Cash and cash equivalents at end of period $ 613,907 $ 563,749 $ 379,792 70 I niergy Corporation and Subyd>ar,es

STATEMENTS OF CONSOLIDATED CASil FLOWS (Continued) For the YearsindedDecember 3 r, fin thousands) 1994 1993 1992 Supplemental Disclosure of Cash F!on information: Cash paid durinn thc penod for: Interest - net of amount capitalized $660,150 $ 485,876 $570,199 I Income taxes $218,667 $ 159,659 $125,079 Noncash investing and financing activities: l Capitallease obligations incurred $ 88.574 $ 126.812 5 75,040 Deficiency of fair value of decommissioning trust assets over amount invested $ (2,198) $2,031,101 I Merger with GSU - common stock issued See Notes to Consohdared financialStatements MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES invested in an electric distribution company and a high-Liquidity is important to Entergy due to the capital intensive voltage transmission system in Argentina. In 1992, Entergy nature of its business, which requires large investments Corporation invested in a generating facility in Argentina, an i in long-lived assets. While large capital expenditures for independent power plant in Virginia, a lighting efficiency the cons *ruction of new generating capacity are not services company, and a company that develops energy currently planned, the System does require significant capital management and other technology applications. Entergy resources for the periodic maturity of certain series of debt Corporation may invest up to $150 million per year for the i and preferred stock and ongoing construction expenditures, next several years in nonregulated business opportunities. See Net cash flow frorn operations totaled $1,538 million, "Significant Factors and Known Trends - Nonregulated $1,074 million, and $831 million in 1994,1993, and 1992, Investments" for additional information. respectively. In recent years, this cash flow, supplemented by Certain agreements and restrictions limit the amount of cash on hand, has been sufficient to meet substantially all mortgage bonds and preferred stock that can be issued by the investing and financing requirements, including capital System operating companies and System Energy. Based on the expenditures, dividends, and debt / preferred stock maturities, most restrictive applicable tests as of December 31,1994, and Entergy's abihty to fund these capital requirements with cash an assumel annual interest or dividend rate of 9.25%, the from operations results, in part, from continued efforts to System oprating companies could have issued bonds or streamline operations and reduce costs as well as collections preferred stock in the following amounts, respectively: under Grand Gulf 1 and River Bend rate phase-in plans, which AP&L - $253 million and $468 million; GSU - $0 million and exceed the current cash requirements for Grand Gulf 1-related $0 million; LP&L - $107 million and $784 million; MP&L - costs. (in the income statement, these revenue collections are $246 million and $95 million; and NOPSI - $89 million and offset by the amortization of previously deferred costs; $17 million. System Energy could also have issued $241 million I therefore, there is no effect on net income ) These phase-in of bonds, but its charter does not presently provide for the plans will continue to contribute to Entergy's cash position issuance of preferred stock. In addition, the System operating for the next several years. Further, Entergy Corporation's companies and System Energy have the conditional ability to subsidiaries have the ability to meet future capital issue bonds against the retirement of bonds,in some cases requirements through future debt or preferred stock without meeting an earnings coverage test. Although GSU was [ issuances, as discussed below. See Note 8 for additional precluded from issuing first mortgage bonds under its earnings information on the System's capital and refinancing coverage test as of December 31,1994, GSU has the ability to requirements in 1995-1997. Also, to the extent current market issue $578 million of first mortgage bonds against the interest and dividend rates allow, the System operating retirement or first mortgage bonds without meeting such test. companies and System Energy may continue to refinance AP&L may also issue preferred stock to refund outstanding high-cost debt and preferred stock prior to maturity, preferred stock without meeting an earnings coverage test. Productive investment by Entergy Corporation of excess GSU has no limitations on the issuance of preference stock. See fur'ds is necessary to enhance the long term value of its Note 4 for information on the System's short-term borrowings. common stock. In 1994, Entergy Corporation invested in the Entergy Corporation's current primary capital requirements i Hub River Company which is constructing a generating are to periodically invest in, or make loans to, its subsidiaries. station near Karachi, Pakistan. In 1993 Entergy Corporation Entergy Corporation expects to meet these requirements in i Management's finanool Discvwon and Ano%s n i

h I 1995-1997 with internally generated funds and cash on hand. rate plan.The order also adopted previously agreed-upon Further, Entergy Corporation paid $410.2 million of dividends stipulations of a required return on equity of 11% and on its common stock in 1994. Declarations of dividends on certain accounting adjustments that resulted in a 4.3% common stock are made at the discretion of Entergy ($28.1 million) reduction in MP&L's June 30,1993, test-year Corporation's Board of Directors (Board). It is anticipated that base revenues effective March 25,1994. The plan allows management will not recommend future dividend increases to for periodic small adjustments in rates based on an annual the Board unless such increases are justified by sustained comparison of earned to beneb. ark rates of return and earnings growth of Entergy Corporation and its subsidiaries, upon certain other perfc.. nance factors. See Note 2 for Entergy Corporation receives funds through dividend additionalinformation. [ payments from its subsidiaries. During 1994, these common As discussed in '40te 2, N0 PSI agreed to reduce electric E stock dividend payments totaled $763.4 million. Certain and gas rates an) issue credits and refunds to customers restrictions may limit the amount of these distributions. See pursuant to ths 1994 NOPSI Settlement. Under the terms of Note 7 for additionalinformation. the settlemer t, NOPSI implemented rate reductions totaling l See Notes 2 and 8 for information regarding litigation with $44.9 millior effective January 1,1995. N0 PSI willimplement Cajun Electric Power Cooperative,Inc. (Cajun) and River Bend an additiona: $4.4 million rate reduction on October 31,1995. rate appeals Substantial write-offs or charges resulting from in addition, the 1994 N0 PSI 5ettlement requires N0 PSI to adverse rulings in these matters could result in substantial credit its customers $25 million over a 21-month period, l additional net losses being reported by Entergy and G5U in beginning January 1,1995,in order to resolve disputes with i 1995 and subsequent periods, with resulting substantial the Council regarding the interpretation of the 1991 NOPSI adverse adjustments to common shareholder's equity. Also, Settlement. The 1994 NOPSI Settlement also required N0 PSI adverse resolution of these matters could adversely affect to refund $9.3 million of overcollections associated with G5U's ability to continue to pay dividends and obtain Grand Gulf 1 operating costs and $10.5 rrillion of refunds financing, which could in turn affect G50's liquidity. associated with the settlement by System Energy of a Federal Entergy Corporation has a program to repurchase shares of Energy Regulatory Commission (FERC) tax audit. its outstanding common stock. The timing and amount of As discussed in Note 2,in November 1994, FERC approved such repurchases depend upon market conditions and Board an agreement settling a long-standing dispute involving authorization. Entergy Corporation has requested, but not yet income tax allocation procedures of System Energy. in i received, Securities and Exchange Commission (SEC) connection with this settlement,5ystem Energy refunded authorization for a $300 million bank line of credit, the approximately $61.7 million to AP&L LP&l, MP&l, and proceeds of which are expected to be used for common stock NOPSI, which in turn have made or will make refunds or repurchases, investments in nonregulated and nonutility credits to their customers (except for those portions [ businesses, and other optional activities. Certain parties have attributable to AP&L's and LP&L's retained share of Grand intervened in this proceeding, and the application is pending. Gulf 1 costs). Additionally,5ystem Energy will refund a total l See Notes 4 and 5 for cdditional information. of approximately $62 million, plus interest, to AP&L, LP&L l Increasing competition in the utility industry brings an MP&L and NOPSI over the period through June 2004. AP&L increased need to stabilize costs and reduce retail rates. See LP&L, MP&L, and N0 PSI also wrote off certain related "Significant Factors and Known Trends - Competition" for unamortized balances of deferred investment tax credits. additional inforrnation on rate issues affecting the System. Entergy Corporation has agreed to supply to System Energy On March 20,1995, tre Public Utility Ccmmission of Texas sufficient capital to (1) maintain System Energy's equity (PUCT) ordered G5U to implement a $72.9 million annual capital at an amount equal to a minimum of 35% of its total base rate reduction for the period March 31,1994, through capitalization (excluding short-term debt), and (2) permit Ue September 1,1994, decreasing to an annual base rate continuation of commercial operation of Grand Gulf 1 and to l reduction of $52.9 million after Septernber 1,1994. In pay in full allindebtedness for borrowed money of System accordance with the Merger agreement, the rate reduction Energy when due under any circumstances. In addition, under is applied retroactively to March 31,1994. As a result, G5U supplements to the Capital Funds Agreement assigning recorded a $57 million reserve for rate refund in 1994. System Energy's rights as security for specific debt of System See Note 2 for additional information. Energy, Entergy Corporation has agreed to make cash capital In March 1994, the Mississippi Public Service Commission contributions to enable System Energy to make payments on { (MPSC) issued a final order adopting a formulary incentive such debt when due See Note 8 for additionalinformation. 22 Management s hnoncealDacussion and Anotyys t we, i,. ,me.-e ,u.-p .---.c- -e r--

STATEMENTS OF CONSOUDATED INCOME For the Years Ended December 3I, lin thousandt except share dotal 1994 1993 1992 Operating Revenues: Electric $5,797,769 $4,394,346 $4,043.555 Natural gas 118,962 90,991 72,944 Steam products 46,559 Total 5,963.290 4,485,337 4,116,499 Operating Expenses: Operation and maintenance: Fuel, fuel-related expenses, and gas purchased for resale 1,446,397 912,233 802,682 Purchased power K,0,903 278,070 228,679 Nuclear refueling outage npenses 63,979 76,383 87,885 Other operation and maintenance 1,568,810 1,043,838 1,020,894 Depreciation and decommissioning 656,896 443,550 424.958 Taxes other than income taxes 284,234 199,151 197,895 income taxes 131,965 251,163 210,081 ) Rate deferrals: Rate deferrals (1,651) (24,176) Amortization of rate deferrals 391,365 289,259 209,015 Total 4.894,549 3.491,996 3,157,913 Operating income 1.068,741 993,341 958,586 Other income (Deductions): Allowance for equity funds used during construction 11,903 8,049 7,3E 5 Miscellaneous - net 20,631 50,957 135,475 income taxes 241 (33.640) (46,382) Total 32,775 25,366 96,448 Interest Charges: Interest on long-term debt 665,541 503,797 546,805 Other interest - net 22,354 5,740 12,549 Allowance for borrowed funds used during construction (9,938) (5,478) (5,094) Preferred dividend requirements of subsidiaries and other 81,718 56,559 63.137 Total 759,675 560,618 617,397 income before Cumulative Effect of a Change in Accounting Principle 341,841 458,089 437,637 Cumulative effect to Ja 1uary 1,1993, of Accruing Unbilled Revenues (net of income taxes of $57,188) 93,841 Net income $ 341,841 $ 551,930 $ 437,637 Earnings per average common share before cumulative effect of a change in accounting principle $1.49 $2.62 $148 Earnings per average common share $1.49 $3.16 $2.48 Dividends declared per common share $1.80 $1.65 $1.45 Avereae number of common shares outstanding 228,734,843 174,887,556 176,573.778 See Notes to Consohdated Funoncoo! Stutements intergy Corporat on and$vbud. anes 23

STATEMENTS OF CONSOLIDATTiD RETAINED EARNINGS AND PAID-lH CAPITAL For the Years Ender! December 3 r, On thousands / 1994 1993 1992 Retained Earnings, January 1 $2,310,082 $2,062,188 $1,943,298 Add - Net income 341,84_1 551,930 437,637 Total 2,651,923 2,614,118 2,380,935 Deduct: Dividends declared on common stock 411,806 288,342 255,479 Common stock retirements 13,940 13,906 59,187 Capital stock and other expenses 2,438 1,788 4,081 Total 428,184 304,036 318,747 Retained Earnings, December 31 $2,223,739 $2,310,082 $2,062,188 Paid-In Capital, January 1 $4,223,682 $1,327,589 $1,357,883 Add: Loss on reacquisition of subsidiaries' preferred stock (23) (20) (1,323) Issuance of 56,695,724 shares of common stock in the merger with G5U 2,027,325 Issuance of 174,552,011 shares of common stock at $.01 par value net of the retirement of 174,552,011 shares of common stock at $5.00 par value 871,015 Total 4,223,659 4,225,909 1,356,560 Deduct: Common stock retirements 22,468 4.389 28,127 Capital stock discounts and other expenses (943) (2,162) 844 Total 21,525 2,227 28,971 Paid-in Capital. December 31 $4.202,134 $4.223,682 $1,327,589 See Notes to Consohdoted Iinanoot Statements RESULT 5 Of OPERATIONS Net income Consolidated net income decreased S253.4 million in 1994 On December 31,1993, G5U became a subsidiary of Entergy due primarily to the one-time recording in 1993 of the cumu-Corporation. In accordance with the purchase method of lative effect of the change in accounting principle for unbilled j accounting, the results of operations for the 12 months ended revenues for AP&L, G5U, MP&l, and NOPSI and a base rate December 31,1993, of Entergy Corporation and subsidiaries reduction ordered by the PUCT apphed retroactively to March reported in its Statements of Consolidated Income and Cash 31,1994 (see Note 2). In addition, net income was impacted flows do not include G5U's results of operations. However, the by a decrease in revenues, increased Merger-related costs, following discussion between the years 1994 and 1993 is pre. certain restructuring costs, and decreased miscellaneous sented with G50's 1993 results of operations included for income - net, partially offset by a decrease in interest on comparative purposes. The discussion between the years 1993 long-term debt and preferred dividend requirements. and 1992 reflects reported results which do not include G5U. Consolidated net income increased in 1993 due primarily to in the second half of 1994. Entergy recosded certain the one-time recording of the cumulative effect of the charges that significantly affected results of operations as change in accounting principle for unbilled revenues for discussed below. These charges included, among other things. AP&L, MP&L, and NOPSI. This increase was partially of fset by the FERC Settlement refund, NOPSI rate reductions and the effects of implementing Statement of financial credits Merger-related costs, and restructunng costs (see Accounting Standards (SFAS) 109," Accounting for Income Notes 2,11, and 12) Taxes"(SFAS 109) and SFAS 106," Employer's Accounting for 24 Management's hnanooI Orscuwon and Analysis

Postretirement Benefits Other Than Pensions" (SFAS 106), and recorded on the FERC 5ettlement. Interest expense decreased the impact in March 1992 of an after-tax gain from the sale of in 1993 due primarily to the refinancing of high-cost debt AP&L's Missouri properties. and debt reduction activities. Significant factors affecting the results of operations and Preferred dividend requirements decreased in 1994 and causing variances between the years 1994 and 1993, and 1993 due primarily to stock redemption activities. 1993 and 1992, are discussed under " Revenues and Sales,"

• Expenses," and "Other" below.

Other Miscellaneous income - net decreased in 1994 due primarily Revenues and Sales to amortization of plant acquisition adjustment related to See "Five-Year Summary of Selected Financial and Operating the Merger, the adoption of SFA5116," Accounting for Data" on page 16 for information on operating revenues by Contributions Made and Contributions Received," and reduced source and kilowatt-hour (kwh) sales. Grand Gulf I carrying charges at AP&L Miscellaneous income Electric operating revenues decreased in 1994 due primarily - net decreased in 1993 due primarily to the 1992 pretax gain to rate reductions / credits at G5U, MP&L, and NOPSI, the of approximately $33.7 million from the sale of AP&L's effects of the 1994 NOPSI 5ettlement and the FERC Missouri properties. Settlement, and decreased fuel adjustment revenues, partially offset by increased retail energy sales and increased SIGNIFICANT FACTORS AND KNOWN TRENDS collections of previously deferred Grand Gulf 1-related costs. Electric operating revenues were higher in 1993 due Competition primardy to increased residential and commercial energy sales The electric utility industry, including Entergy, is experiencing resu!!ing from favorable weather conditions, increased indus-increased competitive pressures. Entergy is seeking to become trial sales due to improving market conditions in the a leading competitor in the changing electric energy business. petrochemical, lumber, and plywuod industries, anri increased Competition presents Entergy with many challenges. The fuel adjustment revenues and collections of previously following have been identified by Entergy as its major deferred Grand Gulf 1-related costs, neither of which affects competitive challenges. net income, partially offset by the impact of a System Energy rate reduction settlement. Retail and Wholesale Rate issues -Increasing competition in the utility industry brings an increased need to stabilize or Expenses reduse retail rates. The retail regulatory philosophy is shifting Purchased power decreased in 1994 due primarily to decreased in some jurisdictions from traditional cost-of-service regula-power purchases from nonassociated utilities due to changes in tion to incentive-rate regulation. Incentive and performance-generation requirements for the System operating companies. based rate plans encourage efficiencies and productivity Purchased power increased in 1993 due to increased power pur-while permitting utilities and their customers to sliare in chases from non-associated utilities, resulting from changes in the results. MP&L implemented an incentive-rate plan in fuel-related costs and increased energy sales. 1994 and LP&L filed a performance-based formula rate plan Nuclear refueling outage expenses decreased in 1994 due with the Louisiana Public Service Commission (LPSC) in primarily to Grand Gulf I outage expenses incurred in 1993. August 1994. G5U agreed to shared-savings plans as part of Nuclear refueling outage expenses decreased in 1993 due the Merger. Recognizing that many industrial customers primarily to a decrease in the number of scheduled and have energy alternatives, Entergy continues to work with unscheduled refuel ng outages. these customers to address their needs. In certain cases, Total income taxes decreased in 1994 due primarily to lower competitive prices are negotiated, using variable-rate designs. pretax book income and the effects of the FERC Settlement. In a settlement with the Council that was approved on Total income taxes increased in 1993 due pnmarily to higher December 29,1994, NOPSI greed to reduce electric and gas pretax income, an increase in the federal income tax rate as a rates and issue credits and refunds to customers. Effective result of the Omnibus Budget Reconciliation Act of 1993, and January 1,1995, NOPSI implemented a $31.8 million perma-the implementation of SFAS 109, partially offset by the impact nent reduction in electric base rates and a $3.1 million of the March 1992 sale of AP&L's Missouri properties. permanent reduction in gas base rates. These adjustments The amortization of rate deferrals irtreased in 1994 and resolved issues associated with N0 PSI's return on equity 1993 due primarily to collection of more Grand Gulf 1-related exceeding 13.76% for the test year ended September 30, costs from customers. 1994. Under the 1991 NOPSI Settlement, N0 PSI is recovering Interest expense decreased in 1994 due primarily to the from its retail customers its allocable share of certain costs refinancing of high-cost debt partially offset by interest related to Grand Gulf 1. NOP5fs base rates to recover those Management's Fononeral Dscuwon ond Ana%s 2s

I 1 l costs were derived from estimates of those costs made at that on November 1,1993. In connection with the Merger, NOPSI I time. Any overrecovery of costs is required to be returned to agreed with the Council to reduce its annual electric base customers. Grand Gulf I has experienced lower operating rates by $4.8 million effective for bilk rendered on or after costs than previously estimated, and N0 PSI accordingly is November 1,1993. G5U agreed with the LPSC and PUCT to a reducing its base r.tes in two steps to more accurately match five-year Rate Cap on retail electric rates, and to pass the current costs related to Grand Gulf 1. On January 1,1995, through to retail customers the fuel savings and a certain N0 PSI implemented a $10 million permanent reduction in percentage of the nonfuel savings created by the Merger. base electric rates to reflect the reduced costs related to Grand Under the terms of their respective Merger agreements, the Gulf 1, to be followed by an additional $4.4 million rate reduc-LPSC and PUCT have reviewed G5U's base rates during the tion on October 31,1995. These Grand Gulf 1 rate reductions, first post-Merger earnings analysis. The LPSC ordered a which are expected to be largely offset by lower operating $12.7 million annual rate reduction effective January 1, costs, may reduce NOPSI's after-tax net income by 1995. G5U received an injunction delaying implementation approximately $1.4 million per year beginning November 1, of $8.3 million of the reduction and on January 1,1995, 1995. The next scheduled Grand Gulf 1 phase-in rate increase reduced rates by $4.4 million. The entire $12.7 million is in the amount of $4.4 million on October 31,1995, will not be being appealed. On March 20,1995, the PUCT ordered a affected by the 1994 N0 PSI 5ettlement. $72.9 million annual base rate reduction for the period The 1994 NOPSI Settlement also requires NOPSI to credit its March 31,1994, through September 1,1994, decreasing to customers $25 million over a 21-month period, beginning an annual base rate reduction of $52.9 million after January 1,1995, in order to resolve disputes with the Council September 1,1994. In accordance with the Merger regarding the interpretation of the 1991 NOP5l Settlement. agreement, the rate reduction is applied retroactively to N0 PSI recorded a $15.4 million net-of-tax reserve associated March 31,1994. The rate reduction is being appealed and no with the credit in the fourth quarter of 1994. The 1994 N0 PSI assurance can be given as to the timing or outcome of the Settlement further required NOPSI to refund,in December appeal. 5ee Note 2 for further information. 1994, $13.3 million of credits previously scheduled to be made Retaii wheeling, the transmission by an electric utility to customers during the period January 1995 through July of energy produced by another entity over the utility's 1995.These credits were associated with a July 7,1994, transmission and distribution system to a retail customer in Council resolution that ordered a $24.95 million rate the electric utility 3 area of service,is also evolving. 0ver a reduction based on N0 PSI's overcarnings during the test year dozen states have been or are studying the concept of ended September 30,1993. Accordingly, NOPSI recorded an retail competition. In April 1994, the state of Michigan initiat- $8 million net-of tax charge in the fourth quarter of 1994. ed a five-year experiment that allows limited competition MP&L's formulary incentive rate plan allows for periodic among public utilities. During the same month, the California l small adjustments in rates based on a comparison of earned to Public Utilities Commission proposed to deregulate that benchmark returns and upon certain performance factors. In state's electric power industry, starting on January 1,1996, to addition, certain previously agreed-upon stipulations of a allow the largest industrial customers to select the lowest required return on equity of 11% and certain accounting cost supplier for electricity service, Under the proposal, by the adjustments resulted in a 4.3% ($28.1 million) reduction in year 2002, smaller companies and residential customers in MP&L's revenues effective March 25,1994. See Note 2 for California would also be able to buy power from any suppli-further informatinn. ers. The California Public Utilities Commission is currently LP&L's five-year rate freeze expired in March 1994, reviewing its proposal and is expected to make a ruhng in in August 1994, LP&L filed a performance-based formula the first half of 1995. The retail market for electricity is rate plan with the LPSC. The proposed formula rate plan expected to become more competitive with such moves would continue existing LP&L rates at current levels, while toward deregulation. l providing financial incentive to reduce costs and maintain in some areas of the country, municipalities (or comparable high levels of customer satisfaction and system reliability. entities) whose residents are served at retail by an investor-Hearings were held in March 1995. 5ee Note 2 for owned utility pursuant to a franchise are exploring the possi-l additionalinformation. bility of establishing new or extending existing distribution in connection with the Merger, AP&L and MP&L agreed systems or seeking new delivery points in order to serve retail with their respective retail regulators not to request any customers, especially large industrial customers, that currently general retail rate increases that would take effect before receive service from an investor-owned utility. These options November 1998, with certain exceptions. MP&L also agreed depend on the terms of a utility's franchise as well as on state that during this period rt tail base rates under its formula rate law and regulation. In addition, FERC's authority to order plan would not be increased above the level of rates in effect utilities to transmit for a new or expanding municipal system 26 Management's fmancal 0,scussoon and Anaws

I is limited in certain respects. Where successful, however, the requirements). G5U was later added to this filing. I establishment of a municipal system or the acquisition by a On October 31,1994, as amended on January 25,1995, municipal system of a utilitis customers could result in the Entergy Services filed with FERC revised transmission tariffs i inability to recover costs that the utility has incurred in intended to provide access to transmission service on the serving those customers. same or comparable basis, terms, and conditions as the in mid-1994, FERC issued a notice of proposed rulemaking System operating companies, and the matter is pending. 0 pen concerning a regulatocy framework for dealing with recovery access and market pricing, once it tales effect, will increase of stranded costs,such as high-cost nuclear generating units, marketing opportunities for the System, but will also expose which may be incurred by electric utilities as a result of the System to the risk of loss of load or reduced revenues increased competition. In addition to addressing recovery of due to competition with alternative suppliers. stranded costs related to wholesale service, the proposal In March 1994, North Little Rock, Arkansas, awarded AP&L requested comment as to recovery of retail stranded costs in a wholesale power contract that will provide estimated transtnission rates where state regulatory authorities failed to revenues of $347 million over 11 years. Under the contract, address the issue or were in conflict. Comments and reply the price per kwh was reduced 18%, with increases in price comments have been filed, and the matter is pending. The risk through the year 2004. AP&L, which has been serving North of esposure to stranded costs which may result from competi-Little Rock for over 40 years, was awarded the contract Mter I tsn in the industry will depend on the extent and timing of intense bidding with several competitors. On May 22,1994, retail competition, the resolution of jurisdictional issues con-FERC accepted the contract. Rehearings were requested by cerning stranded cost recovery, and the extent to which such one of AP&L's competitors and were held in February 1995. costs are recovered from departing or remainirig customers, The matter is pending. among other matters. In light of the rate issues discussed above, Entergy is j Cogeneration projects developed or considered by certain aggressivdy reducing costs to avo,d potential earnings of G5U's industrial customers over the last several years have crosions that might result as well as to successfully compete resulted in G5U developing and securing approval of rates by becoming a low-cost producer. In 1994, Entergy lower than the rates previously approved by the PUCT and announced a restructuring program related to certain of its LPSC for such industrial customers. Such rates are designed to operating units. This program is designed to reduce costs retain such customers, and to compete for and develop new and improve operating efficiencies. See Note 11 for further loads, and do not presently recover G5U's full cost of service. information. Also,in response to an increasingly competitive The pricing agreements at non-full cost-of-service-based environment, AP&L LP&L, MP&L and NOPSI have announced rates fully recover all related costs but provide only a minimal intentions to revise their initial least-cost planning activities l return. Substantially all of such pricing agreements expire no and G5U is continuing to work with the PUCT regarding later than 1997. In 1994, kwh sales to G5U's industrial integrated resource planning. customers at non-full cost-of-service rates, which make up approximately 28% of G5U's total industrial class, increased The Energy Policy Act of 1992 - The EPAct addresses a wide 13% Sales to the remaining G5U industrial customers range of energy issues and is altering the way Entergy and the increased 2% rest of the electric utility industry operate. The EPAct encour. See Note 2 for information with respect to a settlement ages competition and affords utilities the opportunities and betwe> r System Energy and FERC in which System Energy the risks associated with an open and more competitive refunded approximately $613 million to AP&L LP&L MP&L market environment. The EPAct creates exemptions from and N0 PSI, which in turn have made or will make refunds or regulation under the Public Utility Holding Company Act of credits to their customers (except for those portions attribut-1935 (Holding Company Act) and creates a class of exempt ab!c to AP&L's and LP&L's retained share of Grand Gulf I wholesale generators consisting of utility affiliates and non-costs) Additionally,5ystem Energy will refund a total of utilities that are owners and operators of facilities for the i approximately $62 million, plus interest, to AP&L LP&L, generation and transmission of power for sale at wholesale. MP&L and NOPSI over the period through June 2004. AP&l, The EPAct also gives FERC the authority to order investor-LP&L MP&L, and N0 PSI also wrote off certain related owned utilities, including the System operating companics, to unamortized balances of deferred investment ta. 'dits. transmit power and energy to or for wholesale purchasers and In the wholesale rate area, FERC approved in 1992, with sellers. The law creates the potential for electric utilities and certain modifications, the proposal of AP&L, LP&L, MP&l, other power producers to gain increased access to the trans-NOPSI, and Entergy Power to sell wholesale power at market-mission systems of other entities to facilitate wholesale sales. based rates and to provide to electric utilities "open access" Both the System operating companies and Entergy Power to the System's transmission system (subject to certain expect to con'pete in this market. In addition, the EPAct %nagement's Fnonoa' osmon and An0% 27

i allows utilities to own and operate foreign generation, trans-utility operations, and Entergy Corporation may invest up to mission, and distribution facilities. See "Nonregulated approximately $150 million per year for the next several years Investments' below for further information. in nonregulated businesses. Entergy Corporation's nonregu-lated businesses currently fall into two broad categories: Public Utility Holding Company Act of 1935 - Entergy power development and new technology related to the utility Corporation, along with 10 other electric utility holding com-business. Entergy Corporation made investments in panies, recently asked Congress to repeal the Holding Argentina's and Pakistan's electne energy infrastructures and Company Act.The Holding Company Act requires oversight by is also pursuing additional projects in Central America, South the SEC of many business practices and activities of utility America, Europe, and Asia. Entergy Corporation opened an holding companies and their subsidiaries including, among office in Hong Kong during 1994 and expects to open offices other things, nonutility activities. Entergy Corporation believes in South America and Europe in 1995. Entergy Corporation is that the Holding Company Act inhibits its ability to compete in negotiating in China to participate in two power generation i the evolving electric energy marketplace, and largely projects, Datong and Taishan, which are expected to receive duplicates the oversight activities already performed by TERC final approval in 1995 or 1996. To date, Entergy Corporation and state and local public service commissions has made no investment in the China projects; however. Entergy Corporation's share of these projects may total Litigation and Regulatory Proceedings approximately $115 million. In addition, Entergy Corporation See Note 2 for information on the possible material adverse is exploring the possibility to provide telecommunications effects on G5U's financial condition and results of operations services that allow customers to control energy usage. as a result of substantial write-offs and/or refunds in connet-in 1994, Entergy Corporation's nonregulated investments tion with outstandmg appeals and remands regarding approx-reduced consolidated net income by approximately $31.7 mil-imately $1.4 billion of abeyed company wide River Bend plant lion, in the near term, these investments are unlikely to have a costs and approximately $187 million ($170 million net of tax) positive effect on earnings; but management believes that of Texas retail jurisdiction deferred River Bend operating and these investments will contribute to future earnings growth. carrying costs. See Note 8 for information on the bankruptcy proceedings ANO Matters of Cajun and litigation with Cajun concerning Cajun's owner-Arkansas Nuclear One, Unit 2, experienced a forced outage for ship interest in River Bend and the related possible material repair of certain steam generator tubes in March 1992. Further adverse effects on G5U's financial condition. inspections and repairs were conducted at subsequent refuel-ing and mid-cycle outages in September 1992, May 1993, Entergy Corporation-G5U Merger April 1994, and January 1995. AP&t's budgeted maintenance The acquisition of G5U by Entergy Corporation was the largest expenditures were adequate to cover the cost of such repairs. electric utihty merger in United States history. Entergy expects ANO 2's output has been reduced 15 megawatts or 16% due to achieve $850 million in fuel cost savings and $G70 million to secondary side fouling, tube plugging, and reduction of pri-in operation and maintenance expense savings over 10 years mary temperature. Entergy Operations continues to take steps as a result of the Merger. In 1994, G5U recorded charges asso-at ANO 2 to reduce the number and severity of future tube etated with certain preacquisition contingencies, severance tracks. In addition, Entergy Operations continues to meet with and augmented retirement costs, and restructuring costs. See the Nuclear Regulatory Commission (NRC) to discuss such Notes 12 and 11 for further information. Although common steps and results of inspections of the generator tubes, as well shareholders experienced some dilution in earnings as a result as the timing of future inspections. Additionalinspections are of the Merger, Entergy believes that the Merger will ultimately planned for the normal refueling outage scheduled for be beneficial to common shareholders m terms of strategic October 1995. be -fA r, well as economies and ef ficiencies produced. For further information, see Note 2. Deregulated Portion of River Bend As of December 31,1994, G5U had not recovered a significant Nonregulated Investments amount of its investment in, or received any return associated 1 E ntergy Corporation continues to consider opportunities to with, the portion of River Bend included in the deregulated expand its utikty and utihty-related businesses that are not asset plan in Louisiana and the portion of River Bend placed i regulated by state and local regulatory authorities (nonregu-in abeyance as part of the Texas rate order which went into lated businesses). Entergy Corporation's investment strategy is effect in July 1988. 5ee Note 2 for further information. Future to invest in nonregulated busmess opportunities that have the earnings will continue to be hmited as long as the limited potential to earn a greater rate of return than its regulated recovery of the investment and lack of return continues. I I 28 %nogement\\ hnentrolDscuwon and Ano%s -~.

For the year ended December 31,1994, G5U recorded During 1993, the Louisiana Department of Environmental revenues resulting from the sale of electricity from the deregu-Quality issued new rules for solid waste regulation, including lated asset plan of approximately $34.1 million. 0peration and waste water impoundments. LP&L has determined that maintenance expenses, including fuel, were approximately certain of its power plant waste water impoundments are $30 million, and depreciation expense associated with the affected by these regulations and has chosen to eithcr deregulated asset plan investment was approximately upgrade or close them.The aggregate cost of the upgrades $16.7 million for the year ended December 31,1994. For the and closures, to be completed by 1996,is estimated to be year ended December 31,1994, G5U recorded nonfuel revenue $16 million. of $32.5 million (included in the $34.1 million of total deregu-lated asset plan revenue discussed above) which, absent the Accounting issues deregulated asset plan, would not have been realized. The Proposed Accounting Standards-The Financial Accounting operation and maintenance expenses and depreciation expense Standards Board (FASB) has proposed a SFAS on Accounting allocated to the deregulated asset plan as detailed above would for the Impairment of Long-Lived Assets, effective January 1 have been incurred at River Bend with or without the deregu-1996. The proposed standard describes circumstances which i lated asset plan. The future impact of the deregulated asset may result in assets (incNding goodwill such as the Merger plan on G5U's results of operations and financial position will acquisition adjustment, see Note 1) being impaired and pro-depend on River Bend's future operating costs, the unit's effi-vides criteria for recognition and measurement of asset ciency and availability, and the future market for energy over impairment. Note 2 describes regulatory assets of $170 mil-the remaining life of the un t. Based on current estimates of lion (net of tax) related to Texas retail deferred River Bend the factors discussed above, G5U anticipates that future operating and carrying costs. Management believes these revenues from the deregulated asset plan will fully recover all deferred costs will be required to be written off under the related costs. provisions of the new standard unless there are favorable regulatory or court actions related to these costs prior to the Property Tax Exemptions adoption of the new standard by Entergy. Certain other oper-Exemptions from the payment of Louisiana local property ations of Entergy are potentially affected by this standard, taxes on Waterford 3 and River Bend, which have been in and any resulting write-of fs will depend on future operating ef fect for 10 years for each of the plants, will expire in costs, generating units' efficiency and availability, and the December 1995 and Decernber 1996, respectively. LP&L and future market for energy over the remaining life of the units. G5U are working with tadng authorities to determine the Based on current estimates, Entergy anticipates that future method for calculating the amount of the property taxes to be revenues will fully recover the costs of such operations. paid when the exemptions expire. LP&L believes that assessed property taxes will be recovered from its customers through Continued Application of SFAS 71 - Entergy's financial rates. G5U beheves that assessed property taxes allocated to statements currently reflect, for the most part, assets and its retail jurisdictions will be recovered from those customers costs based on current cost-based ratemaking regulations,in through rates. accordance with SFAS 71,

• Accounting for the Effects of Certain Types of Regulation." As discussed above, the electric Environmental issues utility industry is changing and these changes could possibly G5U has been notified by the United States Environmental result in the discontinuance of the application of SFAS 71, Protection Agency (EPA) that it has been designated as a poten-which would result in the elimination of regulatory assets and tially responsible party for the cleanup of sites on which G5U liabilities. See Note 1 for further information.

and others have or have been alleged to have disposed of mate-rial designated as hazardous waste. G5U is currently negotiating Accounting for Decommissioning Costs - The FASB is with the EPA and state authonties regarding the cleanup of currently reviewing the accounting for decommissioning of some of these sites. Several class action and other suits have nuclear plants. This project could possibly change the been fild in state and federal courts seeking relief from G5U System's, as well as the entire utility industry's, accounting and others for damages caused by the disposal of hazardous for such costs. For further information, see Note 8. waste and for asbestos-related disease allegedly resulting from exposure on G5U premises. While the amounts at issue in the cleanup ef forts and suits may be substantial, G5U believes that its results of operations and financial condition will not be matenally affected by the outcome of the suits. Management s brancal Oxuswn and Ana%s 29

REPORT OF MANAGEMENT AUDIT COMMITTEE CHAIRMAN'S LETER The management of Entergy Corporation has prepared and is The Entergy Corporation Board of Directors' Audit Committee responsible for the financial statements and related financial is comprised of four directors, who are not officers of Entergy information included herein. The financial statements are Corporation: H. Duke Shackelford (Chairman), Lucie J. based on generally accepted accounting principles. Financial fjeldstad, Dr. Norman C. Francis, and James R. Nichols. The information included elsewhere in this report is consistent committee held four meetings during 1994. with the financial statements. The Audit Committee oversees Entergy Corporation's finan-To meet its responsibilities with respect to financial cial reporting process on behalf of Entergy Corporation's information, management maintains and enforces a system Board of Directors. In fulfilling its responsibility, the commit-of internal accounting controls that is designed to provide tee recommended to the Board, subject to stockholder reasonable assurance, on a cost-ef fective basis, as to the approval, the selection of Entergy Corporation's independent integrity, objectivity, and reliability of the financial records, public accountants (Coopers & Lybrand LLP.). and as to the protection of assets. This system includes The Audit Committee d:Scussed with Entergy's internal audi-communication through written policies and procedures, an tors and the indeperident public accountants the overall scope employee Code of Condact, and an organizational structure and specific plans for their respective audits, as well as Entergy that provides for appropriate division of tesponsibility and Corporation's consolidated financial statements and the the training of personnel. This system is also tested by a adequacy of Entergy Corporation's internal controls. The com-comprehensive internal audit program, mittee met, together and separately with Entergy's internal The independent public accountants provide an objective auditors and independent public accountants, without assessment c,f the degree to which management meets its management present, to discuss the results of their audits, responsibihty for fairness of financial reporting. They regularly their evaluation of Entergy Corporation's internal controls, and evaluate the system of internal accounting controls and per-the overall quality of Entergy Corporation's financial reporting. form such tests and other procedures as they deem necessary The meetings also were designed to facilitate and encourage to reach and express an opinion on the fairness of the finan-any private communication between the committee and the cial statements. internal aud; tors or independent public accountants, Management believes that these policies and procedures provide reasonable assurance that its operations are carried out with a high standard of business conduct. 0 'lO MJIY=. w . w.. ,~ EDWIN LUPBERGER GERALD D. MCINVALE H. DUKE SHACKELFORD Chairman and Senior Vice President and Chairman, Audit Committee ChiefExecutive 0fficer Chieffinanciolofficer 30 f aregv comorancin og Suscones

i I l REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of of December 31,1994, and the results of their operations and Entergy Corporation their cash flows for the year then ended in conformity with We have audited the accompanying consolidated balance generally accepted accounting principles. sheet of Entergy Corporation and Subsidiaries as of December As discussed in Note 2 to the consolidated financial state-31,1994, and the related statements of consolidated income, ments, the ner omount of capitalized costs for River Bend retained earnings and paid-in capital and cash flows for the exceed those costs currently being recovered through rates. year then ended. These financial statements are the responsi. At December 31,1994, approximately $685 million is not cur-bility of the Corporation's management.0ur responsibility is rently being recovered through rates. If current regulatory to express an opinion on these financial statements based on and court orders are not rnodified, a write-off of all or a our audit. The consolidated financial statements of Entergy portion of such costs may be required. Additionally, as Corporation and Subsidiaries as of December 31,1993 and for discussed in Note 2 to the consolidated financial statements, the years ended December 31,1993 and 1992, were audited by other rate-related contingencies exist which may result in other auditors, whose report, dated February 11,1994,includ-refunds of revenues previously collected. The extent of such ed explanatory paragraphs that (i) described changes in 1993 write-off of capitalized River Bend costs or refunds of in methods of accounting for revenues, mcome taxes and revenues previously collected,if any, will not be determined postretirement benefits other than pensions (Notes 1,3 and until appropriate rate proceedings and court appeals have 10, respectively); (ii) uncertainties regarding costs capitalized been concluded. Accordingly, the accompanying consolidated by Gulf States Utilities Company for its River Bend Unit I financial statements do not include any adjustments or provi-Nuclear Generating Plant (River Bend) and other rate-related sion for write-off or refund that might result from the contingencies which may result in a refund of revenues previ-outcome of these uncertainties. ously collected (Note 2); and,(iii) an uncertainty regarding civil As discussed in Note 8 to the consolidated financial state-actions against Gulf States Utihties Company (Note 8). ments, civil actions have been initiated against Gulf States We conducted our audit in accordance with generally Utilities Company to, among other things, recover the accepted auditing standards. Those standards require that we co-owner's investment in River Bend and to annul the River plan and perform the audit to obtain reasonable assurance Bend Joint Ownership Participation and Operating about whether the financial statements are free of material Agreement. The ultimate outcome of these proceedings misstatement An audit includes examining, on a test basis, cannot presently be determined. evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the d, accounting principles used and significant estimates made by management, as well as evaluating the overall financial state-i ment presentation. We believe that our audit provides a Coopers & Lybrand LLP. reasonab!c basis for our opinion. New Orleans, Louisiana In our opin on, the consolidated financial statements February 21,1995, except for the last paragraph of i referred to above present fairly,in all material respects, the "Filirigs with the PUCT and Texas Cities"in Note 2, as to financial position of Entergy Corporation and Subsidiaries as which the date is March 20,1995 f oregy Cvpom90n and subud ovs 31

l \\ NOTT:S TO CONSOLIDATED FINANCIAL STATEMENTS i NOTE 1

SUMMARY

OF SIGNIFICANT ACCOUNTING POUCIES costs are reflected in the related revenues. GSU's Texas retail The accompanying consolidated financial statements include the rate schedules include a fixed fuel factor approved by the PUCT, accounts of Entergy Corporation and its direct and indirect sub. which remains in effect until changed as part of a general rate sidiaries: AP&t, GSU, LP&L, MP&L, NOPSI, Svstem Energy, case, fuel reconcihation, or a fixed fuel factor filing. Entergy Operations, Entergy Pakistan, Ltd., Entergy Power, Entergy Power Development Corporation, Entergy Richmond Utility Plant Power Corporation, Entergy Services, Inc., System fuels, Inc., Utility plant is stated at original cost. The original cost of utility Entergy Enterprises, Inc., Entergy SASI, Entergy SA, Entergy p! ant retired or removed, plus the applicable removal costs, less Argentina SA, Entergy Transener SA, Entergy Asia, Ltd., Entergy salvage, is charged to accumulated depreciation. Maintenance, Yacyreta I,Inc., and Entergy Edegel, Inc. Because the acquisition repairs, and minor replacement costs are charged to operating of GSU was consummated on December 31,1993, under the expenses. Substantially all of the utility plant is subject to liens purchase rnethod of accounting, GSU is included only in the of the subsidiaries' mortgage bond indentures. December 31,1993, consolidated balance sheet amounts. GSU is Utility plant includes the portions of Grand Gulf 1 and included in all of the consolidated financial statements for 1994. Waterford 3 that were sold and are currently under lease. All references made to Entergy or the System as of, and For financial reporting purposes, these sale and leaseback subsequent to, the Merger closing date include amounts and transactions are reflected as financing transactions. information pertaining to GSU as an Entergy company. All Total System net electric utility plant in service of $14 5 bil-significant intercompny transactions have been eliminated. lion as of December 31,1994,(excluding approximately Entergy Corporation's util ty subsidiaries maintain accounts in $0.5 billion of plant acquisition adjustment related to the accordance with FERC and other regulatory guidehnes. Certain Merger) includes $9.8 billion of production plant, $1.4 billion previously reported amounts have been reclassified to conform of transmission plant, $2.8 billion of distribution plant, and to current classifications. $0,5 billion of other plant. Depreciation is computed on the straight-line basis at rates Revenues and fuel Costs based on the estimated service lives and costs of removal of The System operating companies accrue estimated revenues the various classes of property. Depreciation provisions on for energy delivered since the latest bilhngs. However, prior to average depreciable property approximated 3.0% in 1994 January 1,1993, AP&L, GSU, MP&L, and N0 PSI recognized and 1993, and 3.1% in 1992. electnc and gas revenues when billed To provide a better The Allowance for Funds used During Construction matching of revenues and expenses, effective January 1,1993, (AfUDC) represents the approximate net composite interest AP&L, GSU, MP&L, and NOPSI adopted a change in accounting cost of borrowed funds and a reasonable return on the equity principle to provide for accrual of estimated unbilled revenues. funds used for construction. Although ATUDCincreases utility The cumulative etfect of this accounting change as of January plant and increases earnings, it is only realized in cash 1,1993,(excluding GSU) increased net income by $93.8 million through depreciation provisions included in rates. The System or $0.54 per share. Had this new accounting method been in operating companies' effective composite rates for AFUDC effect during prior years, net income before the cumulative were 9.5% for 1994,10 6% for 1993, and 10.8% for 1992. ef fect would not have been materially different from that shown in the accompanying financial statements, in Jointly-Owned Generating Stations accordance with a LPSC rate order, GSU recorded a deferred Certain Enterg/ Corporation subsidiaries own undivided credit of $16.6 million for the January 1,1993, amount of interests in several jointly-owned electric generating facilities unbilled revenues. See Note 2 regarding recent LPSC rate and record the investments and expenses associated with actions regarding the deferred unbilled revenues. these generating stations to the extent of their respective The System operating companies' rate schedules (except GSU's ownership interests. As of December 31,1994, the System's Texas retail rate scheoules) include fuel adjustment clauses that investment and accumulated depreciation in each of these allow either current recovery or deferra!s of fuel costs until such generating stations were as follows: TOTAL MEGAWATT ACCUMULATED GENERATING STATIONS FUEL TYPE CAPABILITY OWNERSHIP INVESTMENT DEPRECIATION (!v rhaasonds) Grand Gulf Nuclear 1,143 90.00 % " $3,366,471 $751,717 River Bend Unit 1 Nuclear 936 700W $3,080,015 $617,002 Independence Units 1 and 2 Coal 1,678 56 50 % $ 541,893 $170,837 White Bluff Units 1 and 2 Coal 1,660 57.00 % $ 400,918 $151,830 Roy S. Nelson Unit 6 Coal 550 70.00 % $ 390,033 $145,897 Bio Cajun 2 Un,t 3 Coal 540 42.00 % $ 219,788 $ 74,442 IIllncludn Sysre m inergis o,s nenhm ond tecsrhold mrerests m Grand Guff I (21 See Nore 8 rega@ng the cunent status o Cajun 3% undword ownen% mrerest m Rwer bend r 3 Notes to Comohdated Fnontral Statemeris

Income Taxes that rates set by an independent regulator on a cost-of-Entergy Corporation and its subsidiaries file a consolidated service basis (including a reasonable rate of return on federal income tax return. Income taxes are allocated to the invested capital) can actually be charged to and collected j System companies in proportion to their contribution to from customers. I consolidated taxable income. 5EC regulations require that no In the event that either all or a portion of a utility's Entergy Corporation subsidiary pay more taxes than it would operations cease to meet those criteria for various reasons, have had a separate income tax return been filed. Deferred including deregulation, a change in the method of regulation taxes are recorded for all temporary differences between book or a change in the competitive environment for the t,tility's and taxable income. Investment tax credits are deferred and regulated services, the utility should discontinue application amortized based upon the average usefullife of the related of SFAS 71 for the relevant portion. That discontinuation j property in accordance with rate treatment. As discussed in should be reported by elirnination from the balance sheet of Note 3,in 1993 Entergy changed its accounting for income the ef fects of any actions of regulators recorded as regulatory taxes to conform with SFAS 109. assets and liabilities. As of December 31,1994, and for the foreseeable future, 1 Acquisition Adjustment the System's financial statements continue to follow SFAS 71, l Entergy Corporation, upon completion of the Merger in with the exceptions noted below. December 1993 (see Note 12 for additional details), recorded an acquisition adjustment in utility plant in the amount of SFAS 101 $380 million representing the excess of the purchase price SFA5101," Accounting for the Discontinuation of Application over the net assets acquired of G5U. During 1994, the System of FA5B 71," specifies how an enterprise that ceases to recorded an additional $115 million of acquisition adjustment meet the criteria for application of SFAS 71 to all or part related to the resolution of certain preacquisition contingen-of its operations should report that event in its financial l . cies and appropriate allocation of purchase price, which com-statements. G5U discontinued regulatory accounting princi-bined with the amortization of the acquisition adjustment of ples for its wholesale jurisdiction and steam department and j $16 million in 1994, resulted in an unamortized balance of the Louisiana deregulated portion of River Bend during 1989 $479 million of acquisition adjustment as of December 31, and 1991, respectively. 1994. The acquisition adjustment is being amortized on a l straight-line basis over a 31-year period beginning January 1 Fair Value Disclosures 1994, which approximates the remaining average book life The estimated fair value of financialinstruments has been of the plant acquired as a result of the Merger.The System determined by Entergy, using available market information l anticipates that its future net cash flows will be sufficient to and appropriate valuation methodologies. However, consider-l recover such amortization. able judgment is required in developing the estimates of fair I value. Therefore, estimates are not necessarily indicative of Reacquired Debt the amounts that Entergy could realize in a current market The premiums and costs associated with reacquired debt are exchange. in addition, gains or losses realized on financial being amortized over the life of the related new issuances,in instruments may be reflected in future rates and not accrue accordance with ratemaking treatment. to the benefit of stockholders. Entergy considers the carrying amounts of financial instru-Cash and Cash Equivalents ments classified as current assets and liabilities to be a Entergy considers all unrestricted highly liquid debt reasonable estimate of their fair value because of the short instruments purchased with an original maturity of three maturity cf these instruments. In addition, Entergy does not months or less to be cash equivalents. presently expect that performance of its obligations will be required in connection with certain off-balance sheet Continued Application of SFAS 71 commitments and guarantees considered financial As a result of the EPAct and actions of regulatory commissions, instruments. Due to this factor, and because of the related the electric utility industry is moving toward a combination of party nature of these commitments and guarantees, competition and a modified regulatory environment.The determination of fair value is not considered practicabl*. System's financial statements currently reflect, for the most See Notes 5,6, and 8 for additional fair value disclosure. part, assets and costs based on current cost-based ratemaking Entergy adopted the provisions of SFAS 115," Accounting regulations,in actordance with SFAS 71," Accounting for for Certain Investments in Debt and Equity Securities," effec-the Effects of Certain Types of Regulation." Continued applica-tive January 1,1994. As a result, as of December 31,1994, bility of SFAS 71 to the System's financial statements requires Entergy recorded on the balance sheet a reduction of I { hiotes to ConwMored f,nanoot Statemen:s 33

$2.2 million in decommissioning trust funds, representing the in August 1994, the Texas Third District Court of Appeals amount by which the fair value of the securities held in such (the Appellate Court) affirmed the district court's decision l funds is less than amounts for decommissioning recovered in that there was substantial evidence to support the PUCTs rates and deposited in the funds and the related earnings on 1988 decision not to include the abeyed construction costs in the amounts deposited. Due to the regulatory treatment G50's rate base. While acknowledging that the PUCT had for decommissioning trust funds the System recorded an exceeded its authority when it attempted to defer a decision - offsetting amount in unrealized losses on investment on the inclusion of those costs in rate base in order to allow 4 securities as a regulatory asset. G5U a further opportunity to demonstrate the prudence of those costs in a subsequent proceeding, the Appellate Court NOTE 2. RATE AND REGULATORY MATTERS found that G5U had suffered no harm or lack of due process River Bend as a result of the PUCTs error. Accordingly, the Appellate In May 1988, the PUCT granted G5U a permanent increase in Court held that the PUCT's action had the effect of disallow-annual revenues of $59.9 million resulting from the inclusion ing the company-wide $1.4 billion of River Bend construction in rate base of approximately $1.6 billion of company-wide costs for ratemaking purposes. In its August 1994 opinion, River Bend plant investment and approximately $182 million the Appellate Court also held that G5U's deferred operating of related Texas retailjurisdiction deferred River Bend costs and maintenance costs associated with the allowed portion of (Allowed Deferrals). In addition, the PUCT disallowed as River Bend should be included in rate base and that G5U's imprudent $63.5 million of company-wide River Bend plant deferred River Bend carrying costs included in the Allowed costs and placed in abeyance, with no finding of prudence, Deferrals should also be included in rate base.The Appellate approximately $1.4 billion of company wide River Bend plant Court's August 1994 opinion affirmed the PUCT's original investment and approximately $157 million of Texas retail order in this case. jurisdiction deferred River Bend operating and carrying costs. The Appellate Court's August 1994 opinion was entered by The PUCT affirmed that the ultimate rate treatment of such two judges, with a third judge dissenting.The dissenting amounts would be subject to future demonstration of the opinion states that the result of the majority opinion is, prudence of such costs. G5U and intervening parties appealed among other things, to deprive G5U of due process at the this order (Rate Appeal) and G5U filed a separate rate case PUCT because the PUCT never reached a finding on the asking that the abeyed River Bend plant costs be found $1.4 billion of construction costs. prudent (Separate Rate Case). Intervening parties filed suit in a In October 1994, the Appellate Court denied G5U's Texas district court to prohibit the Separate Rate Case.The dis-motion for rehearing on the August 1994 opinion as to the trict court's decision was ultimately appealed to the Texas $1.4 billion in River Bend construction costs and other e j Supreme Court, which ruled in 1990 that the prudence of the matters. G5U appealed the Appellate Court's decision to purported abeyed costs could not be relitigated in a separate the Texas Supreme Court, where it is pending. ) d rate proceeding. The Texas Supreme Court's decision stated As of December 31,1994, the River Bend plant costs that allissues relating to the merits of the original PUCT order, disallowed for retail ratemaking purposes in Texas, the including the prudence of all River Bend related costs, should River Bend plant costs held in abeyance, and the related be addressed in the Rate Appeal, operating and carrying cost deferrals totaled (net of taxes) In October 1991, the Texas district court in the Rate Appeal approximately $13 million, $280 million (both net of depreci-issued an order holding that, while it was clear the PUCT made ation), and $170 million, respectively. Allowed Deferrals were an error in assuming it could set aside $1.4 billion of the total approximately $101 million, net of taxes and amortization, as 3 costs of River Bend and consider them in a later procetding, of December 31,1994. G5U estimates it has collected approx-the PUCT, nevertheless, found that G5U had not met its imately $158 million of revenues as of December 31,1994, as burden of proof related to the amounts placed in abeyance. a result of the originally ordered rate treatment by the PUCT The court also ruled that the Allowed Deferrals should not be of these deferred costs. If recovery of the Allowed Deferrals is included in rate base.The court further stated that the PUCT not upheld, future revenues based upon those allowed defer-had erred in reducing G5U's deferred costs by $1.50 for each rals could also be lost, and no assurance can be given as to $1.00 of revenue collected under the interim rate increases whether or not refunds of revenue received based upon such authorized in 1987 and 1988. The court remanded the case to deferred costs previously recorded will be required. the PUCT with instructions as to the proper handling of the No assurance can be given as to the timing or outcome of Allowed Deferrals. G5U's motion for rehearing was denied and, the remands or appeals described above. Pending further in December 1991, G5U filed an appeal of the October 1991 developments in these cases, G5U has made no write-offs or district court order. The PUCT also appealed the October 1991 reserves for the River Bend-related costs. Management d; strict court order, which served to supersede the district believes, based on advice from Clark Thomas & Winters, a court's judgment, rendering it unenforceable under Texas law. Professional Corporation, legal counsel of record in the Rate r i y Nores to Conschdated hnoncioI 5torements I L

~ - L Appeal, that it is reasonably possible that the case will be Additionally, management believes, based on advice from remanded to the PUCT, and the PUCT will be allowed to rule on Clark, Thomas & Winters, a Professional Corporation, legal the prudence of the abeyed River Bend plant costs. Rate Caps counsel of record in the Rate Appeal, that it is reasonably imposed by the PUCT's regulatory approval of the Merger possible that the Allowed Deferrals will continue to be recov-could result in 050 being unable to use the full amount of a cred in rates. Management also believes, based on advice favorable decision to immediately increase rates; however, a from Clark, Thomas & Winters, a Professional Corporation, favorable decision could permit some increases and/or limit or legal counsel of record in the Rate Appeal, that it is prevent decreases during the period the Rate Caps are in reasonably possible that the deferred costs related to the l effect. At this time, management and legal counsel are unable $1.4 billion of abeyed River Bend plant costs will be recovered t to predict the amount,if any, of the abeyed and previously in rates to the extent that the $1.4 billion of abeyed River disallowed River Bend plant costs that ultimately may be dis-Bend plant is recovered. However, a net of tax write-off of the i allowed by the PUCT. A net of tax write-off as of December 31, $170 million of deferred costs related to the $1.4 billion of 1994, of up to $293 million could be required based on an abeyed River Bend plant costs would be required if they are ultimate adverse ruling by the PUCT on the abeyed and disal-not allowed to be recovered in rates. lowed costs. A proposed accounting standard," Accounting for the In prior proceedings, the PUCT has held that the original Impairment of Long-Lived Assets," which is expected to cost of nuclear power plants will be included in rates to the become effective January 1,1996, may require the write-off extent those costs were prudently incurred. Based upon the of the $170 million of rate deferrals discussed above, upon PUCT's prior decisions, management believes that its River adoption of the standard, unless there are favorable regula-Bend construction costs were prudently incurred and that it is tory or court actions related to these costs prior to adoption. reasonably possible that it will recover in rate base, or other-wise through means such as a deregulated asset plan, all or Merger-Related Rate Agreements substantially all of the abeyed River Bend plant costs. In November 1993, Entergy Corporation, AP&L, MP&L, and However, management also recognizes that it is reasonably N0 PSI entered into separate settlement agreements whereby possible that not all of the abeyed River Bend plant costs may the Arkansas Public Service Commission (APSC), MPSC, and ultimately be recovered. Council agreed to withdraw from the SEC proceeding related As part of its direct case in the Separate Rate Case, G5U to the Merger. in return AP&L, MP&L, and NOPSI agreed, filed a cost reconciliation study prepared by Sandlin among other things, that their retail ratepayers would be pro-Associates, management consultants with expertise in the tected from (1) increases in the cost of capital resulting from cost analysis of nuclear power plants, which supports the rea-risks associated with the Merger,(2) recovery of any portion sonableness of the River Bend costs held in abeyance by the of the acquisition premium or transactional costs associated i PUCT. This reconciliation study determined that approximately witn the Merger,(3) certain direct allocations of costs associ-B2% of the River Bend cost increase above the amount includ-ated with G5U's River Bend nuclear unit, and (4) any losses of i ed by the PUCT in rate base was a result of changes in federal G5U resulting from resolution of litigation in connection with nuclear safety requirements and provided other support for its ownership of River Bend. AP&L and MP&L agreed not to the remainder of the abeyed amounts. request any general retail rate increase that would take effect There have been four other rate proceedings in Texas before November 1998, except for, among other things, involving nuclear power plants. Investment in the plants ulti-increases associated with the recovery of certain Grand Gulf mately disallowed ranged from 0% to 15% Each case was 1-related costs, recovery of certain taxes, and force majeure unique, and the disa!!owances in each were made on a case-(defined to include, among other things, war, natural by-case basis for different reasons. Appeals of two of these catastrophes, and high inflation), and in the case of AP&L, PUCT decisions are currently pending. excess capacity costs and costs related to the adoption of The following factors support management's position that a SFAS 106 that were previously deferred. MP&L also agreed loss contingency requiring accrual has not occurred, and its that retail base rates under the formula rate plan would not belief that all, or substantially all, of the abeyed plant costs be increased above November 1,1993, levels for a period of will ultimately be recovered: five years beginning November 9,1993 (described below).

1. The $1.4 billion of abeyed River Bend plant costs have never in 1993, the LPSC and the PUCT approved separate been ruled imprudent and disallowed by the PUCT.

regulatory proposals that include the following elements:

2. Sandkn Associates

• analysis which supports the prudence of (1) a five-year Rate Cap on G5U's retail electric base rates in substantially all of the abeyed construction costs.

the respective states, except for force majeure (defined to

3. Historical inclusion by the PUCT of prudent construction include, among other things, war, natural catastrophes, and costs in rate base.

high inflation);(2) a provision for passing through to retail

4. The analysis of G5U's internal legal staff, which has consid-customers in the respective states the jurisdictional portion of etable experience in Texas rate case litigation.

the fuel savings created by the Merger; and (3) a mechanism Notes to Comahdoted fmancd statements 35 i

for tracking nonfuel operation and maintenance savings reduction in operating revenues for the test year on or before created by the Merger. The LPSC regulatory plan provides that March 18,1994, which became effective March 25,1994. The such nonfuel savings will be shared 60% by the shareholder final order was appealed to the Mississippi Supreme Court on and 40% by ratepayers during the eight years following the May 17,1994, by Mississippi Valley Gas Company (MVG) on Merger. The LP5C plan requires regulatory filings each year the grounds that the MPSC issued the final order without by the end of May through 2001.The PUCT regulatory plan having reviewed the cost of MP&L's promotional practices, 1 provides that such savings will be shared equally by the share-some of which MVG alleged to be improper. MVG filed a holder and ratepayers, except that the shareholder's portion motion to dismiss the appeal, and on October 28,1994, the will be reduced by $2.6 million per year on a total company Mississippi Supreme Court granted MVG's motion, basis in years four through eight. The PUCT plan also requires a series of future regulatory filings in November 1996,1998, FERC Settlement and 2001 to ensure that ratepayers' share of such savings be In November 1994, FERC approved an agreement settling a reflected in rates on a timely basis and requires Entergy long-standing dispute involving income tax allocation proce-Corporation to hold G5U's Texas retail customers harmless dures of System Energy Resources, Inc. In accordance with from the effects of the removal by FERC of a 40% cap on the the agreement, System Energy refunded approximately amount of fuel savings G5U may be required to transfer to $61.7 million to AP&L, LP&L, MP&L and NOPSI, which in turn other System operating companies under the FERC tracking have made or will make refunds or credits to their customers mechanism (see below). On January 14,1994, Entergy (except for those portions attributable to AP&L's and LP&L's Corporation filed a request for rehearing of FERC's December retained share of Grand Gulf I costs). Additionally,5ystem 15,1993, order approving the Merger requesting that FERC Energy will refund a total of approximately $62 million, plus restore the 40% cap provision in the fuel cost protection interest, to AP&L, LP&L, MP&L, and NOPSI over the period mechanism. The matter is pending. through June 2004.The settlement also required the write-off FERC approved certain rate schedule changes to integrate of certain related unamortized balances of deferred G5U into the System Agreement. Certain commitments were investment tax credits by AP&L, LP&L, MP&L, and NOPSI. The adopted to provide reasonable assurance that the ratepayers settlement reduced Entergy Corporation's consolidated net of AP&L, LP&L, MP&L, and NOPSI will not be allocated higher income for the year ended December 31,1994, by costs, including, among other things,(1) a tracking mecha-approximately $68.2 million, offset by the write-off of the nism to protect AP&L, LP&L MP&L, and N0 PSI from certain unamortized balances of related deferred investment tax unexpected increases in fuel costs,(2) the distribution of prof-credits of approximately $69.4 million ($2.9 million for its from power sales contracts entered into prior to the Entergy Corporation; $27.3 million for AP&l; $31.5 million Merger,(3) a methodology to estimate the cost of capital in for LP&L; $6 million for MP&L; and $1.7 million for NOPSI). future FERC proceedings, and (4) a stipulation that AP&L, System Energy also reclassified from utility plant to other LP&L, MP&L, and N0 PSI will be insulated from certain direct deferred debits approximately $81 million of other Grand ef fects on capacity equalization payments should G5U acquire Gulf I costs. Although excluded from rate base. 5ystem Cajun's 30% share in River Bend (see Note 8). Energy will be permitted to recover such costs over a 10-year period. Interest on the $62 million refund and the loss of the formula Rate Plan return on the $81 million of other Grand Gulf 1 costs will Under a formulary incentive rate plan (Formula Rate Plan) reduce Entcrgy's and System Energy's net income by approxi-effective March 25,1994, MP&L's earned rate of return is cal. mate ly $10 million annually over the next 10 years. culated Putomatically every 12 months and compared to and As a result of the charges associated with the settlement, adjusted against a benchmark rate of return (calculated under System Energy obtained the consent of certain banks (parties a separate formula within the Formula Rate Plan).The Formula to the Reimbursement Agreement) to waive temporarily the Rate Plan allows for periodic small adjustments in rates based fixed charge coverage covenant in the letters of credit and on a comparison of earned to benchmark returns and upon Reimbursement Agreement related to the Grand Gulf 1 sale certain performance factors. In the same proceeding, the and leaseback transaction until November 30,1995. 5ystem MPSC conducted a general review of MP&L's current rates and Energy expects that upon expiration of the waiver period,it on March 1,1994, issued a final order adopting the Formula will be in compliance with the fixed charge coverage Rate Plan and previously agreed-upon stipulations of (1) a covenant. Absent a waiver,5ystem Energy's failure to perform required return on equity of 11% and (2) certain accounting this covenant could cause a draw under the letters of credit adjustments that resulted in a 4.3% ($28.1 million) reduction and/or early termination of the letters of credit. lf the letters in MP&L's June 30,1993, test-year base revenues. The MPSC's of credit were not replaced in a timely manner, a default or order required MP&L to file rates designed to provide for this early termination of System Energy's leases could result. 36 Notes to Consolidated hnanool statements

Rate Deferrals generation to Louisiana retail customers at 4.6 cents per kwh ' f The System operating companies have various rate or off-System at higher prices with certain sharing provisions moderation or phase-in plans that reduced the immediate for such incremental revenue. Based on current estimates, effect of Grand Gulf 1, River Bend, and Waterford 3 costs on Entergy anticipates that future revenues will fully recover all ratepayers. Under these plans, certain costs are either retained related costs. permanently (and not recovered from ratepayers), deferred in early years and collected in later years, or recovered currently Filings with the PUCT and Texas Cities from customers. These plans vary in the proportions of costs in March 1994, the Texas Office of Public Utility Counsel and each company retains, defers, or recovers and in the length of certain cities served by GSU instituted an investigation of the the deferral / recovery periods. Onl those costs retained reasonableness of GSU's rates. In June 1994, GSU provided / permanently and not recovered through rates or through saks the cities with information that GSU believed supported the to third parties result in a reduction of net income. The carry-current rate level. GSU filed the same information with the ing charges associated with unamortized deferrals were either PUCT in June 1994, pursuant to provisions of the Merger. In deferred or recovered currently from customers September 1994, various cities adopted ordinances directing G5U deferred approximately $369 million of River Bend GSU to reduce its Texas retail rates by $45.9 million. GSU operating costs, purchased power costs, and accrued carrying appealed the cities' ordinances to the PUCT for a determina-charges pursuant to a 1986 PUCT accounting order. Approxi-tion of reasonableness of GSU's rates. i mately $182 million of these costs are being amortized over a in November 1994, those cities that intervened in the 20-year period, and the remaining $187 million are not being PUCT appeal filed testimony with the PUCT supporting a amortized pending the ultimate outcome of the Rate Appeal. $118 million base rate reduction in lieu of the previously pro-As of December 31,1994, the unamortized balance of these posed $45.9 million reduction. In November 1994, the PUCT j costs was $321 million. Further, GSU deferred approximately statf filed testimony that supported a $38.2 million base rate $400.4 million of similar costs pursuant to a 1986 LPSC reduction. GSU filed information with the PUCT that it believed accounting order. These costs, of which approximately supported the current level of rates. Hearings were held in $122 million were unamortized as of December 31,1994, are December 1994 and on March 20,1995, the PUCT ordered a teng amortized over a 10-year period ending in 1997. $72.9 million annual base rate reduction for the period March In accordance with a phase-in plan approved by the LPSC, 31,1994, through Septernber 1,1994, decreasmg to an annual GSU deferred $294 milhon of its River Bend costs related to base rate reduction of $52.9 million after September 1,1994. t the period February 1988 through February 1991. GSU has In accordance with the Merger agreement, the rate reduction amortized $129 million through December 31,1994, and the is applied retroactively to March 31,1994. As a result, GSU remainder of $165 million will be recovered over approxi-recorded a $57 million reserve for rate refund in 1994.The rate mately 3.2 years. reduction is being appealed and no assurance can be given as AP&L's permanently retained share of Grand Gulf I costs is to the timing or outcome of the appeal. 7.92% in 1994 and all succeeding years of the unit's commer-cial operation. In the event AP&L is not able to sell its retained Texas Cities Rate Settlement - 1993 share to third parties, it may sell such energy to its retail in June 1993,13 cities within GSU's Texas service area insti-customers at a price equal to its avoided energy cost, which tuted an investigation to determine whether GSU's current is currently less than AP&L's cost of such energy. LP&L perma-rates were justified. In October 1993, the general counsel of nently absorbs 18% of its 14% (approximately 2.52%) FERC-the PUCT instituted an inquiry into the reasonableness of allocated share of Grand Gulf 1-related costs. LP&L is able to GSU's rates. In November 1993, a settlement agreement was recover through the fuel adjustment clause 4.6 cents per kwh filed with the PUCT which provided for an initial reduction in (as of May 1994) for the energy related to its retained portion GSU's annual retail base revenues in Texas of approximately of these costs. Alternatively, LP&L may sell such energy to $22.5 million effective for electric usage on or after nonaffiliated parties at prices above the fuel adjustment November 1,1993, and a second reduction of $20 million clause recovery amount, subject to LPSC approval For the year cffective September 1994. Pursuant to the settlement, GSU ended December 31,1994, System Energy's billings for Grand reduced rates with a $20 million one-time bill credit in Gulf 1-related costs totaled approximately $475 million. December 1993, and refunded approximately $3 million to A deregulated asset plan representing an unregulated portion Texas retail customers on bills rendered in December 1993. (approximately 22%) of River Bend (plant costs, generation, The PUCT approved the settlement agreement on July 21, revenues, and expenses) was established pursuant to a 1994. The cities' rate inquiries were settled earlier on the January 1992 LPSC order. The plan allows GSU to sell such same terms. Narn to Conohkrrd hnawolstatements 37 -. ~ - -. -

- -.. _ - - ~ ~ LPSC Rate Reviews balances have been charged against the respective companies' In May 1994, G5U made the required first post-Merger earn-regulatory storm damage reserves, except for MP&L which ings analysis filing with the LPSC. On December 14,1994, the recorded a deferred debit. 0n April 15,1994, MP&L filed for rate LPSC ordered a $12.7 million annual rate reduction for G5U recovery of costs related to the ice storm. MP&L's filing, as sub-effective January 1995. The rate order included, among other sequently amended, requested recovery of the revenue require-things, a reduction in G5U's Louisiana junsdictional authorized ment associated with MP&L's ice storm costs recorded through return on equity from 12.75% to 10.95% and the amortization April 30,1994, representing approximately 86% of the total for the benefit of the customer of $8.3 million of previously estimated ice storm costs. MP&L may make another ice storm deferred unbilled revenue, representing one-half of the total rate filing with the MPSC during 1995 to recover ice storm costs resulting from a change in accounting as discussed in Note 1. recorded by MP&L after April 30,1994. In August 1994, MP&L On December 28,1994, G5U received a preliminary injunction and the MPSC's Public Utilities Staff entered into a stipulation from the 19th Judicial District Court regarding $8.3 million of with respect to the recovery of ice storm costs recorded through the reduction. On January 1,1995, G5U reduced rates by April 30,1994, and in September 1994, the MPSC approved the $4.4 million. The entire $12.7 million reduction is being stipulation. Under the stipulation MP&L implemented an ice appealed and no assurance can be given as to the timing or storm rider schedule, which went into effect on September 29, outcome of the appeal. 1994, that will increase rates approximately $8 million annually in August 1994, LP&L filed a performance-based formula for five years. At the end of the five-year period, the revenue rate plan with the LPSC.The proposed formula rate plan would requirement associated with the undepreciated ice storm capi-continue existing LP&L rates at current levels, while providing talized costs will be included in MP&L's base rates to the extent f nancialincentive to reduce costs and maintain high levels of that this revenue requirement does not result in MP8 L's rate of customer satisfaction and system rehability. A performance retum on rate base being above the benchmark rate of return l rating adjustment feature of the plan would allow LP&L the under MP&L's formula rate plan. opportunity to earn a higher rate of retum if it improves per-formance over time. Conversely,if performance declines, the PUCT Fuel Cost Review rate of return LP&L could earn would be lowered. This provides (December 1,198G - September 30,1991) financial incentive for LP&L to maintain continuous improve-In January 1992, G5U apphed to the PUCT for a new fixed ment in all three performance categories (customer price, cus-fuel factor and requested a final reconciliation of fuel and i tomer satisfaction, and customer reliability), Under the purchased power costs incurred between December 1,1986, proposed plan,if LP&L's camings fall within a bandwidth and September 30,1991. G5U proposed to recover net under-around a benchmark rate of return, there would be no adjust-recoveries and interest (including underrecoveries related to ment in rates If LP&L's earnings are above the bandwidth, the Nelson Industrial 5 team Company (NISCO), discussed below) proposed plan would automatically reduce LP&L's base rates, over a 12-month period. Alternatively,if LP&L's carnings are below the bandwidth, the in April 1993, the presiding PUCT administrative law proposed plan would automatically increase LP&L's base rates. judge (AU) issued a report concluding that G50 incurred The reduction or increase in base rates would be an amount approximately $117 million of nonreimbursable fuel costs on representing 50% of the difference between the carned rate a company-wide basis (approximately $50 million on a Texas of return and the nearest limit of the bandwidth. In no event retailjurisdictional basis) during the reconciliation period. e would the annual adjustment in rates exceed 2% of LP&L's included in the nonreimbursable fuel costs were payments setail revenues Hearings were held in March 1995. No above G5U's avoided cost rate for power purchased from assurance can be given that the LP5C will accept the N15CO. The PUCT ordered in 1986 that the purchased power performance-based formula rate plan, or that the current costs from NISCO in excess of G5U's avoided costs be disal-rate review will not result in a rate decrease. Iowed. The PUCT disallowance resulted in approximately $12 million to $15 million of unrecovered purchased power iebruary 1994 Ice Storm / Rate Rider costs on an annual basis, which G5U continued to expense as in early February 1994, an ice storm left more than 221,000 the costs were incurred. in April 1991, the Texas Supreme Entergy customers without electric power across the System's Court, in the appeal of such order, ordered the PUCT to allow four-state service area. The storm was the most severe natural G5U to recover purchased power payments in excess of its disaster ever to affeet the System, causing damage to avoided cost in future proceedings,if G5U established to the transmission and distribuhon lines, equipment, poles, and PUCTs satisfaction that the payments were reasonable and facilities in certain areas, primarily in Mississippi. Repair costs necessary expenses. totaled approximately $116.2 million, $30.8 milhon, and in June 1993, the PUCT concluded that the purchased $77.2 milhon for the System, AP&L, and MP&L, respectively, power payments made to NISCO in excess of G5U's avoided with $85 million, $18.7 milhon, and $64.6 million of these cost were not reasonably incurred, As a result of the order, amounts capitalized as plant-related costs. The rema;ning G5U recorded additional fuel expenses (including interest) of ~ 3B Notes to Comoi>dared fmancial 5tatements ~

l i l $2.8 million for non-NISCO related items. The PUCTs order 1994 NOPSI Settlement resulted in no additional expenses related to the NISCO issue, or in a settlement with the Council that was approved on for overtollections related to the fixed fuel factor, as those December 29,1994, NOPSI agreed to reduce electric and gas I charges were expensed by GSU as they were incurred. The PUCT rates and issue credits and refunds to customers. Effective concluded that GSU had over-collued its fuel costs in Texas January 1,1995, NOPSIimplemented a $31.8 million perma-and ordered GSU to refund approximately $33.8 million to its nent reduction in electric base rates and a $3.1 million Texas retail customers, including approximately $7.5 million of permanent reduction in gas base rates. These adjustments interest. In that proceeding, the PUCT also set GSU's fixed fuel resolved issues associated with NOPSI's return on equity factor in Texas at 1.84 cents per kwh in response to GSU's exceeding 13.76% for the test year ended September 30, request that the factor be set at 2.02 cents per kwh, in October 1994. Under the 1991 N0 PSI Settlement, NOP$1 is recovering 1993, GSU appealed the PUCTs order to the Travis County from its retail customers its allocable share of certain costs District Court where the matter is still pending. No assurance related to Grand Gulf 1. N0 PSI's base rates to recover those can be given as to the timing or outcome of that appeal. In a costs were derived from estimates of those costs made at that subsequent proceeding to review GSU's fuel factor, the PUCT time. Any overrecovery of costs is required to be returned to approved GSU's request to further reduce its fixed fuel factor in customers. Grand Gulf 1 has experienced lower operating Texas to 1.78 cents per kwh from 1.84 cents per kwh. costs than previously estimated, and N0 PSI accordingly is reducing its base rates in two steps to more accurately match PUCT fuel Cost Review the current costs related to Grand Gulf 1.0n January 1,1995, (October 1,1991 - December 31,1993) NOPSIimplemented a $10 million permanent reduction in On January 9,1995, GSU and various parties reached an agree-base electric rates to reflect the reduced costs related to ment for the reconciliation of over-and under-recovery of fuel Grand Gulf 1, to be followed by an additional $4.4 million rate and purchasad power expenses for the period October 1,1991. reduction on October 31,1995.These Grand Gulf 1 rate through December 31,1993. While the settlement still requires reductions, which are expected to be largely offset by lower PUCT approval, GSU believes it will ultimately be approved and operating costs, may reduce NOPSI's after-tax net income by has accordingly recorded a reserve of $7.6 million. approximately $1.4 million per year beginning November 1, 1995.The next scheduled Grand Gulf 1 phase-in rate increase LPSC Fuel Cost Review in the amount of $4.4 million on October 31,1995, will not be in November 1993, the LPSC ordered a review of 05U's fuel affected by the 1994 NOPSI Settlement. costs for the period October 1988 through September 1991 The 1994 N0 PSI Settlement also requ:res NOPSI to credit its (Phase 1) based on the number of outages at River Bend and customers $25 million over a 21-month period, beginning the findings in the June 1993 PUCT fuel reconciliation case. In January 1,1995,in order to resolve disputes with the Council July 1994, the LPSC ruled in the Phase 1 fuel review case and regarding the interpretation of the 1991 NOPSI Settlement. t ordered GSU to refund approximately $27 million to its NOPSI reduced its revenues by $25 million and reenrded a customers. Under the order, a refund of $13.1 million, which $15.4 million net-of-tax reserve associated with the credit in was not contested under a Louisiana Supreme Court decision the fourth quarter of 1994.The 1994 NOPSI Settlement as discussed below, was made through a billing credit on further required N0 PSI to refund,in December 1994 August 1994 bills. In August 1994, GSU appealed the remain- $13.3 million of credits previously scheduled to be made to ing portion of the LPSC ordered-refund to the district court. customers during the period January 1995 through July 1995. I GSU has made no reserve for the remaining portion, pending These credits were associated with a July 7,1994, Council outcome of the district court appeal, and no assurance can be resolution that ordered a $24.95 million rate reduction based given as to the timing of outcome of the appeal. on NOPSI's overcarnings dunng the test year ended On January 18,1995, GSU met with the special counsel of September 30,1993. Accordingly, NOPSI recorded an the LPSC to discuss the procedural schedule for the upcoming $8 million net-of-tax charge in the fourth quarter of 1994. fuel review (Phase 11) The period under investigation was The 1994 NOPSI Settlement also required N0 PSI to refund determined to be from October 1991 to December 1994. $9.3 million of overcollections associated with Grand Gulf 1 Hearings are scheduled to begin in July 1995. operating costs, and $10.5 mil! ion of refunds associated with In February 1990, the LPSC disallowed the pass-through to the settlement by System Energy of a FERC tax audit.The ratepayers for the portion of GSU's cost to purchase power settlement of the FERC tax audit by System Energy required from NISCO representing the excess of NISCO's purchase price refunds te be passed on to NOPSI and to other Entergy of the units over GSU's depreciated cost of the units. GSU subsidiaries and then on to customers. These refunds have appealed the 1990 order. In March 1994, the Louisiana no effect on current period net income. Supreme Court ruled in favor of the LPSC. in 1994, GSU recorded an estimated refund provision of $13.1 million, before related income taxes of $5.3 million. l wrn to roawwore#mnov Statements 39 ,_.,,.,.,-v...,-, ,,.,,-,n,n. ,,c.,, -.n ---,,n,

NOTE 3. INCOME TAXE5 Intnme tax expense consisted of the following: for the Years Ended December 31, pn thousandV 1994 1993 1992 Current: Federal $227,046 $236,513 $ 99,898 State _ 50,300 30,618 23,596 Total 277,346 267,131 123,494 Deferred - net: Reclassification due to net operating loss carryforward 48,482 (17,131) 35,969 Rate deferrals - net (137,376) (88,651) (54,079) Gas contract settlement 5,483 9,513 15,180 Liberalized depreciation 127,881 116,513 107,s76 Unbilled revenue 7,246 56,315 (18,902) Alternative minimum tax (614) (10,270) 6,577 Bond reacquisition cost (4,481) 17,958 11,496 Nuclear refueling and maintenance 552 (7,929) 9,740 Decontamination and decommissioning fund 2,356 27,303 Provision for rate refunds (31,739) FERC Settlement (23,098) Adjustment to Grand Gulf 2 tax basis (14,037) _0ther (35,094) 15p35 (1,595) Total (54,429) 118,656 112,362 Investment tax credit adjustments - net (24,739) (43,796) 20,607 investment tax credit amortization - FERC Settlement (66,454) Recorded income tax expense $131,724 $341,991 $256,463 Charged to operations $131,965 $251,163 $210,081 Charged to other income (241) 33,640 46,382 Charged to cumulative effect 57,188 Recorded income tax expense 131,724 341,991 256,463 Inpome taxes apphed against the debt component of AFUDC 696 Totalincome taxes $131.724 $341,991 $257,159 40 Nutes to Consohdated f,nanc,clStatements

I i I l Total income taxes dif fer from the amounts computed by applying the statutory federal income tax rate to income before taxes. The reasons for the d,f ferences were: for the Years EndedDecemt>cr 3 r, (Donors m thovsondV 1994 1993 1992 % 0F % 0F % 0F PRETAX PRETAX PRETAX AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME Computed at statutory rate $194,448 35.0 $332,555 35.0 $257,461 34.0 Increases (reductions)in tax result, g from: Amortization of excess deferred income taxes (5,845) (1,1) (7,063) (0.7) (6.537) (0.9) State income taxes net of federalincome tax effect 13,766 2.5 30,160 3.2 26,057 3.5 Amortitation of investment tax credits (27,337) (4.9) (25,911) (2.7) (26,885) (3.6) Investment tax credit amortitation - FERC Settlement (66,454) (12.0) Depreciation 9,995 1.8 5,925 0.6 4,527 0.6 SFAS 109 adjustment 9,547 1.0 Other - net 13,151 2.4 (3,222) (0.4) 1,840 0.3 Recorded income tax expense 131,724 23.7 341,991 36.0 256,463 33.9 income taxes applied against debt component of AFUDC 23.7 $341,991 36.0 $257,159 34.0 696 0.1 Totalincome taxes $131,724 Significant components of net deferred tax liabilities as of December 31,1994 and 1993, were: (In thousandV 1994 1993 Deferred tax liabilities: Net regulatory assets $(1,645,119) $(1,676,161) Plant related basis differences (3,092,889) (2,945,933) Rate deferrals (617,699) (767,124) Other (181,743) (167,478) Total $(5,537,450) $(5,556,696) Deferred tax assets: Sale and leaseback $ 247,842 $ 241,391 Accumulated deferred investment tax credit 227,473 330,852 Alternative minimum tax credit 137,387 138,063 Removal enst 88,052 92,618 Standard coal plant 29,275 30,165 N0L earryforwards 251,000 307,737 Pension-related items 30,040 24,879 Unbilled revenues 25,328 23,587 Provision for rate refunds 37,838 Investment tax credit carryforwards 190.987 314,862 ._.01her, _ _ __ 316,777 149,568 Total $ 1,581,999 $ 1,653,722 Net deferred tax liabilities $(3,955,451) $l3,902,974) Nars te con odored i,nonoot storrmen ts 41

l As of December 31,1994 Entergy had federal net operating NOTE 4, LINES OF CREDIT AND RELATED BORROWINGS loss (N0L) carryforwards of $666.7 million and state NOL car. The SEC has authorized AP&l., G5U, LP&L, MP&L, NOPSI, and ryforwards of $498.2 million related to G5U operations. System Energy to effect short-term borrowings up to an Investment tax credit (lTC) and other credit carryforwards, as aggregate of $664 million, which may be increased to as of December 31,1994, amounted to $282.6 million.The ITC much as $1.216 billion (subject to individual authorizations carryforwards include the 35% reduction required by the Tax for each company) after further SEC approval. These Reform Act of 1986 and may be applied against federal authorizations are effective through November 30,1996. income tax liabilities and,if not utilized, will expire between As of December 31,1994, AP&L, G5U, LP&L, MP&L, N0 PSI, 1995 and 2005. It is currently anticipated that approximately and System Energy had total outstanding borrowings of $64.4 million will expire unutilized. A valuation allowance has $91.8 million (including $8 million under the Money Pool been provided for deferred tax assets relating to that amount. arrangement). Short-term borrowings by MP&L and N0 PSI The alternative minimum tax (AMT) credit carryforwards as of are also limited by the terms of their respective General and December 31,1994, were $137.4 million. This AMI credit can Refunding Mortgage Bond (G&R Bond) indentures to be carried forward indefinitely and will reduce the System's amounts not exceeding the greater of 10% of capitalization federal income tax liability in the future. or 50% of Grand Gulf 1 rate deferrals available to support the In accordance with the System Energy FERC 5ettlement, the issuance of G&R Bonds. System wrote off $66.5 million of unamortized deferred As of December 31,1994, G5U had unused lines of credit ( investment tax credits in 1994. for short-term borrowings of $5 million from banks within its l In 1993, the System adopted SFAS 109. SFAS 109 required service territories. Entergy Services, Inc. has bank lines of j that deferred income taxes be recorded for all temporary dif-credit permitting it to borrow up to $70 million, of which ferences and carryforwvds, and that deferred tax balances be $65 million in borrowings was outstanding as of December I based on enacted tax laws at tax rates that are expected to be 31,1994. Interest rates associated with AP&L, Entergy in effect when the temporary dif ferences reverse. 5FAS 109 Services, Inc., G5U, LP&L, and MP&L's lines of credit generally required that regulated enterprises recognize adjustments are based on the prime rate, the EURO dollar rate, a certificate resulting from implementation as regulatory assets or liabili-of deposit rate, the London interbank offered rate, or a bid ties if it is probable that such amounts will be recovered from rate. Commitment fees on these lines of credit are 0.125% of or returned to customers in future rates. A substantial majority the amount of available credit,in addition, AP&L, G5U, LP&L, I of the adjustments required by SFAS 109 was recorded to MP&l, NOPSI,5ystem Energy, Entergy Operations, Entergy l deferred tax balance sheet accounts with offsetting Services,Inc., and System Fuels, Inc. can borrow from each adjustments to regulatory assets and liabilities. As a result of other and from Entergy Corporation through the Money Pool, the adoption of SFA5109,1993 net income and earnings per an intra-System borrowing arrangement designed to reduce share were decreased by $13.2 million and $0.08 per share, the System's dependence on external short-term borrowings. respectively, and assets and liabilities were increased by Entergy Corporation has requested, but not yet received, $822.7 million and $835.9 million, respectively. The SEC approval for a $300 million three-year bank line of credit. cumulative effect of the adoption of SFAS 109 is included in System Fuels, Inc. has financing agreements with banks per-income tax expense charged to operations. mitting it to borrow up to $65 million, of which $23 million in August 1994, Entergy received an Internal Revenue was outstanding as of December 31,1994. Borrowings under Service report covering the federalincome tax audit of System Fuels, Inc. financing agreements are restricted as to Entergy Corporation and subsidiaries for the years 1988 - use, and are secured by fuel inventories and certain accounts 1990. The report asserts an $80 million tax deficiency for receivable from the sales of these inventories. the 1990 consolidated federal income tax returns related primarily to the application of accelerated investment tax credits associated with Waterford 3 and Grand Gulf nuclear plants. Entergy believes there is no material tax deficiency I and is vigorously contesting the proposed assessment. l l 42 Notes to Consohdoted hnanoc!Storements

NOTE 5. PREFERENCE, PREFERRED, AND COMMON STOCK The number of shares and dollar value of the System operating companies' preference and preferred stock were: SHARES CALL PRICE PER AUTHORIZED AND TOTAL SHARE AS OF As o/ December J r, OUTSTANDING DOI.LAR VALUE DECEMBER 31, [Douarsin thousands [ 1994 1993 1994 1993 1994 Preference Stock Cumulative, without par value 7% Series

• 6,000400 6,000,000 $150,000

$150,000 Preferred Stock Without sinking fund: Cumulative, $100 par value 4.16% - 5 56% Series 1,201,715 1,201,715 $120,172 $120,172 $102.50 to $108.00 6.08% - 8.56% Series 2,262,829 2.262,829 226,283 226,283 $101.80 to $103.78 9.16% - 11.48% Series 425,000 425,000 42,500 42,500 $104,06 to $104.64 Cumulative, $25 par value 8.00% - 9.68% Series 3,880,000 3,880,000 97,000 97,000 $26.56 Cumulative, $0.01 par value $2.40 5eries" 2,000,000 2,000,000 50,000 50,000 Si 9_6 Series = _ 600,000 600,000 15,000 15,000 Total without sinking fund 10,369,544 10,369.544 $550,955 $550,955 Preferred Stock With sinking fund: Cumulative, $100 par value 7.00% - 9.76% Series 1,935,372 2,126,539 $193,537 $212,654 $100.00 to $106.75 12.00% - 15.44% 5eries 72,195 117,195 7,219 11,720 $106.00 to $107.72 Adjustable, 7.10 % - 7.15 % as of December 31,1993 519,0 A 553,500 51,900 55,350 $100.00 to $103,00 Cumulative, $25 par value 9.92% - 12.64% Series 1,691,666 2,311,666 42,290 57,791 $25,67 to $27.37 13 28% 5eries 200.000 461 537 5,000 11,538 $28,22 1 Total with sinkino fund 4.418.233 5.570.437 $299,946 $349.053 (tl The totaldauer value represents the envoluntory I,qwdurion volue of $z5 per share fzl These senes are not redeemable us of December 31,1994 The fair value of the System operating companies' preferred Cash sinking fund requirements for the next five years and preference stock with sinking fund was estimated to be for preferred stock outstanding as of December 31,1994, are approximately $437.4 million and $526.2 million as of (in millions): 1995 - $38.8,1996 - $23.3,1997 - $22.6, December 31,1994 and 1993, respectively. The fair values 1998 - $15.3, and 1999 - $64.8. r.ere determined using quoted market prices or estimates On December 31,1993. Entergy Corporation issued from nationally recognized investment banking firms. See 56,695,724 shares of common stock in connection with the Note I for additionalinformation on disclosure of fair value Merger. In addition, Entergy Corporation redeemed of financialinstruments. 174,552,011 shares of $5 par value common stock and reis-Changes in the preferred stock of AP&L, G5U, LP&L, MP&L, sued 174,552,011 shares of $0.01 par value common stock and NOPSI with and without sinking fund during the last three resulting in an increase in paid-in capital of $871 million. years were (excluding G5U in 1992): Entergy Corporation has a program to repurchase shares of its outstanding common stock. The timing and amount NUMBER Of SHARES of such repurchases depend upon market conditions and 1994 1993 1997 authorization from the Board of Directors of Entergy Preferred Stock Issuances: Corporation (Board). Under this program, Entergy Corporation $100 par value 700,000 repurchased and retired (returned to authorized but unissued $ 25 par value - 1,480,000 status) 1,230,000 shares at a cost of $30.7 million in 1994, $0 01 par value 600,000 and 3,671,900 shares at a cost of $161.6 million in 1992. No Preferred Stack Retvernents: shares were repurchased under the program in 1993. In addi- $100 par value (270.667) (265,000) (589,940) tion,2,805,000 shares,627,000 shares, and 1,943 shares of $ 25 par value (881,537)(1,180,000) (1,895,160) treasury stock were purchased for cash during 1994,1993, and 1992, respectively, at a cost of $88 8 mi! lion, $20.6 miilion, and Neres to Cocwacted f,now Src'ements 43

l $0.1 million, respectively. A portion of the treasury shares Nonstatutory stock options transactions are summarized as purchased in 1993 were subsequently reissued and,in connection follows: with the Merger on December 31,1993, all of the existing balance OPTION NUMBER OF of 579,274 sharesof treasury shares was canceled.On December 29.625 50,000 PRICE OPTIONS 9,1994, the Board approved the repurchase of common shares for Options granted during 1992 an aggregate consideration of not in excess of $300 million during Options exetcised during 1992 29.625 (5,000) the period tnrough January 1996 Options granted during 1993: 34.75 70,000 Entergy Corporation has SEC authorization to acquire up to 39.75' 6,107 3,000,000 shares of its common stock to be held as treasury shares Options exercised during 1993: 29.625 (13,198) and to be reissued to meet the requirements of the Stock Plan for 34.75 (5,000) Outside Directors (Directors' Plan), the Equity 0wnership Plan of Options granted during 1994 37.00 67,500 Entergy Corporation and Subsidianes (Equity Plan), and certain Options exercised during 1994 other stock benefit plans The Directors' Plan awards nonemployee Options remaining as of directors a portion of their compensation in the form of1 fixed December 31,1994 170.409 number of shares of Entergy Corporation common stock. Shares ,g awarded under the Directors' Plan were 18,757,12,550, and 14,904 during 1994,1993, and 1992, respectively.The Equity Plan Entergy Corporation received SEC authorization in 1994 to grants stock options, restncted shares, and equity awards to key issue new shares for the Employee Stock Investment Plan (ESIP) employees of the System companies. The costs of awards are or to acquire, through March 31,1997, up to 2,000,000 shares charged to income over the period of the grant or restricted peri-of its common stock to be held as treasury shares and reissued od, as appropriate. Amounts charged to compensation expense in to meet the requirements of the ESIP. Under the ESIP, employees 1994 were immaterial Stock options, which comprise 50% of the may be granted the opportanity to purchase, for up to 10% of shares targeted for distribution under the Equity Plan,are granted their regular annual salary (but not more than $25,000), at exercise prices not less than market value on the date of grant. common stock at 85% of the market value on the first or last The options are generally exercisable no less than six months nor business day of the plan year, whichever is lower. The 1994 plan more than 10 years after the date of grant. year runs from April 1,1994, to March 31,1995. NOTE 6. LONG-TERM DEBT The long-term debt of Entergy Corporation's subsidiaries as of December 31,1994 and 1993, was: MATURITIES INTIREST RATES From To from To 1994 1993 first Mortgage Bonds fin r8ovsonds) 1995 1999 4-5/8% 14 % $ 1,290,210 $1,354,810 2000 2004 6% 11 % 1,282,320 1,143,520 2005 2009 6 65% 10 % 335,000 635,000 2015 2019 9-5/8% 11-3/8 % 90,319 90,319 2020 2024 7% 10-3/8% 1,083,818 1,083,818 G&R Bonds 1995 1999 5.95% 14.95%* 221,200 284,200 2000 2023 6-5/8% 8.65 % 375,000 350,000 Governmental Obligations " 1992 2008 6.125% 10 % 142,622 139,009 2009 2023 5.95% 12.5 % 1,499,768 1,481,678 Debentures - Due 1998,9 72 % 200,000 200,000 Long-Term DOE Obligation (Note 8) 105,163 101,029 Waterford 3 Lease Obhgation,8.7G% (Note 9) 353,600 353,000 Grand Gulf lease Obligation,7.02% (Note 9) 500,000 500,000 Other Long Term Debt 6,879 6,879 Unamortized Premium and Discount - Net (43,341) (45,890) fotal Long-Term Debt 7,442,558 7,677,972 less Amount Due Within One Year 349,085 322,010 lono-Term Debt Excludina Amount Due Within One Year $7,093,473 $7,355,962 ' $Jo m,Ihon o the 14 9s% seres CA R &mds and $92 mtfle of the 13 9% senes GkR Bonds were duc 2l1?)5 Allother senes are atinterest rates wrthin the range of r s 9St - 1 f 2%

• • Conmts nipullarion controlt,ond\\ cerroun vtres of nhoch are secured by nonanterest bearrog f<rstinortqage tends 44 IVotes to Cat'sohdored hnancoolstaternents a

- ~ - ~ - The tair value of Entergy Corporation's long-term debt, plus attorneys' fees, interest, and costs. Two member cooper-excluding lease obligations and long-term DOE obligations, atives of Cajun have brought an independent action to as of December 31,1994 and 1993, was estimated to be declare the Operating Agreement void, based upon failure to $6.293 billion and $7.207 bilhon, respectively.The fair values get prior LPSC approval alleged to be necessary. G5U believes were determined using bid prices reported by dealer markets the suits are without merit and is contesting them vigorously. and by nationally recognized investment banking firms. A trial without jury on the portion of the suit by Cajun to For the years 1995,199G,1997,1999, and 1999. Entergy rescind the Operating Agreement which began in April 1994, Corporation's subsidiaries have long-term debt maturities has been completed, and an order from the District Court is (excluding lease obligations) and cash sinking fund pending. No assurance can be given as to the outcome of this requirernents aggregating (in millions) $349.1, $558.0, litigation, if G5U were ultimately unsuccessfulin this $361.3, $314 9, and $172.4, respectively. in addition, other litigation and were required to malre substantial payments, sinking fund requirements will be satisfied by cash or by certi-G5U would probably be unable to make such payments and fication of property add:tions at the rate of 167% of such would probably have to seek relief from its creditors under requirements. The amounts associated with this provision the United States Bankruptcy Code. lf G5U prevails in this liti-total approximately $20.9 million for each of the years 1995 gation, there can be no assurance that the Bankruptcy Court through 1999. will allow funding of all required costs of Cajun's ownership in River Bend. NOTE 7 DMDEND RESTRICTIONS Since 1992 Cajun has not paid its full share of operating Various agreements relating to the long-term debt and and maintenance expenses and other costs for repa:rs and preferred stock of Entergy Corporation's subsidiaries restrict improvements to River Bend. In addition, certain costs and the payment of cash dividends or other distributions on their expenses paid by Cajun were paid under protest. These common stock. In addition to these restrictions, the Holding actions were taken by Cajun based on its contention, which Company Act prohibits Entergy Corporation's subsidiaries G5U disagrees, that River Bend's operating and maintenance from rnaking loans or advances to Entergy Corporation. As of expenses were excessive. December 31,1994. Entergy Corporation's subsid: aries had In a letter dated October 21,1994, and at a subsequent restricted common equity of approximately $4.495 bilhon, meeting, Cajun representatives advised Entergy Corporation including $497 million of restricted retained earnings, which and G5U that, on October 25,1994, Cajun would exhaust its were unavailable for d6tnbution to Entergy Corporation. 1994 budget for operating and maintenance expenses for In february 1995. Entergy Corporation received common stock River Bend, and did not make any further payments to G5U in dividend payments from its subsidiaries totaling 1994 for River Bend operating, maintenance, or capital costs. l $96,8 rnilhon. Cajun also advised that the Rural Utility Services (which pro-vided funding to Cajun for its investment in River Bend) NOTE 8, COMMITMENTS AND CONTINGENCIES would not permit Cajun to budget funds in 1995 to pay its Cajun - River Bend share of operating and maintenance expenses or capital costs G5U has significant busir'ess relationships with Cajun,includ-for River Bend. However, Cajun stated that it would continue ing co ownership of River Bend and Big Cajun 2. Unit 3.G50 to fund its share of the nuclear decommissioning trust and Cajun own 70% and 30% undivided interests in River payments for River Bend, as well as insurance and safety-Dend, respectively, and 42% and 58% undivided interests in related expenses The unpaid portion of Cajun's River Bend Big Cajun 2. Unit 3, respectively. operating, maintenance, anJ capital costs for 1994 (which in June 1989, Cajun filed a civil action against G5U in the has been fully reserved) was approximately $22,4 million. United States District Court for the Middle District of Cajun's total share of River Bend annual operating (including Louisiana (District Court). Cajun's complaint seeks to annul, nuclear fuel) and mainterance expenses and capital costs was rescind, terminate, and/or dissolve the Joint Ownership approximately $76.1 million in 1994. Participation and Operating Agreement entered into on in view of Cajun's stated expectation that it will fund only a August 28,1979 (Operating Agreement) relating to River limited portion of its share of River Bend related operating, c 'nd Cajun alleges fraud and error by G5U, breach of its fidu-maintenance, and capital costs, G5U notified Cajun that it ciar, iuties owed to Cajun, and/or G5U's repudiation, renunci-would (i) credit G5U's share of expenses for Big Cajun 2, Unit 3 ation, 'Wnnment, or d6 solution ofits core obhgations against amounts due from Cajun to G5U and (iil seek to market under the Operating Agreement, as well as the lack or failure Cajun's share of the power from River Bend and apply the pro-of cause and/or consideration for Cajun's performance under ceeds to the amounts due from Cajun to G5U. On November 2, the Operating Agreement The suit also seeks to recover 1994. Cajun discontinued G5U's entitlement of energy from Big Cajun's alleged $1.6 billion investment in the unit as damages, Cajun 2, Unit 3. In response, on November 3,1994, G5U filed b O h [ 1,} NYh Nfb g

- -. - - -. ++ J,-

== 4 _a 4 4+2- .L-- A4 r l pleadings in District Court seeking an order requiring Cajun to reorganization in bankruptcy and such determination should provide G5U with the energy from Big Cajun 2 Unit 3 to which be subject to regulatory approvals by certain agencies with G5U is entitled, and holding that G5U is entitled to credit jurisdiction over Cajun, including the NRC. lf the court were i amounts due from G5U to Cajun for Big Cajun 2. Unit 3 against to grant Cajun's motion to reject the Operating Agreement. amounts due from Cajun to G5U with respect to River Bend. On Cajun would be relieved of its financial obligations under the December 19,1994, the District Court issued an injunction pro-contract, while G5U would likely have a substantial damage hibiting Cajun from denying its share of energy from Big Cajun claim arising from any such rejection. Although G5U believes 2, Unit 3 and stipulating that G5U must make payments for its that Cajun's motion to reject the Operating Agreement is portion of expenses for Big Cajun 2, Unit 3 to the registry of the non-meritorious, it is not possible to predict the outcome or District Court. ultimate impact of these proceedings. On December 14,1994, the LPSC ordered Cajun to decrease During the period in which Cajun is not paying its share of the rates charged to its member distribution cooperatives by River Bend costs, G5U intends to fund all costs necessary for approximately $30 million per year. The rate decrease is asso-the safe, continuing operation of the unit.The responsibilities ciated with the LPSC's prior finding of imprudence in Cajun's of Entergy Operations as the licensed operator of River Bend participation in River Bend. for safely operating and maintaining the unit are not affected On December 21,1994, Cajun filed a petition in the United by Cajun's actions. States Bankruptcy Court for the Middle District of Louisiana The total resulting from Cajun's failure to fund repair pro-seeking bankruptcy relief under Chapter 11 of the United jects, Cajun's funding limitation on refueling outages, and the States Bankruptcy Code. Cajun's bankruptcy could have a weekly f unding limitation by Cajun was $55.6 million as of material adverse effect on G5U, including the possibility of an December 31,1994, compared with $33.3 million as of NRC action with respect to the operation of River Bend. December 31,1993. These amounts are reflected in long-term However, G5U is taking appropriate steps to protect its inter-receivables with an offsetting reserve in other deferred cred-ests and its claims against Cajun arising from the co-owner-its. Cajun's bankruptcy may af fect the ultimate collectibil;ty of ship in River Bend and Big Cajun 2, Unit 3. On December 31, the amounts owed to G5U, including any amounts that may 1994, the District Court issued an order lifting an automatic be awarded in litigation. stay as to certain proceedings, with the result that the prelimi-In September 1994,in connection with Entergy Corpora-nary injunction grar,ted by the Court on December 19,1994, tion's analysis of certain preacquisition contingencies, remainsin effeet Cajun filed a Notice of Appeal on Entergy Coiporation increased its acquisition adjustment and January 18,1995, to the United States Court of Appeals G5U recorded a loss provision associated with the River Bend for the Fif th Circuit seeking a reversal of the District Ceurt's litigation between G5U and Cajun and certain underpayments grant of the preliminary injunction. No hearing date has been by Cajun of River Bend costs,in accordance with 5FAS 5, set on Cajun's appeat

• Accounting for Contingencies" See Note 12 for additional in the bankruptcy proceedings, Cajun filed on January 10, information on provisions for preacquisition contingencies 1995, a motion to reject the River Bend Operating Agreement recorded during 1994.

as a burdensome executory contract. G5U responded on January 10,1995, with a mernorandum opposing Cajun's Cajun - Transmission Service motion filed with the District Court.This memorandum argues G5U and Cajun are parties to FERC proceedings relating to that the motion should be denied because (1) the Operating transmission service charge disputes. In April 1992, FERC Agreement is not an executory contract that can be rejected issued a final order. In May 1992, G5U and Cajun filed under the United States Bankruptcy Code, but an agreement motions for rehearings which are pending at FERC. In June establishing property rights and obligations; (2) Cajun legally 1992, G5U filed a petition for review in the United States cannot have its payment obligations under the Operating Court of Appeals regarding certain of the issues decided by Agreement suspended while retaining the benefits from co-FERC. In August 1993, the United States Court of Appeals ren-ownership in River Bend, as the benefits and obligations are dered an opinion reversing the FERC order regarding the por-indivisible; (3) Cajun cannot seek to dispose of its property tion of such disputes relating to the calculations of certain interest in River Bend or reject the Operating Agreement with credits and equalization charges under G5U's service sched-respect thereto without disposing of all of its property inter-ules with Cajun. The opinion remanded the issues to FERC for ests and rejecting all of the arrangements under the River further proceedings consistent with its opinion. In December Bend package of agreements consisting of the Operating 1994, FERC held a hearing to address the issues remanded by Agreement, Big Cajun 2. Unit 3 facihty, certain transmission the Court of Appeals. In February 1995, FERC clarified its lines and the buy-back agreement pursuant to when G5U paid order, eliminating an issue that G5U believes the Court of Cajun approximately $600 million for River Bend capacity and Appeals directed FERC to reconsider, energy during the early years of operation of River Bend; G5U interprets the 1992 FERC order and the United States and (4) a legal determination of Cajun's obligations and inter. Court of Appeals' decision to mean that Cajun would owe ests in River Bend should only be made as part of a plan of G5U approximately $93.3 million as of December 31,1994, s Nees to consondated bnawat.srinements

~. However, FERC's February 1995 order indicates that FERC payments that, together with other available funds, are believes an issue, estimated by G5U to constitute approximately adequate to cover System Energy's operating expenses. $26.2 million of this amount, may not be pursued by G5U in the System Energy would have to secure funds from other remand proceedings. G5U further estimates that if it prevails in sources, including Entergy Corporation's obligations under its May 1992 motion for rehearing, Cajun would owe G5U the Capital Funds Agreement, to cover any shortfalls from approximately $129 6 rnillion as of December 31,1994, if Cajun payments received from AP&L, LP&L, MP&L, and NOPSI were to prevail in its May 1992 motion for rehearing to FERC, under these agreements. and if G5U were not to prevailin its May 1992 motion for rehearing to FERC, and if FERC does not implement the court's Long-Term Contracts remand as 05U contends is required, G5U estimPtes it would The System has several long-term contracts to purchase nat-owe Cajun approximately $85.6 million as of December 31, ural gas and low-sulfur coal for use at its generating units. 1994. The above amounts are exclusive of a $7.3 million LP&L has a long-term agreement through the year 2031 to payment by Cajun on December 31,1990, which the parties purchase energy generated by a hydroelectric facility. lf the n agreed to apply to the disputed transmission service charges. maximum percentage (94%) of the energy is made available G5U and Cajun further agreed that their positions at FERC to LP&L current production projections would require would remain unaffected by the $7.3 milhon payment. estimated payments of approximately $47 million per year Pending FERC's ruling on the May 1992 motions for rehearing, through 1996, $54 million in 1997, and a total of $3.5 billion G5U has continued to bill Cajun utilizing the historical billing for the years 1998 through 2031. LP&L recovers the cost of methodology and has booked underpaid transmission charges, purchased energy through its fuel adjustment clause. including interest,in the amount of $160.2 million as of in 1988, G5U entered into a joint venture with a primary December 31,1994. This amount is reflected in long-term term of 20 years with Conoco,Inc., Citgo Petroleum receivables with an offsetting reserve in other deferred credits. Corporation, and Vista Chemical Company (Industrial Participants) whereby G5U's Nelson Units 1 and 2 were sold Capital Requirements and Financing to a partnership (NISCO) consisting of the Industrial Construction expenditures (excluding nuclear fuel) for the Participants and G5U. The Industrial Participants are supply-years 1995,1996, and 1997 are estimated to total ing the fuel for the units, while G5U operates the units at the $568 million, $568 million, and $565 million, respectively. discretion of the Industrial Participants and purchases the The System di etso require $1.4 billion during the period electricity produced by the units. G5U is continuing to sell 1995-1997 to meet long-term debt and preferred stock electricity to the Industrial Participants. For the years ended maturities and cash sinking fund requirements. The System December 31,1994,1993, and 1992, the purchases of plans to meet the above requirements primarily with internally electricity from the joint venture totaled $58.3 million, i generated funds and cash on hand, supplemented by the $62.6 million, and $37.8 million, respectively. issuance of debt and preferred stock. Certain System compa-nies may also continue with the acquisition or refinancing of Nuclear Insurance all or a portion of certain outstanding series of preferred The Price-Anderson Act limits public liability for a single stock and long term debt. nuclear incident to approxirnately $8.92 billion as of December 31,1994. The System has protection for this liability Capital Funds and Availability Agreements through a combination of private insurance (currently Entergy Corporation has agreed to supply to System Energy $200 million each) and an industry assessment program. sufficient capital to (1) maintain System Energy's equity Under the assessment program, the maximum amount the capital at an amount equal to a minimum of 35% of its total System would be required to pay for each nuclear incident capitalitation (excluding short-term debt), and (2) permit the would be $79.3 million per reactor, payable at a rate of contmuation of commercial operation of Grand Gulf 1 and to $10 million per licensed reactor per incident per year. As a pay m fdl allindebtedness for borrowed money of System co-licensee of Grand Gulf 1 with System Energy, South Energy when due under any circumstances. In addition, under Mississippi Electric Power Association (SMEPA) would share supplements to the Capital Funds Agreement assigning 10% of this obligation. With respect to River Bend, any System Energy's nghts as security for specific debt of System assessments pertaining to this program are allocated in Energy, Entergy Corporation has agreed to make cash capital accordance with the respective ownership interests of G5U contributions to enable System Energy to make payments on and Cajun. The System has five licensed reactors. In addition, such debt when due. the System participates in a private insurance program which System Energy has entered into various agreements with provides coverage for worker tort claims filed for bodily injury AP&L, LP&L MP&L and NOPSI, whereby AP&L LP&L MP&L caused by radiation exposure. The program provides for a and NOPSI are obligated to purchase their respective entitle-maximum assessment of approximately $16.0 million for the ments of capacity and energy from System Energy's 90% System's five nuclear units in the event losses exceed ownership and leasehold interest in Grand Gulf 1, and to make accumulated reserve funds. 4 Nerts to Cons %10ted bnanovi srgements 47

I t AP&L, G5U, LP&L, and System Energy are also members of spent nuclear fuel without an operational repository for 1 certain insurance programs that provide coverage for property which it has not yet arranged. Currently the DOE projects it i damage, including decontamination and premature will begin to accept spent fuel no earlier than 2010. In the decommissioning expense, to members' nuclear generating meantime, all System companies are responsible for spent plants. As of December 31,1994, AP&L, G5U, LP&L, and fuel storage. Current on-site spent fuel storage capacity at l System Energy each were insured against such losses up to River Bend, Waterford 3, and Grand Gulf 1 is estimated to be $2.75 billion, with $250 million of this amount designated to sufficient until 2003,2000, and 2004, respectively. Thereafter, cover any shortfall in the NRC required decommissioning trust the affected companies will provide additional storage. funding. In addition, AP&L, G5U, LP&L, MP&L, and N0 PSI are Current on-site spent fuel storage capacity at ANO is estimat-members of an insurance program that covers certain replace-ed to be sufficient until mid-1995, at which time an ANO ment power and business interruption costs incurred due to storage facility using dry casks will begin operation.This facil-prolonged nuclear unit outages. Under the property damage ity is estimated to provide suf ficient storage until 2000, with and replacement power / business interruption insurance pro-the capability of being expanded f urther as required.The ini-grams, these System companies could be subject to tial cost of providing the additional on-site spent fuel storage assessments if losses exceed the accumulated funds available capability required at ANO, River Bend, Waterford 3, and to the insurers. As of December 31,1994, the maximum Grand Gulf 1 is expected to be approximately $5 million to amounts of such possible assessments were: AP&L - $10 million per unit. In addition, approximately $3 million to i $37.2 million: G5U - $22.6 million; LP&L - $34.7 million; $5 million per unit will be required every two to three years MP&L $0.9 million; NOPSI - $0.5 million;and System Energy subsequent to 1995 for ANO and every four to five years sub- - $29 7 million. Under its agreement with System Energy, sequent to 2003,2000, and 2004 for River Bend, Waterford 3, SMEPA would share in System Energy's obligation. Cajun and Grand Gulf 1, respectively, until the DOE's repository shares approximately $4.4 million of G5U's obligation. begins accepting such units' spent fuel. The amount of property insurance presently carried by the Entergy Operations and System Fuels, Inc., joined in System exceeds the NRC's minimum requirement for nuclear lawsuits against the DOE, seeking clarification of the DOE's power p! ant licensees of $1.06 billion per site. NRC regulations responsibility to receive spent nuclear fuel beginning in 1998. provide that the proceeds of this insurance must be used, first, The original suits, filed June 20,1994, asked for a ruling stat. to place and maintain the reactor in a safe and stable ing that the Nuclear Waste Policy Act require the DOE to condition and, second, to complete decontamination begin taking title to the spent fuel and to start removing it operations. Only af ter proceeds are dedicated for such use from nuclear power plants in 1998, a mandate for the DOE's and regulatory approvalis secured would any remaining nuclear waste management program to begin accepting fuel proceeds be made available for the benefit of plant owners or in 1998 and court monitoring of the program, and the poten-their creditors. tial for escrow of payments to a nuclear waste fund instead of directly to the DOE. Spent Nuclear Fuel and Decommissioning Costs Decommissioning costs for ANO, River Bend (excluding AP&L, G5U, LP&L, and System Energy provide for estimated Cajun's 30% share), Waterford 3, and Grand Gulf 1 (excluding future d:sposal costs for spent nuclear fuel in accordance with South Mississippi Electric Power Association's 10% share) the Nuclear Waste Policy Act of 1982. The af fected System were estimated to be approximately $806.3 million (based on companies entered into contracts with the Department of a 1994 interim update to the 1992 cost study), $267.8 million Energy (DOE), whereby the DOE will furnish disposal service at a (based on a 1991 cost study reflecting 1990 dollars), cost of one mill per net kwh generated and sold after April 7, $320.1 million (based on a 1994 updated study in 1993 dol-1983, plus a one-time fee for generation poor to that date. AP&L, lars), and $365.9 million (based on a 1994 cost study using the only System company that generated electricity with nuclear 1993 dollars), respectively. AP&L is authorized to recover fuel prior to that date, elected to pay the one-time fee, plus through rates amounts that, when added to estimated invest-accrued interest, no earlier than 1998, and has recorded a liability ment income, should be sufficient to meet the above estimat. as of December 31,1994, of approximately $105 million.The fees ed decommissioning costs for ANO. G5U is currently recover-payable to the DOE may be adjusted in the future to assure full ing in rates decommissioning costs based on the 1985 recovery, lhe System considers all costs incut red or to be original cost study of $141 million. G5U filed a 1991 study incurred, except accrued interest, for the disposal of spent nuclear with the PUCT requesting a rate adjustment for fuel to be proper components of nuclear fuel expense, and provi-decommissioning expense. As discussed in Note 2, on March sions to recover such costs have been or will be made in applica. 20,1995, the PUCT ruled in the current rate case.The PUCT tions to regulatory authonties. of der included recovery of River Bend decommissioning costs I Delays have occurred in the DOE's program for the totaling $204.9 million. G5U plans to include the 1991 study acceptance and disposal of spent nuclear fuel at a permanent in its next LPSC rate review scheduled for mid-1995. LP&L j 2 repository in a statement released February 17,1993, the DOE currently is recovering in rates decommissioning costs based asserted that it does not have a legal obligation to accept on a 1988 study update reflecting a cost of $203 million. l 46 Notes to Consoludated Fmorcial $tatements

LP&L filed with the LPSC a request for a rate adjustment for ANO Matters decommissioning expense based on a 1994 cost study update ANO 2 experienced a forced outage for repair of certain steam i and the matter is under review. 5ystem Energy is currently generator tubes in March 1992. Further inspections and recovering in rates amounts sufficient to fund $198 million hn repairs were conducted at subsequent refueling and mid-1989 doVars) of its decommissioning costs. A filing with FERC cycle outages in September 1992, May 1993, April 1994, and to request the updated decommissioning costs in rates is January 1995. AP&L's budgeted maintenance expenditures ] under consideration by System Energy. AP&L, G5U, LP&L, and were adequate to cover the cost of such repairs. ANO 2's out-System Energy regularly review and update estimated decom-put has been reduced 15 megawatts or 1.6% due to missioning costs, and applications will be made to the appro-secondary side fouling, tube plugging, and reduction of priate regulatory authorities to reflect in rates any future primary temperature. Entergy Operations continues to take change in projected decommissioning costs.The amounts steps at ANO 2 to reduce the number and severity of future recovered in rates are deposited in external trust funds and tube cracks. In addition, Entergy Operations continues to reported at market value. The accumulated decommissioning meet with the NRC to discuss such steps and results of liability has been recorded in accumulated depreciation for inspections of the steam generator tubes, as well as the tim-AP&L, G5U, and LP&L, and in other deferred cred ts for System ing of future inspections. Additionalinspections are p!anned Energy,in the amounts of $137.4 million, $22.2 milhon, for the normal refueling outage scheduled for October 1995. $28.2 million, and $31.9 million, respectively, as of December 31,1994. Decommissioning expense amounting to $25.1 mil-Sales /Use Tax Issues lion was recorded in 1994 The actual decommissioning costs In September 1994, the Louisiana Supreme Court (Court) may vary from the estimates because of regulatory issued an opinion [n a case in which none of the System requirements, changes in technology, and increased costs of companies was a party) holding,in part, that the Louisiana state labor, materials, and equipment. Management believes that legislature's suspension of state sales and use tax exemptions actual decommissioning costs are hkely to be higher than the also had the effect of suspending exemptions from local sales amounts presented above. and use taxes. On January 27,1995 the Court, after rehearing, i The staff of the SEC has quest:oned certain of the current reversed its opinion. Because of the Court's most recent ruling, accounting practices of the e!ectric utility industry, regarding sales of electric;ty and gas, fuels and other items used by G5U, the recognition, measurement, and classification of LP&L, and NOPSI to generate electricity in Louisiana, as well as decommissioning costs for nuclear generating stations in the other items exempt from sales and use taxes, continue to be financial statements of electric utilities. In response to these exempt from local sales and use taxes, even though the state questions, the FA5B is currently reviewing the accounting for exemptions for sales and use tax have been suspended. decommissioning. If current electric utihty industry account-ing practices for such decommissioning are changed, annual NOTE 9. LEASES provisions for decommissioning could increase, the estimated General cost for decommissioning could be recorded as a hability As of December 31,1994, the System had capital leases and rather than as accumulated depreciation,and trust fund noncancelable operating leases (excluding nuclear fuel leases income from the external decommissioning trusts could be and the sale and leaseback transactions discussed below) with reported as investment income rather than as a red ction to minimum lease payments as fol!ows: decommissioning expense. CAPITAL OPERATING The EPAct has a provision that assesses domestic nuclear YEAR LEASES LEASM utihtia with fees for the decontam nation and decommission-fin reousandV ing of the DOE's past uranium enrichment operations The 1995 $ 33,008 $ 65,429 decontamination and decommissioning assessments will be 1996 29,054 57,133 used to set up a fund into which contnbutions from utihties 1997 24,653 48,861 and the federal government will be placed AP&L's, G5U's, 1998 24,634 47,446 LP&L's, and System Energy's annual assessments, which will 1999 24,610 43,128 be adjusted annually for inflation, are approximately $3.4 mil-Years thereaf ter 136,294 246,303 hon, $0 9 mi!! ion, $1.3 mdhon, and $1.4 mdhon (in 1995 dol-Minimum lease payments 272,253 $508,300 lars), respectively, for approximately 15 years F ERC requires Less: Amount representing interest 103,596 that utihties treat these assessments as costs of fuel as they Present value of net minimum are amortized. The cumulative liabihty of $75 9 milhon as of lease payments $168.657 December 31,1994,is recorded n other current liabihties and other noncurrent habMes and is offset in the consohdated Rental expense for capital and operating leases (excluding financial stater"ents by a regu!atory asset nuclear fuelleases and the sale and kaseback transactions) amounted to approximately $64.8 million, $62.7 milhon, and $75 5 mihion m 1994,1993, and 1992, respectively. W ocessaama w m s m e s u

l ) Nuclear fuel Leases As of December 31,1994, System Energy and LP&L had AP&L, G5U, LP&l, and System Energy have arrangements to future minimum lease payments (reflecting implicit rates of lease nuclear fuel in an aggregate amount up to $430 million as 7.02% af ter the above refinancing ;nd 8.76%, respectively) I of December 31,1994 The lessors finance their acquisitions of as follows: nuclear fuel through credit agreements and the issuance of SYSTEM notes. lf a lessor cannot arrange financing upon maturity of its YEAR ENERGY LP&L borrowings, the lessee must purchase nuclear fuel in an amount On thousands) sufficient to enable the lessor to retire such borrowings. 1995 $ 42,464 $ 32,569 Lease payments are based on nuclear fuel use. Nuclear fuel 1996 42,753 35,165 lease expense for AP&L, G5U, LP&L, and System Energy of 1997 42,753 39,805 $163.4 million (including interest of $27.3 million) was 1998 42,753 41,447 charged to operations in 1994. Excluding G5U, nuclear fuel 1999 42,753 50,530 lease expense of $145.8 million and $158.4 million (including Years thereafter 802,820 676,214 interest of $20.5 million and $25.6 mi!! ion) was charged to Total $1.016 296 $875,730 operations in 1993 and 1992, respectively. NOTE 10. POSTRETIREMENT BENEFITS Sale and Leaseback Transactions Pension Plans in 1988 and 1989, System Energy and LP&L, respectively, sold The System companies have various postretirement benefit and leased back portions of their ownership interests in Grand plans covering substantially all of their empicyees.The Gulf 1 and Waterford 3, for 261/2-year and 28-year lease pension plans are noncontributory and provide pension terms, respectively. Both companies have options to benefits that are based on employees' credited service and terminate the leases, to repurchase the sold interests, or to compensation during the final years before retirement. renew the leases at the end of their terms. Entergy Corporation and its subsidiaries fund pension costs in Under System Energy's sale and leaseback arrangements, accordance with contnbution guidelines established by the letters of credit are requirt d to be maintained to secure Employee Retirement income Security Act of 1974, as amended, certain amounts payable, for the benefit of equity investors, and the Internal Revenue Code of 1986, as amended. The by System Energy under the leases. The letters of cred;t assets of the plans include common and preferred stocks, currently maintained are ef fective until January 1997. It is fixed income securities, interest in a money market fund, and expected that the letters of credit will either be renewed, insurance contracts. extended, or replaced prior to expiration. On January 18,1994, System Energy refinanced the debt portion of the sale and leaseback arrangements. The new secured lease obligation bonds of $356 million,7.43% series due 2011, and $79 million,8.2% saries due 2014, will be indirectly secured by !iens on, and a security interest in, certain ownership interests and the respective leases relating to Grand Gulf 1. LP&L did not exercise its option to repurchase the undivided interests in Waterford 3 on the fif th anniversary (September 1994) of the closing date of the sale and leaseback trans-actions. As a result, LP&L was required to provide collateral to the Owner Participants for the equity portion of certain amounts payable by LP&L under the lease. Such collateral was in the form of a new series of non-interest bearing first mort-gage bonds in the aggregate principal amount of $208.2 mil-lion issued by LP&L in September 1994 under its first mortgage bond indenture. 50 kres to Consoi&:ed hnannot sta temer ts

l l l Total 1994,1993, and 1992 pension cost of Entergy Corporation and its subsidiaries (excluding G5U for 1993 and 1992), I including amounts capitalized, included the following components: for the Years Ended December 31, fin rhouwnds) 1994 1993_ 1992 Service cost - benefits earned during the period $35,712 $21,760 $18,784 Interest cost on projected benefit obligation 77,943 53,371 50,225 Actual return on plan assets 10.381 (81,708) (43,772) Net amortization and deferral (96,893) 27,261 (8,243) Other 17,963 Net pension cost $45,106 $20.684 $16,994 The funded status of Entergy's various pension plans as of December 31,1994 and 1993 was: (in thcyands/ 1994 1993 Actuarial present value of accumulated pension plan obligation: Vested $ 851,194 $ 851,726 Nonvested 6,479 17,867 _ Accumulated benefit oblication 857,673 $ 869.593 Plan assets at fair value $1,014.430 $1,059,715 _ Projected benefit obligation 999,153 1,064,364 Plan assets in excess of (less than) projected benefit obligation 15,277 (4,649) Unrecognized prior service cost 25,501 20,288 Unrecognized transition asset (54,209) (61,561) Unrecognized net loss (gain) (9,332) 32,634 Accrued pensinn liabihty $ (22,763) $ (13.288) The pension liability for 1993 has been restated in order to accrual method of accounting for postretirement benefits make GSU's presentation of certain early retirement plan other than pensions. The System operating companies, other liabihties consistent with the other System companies. The than MP&L and NOPSI, continue to fund these benefits on a significant actuarial assumptions used in computing the pay-as-you-go basis. During 1994, pursuant to regulatory information above for 1994,1993, and 1992 (only 1994 and directives, MP&L and NOPSI began to fund their post-1993 with respect to G5U's plan), were as follows: weighted retirement benefit obligation. At January 1,1993, the actuari-average discount rate,8.5% for 1994,7.5% for 1993, and ally determined accumulated postretirement benefit obliga-8,25% for 1992; weighted average rate of increase in future tion (APBO) earned by retirees and active employees was compensation Svels,5.1% for 1994 and 5.6% (5% for G5U) estimated to be approximately $241.4 million and $128 mil-for 1993 and 1992;and expected long-term rate of return on lion for Entergy (other than G5U) and for G5U, respectively. plan assets,8 5%. Transition assets of the System are being Such obligations are being amortized over a 20-year period amortized over the greater of the remaining service period of beginning in 1993. active participants or 15 years. The System operating companies have sought approval, in their respective regulatoryjurisdictions, to implement the Other Postretirement Benefits appropriate accounting requirements related to SFAS 106 for The System companies also provide certain health care and life ratemaking purposes. AP&L has received an order permitting insurance benefits for retired employees. Substantially all deferrat, as a regulatory asset, of these costs MP&L is expens-employees may become eligible for these benefits if they reach ing its SFAS 106 costs, which are reflected in rates pursuant retirement age while still working for the System companies The to an order from the MPSC in connection with MP&L's cost of providing these benefits, recorded on a cash basis, to formulary incentive rate plan (see Note 2). The LPSC ordered retirees in 1992 (excluding G5U) was approximately $13 million. G5U and LP&L to use the pay as-you-go method for Eff ective January 1,1993. Entergy adopted SFAS 106. The ratemaking purposes for postretirement benefits other than riew standard requires a change f rom a cash method to an pensions, but the LPSC retains the Cexibility to examine I wrn ro cween,,,,c< swe~em st re f+ --i----+--m +-.---,---..---+--.w-ev--m

1 l 1 individual companies' accounting for postretirement benefits AFB 0 were 8M for 1994 and 7.5% for 1993 and 5.1% for to determine if special exceptions to this order are warranted. 1994 and 5.5% (5% for G5U) for 1993, respectively. NOPSIis expensing its 5FAS 106 costs Pursuant to resolutions adopted in November 1993 by the Council related to the NOTE 11. RESTRUCTURING COSTS Merger, NOPSI's SFA5106 expenses through October 31,1996 During the third quarter of 1994, Entergy announced a will be allowed by the Council for purposes of evaluatmg the restructuring program related to certain of its operating appropriateness of NOPSI's rates. Pursuant to a ruling by the units. The program is designed to reduce costs, improve oper-PUCI applicable to all Texas utilities, includmg G5U, amounts ating efficiencies, and increase shareholder value in order to recorded in compliance with SFA5106 and included in a rate enable Entergy to become a low-cost producer. The program fihng test period, will be recoverable in rates (at the time of includes reductions in the number of employees and the the next general rate case), and postretirement benefits consolidation of offices and facilities. In 1994, AP&L,G5U, amounts allowed in rates must then be funded by the utility. LP&L, MP&L, and NOPSI recorded restructurmg charges of Total 1994 and 1993 postretirement benefit cost of Entergy $12.5 million, $6.5 million, $6.8 milhon, $6.2 million, and Corporation and its subs diaries (excluding G5U for 1993), $3.4 million, respectively. These charges primarily include includmg amounts capitabled and deferred, included the fol-employee severance costs related to the expected termination low ng components: of approximately 1,850 employees. As of December 31,1994, 35 AP&L employees were terminated under the program at a Un rhmwn61 1994 1993 severance cost of approximately $0.3 million. Service cost - benefits camed during the penod $11,863 $ 7,751 NOTE 12. ENTERGY CORPORATION - G5U MERGER Interest cost on APB0 23,312 19,394 On December 31,1993, Entergy Corporation and G5U Return on plan assets (71) consummated their Merger. G5U became a wholly-owned Net amortization and deferral 9,891 12.071 subsidiary of Entergy Corporation and continues to operate Net periodic postretirement as a corporation under the regulation of FERC, the PUCT,and benefit cost $45,066 $39,145 the LPSC. As consideration to G5U's shareholders, Entergy Corporation paid $250 million and issued 56,695,724 shares The funded status of Entergy's postretirement plans as of of its common stock in exchange for the 114,055,065 December 31,1934 and 1993, was: outstandmg shares of G5U common stock. In addition, $33.5 million of transaction costs were capitahzed in connee-pn thewnAl 1994 1993 tion with the Merger. Accumulated postretirement As a result of the December 31,1993, Merger closing, G5U benefit obligation: recorded expenses totaling $49 milhon, net of related tax Retirees $ 186,570 $ 221,562 effects, for early retirement and other severance related plans Other fully chgible participants 58,330 68,283 and the payment to financial consultants involved in Merger Other active participants 52,324 95,854 negotiations on behalf of G5U. Additionally,G5U recorded 297,224 385.699 $23 8 milhon in 1994 for remaining severance and augment-Plan assets at f air value 9,733 354 ed retirement benefits relat"d to the Merger. 5ee Note 2 for Plan assets less than APB0 (287,491) (385,345) information regarding Merger-related rate agreements. Unrecognized transition obhgation 217,275 229,346 in 1993, Entergy Corporation recorded an acquisition Unrecognized net loss (gain) (58,178) 28,529 adjustment in utility plant in the amount of $380 mdhon rep-Accrued postret,rement resenting the excess of the purchase price over the net assets benefit hability $(128.394) $(127.4 701 acquired of G5U. The acquisition adjust,nent will be amortized on a straight-kne basis over a 31-year period, which approxi-The assumed health care cost trend rate used in measunng mates the remaining average book life of G5U's plant. the APd0 of the System companies was 9.4% for 1995, grado. During the allocation period (which expired on December 31, ally decreas,ng each successive year untilit reaches 5 0% in 1994), Entergy Corporation completed its analyses with 2011. A one percentage-point increase in the assumed health respect to preacquisition contingencies and revised the allo-care cost trend rate for each year would have mereased the cation of the purchase price for a number of preacquisition APB0 of the System companies, as of December 31,1994, by contingencies In 1994. G5U wrote off assets or recorded lia-8 9k, and the sum of the service cost and interest cost by Dihties totaling approumately $137 milhon net of tax for the approximately 113 %. The assumed discount rate and rate of Cajun-River Bend htigation, unfunded Cajun-River Bend increase in future compensation used in oeterminmg the costs, environmental cleanup costs, obsolete spare parts. % m ru cor wM,vec ind Swer ts

1 Louisiana River Bend rate deferrals previously d;sa!! owed by the LPSC, plant held for future use, and a PUCT fuel reconcilia-tion settlement. Any items recorded in 1995 or later will result in wate-offs and/or losses charged to operations on CSU's financial statements and Entergy Corporation's consolidated financial statements. In accordance with the purchase method of accounting, the 12-month results of operations for Entergy Corporation reported in its Statements of Consolidated Income, Cash flows, and Retained Earnings do not reflect G5U's results of operations for any period prior to January 1,1994, as a result of the Merger. The pro forma combined revenues, net income, earnings per common share before extraordinary items, cumulative effect of accounting changes, and earnings per common share of Entergy Corporation presented below give effect to the Merger as if it had occurred at January 1,1992. This unaudited pro forma information is not necessarily indicative of the results of operations that would have occurred had the Merger been consummated for the period for which it is being given ef fect, nor is it necessarily indicative of future operatrng results. Year f nded(*cemvr.f r, 1993 1992 pr rhuuwnds, m eor ce shore amournl Revenues $6,286,999 $ 5,850,973 Net income $ 595,211 $ 521,783 Earnings per average common share before extraordinary items and cumulative ef feet of accounting changes 2.1b 2.26 l Earnings per average common share 2.57 2.24 NOli 11 OllARl[HLY FINANCIAL DATA (LINAUDITED) The business of the System is subject to seasonal fluctuations with the peak period occurring during the third quarter. Consolidated operating results for the four quarters Of 1994 and 1993 were: i OPERAUNG OPERATING NET EARNINGS (LOSS) REVENUES INCOME INCOME (LC55) PER SHARE pn thonsord\\ encepr pN shore amourry) 1994: First Quarter $ 1.406.039 $253,870 $ 70,735 $ 0.31 Second Quarter $ 1,586.298 $325,935 $144,337 $ 0.63 Third Quarter $ 1.805,524 $336,611 $143,198 $ 0.63 Fourth Quarter $ 1,165.429 $152,325 $ (16,429) $(0.07) 1993: first 0aarter $ 926,412 $ 192,743 $ 151,154 $ 0.86 Second 0aarter $ 1,070,102 S 260,574 $ 130.860 $ 0.75 Third 0aarter $ 1,410,951 $ 359.938 $ 233,430 $ 1.34 Fourth 0aarter $ 1.077.872 $ 180.086 $ 36.486 5 021 See N Ae I h,r m fyms: hor regardmq rhe reco%rq cf t* e cumu atwe ef fect of tt'e charge m occou t:r'g princcp'e for urbdted rennues in January 1993 t r N0tes to Q:r%ndoTo Imanc# brMements 53

--p-- ENTERGY CORPORATION DIRECTORS H4'i Robet t v.d. Luft, Senior Vice President, DuPont, and President. DuPont Europe, Geneva, Switzerland. An Entergy director since 1992. Age,59 W, I rank lllount, Chief Executive Of0cer, Telstra Communications Corporation, Sydney, Australia, Joined the Entergy Board in 1987. Age,56 I d 1 upberger Entergy's Chairman of the Board and Chief lixecutive Officer, New Orleans, Louisiana. Age,58 l 3p' John A. Cooper Jr., Chairman of the Board, Cooper Communities, Inc., Bella Vista Arkansas. An Entergy director since 1985. Age,56 h. i s E Adm. Kinnaird R. McKec, LLS. Navy (ret.), former director of Navy Nuclear Propulsion Oxford, Maryland. Joined the Entergy Board in 1990. Age,65 l 1 ocfr J. ijeldstad. President ~ Multimedia, Tektronix inc., Portland, Oregon. Joined the Entergy Board in 1992. Age, $1 Paul W, Murrill, Retired Chairman of the lioard and Chief Exceutive Officer, Gulf States Utilities. Baton Rouge, Louisiana. An I:ntergy director since 19% Age,60 . -g-Norman C. I rancis, President - Xavier University of I nuisiana, New Odcans, Louisiana Joined the Entergy floard in 1994. Age,64 Mv James R. Nichols, Partner, Nichols & Pratt (family trustees), y' attorney and chartered financial analyst, lloston, Mawachusetts. Joined the Entergy Board in 1986. Age,56 R, hancast< r llodges Jr., Attorney, Newport Arkansas. Joined the fntergy Boaniin 1984. Age, % 1 ugene 11. Owen, Chairman and Chief Executive Officer, Owen and White, Inc.; Chairman and President. Utility lloldings, Inc.,11aton Rouge, Louisiana. An Entergy director since 19% Age,65 54

OfTIU RS Ed I upberger, Chairman and CEO. Joined Entergy in 1979; elected chairman in 1985. Age,58 Jerry I.. Maulden. President and Chief 0perting Ofucer. ,f y Serves on the boards of Entergy) five operating companies. Joined Entergy in 1965. Age,58 Jerry D. Jackson, Executive Vice President - Marketing and External Affairs. Joined Entergy in 1987 after private John N. Palmer Sr., Chairman of the floard and Chief legal practice and service on Arkansas Public Service Comm,ssion. Age,50 Executive Ofucer, Mobile Telecommunication Technologies i Corp., Jackson, Miwissippi. Joined the Entergy Board in 1992. Age,60 Donald C. Ilintc Executive Vice Pres. dent and Chief i Nuclear Ofncer. Joined Entergy in 1989. Previously in charge of nuclear power for another utility. Age,52 Getand D. McInvale. Senior Vice President and Chief I inancial Officer. Joined Entergy in 199 I after holding

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executive posi ions with a major consumer products firm. t Age. 51 Michael G. Thompton. Senior Vice President. Chief Legal Of0cer and Secretary. Joined Entergy in 1992 after private " EI## ^ E#* Robert D. Pugh. Chairman of the Board, Portland Gin Company, Portland. Arkansas. An Entergy S.M. Henry Ilrow n Jr.. Vice President - Federal director since 1977. Age. 66 Governmental Affairs. Joined Entergy in 1989 after 17 years ) of corporate and trade association public affairs work. Age, 56 Charles I.. Kelly, Vice President - Corporate Communications and Public Relations. Joir;ed Entergy in , 4 1977, following a career in radio and television. Age,58 I re W. Randall. Vice President and Chef Accounting Officer. Joined Entergy in 1979 after six years with a public b accounting firm. Age,46

11. Duke Shac krifmd, Planter. President and Director of Shackelford Co.,Inc., Bonita. Louisiana. Joined the Christopher I. Screen. Assistant Secretary, Joined Entergy Intergy lloard in 1981. Age,68 in 1976 after private legal practice. Age,44 (AdJmonal v111cers who appear un the quntion and onwer section)

Michael B. Itemis. Executive Vice President - Customer Service, Entergy Services, Inc. Executive VP of Entergy's .j Ove operating companies. Joined Entergy in 1982. Iormer partner for a national accounting firm. Age,47 W m. Cliffor Si iith, President of T. Baker Smith & Son, I rank 1. Gallaher, Executive Vice President - Fossil Inc.,llouma, louisiana. An i niergy Director since 1983. Operations, Entergy Services, Inc. Named GSU president; Age, 59 merger implementation manager in 1994. Joined Entergy in 1969. Age,49 Ictry Ogletree. Executive Vice President - Entergy m'. Enterprises,Inc. Manages the nonregulated Power Group businesses in the U.S. and overseas. Joined Entergy in 1993. -<,%j } 8 Previously an executive with major independent power firms. Age,51 lbsmark A. Strinhagen. Chairman and Director of Steinhagen Oil Company. Inc.. Beaumont, Texe. An Entergy director since IHL Age 60 50

l INVESTOR INFORMA' HON Shareholder Account Information l Mellon Securities Trust Company is Entergis transfer agent, registrar, dividend disbursing agent, and dividend reinvestment agent. Shareholders of record with questions about lost certificates, lost or missing dividend checks, or notifications of change of address should contact: The 1995 Annual Meeting of Shareholders wiff be held Me lon Securities Trust Company Friday, May 26, at the James M. Cain Energy Education. Recordkeeping Services Center, LA Highway 3127, Taft, Louisiana. The meeting will P.O. Box 590 begm at 10 a.m. (CDT). Ridgefield Park, NJ 07660 Dividend Payments The entire amount of dividends paid during 1994 is taxable Common Stock Informatmn as ordinary income. The Board of Directors declares The company's common stock is listed on the New York, dividends quarterly and sets the record and payment dates. Chicago, and Pacific stock exchanges under the symbol "ETR." Subject to board discretion, those dates for 1995 are: The Entergy share price is reported daily in the financial press "" ' " '9 "9' '"9' Declaration Date Record Date Payment Date secur ties. Entergy common stock is a component of the fol-January 27 February 10 March 1 lowing indices: S&P 500, S&P 100, S&P Utility index, Kemper March 24 Securities Utilities Index, and the NYSE Composite index. A 5ap 1 At year-end 1994 there were 227,408,577 shares of Entergy October 27 November 10 December 1 common stock outstanding. Shareholders of record totaled approximately 104,000, and approximately 145,000 investors Quarterly dividend payments in cents-per-share have been; held Entergy stock in street name through a broker, e a ng ce ead pa% peM Quarter 1995 1994 1993 1992 1991 1 45 45 40 35 30 2 45 40 35 30 3 45 40 35 30 4 45 45 40 35 37 % 31 % 36 % 32 % Second 32 % 24 % 38 % 33 % Dividend Remvestment Plan Third 26% 22 % 39 % 36% Mellon Secunties Trust Company offers an Automatic Fourth 24% 21 % L9% 35% Dividend Acinvestment Plan to registered holders of Entergy common stock.The plan provides shareholders of record P Polg hhr with a convenient and economical way of acquiring Entergy encourages its shareholders to take an active role additional shares of Entergy common stock.The plan also in the legislative and public policy issues that affect accommodates payments of up to $3,000 per month for the the company and the electric energy industry. Copies of purchne of Entergy common shares. Contact Mellon for The Entergy Constituent Entergy's r;ewsletter on those issues, information and an enrollment form. may be obtained by writing to: The Enterg Constituent, Entergy Corporation, P.O. Box 61000, New Orleans. LA 70161. Investor inf or mation Entergy's quarterly earnings results, dividend action, and other news and information of investor interest may c 7.gwp n y "~ be obtained by calling Entergy Shareholder Direct at f' p' 1-800 ENTERGY (368-3749).You may also use this service to receive a printed copy of the quarterly cernings release by fax or mail. Updated quarterly earnings results can be expected in late April, July, and October, and early in February. Dividend information will be updated near the end _.s of January, March, July, and October. y Security analysts and representatives of financialinstitu-tions may contact Stuart Ball at 1-504-576-4817 regardir.g MM Entergy's financial and operating performance. g? For copies of Entergy's 10-K and 10-0 reports filed with the Securities and Exchange Commission, call 1-800-292-9960 or write to: Entergy Corporation, Investor Relations, P.O. Box 61005. New Orleans, LA 70161. ch & s' 7 @w, Entergy's retail service area covers the portions of -._. n._ . _.s s- _ e. F6

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