ML20138C502
| ML20138C502 | |
| Person / Time | |
|---|---|
| Site: | Grand Gulf, Arkansas Nuclear, River Bend, Waterford  |
| Issue date: | 12/31/1996 |
| From: | Dewease J, Lupberger E ENTERGY OPERATIONS, INC. |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| CNRO-97-00009, CNRO-97-9, NUDOCS 9704300125 | |
| Download: ML20138C502 (71) | |
Text
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a Entergy Cper; tion:,IM.
PO. Box 31995
~# ENTERGY ~~s 39m*5 le! 601368 5760 Fax 601368 5768 Jerrold G. Dewease vce newxnt
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April 23,1997 U.S. Nuclear Regulatory Commission Mail Station 0-PI-37 Washington, D.C. 20555 Attention: Document Control Desk
SUBJECT:
Entergy Corporation Annual Financial Report [ 10 CFR 50.71(b)]
River Bend Station Grand Gulf Nuclear Station Docket No. 50-458 Docket No. 50-416 License No. NPF-47 License No. NPF-29 Arkansas Nuclear One Waterford 3 Steam Electric Units 1 & 2 Station ,
Docket Nos. 50-313 & 50-368 Docket No. 50-382 License Nos. DPR-51 & NPF-6 License No. NPF-38 CNRO-97/00009 Gentlemen:
In accordance with 10 CFR 50.71(b) attached is a copy of the Entergy Corporation 1996 Annual Report containing required financial statements. This submittal is made jointly on behalf of each nuclear unit in the Entergy Operations Inc. system.
Should there be any questions conceming this submittal, please contact L. A. England of our Corporate staff at (601)368-5766. <
Sincerely, b
J JGD/lae i soo4 I 1
attachment cc: (See next page) nA o h 9704300125 961231 ,
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' Entergy Corporation Annual Financial Report [ 10 CFR 50.71(b)]
April 23,1997 CNRO-97/00009 Page 2 of 2 cc: Mr. J. L. Blount (w/o) -
Mr. J. G. Dewease(w/o)
. Mr. J. N. Donohew j Mr. C. M . Dugger (w/o) l Mr. J. J. Hagan (w/o) j Mr. C. R. Hutchinson (w/o) )
'Mr. G. Kalman Mr. J. R. McGaha (w/o)
Mr. R. B. McGehee Mr. E.W. Merschoff Mr. C. J. Paperiello Mr. C. P. Patel Mr. N. S. Reynolds Mr. D. L. Wigginton Mr. J. W. Yelverton (w/o)
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Playing Smarter. Entergy is during this decadeI extend i improving service and lowering e,=s _. ,.,ae -g, Page14 practically tripling our rett Opportunities for Future i
====r challenges we face and crafting Tremendous opportunities speedy responses.
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- ompany in the midst of tremendous termination to win in tomorrow's le have moved beyond the boundaries less and are employing our core skills istribution-network management, o expand globally, as well as compete larkets. We've grown dramatically ig our presence to five continents and customer base to about 4.8 million.
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s We have identified tremen- to improve our capital on-site technology. It is dous oppcr tunities in U S. structure and expand our an excellent f.t with skills and global energy markets, businesses, including such acquired in our core energy
., as well as significant chal- major global acquisitions as bus, ness. Secunty monitunng lenges. Any time an industry London Electocity, which also is an industry expe-undergoes major structural was acquired earlier this noncing significant growth
>*. Change, both opportunities year. !! was the second such and consolidation. We'll and challenges are unleashed. major acquis tion in as many continue to expand our B / ef fectwely imp lementing years. CitPower, a distobu- stake with a vision of being -
both of fensNe and defen- tion company serving dominant in the south-sive strategies, we'll take Melbourne, Austraha, was eastern U S.
fullest advantage of nsing acquired in 1996 from the opportunities, while state government of Victona. Core energy business addressing the challenges. Povatizations of govern- fuels our growth.
Our 1996 record speaks for ment-owned power systems Our platform for growth itself in this regard. Will continue throughout remains our core retail energy much of the world as business in the U.S. and Excellent 1996 financial governments sell of f assets overseas. We are investing results and growth, to reduce debt and improve heavily in the employees I am extremely proud of their capital structure. who run this business, as
[.. #// Entergy's 1996 financial per- Entergy seeks wise invest- well as in our generation formance. In line with our ments that of fer osk-adjusted plants, transmission and t"d Lupberger Chwrman, Pmmdent, and CEO strategies. We drove earnings returnsin excess of those distnbution systems, and up and costs down, while available f rom our domeshc in new technology and Dear Fellow aggressively growing our regulated energ / business. information systems that Shareholders: business overall. Our overseas investments, help our employees improve 1996 was a year of very Tho year's ongoing earn- which now number nine productivity and customer good financial performance ings per share (excluding projects in five countries, satisfaction. Through new
. and extraordinary progress unusual items) rose 5.5 per- became profitable in 1996. technology and better work in our quest to become a cent to $2 A8, compared We anticipate a substantal processes, we are improving
- winning global competitor. v + 32.35 for 1995, The contnbution to earnings in networ k rehabihty, meter Rarely has n company 1 ao incese was 8.1 per- 1997 and beyond. read ng. and bilkng - all
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- so many dif ferent f ronts as excluding the ef fect of favor- Seizing domestic growth. greater customer sahsfaction.
i Entergy did in 1996 and able weather in both years. In 1996 we also conhnued Our of forts also have early 1997. Dnving our T his exceeded our goal of to invest in diversified, but been paying of f in lower oper-
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{ accomphshments are four 5 percent annual growth or closely related, growth ating costs, which prepare l corporate strategies, which better in ongoing earnings. opportunities within the us for when we will face we f.rst communicated to (We use ' ongoing" earnings United States. Most signif- direct competition for retail shamhokiers at our May as our measure of success, scantly. we made a decisive energy customers. In addo
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1995 annual meeting and since it removes the etfect entry into the secunty monF tron,1996 U.S retail e!ec-i f ur ther pubhcized in our of unusualitems.) tonng industry through a tocity sales increased
! 19% annual repor t. In Entergy's strong cash senes of acquisitions. 3 6 percent, an indication of a special updato report flow. which tota!ed $1.5 bil- Secunty monitonng. hke the continued growth in our af ter this letter, we outkne hon in 1996, has enabled us energy management serv- service area economy and 1 the excellent progress tces we provide through the ef fectiveness of our
. Entergy has nude in fouow- Entergy integrated Solutions.
ing these strategies is a customer seruces-based business that uses .
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marketing progtams. Our competition. They also Supreme Court remanded U.S. retad energy customers establish a " universal serv- to the Public Utility grew 1.5 percent in 1996. ice cost" component of rates Commission of Texas an aimed at preventing cost Entergy Gulf States' rate Addressing the shif ting from one customer appeal seeking to have competitive challenge, groep to another. certain plant costs included A number of industry Iniplementationof this in customer rates.
observers have focused plan vill facilitate an orderly
) attention on the challenges and tair transition to compe- Playing to win.
facing U.S. energy providers tition and provide all of our As the theme of this report as deregulation gives busi- customers an opportunity to indicates. Entergy is playing , . . . . .
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benefit from the lower prices to win. We've grown dramat-ness and residential customers choices about and increased customer ically and are establishing .. .4 . .. . y
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where they buy power. cnoices that competition ourselves as a leading .; . [ j j,j These concerns were a sig. will bring. global competitor. We're ,y a $ 7,.[]y)Q nificant factor in the As hearings on this plan moving decisively to ensure J. .
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depressed price of electric begin in coming months, we an orderly transition to com- $ ; a K i.f ;
energy stocks in 1996, com- will work with our regulators petition in our regulated j '; k k . A pared with the S&P 500 to develop a competitive service area and to be the (M .G 'c. ,
Index. Companies with sig- marketplace and protect energy provider of choice "Dj-
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nificant nuclear investment your investment as a share- when our U.S. markets are yj ! jff,)
were the object of particular holder. We believe cost opened to competition. And @. /5 p SW concern. This, we believe, recovery to be our legal we're adding services and ((-)l; 1 L ).d contnbuted to the slight right under the existing products beyond basic ]j] 9. h,[
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common stock poce. we'll press hard for this our customer base and Nevertheless Entergy's element of our plan. increase shareholder value.
total return to shareholders As a result of theselong-(stock price performance Progress on two key term strategies, we are and d;vidends paid), outper- River Bend plant issues, targeting ongoing earnings formed the electnc industry Two positive legal develop- growth of 5 percent or more ments moved us closer to annually through the remain-average and decisively out-der of this decade, and g g* r.g' performed many other com- resolving remaining uncer- e. - J ' -
s panies with signifcant tainties regarding the River we're increasingly positive NE nuclear investment. Bend nuclear plant. First, about longer-term prospects. MW.h.h:[ay. dy To address this issue, litigation pertaining to k.M h4 @ [h in 1996 Entergy introduced Cajun Electric Power h jU 'N9]!b. $k; f}
a trans; tion to competition Cooperative's interest in the Sincerely, ' ' -? [$
i plan in the form of filinas in plant was settled. Implemen- ,
g our regional regulator y juris- tation of the settlement dur-dictions The filings provide ing i997 is expected to Y f
- a mechanism to accelerate resolve alllitigation between d jeg i recovery of our nuclear Entergy Gulf States and Ed Lupberger h gIk investment over seven years Cajun. Second, the Texas Chairman, President, y g
- thus, increasing the and CEO r p@p -
- potential for these plants to March 14,1997 .g . jQ be competitive v, hen our .
service area faces greater wre **k er m*m P an
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Aggressively manage **"""*"""*"*"""""'-""*"*
improving and espanding customer service.
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top performers and targeting Best in Class performance. Custem%r watue is being added by effering services,and products beyond basic energy.
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ness is primarily distribution, which we know business j-
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Expand domestically ***="**d==*"**=-a=
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states. This network-based and promises-serVICOs **""#"""'**""******"'""
manageanpet business (Ente integrated Solutions) and our plans for en anding into telecommunication and int atten services. These businesses aise est ant.rgy s g.. graphic r.ach d.maticeir.
Manage an orderly
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transition to "*****---a~~'"'"***
.with service-area reguaatory bedies, we pret Competition **"'""*""*""*"*"*"***"**
which we would resever our naciear invest-most and, thereby, accelerate the re
. in rate base and prices fer our custenters. '
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Londen Electricity 6s espected to generate a The electric ladustry in the U.l(. and Austratta stable and growing stream of earn 6ngs and is well shead of the U.S. la moving to a sem-cas(t flew - and en attractive reak-adjusted petitive retail environment. Our esperiences internal rate of return. It, along with our there will be invaluable as we prepare to '
ettner internattenal investinents, g6ves sempete in the U.S. Also, Lenden Electricity
$ntdrgy a large, balanced platfbren of earnings semplements a major generation plant and eash flew for future growth and - we are sommitting to hund for Sp Chemleal's investment.Entergy's global 6nveststtents Saltend compten in northeast England.
4 will eentribute a greedng percentage to future earnings.
in these besdneges we are lavesting in tech- These additlenal customer relationships wHI nelegy and assets, and we are estabitshing (. ..
be advantageous to us in the future. While an earty presence in wt at promise.to be f rotatively stand-alone businesses now, timore growing enterprises. Our investment < will be opportun&tles to bundle these services will be recouped over a period of several f with our energy services when regulatory years, as-wre add sustomys. The current '
barrters come down. Ultimately, we intend eastleek is for these businesses to reach J ^ to schleve a broad-based relattenship with -
break-even in 1334 and steadily increase our customers, wherever they may reside, in profitab80ty thereafter. for energy and our other services.
An estolerated recovery of our nuclear By being proacttwo, we espect to eliminate onwestenent would sagsitilaantly tescrease sash the potential for stranded costs as retaN flow, which would be used to retire debt, competitlen emerges in our sorwice area. Our strengthen our botanee sheet, pad maintain plan ensures that att sustespers may benefit -
bond ratings. While the4arger depreetatten from competitlen by preventing large cus-mise would reduce rate base and lower get temers from shifting costs to smaller ones.
Insente, we espect tids to be offset by added incense from our global power and domesti.
retadserv6ces 6avestments.
k This is a report on progress in the second year of the Entergy strategies, which were established early in 1995.
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14, kicks off for the right), to, plays for the demonstrates her winning Conway (Arkansas) Carolyn Park Hornets in technique as a player for the ,
Soccer Club's Blitz. His Louisiana. Her mother, Carrollton Playground's mother, Karen Collins, is Molly Buckfey, plays Sate!!!tes in New Orleans.
a player on the Entergy a key Entergy role as a Lisa Mills, her mother, team, as a senior analyst Corporate Communica. contributes to Entergy's ,
in Retail Services' tions and PR department winning performance as Resource Performance secretary in New Orleans. executive assistant to the department.
chief financial officer.
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For more than a half century distribution networks; main. into operating in an environ-we have exce!!ed as an taining customer-service ment wnere power is energy provider, building the relationships; raising capital marketed as a commodity.
skills that we are employing and financing long-term in 1995 we launched for future success. investments: and working Entergy Power Marketing As we prepare our strat- ef fectively with regulators Corporation, a trading sub-egy for tomorrow's compo- and legislators. sidiary that buys and sells tihvo environment, we see electric energy and fossil practica!!y unhmited growth Earty success gained fuels. EPl and EPMC dealin opportunities, due to the through domestic and f markets where thousands significant legislahve and international ventures. of megawatts are bought or '
regulatory changes We began expanding sold based on weather transforming our industr y. beyond our core retail shitts and sudden customer
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However, to win in this energy business at the start j demands. They are a part competitive world, we are J of this decade. When inde- of the coming era of retail I l ',
convinced that the wisest pondent merchant plants power competition.
course is to make the best were not yet commonplace, in 1992 we also expanded use of the skills we possess Entergy estabhshed Entergy into the internat onal arena.
-to play from our strengths, Power, Inc., using 809 investing in Argentine power so to speak. This is why megawatts from two systems, as that country Entergy has focused its Arkansas power plants, privatized its government-expansion plans on busi- With Entergy Power we owned utilities. Since then, nesses similar to those we went head-to-head against we've added power genera-akeady know-to utilize the other generators in the tion and distribution projects skiHs we have acquired. Competitive wholesale in Peru, Pakistan. Austraha.
Broadly, these include power market. and the United Kingdom. In power-plant operations; Our skills in operating these and other countries, designing, budding, operat- power plants ensured a several additional projects ing. and maintaining broad, smooth transition into this are under development, integrated transmission and new business, which in turn provided us early insights 6 7
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Entergy also is aggressively putting its core skills to use ment of consumption, or providing a link for commu-nications and data trans-m Entergy Security, Entergy sells, installs, moni-tors. and services custom-designed security systems in adding new products and mission over local and that include fire, burglary, services for U S. customers. long distance carriers. access and environmental Our nuclear generation The addition of value- control, and closed-circuit Group markets its manage- added. premises-based TV We plan to aggressively ment services to other utdi- products and services for add to our 1996 base of ties and has signed an retail energy customers nearly 80,000 customers.
agreement to run Maine's augments those provided a Entergy Technology only nuclear plant, Maine by four nonutility entities: Company. We hsve Yankee. Our operations e Entergy Integrated sought regulatory approval group recognizes that. Sofutions,Inc. (formerly to lease capacity on a por-similarly, it could market Entergy Systems and tion of our domestic utihty its management skills to Service, Inc ). Formed in companies' fiber-optic fossil-fuel electric and 1992. Els secured an early telecommunications net-gas utiltties presence as a provider of work and have expanded Through a coordinated energy-et ficient lighting. the size of the network.
reta;I services initiative, heating, ventdation, and e Entergy Hyperion
, we're also moving quickly air conditoning servces to Telecommunications.
to provide products and businesses and institutions. Early in 1997 we formed a
./+' services that add vtue Today. It has sales represen- joint venture with Hyperion beyond the dehvery of a tatives in 32 sta'es and Telecommunications to of fer
, kilowatt-hot r of electreity. about 10,000 facitres competitive telephone T hese migt st include arang- under contract, including services to commercial ing funancing so e ;ustomer a growing number of customers in the Little Rock, can purchase 9auipment national chain accounts - Arkansas: Jackson, needed for business expan- McDona d's, Sears, and M,ssissippi; and Baton sion, instalkng technobgy Mobil Od among them. Rouge, Louis:ana, areas.
that monitors energy usage
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Moon Customers, and Growing Ouring the 1990s, through parts of the country, and we Also, Entergy has been a j acquisitions and service- of for an expanded line of part owner and operator of
- area growth. Entergy energy-related products and the Edesur distribution dramatically increased its servces, as well. Retall energy company. serving more than j rctail customers to about customersin Arkansas, two million customers in the j 4.8 million, and the outlook Louisiana, Mississippi, and southern portion of Buenos f is for continued growth. Texas account for 2.42 mit- Aires, Argentina, since 1992.
j Customer growth, cou- lion of our domestic base. in only a few years, j pied with added services up from 1.72 million in 1990. we've estabhshed a global I and products, is an irnpor- About 240,000 of these presence and a broad cus-i tant measure of Entergy's same customers also receive tomer base for future j f uture success. especia!!y naturalgas services. Another growth and expansion.
] as energy markets are 85,000 security-monitoring l deregulated and opened to and energy-management Kicking the ball to new 8; competition. In other indus customers havo been added. customer heights is j tries, companies with a largely outside of the regu_ Den Von Coln, 7. Den 1
large and growing customer lated service area. plays for the Victory j
i base have tended to Our global expansion Warriors in Baton Rouge, ,
perform better than their parallels our domestic Louisiana, while his g competitors, and we antici- growth. Our 1997 acquisi- father, William von Coln, contributes to Entergy pate a similar trend in the tion of London E!ectricity ,
electnc industry Custom Accounts' i added about two million WinnIn9 performance In the U S., Entergy has customers in England.
l as a seni r account expanded not only in our mat 238,000 Melbourne, Australia, customers were N" *
' f tanchise area but into other j added through our 1990 i
CitiPower acquis, tion.
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In just four years Entergy has become recognized public electric utility systems and in systems acquisitions.
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( gh! h e $$M * < Nd (Latin America, Austra!ia, A review of our major target pMfy, j M f.
, 3 Europe, and Asia) have markets follows.
i . G Ng;#py#< produced a profitable y e , portfolio of investments in Europe. a [,,e
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,E.h@ h;;h k ' df ,' ,I both the generation and wires (transmission and Our European focus is on generation and distribution.
I-[h fMh f [ distribution) businesses. Although our percentage In our most significant overseas investment, in I (* ,
/ of ownership was relatively February 1997, we acquired l (9 small at first, most of the proj- London Electricity, giving ,
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- ects we're pursuing today us a major presence in an l have a minimum Entergy attractive market with good
] e Esisting Projects Entergy has gained a presence on five conti- ownership of about 50 per- growth potentral. Also in the , i e Pending Projects nents through its power expansion projects. Cent, and we're comfortable U.K., we are negotiating with ! . Worldwide Offices with increasing our stake to Bntish Petro!eum for devel-i 100 percent. opment of a 1,100-megawatt
- Upon entering the inter- gas-turbine power plant at national power development BP Chemical's Saltend
{ arena, our strategy was to complex in northeast 4 invest in privatizations of England. Negotiations also l are under way to develop l additional gas plants in other European countries. 1 1 l i 10 l 11
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I C11ching of f (f ar lef t) from the U.S. Is Sean Cof fey,8, Lorena's fathers, Jose Luis L6per Santana and Nspole6n son of Ron Coffey, an Entergy architect. Receiving Cubas MuAoz, are key players on the EDECEL generation are (clockwise from upper lef t): Alejandro Lopez team in Lima, Peru. Colin and William's fathers, Len Carrion,10, Colin Saunders,11, Lorena Cubas Saunders and Biti Danskin, are long-time contributors to Durango, C, and William Danskin, g. Alejandro and the London Electricity team, London, England. Latin America. Australia. United States. e Entergy Power, Inc. I Every investment we have Entergy is focusina on build- Entergy is extending its With the advent of deregu-made in Latin America is ing a major, long-range power marketing program lation, some U.S. utthty profitable. Our primary Latin postion in Australia. Our 1996 and monitoring the utility companies will decide to , ] American focus is in the acquisition of CitPower, a industry for power acquisi- spin of f their generation l area of generation, although major d:stnbution company tion opportunities as businesses. Entergy would we also are involved in in Melbourne, Victoria, was regulatory "unbundkng" operate any resulting ' Argentine distnbuton. We an initial step. We hope to occurs. Our two primary acquisitions under our have cstabhshed good expand into other states, initiatives are: wholesale generation sub-working relationships with such as Queonstand and a Entergy Power sidiary, Entergy Power, Inc. maior firms and partnors in New South Wales. Marketing Corporation. 1 Argentina. Brazil, and Chile, Originally hmited to purchas- Building for success. and we're expanding these Asia. ing and selhng electricity Entergy is enhancing its relatonships to other areas A though the Asian market and its generating fuels to overseas presence by
- in the region. In 1996 we is very attractive, it has been utilities and other power staf fing a worldwide entered a partnership with moving at a slower pace marketers Entergy Power regional-of fice network
. ENDESA Chile'sla' gest elec- than more developed mar- Marketing Corporation has that includes sites in toc generating company, to kets, In the long run, expanded rapidly it now Fort Lauderdale. Fionda:
develop the 370-megawatt however, we bekeve there is arranges for transmission SAo Paulo, Brazil; Sydney.
. San Isidro project. not theast excellent potential for devel- capacity and provides Australia; London. England; of Santiago. Entergy oping greenf. eld generation other brokering services. and Hong Kong.
previously partnered with protects in partnership with EPMC also engages in nsk-ENDESA to acquire local firms. management transactions, and expand the Peruvian including swaps, options, government's EDEGEL and futures contracts, generation facihties. giving customers a hedge against adverse energy market price fluctuations.
7.___ d j Wo know that our f uture service. Dunng the most Taking aim at fuel costs, our nuclear plants can com-depends to a large eetent recent three years for which Entergy's fossil piants rank pete etfectively with other
, on our core ietad energy comparative data are avad- among the industry's very generating sources on the I business - the business able (1993,1994, and 1995) best in nonfuel O&M and basis of forward product:on j that we know best, and the Entergy's cash-cost perfor- capital per formance. They costs. Our outstand:ng 1996
- platform upon which we're mance ra%ed high in tne operate at extremely low performance indtcates we i building for tomorrow. top quartile of utshty compa- Cost whde Ettaining very are on the way to achieving We also recognize that we nies in O&M costs, fuel costs, high capacity and availa- this target. .
must tm smartur and more and capital expenditures. bihty rates. Now Entergy is in 1996 our five nuclear cost ef fective in running all As a result of this ongoing increasing its focus on low- Units generated a record i aspects of our operations study we know that Entergy enng its fuels expense. 38.3 milhon megawatt-hours
! because, in time, deregula- is more cost of fective and in 1996 Entergy formed of electricity whde improving tion wdl give customers a its employees more produc- an energy-management overall cost and operating choice of energy supphers t!ve than just a few years group to consokdate the performance. Production To competn, we'll have to ago. Equally significant. company's fuels purchasmg. and new capstal costs aver-q have a winning cost struc- we've become accustomed purchased power, and gen- aged 19.7 rrtlls (1.97 cents) ! ture,i1 addition to superior to measunng ourselves eration dispatch functions. Der kilowat-hour in 1996, i
servi;e. Fortunately, this against external competi- By shanng information compared with 21.9 mdts is a caallenge that Entergy fors.. and beating them. among these groups, we'll (2.19 cents)in 1995 and the recogn/ed early As a result, we can foresee ensure that we get the industry's 1995 average of j In 1991 Enmigy under- significant improvements cheapest energy available. 22.7 mdis (2.27 cents). This l took a comprehensive taking place throughout the puts us on course for j studt taenchmarking its remainder of this decade. Making nuclear power achieving our 1998 target of costs against those of more The following are a few cost competitive. 18.3 mdis (1.83 cents). 4 than 40 other U S. ut dities. highhghts f rom the many Our nuclear organizahon Capacity factor,in 1996, j We then set ambitious year. prograrns where Entergy is also has been prepanng for averaged 89.4 percent for ! to-year performance goals " playing smarter": competition by increasing j to significantly reduce power output and reducing operating costs whde main- costs, whde adhenng to high taining safety and customer safety standards. We behave } ) j P ay ng Keeping his eye on the ballis Casey Sobezak, 13, player with the Spindletop Select team, Beaumont, Texas. His father, Gary Sobcask,
; contributes to Entergy's j Fuel and Energy Analysis j department's winning l performance as a senior lead analyst. , /
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;4 g-our combined plants, com- customer satisfactron a prionty. f pared with B3.1 rarcent in As 17)7 unfolds, this pnontyis .fSty;d 1VM and tho industry's being extended to our overseas g lj 177; average of 77.3 percent. datnbut>on bumnesses. ,. bl1 improving " wires" London EWctncity, CrtPower/ p[@
and Edesor Best practop . [, service. identifiedin one compy1y h ju
+ TN transmission and dts- wd be apphed to othots, s;f tot >uhon groups aho are with a goalof providdy) a< ming for Best in Class the best possibie cost performance, whde servce to our improveng customer survice. 4.8 milhon rotad In 19% we identified tho energf customers. i(
industr y's top perfof rners in J these areas, analyzed ther Transition to competition, t>est practcces, and imple, tn the U S. we took the mented a muttFfaceted ackded initiative of fihng program to move Entergy to proposals with our area j< top forformer status in two regulators to help shape le years The prc>grarn focuses the coming competitive ' < ! on customer satisfaction, marketplaca These I, system rehabihty. Outage proposals support an ,% restoraSon, and hoo and oraerly trans: tron that is [, servico labur management. fair to everyone and f makes service rehabihty I Entergy's goal m to becomo f the best network ruanager a top pnonty. They also in the world ensure that Entergy ; .,, gf
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1 Y el r ( ' F.. l O At the beginning of this decade Entergy was a regu-lated monopoly, confined to Whde our response wdl be measured, in keeping with market conditions and customer service and shareholder returns, we'll seek incentive rate plans long term. Aslocalregulators open the retail power market to competition and ease providing electncity and gas our strategies, we foresee that allow higher returns for franchise boundanes, we to a franchise area in the tremendous opportunities better performance. will seize opportunities Middle South region of the in three emerging areas in to fully integrate our service U S. Today, Entergy has the U S. - energy supply, Competitive retait businesses witn our core expanded into a global distnbution, and competi- businesses. retad energy services. The competitor that owns and tive retail businesses - Entergy provides an array result will be an enterprise oporatos overseas power as weil as global energy of energy-management and that provides long-term, systems and provides a opportunities. secunty-monitoring serv- recurnng revenue streams dworsif,ed range of domes- ices, and is expanding its in return for a broad range of bc energy services. Energy supply. telecommunications energy and energy-related Our future success lies in This involves electnc gener- businesses. Additional!y, to products and services. accurately reading the ahon, generation fuels pur- provide greater value in our many cha!!enges we face chases (primanly gas), and contact with retail energy Global energy and craf ting appropriate the trad:ng of electocity and customers, we have created opportunities, and speedy responses. its generating fuels. While a retarl services organization We are pleased with progeess Some of our operations will deregulation will open this and begun expanding the to date and will continue to be relatively free of regula- business to competition. products and services we budd our position as a major tion and open to competition, we intend to increase our of fer beyond basic energy. global energy company. Others will rnmain regulated market share by being a Although these busi- There are many opportuni-In some ar eas we will pursue low cost energy producer nesses are largely competi- ties to participate in power an aggressive of fense and and by maximizing synergy tive and probably will plant development and seek significant growth, within this group become more so, we believe operations as well as energy in others. we will adopt a they of fer significant oppor- distnbution. These opportu-more defensive role to retain Distribution, tunities, especially over the nities are a major source of market share We anticipate that regulators Entergy's growth. will preserve regulated f ran- It is an exciting time to be chises for electnc and gas in the energy business. distobutson. Tu maximize
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Six-Year Summary of Selected Financial and Oj [ntejly Corporaton arn.,6ubs*%nes
. b l 1995 1994 1993 .
in triousands, except per share amounts %gjQ Selected Financial Data Comisined:* %I@.[dh % Operatsng revenues I ; $ 6,287,206 $ 5,981,820 $ 6,292.228 , income before cumulative etfect of a change in accouriting pnnciple J[Q4k T $ 484,565 $ 341,841 $ 491,969 Earnings per share before cumulative of fect of a hk g;.d~ change in accounting principle 4.01 j $ 2.13 $ 1.49 $ 2.12 Ongoing net income (exclusive of unusualitema) ,p $ 535,161 $ 496,122 $ 553,985 Ongoing earnings per share (exclusive of unusual t! ems) Mj $ 2.35 $ 2.17 $ 2.39 j
%< G Common shares outstanding-At year-end M 227,766 227,409 231,220 Weighted average f ,..
227.670 228,735 231.583 , Total ossets ..
$22.265,930 $22,621,874 $22,876,697 I Long term obhgations 4336,$
$ 7,484.248 $ 7.817,366 $ 8,177,882 !
Preferred and preference stock ' 797.9%fT $ 954,415 $ 1,000,901 $ 1,050,008 Long torm debt (excluding currently maturirig debt) ; $ 6,777,124 $ 7,093,473 $ 7,355,962 C_ ash _from_o_peratio.n._s _. tEditA44l $ 1,425.713 $ 1.557,918 $ 1.329.822 Domestic Utikty Electric Revenues: ); t$ 7 ( j Rey,dential $ 2,177,348 $ 2,127,820 $ 2,180,314 Q3FFA#] Commercial T1AF839h 1,491,818 1,500,462 1,486,337 ; industrial [kj$AW 1,810,045 1.834,155 1,847,925 l G..overn.mentaf..--- - -. -.
<6 154,032 159,840 162,589 Sales for resale Z $PROH] 334,874 293,702 317,051 Other 119.901 127,362
~ -~~ @%$10N ~ (123.569) ch ,, _.
7 M; $ 6358$018 $17i231I) i 6,121,5'78 Domestic Utlkty Electric Sales: (Millions c' kWh) , ~ < 'f Residential b:M 27.704 26,231 26,138 Commercial Industnal k($$k 20,719 42,260 20,050 41,030 19,131 39,183 i V44A00g 2,183 Governmental N dtM4Ds 2,311 2.233 Total retail EbiJ- $$$fr 92,994 89.544 86,635 Sales for resale *lseAml 10.471 7,908 8,484 Total sales 1M4 103.465 97.452 P5.119 Cclected Financial Data As Reported: ; .. Operating revenues $ T,100AtB $ 6.287.206 $ 5.981,820 $ 4 475.224 income before curnulative of fect of a change in j# + f accounting pnnciple Si 430 ART) $ 484.565 $ 341,841 $ 458.089 Earnings per share betore cumu!ative etfect of a change in accounting pnncipio j hd $ 2.13 $ 1.49 $ 2.62 Dividends declared per share ($ h-(f193* d $ 1.80 $ 1.80 $ 1 65 Book value per share, year-end [$f..j$$1$ $ 28.41 $ 27,93 $ 28.27 Total assets 6$ $22,265.930 $22.621,874 $22.876,697 Long-term obhgations ' M 14 5 7,484,248 $ 7,817,366 $ 8,177.882* Preferred and preterence stock kgg $ 954,415 $ 1,000.901 $ 1,050,008 Long term debt (excluding currently matunng debt) 'T M ; $ 6.777,124 $ 7,093,473 $ 7,355,962 Return on cverage_ common equi j 7 _ _ _811_%_ _ _ ,5 31 %_ _._12.58% *
*Comtuned data for years poor to 1994 are for comparatw suposes only and will not agiee with reported data Entwgy acquued Gurf States Utiktms Company, now known as Entergy Gulf States, on Decemt#er 31,1993.
16 l17
1 brating Data
, 1992 1991 p 5,852,804 $ 5,754,195
$ 527,348 5 531,353
'$ 2 26 $ 2.22 )$ 477,995 $ 492,956
$ 2.05 $ 2.06 l 231,832 235.504 233,269 239,360
- $21,403,984 $21,566,221
$ 8,429.273 5 8.617,941 I $ 1,124,391 $ 1,301,958
$ 7,523M2 $ 7,576,888
$_1,178,754__ $ 1,395,680 g 3 j $ 2,002,f 80 $ 2,009,820 1 1,409.277 1.379,978 1,740,445 1,650,792 154.075 153,491
~5,305,9ff ' ~ 5,'i9'4,00i E 257,871 257,300 137,174 ~-~147,579
"'55705h2{ _. $ 5 5959E55 24,374 25,254 18.402 18,624 38.023 37,095 2 7,488 0,081
~~~ ~9172p 16 Six-Year Summary of Selected Financial
] ] UO328 and Operating Data 18 Glossary
$ 4,098,332 $ 4,059,135 19 Management's Financial Discussion and Analysis S 437,637 $ 482,032 27 Report of Management and Audit Committee Chairperson's Letter
$ 2 48 $ 2.64 28 Report of Independent Accountants
$ 1.45 $ 1.25 29 Statements of Consolidated income
$14,38310
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$. 5,630,505 $ 5,801,364 and Paid in Capital
$ 718.500 $ 702,934 31 Statements of Consolidated Cash Flows
$ 5,149.344 $ 5,282,906 32 Consolidated Balance Sheets
. 10 35 % 11.61 % 34 Notes to Consolidated Financial Statements i
Damsetle utility Ent:rgy Nsw Crissna 1394 HOP 2I companies Entergy New Orleans,Inc., Settiement Entergy Arkansas, Entergy formerly New Orleans Settlement effective Gulf States, Entergy Louisiana, Public Service loc. (NOPSI). January 1,1995,between Entergy Mississippi, and EntagWew gans . Entergy operations Entergy New Orleans, and the Councihn which Entergy Operations,Inc., collectively. EntegWow Weans a subsidiary of Entergy ag nsement a ' Entergy Corporation that has . Entergy Corporation andits pwmaet mM , operating responsibility in electric and gas rr,e s various direct and indirect for Grand Gulf 1, and resolve disputt s subsidiaries. Waterford 3, Arkansas Nuclear One, and River witWe Counca in t S ' Entergy Arkanses interpratationof the Bend nuclear plants. Entergy Arkansas,Inc., 1991 NOPSI Settlement. formerly Arkansas Entergy Power Power & Light Company. Entergy Power,Inc, Entergy Corporation Entergy Services Gulf States' retailelectric Entergy Corporation, a Entergy Services,Inc. base ratesin offect at Dalaware corporation' December 31,1993,for Merger successor to Entergy the Louisiana retailjuris-The combination trans-Corporation, a Florida diction, and the level Perward-leeking statements corporation. of such rates in offect investors are cautioned that De e 93 y forward-looking statements Entergy Enterprises which Entergy Gulf States prior to the settlement contained herein with Entergy Enterprises, Inc. became a subsidiary of l respect to the revenues, " Entergy Gulf States of Texas on July 21, earnings, competitive perfor. Entergy Gulf States, loc., and Enterg Corporation mence, or other prospects ecame a Delawam formerly Gulf States Utilities jurisdiction, which may for the business of Entergy corporation. Company (including wholly eeM&e Corporation, Entergy's owned subsidiariesNaribus 1991 NOPSI December 31,1998. domestic util61y companies, Corporation GSG&T,Inc., Settiement tystem Energy, or their System Agreernent Prudential Oil & Gas, Inc., Agreement, retroactive af filiated companies may be Agreement, etfective and Southern Gulf Railway to October 4,1991,among influenced by factors that January 1,$83,as modM, Company). Entergy New Orleans, could cause actual outcomes among the domestic utility the Council of the City of and tosuits to be materially Entergy Loulslana cornpanies miadng to New Orleans, Louisiana ditforent than projected. Entergy Louisiana, Inc., the sharing of generating (Council), and the Alliance Such factors include, but are formerly Louisiana Power capachamerpoww for Af fordable Energy,Inc, not limited to, the of f acts of & Light Company' msources. (localconsumeradvecate weather, the perfortnance Entergy Mississippi group)that settled certain System Energy of generating units, fuel prices Entergy Mississippi, Inc., Grand Gulf Steam Electric System Energy and availabillty, regulatory formerly Mississippi Power Generating Station, Unit Resources,Inc. decisions, and the of fects of & Light Company No.1 (Grand Gulf 1) pru-changes in law, capital dence issues and certain spending requirements, the litigation related to the evolution of competition, resolution adopted by the changes in accounting Councilon February 4 standards, and other factors. t 988, disallowing Entergy . New Orleans' recovery of
$135 million of previously deferred Grand Gulf 1- .
related costs. 1s 19
1 Manag m:nt'a Liquidity And Capital Resources l Cash Flow 0000 O Net cash flow from operations totaled $1.5 billion, $1.4 billion, and $1.6 billion in 1996,1995,and
- Discussion and 1W, respectively. The positive cash flow from operations for the domestic utility companies results from continued efforts to streamline operations and to reduce costs, as well as from collections Analysis under rate phase-in plans that exceed current cash requirements for the related costs. (In the Entergy Corporaion ard sutmiares income statement, these revenue collections are offset by the amortization of previously deferred
' costs; therefore, there is no effect on net income.) These phase-in pians will continue to contribute to Entergy's cash position over the next coveral years. Specifically, the Grand Gulf 1 phase-in plans will expire in 1998 for Entergy Arkansas and Entergy Mississippi, and in 2001 for Entergy New Orleans. Entergy Gulf States' phase-in plan for River Bend will expire in 1998, and Entergy Louisiana's phase-in plan for Waterford 3 will expire in June 1997. Financing Sources Cash from operations, supplemented by cash on hand, was sufficient to meet substantially all investing and financing requirements of the domestic utility compardes, other than early refinanc- i ings of existing debt, including capital expenditures, dividends, and debt / preferred stock maturities dunng 1996. System Energy issued two series of first mortgage bonds in August 1996 totaling $235 million, of which $210 million was used to meet a scheduled September 1,1996, debt maturity. Entergy's investments in nonregulated businesses in 1996 were funded with debt and equity capital. Entergy has been able to fund the capital requirements for its domestic utility businesses with cash from operations resulting from the items discussed above in " Cash Flow " Should additional cash be needed to fund investments or retire debt, the domestic utility companies and System Energy have the ability, subject to regulatory approval and compliance with issuance tests, to issue debt or preferred l securities to meet such requirements. In addition, to the extent market conditions and interest and div- l idend rates allow, the domestic utility companies and System Energy will continue to refinance and'or i redeem higher cost dubt and preferred stock prior to matunty. The domestic utility companies may 1 continue to estabhsh special purpose trusts as financing subs! diaries for the purpose of issuing pre- i ferred trust securities, such as those issued in 1996 by Entergy Louisiana Capital I and Entergy 1 Arkansas Capital I, and those issued in January 1997 by Entergy Gulf States Capital 1. Entergy Corporation, the domestic utility companies, and System Energy also have Secunties and Exchange Commission (SEC) authorization to ef fect short-term borrowings. See Notes 4, 5,6, 7, and 9 for addi-tional information on Entergy's capital and refinancing requirements in 1997-2001, , in May 1996 Entergy Corporation registered 10 million addtional shares of common stock pursuant to a new dividend reinvestment and stock purchase plan, offective July 1996. See Note 5 for further discussion. Financing Uses Productive investment by Entergy Corporation is integral to enhancing the long-term value of its common stock. Entergy Corporation has been expanding its investments in business opportunities , overseas as well as in the United States. Through the end of 1996, Entergy Corporation had acquired or participated in foreign electric ventures in Australia Argentina. Chile, Pakistan, and Peru, and had acquired several telecommunications-based businesses in the United States. As of December 31,1996. Entergy Corporation had a not investment of $812 million in equity capital in businesses other than its domestic utility companies and System Energy. See Note 13 for a discus-sion of Entergy Corporation's acquisition of CitiPower Ltd. (CitiPower) on January 5,1996, and Note 14 for Entergy Corporation's acquisition of London Electricity pic on February 7,1997. b make its capital investments, f und its subsidiaries, and pay dividends, Entergy Corporation will
. utilize Internally generated funds, cash on hand, funds available under its $300 million credit facility, funds received from its dividend reinvestment and stock purchase plan, and other bank financings if ,
required. See Note 9 for a discussion of capital requirements. Entergy Corporation receives funds ,
. through dividend payments from its subsidiaries. During 1996 such dividend payments from sub-sidiaries totaled $554.2 million In order to improve its capital structure, Entergy Gulf States has not paid common stock dividends since the third quarter of 1994. In 1996, Entergy Corporation paid
$405 milhon of common stock dividends. Declarations of dividends on common stock are made at the discretion of Entergy Corporation's Board of Directors. Management will not recommend future dividend increases to the Board unless sucn increases are justified by adequate eamings growth of Entergy Corporation and its subsidiaries. See Note 8 for information on dividend restnctions.
Entergy Corporation and Entergy Gulf Statos See Notes 2 and 9 regarding River Bend and Cajun Electric Power Cooperative, Inc. (Cajun) issues, including recent developments. An adverse ruhng regarding River Bend could result in approximately ,
$278 million of potential wnte offs (net of tax) and up to $204 million in refunds of previously collected
revenue Such wnte-offs and charges could result in substantial net losses being reported in the future by Entergy Gulf States. with resulting adverse adjustments to the common equity of Entergy Corporation and Entergy Guif States. Adverse reso ution of these matters could negati vely affect Entergy Gulf States' abihty to obtain financing, which could in turn af fect Entergy Gulf States' liqudty and abihty to resume paying dividends . Entergy Corporation and System Energy Under tne Capital Funds Agreement, Entergy Corporation has agreed to supply to System Energy . suf fcient capital to maintain System Energy's equ;ty capital at a minimum of 35% of its total capitaliza-tion (excluding short-term debt), to permit the continued commercial operation of Grand Gulf 1 and to pay in full all indebtedness for borrowed money of System Energy when due under any circumstances. In addition, under supplements to the Capital Funds Agreement assigning System Energy's rights as security for specife debt of System Energy. Entergy Corporation has agreed to make cash capital con-tnbutions, if required, to enable System Energy to make payments on such debt when due. The Capital Funds Agreement can be terminated by the parties thereto, subject to consent of certain creditors. Significant Factors And Known Trends Competition and Industry Challenges The electnc utihty industry trad:tionally has operated at a regulaNd monopoly in which there was ht-l tie opportunity for direct competition in the provision c ' electnc se vice. The industry is now under- f l , going a transition to an environment of increased reta I and wholesale competition, The causes of l .
'$ the movement toward competition are numerous and < omplex. They include legislative and regula-tory changes, technological advances, consumer derr in@ rjeater availabihty of natural gas, envi-ronmental needs, and other f actors. The increatingly competitive environment presents opportunities to compete for new customers, as well as the risk of loss of existing customers. The
#: following issues have been identified by Entergy as its major competitive challenges.
Open Access Transmission - The Energy Pohcy Act of 1992 (EPAct) addressed a wide range of energy issues and is being implemented by both the Federal Energy Regulatory Commission (FERC) 996 Rev nue and by state regulators. The EPAct is designed to promote wholesale competition among utility and D ygad ^ nonutihty generators by amending the Pubhc Utihty Holding Company Act of 193L (PUHCA) to a Nm n exempt from regulation a class of Exempt Wholesale Generators (EWas), among othert, consisting m cas n of utikty af fikates and nonut!bties that own and operate facihties for the gencation tid transmissico uniowd 1% of power for safe at wholesale. The EPAct also gave FERC the authonty to Jruar investor-owned utth-a wwnme ra ties to transmit who'esale power and energy to or for wholesale purchaseo ar d seilers. This creates potential for electric utikties and other power producers to gain increased act ess to the transmission C comn m i 2n systems of other utihties to facihtate wholesale sales. O Hwdew an in response to the EPAct, FERC commenced a rulemaking on the subject of " stranded costs"in 1994. This rulemaking concerns a regulatory f ramework for deahng iv!th recovery of costs that were prudently incurred by electnc utikties to serve customers under the tradttional regulatory frame-work. These costs may become " stranded" as a resuf t of increased competition. The nsk of expo-sure to stranded costs that may result f rom compet: tion in the industry wat depend on the extent and timing of retail competition, the resolution of Junsdictional issues concerning stranded cost recov-ery, and the extent to which such costs are recovered from departing or remaining customers. FERC issued Order No. 888 as the final ordur in this rulemaking in April 1996 requinng that all pubhc utthties subject to its junsdiction provide comparable wholesale transmission access through the fang of a single open access tantf In addition, FERC ruled that pubhc utihties are entitled to ful! , mcove of prudently incurred costs associated with wholesale requirements signed before July 11, 1994 it thO Costs are stranded by retail wheehng. pubhc utikties should first seek recovery of these costs from the appropnate state or local regulators. FERC indicated that it would be the primary forum for recovery in cases where retail customers become wholesale purchasers. FERC also issued Order No. 889, which prescribes the requirements and procedures for the implementation and maintenance of an open access same-time information system by each public utibty. In addition, FERC issued a notice of proposed rulemaking concerning capacity reservation tanffs as the neM pc d 'ts efforts to promote wholesale competition. In July 1996, Entergy Services filed, on behoh! the uomestic utihty compan:es, an open access proforma tarif f. In September 1996. FERC issued an order revising the original requirement that open access same-time information service sites and standards of conduct be in place for all transmission providers by November 1,1996. FERC scheduled a two-step comphance procedure in which the operation of open access same time information service sites was to begin on a test basis begin-ning in December 1996, with fu!! commercial operations and comphance with the standards of 20 21
(orduct begenning in January 1937. In January 1997, Entergy Services filed its standards of con-dud vth FERC, and an open access same-time information site was estabbshed. In responw to Order No. 888, Entergy Services filed a request for clanfication and rehearing regarding the following four issues: (i) the specla! nature and treatment of stranded nuclear decom-
) missioning costs; (ii) the reciprocity rules applicable to rural electric cooperatives; (iii) the functional unbundhng requirements for registered holding companies; and (iv) the nature of network service.
The request for rehearing is currently pending-f Trans;teon to Compet/ tion Fihngs - Entergy has initiated d:scussions with its state and local regulators regard:ng an orderly transition to a more competitive market for electocity. As discussed in more detaihn Note 2. Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana have made filings with their respective state regulators concerning the transition to competition. These filings call for the accelerated recovery of the companies' nuclear investment and nuclear-related purchase obligations over a seven year penod and for the protection of certain classes of ratepayers from possibly unfairly bearing the burden of cost shif ting which may result from competition. The majonty of the domestic utikties' current not investment in nuclear generation shown in Note 1 is included in the proposals for accelerated recovery filed with state regulators. See Note 2 for a d:scussion of Entergy Mississippi's August 1996 transition to competition filing with the Mississippi Pubhc Service Commission (MPSC). Retail and Wholesale Rate issues - The retail regulatory philosophy is shif ting in some jurisdictions from traditional cost-of-service regulation to incentive-rate regulation. Incentive and performance-based rate plans encourage efficiencies and productivity while permitting utlhties and their customers to share in the resu!ts. Entergy Mississippi and Entergy Louisiana have implemented incentive-rate plans. l Several of the domestic utikty companies have recently been ordered to grant base rate reduc-tions and have refunded or credited customers for previous overcollections of rates. The continuing pottarn of rate reductions is a charactenstic of the competitive environment in which the domestic utikties operate. See Note 2 for additional discussion of rate reductions and incentive-rate regula-tion, as well as a System Energy proposed rate increase. Legstative Activity - Retail wheehng is the transmission and/or distnbution by an electnc utikty of energy produced by another entity over the utikty's transmission and d;stnbution system to a retail customer in the electric utihty's area of service. Cahfornia, Rhode Island, New Hampshire, Massachusetts, and Pennsylvania have already initiated studies of restructonng of the utikty indus-try within their respective states. Most other states have initiated studies of restructunng. Included in the majority of the more developed proposals are plans for utihties to have a reasonable opportu-nity to recover investments in utth!y plant that have previously been determinod to be prudent!y incurred. Within the areas served by the domestic utihty companies, formal proceedings to study retail competition / industry restructuring are being conducted by the Louisiana Pubhc Service Commission (LPSC). the MPSC, and the Pubhc Utihty Cnmmission of Texas (PUCT). In January 1996, the Council of the Clty of New Orleans (Council) voted to investigate retail utihty service competition. Although no date has been set, the investigation will focus on the impact of competit!on, service unbundhng and utikty restructunng on consumers of retail electnc and gas utthty service in New Orleans. The PUCT has developed rules that permit greater wholesale electnc competition in Texas, as mandated by the Texas legrstature in its 1995 session. In January 1997, the PUCT submitted reports to the Texas legislature concerning broader competitive issues such as the unbundkng of electric utibty operations, market-based pacing. performance-based ratemaking. and the identification and
. recovery of potential stranded costs as part of the transition to a more competitive electnc industry environment. Currently it is uncertain what action, if any, the legtslature may take with respect to those issues. . See Note 2 for information related to the LPSC and MPSC genenc proceedings on competition.
A number of bms have been introduced in Congress dunng 1996 that call for future deregulation of the electnc power industry included in these proposals are some that would amend or repeal PUHCA anct>or the Pubhc Utihty Regulatory Pohcies Act. Other provisions in some of the bills would give consumers the abihty to choose their own electric service. On February 20,1997, the SEC issued new Rulo 58 under PUHCA, which will permit registered pubbc utthty holding compantes to enter into an array of energy-related businesses for which specific approval had previously been recluired. These businesses include, among other things, management, operations and maintenance contracting for energy-related facihties, energy etficiency contracting, and the sale and servicing of a range of electnc apphances and equipment, The rule, ef fectr e March 22,1997, permits broader diversifcahon by Entergy into these businesses.
l Municipalization - In some areas of the country, municipahties (or comparable entities) whose residents are served at retail by an investor owned utility pursuant to a fm - hise, are explonng the possibility of estabhshing new electro distnbution systems, or extending exrshy j ones. In some cases, muncipakties are also seeking new de!ivery points in order to serve retail customers, especially large industrial cus-tomers, which currently receive servce from an investor-owned utility. Where successful, the establish-
- ment of a municipal system or the acquisition by a municipal system of a utility's customers could result in the utikty's inabidty to recover costs that it has incurred for the purpose of serving those customers.
industry Consolidaticq - Arother factor in making the transition to competition nationwide is the continuing trend of utility mergers. A significant trend developing among the more recent mergers is the proposed combination of electric utilities and gas pipeline and/or distribution companies. Functiona/ Unhundhng - An additional trend that has recently emerged is the unbundhng of traditonal utility functions. In some areas of the country, utilities are attempting to sell either all or a substantial porton of their generaton assets and will become, in large part, suppliers of transmission and distribution services only. Effects of Alternate Energy Sources on Retail Electnc Sales to Industrial and Large Commercial Customers - Many industrial and large commercial customers of the domestic utility companies have cost structures that are energy sensitive. For this reason, these customers are currently exploring, or in the future may explore, available energy alternatives such as fuel switching, cogeneration, self gen-eration, production sNf ting, and etficiency measures. To the extent that these customers avail them-selves of such options, the domestic utikty companies may suffer a loss of load. Accordingly. in an effort to retain such load, certain of the domestic utility companies, Entergy Gulf States and Entergy O[, Louisiana in particular, have negotiated electric servce contracts with large industrial and commercial customers with the specific aim of retaining the load represented by these customers. Electric service under such agreements rray be provided at tantfed rates lower than would otherwise be applicable. The results of operations of the domestic utihty companies have not thus far been materially adversely affected as a result of the negotiation of retail electric service agreements with industrial and large commercial customers. This is due in large measure to the utilities' success in reducing 1996 Domestic Generating Capabihty costs, overall load growth, increasing sales to all customer classes, and the regulatory treatment nitwpksr mtxaeuy piants accorded to the negotiated electric service agreements. However, in view of the likehhood of we cmwe of omwat<g increased competition in the electnc utikty business in the future, there can be no assurance that 22 096 Mw mencny fram the etfect of negotiated electnc pnces for industnal and large commercial customers will not even-a w bei nna tually have a negative ef fect on the results of operations of the domestic utikty companies. O GW) 70 % During 1995, the Council approved a resolution requinng prior approval of the regulatory treat-0 Nainer MS ment of any lost Contnbution to fixed Costs as a result of incentive-rate agreements with large indus-O cm m trial or commercial customers entered into for the purposes of retaining those customers. The Councirs resolution also requires poor approval of the regulatory treatment of stranded costs result-ing f rom the loss of large customers. Dunng 1995, Entergy Louisiana received separato notces from two large industnal customers that will proceed with proposed cogeneration projects for the purpose of fulfilling their future electric energy needs. These customers will continue to purchase their energy requirements from Entergy Louisiana until their cogeneraton facilities are completed and operational, which is expected to occur in 1997 and 1998. Af ter that time, these customers will continue to purchase energy from Entergy Louisiana, but at a reduced level. Dunng 1996, these two customers represented an aggregate of approximately 17% of total Entergy Louisiana industnal sales, and provided 12% of totalindustnal base revenues. Dunng 1996, Enterg , Gulf Uates entered into agreements concerning a steam generating station that histoncally has bec contractually dedicated to providing steam and cogenerated electricity for a , large industnal cumr. Under these agreements, the generating facility was leased to the cus-tomer but Ente gy Gulf States will continue to operate the facility The customer has announced that it will spend approxirnately $190 milhon to make major improvements to the facihty, including a new 150 , megawatt (MW) gas turbine generator. As a result of these agreements, which were entered into with the expectation that the customer otherwise would terminate its contracts with Entergy Gulf States and construct its own generating facilities, Entergy Gulf States' revenues from this customer are esti-mated to be reduced by approximately $33 million annually beginning in August 1997, and Entergy Gulf States' net income is expected to be reduced by approximately $15 million annually. In November 1990, another Entergy Gutf States industnal customer with an electrical load of about 31 MW ceased purchasing electricity from Entergy Gulf States due to the start of operations of a cogeneration facility. This is expected to result in an annual revenue loss to Entergy Gulf States of approximately $5 5 milhon, and an annual reduction in net income of approximately $3.3 mihion. 22 23
Dornastic snd Fersi;;n Inyutmsnts Entergy Corporation seeks opportunities to expand its domestic and foreign businesses that are not regulated by state and local regulatory authorities. Such business ventures currently include power development and operations and retail services related to the utility business. Refer to
" Management's RnancW Discussion And Analysis - Liquidity and Capital Resources
- for a discussion of Entergy Corporation's 1996 investments in domestic and foreign nonregulated businesses. These investments may involve a greater risk than domestically regulated utility enterprises, in 1996, Entergy Corporation's investments in domestic and foreign nonregulated irwestments reduced con-solidated net income by approximately $25.4 million. While such investments did not have a positive of foct on 1996 earnings, management believes they will show profits in the near term, in an ef fort to expand into new energy-related businesses, Entergy plans to commercialize its fiber optic telecommunications network that connects system facilities and supports its internal business needs. Entergy will provide long-haul fiber optic capacity to major telecommunications carriers, which, in turn, will market that service to third parties. The Telecommunications Act of 1996 permits a company such as Entergy to market such a service, subject to state and local regulatory approval, This law contains an exemption from PUHCA that will permit registered utility holding companies to form and capitalize subsidwies to engage in telephone, telecommunications, and information service businesses without SEC approval. However, the law requires that such telecom-munications subsidiaries file for exemption with the Federal Communications Commission, and that they not engage in transactions with utility affiliates within their holding company systems or acquire utility af filiates' rate-based property without state or local regulatory approval During 1996, Entergy Corporation's wholly owned subsidiary, Entergy Technology Holding Company, entered the electronic security monitoring business through the acquisition of six full-service security monitoring companies. These companies serve approximately 80,000 customers l
within the states of North Carolina, South Carolina Alabama, and Florida These acquisitions repre-sent an investment by Entergy Corporation of approximately $83 million in the security monitoring l
- industry, substantially all of which was financed by debt.
I in October 1995, FERC issued an order granting EWG status to Entergy Power Marketing l Corporation (EPMC), which was created in 1995 to become a buyer and seller of electric energy and its generating fuels. In February 1996, FERC approved market-based rate sales of electricity by EPMO. Such approval allows EPMC to begin providing wholesale customers with a variety of services, includ-ing physical trading. An application currently is pending before the SEC seeking add!tional authonty for EPMC to purchase and sell derivative contracts relating to electricity, gas, and fuels. On January 5,1996 Entergy Corporation finalized its acquisition of CitiPower, an electric distribu-tion company serving Melbourne, Australia, and surrounding suburbs. The purchase prce of CitiPower was approximately $1.2 bdlion, of which $294 milhon represented an equity investm67t by Entergy Corporation, and the remainder represented debt that is non-recourse to Entergy Corporation. ; Entergy Corporation funded the majority of the equity portion of the investment by usi g $230 million of its $300 milhon line of credit. CitiPower serves approximately 238,000 customers. At the time of the acquisitw CitiPower had 846 employees. In January 1997, Entergy Corporation announced that a prehminary r,i # ent had been reached with Maine Yankee Atomic Pnwer Company (Maine Yankee) for a new nonutility subsidiary of Entergy Enterposes, Inc. to provide managoment and operations services for the Maine Yankee nuclear plant. Subsequently, Entergy Nuclear, Inc., a Delaware corporation, was organized for this j purpose. On February 13,1997, an agreement to provide such services for an initial period of up to I one year was executed by Entergy Nuclear, Inc. and Maine Yankee. The creation of Entergy Nuclear, Inc. and its undertaking with Maine Yankee are authorized by existing SEC orders granted to
. Entergy Enterprises, Inc. Entergy Corporation has an apphcation pending at the SEC to create a dif-ferent structure under which Entergy Nuclear, Inc. would engage in this bushess.
On December 18,1996. Entergy made a formal cash of fer to acquire London Electricity plc o (London Electricity), for $2.1 billion. London Electricity is a regional electric company serving approx. imately two milhon customers in the metropohtan area of London, England The of fer was approved by authorities in the United Kingdom and as of February 7,1997, the of for was made unconditional and Entergy. through an Enghsh subsidiary, controlled over 90% of the common shares of London Electricity Through procedures available under apphcable law, Entergy expects to gain control of 100% of the common shares of London Electricity. The acquisition was financed with $1.7 bilhon of debt that is non-recourse to Entergy Corporation, and $392 milhon of equity provided by Entergy j Corporation from available cash and borrowings under its $300 million line of credit, in 1996 Entergy made a proposal to develop, finance, and construct the Saltend Project, a proposed 1,100 MW gas fired, combined cycle cogeneration plant to be located adjacent to the British Petroleum Company chemical facihty in northeast England. The development of the Sa!!end Project is subject to the negotiation of definitive agreements and obtaining all necessary govemmental approvals, which is
expected to be accomplished in 1997. The total cost of this project, which would be developed over a perod of about two years, currently is estimated to be approximately $650 million. On December 20,1996 Entergy exercised an option to acquire, th ough a subsidiary a 25% equity j interest in San Isidro & A., a Chilean company which is developing a 370 MW gas fired, combined cycle generating facilsty in central Chile. Entergy's interest, which is expected to be acquired during the second . quarter of 1997, will require an estimated $20 mdion cash investment as well as a guarantee of up to
$30 mdlion relating to the payment of the turnkey contractor for the San Isidro project. The other owner of the project, who is also the developer, is Empresa Nacional de E!ectricidad, S. A. (ENDESA). .
ANO Matters Entergy Operations has made periodic inspections and repairs on the tubes in Arkansas Nuclear One (ANO) Unit 2's steam generators, which have experienced cracking. In October 1996, Entergy Corporation's Board of Directors authorized Entergy Operations to negotiate a contract, with appro-priate cancellation provisions, for the fabrication and replacement of the steam generators at ANO Unit 2. See Note 9 for additionalinformation. Deregulated Utility Operations Entergy Gulf States discontinued regulatory accounting principles 'or its wholesala junsdiction and steam department and the Louisiana deregulated portion of River Bend during 1989 and 1991, respectively. The operating income (loss) from these operations was $13.9 milkon in 1996, $1.2 mil-lion in 1995, and $(5.2) milhon in 1994. g The increases in 1996 and 1995 net income from deregulated operations were principally due to increased revenues, partially of fset by increased depreciaton The future impact of the deregulated
' V . g[ 3] utikty operations on Entergy and Entergy Gulf States' results of operatons and financial position will
- , ? depend on future operating costs, the of ficiency and availabikty of generating units, and the future j : D market for energy over the remaining hfe of the assets. The deregulated operations will be subject to I the requirements of Statement of Financial Accounting Standards (SFAS) 121, promulgated by the l
Financial Accounting Standards Board (FASB), as discussed in Note 1, in determining the recogni-1996 Domestic Utility Sources of Electricity D % ioaannum, Property Tax Exemptions
. ,wvwu.* ~ ed Waterford 3's local property tax exemptions expired in December 1995. In a March 1996 LPSC order, get nwt wtre of Entergy Louisiana was permitted to defer recovery of the estimated Waterford 3 property tax from meug m to conu" January 1996 through June 1996. The order allows for the recovery of the propert/ tax beginning in cuer ute tue, cmr*
July 1996 and also for the recovery, from July 1996 through June 1997, of the related deferral. In April u om 32 % 1996, Louisiana authonties assessed 1996 property taxes of $19.3 million on Waterford 3. e %s 32 % Rever Bond's local property tax exemptions expired in December 1996. The 1997 property tax is a Nw% 22 % estimated to be approximately $13.2 mdkon. The tax related to the Texas junsdiction was included in h the rate proceeding fded with the PUCT in November 1996. Entergy Gulf States expects that the LPSC will address the accounting treatment and recovery of River Bend's property taxes related to the Louisiana Junsdiction in conjunction w:th the fourth required Merger-related earnings review to be filed in May 1997, Accounting issues New Accounting Standard - Entergy adopted SFAS 121, " Accounting for the impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121), ef fective January 1,1996. This stan-dard describes circumstances that may result in assets tming impaired and provides cntena for recogni-ton and measurement of asset impwrment. See Notes 1 and 2 for information regarding the write-off , recorded in 1996 and potential additonalimpacts of the new accounting standard on Entergy. Continued Apphcaron of SFAS 71 - As a result of the EPAct, the actions of regulators, and other factors, the electric utchty industry is moving toward a combinaton of competiton and a modified regulatory environment. The domestic utthty companies' and System Energy's financial statements currently teflect, for the most part, assets and costs based on existing cost-based ratemaking regulations in accordance with SFAS 71, " Accounting for the Effects of Certain Types of Regulation" fSFAS 71). Continued applicability of SFAS 71 to the domeshc utility companies' and System Energy's financia! statements requires that rates set by an independent regulator on a cost-of-service basis be charged to and collected from customers. In the event that all or a porton of a utikty's operations cease to meet those cnteria for various reasons, including deregulaton, a change in the method of regulaton, or a continued change in the competitive environment for the utthty's regulated services, the utthty should discontinue apphcation of SFAS 71 for the relevant portion. That discontinuaton should be reported by eliminaton from the balance sheet of the 24 ts
etfects of any actions of regu!ators recorded as regulatory assets and liabilities. The of fect of discontinu-ing application of SFAS 71 would have a matenalimpact on Entergy's financial statements. The domestic util t y companies' and System Energy's financial statements continue to apply SFAS 71 for their regulated operations, except for those portions of Entergy Gulf States' business described in " Deregulated Utdity Operatons" above. Although discussions with regulatory aumornd regarding retail competiton have occurred and are expected to continue, management does not expect any definitive outcomes in the foreseeable future, and therefore, the regulated operations , continue to apply SFAS 71. See Note 1 for additional discussion of Entergy's application of SFAS 71. Accounting for Decommissioning Costs - in February 1996, FASB issued an exposure draf1 of a pro-posed SFAS addressing the accounting for decornmissioning costs of nuclear generating units, as well as liabilities related to the closure and removal of alllong-lived assets. See Note 9 for a discus-sion of propos9d changes in the accounting for decommissioning,' closure costs and the potential impact of these changes on Entergy. Financial Instruments Derivative instruments have been used by Entergy on a limited basis. Entergy has a policy that financial derivatives are to be used only to mitigate business risks and not for speculative purposes. See Notes 7 and 9 for additional information concerning Entergy's derivative instruments outstand-ing as of December 31,1996. Results Of Operations On January 5,1996, Entergy Corporation finalized its acquisition of CitiPower. In accordance with the purchase method of accounting, the results of operations for 1995 and 1994 of Entergy Corporation and subsidianes reported in its Statements of Consolidated Income and Cash Flows do not include CitiPower's results of operations. See Note 13 for additionalinformation regarding CitPower. Net income Consolidated net income decreased in 1996 primarily due to the $174 million net of tax wnte-of f of River Bond rate deferrals pursuant to SFAS 121 and the one time recording in 1995 of the cumula-i tive effect of the change in accounting rnethod for incremental nuclear refueling outage mainte-nance costs at Entergy Arkansas. The ef fect of these items was partially of fset by the reversal of a Cajun-Rer Dend litigation accrual at Entergy Gulf States. Excluding these items, net income would have increased 17% due to decreased other operation and maintenance expenses for domestic regulated operations as a result of restructuring programs, as discussed in Note 12, and ongoing of ficiency improvement programs throughout Entergy. Consolidated net income increased in 1995 due primarily to increased electric operating rev- . enues decreased oth6r operation and maintenanca expenses, the one time recording of the cumu-lative ef fect of the change in accounting method for incremental nuclear refueling outage maintenance costs at Entergy Arkansas, and decreased interest expense, partially offset by increased income taxes and decreased miscellaneous income-net. Significant factors affecting the results of operations and causing vanances between the years 1996 and 1995, and between the years 1995 and 1994, are discussed under " Revenues and Sales,"
" Expenses," and "Othor" below.
Revenues and Sales See "Six Ywr Summary of Selected Financialand Operating thta" on paga 16 f or information on oper-ating revenues by source and kilowatt-hour (kWh) sales. The changes in electric operating revenues for the twelve months ended December 31,1996 and 1995, are as follows.
. in ens car n./tonru..)
Descriptlon ises sees Change in base revenues $(117.5) $ 6.6 Rate riders 1.8 15.3 Fuel cost recovery 382.3 (28.0) Sa:as volume / weather 108.0 141.3 Other revenue (including unbi!Ied) (49.3) 4.3 ; Sales for resale 37.6 35.6 Systern EnergyfERC Settiement _ _ 120.5 Total $ 362.9 $295.6
Electric operating revenues increased in 1996 as a result of higher fuel adjustment revenues, which do not affcct net income, and an increase in retail energy sales, partially of fset by rate reduc-tions at various domestic utility companies. The increa se in retail sa!es is primarily the result of an increase in customers and customer usage. Electric operating revenues increased in 1995 as e result of an increase in retail energy sales, the . effects of a 1994 FERC settlement, discussed in Note 2, and increased wholesale revenuos, par-tially of fset by rate reductions at Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans and lower fuel adjustment revenues. Warmer weather and non-weather related volume growth con- . tributed equally to the increase in retail electric energy sales. The increase in sales for resale was primarily from increased energy sales outside of Entergy's service area. The increase in other rev-enues was due to the of fects of the 1994 FERC settlement and the 1994 NOPSI Settlement. Gas operating revenues increased in 1996 due to higher unit purchase prices for gas purchased for resale and colder than normal weather in the first quarter of 1996. Nonregulated and foreign energy-related business revenues increased in 1996 due primanly to the acquisition of CitiPower. See Note 13 for additionalinformation regarding CitiPower. l Expenses l Operating expenses for 1996 include the operating expenses 0f CitiPower, which were not inc;uded I I in the prior year financial statements. See Notc 13 for additional information regarding CitiPower. Excluding the operating expenses of CitiPower, Entergy's operating expenses increased in 1996. The following discussion excludes the impact of the acquisition of CitiPower. In 19%, fuel and purchased power expenses increased as a result of higher fuel costs and an m increase in energy sales. Other operation and maintenance expenses decreased in 1996 due to , (( lower payroll-related expenses, resulting from restructuring programs as discussed in Note 12, in ; addition to ongoing operating ef ficiency improvement programs throughout Entergy. Rate deferrals , charged against operating expenses in 1996 represent the deferral of Waterford 3 local property
#4 l
taxes and the deferral of a portion of the proposed System Energy rate increase at Entergy , Mirsissippi and Entergy New Orleans. Nuclear refueling outage expenses decreased primarily due ect ohnng me maWueng outage gnus a@anW 1 in me W%a@ 1996 Domestic of 1996 rather than recognizing those expenses as incurred. The majonty of the increase in decom-missioning costs and depreciation rates is reflected in the 1995 System Energy FERC rate increase usMus W fling, subject to refund. See Note 2 for a discussion of the proposed rate increase. Statdocal Operating expenses decreased in 1995 primarily due to reduced other operation and mainte-e a nance expenses. Other operation and maintenance expenses decreased because of lower payroll-O ^*=8 M related expenses resulting from the restructuring program discussed in Note 12 and 1994 Merger-related costs. The decrease in operating expenses was partially of fset by an increase in h , ,% , nuclear refueling outage expenses due to a 1995 refueling outage at Grand Gulf 1 and the adoption O w omam im90 of the change in accounting method at Entergy Arkansas. Excluding CitiPower, interest on long-term debt decreased for 1996, due pnmarily to ongoing emwm retirement and refinancing of higher cost debt at the domestic utility companies and System Energy. Borrowings by Entergy Corporation from a $300 million line of credit related to CitiPower investment contributed to the increase in other interest-not in 1996. Interest charges decreased in 1995 as a result of the retirement and refinancing of higher cost long-term debt. Preferred dividend requirements decreased in 1996 and 1995 due to stock redemption activities. Other Miscellaneous other income-net decreased in 1996 as a result of the wnto-of f of River Bend rate
- deferrals pursuant to SFAS 12 t, as discussed in Note 2, and a decrease in Grand Gulf 1 carrying charges at Entergy Arkansas due to a decline in the deferral balance, partially of fset by the Entergy Gulf States' reversal of a Cajun-River Bond litigation accrual. Income tax expense increased due to higher pretax income excluding the River Bend rate deferral write-of f and the prior year change in accounting method.
Miscellaneous other income net decreased in 1995 due pnmarily to expansion activities in non-regulated businesses. Income tax expense increased in 1995 due to higher pretax income and the ef fects of the 1994 FERC settlement. 26 27
~.. - - - . - - - ._ ~
i l g pg g The management of Entegy Corporation and subsidiaries has prepared and is responsible for the financial statements and rehted financial information included herein. The financial statements are Management based on generany accepteo accounting principies. Financiaiinformation inciuded eise-nere in this report is consistent with tt e financial statements. e To meet its responsibilities with respect to financial information, management maintains and enforces a system of internal accounting controls that is designed to provide reasonable assurance, on a cost-ef fective basis, as to the integrity, objectivity, and reliability of the financial records, and as
, to the protection of assets. This system includes communication through written policies and proce-dures, an empioyee Code of Conduct, and an organizational structure that provides for approprnte division of responsibility and the training of personnel. This system is also tested by a comprehen-swe internal audit prog 6m.
The independent public accountants provide an objective assessment of the degree to which management meets its responsibility for fairness of financial reporting. They regularly evaluate the system of internal accounting controls and perform such tests and other procedures as they deem necessary to reach and express an opinion on the fairness of th3 financial statements. Management believes that these policies and procedures provide reasonable assurance that its operations are carried out with a high standard of business conduct l~=y~-- ED LUPBERGER , Chairman, President, and Chief Executive Of fic er i L , GERALD D. MCINVALE Executive Vice President and Chief Financial Of ficer
?
gg The Entergy Corporation Board of Directors' Audit Committeo is comprised of five directors who are not of ficers of Entergy Corporation: Lucie J. Fjeldstad, Cheirperson, Admiral Kinnaird R. McKee, Comm,ttee i eugene n Owen. Roberi a eugn. and s. Duxe snacxeitord. Tne committee neid five meetings dunng N Chairnerson's r The Audit Committee oversees Entergy Corporation 2 financial reporting process on behalf of the tier Board of Directors and provides reasonable assurance to the Board that sufficient operating, accounting and financial controls are in existence and are adequately reviewed by programs of internal and external audits. The Audit Committee discussed with Entergy's internal auditors and the independent oubfic accountants (Coopers & Lybrand L.L.P.) the overall scope and specific plans for their respective audits, as well as Entergy Corporation's financial statements and the adequacy of Entergy Corporation's internal controls. The committee met, together and separately. with Entergy's internal auditors and independent public accountants, without rnanagement present, to discuss the results of their audits, their evaluation of Entergy Corporation's internal controls, and the overall quality of Entergy Corporation's financial reporting. The meetings a!so were designed to facilitate and encour- , age private communication between the committee and the internal auditors and independent pub-lic accountants. CLM b A LUCIE J. FJELDSTAD Chairperson, Audit Committee
Raport cf To the Board of Directors and Shareholders Independent of Entergy Corporation Accountants
- We have audited the accompanying consolidated balance sheets of Entergy Corporation and Subsidianes as of Decernber 31,1996 and 1995, and the related statements of consolidated income, retained earnings and paid-in-capi- ,
tal and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibstity of the Corporation's man-agement. Our responsibility is to express an opinion on these financial state-ments based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of mater-ial misstatement. An audit includes examining, on a test basis, evidence support-ing thA amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financsl statement pre. sentation. We beheve that our audits provide a reasonable basis for our opinion. In our opinion, the consohdated financial statements referred to above present fairly, in all rnatorial respects, the financial position of Entergy Corporation and Subsidianes as of December 31,1996 and 1995, and the results of the.r opera-tions and their cash flows for each of the three years in the period ended December 31,1996 in conformity with generally accepted accounting principles. As discussed in Note 2 to the consohdated financial statements, the net amount of capitahzed costs for River Bend exceed those costs currently being recovered through rates. At December 31,1996, approximately $467 milhon is not currently being recovered through rates. Based upon the regulatory decision on this matter, a write-of f of all or a portion of such costs rnai be required. As discussed in Note 1 to the consolidated financial statements, at January 1, 1996 the Company adopted Statement of Financial Accounting Standards No.121, " Accounting for the impairment of Long-Lived Assets and for Long. Lived Assets to Be Disposed Of". Also, as discussed in Note 1 to the consoh-dated financial statements, in 1996 and 1995, certain of the Corporation's subsidiaries changed their methods of accounting for incremental nuclear plant outage maintenance costs. W 7;
.[ Wd[
COOPERS & LYBRAND LL.P. l New Orleans, Louisiana February 13,1997 l 9 1 l l 2s i ro
" -- _'?d__ _'
- Statemcnts cf '"N*" !"*r"!? "* ' M'"'""! **"r i C2nsolidated o,e,au,,g ne.e~e..
! $6,450,940 $6.088.018 $5,792,410
) Income Etectric Natural gas .134,456 103.992 118,% 2 Enfergy Corre;rahon and Sub6dianes Steam products ). 59,143 49,295 46,559 518.987_ 45.901 23,889 Nonregu!ated and foreign energy related businesses . > Total _ 7,163,528 _6_,287,206 5,9_81,8_2_0 y d. Operating Expenses: Operation and maintenance: Fuel, fuci related expenses, and gas purchased for resale 1,635,885 1,395.889 1,450,598
~704,744 356,596 340,067 Purchased power 63,979 Nuclear refuehng outage expenses '. 55,148 84,972 1,613,313 Other operation and maintenance . 1,577,383 1,528,35 t 790,948 693,865 659,142 Depreciation, amot tization, and decommissioning ,
Taxes other than income taxes 0 T 53,270 3 300,120 284,349 Rate deferrats (33,874) - - 401,301' 408,087 399.121 Amortizanon of rate deferrais Total 5.484,805 4.769.880 4.810.569 1,678,721 1,517,326 1,171,251 operating income Other income (Deductions): Allowance f or equity f unds used during construction f 9,951, 9,629 11,903 Write-of f of River Bend rate deferrals (194,498) - - 137,583 30.993 . 50,086 Miscellaneous-net Total J48pj 40,.622_ 61J89 Interest Charges: 674,532 633.851 665,541 Interest on long-term debt Other interest-net 49,053 33,749 22.354 Distributions on preferred securities of subsidrary 4,797 - - Allowance for borrowed funds used dunng construction - (8.347) (8.368) (9.938) Prefurred and preference dividend requirements of 70,536 77,969 81,718 subsdianos and other Total 790,571 _ 737.201_ 759 675 income Before income Taxes 841,186 820,747 473.565 Income Taxes .. . _ _ _ __ _.___ _..___._ , 421,159 _ _ 33_6.182 _ _ 131,724 Incomo Betare the Cumulative Ef foct of Accounting Changes 420,027 484.565 341,841 Cumulative Ef fect of Accounting Changes (not of income ta es! __ 35,415_ _ _ _ _ - Het income . $ 420.027' $ 519.980 $ 341,841 Earnings per average common share before e cumuLitive ef fact of accounting changes $1.83 $2.13 $149 Earnings per average common share $1.83 $2.28 $1.49 Dividends declared per common share $1.80 $1.80 $1.80 Average number of common shares outstanding 229,084,241 227,669.970 228.734,843 See Notes to Connoldated hnanaal Stateny,nts
Statements cf Ir, tnoosanas for the years end,4d Decemrs 31. 1996 1995 1994 Consolidated neiai,,ed tarnings, ,f anuary 1 ; $2,335,579 $2.223.739 $2.310,082 Retained ^"" Net income .420,'027I 519.980 341.841 *i Earnirigs Doduct: Totai - 2,755,006: 2,743,719 2.651,923 and Pa.d n .in oi 1 ends decia,ed on common stocx - 4i2,250- 409.801 4i1.80e .
" jggg Comrnon stock retirements --; -
13.940 _ Cap (tal stock and other expenses 'i,653l (1,661] 2A38 E ntrirgy Corresaton and Subschaneo Total 413,903: 408.140 428.184 Retained Earnings, December 3(_ ,. . 34 J2.g}5,5[9,,$2.223f39 Pald-in Capital, January 1 ! $4,201,483' $4.202,134 $4.223.682 Add. _ .; Gan (loss) on reacquisition of subsidianes' preferred stock j 1,795j (26) (23) C_ommon stock issuances related to stock plans ! .117,560 (3.002) Tota , 4.320.838 4.199.106 4.223.659 Doduct. , Common stock retire nents W - 22.468 Capital stock discounts and other expenses 247: (2 3771 (943) Total 247- (2.377) 21.525 i. Paid-in Capital, Decmber 31 7 $4,320,591' $4.201.483 $4.202,134
.- . = = = - -
== c.=v =.--= = . = .
I I i 3
}
. l
)
l 1 See Notes to Conso4Mn1 F in#r.4 Statements M f $1 l 1
Statements of Consolidated o,e,auno Aumem
$ 420.027 $ 519.980 $ 341,841 Net income gg Noncash items included in net income:
E ntergy Corporat on and Subedares Write of f of River Bend rate deferrals 194,498- - - Cumulative ef fect of a change in accounting panciple - (35,415) - Change in rate deferrals / excess capacity-net 423,036 390,177 394,344 1 Depreciation, amortization, and decommissioning 790,948 695.865 659.142 ; Deferred income taxes and investment tax credits 76,920 (31,006) (151.731) Allowance f or equity f unds used during construction ' (9,951) (9.629) (11,903) Amortization of de' erred revenues -i - (14,632) Changes in working capital: Receivables (30,322) (30.550) (382) Fuelinventory (17,220) (28.956) 16,993 Accounts payable .. -4,011 (19,124) 65,776 Taxes accrued * (27,488) 115.250 (25,689) l Interest accrued 7,176 (194) (15,255) Other working capital accounts (121,692) (85,454) 126,058 i Change in other regulatory assets (85,05.) (3,876) (33.032) Decommissioning trust contnbutions (52,204) (37,756) (24,755) , Provision for estimated losses and reserves 31,063 (37,752) 79.4M Other (146,238) _ _ 24.1_53 151.649 Net cash flow provided by_ operating actmties 1,457,513 1,425.713 1.557,918 Investing Activities: Construction / capital expenditures (571,890) (618.436) (676,180) Allowance for equity funds used dunng construction 9,951 9.629 11,903 Nuclear fuel purchases (123,929) (207,501) (179.932) Proceeds from sale,1easeback of nuclear fuel '109,980 226,607 128,675 Acquisition of CitiPower (1,156,112) - Investment in nonregulated/nonutility properties (76,091) (172,814) (49,859) 1 Proceeds from sale of Hub River stock 26,955 - - Proceeds frorn sale of Independence 2 39,398 - - Proceeds from sale of nonutthty property - - 26,000 Other (32,619L (28.982) (20.151) Net cash flow used in investing activities __{1,774,357L _(791.497) y59,544) Financing Activities: Proceeds from the issuance of: General and refunding mortgage bonds 39,608 109.285 24.534 First mortgage bonds 431,906 - 59.4 0 Bank notes and other long-term debt 1,066,858 273,542 164.653 Common stock 118,087 - -- Preferred secunties of subsidianes' trusts 125,963 - - Retirement of. First mortgage bonds .(821,575) (225.800) (303,800) General and refunding mortgage bonds (56,000) (69.200) (45,000) Other long term debt (145,110) (221.043) (148,962) Premium and expense on refinancing salo/ leaseback bonds - - (48.497) Repurchase of common stock - - (119.486) Redemption of preferred stock (157.503) (46,564) (49,091) ,
. Changes in short-term borrowings net (24,981) (126.200) 128.200 Common stock dividends paid __ _ _ _ __ _ _ (405,346L _ _ (408.553) _ _{410_.223)
. Not cash 110w provided by (used in) financing activities 171,907 _ (714.533) (748.216)
. Ef foct of exchange rates on cash and cash equivalents . _ 50.__ ._ _ n _ _ _ - Net increase (decrease) in cash and cash equivalents (144,887) (80,317) 50,158 Cash and cash equivalnnts at beginrung of penod . _ 533,590 613.907 563.749 cash and cash equivalents at end o_ f pe,rted . _ _ $ 388,703 $ .533.5cK) $ 63907 Supplemental Olsclosure of Cash Flow information: Cash paid during the penod for: Interest net of amount capitalized $ 677,535 $ 626.531 $ 600.150 income taxes $ 373,247 - $ 285.738 $ 218,667 Noncash investing and financing activities: Capitallease obligations incurred 5 16,358 $ -
$ 88 574 Change in unrealized appreciation / depreciation of decniamissioning trust assets $ 7,803 $ 16.614 $ (2.198)
Acquisition of nuclear fuel $ 47,695 $ - Sai Notes to Conso4 dated Finanaal Statements
Censolidatad t"_'Mrr-"*a*'"r '- ._
=
- l Balance Ass m S Oh """*"*****
Cash and cash equivalents: L i a EntWy Corporaton and S.Jrndianes Cash $ - 34;807 $ 42,822 Temporary cash investments-at cost, which approxirnates market 346;782 490,768 j Special deposits '7,114 [- - 44 Total cash and cash equivalents 388,703 533.590 Notes receivable 1,384 6.907 j Accounts receivable: ' Customer (less a!Iowance for doubtful accounts of ;
$9.2 milhon in 1996 and $7.1 milhon in 1995) { i 324,687 333,343 Other I' 99,066 59.176
)
i Accrued unbilled revenues 351,429 293,461 ) Deferred fuel 122,184 25,924 l Fueiinventory 6139,603 122,167 Matenals and supplies-at average cost . ~339,622 345,330 Rate deferrals t 444,543 420,221 Prepayments and other : 151,312 175,121 _ _ Total _ _ . _ _ _ U 2,362,533 2,315.240 1 Other Property and Investments: Decommissioning trust funds ; ) 357,902 277,716 ! Nonregulated investments . 513,058 372,453 Other _ L 59,053 62,166 Total 930,073 712,335 Utility Plant: . Electric i 22.811,164 21,698.593 l Plant acquisition adjustment Entergy Gulf States 455,425 471,690 l E'ectnc plant under : eases L 679,991 675,425 i Property under capitalleases-electric 147,277 145.146 Natural gas F i168,143 166.872 Steam products . f)L743 77,551 Construction work in progress 401,676 482,950 Nuclear f uet under capitalleases : 250,651 312,782 Nuclear fuel !' 112,625 49,100 Total l 25,108.695 24,080,109 Leas-accumulated depreciation and amortization 7 '8,885,572 8.259,318 Utsty plant-net 16,223,123 15,820,791 Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 399,493' 1,033,282 SFAS 109 regulatory asset-net 1,196,041 1,279,495 Unamortu'ed less on reacquired debt ; 217,664 224,131 Other regulatory assets 435,652 350.601 Long term recewantes 4 216.082 224.726 Cit Power hconse (net of $15.6 million of amorhzation) ) 606,214 -- . Other ' ' 379,419 305,329 Total 3,450,565 3,417,564 Total $22,%6,294 $22,265,930
= -= ,
~ - - , - - - = - ===
See Notes to Consolidated F narv:ial Statementa 32 33
Ccnstlidated '" '" r*"* ' 'fr '""?"*' _. _ BalanCO uamunes ano saantnoLoens souiry g g Current Liabilities: Currently maturing long term debt S. 345.620[ $ 558.650 Ente <gj Corvaratran and Sutstanes Notes payable 120,686., 45.667 Accounts payable , 554,558, 460,379 Customer deposits 140,054 F '.155.534 Taxes accrued ; ,180,340 207.828 Accumulated deferred income taxes J78.010 72,847 Inte'est accrued 203,425 195,445 Dividends declared t ' 8,950' 12,194 Obligations under capitalleases 151,287 151,140 Other : 184,157; 247,039 Total ' 1,882.567 2,091.243 l Deferred Credits and Other Liabilities: Accumulated deferred income taxes 3,77'O,760 3,777,644 Accumulated deferred investment tax credits 607.041' 612,701 Obligations under capitalleases 247,360, 303,664 Other 1,298,306 1,277,419 Total 5,924.067 5.971,428 Long term debt '7,590.804 6.777,124 Subsidiaries' preferred stock with sinking fund -216,986 253,460 Subsidiary's preference stock 150,000, 150,000 Comparcobligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable debentures 130,000 - i Shareholders' Equit y: k Subsidiaries' preferred stock without sinking fund 430,955 550,955 Common stock $.01 par value, authorced 500,000,000 shares; issued 234,456.457 shares in 1996 and 230,017.485 shares in 1995 2,345, 2,300 Paid in capital 4,320,591; 4.201,483 Retained earnings 2,341,703 2,335,579 Cumulative foreign currency translation adjustment 21,725 - Less-treasury stock (1,496,118 shares in 199C, and _ 2:251,318 tn 1995), _ _ _ ___
' 45.449 __ _ _ . 67_.642 Total _ .__ _ . _ _ _
7,071,870 .__ 7_,022.675 1 Commitments and contingencies (Notes 2. 9,10, and 14) . ___r e Total _$22,966,29,4
.- ..___ . _ _-. .= . _ _ .$22.265.930
. . =
= . . -
See Netes to ConsoNtatact Finarnt Sta'oments
1 1 N2tm t3 Note 1. Summary of Significant Accounting Policies The accompanying consohdated fanancial statements include the accounts of Entergy Corporation COnSOh. dated and its e, rect subsidiaries: Entergy Arkansas. Entergy Gulf States, Entergy Louisiana, Entergy Financial Mississippi. Entergy New Orleans. System Energy, Entergy Services, Entergy Operations Entergy Power, Entergy Enterprises. Entergy Power Operations Corporation. Entergy S. A., Entergy Power
- Staternents umket,ng Corpo,et,on. entero, eower Deveionment Corpore 1,on. eniergy Tecnnoiogy Hoiding Company Entergy Power Edesur Holding LTD, Entergy Transener SA, and Entergy Power l Development International Corporation. A number of these subsidiaries have additional sub- -
sid: aries. CitiPower is a subsidiary of Entergy Power Development international Corporation. All significant intercompany transactions have been ekminated. Entergy Corporation's utihty subsidsaries maintain accounts in accordance with FERC and other regulatory guidelines. Certain previously reported amounts have been reclassified to conform to current classifications with no of fect on not income or shareholders' equity. Use of Estimates in the Preparation of Financial Statements The preparation of Entergy Corporation and Subsidiaries' conschdated financial statements, in con-formity with generally accepted accounting principles, requires management to make estimates l and assumpt.ons that af fect reported amounts of assets and habilities and disclosure of contingent l assets and liabihties as of December 31,1996 and 1995, and the reported amounts of revenues and j expenses dunng fiscal years 1996,1995, and 1994. Adjustments to the reported amounts of assets and liabilities may be necessary in the future to the extent that future estimates or actual results a'e l d:fferent from the estimates used in 1996 financial statements. 4
, Revenues and Fuel Costs F' l Er'tergy Arkansas, Entergy Louisiana, and Entergy Mississippi generate, transmit, and distribute
; y electncity (primanly to retail customers) in the states of Arkansas, Louisiana, and Mississippi,
% %._ q :/ respectively Entergy Gulf States generates, transmits, and distnbutes electocity primanly to retail l
^
*Q customers in the states of Texas and Louisiana; distributes gas at retail in the City of Baton Rouge, 1 1996 Domestic Utihty Louisiana, and vicinity; and also sells steam to a large refinery complex in Baton Rouge. Entergy l Retail Customers New Orleans sells both electricity and gas to retail customers in the City of New Orleans, Louisiana l By Class (except for Algiers, the 15th ward of the City of New Orleans, Louisiana, where Entergy Louisiana is l the electncity suppher). )
[ "(( e imm um
] System Energy's operating revenues recover operating expenses, depreciation, and capital costs attnbutable to Grand Gulf 1 from Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, e c-w ims and Entergy New Orleans Capital costs are computed by allowing a return on System Energy's common equity funds allocable to its net investment in Grand Gulf 1, plus System Energy's etfective interest cost for its debt allocable to its investment in Grand Gu!f 1. See Note 2 for a discussion of System Energy's proposed rate increase.
A portion of Entergy Arkansas' and Entergy Louisiana's purchase of power from Grand Gulf has not been included in the determination of the cost of service to retail customers by Me Arkansas Pubhc Service Commission (APSC) and LPSC, respectively, as desenbed in Notu 2, The domestic util ty companies accrue estimated revenues for energy dehvered since the latest bilhngs. The domestic uhhty companies' rate schedules (except Entergy Gulf States' Texas retail rate schedules) include fuel adjustment clauses that allow either current recovery or deferrals of fuel costs until such costs are reflected in the related revenues. Entergy Gulf States' Texas retail rate schedules include a f:xed fuel factor approved by the PUCT, which remains in oflect until changed as part of a general rate case. fuel reconcthation, or ftxed f uel factor fihng. . UtiHty Plant Utahty plant is stated at onginal cost. The original cost of utihty plant retired or removed. plus the , apphcable removal costs, less salvage, is charged to accumulated depreciat on. Maintenance, ropa rs, and minor replacement costs are charged to operating expenses. Substantially all of the uhhty plant is subject to hens of the subsidiaries' mortgage bond indentures. Utikty plant includes the portions of Grand Gulf 1 and Waterford 3 that were sold and currently are leased back. For financial reporting purposes. these sale and leaseback transactions are reflected as financing transactions Total not electnc ut hty plant in service of $15.2 bilhon as of December 31,1996 (excluding owned and leased nuclear fuel, the accumulated provtsion for decommissioning, and the plant acquisition adjustment related to the Merger), includes $9.5 billion of production plant, of which $7.8 billion is for nuclear production plant; $1.7 bilhon of transmission plant; $3 4 bHhon of distnbution plant; and S 6 bilhon of otner plant. 34 i 35 l
Depreciation is computed on the straight-line basis at rates based on the estimated service lives and costs of removal of the various classes of property. Depreciation rates on average depreciable property approximated 3.0% in 1990,2.9% in 1995, and 3.0% in 1994 Allowance For Funds Used During Construction (AFUDC) represents the approximate net com-posite interest cost of borrowed funds and a reasonable return on the equity funds used for con-structiort Although AFUDC increases both utility plant and earnings, it is only realized in cash through depreciation provisions included in rates. Jointly-Owned Generating Stations Certain Entergy Corporation subsidiaries own undivided interests in several jointly-owned electric generating facilities and record the investments and expenses associated with these generating stations to the extent of their respective ownership interests. As of December 31,1996 Entergy's investment and accumulated depreciation in each of these generating stations were as follows: Total Messwatt Accumuteted oenerating stattens FuelType Capabmty ownerstWp investment Deptedateen (in thousands) Grand Gulf Unit 1 Nuclear 1,179 90.00%m $3,429,562 $974,472 River Bend Unit 1 Nuclear 936 70.00 % $3,103,974 $746,440 Independence Units 1 and 2 Coal 1,678 51.50 % $ 493,563 $174,086 White Bluff Units 1 and 2 Coal 1.600 57.00 % $ 396,403 $166.809 Roy S. Nelson Unit 6 Coal 550 70.00 % $ 400,22t $166,820 Big Cajun 2 Unit 3 Coal 540 42.00 % $ 222,957 $ 86,699 (1) includes an 115% isaaehoihte,esosee M-de 10 income Taxes Entergy Corporation and its subsidiaries file a consolidated federal income tax return. Income taxes are allocated to the subsidiaries in proportion to their contribution to consolidated taxable income. SEC regulations requne that no Entergy Corporation subsidiary pay more taxes than at would have paid if a separate income tax return had been filed. In accordance with SFAS 109, " Accounting for income Taxes," deferred income taxes are recorded for all temporary dif ferences between the book and tax basis of assets and liabilities, and for certain credits available for carryforward. l l Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date j of enactment. Investment tax credits are deferred and amortized based upon the average useful life of the related property in accordance with rate treatment. Acquisition Adjustment Entergy Corporation, upon completion of the Merger in December 1993, recorded an acquisition adjustment in utility plant in the amount of $380 million, representing the excess of the purchase j pnce over the histoncal cost of the Entergy Gulf States net assets acquired. During 1994, Entergy recorded an additional $124 million of acquisition adjustment related to the resolution of certain preacquisition contingencies and appropnate allocation of purchase price. The acquisition adjustment is being amortized on a straight-line basis over a 31-year period beginning January 1,1994, which apprcximates the remaining average book life of the plant acquired as a result of the Merger. As of December 31,1996, the unamortized balance of the acqui-sition adjustment was $455 million. ,e Entergy's future net cash flows are expected to be suf ficient to recover the amortization of both the Merger acquisition adjustment and the cost of the CitiPower license discussea in Note 13.
- i. Reacquired Debt The premiums and costs associated with reacquired debt are being amortized over the life of the related new issuances, in accordance with ratemaking treatment.
Cash and Cash Equivalents Entergy considers all unrestricted highly liquid debt instfUments purchased with an original matunty of three months or less to be cash equivalents. Stock Options - SFAS 123 The FASB issued SFAS 123,
- Accounting for Stock-Based Compensation,* in October 1995. to be of fective for 1996 financial statements. The provisions of this statement require either (a) adoption for financial reporting purposes; or (b) disclosure of the impact the provisions would have had on
l l financial statements had they been adopted. Entergy has elected the disclosure option, see Note 5 l for the disclosures required by SFAS 123. Continued Application of SFAS 71 The domestic utikty companies and System Energy currently account for the ef fects of regulation . pursuant to SFAS 71, " Accounting for the Effects of Certain Types of Regulation." This statement applies to the financial statements of a rate-regulated enterprise that meets three criteria. The enter-pose must have rates that (i) are approved by the regulator; (ii) are cost based; and (ni) can be . charged to and collected from customms. These cnteria may also be applied to separable portions of a utihty's business, such as the generation or transmission functions, or to specific classes of cus-tomers, If an enterprise meets these criteria, it may capitahze costs that would otherwise be charged to expense if the rate actions of its regulator make it probable that those costs will be recov-ered in future revenue. The amount capitalized is a regulatory asset. SFAS 71 requires that rate. regulated enterprises assess the probability of recovenng their regulatory assets at each balance sheet date. When an enterprise concludes that recovery of a regulatory asset is no longer probable, the regulatory asset must be removed from the entity's balance sheet. SFAS 101," Accounting for the Discontinuation of Apphcation of FASB Statement No. 71," speci-f es how an enterpnse that ceases to meet the cnteria for apphcation of SFAS 71 for all or part of its operations should report that event in its financial statements. In general, SFAS 10 t requims that the enterpose report the discontinuation of SFAS 71 by shminating f rom its balance sheet all regulatory assets and habihties related to the applicable segment. Additionally, if it is determined that a regu-
%g lated enterprise is no longer recovering all of its costs and therefore no longer quahfies for SFAS 71
. . Q% accounting, it is possible that a SFAS 121 impairment (see further discussion below) may exist h which would require further wnto-of fs of plant assets.
. .] As of December 31,1996, the majonty of the domestic utihty companies' and System Energy's operations continue to meet each of the cnteria required for the use of SFAS 71 and the companies have recorded significant regulatory assets.
As described in Note 2, dunng 1990, FERC issued Orders No. 888 and 689 which require ut+ ties ; to provide open access to their transmission system to promote a more competitive market for t 1996 Domestic Utikty w saw poww sah As abo descM in Nom 2. Enteg AAansas, Wgy GuH States, and Retail Electricity Sales ne s pp have filed transition to competition proposals with their regulators which provide, Dy Customer Class among other things, for accelerated recovery of certain rapitahzed costs to provide for an orderly n mnm a man tm
* ""*d 'd"$ " missions have begun general proceedings to consider retail competition in their lunsdictions, As the plans have on!y recently been filed with the regulators and those regulators have generally m , o a cmmo was 2m deferred action on the plans in hou of their general proceedings on competition, Entergy cannot, at this timn, predict the ultimate outcome of these proceedings, Accordingly, the domestic utikty com-bu 9 cme panies and System Energy anticipate that they will continue to meet the cntena for the apphcahon of SFAS 71 for the foreseeable future.
Deregulated Operations Entergy Gulf Statou drscontinuud regulatory accounting pnnciples for its wholesale juosdiction and its steam department dunng 1989 and for the Louisiana retail deregu!ated portion of River Bond in 1991. The results of these deregulated operations (before interest charges) for the years ended December 31,1996, t995, and 1994, are as follows: may _ .. ine __ . , gn . n4 Operating revenues $174,751 $141,171 $133,822 Operating expenses. Fuel, operating, and maintenance 119,784 115,799 116,386 Depreciahon . 31,455_.. . 31J 29 _ 27 8901 Total operating expensos 151,239 146,928 144,276
- In.come la ses , _ . _ _ ,. _. , . .
. 9,598 . _6,979).( , . _ _ 249)
( Not income (Loss) From Deregulated Utihty Operattor}s $ 13,9 t 4 $ 1,222 $ (5,205) SFAS 121 in March 1995, the FASB issued SFAS 121,"Accountmg for the impairment of Long Lived Assets and for Long Lived Assets to Be Disposed Of"(SFAS 121), which became of fective January 1,1990 T his staternent descnbes circumstances that may result in assets (includ;ng goodwill such as the Merger acquisition adjustment, discussed above) being impaired. The statement also provides co-tona for recognihon and measurement of asset impatrment. Note 2 desenbes regulatory assets of 36 l 37
1
, /
$169 million (net of tax) related to Texas retail deferred River Bend operating and carrying costs which were written of f upon the adoption of SFAS 121 in the first quarter of 1996. l Assets which are regulated unoer traditional cost-of-service ratemaking, and thereby subject to !
SFAS 71 accounting, are generally not subject to impairment pursuant to SFAS 121, as this form of regulation assures that all allowed costs are subject to recovery. However, certain deregulated assets and other operations of the domestic utility companies totaling approximately $1.6 billion (pre-tax) could be affected by SFAS 121 in the future. Those assets include Entergy Arkansas' and Entergy Louisiana's retained shares of Grand Gulf 1 Entergy Gulf States' Louisiana deregulated asset plan, the Texas jurisdiction abeyed portion of the River Bend plant, and wholesale jurisdiction and steam department operations. Additionally, all of Entergy's investment in other nonregulated businesses is subject to possiole impairment pursuant to SFAS 121. Entergy periodically reviews these assets and operations whenever events or changes in circum-stances indicate that recoverability of these assets is uncertain. Generally, the determination of ] recoverabikty is based on the net cash flows expected to result from such operations and assets. Projected net cash flows depend on the future operating costs associated with the assets, the ef fi-ciency and availabikty of the assets and generating units, and the future market and price for energy over the remaining life of the assets. Based on current estimates of future cash flows as prescribed under SFAS 121, management anticipates that future revenues from such assets and operations of Entergy will fully recover all related costs. Change in Accounting for Nuclear Refueling Outage Costs In December 1995, at the recommendation of FERC, Entergy Arkansas changed its method of accounting for nuclear refueling outage costs. The change, ef fective January 1,1995, results in 1 Entergy Arkansas deferring incremental maintenance costs incurred during an outage and amortiz-ing those costs over the operating period immediately following the nuclear refueling outage, which is the penod that the charges are billed to customers. Previously, estimated costs of refueling out-ages were accrued over the period (generally 18 months) preceding each scheduled outage. The of fect of the change for the year ended December 31,1995, was to decrease net income by $5.1 million (net of income taxes of $3.3 million) or $.02 per share. The cumulative ef fect of the change was to increase net income $35.4 million (net of income taxes of $22.9 million) or $.15 per share. The proforma ef fects of the change in accounting for nuclear refueling outages in 1994, assuming the new method was applied retroactively to that year, would have been to decrease net income $3.2 milhon (net of income taxes of $2.1 million), or $.01 per share. c System E lergy filed a rate increase request with FERC in May 1995 (see Note 2), which, among l other things, proposed a change in the accounting recognition of nuclear refueling outage costs from that of expensing those costs as incurred to the deferral and amortization method described above with respect to Entergy Arkansas. As described in Note 2, the FERC Administrative Law Judge (ALJ) issued an initial decision in this proceeding in July 1996, agreeing to the change in recognition of outage costs proposed by System Energy. Accordingly, System Energy deferred the l refueling outage costs incurred in the fourth quarter of 1996. As of December 31,1996, System Energy's current assets included $24.0 million in deferred nuclear refueling outage costs which will be amortized over the next fuel cycle (approximately 18 months). Amortization of these costs in the fourth quarter of 1996 amounted to $1.2 million. This change will have no impact on the net income of either Entergy or System Energy since System Energy will recover the refuehng outage costs from Entergy Arkansas. Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, and these companies will, in turn, recover these costs from their ratepayers. Financial Instruments Detivative instruments have been used by Entergy on a limited basis. Entergy has a policy that finan-g cial derivatives are to be used only to mitigate business risks and not for speculative purposes. See Notes 7 and 9 for additionalinformation concerning Entergy's derivative instruments outstanding as of December 31,1996. Fair Value Disclosures The estimated fair value of financial instruments was determined using bid prices reported by dealer markets and by nationally recognized investment banking firms. Considerable judgment is required in developing the estimates of fair value. Therefore, estimates are not necessarily indicative of the amounts that Entergy could realize in a current market exchange, in addition, gains or losses realized on financialinstruments may be reflected in future rates and not accrue to the benefit of stcakholders. Entergy considers the carrying amounts of financiat instruments classified as current assets and liabihties to be a reasonable estimate of their fair value because of the short matunty of these instru-ments. In addition, Entergy does not expect that performance of its obligations will be required in
i l l connection with certain off-balance sheet commitments and guarantees considered financial instruments. Due to this factor, and because of the related-party nature of these commitments and guarantees, determination cf fair value is not considered practicable. See Notes 5,7, and 9 for addi-tional disclosure concerning fair value methodologies. Note 2. Rate And Regulatory Matters Merger-Related Rate Agreements in November 1993, Entergy Corporation, Entergy Arkansas Entergy Mississippi, and Entergy New , Orleans entered into separate settlement agreements whereby the APSC, MPSC, and Council agreed to withdraw from the SEC proceeding related to the Merger, in return, Entergy Arkansas. Entergy Mississippi, and Entergy New Orleans agreed, among other things, that their retail ratepay-ers would be protected from (i) increases in the cost of capital resulting from risks associated with the Merger, (ii) recovery of any portion of the acquisition premium or transactional costs associated with the Merger, (iii) certain direct allocations of costs associated with Entergy Gulf States' River Bend nuclear unit, and (iv) any losses of Entergy Gulf States resulting from resolution of litigation in connection with its ownership of River Bend. Entergy Arkansas and Entergy Mississippi agreed not I to request any general retail rate increase that would take effect before November 1998, except for, among other things, increases associated with the recovery of certain Grand Gulf 1-related costs, recovery of certain taxes, and catastrophic events, and in the case of Entergy Arkansas, excess capacity costs and costs related to the adoption of SFAS 106 that were previously deferred. Entergy Mississippi agreed that retail base rates under the formula rate plan would not be increased above
%,, November 1,1993, levels, for a period of five years beginning November 9,1993.
% in 1993, the LPSC and the PUCT approved separate regulatory proposals forentergy Gulf States that include the following elements: (i) a five-year Rate Cap on Entergy Gulf States' retail electric base
)
,fa ratea in N respective states, except for force majeure (defined to include, among other things, war, i F natural catastrophes, and high inflation); (ii) a provision for passing through to retail customers the I
'r jurisdictional portion of the fuel savings created by the Merger; and (iii) a mechanism for tracking non-fuel operation and maintenance savings created by the Merger. The LPSC regulatory plan provides that such nonfuel savings will be shared 60% by shareholders and 40% by ratepayers during the 1996 Domestic Utility eight years following the Merger. The LPSC plan requires annual regulatory filings by the end of each May through the year 2001 The PUCT regulatory plan provides that such savings will be shared W ustomCass equally by shareholders and ratepayers, except that the shareholders' portion will be reduced by
- " $2.6 milkon per year on a total company basis in years four through eight. The PUCT plan also
- R+44 W $2.2W 7 requires a Series of regulatory fihngs to ensure that the ratepayers' share of such savings be reflected l } in rates on a timely basis, the first of which was made in November 1996, as discussed below in "Fihngs with the PUCT and Texas Cities. Subsequent fihngs are required in November 1998 and in a ownnemi $ 109.287 November 2001. In addition, the plan reouires Entergy Corporation to hold Entergy Gulf States' Texas !
retail customers harmless from the ef fects of the romoval by FERC of a 40% cap on the amount of fuel savings Entergy Gulf States may be required to transfer to other domestic utility companies under the FERC tracking mechanism (see below). On January 14,1994, Entergy Corporation filed a petition for review before the D C. Circuit seeking review of FERC's deletion of the 40% cap provision in the f uel cost protection mechanism. T he matter is currently being held in abeyance. FERC aporoved Entergy Gulf States' inclusion in the System Agreement. Commitments were adopted to provide reasonable assurance that the ratepayers of Entergy Arkansas. Entergy Louisiana. Entergy Mississippi, and Entergy New Orleans will not be allocated higher costs. Ever Dend in 1988, the PUCT granted Entergy Gulf States a permanent increase in annual revenues of $59.9 mil-tion resulting from the inclusion in rate base of approximately $1.6 bilhon of company-wide River Bend plant investment and approximately $182 million of related Texas retailJ unsdiction deferred River Bend costs (Allowed Deferrals). At the same time, the PUCT disallowed as imprudent $63.5 million of com- , pany wide River Bend plant costs and placed in abeyance, with no finding as to prudence, approxi-mately $1.4 billion of company-wide River Bond plant investment and approximately $157 million of Texas retail jurisdiction deferred River Bend operating and carrying costs (Abeyed Deferrals). The PUCT's order has been the subject of several appellate proceedings, culminating in an appeal to the Texas Supreme Court (Supreme Court). On January 31,1997, the Supreme Court issued an opinion reversing the PUCT's order and remanding the case to the PUCT for further pro-ceedings. The Supreme Court found the PUCT prejudiced Entergy Gulf States' rights by attempting to defer a rukng on the abeyed plant costs and incorrectly determined the amount of federalincome tax expense that should have been allowed in rates. The Supreme Court ruled that the PUCT could choose either to conduct hearings and take further evidence or to decide the case on the onginal evidence. On February 18,1997, the Texas Of fice of Pubhc Utihty Counsel filed a motion for rehear-Ing of the Supreme Court's decision, arguing that the Supreme Court's remand should have 3a ao instructed the PUCT as to how the case should be dealt with on remand. Entergy Gutf States filed a
brief in opposition to the motion for rehearing on February 25,1997, Entergy Gulf States believes that it is unlikely that the Supreme Court will grant the motion for rehearing. No procedural schedule has yet been issued by the PUCT conceming the case on remand. As of December 31,1996, the River Bend plant costs disattowed for retail ratemaking purposes in Texas and the River Bend plant costs held in abeyance totaled (net of taxes and depreciation) approximately $12 million and $266 million, respectively. The Allowed Deferrals were approximately
$77 million, net of taxes and amortization, as of December 31,1996. Entergy Gulf States estimates it has collected approximately $204 million of revenues as of December 31,1996, as a result of the .
originally ordered rate treatment by the PUCT of these deferred costs, if recovery of the Allowed Deferrals is not upheld, future refunds could be required and future revenues based upon the Allowed Deferrals could also be lost. However, management believes that it is probable that the Allowed Deferrals will continue to be recovered in rates. As a result of the application of SFAS 121 Entergy Gulf States wrote of f Abeyed Deferrals of $169 million, net of tax, of fective January 1,1996. In light of the continuing proceedings before the PUCT and the courts (including the January 31,1997, decision of the Texas Supreme Court), Entergy Gulf States has made no write-offs or reserves for the River Bend plant-related costs. At this time, man-agement and legal counsel are unable to predict the amount of the abeyed and previously disallowed River Bend plant costs that may ultimately be allowed in Entergy Gulf States' Texas retail rates. In prior proceedings involving other utilities, the PUCT has held that the original cost of nuclear power plants will be recoverable in electric rates to the extent those costs were prudently incurred. Entergy Gulf States has previously filed with the PUCT a cost reconcihation study prepared by Sandlin Associates, management consultants with expertise in the cost analysis of nuclear power ; plants, which supports the reasonableness of the River Bend costs held in abeyance by the PUCT. , This reconciliation study determined that approximately 82% of the River Bend cost increase above the amount included by the PUCT in rate base was a result of changes in federal nuclear safety requirements, and provided other support for the remainder of the abeyed amounts. In particular, there have been four other rate proceedings in Texas involving nuclear power plants. Disallowed investment in the plants ranged from 0% to ' & Each case was unique, and the disallowances in each were made for different reasons. Appeals of two of these PUCT decisions are currently pend-ing. Based upon the PUCT's prior decisions, management believes that River Bend construction costs were prudently incurred and that it is reasonably possible that it will recover through rates, or otherwise through means such as a deregulated asset plan, all or substantially all of the abeyed River Bond plant costs. In the event of an adverse ruling in this case, a net of tax write-off, as of December 31,1996, of up to $278 million could be required. Retall Rate Proceedings Fihngs with the APSC -In October 1996, Entergy Arkansas filed a proposal with the APSC designed to achieve an orderly transition to retail electric competition in Arkansas. The proposalincludes a rate decrease totaling $123 milhon over a three-year period beginning in mid4997 and provides for a uni-versal service charge for customers that remain connected to Entergy Arkansas' electric facilities but choose to purchase their electricity from another source. Although these proposals allow for the complete recovery of the remaining plant investment associated with ANO Units 1 and 2, and Ente,gy Arkansas' pnrtion of Grand Gulf 1 (excluding the portion retained-see below) as of December 31, 1996, over a seven year period, the Nuclear Regulatory Commission (NRC) operating licenses for these plants permit continued operation until the years 2014,2018, and 2022, respectively. Fihngs with the PUC7 and Texas Cities - In March 1994, the Texas Of fice of Public Utility Counsel and certain cities served by Entergy Gulf States instituted an investigation of the reasonableness of Entergy Gulf States' rates. On March 20,1995, the PUCT ordered a retroactive rate reduction, which was amended, reducing the $52.9 million annual base rate reduction to an annual level of $36.5 mil-lion. The PUCT's action was based, in part, upon a Texas Supreme Court decision not to require a util-ity to use the prospective tax benefits generated by disallowed expenses to reduce rates. The May 26, 1995, amended order no longer required Entergy Gulf States to pass such prospective tax benefits on to its customers. The rate refund ordered by the PUCT in its March 20,1995 order, retroactive to March 31,1994, was approximately $61.8 million (including interest) and was refunded to customers ! in September, October, and November 1995. Entergy Gulf States and other parties have appealed , the PUCT order, but no assurance can be given as to the timing or outcome of the appeal. In December 1995, Entergy Gulf States filed a petition with the PUCT for reconciliation of fuel and purchased power expenses for the period January 1,1994, through June 30,1995. Entergy Gulf j States believes that there was an under-recovered fuel balance, including interest, of $22A million ' as of June 1995. Heanngs were concluded in October 1996 'and, on December 18,1996, the ALJ issued his recommendation which included recovery of approximately $20 milhon of the under- { recovered fuel balance. A final decision by the PUCT is expected in early 1997,
In accordance with the Merger agreement Entergy Gulf States filed a rate proceeding with the PUCT in November 1998. In April 1996, certain cities served by Entergy Gulf States (Cities) instituted investigations of the reasonableness of Entergy Gulf States' rates. In May 1996, the Cities agreed to forego their investigation based on the assurance that any rate decrease ordered in the November 1996 fihng will be retroactive to June 1,1996, and will accrue interest until refunded. The agreement , further provides that no base rate increase will be retroactive, included in the November 1996 filing was a proposal to achieve an orderly transition to retail electric competition in Texas, similar to the filing desenbed below that Entergy Gulf States made with the LPSC. This filing with the PUCT will be , litigated in four phases as follows: (i) fuel factor / fuel reconciliation phase, of which Entergy Gulf States believes there was an under-recovered fuel balance of $41.4 million, including interest, for the period July 1,1995 through June 30,1996; (ii) revenue requirement phase; (iii) cost allocation / rate design phase; and (iv) competitive issues phase. Heanngs on these matters are scheduled to begin in April 1997, No assurance can be given as to the outcome of these hearings. 1 Filungs with the LPSC Annual Eamings Reviews - Entergy Gulf States - In May 1994. Entergy Gulf States filed a required earnings analysis with the LPSC for the test year preceding the Merger (1993). On December 14, 1994, the LPSC ordered a $12.7 million annual rate reduction for Entergy Gulf States, effective January 1995. Entergy Gulf States received a preliminary injunction from the District Court regard-ing $8.3 milbon of the reduction relating to the earnings effect of a 1994 change in accounting for unbilled revenues. On January 1,1995, Entergy Gulf States reduced rates by $4.4 million. Entergy Gulf States filed an appeal of the entire $12.7 million rate reduction with the District Court, which e denied the appeal in July 1995. Entergy Gulf States appealed the order to the Louisiana Supreme i Court. The prehminary injunction relating to $8.3 million of the reduction remained in ef fect during the appeal. On July 2,1996, the Louisiana Supreme Court ruled on the appeal. The Court found that d the LPSC ruled incorrectly on the treatment of the initial balance of unbilled revenues and the rev-g enue annuahzation adjustment. As a result. Entergy Gulf States will not be required to refund the j $8.3 milhon. The case was remanded to the LPSC for further proceedings related to the revenue i annuah2ation adjustment, but as a result of a subsequent rate adjustment pursuant to the third kf required post Merger earnings analysis discussed below, the romand was moot. On May 31,1995 Entergy Gulf States filed its second required post Merger earnings analysis J J
-] with the LPSC. Hearings on this review were held in December 1995. On October 4,1996, the LPSC issued an order requiring a $33.3 million annual base rate reduction and a $9.6 million refund. One component of the rate reduction removes from base rates approximately $13.4 million annually of NN costs that will be recovered in the future through the fuel adjustment clause. On October 23,1996, Mdd Entergy Gulf States appealed and obtained an injunction to stay this order, except insofar as the
- order requires the $t3.4 milkon reduction, which Entergy Gulf States implemented in Novemoer 1996. In addition, the LPSC order provides for the recovery of $6.8 million annually related to certain gas transportation and storage facihties costs. Pursuant to the " October 1996 LPSC Settlement" dis-cussed below, this amount was brought forward to $8.1 million. This amount will be apphed as an offset against whatever refund, if any, may be required by a final judgment in Entergy Gulf States' appeal of the second post-Merger earnings review order.
On May 31,1996 Entergy Gulf States filed its third required post-Merger earnings analysis with the LPSC Based on this earnings filing, on June 1,1996, Entergy Gulf States implemented a
$5.3 milhon annual rate reduction. Hearings on this fihng concluded in February 1997. An additional rate reduction may be required upon the issuance by the LPSC of a final rate order.
Annualfamings Reviews - Entergy Louisiana - On June 2,1995, as a result of a review of the earnings a of Entergy Louisiana, a $49.4 milhon reduction in base rates was ordered. In the same order, the l LPSC adopted for Entergy Louisiana a performance-based formula rate plan. The formula rate plan provides a financialincentive to reduce costs while maintaining high levels of customer satisfaction l and system rehabihty. The plan allows Entergy Louisiana the opportunity to earn a higher rate of return if it improves performance over time. Conversely, if performance dechnes, the rate of return Entergy Louisiana could earn is lowered. On June 9,1995 Entergy Louisiana appealed the rate reduction and sought injunctive relief from implementation of $14.7 million of the reduction. The
$14.7 million portion of the rate reduction represents revenue imputed to Entergy Louisiana as a result of the i.PSC's conclusion that the rates charged to three industrial customers were unreason-ably low. Subsoquently, a request for a $14.7 million rate increase was filed by Entorgy Louisiana. On July 13,1995, Entergy Louisiana was granted a preliminary injunction by the District Court enjoining
$14.7 million of the rate reduction pending a final decision on appeal, in an order issued on January 31,1996, the LPSC approved a settlement reducing the $14.7 milhon portion of the rate
- 40 41
f reduction to $12.30 milhon. Refunds issued pursuant to this settlement had the etfect of implement- ) ing the rate reduction effective April 27,1995, and were made in the months of January and February 1996. The ref unds and related interest resulting from the settlement amounted to $8.9 mil-lion. The District Court case discussed above was dismissed as part of the settlement. l On April 15,1996. Entergy Louis!ana made its first annual performance-based formula rate plan rding based on the 1995 test year. On June 19,1996, the LPSC approved a $12 million annual reduc-tion in base rates effoctive July 1,1996. This reduction was based upon the 1995 test year results under the formula rate plan and reflected the expiration of the Waterford 3 phase-in plan, which was partially offset by the recovery of the property taxes on Waterford 3 and the related deferral (see "Other" below). Subsequently, additionalissues were resolved by means of a settlement confer-ence, increasing the base rate reduction from $12 milhon to $16.5 million. Hearings have been con-ducted to review Entergy Louisiana's allowed return on equity and to address certain other disputed issues. T his may result in an additional rate reduction which would be prospective only. The LPSC's ruling is expected in the second quarter of 1997. LPSC Fuel Cosf Review-In November 1993, the LPSC ordered a review of Entergy Gulf States' fuel costs for the period October 1988 through September 1931 (Phase 1) based on the number of out-ages at River Bend and the findings in the June 1993 PUCT fuel reconcihation case. In July 1994, the LPSC ruled in the Phase 1 fuel review case and ordered Entergy Gulf States to refund approximately
$27.5 milhon to its customers. Under the of der, a refund of $13.1 milhon was made throu9h a billing credit on August 1994 bills. In August 1994, Entergy Gulf States appealed the remaining $14.4 mil-lion of the LPSC-ordered refund to the District Court and obtained an injunction with respect to that por tion of the ref und. On April 15,1996, the appropriate state District Court af firmed the LPSC deck sion. Entergy Gulf States appealed this decision to the Louisiana Supreme Court. In October 1996, Entergy Gulf States reached a settlement with the LPSC on one of the issues presented in this appeal, resulting in a refund to ratepayers of $5,7 milhon plus interest. See " October 1996 LPSC Settlement" below. In February 1997, the Louisiana Supreme Court rendered a decision on the remaining $8.7 million, af firmrng the LPSC's order insofar as it requires a refund of $8.2 million plus interest, which Entergy Gulf States will record in 1997, and reversing the LPSC's order insofar as it would have required an additional $.5 million refund.
In September 1996 the LPSC completed the second phase of its review of Entergy Gulf States' fuel costs, which covered the period October 1991 through December 1994 (Phase 11). On October 7,' 1996, the LPSC issued an order requinng a $34.2 million refund. The ordered refund includes a dis-allowance of $14.3 million of capital costs (including interesti related to certain gas transportation and storage facihties, which were recovered through the fuel clause, and which have been ref unded pursuant to the " October 7996 LPSC Settlement." Entergy Gulf States will be permitted to recover these costs in the future through base rates. On October 23,1996, Entergy Gulf States appealed and received an injunction to stay this order, except insofar as the order requires the $14.3 milhon refund See " October f 996 LPSC Settioment" below. October 1996 LPSC Settlement - in October 1996, Entergy Gulf States and the LPSC reached an agreement whereby Entergy Gu!f States agreer' to (i) refund certain capital costs related to gas transportation and storage facihties that were at issue in the Phase I and Phase 11 fuel cost reviews and (ii) refund similar costs recovered subsequent to the Phase il fuel cost review. This resulted in a total refund to customers of approximately $32.1 million, including interest. In the future. Entergy Gulf States will be permitted to recover through base rates the capital costs related to such gas transportation and storage facihties. As a part of the settlement, which covered post-Phase ll costs of such facilities in addition to the costs addressed by the LPSC's order for the second post Merger earnings analysis. Entergy Gulf States will be permitted to recover through base rates $1.3 million annually in add; tion to the $6.8 million annual recovery provided in the order for a total annual base rate recovery of $8.1 milhon. The settlement provides that this amount will be applied as an offset against whatever refund, if any may be required by a final judgment in Entergy Gulf States' appeal of the second post-Merger earnings review order. Other -in October 1996, Entergy Gulf States and Entergy Louisiana filed proposals with the LPSC designed to achieve an orderly transition to retail electric competition in Louisiana. while protecting certain classes of ratepayers from possibly unfairly bearing the burden of cost shif ting. The propos-als do not increase rates for any customer class. However, these proposals do provide for a univer-sal service charge for customers that remain connected to Entergy Gulf States' or Entergy Louisiana's electric facihties but choose to purchase their electricity from another source. In
addition, the proposals include a base rate freeze, which would be put into of fect for seven years in the Louisiana areas serviced by Entergy Gulf States and Entergy Louisiana. Although these propos-als allow for the complete recovery of the remaining plant investroent associated with River Bend, Waterford 3, and Entergy Louisiana's portion of Grand Gulf 1 (excluding the portion retained-see below) as of December 31,1996, over a seven year period, the NRC operating ticanses for these . plants permit continued operation until the years 2025,2024, and 2022, respectively. In February 1997, the LPSC identified certain issues embodied in the Entergy Gulf States and Entergy Louisiana proposals that will be included in thoso companies' annuahate filings expected to . be made on May 31,1997, and April 15,1997, respectively, and other issues that now will be included in an ongoing generic regulatory proceeding examining electric industry restructuring. The property tax exemption for Waterford 3 ended in December 1995 and Entergy Louisiana was required to pay $19.3 million in property taxes to St. Charles Parish for the 1996 tax year. In a March 1996 LPSC order. Entergy Louisiana was permitted to defer the rate recovery of these taes for the period January 1996 through June 1996. The order allowed for the recovery of the property tax beginning in July 1996, and also for the recovery, from July 1996 through June 1997, of the related deferral. In addition. Entergy Louisiana's phase-in plan for Waterford 3 will expire in June It' Entergy Louisiana is recovering deferred costs annually of approximately $28.4 million. Fihngs with the MPSC - On March 15,1996, Entergy Mississippi filed its annual earnings review with the MPSC under its formula rate plan for the 1995 test year. On April 18,1996, the MPSC issued an order approving and adopting a joint stipulation and placing the prospective rate reduction of W'M"FTCPP $5.9 million into ef fect on May 1,1996, h0'N8#8 W$ ~d Entergy Mississippi has initiated discussions with the MPSC regarding an orderly transition to a h h more competitive market for electricity. In August 1996, Entergy Mississippi filed a proposal with the Ge iN M MPSC for a rate rider to assure recovery of all Grand Gulf costs incurred to serve customers. The OY g} (( jygf 3 [ 88,98 rider would maintain current rates for electric service provided by Entergy Mississippi and would apply to customers within Entergy Mississippi's service area who obtain electricity in the future from h jh a source other than Entergy Mississippi. Entergy Mississippi designed this rider to assure that com-
$[d f Mh h
{h,y j mitments made under the current system of regulation are honored and that cost burdens are not unfairly transferred from departing customers to those who remain on the Entergy Mississippi sys. f/k gQga tem. On August 22,1996, the MPSC remanded this proposal and established a generic docket to d 2 consider competition for retail electric service.
~ a 9]J m (! Jf p@f k .0J ) %+f Fihngs wrth the Council- Pursuant to the 1991 NOPSI settlement Entergy New Orleans is required to d j make earnings filings with the Council for the 1995 and 1996 rato years. A review of Entergy New bdDN2bd Orleans' earnings for the test year ending September 30,1995, requtred Entergy New Orleans to '
credit customers $6.2 million over a 12-month period which began in March 1996. On October 31,1996, Entergy New Orleans filed with the Council an analysis of its earnings for the test year onded September 30,1996. Based upon this earnings review, the Council ordered a refund of $18.4 million which is being credited to customers over a 12-month period which began in i February 1997. On December 19,1996, the Council ordered an increase in Entergy New Orleans' franchise fee l from 2.5% to 5% of gross revenues. The increaso in the 1997 franchise fee is estimated to be
$12 million. The franchise fee is collected by Entergy New Orleans as a separate line item on cus-tomer bills and is not a component of base rates.
In January 1997, Entergy New Orleans unilaterally proposed to the Council to reduce rates by annual amounts of $15 milhon. This of fer was accepted by the Council and, effective February 1, 1997, Entergy New Orleans implemented this base rate reduction. The Council issued a resolution in Februn y 1997 ind:cating that it will conduct an investigation cl the justness and reasonableness of Entergy New Orleans' allowed rate of return, base rates, and adjustment clauses. The Council contemplates a bifurcated review and has established heariny, , , dates in Apnl 1997 on the issue of rate of return. The Council also directed Entergy New Orleans to make a cost of service and revenue requirement filing on May 1,1997. A procedura! schedule has j not been set with respect to these other issues. ' Pursuant to a settlement reached in February 1997 with the Council as to Entergy New Orleans' deferred integrated resource planning expenses, the Council has conditionally allowed Entergy New Orleans to begin recovering $5 million, subject to a hearing to determine the prudence of - such expenses. Entergy New Orloans has agreed not to seek recovery of the remaining $6.8 million of expensesincurred. Deregulated Asset Plan A deregulated asset plan representing an unregulated portion (approximately 25%) of River Bond (plant costs, generation, revenues, and expenses) was established pursuant to a January 1992 42 l 43 k
7 LPSC order. The plan a! lows Entergy Gulf States to sell such generation to Louisiana retail cus-tomers at 4.6 cents per kWh or of f-system at higher prices, with certain provisions for sharing such incremental revenue above 4.6 cents per kWh between ratepayers and shareholders, River Bend Cost Deferrals Entergy Gutf States deferred approximately $369 milhon of River Bend operating and purchased l power costs, depreciation, and accrued carrying charges, pursuant to a 1986 PUCT accounting order. Approximately $182 milhon of these costs are being amortized over a 20-year period, and the remaining $187 mil l ion was wntten of f in the first quarter of 1996 in accordance with SFAS 121, as discussed above. As of December 31,1996, the unamortized balance of the remaining costs was
$117 million. Entergy Gulf States deferred approximately $400.4 million of similar costs pursuant to a 1986 LPSC accounting order, of which approximately $40 million was unamortized as of December 31,1996, and is being amortized over a 10-year period ending in February 1998.
In accordance with a phase-in plan approved by the LPSC, Entergy Gulf States deferred
$294 million of its River Bend costs related to the period February 1988 through February 1991.
Entergy Gulf States has amortized $225 melhon through December 31,1996. The remainder of
$69 million win be recovered in 1997 and early 1998.
Grand Gulf 1 and Waterford 3 Deferrals Under the settlement agreement entered into with the APSC in 1985 and amended in 1988, Entergy Arkansas agreed to retain a portion of its Grand Gulf I-related costs, recover a portion of such costs currently, and defer a portion of such costs for future recovery. In 1996 and subsequent years. Entergy Arkansas retains 22% of its 36% interest in Grand Gulf I costs and recovers the remaining 78%. The deferrals ceased in 1990, and Entergy Arkansas is recovering a portion of the previously deferred costs each year through 1998. As of December 31,1996, the balance of deferred costs was $228 million. Entergy Arkansas is permitted to recover on a current basis the incremental costs of financing the unrecovered deferrals. In the event Entergy Arkansas is not able to sellits retained ! share to third parties, it may sell such energy to its retail customers at a pnce equal to its avoided onergy cost, which is currently less than Entergy Arkansas' cost of energy from its retained share. in a series of LPSC orders, court decisions, and agreements from late 1985 to mid-1988, Entergy Louisiana was granted rate relief with respect to costs associated with Waterford 3 and Entergy Louisiana's share of capacity and energy from Grand Gulf 1, subject to certain terms and conditions. With respect to Wa:erford 3, Entergy Louisiana was granted an increase aggregating $170.9 million i over the period 1985-1988, and agreed to permanently absorb, and not recover from retail rate-payers, $284 million of its invustment in the unit and to defer $266 million of its costs related to the years 1985-1988 to be recovered from Apol 1988 through June 1997. With respect to Grand Gulf 1, in November 1988, Entergy Louisiana agreed to retain and not recover from retail ratepayers,18% of its 14% share (approximately 2.52%) of the costs of Grand Gulf 1 capacity and energy. Entergy Louisiana is allowed to recover through the fuel adjustment clause 4 6 cents per kWh for the energy related to its retained portion of these costs. Alternatively Entergy Louisiana may sell such energy to nonaffiliated parties at pnces above the fuel adjustment clause recovery amount, subject to the LPSC's approval. Entergy Mississtppi entered into a plan with the MPSC that provides, among other things, for the recovery by Entergy Mississippi, in equal annual installments over 10 years beginning October 1, 1988, of all Grand Gulf 1-related costs deferred through September 30,1988, pursuant to a final order by the MPSC. Additionally, the plan provides that Entergy Mississippi defer, in decreasing
;nts, a portion of its Grand Gulf 1-related costs over four years beginning October 1,1988.
nese deferrals are being recovered by Entergy Mississippi over a six-year period beginning in Octnber 1992 and end:ng in September 1998. As of De cember 31,1996, the unconected balance of Entergy Mississippi's deferred costs was approumateiy 5247 milhon. The plan also a!)ows for the current recovery of carrying charges on all deferred amounts. Under Entergy New Orleans' various rate settlements with the Council in 1986,1988, and 1991, Entergy New Orleans agreed to absorb and not recover from ratopayers a total of $96.2 million of its Grand Gult 1 costs. Entergy New Orleans was permitted to implement annual rate increases in decreasing amounts each year through 1995, and to defer certain costs and related carrying cha rges for recovery on a schedule extending from 1991 through 2001. As of December 31,1996, the uncollected balance o Entergy New Orleans' deferred costs was $136 milhon. February 1994 ke 3torm/ Rate Rider A February 1994 ice storm lef t more than 80,000 Entergy Miss;ssipoi customers without electric power across the service area. Damage to transmission and distnbution lines, equipment, poles, and facilities totnied approximately $77 2 milion, l with $64.6 milhon of these amounts capitahzed as olant related costs. The remaining balances were recorded as a deferred deb!t.
1 1 Subsequent to a request by Entergy Mississippi for rate recovery, the MPSC approved a stipulation in I September 1994 with respect to the recovery of ice storm costs recorded through Apol 30,1994. Under l the stipulaton, Entergy Mssissippi implemented an ice storm rate nder, which increased rates approxi- ! rnately $8 milhon for a penod of five years beginning on Septembe' 29,1994. At the end of the five-year l penod. the revenue requirement associated with the undepreciated ice storm capitahzed costs will be .< included in Entergy Mosiss:ppi's base rates to the extent that this revenue requirement does not result in Entergy Mississippi's rate of return on rate base being above the benchrnark rate oficturn under Entergy Mississippi's formula rate plan. The MPSC approved a second stipulation in Ceptember 1995 which , allows for a $2.5 million rce increase for a period of four years beginning September 28,1995, to recover costs related to the ice storm that were recorded af ter April 30,1994. The stipulation also allows for unde-preciated ice storm capital costs recorded af ter Apnl 30,1994, to be treated as described above. Proposed Rate Increase l System Energy filed an application with FERC on May 12,1995, for a $65.5 million rate increase. The request seeks changes to System Energy's rate schedule, including increases in the revenue require- ! ment associated with decommissioning costs, the depreciation rate, and the rate of return on common saulty. The request also includes a proposed change in the accounting recogn: tion of nuclear refueling ! Outage costs from that of expensing those costs as incurred to the deferral and amortization method descnbed in Note 1 with respect to Entergy Arkansas. On December 12,1995, System Energy imple-mented a $65.5 million rate increase, subject to refund. Management has decided to record a reserve for a portion of the rate increase. Heanngs on System Energy's request began in January 1996 and P &"~ P M W y were completed in February 1996. On July 11,1996, the ALJ issued an initial decision in this proceed-
' CendruoDon W ina that agreed with certain of System Energy's proposals, including the change in accounting for Y nuclear refuehng outage costs, while rejecting a proposed increase in return on common equity and 5
recorrmending a shght decrease. I he ALJ also rejected the proposed change in the decommissioning cost rnethodology. The decision of the ALJ is prehminary and may be modified in the final dec!sion f rom l M [ 0998 h C{ 0 - ~ q] FERC which is expected in early 1997, Management is unable to predict the final outcome of the rate increase request or the amount of any refunds in excess of reserves that may be required. Q q Md d 3 [' 4 p hi Entergy Mississippis allocation of the proposed System Energy wholesale rate increase is $21.6 M mdhon. In July 1995, Entergy Mississippi filed a schedule with the MPSC that wdl defer the ultimate h j amount of the System Energy rate increase The deferral plan, which was approved by the MPSC, [@ Nq !j% Q N began in December 1995, the effective date of the System Energy rate increase, and will end af ter the p ,3 issuance of a final order by FERC. The deferred rate increase is to be amortized over 48 months kj d hh #M 2 hh beginning October 1998. Entergy New Orleans' allocation of the proposed System Energy wholesale rate increase is
$9 6 milhon. In February 1996, Entergy New Orieans fded a plan with the City of New Orleans, Louisiana, to defer 50% of the amount of the System Energy rate increase. The deferral began in February 1996 and wdl end af ter the issuance of a final order by FERC.
FERC Settlement in November 1994, FERC approved an agreement setthog a long-standing dispute involving income tax allocation procedures of System Energy. In accordance with the agrooment, System Energy refiried approximate,y $611 mdhon to Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, ort 'ergy New Orleans, each of which in turn has made refunds or credits to its customers (except for . 3e portions attnbutable to Entergy Arkansas' and Entergy Louisiana's retained share of Grand Gulf 1 costs). Additionally, System Energv wdi refund a total of approximately $62 milhon, plus interest, to Entergy Arkansas. Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans over the period through Junc 20% The settlement also required the wnte-of f of certain related unamortized , balances of deferred investment tax credits by Entergy Arkansas Entergy Louisiana Entergy Mississippi, and Entergy New Orleans. The settlement reduced Entergy Corporation's consolidated not income for the yea' ended December 31,1994, by approximately 568 2 makon, of tset by the write- , of f of the unamortszed balances of related deferred investment tax cred:ts of approximately $69 4 mil-kon ($2.9 million for Entergy Corporation; $2T3 milhon for Entergy Arkansas, $31.5 milhon for Entergy Louisiana; $6 milhon for Entergy M:ssissippi; and $1.7 mahon for Entergy New Orleans). System Energy also reclassified from utikty plant to other deferred debits approximately $81 mdhon of other Grand Gulf 1 costs. Although such costs are excluded f rom rate base, System Energy is recovenng them over a 10-year penod Interest on the $62 mdhon refund and the loss of the return on the $81 mil-hon of other Grand Gulf I costs wiu reduce Entergy's and System Energy's net income by approxi-mately $10 miilton annually over the next eight years. 44 j45 m
Note 3. Income Taxes
- Entergy's income tax expense for 1996,1995, and 1994 consists of the following:
Iri thousatw)8 for thjears ervjed Deceirntwer 31. ' 1996 1995 1994 Current: Federal $272,036 $306,910 $227,046 ; State 7_2,204 60,278 50,300 ; lotal 344,240 367,188 277,346 Deferred net 100,572 13,333 (54,429) Investment tax credit adjustments-net (23,653) (21,478) (24,739) Investment tax credit amortization-FERC Settlement - - j6, 6,454) e' corded income tax expense $421,159 $359,043 $131.724 l i Charged t.o curnulative ef fect _ ____ $- - _$ 22,861 $ - t Entergy's total income taxes dif fer from the amounts computed by applying the statutory federal l income tax rate to income before taxes. The reasons for the dif ferences for the years 1996,1995, and 1994 are: ! Dollars n *twxmands for the years ervMd December 31, 1996 toes tee 4 i Computed at statutory rate (35%) $319,103 $334,944 $194,448 i Increases (reductions)in tax resulting from: State income taxes net of federat income tax effect 54,801 42,599 13,766 l Depreciation 15,829 1,670 9,995 Rate deforrafs net 1,973 1,699 1,435 Amortization o! investment tax credits (20,349) (20,549) (27,337)' Flow-through/ permanent dif forences 1,059 - - 1 investment tax credit amortization-FERC Settlement - - (66.454) SFAS 121 wnte-of f 48,265 - - Adjustment of prior year taxes - - 9,425 Other-net 478 (1,320) (3,554)
$_42_1,1._5_9 $3_59,043 $131,724
~_ Total _in.c._ome._ta.x_e_s Effective income Tax Rate 46.2 % 37.5 % 23.7 %
Signifcant components of Entergy's net deferred tax liabihties as of December 31,1996, and 1995, are as follows: i9.. te s gnouonas Deferred Tax Liabilities: Net regulatory liabilities $(1,406,921) $(1,494,000) Plant-related basis dif ferences (2,986,993) (3,071,519) Rate deferrals (322,530) (467,691) Other (143,792) (117,510)
.T_otal _ __ _ _ _ _ _ _ _ _ _ _ _ _ _$_(4,860,236) _$15,150,720)
Deferred Tax Assets: Accumulated deferred investment tax credit 210,879 214,505 Investment tax credit carryforwards 138,779- 167,713 Valuation a!!owance - (44,597) NOL earryforwards 24,990 151,141 Afternative minimum tax credit 40,658 130,760 Sale and leaseback 233,823 225,620 3 Removalcost - 102.268 97,184
- Unbilled revenues 37,692 42,923 Pension-related items ' 30,869 21,003 Rate refund 25,409 -
Operating provisions - 6,795 Provision-FASB 5 contingencies - 7.250 FERC Settlement 19,079 19,978 Other 147,020 259,954 Total $ 1,011,466 $ 1.300,229 i._ . Net _ deferred ta.x l[ ability __ $(3M8,770) $(3,850.491)
As of December 31,1996 Entergy has investment tax credit (lTC) carryforwards of $138.8 million, federal net operating loss (NOL) carryforwards of $50.8 million and state NOL carryforwards of
$105.2 milhon, all related to Entergy Gulf States operations. The ITC carryforwards include the 35%
reduction required by the Tax Reform Act of 1986 and raay be appked solely against the federal income tax liabihty of Entergy Gulf States and, if not utilized, will expire between 1997 and 2002. As of ,. December 31,1995, the projected amount of ITC carryforwards which would expire unutilized was estimated to be $44.6 million, which was based upon projections of estimated taxable income of Entergy Gulf States and, accordingly, a valuation reserve was recorded for this amount, As of , December 31,1996, management estimated that none of the remaining ITC carryforwr rds would expire unutihzed and the valuation reserve was ehminated. The alternative minimum tax (AUT) credit carrytorwards as of December 31,1996, were $40.7 million - all related to Entergy Gulf Stater oper-Nuclear Plants Show tions. This AMT credit can be carried forward indefinitely and may be apphed solely against Me fed-Steady improvement Entergy's four domestic maWome tax haw o4nWg@mam In accordance with the System Energy FERC Settlement, the domestic utihty companies wrote utikty nuclear plants - Arkansas Nuclear One, 6.6 milkon of unamortized deferred investment tax credits in 1994. Umts " & 2, Grand Gulf, in August 1994, Entergy received an Internal Revenue Service (IRS) report covering the federal Waterford 3, and River income tax audit of Entergy Corporation and subsidiaries for the years 1988-1990. The report asserted an $80 mdlion tax deficiency for the 1990 tax return related primarily to the utilization of Bend - have a accelerated investment tax credits associated with the Waterford 3 and Grand Gulf nuclear plants. combined capacity of Changes to the initial report, made in the IRS Appeal process, have reduced the assessment related 4,884 me0awatts. to the issue by $22 milhon to $58 milhon. Entergy Corporation and the Appeals Of ficer agreed to pur-Combined performance sue a " Technical Advice" ruhng from the IRS national of fice to address the remaindcr of the issue. of these plants (averaged Entergy Corporation beheves there is no material tax deficiency and is confident that a satisfactory over three, three-year resolution of the matter will be achieved, periods) shows steady improvement. as 'ho Note 4. Lines Of Credit And Related Short-Term Borrowings charts on this page and in November 1996, SEC authorization was received by Entergy Arkansas Entergy Gulf States, page 48 indicate. Entergy Louisiana, Entergy Mississippi. Entergy New Or'eans, and System Energy increasing short-term borrowing limits to $235 milhon, $340 milkon, $225 milhon, $103 million, $35 million, and pwemmm CapesNyFender Q, g $140 milhon, respectively (for a total of $1.078 bilhon). These authorizations are effective through L j November 30, 2001. Of these companies, Entergy Louisiana and Entergy Mississippi had borrow-3 ings outstanding as of December 31,1996. Entergy Louisiana and Entergy Mississippi had I h ,, jj' j j M,3 $31.1 mdlion and $50.3 mdlion, respectively, of borrowings outstanding under the money pool, an p ,te g.e$ j , intra-System borrowing arrangement designed to reduce the domestic utikty companies' depen-j q g h%] dence on external short-term borrowings. Entergy Arkansas. Entergy Louisiana, and Entergy j
,hj $ Mississippi had undrawn hnes of credit as of December 31,1996, of $25 mdlion, $64.2 million, and gg [h S K,y $30 million, respectively ;
e in July 1995. Entergy Corporation received SEC authorization for a $300 million bank credit facil- ) { ]9 d L @d ity. Thereaf ter, a three-year credit agreement was signed with a group of banks in October 1995 to I p- ] fi provide up to $300 mdkon of loans to Entergy Corporation. $230 million was drawn on this facihty for l the acquisition of CitiPower in January 1996 and was subsequently repaid thruughout the course of
~~
qq j the year. See Note 13 for a discussion of the acquisition. As of December 31,1996, no amounts
' ' gg g hmume.~"j were outstanding against the facihty. In January 1997, Entergy Corporation filed an amendment with d
the SEC to increase the authonzation from $300 mdhon to $500 mdhon. Capacity factor compares On September 13,1996, Entergy Corporation and Entergy Technology Holding Company (ETHC) the plants' actual power obtained a three-year $100 milhon bank kne of cred,t that may be increased up to $300 milhon and output with their maximum can be drawn by either Entergy Corporation or ETHC (with a guarantee from Entergy Corporation). potential. The higher the The proceeds are to be used exclusively for exempt telecommunications investments. As of percentage, the better. December 31,1996, $20 milhon borro.ved by Entergy Corporation was outstanding on this facihty. Other Entergy companies have SEC authorization to borrow through the money pool, from Entergy Corporation, and from commercial banks in the aggregate principal amounts up to ,
$265 milhon, of which $88.4 mdhon was outstanding as of December 31,1996. Some of these bor-rowings ar e restricted as to use, and a e secured by certain assets.
In total Entergy had short-term cim'nitments in the amount of $607.6 million as of December 31, 1996, of which $575.2 mdkon was unused. The weighteduerage interest rate on the outstanding borrowings as of December 31,1996, and December 31,1995, was 6.10% and 6.35% respectively. Commitment fees on the lines of credit for Entergy Arkansas Entergy Louisiana, and Entergy Mississippi are 0.125% of the undrawn amounts. The commitment fees for Entergy Corporatiods
$300 mdhon credit facihty and ETHC's $100 mdlion credit facihty are currently 0.17% but can fluctuate depending on the senior debt ratings of the domestic utility companics. See Note 7 for a discussion of commitments for long-term financing arrangements.
46 l 47
.)
i
. Note 1 Preferred, Preference, And Common Stock The number of shares, authorized and outstanding, and dollar value of the domestic utility com- ,
panies' preferred and preference stock as of December 31,1996, and 1995 were: shore. aven rts.4 votas can prie. Per snar.
- mad outst=% D.19e Va!ut_, _pp1Dember Sh Douar8 'a "m8nd*>5_o.' D**mt*g.. woe iges s o_ps too. 19s9 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-$108.00 6.08%-8,56% Series 2,162,829 2,262,829 216,283 226,283 $101.80-$103.78 9.16%-9.96% Series 425,000 425,000 42,500 42,500 $102.64-$104.06 Cumulative $25 par value: 8.00 9.68% Series 1,480,000 3.880,000 37,000 97,000 - Cumulative, $0.01 par value:
$2.40 Series W - 2,000,000 - 50,000 -
$1.96 Serles WW 600,000 600,000 15,000 15,000 -
Totalwithout sinking fund 5.869,544 10,369,544 $430,955 $550,955 With sinking fund: Cumulative, $100 par value: 7.00W12.00% Series 1,544,595 1,759,738 $154,459 $175,974 $100.00-$104.26 Adjustable,7.39% W 180,000 192,000 18,000 19,200 $t00.00 Adjustable,7,44% M 270,000 292,500 27,000 29,250 $100.00 Cumulative, $25 par value: ; 9.92%-12.64% Series 701,085 1,161,455 17,527 29.036 $26.32 _ Tota _l wjth_sjnking fund 2,695,680 3,405.693 $216,986 $253,460 _ l Fair Value of Preferred Stock and Preference Stock with sinking fund m- - . . _ _ - .
$357,135 $390,738 W The btal donar value represents the inwfuntary rqwdation value of $25 per share.
(b) these senes are not redecenable as of December 31,1996. ) f M Represents weighted aerage annualized rules Ice 1996 ! id) Fair veces were determined ussng bed prres reported by dealer marmets arvj by natiorially recognized inwstment banking Arms See No'e 1 for ed&honal disclocure of ' air value of enanciahnstraments Changes in the preferred stock, with and without sinking fund, preference stock, and common stock of Entergy Arkansas, Entergy Gulf States. Entergy Louisiana, Entergy Mississippi, and ; Entergy New Orleans during the last three years were: , Numterp[Sh w a 19?e 1995 1993 Preferred stock retirements
$100 parvalue (349,643) (282,329) (270,667) ;
$25 par value (2,860,370) (730,211) (881,537) ,
$0.01 par value (2,000,000) - -
Cash sinking f und requirements and mandatory redemptions for the nex t five years for preferred i and preference stock, outstanding as of December 31,1996, are (in millions): 1997-$21.2, l 1998-$14.2,1999-$60.5, 2000-$160.5, and 2001-$45.5. Entergy Arkansas, Entergy Gulf States. Entergy Louisiana. and Entergy Mississippi have the annual noncumulative option to redeem, at par, additional amounts of certain series of their outstanding preferred stock.
. Entergy Corporation repurchased and retired (returned to authorized but unissued status) 1,230.000 shares of common stock at a cost of $30.7 million in 1994. There were no stock repur- [
chases in 1995 or 1996. Entergy Corporation from time to time reissues treasury shares to meet the requirements of the Stock Plan for Outside Directors (Directors' Plan), the Equity Ownership Plan of Entergy i Corporation and Subsidiaries (Equity Plan), and certain other stock benefit plans. Entergy - i Corporation repurchased in the market 2,805,000 shares of its common stock in 1994 at a cost of 7
$88.8 million. The Directors' Plan awards nonemployee directors a portion of their compensation in !
the form of a fixed number of shares of Entergy Corporation common stock. Shares awarded under f the Directors' Plan were 6,750, 9.251, and 18,757 during 1996,1995 and 1994,respectively. i f
During 1996, Entergy Corporation issued 755,200 shares of its previously repurchased common stock, reducing the amount held as treasury stock by $22.2 milhon. Entergy Corporation issued these shares to meet the requirements of its vanous stock plans. In addition, Entergy Corporation received proceeds of $118 million from the issuance of 4,438,972 shares of common stock under its new dividood reinvestment and stock purchase plan during 1996. . The Equity Plan grants stock options. equity awards, and incentive awards to key employees of the domestic utility companies. The costs of awards are charged to income over the period of the grant or restricted period, as appropriate.1996 amounts charged to compensation expense were , immaterial. Stock opt ons, which comprise 50% of the shares targeted for distribution under the Equity Ownership Plan, are granted at exercise prices not less than market value on the date of grant. The options are generally exercisable no less than six months nor more than 10 years af ter the date of grant. Entergy sponsors the Employee Stock Ownership Plan of Entergy Corporation and Subsidiaries Nuclear Plants Show (ESOP) and the Savings Plan of Entergy Corporation and Subsidiaries (Savings Plan). Both plans are Steady improvement defined contribution plans covering eligible employees of Entergy and its subsidiaries who have Armmmwg completed certain service requirements. Entergy's subsidiaries' contributions to the ESOP and the Savings Plan, and any income thereon, are invested in shares of Gntergy Corporation common stock. T he allowed contnbutions to the ESOP are accrued based on the expected utilization of addi-j tional investment tax credits in the applicable federal income tax return of Entergy and its sub-
'h sidianes, and on expected voluntary participant contnbutions. Entergy's subsidiaries contributed
$22.8 milhon to the ESOP for the year ended December 31,1995. There were no contributions in
$jf the years ended December 31,1996, and 1994.
f \$g The Savings Plan provides that the employing Entergy subsidiary may make matching contribu-M tions to the plan in an amount equal to 50% of the participant's basic contribution. In 1996,1995, a j and 1994, Entergy's subsidianes contributed $13.2 million, $13.2 milhon, and $11,7 million, respec- [,q tively. to the Entergy Savings Plan. g i h Entergy Gulf States sponers the Gulf States Utilities Company Employee Stock Ownership Plan s h Y (GSU ESOP) and the Gulf States Utikties Cornpany Employees' Thrift Plan (GSU Thrif t Plan), which
'*'y) %
are both defined contnbution plans. The GSU ESOP is available to all Entergy Gulf States employ-ees, pre-Merger Entergy Gulf States employees, and post Merger employees of Entergy Operations, whose primary work location is River Bend, upon completion of certain eligibihty Production and new capital requirements. All contributions to the pian are invested in shares of Entergy Corporation common costs are measured in stock. Entergy Gulf States makes contribut:ons to the GSU ESOP based on expected utilization of mills per kilowatt-hour. additionalinvestment tax credits in the Entergy Gulf States federal tax return and on expected par. Lower numbers indicate ticipants' contributions. No additional contributions were made to the GSU ESOP during 1996, lower costs. 1995, and 1994. The GSU Thrif t Plan is available to certain Entergy Operations employees whose primary work location is River Bend. Entergy Gulf States makes matching contributions to the GSU j Thnf t Plan equal to 50 percent of a participant's basic contribution which may be invested, at the
~
,7 gMgp #
participant's discretion, in shares of Entergy Corporation common stock. Entergy Gulf States' con-1 tnbutions to the GSU Thnft Plan for the years ended December 31,1996,1995, and 1994 were g $.3 milhon, $1.1 milkon, and $3.9 milhon, respectively. p gp Entergy applies Accounting Principles Board Opinion 25, " Accounting for Stock issued to
? j m p +
Employees,' and related interpretations in accounting for stock options. Accordingly, no compensa-yy tion cost is required to be recognized for the stock options described above until such options are
@ h
$ Q ll exercised since the exercise priues are not less than rnarket value on the date of grant. The impact j) on Entergy's net income and earnings per shart would ' m e been immaterial had compensation g*
Q U Q h( g Q, cost for the stock options been determineo odsd on .s fair value at the grant dates for awards under the option plans consistent with the method prescribed by SFAS 123. { I h hy 'gj In applying the disclosure provisions of SFAS 123, the fair value of each option grant is estimated *
$ on the date of grant using the Black-Scholes option-pricing model with expected stock price volatility !
of 18%, 24% and 19% in 1996,1995, and 1994, respectively, and additional assumptions for each , j of those years as follows: risk-free interest rates of 6%, expected lives of 10 years, and dividends of
$1.80 per share.
l w.nm.o w. in this safety and i regulatory rating by the ; Nuclear Regulatory Commission, known as Systematic Assessment of Ucensoe Performance, t better performanceis ' indcated by a lower score. - ll
Nonstatutory stock option transactions are summarized as follows: 1996 1995 1994 Nurnt er Average Number Average humber Average of Options Optlen Price of Options Opteen Price of Options Option Price Beginning of-year balance 457,909 $25.98 170,409 $34.86 102,909 $33.46 Options granted 82,500 - 29.38 315.000 21.39 67,500 37.00 Options exercised . (7,500) 23.38 (12,500) 23.38 - - Options expjred unused (5,000) 35.88 (15.000) 32.75 - - 527,009 $26.45 457,909 $25.98 170,409 $34.86 End;of; year balance _ . _ _ _ _ _ _ _ _ _ _ _ Options exercisable at i year-end 277,909 207,909 170,409 l Weighted-average fair value of options granted $2.67 $5.48 $2/5 The following table summanzes information about stock optons outstanding as of December 31,1996: Options outstandaag Options Esercleable Weighted. Average Remain 6ng Weeghted-Average Weighted. Average Range of As of Centractual Esercise As of E sercise l Esercise Pqes. -1,2G y96 _ p e. Years PrJee 12/31/96 Price - )
$20-$30 404,302 8.2 $23.51 154,302 $27,77
$30-$40. 123.607 6.6 $36.09 123,607 $36.09 To meet the requirements of the Employee Stock Investment Plan (ESIP), Entergy Corporation is j authorized to issue or acquire, through March 31,1997, up to 2,000,000 shares of its common stock j to be held as treasury shares. Under the ESIP, employees may be granted the opportunity to pur.
]
chase (for up to 10% of their regular annual salary, but not more than $25.000) common stock at ; 85% of the market value on the first or last business day of the plan year, whichever is lower. Through this program, empk)yees purchased 247,122 and 329.863 shares for the 1995 and 1994 plan years, respectively. The 1996 plan year runs from April 1,1996, to March 31,1997. In February 1997, Entergy received authority from the SEC to extend the ESIP for an additional period of three years ending on March 31,2000. Under the extended plan, Entergy Corporation may issue either treasury shares or previously authorized but unissued shares. Note 6, Company-Obligated Mandatorily Redeemable Preferred Securities Entergy Arkansas Capital I, Entergy Gulf States Capital I, and Entergy Louisiana Capital I (Trusts) were estabhshed as financing subsidiaries of Entergy Arkansas. Entergy Gulf States, and Entergy Louisiana, respectively. for the purpose of issuing common and preferred securities. The issuance dates, pnncipal amounts, maturity dates, and interest rates associated with the Trusts' issuances of Cumulative Ouarterly income Preferrod Secunties (Preferred Securities) are shown below: Trust losuance date Principal M a,turit y interesNte Entergy Arkansas Capitall August 14,1996 $60 million September 30,2045 8.50 % Entergy Gulf States Capitali January 28,1997 $85 million March 31,2046 8.75 % Entergy Louisiana Capital 1 July 16,1996 $70 milhon September 30,2045 9.00 %
- $1.9 million. $2.6 mithon, and $2.2 million of common secunties were issued to Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana from their respective Trusts. The Trusts used the proceeds from the sale of their respective Preferred Securities and common securities to purchase from Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana junior subordinated deferrable iriterest debentures (Debentures)in amounts equal to the sum of the proceeds of the Preferred Securities and common secunties. The Debentures held by the Trusts are their only assets and the Trusts will use interest payments received on the Debentures to make cash distributions on the Preferred Secunties.
The Preferred Securities of the Trusts are redeemable at the option of Entergy Arkansas and Entergy Louisiana beginning in 2001, and in 2002 for Entergy Gulf States, at 100% of their principal amounts, or earher under certain limited circumstances, including the loss of the tax deduction aris. ing out of the interest paid on the Debentures. Entergy Arkansas, Entergy Gulf States. and Entergy Louisiana have, pursuant to certain agreements taken together, fully and unconditionatly guaran-teed payment of distributions on the respective Preferred Securities. Entergy Arkansas, Entergy Gulf Statea and Entergy Louisiana are the owners of all of the common secunties of their respective Trusts, which constitute 3% of the Trust's total capital.
r Note 7. Long-Term Debt The long-term debt of Entergy Corporation's subsidiaries as of December 31,1996, was: in inru. anno m.torm.. s.t.r..tn.t.. Frene To From To 1996 . First Mortgage Bonds 1997 1999 5.375 % 11.375 % $687,000 2000 2004 6.000 % 8.250 % 1,355,270 ,
-2005 2009 6.650 % 7.500 % 325,000 2010 2019 9.750 % 75,000 2020 2026 7,000% 10.000% 1,031,648 General and Refunding Bonds 1997- 1999 6.950 % 11.2 % 96,000 2000 2023 6.625% 8.800 % 525,000 Governmental Obligations tal 1997 2008 5.900 % 10.000 % 108,267 2009 2026 5.950 % 9.875 % 1,551,235 Debentures 1997 2000 7.380 % 9.720 % 175,000 Long-Term DOE Obligation (Note 9) 117,270 Waterford 3 Lease Obligation 8.76% (Note 10) 353,600 Grand Gulf Lease Obligation 7.02% (Note 10) 496,480
; "- 33 Line of Cred:t, variable rate, due 1998 65,000
,.-? CitPower Credit Line, avg. rate 8.31% due 2000 921,553
?. .,
Other Long Term Debt 83,411
. .. g
.x . ! :.1 ;. 7R Unamortized Premium and Discount. Net J30,310)
;.1 1.t o f . ; Total Long-Term Debt 7,936,424
".cf j . e 345,620
[.((l t/: 3. f.-l P ,
- .) Less Amount Due Within One Year Long-Terrn Debt Excluding Amount Due Within One Year $7,590,804
- ; ..t =1 t.lf., m 7. . J nm s ff , i . . .. . . L 4 Fair Value of Long-Term Debt (b)
' ~ ~ ~ = ~ ' ~ = = ~ ' ~
$7,087,027 q./,g( ~ ;; ; . ;; J
(~ [y u . c. . . ..h,$j ... q The long-term debt of Entergy Corporation's subsidiaries as of December 31,1995, was:
;7.h4 's 5 Mi . h in tNwaands
..~ Maturities interest Rates k[v/l. 4 - [, From To From to 1996 ll.hE , ) . .f. , ;j.
Eirst Mortgage Bonds
% a /4- r 4 u.M 4! 1996 1999 5% 10.5% $1,064,410 Total off. system wholesale 2000 2004 6% 9.75 % 1,282,320 electricity sales increased 2005 2009 6.25 % 11.375 % 355.319 dramatically in 1996 through 2010 2014 11.375 % 50,000 the offorts of Entergy Power 2015 2019 9.75 % 11,375 % 95,000 Marketing Corporation. 2020 2024 7% 10.375% 1,008,818 General and Refunding Bonds 1996 1999 6.95 % 11.2 % 152,000 2000 2023 6.625 % 8.8% 485,000 Governmental Obligations tal 1996 1998 59% 10% 110,868 2009 2023 5.95 % 12.50 % 1,551,235 Debentures
- 1996 1998 9.72 % 150,000-2000 7.38 % 30,000 Long-Term DOE Obligation (Note 9) 111,536 Waterford 3 Laase Obligation 8.76% (Note 10) 353,600 Grand Gulf Lease Obhgation 7.02% (Note 10) 500,000 Line of Credit, variable rate, due 1998 65,000 Other Long-Term Debt 9,156 Unamortized Premium and Discount-Net (38,488)
Total Long-Term Debt 7,335,774 Less Amount Due Within One Year 558,650 gTer_m Debt Excluding _ Amount Due Within.One_ Year . _
$6,777,124 girgalue ofgTerm Dpt M
$6,666 420
#c - , - - .e, own.,e.eco,.d - ,e.t e ,%a -
M rhe fikt value excludes lease 00hgatons, long term united states Dep0rtnwrd of Encegy obigatons and other !ary term Oect and hCludes debt due mtNn one year It 16 desterfwed ussng tud prices reported ty deslur man kats and ty natonany recogrund rivest-
For the years 1997,1998, t 999, 2000, and 2001, Entergy Corporation's subsidiaries have long-term debt matunties (excluding lease obligations) and annual cash sinking fund requirements for debt outstanding as of December 31,1996 totaling (in millions) $345.6, $311.7, $233.2, $1,098.9, and $279.2, respectively. In addition, other sinking fund requirements will be satisfied by cash or by e certification of property additions at the rate of 167% of such requirements. The amounts associ-ated with this provision total approximately $17.5 million for each of the years 1997-2001. An Entergy subsdary signed an agreement with several banks on January 5,1996, to obtain a e revolving credit facihtv in the aggregate amount of 1.2 bilhon Australian dollars (870 million US dol-lars) for the acquisiticq of CitiPower. The facihty was partially drawn down on the same date, bears interest at an averag4 annual rate of 8.046% and is non-recourse to Entergy. This facility is collater-alized by all of CitiPower's assets. Borrowings have maturities of 30 to 180 days, and are continu-ously renewable for 30 to 180 day periods at the subsidiary's option until the facihty matures on June 30,2000, unless certain events occur which would cause the maturity date to be extended to a date no iater than December 31,2000. The subsidiary intends to renew obligations incurred under the agieement for a penod extending beyond one year from the balance-sheet date. As part of the CitiPower acquisition, Entergy Corporation provided credit support, in the form of a bank letter of cred1: and other agreements, totaling approximately $70 milhon, which was subsequently released in January 1997 The subsidiary entered into several interest rate swaps to reduce the impact of interest rate changes on its debt related to the CitiPower acquisition. The interest rate swap agreaments which hedge this debt involve the exchange of fixed and floating rate interest payments penodically over the hfe of the agreements without the exchange of the underlying principal amounts. Market risks arise from the movements in interest rates. If the counterparties to an interest rate swap agreement were to default on contractual payments, the subsidiary could be exposed to increased costs related to replacing the original agreement. However, the subsidiary does not anticipate nonperfor-mance by any counterparty to any interest rate swap in of fect at December 31,1996. At December 31,1996, this subsidiary was a party to a notional amount of 900 million Australian dollars of interest rate swaps with maturity dates ranging from February 1999 to December 2000. - ' Entergy Power UK plc, an Entergy subsidiary, executed a credit facihty with several banks on December 17,1996, to obtain credit facihties in the aggregate amount of approximately 1.25 billion British pounds (2.1 bilhon US dollars). Proceeds of this facihty, which is in three tranches, have been used, together with $392 million of cash provided by Entergy to fund the acquisition of London Electricity and are available to replace London Electricity's currently outstanding short- l term credit knes and to provioe working capital for London Electricity. No borrowings were out- l standing under this cred:t facehty at December 31,1996. The credit facility is non-recourse to Entergy and is collateralized by the assets of Entergy Power UK plc, consisting of all shares of London Electricity owned by it. The maturity dates of the various tranches of the credit facihty range from December 17,1998 to December 17, 2001. The interest rate on these facilities is the ! London Interbank Of fered Rate plus up to 1.50% depending on the capitahzation ratio of Entergy Power UK plc and its subsidiaries. l Note 8. Dividend Restrictions Provisions within the Articles of locorporation or pertinent indentures and various other agreements related to the long-term debt and preferred stock of certain of Entergy Corporation's subsidiaries restrict the payment of cash dividends or other distributions on their common and preferred stock. Additionally, PUHCA prohibits Entergy Corporation's subside, ries from making loans or advances to Entergy Corporation. As of December 31,1996, the domeshc utility companies and System Energy had restricted earnings of $437.7 milhon. During 1996. cash dividends paid to Entergy Corporation by its subsidiaries totaled $554.2 mil-hort in February 1997. Entergy Corporation received common stock dividend payments from its subsidiaries totakng $66.9 million. Note 9, Commitments And Contingencies Cajun - River Bend j Entergy Gulf States and Cajun, respectively, own 70% and 30% undivided interests in River Bend toperated by Entergy Gutt States), and 42% and 58% undivided interests in Big Cajun 2, Unit 3 (oper-ated by Cajun). These relationships have spawned a number of long standing disputes and claims between the parties. An agreement setting forth terms for the resolution of all such disputes has been reached by Entergy Gulf States, toe Cajun bankruptcy trustee, and the Rural Utihty Services (RUS), and approved by the United States District Court for the Middle District of Louisiana (District I I
r-Court) on August 26,1996 (Cajun Settlement). On September 6,1996, the Committee of Unsecured Creditors in the Cajun bankruptcy proceeding filed a Notice of Appeal to the United States Court of Appeals for the Fif th Circutt (Fif th Circuit), objecting that the order approving the settlement was separate from the apprayal of a plan of reorganization and, therefore, improper. The Cajun Settlement is subject to this appeal and approvals by the appropriate regulatory agencies. Entergy .. Gulf States expects to make fihngs with FERC and the SEC seeking approval for the transfer of cer-tain Cajun transmission assets to Entergy Gulf States. Management believes that it is probable that the Cajun Settlement will ultimately be approved and consummated. . The Cajun Settlement rusolved Cajun's civil action against Entergy Gulf States in which Cajun sought to rescind or terminate the Joint Ownership Participation and Operating Agreement (Operating Agreement) entered into on August 28,1979, relating to River Bend. In that suit, Cajun also sought to recover its alleged $1.6 bilhon investment in the unit plus attorneys' fees, interest, and costs. A trial on the portion of the suit by Cajun to rescind the Operating Agreement was completed in March 1995. On October 24,1995, the District Court issued a memorandum opinion rejecting Cajun's fraud claims and denying rescission. An appeal to the Fif th Circuit by the Cajun bankruptcy trustee was stayed pending the Court's trial of the breach of contract phase of the case. The Cajun Settlement resolves both the issues on appeal and the breach of contract claims, which have not been tned. In 1992, two member cooperatives of Cajun beought an additional independent action to declare the Operating Agreement null and void. based upon Entergy Gulf States' failure to get prior LPSC approval which was alleged to be necessary. Prior to its bankruptcy proceedings, Cajun intervened ae a plaintif f in this action. Entergy Gulf States believes the suits are without merit and believes W. ,y 9 . .@ Cajun's claim is mooted by the Cajun Settlement.
.j a s. , . 7: .y ;,m. The Cajun Settlement, agreed to in principle on April 26,1996, by Entergy Gulf States, the Cajun bank-
[.q,9 g7 d[;h[rj ruptcy trustee, and the RUS, Cajun's largest creditor, was approved by tne Distnct Court on August 26, e,a .? Y " U .M 1996. The terms include, but are not limited to, the following: (i) Cajun's interest in River Bend will be w i f 4,E0,. turned over to the RUS, which will have the option to retain the interest. sell it to a third party, or transfer it to Entergy Gulf States at no cost; (ii) Cajun will set aside a total of $125 million for its share of the decom-Oh.5
#: $p' "f.J f.d.[Q
~,
j missioning costs of River Bend, (iii) Cajun will transfer certain transmission assets to Entergy Gulf States;
- p. g .. o : .. .e , (iv) Cajun will settle transmission disputes and be released from claims for payment under transmission 4.ny.is , .. 9,. ;l.3 arrangements with Entergy Gulf States as discussed under "Calun - Transmission Service" belew; (v) all yees.:,7s-oc.gy funds paid by Entergy Gulf States into the registry of the Distoct Court will be returned to Entergy Gulf l 4p. .. : lE c. States; (vi) Cajun will be released from its unpaid past, present, and future liability for River Bend costs )
y .. .[% w; e ,
.f and expenses; and (vii) alllitigation between Cajun and Entergy Gulf States will be dismissed. Based on i b kbh[j the District Court's approval of the Calun Settlement. the litigation accrual established in 1994 for posse j ble losses associated with the Cajun-River Bend litigation was reversed in September 1996.
h 6 .w -4, u 1 h} M Y. ., y . . . e am Cajun has not paid its full share of capital costs, operating and maintenance expenses, and other p costs for repairs and improvements to River Bend since 1992. In view of Cajun's failure to fund its b wwp3l
$ nw4 ;s hjy[.g.g share of River Bend-related operating, maintenance, and capital costs, Entergy Gulf States has (i) credited Entergy Gulf States' share of expenses for Big Cajun 2, Untt 3 against amounts due from f,,y s ..[
- c. +
R #. V .x. M ddh Cajun to Entergy Gulf States, and (ii) sought to market Cajun's share of power from River Bend and
.p. y gC.{Q apply proceeds to the amounts due from Cajun to Entergy Gulf States. As a result, on November 2,
.g;.n .q.g 43 1994, Cajun discontinued supplying Entergy Gulf States with its share of power from Big Cajun 2, Vi % E.M %vPEM Unit 3. Entergy Gulf Statos requested an order from the District Court requiring Cajun to supply py ybs.y,;.b >. Entergy Gulf States with this energy and allowing Entergy Gulf States to credit amounts due to Cajun kII N IM p M gfyy for Big Cajun 2, Unit 3 energy against amounts Cajun owed to Entergy Gulf States for River Bend. In December 1994, by means of a preiiminary injunction, the District Court ordered Cajun to supply Entergy Gulf States with its share of energy from Big Cajun 2 Unit 3 and ordered Entergy Gulf States to make payments for its share of Big Cajun 2. Unit 3 expenses to the registry of the District Court. In ,
October 1995, the Fif th Circuit affirmed the District Court's preliminary injunction. As of December 31,1996, $70.4 million had been paid by Entergy Gulf States into the registry of the District Court. Cajun's unpaid portton of River Bend operating and maintenance expenses (including nuclear fuel) , and capital cos!s for 1996 was approximately $55 milhon. The cumulative cost to Entergy Gulf States resuing from Cajun's failure to pay its full share of River Bend related costs, reduced by the proceeds frorn the sale by Entergy Gulf States of Cajun's share of River Bend power and payments into the reg-istry of the Distnct Court for Entergy Gulf States' portion of expenses for B g Cajun 2. Unit 3, was $4.9 million as of December 31,1996. Cajun's unpaid portion of the River Bend-related costs is reflected in long-term receivables with an offsetting reserve in other deferred credits. As discussed above, the Cajun Settlement will conclude all disputes regarding the non-payment by Cajun of operating and maintenance expenses Cajun continues to pay its share of decommissioning costs for River Bend. On December 21,1994, Cajun filed a petition in the Unitd States Bankruptcy Court for the Middle District of Louisiana seeking relief under Chapter 15 of the Bankruptcy Code. In its bank-ruptcy proceedings, Cajun fned a motion on January 10,19%, to reject the Operating Agreement as a burdensome executory contract. Entergy Gulf States o sponded on January 10,1995, with a 52 l 63
\
memorandum opposing Cajun's motion. As discussed above, this matter will be ended as a result of the Cajun Settlement. Proponents of all of the plans of reorganization submitted to the Bankruptcy Court have incorporated the Cajun Settlement as an integral condition to the ef fectiveness of their plan. The timing and completion of the reorganization plan depends on Bankruptcy Court approval and any required regulatory approvals. The Bankruptcy Court has approved proposals by three groups seeking to acquire the non-nuclear assets of Cajun and has signed an order that estabhshes rules for how Cajun's creditors will vote on the three plans. On December 16,1996, the Bankruptcy Court began hearings on the balloting and the plan that will be adopted. Cajun Transmission Service Entergy Gulf States and Cajun are parties to FERC proceedings relating to transmission service charge disputes. In April 1992, FERC issued a final order in these disputos. In May 1992, Entergy Gulf States and Cajun filed motions for rehearings on certain portions of the order, which are still pending at FERC. In June 1992, Entergy Gulf States filed a petition for review in the United States Court of Appeals for the District of Columbia Circuit regarding certain of the other issues decided by FERC. In August 1993, the Court of Appeals rendered an opinion reversing FERC's order regarding the portion of such disputes relating to the calculations of certain credits and equalization charges under Entergy Gulf States' service schedules with Cajun. The opinion remanded the issues to FERC for further proceedings consistent with its opinion. In February 1995, FERC eliminated an issue f rom the remand that Entergy Gulf States beheves the Court of Appeals directed FERC to reconsider. In orders issued on August 3,1995, and October 2,1995, FERC affirmed an April 1995 ruhng by an ALJ in the remanded portion of Entergy Gulf States' and Cajun's ongoing transmission service charge disputes before FERC. Both Entergy Gulf States and Cajun have petitioned for appeal. The Court of Appeals has stayed the appellate proceeding pending implementation of the Cajun Settlement (see "Caun - Rwer Bend" above, for a further discussion of the Cajun Settlement). Under Entergy Gulf States' interpretation of a 1992 FERC order, as modified by FERC's orders issued on August 3,1995, and October 2,1995, and as agreed to by the Cajun bankruptcy trustee. Cajun would owe Entergy Gulf States approximately $70.2 million as of December 31,1996. Entergy Gulf States further estimates that if it were to prevailin its May 1992 motion for rehearing and on cor-tain other issues decided adversely to Entergy Gulf States in the February 1995, August 1995, and October 1995 FERC orders, which Entergy Gulf States has appealed, Cajun would owe Entergy Gulf States approximately $157.3 milhon as of December 31,1996. If Cajun were to prevail in its May 1992 motion for rehearing to FERC, and if Entergy Gulf States were not to prevail in its May 1992 motion for ruhearing to FERC, and if Cajun were to prevailin appealing FERC's August and October 1995 orders, Entergy Gulf States estimates it would owe Cajun apprnximately $110.9 million as of December 31,1996. The above amounts are exclusive of a $7.3 milkon payment by Cajun cn December 31,1990, which the parties agreed to apply to the disputed transmission service charges. Pending FERC's ruhng on the May 1992 motions for rehearing, Entergy Gulf States has continued to bill Cajun utihzing the historical biking methodology and has recorded underpaid trans-mission charges, including interest, in the amount of $144 million as of December 31,1996. This amount is reflected in long-term receivables with an offsetting reserve in other deferred credits. FERC has determined that the collection of the pre-petition debt of Cajun is an issue properly decided in the bankruptcy proceeding. Refer to " Cajun - Rwer Bend" above for a discussion of the Cajun Settiement. l Capital Requirements and Financing Construction expenditures (excluding nuclear fueg for the domestic utihty companies and System Energy for the years 1997,1998, and 1999 are estimated to total $510 million, $547 million, and
$565 milkon, respectively. Entergy will also require $986 million dunng the period 1997 - 1999 to meet long term debt and preferred stock matunties and cash sinking fund requirements. Entergy plans to meet the above requirements primanly with internally generated funds and cash on hand, supple-mented by the issuance of debt and company obligated mandatonly redeemable preferred secun-ties and the use of outstanding credit facihties. Certain domestic utihty companies and System Energy may also continue with the acquisition or refinancing of all or a portion of certain outstanding series of preferred stock and long-term debt. See Notes 5,6 and 7 for further information.
Grand Gulf 1. Related Agreements CaptalFunds Agreement Entergy Corporation has agreed to supply System Energy with suf ficient capital to (i) maintain System Energy's equity capital at an amount equal to a minimum of 35% of its total capitahzation (excluding short term debt), and ( 0 permit the continued commercial operation of Grand Gulf 1 and pay in f ull all indebtedness for borrowed money of System Energy when due under any circumstances. In addition, under supplements to the Capital Funds Agreement assigning System Energy's rights as I i
1 l l security for specific debt of System Enugy, Entergy Corporation has agreed to make cash capital l contributions to enable System Energy to make payments on such debt when due. J System Energy has entered into various agreements with Entergy Arkansas Entergy Louisiana, l Entergy Mississippi, and Entergy New Orleans whereby they are obligated to purchase their respec- ) tive entitlements of capacity and energy from System Energy's 90% ownership and leasehold inter- .l est in Grand Gulf 1, and to make payments that, together with other available funds, are adequate to cover System Energy's operating expenses System Energy would have to secure funds from other sources, including Entergy Corporation's obligations under the Capital Funds Agreement, to cover . any shortfalls from payments received from Entergy Arkansas Entergy Louisiana. Entergy Mississippi and Entergy New Orleans under these agreements. Unit Power Salas Agreement System Energy has agreed to sell all of its 90% owned and leased share of capacity and energy f rom Grand Gulf 1 to Entergy Arkansas Entergy Louisiana. Entergy Mississippi, and Entergy New Orleans in accordance with specified percentages (Entergy Arkansas-36% Entergy Louisiana-14% Entergy Mississippi-33% and Entergy New Orleans-17%) as ordered by FERC. Charges under this agreement are paid in consideration for the purchasing companies' respective entitlement to receive capacity and energy and are payable irrespective of the quantity of energy delivered so long as the unit rernains in commercial operation. The agreement will remain in effect until terminated by the parties and approved by FERC, most kkely upon Grand Gulf 1's retirement from service. Monthly obligations for payments, including the rate increase which was placed into ef fect in December gmpy; p c 1995, subject to refund, under the agreement are approximately $21 milhon, $8 niillion, $19 million, Q 4rf w '. r;f ,t and $10 rnilhon for Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, respectively. h..h.k. 4y
. .w . 3Yh[ . pgf.h.j AvadabdityAgreement
.%;.r"yL px1 b.Q..% .
Entergy Arkansas, Entergy Louis lana, Entergy Mississippi, and Entergy New Orleans are individually y 4; . , .;/ h .A q.gi, obligated to mako payments or subordinated advances to System Energy in accordance with stated
.y ~ 1Thyg percentages (Entergy Arkansas-17.1% Entergy Louisiana-26.9% Entergy Mississippi-31.3% and g%g yy. .:.? ! 6? Entergy New Orleans-24.7%) in amounts that, when added to amounts received under the Unit
- p. HUM [.Jpf,; Power Sales Agreement or otherwise, are adequate to cover all of System Energy's operating expenses as defined, including an amount suf ficient to amortize Grand Gulf 2 over 27 years. System gwmM.:w e. p W:A.3 M @% Energy has assigned its r ghts to payments and advances to certa!n creditors as security for certain obbgations. Since commercial operation of Grand Gulf 1, payments under the Unit Power Sales p .. 44
, :g% zw v. .y M j> Agreement have exceeded the amounts payable under the Availabikty Agreement. Accordingly, no payments have ever been required. If Entergy Arkansas or Entergy Mississippi fails to make its Unit Wn,4hj Power Sales Agreement payments, and System Energy is unable to obtain funds from other hMW;;k ;j7si y sources. Entergy Louisiana and Entergy New Orleans could become subject to claims or demands by Systern Energy or its creditors for payments or advances under the Availabihty Agreement (or the ( ,g -
. . ..x y,#] M]. l assignments thereof) equal to the difference between their required Unit Power Sales Agreement
, 4 ey y . ~ -- jp q payments and their required Availabihty Agreement payments. qW . &.6,.r., MR fcM:hej Fuel Purchase Agreements ww.piy p reWM Entergy has several agreements to purchase natural gas and low-sulfur coal for use at its generating um 6:O.. Q y 5,3 i units. Entergy Arkansas has long-term contracts with mines in the state of Wyoming for the supply of WG44/Ibd ? ( low-sulfur coal for the White Bluf f Steam Electric Generating Station and independence :which is 25% hepM;pg.] owned by Entergy Mississippi). These contracts, which expire in 2002 and 2011, provide for approxi-p g gy.y44Ai {A[ mately 85% of Entergy Arkansas' expected annual coal requirements. Additional requirements are
- hhdr:awd y[, satisfied by annual spot market purchases. Entergy Gu!f States has a contract for a supply of low-sulfur Wyoming coal for Nelson Unit 6, wh'ch should be suf ficient to satisfy the fuel requirements at Nelson Uret 6 throuoh 20 t O. Cajun has advised Entergy Gutf States that Cajun has contracts that should pro- , ,
sim an adet He supply of coal until 1999 for the operation of Big Cajun 2, Unit 3. Entergy Gulf States has long-term gas contracts, which will satisfy approximately 50% of its annual ; requirements. Such contracts generally require Entergy Gulf States to purchase in the range of 20% of expected total gas neods. Ad$tional gas requirements are satisfied under less expensive short-term I contracts. Entergy Gulf States has a trantportation service agreement with a gas supplier that pro-vides flexible natural gas serv ce to the Sabine and Lewis Creek generating stations. This serv!ce is l provided by the suppher's pipehne and salt dome gas storage facility, which has a present capacity of I 12.7 bilhon cubic feet of natural gas. In June 1992. Entergy Louisiana agreed to a renegotiated 20-year , natural gas supply contract. Entergy Louisiana agreed to purchase natural gas in annua! amounts equal to approximately one-third of Its projected annual fuel reovirements for cortain generating unrts. 1 Annual demand charges associated with this contract are estimated to be $8.6 million through 1997, 54 Gs
and a total of $116.6 million for the years 1998 through 2012. Entergy Louisiana recovers the cost of fuel consumed during the generation of electricity through its fuel adjustment clause. Sales Agreements / Power Purchases In 1988. Entergy Gulf States entered into a joint venture with a primary term of 20 years with Conoco, Inc , Citgo Petroleum Corporation, and Vista Chemical Company (industrial Participants) whereby Entergy Gulf States' Nelson Units 1 and 2 were sold to a partnership (Nelson Industrial Steam Company) consisting of the industrial Participants and Entergy Gulf States. The Industrial Participants supply the fuel for the units, while Entergy Gulf States operates the units at the discre-tion of the Industrial Participants and purchases the electricity produced by the units. Entergy Gulf States is continuing to sell electricity to the Industrial Participants. For the years ended December 31,1996,1995, and 1994, the purchases by Entergy Gulf States of electricity from the joint venture totaled $62.0 million, $58.5 million, and $59.4 trillion, respectively. Entergy Louisiana has an agreement extending through the year 2031 to purchase energy gener-ated by a hydroelectric facility. During 1996,1995, and 1994. Entergy Louisiana made payments under the contract of approximately $56.3 million, $55.7 million, and $56.3 million, respectively. If the maximum percentage (94%) of the energy is made available to Entergy Louisiana, current pro-I duction projections would require estimated payments of approximately $54 million in 1997, and a total of $3.5 billion for the years 1998 through 2031. Entergy Louisiana recovers the costs of pur-l chased energy through its fuel adjustment clause. Nuclear Insurance The Price. Anderson Act limits public liability for a single nucl ear incident to approximately $8.92 bil-lion. Protection for this liabihty is provided through a combination of private insurance (currently ( l $200 million each for Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and System Energy) and an industry assessment program. Under the assessment program, the maximum payment requirement for each nuclear incident would be $79.3 million per reactor, payable at a rate of
$10 milhon per hcensed reactor per incident per year. Entergy has five licensed reactors. As a co-licensee of Grand Gulf 1 with System Energy, South Mississippi Electric Power Agency would share 10% of this obligation. With respect to River Bend, any assessments pertaining to this program are allocated in accordance with the respective ownership interests of Entergy Gulf States and Cajun, in ;
addition, each owner / licensee of Entergy's five nuclear units participates in a private insurance pro- I gram which provides coverage for worker tort claims filed for bodily injury caused by radiation expo-sure. The program provides for a maximum assessment of approximately $16 milhon for the five nuclear units in the event losses exceed accumulated reserve funds. Entergy Arkansas, Entergy Gulf States. Entergy Louisiana, and System Energy are also members of certain insurance programs that provide coverage for property damage, including decontamina-tion and premature decommissioning expense, to members' nuclear generating plants. As of f December 31,1996, Entergy Arkansas. Entergy Gulf States, Entergy Louisiana. and System Energy each was insured against such losses up to $2.75 billion. In addition, Entergy Arkansas Entergy Gulf States. Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans are members of an insurance program that covers certain replacement power and business interruption costs incurred due to prolonged nuclear unit outages. Under the property damage and replacement power /busi-ness interruption insurance programs, these Entergy subsidiaries could be subject to assessments if losses exceed the accumulated funds available to the insurers. As of December 31,1996, the maximum amounts of such possible assessments were: Entergy Arkansas-$31.1 million; Entergy Gulf States-$11.5 million; Entergy Louisiana-$24.8 milkon; Entergy Mississippi-$0.7 milhon; Entergy New Orleans-$0.4 milhon; and System Energy-$21.3 milhon. Under its agreement with System Energy, South Mississipi Electric Power Agency would share in System Energy's obkgation. Cajun has no share of Entergy Gulf States' obligation. The amount of property insurance maintained for each Entergy nuclear unit exceeds the NRO's minimum requirement for nuclear power plant hcensees of $1.06 billion per site. NRC regulations provide that the proceeds of this insurance must be used, first, to place and maintain the reactor in a safe and stable condition and. second. to complete decontamination operations. Only after pro-ceeds are dedicated for such use and regulatory approvalis secured would any remaining proceeds be made available for the benefit of plant cwners or their creditors. Spent Nuclear Fuel and Decommissioning Costs Entergy Arkansas. Entergy Gulf States Entergy Louisiana, and System Energy provide for estimated future disposal costs for spent nuclear fuelin accordance with the Nuclear Waste Pohcy Act of 1982. The affected Entergy companies entered into contracts with the United States Department of Energy (DOE), whereby the DOE wel furnish disposal service at a cost of one mill per net kWh gen-erated and sold af ter Apol 7,1983, plus a onetime fee for generation pnor to that date. Entergy
.._.________o
Arkansas, the only Entergy company that generated electricity with nuclear fuel prior to that date, elected to pay the onetime fee plus accrued interest, no earlier than 1998, and has recorded a liabil-ity as of December 31,1996, of approximately $117 milhon for generation subsequent to 1983. The fees payable to the DOE may be adjusted in the future to assure full recovery. Entergy considers all costs incurred or to be incurred, except accrued interest, for the disposal of spent nuclear fuel to be , proper components of nuclear fuel expense, and provisions to recover such costs have been or will be made in apphcations to regulatory authorities. Delays have occurred in the DOE's program for the acceptance and disposal of spent nuclear .. fuel at a permanent repository. In a statement released February 17,1993, the DOE asserted that it does not have a legal obligation to accept spent nuclear fuel without an operational repository for which it has not yet arranged. Entergy Operations and System Fuels joined in lawsuits against the DOE, seeking clarificahon of the DOE's responsibihty to receive spent nuclear fuel beginning in 1998. The original suits, filed June 20,1994, asked for (i) a ruling stating that the Nuclear Waste Policy Act requires the DOE to begin taking title to the spent fuel and to start removing it from j nuclear power plants in 1998, (ii) a mandate for the DOE's nuclear waste management program to begin accepting fuel in 1998 and court monitoring of the program, and (iii) the potential for escrow of payments to a nuclear waste fund instead of directly to the DOE. Argument in the case before a three-judge panel of the U.S. Court of Appeals was made on January 17,1990. On July 23,1996, the court reversed the DOE's interpretation of the 1998 obligation and unanimously ruled that the Nuclear Waste Policy Act creates an unconditional obligation to begin acceptance of spent fuel by 1998, but did not make a ruling on the remedies. 7 ,. On December 17,1996, the DOE notified contract holders that it anticipates it will not be able to
~~
.- - begin such acceptance until af ter that date. Subsequently, on January 31,1997, Entergy Operations and a coaktion of 36 electric utihties and 46 state agencies filed lawsuits to suspend payments to the c .
.. 7 Nuclear Waste Fund. The lawsuits ask the court to (i) find that the December 17,1996, DOE letter
~'
5 (' demonstrates breach of contract on the part of the DOE; (ii) order utikties to place the Nuclear Waste Fund payments in an escrow account and not provide the funds to the DOE untilit fulfills its obliga-a f tion; (iii) prevent the DOE from taking adverse action against utdities that withhold payments: and 7 (iv) order the DOE to submit a plan to the court describing how the agency intends to fulfillits oblig-
.. f t
~
.' ation on an ongoing basis.
i In the meantime, all Entergy companies are responsible for their spent fuel storage. Current on-
. .I'? -.
[ '.. { 7; ..
? .W site spent fuel storage capacity at River Bend, Waterford 3. and Grand Gulf 1 is estimated to be suf-O i' ficient until 2003, 2000, and 2004, respectively. Thereaf ter, the affected companies will provide fy Oq additional storage. Current otsite spent fuel storage capacity at ANO is estimated to be suf ficient
.p l M until 2000. An ANO storage facility using dry casks began operation in 1996. inis facility may be
' 3 , . . ] , . (v 2 expanded further as required. The initial cost of providing the additional on-site spent fuel storage capability required at ANO, River Bend, Waterford 3, and Grand Gulf 1 is expected to be approxi-mately $5 million to $10 mdkon per unit. In addition. about $3 mdlion to $5 milhon per unit will be required every two to three years subsequent to 2000 for ANO and every four to five years ss bse-quent to 2003,2000, and 2004 for River Bend, Waterford 3 and Grand Gulf 1, respectively, u. .il the
- DOE's repository or storage facility begins accepting such units' spent fuel.
Total decommissioning costs at December 31,1996, for the Entergy nuclear power plants, excluding co-owner shares, have been estimated as follows: imn.ons retat satimated o.commt. i.ning c. t. ANO 1 and ANO 2 (based on a 1994 interim update to the 1992 cost study) $ 806.3 River Bend (based on a 1996 cost study refiecting 1996 dollars) 293.3 Waterford 3 (based on a 1994 updated study in 1993 dollars) 320.1 Grand Guif 1 (based on a 1994 cost study usjng 1993 dollars) 365.9 -
.-$1,785.6. .
Entergy Arkansas and Entergy Louisiana are authorized to recover in rates amounts that, when
- added to estimated investment income, should be suf ficient to meet the above eshmated decom-missioning costs for ANO and Waterford 3, respectively. In the Texas retaihurisdiction, Entergy Gulf States is recovering in rates River Bend decommissioning costs (based on the 1991 cost study that totaled $267.8 milhon) that, with adjustments, total $204.9 million. In the Louisiana retai! junsdiction.
Entergy Gulf States is currently recovering in rates decommissioning costs (based on a 1985 cost study) which total $141 million. Entergy Gulf States included decommissioning costs (based on the 1991 study)in the LPSC rate review fded in May 1995. In October 1996, the LPSC approved Entergy Gulf States rates that include decommissioning costs based on the 1991 study. The October 1996 LPSC order has been appealed and the decommissioning costs based on the 1991 study have not yet been implemented. Entergy Gulf States included decommissioning costs, based on the 1996 study, in the LPSC rate review filed in May 1996 and in the PUCT rate review filed in November 1996. 56 I 57 f.-
\
Those reviews are still ongoing. System Energy was previously recovering in rates amounts suffi-cient to fund $198 million (in 1989 dollars) of its Grand Gulf 1 decommissioning costs. System Energy included decommissioning costs (based on the 1994 study) in its rate increase filing with FERC. Rates requested in this proceeding were placed into ef fect in December 1995, subject to refund FERC has not yet issued an order in the System Energy rate case. Entergy Arkansas. Entergy Gulf States, Entergy Louisiana, and System Energy periodical!y review and update esti-mated decommissioning costs. Although Entergy is presently underrecovering for Grand Gulf and River Bend based on the above estimates, applications are penodically made to the appropriate regulatory authorities to reflect in rates any future change in projected decommissioning costs. The amounts recovered in rates are deposited in trust funds and reported at market value as quoted on nationally traded markets or as determined by widely used pricing services. These trust fund assets largely of fset the accumulated decommissioning hability that is recorded as accumulated deprecia-tron for Entergy Arkansas, Entergy Gulf States, and Entergy Louisiana, and as other deferred credits for System Energy. The cumulative liabihties and actual decommissioning expenses recorded in 1996 by Entergy were as follows: in Wes Cumulative Liabmties as of 1996 Trust 1994 De.ommissioning Cumulative Lambilmes as of o .m6- ,$.9s annan . s o..... o .mn.,si,iese ANO 1 and ANO 2 $169.0 $11.5 $20.1 $200.6 River Bend 31.7 1.5 6.0 39.2 Waterford 3 37.4 2.8 8.8 49.0 Grand Gulf 1 39.4 2.3 19.0 60.7
$277.5 $18.1 $53.9 $349.5 In 1995 and 1994, ANO's decommissioning expense was $17.7 mdhon, and $12.2 million, respectively: River Bend's decommissioning expense was $8.1 million and $3.0 million, respec-tively; Waterford 3's decommissioning expense was $7.5 million and $4.8 million, respectively; and Grand Gulf 1's decommissioning expense was $5.4 million and $5.2 million, respectively. The actual decommissioning costs may vary from the estimates because of regulatory requirements, changes in technology and increased costs of labor, materials, and equipment. Management believes that l actual decommissioning costs are likely to be higher than the estimated amounts presented above.
The SEC has questioned certain of the financial accounting practices of the electric utility indus-try regarding the recognition, measurement, and classification of decommissioning costs for nuclear plants in the financial statements of electric utihties. In response to these questions, the FASB has been reviewing the accounting for decommissioning and has expanded the scope of its review to include habihties related to the closure and removal of all long-lived assets. An exposure draf t of the proposed SFAS (which proposed a 1997 effective date) was issued in February 1996. The proposed SFAS would require measurement and recognition of the liability for closure and removal of long-kved assets (including decommissioning) based on the amount of discounted future cash flows related to closure and removal costs at the time the habikty was initially incurred. Those future cash flows should be determined by estimating current costs for closure and removal and adjusting for inflation, etficiencies that may be gained from experience with similar activities, and consideration of reasonable future advances in technology. The in!!ial habihty would be offset by an asset that should be presented with other plant costs on the financial statements because the cost of decommissioning > closing the plant would be recog-nized as part of the total cost of the plant asset. Changes in the decommissioning / closure cost liabil-ity resulting from changes in assumptions would be recognized with a corresponding adjustment to
- the plant asset and depreciation revised prospectively. Additionalincreases to the habihty would be recognized to reflect the increase in the discounted cash flows resulting from the passage of time.
Such increases would be of tset by a regulatory asset, to the extent such costs are deemed probable 1 of future recovery. Af ter receiving comments on the exposure draf t, the FASB has decided that the ef fective date for the proposed SFAS will be later than 1997, although a final effective date has not yet been announced. The FASB is ex pected to issue an additional document on this issue in the second quar- 1 ter of 1997, although it has not yet been decided if that document will be in the form of a final accounting standard or a revised exposure draf t. If current electric utikty industry accounting practices with respect to nuclear decommissioning and other closure costs are changed, annual provisions for such costs could increase, the estimated cost for decommissioning / closure could be recorded as a liability rather than as accumulated depreciation, and trust fund income from decommissioning trusts could be reported as investment income rather than as a reduction to decommissioning expense.
The EPAct has a provision that assesses domestic nuclear utilities with fees for the decontamina-tion and decommissioning of the DOE's past uranium enrichment operations. The decontamination and decommissioning assessments are being used to set up a fund into which contributions from util-ities and the federal government will be placed. Entergy Arkansas Entergy Gulf States, Entergy Louisiana, and System Energy's annual assessments, which will be adjusted annually for inflation, are , approximately $3.6 million, $0.9 million, $1.4 milhon, and $1.5 million un 1996 dohars), respectively, for , approximately 15 years. At December 31,1996, Entergy Arkansas, Entergy Gulf States. Entergy - Louisiana, and System Energy had recorded liabihties of $36.4 million, $6.3 million, $13.8 million, and ,:
$13.6 million, respectively, for decontamination and decommissioning fees in other current liabilities and other noncurrent liabihties, and these habilities were offset in the consolidated financial state-ments by regulatory assets. FERC requires that utihties treat these assessments as costs of fuel as they are amortized and are recovered through rates in the same manner as other fuel costs o
ANO Matters Cracks in certain steam generator tubes at ANO Unit 2 were discovered and repai ed during an out-age in March 1992. Further inspections and repairs were conducted at sdusequent refueling and mid cycle outages, including the most recent forced outage in November 1996. ANO Unit 2's output has been reduced by 23 MW due to steam generator fouling and tube plugging. The unit may be approaching the current limit for the number of steam generator tubes that can be plugged with the unit in operation. If the estabhshed limit is reached during a future outage, Entergy Operations could be required to insert sleeves in steam generator tubes previously plugged. On October 25,1996, Entergy Corporation's Board of Directors authorized Entergy Operations to negotiate a contract,
~
with appropriate cancellation provisions, for the fabrication and replacement of the steam genera-tors at ANO Unit 2. Entergy estimates the cost of fabrication and replacement of the steam genera-tors to be approximately $150 million. A letter of intent for the fabrication was signed by Entergy Operations, which includes a commitment for not more than $3.2 million, and a contract is expected to be entered into in 1997. If a formal contract to purchase the steam generators is not canceled. L / . they will be installed during a planned refuehng outage in 2000. Entergy Operations periodically meets with the NRC to discuss the results of inspections of the steam generator tubes, as well as L the timing of future inspections.
~
~
l Environmental lssues
~
Entergy Gulf States has been designated as a Potentially Responsible Party (PRP), for the clean-up
.\ of certain hazardous waste disposal sites. Entergy Gulf States is currently negotiating with the EPA
~
fM; and state authonties regarding the clean-up of these sites. Several class action and other suits have
. . . . , . : j .. _
been filed in state and federal courts seeking relief from Entergy Gulf States and others for damages caused by the disposal of hazardous waste and for asbestos-related disease allegedly resulting from exposure on Entergy Gulf States' premises. While the amounts at issue in the clean-up ef forts and suits may be substantial, Entergy Gulf States believes that its results of operations and financial condition will not be materially adversely af fected by the outcome of the suits. As of December 31, 1996, a remaining recorded liability of $21.4 million existed relating to the clean-up of seven sites at which Entergy Gulf States has been designated a PRR During 1993, the Louisiana Department of Environmental Quality issued new rules for solid waste regulation, including regulation of wastewater impoundments. Entergy Louisiana has determined that certain of its power plant wastewater impoundments were affected by these regulations and has chosen to upgrade or close them. As a result, a remaining recorded liabikty in the amount of
$6.7 million existed at December 31,1996, for wastewater upgrades and closures to be completed in 1997. Comulative expenditures relating to the upgrades and closures of wastewater impound-
~
ments were $7.1 million as of December 31,1996. Employment Litigation Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entargy Louisiana, and Entergy New *! Orleans are defendants in numerous lawsuits described below that have been fded by former l employees asserting that tney were wrongfully terminated and/or discriminated against due to age, i race, and/or sex. Entergy Corporation. Entergy Arkansas, Entergy Gulf States. Entergy Louisiana, j and Entergy New Orleans are vigorously defending these suits and deny any hability to the plaintif f s. ! However, no assurance can be given as to the outcome of these cases. Entergy Corporation and Entergy Arkansas are defendants in five suits filed in federal court on behalf of approximately 62 plaintif fs who claim they were illegally terminated from their jobs due to ) discrimination on the basis of age or race. One of these suits seeks class certification. A trial date is scheduled in early 1997 for one suit comprised of approximately 29 plaintiffs, and a trial date is scheduled in May 1997 for another suit comprised of approximately 18 plaintiffs. Trial dates have not been set in the other suits. 56 59
- . ., a
b Entergy Corporation and Entergy Gulf States are defendants in a lawsuit involving approximately 176 plaintifis filed in state court in Texas by former employees who claim that they lost their jobs as a result of the Merger. The plaintif fs in these cases have asserted various claims, including discrimina-tion on the basis of age, race, and/or sex. The court has preliminarily ruled that each plaintif f's claim should be tried separately. The first case is scheduled for trialin June 1997, Entergy Corporation. Entergy Gutf States, and Entergy Louisiana are defendants in a suit filed in fed-eral court in Louisiana by approximately 39 plaintif fs who claim, among other things, they were wrong-fully discharged f rom their employment on the basis of their age. No trial date has been set for this case. Financial Instruments in accordance with the debt covenants included in the financing provisions of the CitiPower acquisi-tion, CitiPower must hecle at least 80% of its energy purchases. CitiPower's current strategy is to hedge approximately 100% of its forecasted energy purchases through contracts entered into with certain generators. These contracts mature through the year 2000. Note 10. Leases General As of December 31,1996. Entergy had capitalleases and noncar.celab!e operating leases for equip-ment, buildings, vehicles, and fuel storage facilities (excluding quclear fuel leases and the sale and i leaseback transactions) with minimum lease payments as fotbws: in m>ms v.., capitet Len.. opwaungLu e 1997 $27.312 $56,232 1998 27,294 55,358 1999 27,268 52,060 2000 25,530 47,125 2001 23,400 43,505 l l Years thereatter 99.877 211,238 Minimum lease payments ___._._-__$230,681 -- _ ._65,51_8
$4---.-
L_ess: Amou_nt representing interest 83,741 l Present value_.of not minimurn lease payments- . -
- . . . .. . . . . - - _ . _ _ $146.940 .- -
Rental expense for Entergy's leases (exclucing nuclear fuel leases and the sale and leaseback transactions) amounted to approximately $507 million, $61.1 million, and $64.8 million in 1996, 1995, and 1994, respectively. Nuclear Fuel Leases Entergy Arkansas, Entergy Gulf States, Enterg i Louisiana, and System Energy each has arrange-monts to lease nuclear fuelin an aggregate amoant up to $385 milhon as of December 31,1996. The lessors finance the acquisition and ownership of nuclear fuel through credit agreements and the issuance of notes. These agreements are subject to annual renewal with, in Entergy Louisiana's and Entergy Gulf States' case, the consent of the lenders. The credit agreements for Entergy Arkansas, Entergy Gulf States. Entergy Louisiana, and System Energy have been extended and now have ter-mination dates of December 1999, December 1999, January 2000, and February 2000, respec-tively The debt securities issued pursuant to these fuellease arrangements have varying maturities through January 31,1999. It is expected that the credit agreements will be extended or alternative financing will be secured by each lessor upon the rnatunty of the current arrangements. If exten-sions or afternative financing cannot be arranged, the lessee in each case must purchase sufficient
. nuclear fuel to allow the lessor to retire such borrowings. l Lease payments are based on nuclear fuel use. Nuclear fuel lease expense charged to opera- l tions by the domestic utihty companies in 1996,1995, and 1994 was $158.5 million (including inter-est of $21.7 million), $153.5 million (including interest of $22.1 milhon), and $163.4 million (including interest of $27.3 milhon), respectively.
Sale and Leaseback Transactions l in 1988 and 1989, System Energy and Entergy Louisiana, respectively, sold and leased back por-tions of their ownership interests in Grand Gulf 1 and Waterford 3 for 26A-year and 28-year lease terms, respectively. Both companies have options to terminate the leases, to repurchase the sold interests, or to renew the leases at the end of their terms. Under System Energy's sa!e and leaseback arrangements, letters of credit are required to be maintained to secure certain amounts payable for the benefit of the equity investors by System Energy under the leases. The current letters of credit are ef fective until January 15,2000.
. - ~
/ Entergy Louisiana did not exercise its option to repurchase the undivided interests in Waterford 3 in September 1994. As a result. Entergy Louisiana was required to provide collateral for the equity portion of certain amounts payable by Entergy Louisiana under the leases. Such collateral was in the form of a new series of non-interest bearing first mortgage bonds in the aggregate principal amount of $208.2 million issued in September 1994. i As of December 31,1996, System Energy and Entergy Louisiana had future minimum lease pay- , monts, recorded as long term debt. (reflecting implicit rates of 7.02% and 8.76%, respectively): in omants _ sy.i _snergy saterey L spian. 9 1997 $ 42,753 $ 39,805 1998 42,753 41,447 1999 42,753 50,530 2000 42,753 47,510 2001 46,803 46,015 Years thereaf ter __ 713.264 582,689 Total 931,079 807,996 Less: Amount representinginterest 434,599 454,396
$496,480 $353,600
_-Prqsent va_!,ue_of_ net rninimum leasepayments Note 11. Postretirement Benefits Pension Plans Entergy has two postretirement ,;enefit plans, Entergy Corporation Retirement Plan for Non-Bargaining Employees" and "Entergy Corporation Retirement Plan for Bargaining Employees l' cov-ering substantially all of its employees. The pension plans are noncontributory and provide pension benefits that are based on employees' credited service and compensation during the final years before retirement, Entergy Corporation and L subsidiaries fund pension costs in accordance with contribution guidelines established by the Employee Retirement income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended. The assets of the plans include
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common and preferred stocks, fixed incomo securities, interest in a money market fund, and insur-
~
ance contracts. Prior to January 1,1995, all of Entergy's non-bargaining employees were generally included in a plan sponsored by the Entergy company where they were employed. However, I I~ . Entergy New Orleans was a participating employer in a plan sponsored by Entergy Louisiana.
- . Ef fective January 1,1995, these employees became participants in a new plan with provisions sub-
'. . stantially identical to their previous plan.
Total 1996,1995, and 1994 pension cost of Entergy, including amounts capitalized, included the 1
,E . following components:
In thousamir, 1999 1995 1994 Servicecost-benefitsearnedduring theperiod $ 31,584 $ 29.282 $35,712 Interest cost on projected benefit obligation 84,303 80,794 77,943 Actual return on pian assets (163,520) (261.864) 10,381 Net amortization and deferral 71,260 178,345 (96,893) Other - - 17,963 The funded status of Entergy's various pension plans as of December 31,1996, and 1995 was:
'"J"*58*5_ _._ _ _. _.
199e 199s , Actuarial present value of accumulated pension plan ooligation: Vested $1,027,307 $ 989.509 Nonvested 4,775 4,555 , Accumulated benefit obigation $1,032,082 $ 994,064 Plan assets at fair value $1,359,614 $1,224.594 i Prgtected,_beneftpbligation 1,196,925 1,156.831 Plan assets in excess of projected benefit obligation 162,689 67,763 Unrecognized pnor service cost 30,131 35,946 j Unrecognized transition asset (39,504) (46,856) l Ugycognized net gain ____J180,525} (94,618) Accrued pensionJgbAty, _._ _ _ _.____ $_ Q1,209) $ @7,765) I J
The significant actuarial assumptions used in computing the information above for 1906,1995, and 1994 were as follows: weighted-average discount rate, 7.75% for 1996, 7.5% for 1995, and 8.5% for 1994, weighted-average rate of increase in future compensation levels,4.6% for 1996 and 1995, and 5.1 % for 1994; and expected long-term rate of return on plan assets 9.0% for 1996, and 8.5% for 1995 and 1994. Transition assets of Entergy are being amortized over the greater of the remaining service period of active participants or 15 years. In 1994. Entergy Gulf States recorded an $18.0 million charge related to early retirement pro-grams in connection with the Merger, of which $15.2 million was expensed. Other Postretirement Benefits Entergy also provides certain health care and life :nsurance benefits for retired employees. Substantially all employees may become eligible if tney reach retirement age while still working for Entergy. Effective January 1,1993 Entergy adopted SFAS 106 which required a change from a cash method to an accrual method of accounting for postretirement benefits other than pensions. Entergy Arkansas and Entergy Louisiana continue to fund these benefits on a pay-as-you-go basis. Entergy Gulf States continues to funa a portion of these benefits regulated by the LPSC and FERC on a pay-as-you-go basis. During 1994, pursuant to regulatory directives, Entergy Mississippi and Entergy New Orleans began to fund their postretirement benefI obligations. In 1996. Entergy Gulf States and System Energy began to fund their postretirement benefit obligations pursuant to 1995 regulatory directives issued by the PUCT and FERC, respectively. System Energy is funding on behalf of Entergy Operations those postretirement benefits associated with Grand Gulf 1. The assets of the various postretirement benefit plans other than pensions include common stocks, fixed incomo securities, and a money market fund. At January 1,1993, the actuarially determined accumulated postretirement benefit obligation (APBO) earned by retirees and active employees was estimated to be approximately $241.4 million and $128 million for Entergy (other than Entergy Gulf States) and for Entergy Gulf States, respectively. Such obligations are being amortized over a 20-year period beginning in 1993. The domestic utshty companies have sought approval, in their respective regulatory jurisdictions, to implement the appropriate accounting requirements related to SFAS 106 for ratemaking pur-poses. Entergy Arkansas has received an order permitting deferral, as a regulatory asset, of the dif-forence between its annual cash expenditures for postretirement benefits other than pensions and the SFAS 100 accrual, for up to a five year period commencing January 1,1993. Entergy Mississippi is expensing its SFAS 106 costs, which are reflected in rates pursuant to an order from the MPSC in connection with Entergy Mississippi's formulary incentive rate plan (see Note 2). The LPSC ordered Entergy Gulf States and Entergy Louisiana to continue the use of the pay-as-you-go method for ratemaking purposes for postretirement benefits other than pensions, but the LPSC retains the flex-ibility to examine individual companies' accounting for postretirement benefits to determine if spe-cial exceptions to this order are warranted. Entergy New Orieans is expensing its SFAS 106 costs.
]
Pursuant to resolutions adorted in November 1993 by the Council related to the Merger, Entergy ' New Orleans' SFAS 106 expenses through October 31,1996, were allowed by the Council for pur-poses of evaluating the appropriateness of Entergy New Orleans' rates. Pursuant to the PUCT's May 26,1995, amended order, Entergy Gulf States is currently collecting its SFAS 106 costs in rates. Total 1996,1995, and 1994 postretirement benefit cost of Entergy. including amounts capitalized and deferred, included the following components: In thouwd 1996 1995 1994 Service cost-beneiits earned during the period $14,351 $10,797 $11,863 ) Interest cost on APBO 26,133 25,629 23,312 Actual return on plan assets (1,654) (759) - Net amgrtizatgn_and deferral __ _ _ _14.214 _ _ 11023 9.891 Net _ postretirement _henefit cost _,__ _ _ _$53,044_ ___ .$46,690 __ $4_5_,066
r The funded status of Entergy's postratirement plans as of December 31,1998, and 1995: ir. ihowarA 1996 1998 Actuarial present value of accumulated postratirement benefit obhgation: Retirees $ 263,504 $ 244,192 Other fully eligible participants 28.507 48.393 Other active participants _ _ _ _ _ _ _ _ 73,188 71,464 . l Accumulated benefit obligation 365,199 364,049 Plan assets at fair value 37,970 15,494 Plan assets less than APBO (327,229) (348,555) i Unrecognimd transition obhgation 183,557 204,348 Ugyecognifed net gain /other (5,032) (1,639) Accrued postret !rement. benefit.liabiljty _- _ .- - ~ . -
-_-_- _- ._$(148,704)
_ - - - - --- -_ $(145,846) ~.- The assumed health care cost trend rate used in meawring the APBO of Entergy was 7.6% for 1997, gradually decreasing each successive year until it reaches 5.0% in 2005. A one percentage-point increase in the assumed health care cost trend rate for each year would have increased the APBO of 1 Entergy, as of December 31,1996, ty 11.5% (Entergy Arkansas-11.8% Entergy Gulf States-10.4%, j Entergy Louisiana-11.8% Entergy Mississippi-12.2% and Entergy New Orleans-10.0%), and the sum of the service cost and interest cost by approximately 14.2% (Entergy Arkansas-15.0%, Entergy Gulf States-12.8% Entergy Louisiana-14.4% Entergy Mississippi-14.4% and Entergy New Orleans-12.8%). The assurned discount rate and rate of increase in future compensation used in
,1 determining the APSO was 7.75% for 1996,7.5% for 1995, and 8.5% for 1994, and 4.6% for 1996 l ' .. ' . DMd and 1995, and 5.1% for 1994, respectively. The expected long-term rate of return on plan assets was 9.0% for 1996, and 8.5% for 1995 and 1994. 1
; i 4^ l f .
M W Note 12 Restructuring Costs In 1994,1995, and 1996. Entergy implemented various restructunng programs to reduce the num-l
- f.h
. ber of employees and consolidate of fices and facihties. The programs were designed to reduce
. - . n costs and improve operating ef ficiencies in order to enable Entergy to become a low-cost producer. i 0 Entergy had restructuring habikties os of December 1994,1995, and 1996 of $35.1 milhon, I
; q $24.2 milhon, and $3.2 milhon, respectively. In 1995 and 1996, Entergy accrued an additiona!
(' - 7 $48.4 million and $1.4 milhon and made payments of $59.3 milhon and $22.4 million, respectively. The restructuring charges primanly include employee severance costs related to the expected { a termina* ion of approximately 2,774 employees in various groups. As of December 31,1996,2,723 )
. .;y employees had either been terminated or accepted voluntary separat;on packages under the I restructunng plan.
Over a six-year penod, in December 1996. Entergy recorded $21.3 milhon of restructunng charges (of which $18 milhon , employment in Entergy's was recorded by Entergy Services) associated with the transition to competition. Additionally. Entergy recorded $24.3 milhon in 1994 (of which $23.8 million was recorded by I s de n y Entergy Gulf States) and $1.6 milkon in 1996 for remaining severance and augmented retirement 6,000 jobs, or atx)ut benefits roiated to the Merger. Actual termination benefits paid under the program during 1995 and 36% to 11,515 at the end 1996 amounted to $21.6 milhon, and $3.4 million, respectively. As of December 31,1996, the total of 1996. remarning habihty for expected future Merger-related outlays was approximately $1 milhon. Note 13. Acquisitions CitiPower On January 5,1996, Entergy Corporation finahzed its acquisition of CitiPower, an electric distribu-tion company serving Melbourne, Australia, and surrounding suburbs. The purchase price of a CitiPower was approximately $1.2 bilhon, of which $294 milhon represented an equity investment by
- Entergy Corporation, and the remainder represented debt. Entergy Corporation funded the majority of the equity portion of the investment by drawing down $230 milhon of its $300 million bank revolv-
- ing credit facihty, which was subsequently repaid throughout the course of the year.
CitiPower is one of five electnc distribuhon businesses in the state of Victoria. CitiPower's distribu-tion area covers approximately 10% of Victona's population. During the 12 months ended December 31,1996, Cit Power supplied approximately 4.2 milkon megawatt hours of electncity to over 238,000 customer sites. Approximately 37,000, or 15% of these sites were commercial customers. The cost of the CitiPower hcense is being amortized on a straight-hne basis over a 40-year period beginning January 5,1996. As of December 31,1996, the unamortized balance of the hcense was
$606 milhon.
62 63 m
In accordance with the purchase method of accounting, the results of operations for Entergy Corporation reported in its Statements of Consolidated income and Cash Flows do not reflect CitiPower's results of operations for any period prior to January 5,1996. The proforma combined revenues, net income, earnings per common share before the cumulative effect of accounting change, and earnings per common share of Entergy Corporation presented below give ef fect to the acquisition as if it had occurred on January 1,1995. This proforma information is not necessarily indicative of the results of operations that would have occurred had the acquisition been consum-mated for the period for which it is being given ef fect. in ino, ants of u s. un rencept snare daim Tweive monthe Ended December a e, t oss Operating revenues $6,690,406 Net incomo $503,880 Earnings per average common share before cumulative ef fect of accounting change $2.06 Earnings per average common share $2.21 CitiPower's results of operations for the 12 months ended December 31,1996. (beginning on January 5,1996, at the date of acquisition) are included in Entergy Corporation's Consohdated Financial Staternents and are stated separately below: in thousarvisof Us ebnars _ Twelve Monthe Ended December s tyse Operating revenues $384,803 Operattng expenses $308,916 Interest charges $77,545 Other During 1996 Entergy acquired several security companies and assets of other secunty companies for a purchase pnce of approximately $83 million. Note 14. Subsequent Event (Unaudited) Acquisition of London Electricity plc On Decernber 18,1996 Entergy made a formal cash of for to acquire London Electricity for $1.7 bil-hon. London Electricity is a regional electric company serving approximately two million customers in the metropolitan area of London, England. The offer was approved by authonties in the United Kingdom and, as of February 7,1997, the offer was made unconditional and Entergy, through an English subsidiary, controlled over 90% of the common shares of London Electricity. Through proce-dures available under apphcable law, Entergy expects to gain control of 100% of the common shares of London Electricity. The acquisition was financed with $2.1 bilhon of debt that is non-recourse to Entergy Corporation, and $392 milkon of equity provided by Entergy Corporation from available cash and borrowings under its $300 million kne of credit. Note 15. Quarterly Financial Data (Unaudited) The business of the domestic utihty companies and System Energy is subject to seasonal fluctua-tions with the peak period occurnng during the third quarter. Operating results for the four quarters of 1996 and 1995 were: operating opereting Not Income Earnings (Less) inpy.mn eu mr snare ames ____ nevenue __ . tacom _ _ _( Less[_ _ per_ Share 1996: First Ouarter $1,603.384 $342,403 $(87,072) $(0.38) Second Ouarter $1,852,525 $500,017 $188,323 $ 0.83 Third Quarter $2.138.273 $599,704 $279,881 $ 1.22 y Fourth Quarter $1,569,344 $236,597 $ 38,895 $ 0.16 1995 W8 First Ouarter $1,337,400 $258,441 $ 90,392 $ 0.40 Second Ouarter $1,564,917 $434,623 $162,703 $ 0.71 Third Quarter $1.955,019 $606,104 $263,118 $ 1,16 Fourth Ouarter $1,429,870 $218,158 $ 3,767 $ 0.02 lal See hote 12 for mforfratm regarding the recor<nry of cartan restiuctwq costa e 1995 (bi The fourth ester of IN5 refhwes an morease m twt ecome of $35 4 trdon (net of ocmm tases of $22 9 fremj and an mcrease n eartMiy3 per thdre of & 15 ckm to the escor$N of the curraAttw efmet of the change e accounbrg me' nod for or remer tal nuclear refWlMQ OutJQe tr@n!0'WKe r.061s See Note i for a discusson of the thange m acccunbng trethod _-_-_- - _- . _ _ . - . - _ _ _ - _ - _ . _ _ . - - _ . _ - _ - _ - _ _ _ _ . _ - _ - _ _ _ - - _ _ - - - - _-_-_-_____-___---_s
W. Frank Blount Ed Lupberger John H. Palmer Sr. i
- Direetors Cnie, e,eco,,ve 0,fce,,1elst,e enie,,,.s Cne,,meno,,ne Cna,, man o, tne Boe,d end Chief Executive Of fcer, I Communications Corporation, Board, President, and CEO, Sydney, Australia. Joined the New Orleans, Louisiana. Mobile Telecommunication l Age,60 Technologies Corp., Jackson,
- Entergy Board in 1987. Age,58 2 Mississippi. Joined the Entergy +
John A. Cooper Jr. Adnt Kinnaird R. McKee Boardin 1992. Age,62 ,
- a
- Chairman of the Board, Cooper U.S. Navy (ret.), former director Communities, Inc., Bella Vista, of Navy Nuclear Propulsion, Robert D. Pugh Arkansas. An Entergy director Oxford, Maryland. Joined the Chairman of the Board, since 1985. Age,58 Entergy Board in 1990. Age,67 Portland Gin & Warehouse,
] inc., Portland, Arkansas. An
- I Lucie J. Fjeldstad Paul W. Murrill Entergy director since 1977.
i President-Video and Chairman of the Board and Age,68 Networking Division, Tektronix Director, Pccadilly Cafeterias, Inc., Portland, Oregon. Joined loc., Baton Rouge. Louisiana. H. Duke Shackelford the Entergy Board in 1992. An Entergy director since 1993. Planter, President, and Director Age, 53 Age,62 of Shackelford Co., Inc., Bonita, j Louisiana. Joined the Entergy j j Norman C. Francis Jamen R. Nichols Boardin 1981. Age,70 I President, Xavier University of Partnei, Nichols & Pratt (family Louisiana, New Orleans, trustees), attorney and char- Wm. Clif ford Smith Louisiana. Joined the Entergy tered financial analyst, Boston, President of T. Baker Smith & { Son, h , Houma. Louisiana. Boardin 1994. Age.66 Massachusetts. Joined the Entergy Board in 1986. Age,58 An Erd .rgy director since 1983. l Age ;1 Robert v.d. Luf t l Chairman of DuPont Dow Eugene H. Owen . Elastomers and retired Senior Chairman and President. Utility Bismark A. Steinhagen ! Vice President, DuPont. Holdings, Inc., Baton Rouge. Chairman of Steinhagen l Chadds Ford, Pennsylvania. Louisiana: Chairman and Chief Oil Company. Inc., Beaumont. An Entergy director since Executive Of ficer, Owen and Texas. An Entergy directcr l since 1993. Age,62
- 1992. Age,61 White,Inc. An Entergy director i
since 1993. Age,67 I Donald C Hinta Michael G. Thompson , Officers Ed Lupberger Che,, man, g,es, den,. end CEO. execu,,,e V,ce P,es, den, and Senio,V,ce P,es, dent, c ene ,a, l Joined Entergy in 1979, elected Chief Nuclear Officer. Joined Counsel, and Secretary. Joined chairmanin 1985 Age,60 Entergy in 1989. Previously in Entergy in 1992 af ter private i charge of nuclear power for legal practice. Age,56 i Jerry L. Maulden another utility. Age,54 Vce Chairman. Jo*ned Entergy S.M. Henry Brown Jr. 4 in 1965; elected vice chairman Jerry D. Jackson Vice President - Federal in 1995. Age,60 Executive Vice President - Governmental Affairs. Joined o External Af fairs. Joined Entergy Entergy in 1989 af ter 17 years
<j Michael D. Bemis in 1987 af ter private legal prac- of corporate and trade associa-Executive Vice President- tice and service on Arkansas tion public af fairs work. Age,58 International Retail Operations. PutAc Service Commission.
Joined Entergy in 1982. Former Age. 52 Louis E. Duck Jr. partner for a national account- Vice President and Chief ing firm. Age,49 Gerald D. McInvale Accounting Of ficer. Joined Executive Vice President and Entergy in 1995 af ter holding i 01 John A. Draymen E xecutive Vice President-Chief Financial Of ficer. Joined Entergy in 1991 af ter holding executive positions with an electric cooperative and f b '- N(4 Business Development. executive positions with a major investor-owned electnc utility.
- W Joined Entergy in 1995. consumer prod icts firm. Age,53 Age, 48 hhg ,, Previously a telecommunica-tions industry executive. Terry L. Ogletree William J. Regan Jr.
l c$ , yp , Age,50 Executive Vce President - International. Joined Entergy in Vice President and Treasurer. Joined Entergy in 1995. k.
/ Frank F. Gallaher 1993. Previously an executive Previously treasurer and Executive Vice President- with major independent power finance executive for a national Operabons. Served as firms. Age,53 auto insurance company.
impiernentation manager for Age, 51 4' GSU merger in 1994. Joined Richard J. Landy Entergy in 1969. Age,51 Senior Vce President and Chief Administrative Of ficer. Also, President and CEO of Entergy Integrated Solutions. Inc. Joined Entergy in 1983 as a human resources manager. Age,51 64 os
gpvge The 1997 Annual Meeting of Shareholders will be held on Foday, May 9 at the Pennington the record and payment dates. Subject to board discretion, those dates for 1997 are:
%{ggg Biomedical Research Center, Baton Rouge, Declaration Record Payment Louisiana. The meeting will begin at 10 a.m. (CDT).
Date Date Date Shareholder News January 31 February 12 March 1 Entergy's quarterly earnings resuita, dividend April 9 May 14 June 1 action, and other news and information of investor July 25 August 13 September 1 interest may be obtained by calling Entergy October 31 November 12 December 1 Shareholder Direct at 1-888-EN TERGY (3G8-3749). You may also use this service to receive a printed Quarterly dividend payments in cents-per-share: copy of the quarterly earnings release by fax or Q"*"*' tm noe ma em ms m2 mail. Updated quarterly earnings results can be 1 45 45 45 45 40 35 expected in late April, July, and October, and early 2 45 45 45 40 35 in February Dividend information will be updated 3 45 45 45 40 35 according to the declaration schedule. 4 45 45 45 45 40 This and other information may be accessed Dividend Heinvestment/ Stock Purchase electronically by selecting the Entergy home ChaseMellon Shareholder Services of fers an page on the Internet's World Wide Web at automatic Dividend Reinvestment and Stock httpl/www.entergy com. Purchase Plan to registered holders of Entergy common stock. The plan provides shareholders For copies of Entergy's 10-K and 10-0 reports of record with a convenient and economical way filed with the Secunties and Exchange of acquiring additional shares of Entergy Commission and for other investor information, common stock. The plan also accommodates call 1-800-292-9900 or wnte to: payments of up to $3,000 per month for the l Entergy Corporation purchase of Entergy common shares. First-time l Investor Relations investors may make an initial minimum purchase ! P.O. Box 61000 of $1,000. Contact ChaseMellon for information l New Orleans, LA 70161 and an enrollment form. Secunties analysts and representatives of Direct Hegistration System financialinstitutions may contact Stuart Ball at Entergy has elected to participate in a Direct 1-504-576-4817 regarding Entergy's financial Registration System that provides investors with and operating performance, an alternative method for holding shares. DRS l will permit investors to move shares between the Shareholder Account information company's records and the broker of their choice. ChaseMellon Shareholder Services is Entergy's transfer agent, registrar, dividend disbursing This option, available to every shareholder who agent, and dividend reinvestment agent. chooses to have shares registered in his or her Shareholdors of record with questions about lost name on the books of the company, will be of fered certificates, lost or rnissing dividend checks, or by brokers at the time an investor purchases notifications of change of address should contact: shares and requests that they be registered.
-t ChaseMellon Shareholder Services, LLC Entergy Common Stock Pricea d] ark J 07660 The high and low trading prices for each quar-Telephone: 1-800-333-4368 terly period in 1996 and 1995 were as follows:
in drAirs 1996 1996 Common Stock Information ,,,,,,, g,,, t o ,, u,,, to , The company's common stock is listed on the , New York, Chicago, and Pacific exchanges under t 304 26% 24 X 20 the symbol "ETR." The Entergy share price is 2 28K 25% 25% 20 % reported daily in the financial press under "Entergy" 3 28% 244 26% 23% in most listings of New York Stock Exchange 4 29 26 V. 294 26 l secunties. Entergy common stock is a component of the following indices: S&P 500, S&P 100, S&P 3 Public Policy Newsletter Utility Index, Kemper Secunties Utilities index, and Entergy encourages its shareholders to take l( the NYSE Composite index. ) an active role in the legislative and public policy { issues that af fect the company and the electric ~ At year end 1996 there were 232,900,339 Shares energyindustry Copies of The Entergy of Entergy common stock outstanding Share- Constituent, Entergy's newsletter on those holders of record totaled 94.505, and approxi- issues, may be obtained by woting to: mately 136,000 investors held Entergy stock in
" street name" through a broker. Me Enteg Conswent Entergy Corporation Dividend Payments 0 * "8' The entire amount of dividends paid during 1996 is taxable as ordinary income. The Board of Directors declares dividends quarterty and sets
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