ML20024H179

System Energy Resources,Inc 1990 Annual Rept. Securities & Exchange Commission Form 8-K Encl

ML20024H179
Person / Time
Site:	Grand Gulf
Issue date:	12/31/1990
From:	Cavanaugh W, Harder G SYSTEM ENERGY RESOURCES, INC.
To:
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ML20024H177	List: ML20024H176 ML20024H178 ML20024H179 ML20024H180
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NUDOCS 9105290226
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System Energy Resources, Inc./1990 Annual Report l l

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$)$~l1:\1 ENi llGY lit:50t'llCI:% IM:

l I, Sy steni Eoere> Resouters loc. th 3 steni 1:ncrg) i a innlear troerating coingun) . has a 90 prirent intert st in the Grand (;ulf Noelcar $tation located near Port ('ibson. \lissimppi

$3 stern Energy is a wliolly -ow ned subsidiar) of 1:ntergs (:otporation the puldie utility holding cornpany for the Eiitert> Systern For the past 12 years, the Entere> $ 3stein has been the leaduie electric energy supplict to a 910004quaicquile setion along the low er ie.u hes of the Niississippi His er.

The Ss steini s ast netw ork of inteiconnected tiansnnssion aini distnhution lines aint dn ersified grid of fossil fuel .uul nuclear tenerating plants prm ule electrit its to niore than 1.7 nolloin retad custoiners in Arkansas. l.ouisiana. Slississippi. aiol Niissouri.

licadquartered in New Orleant l>onisiana Entere> Corporatoni includes lour retad operating companies- Arkansas Pow er N lacht Coinpany . l.ouisiana Pow er N lacht (:oinpans N1:ssissippi Pow er

& Light Coingun> . and New Orleans Public Senice Inc. In June 1940 Ei,tciu> t )perationt a noelcar managernent wn:ce coinpain. w holl, ow neil by Enter e> Cor poiation w as forined and assnined operating responsiinhty for the Enter e> S> stein's nuelcar tenerating uints Another subsidiary.

Enteigs Senices liic. prm ides s avious teclaiieal. adininistratn e. ainl cor porate sen ices to Entert)

Corporation and the Sy stein contpanies. In August 1940 Enteres Pow er. another u holls -ow ned subsidiary of Enterey Corporation, w as forined to ow n tenciatine capacits ainl to sell such capacity and ettergs in the w holes ile snarlet outsale Ark ansas ain! N1issouri ainl iii inaikets not otherwise sen ed presentl> hy the Entere> S> stein.

I l'AIll.E Ol' CONTI'.N'l 5:

lleport of N1anaccinent 2 Audit (:oinniittee Chairinan's I etter . 3 Deftintiolis 1 N1anacenient's Financial Discussion and Analy sis ->

Independent Auditors' Report 10 Financial Stateinents 12 Notes to Fiiiaticial $tateinevits 1(i Record of Progress llli Directors and Ewoutn e Officers . 37 I

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$YN'l l'\l l'.NI'.itGY ll1:$001101 %, INC.

ll1:1 Oll'1 Ol' NI ANTGl:\llNI The nunaccinent of Sy stein 1:ncrey llesouicet Inc lus prep.u cil ainl is n sponsible for the financial stateinents and ielateil financial infornution incluticil in tlus ancual icport of S stein 3 1:nerg>

ltesoniers, Inc. The financial stateinents are tuseil on gencially acceptc<l accountnig priin iples l'inancial infonnation inclumleil elsew heie in this report is consistent with the financul stateincots.

To ineet its responuinhties with respect to financial inh,rnution nunaccinent inaint:nns and enfotees a sy stein of internal accoutitiiig (ontiols w hic h is destened to plos ule leasonable assut ance, on a cost effectise basis. as to the inteeiits. objectnits and relialnhts of the financal icconis, and as to the piutection of assets This sptein is also tested by a coinprehensisc internal aucht prograin.

Tlie iiidepcialent pnblic acconiitants proside an olijectne assessinent of the dettee to w hich manaccinent inects its responsibihty for fairness of financial reportine Thc3 iccolath es alnate the s3 stem of inteinal accounting controls aial periorin such tests and other proceduies as they decin l necessary to scach alul espress an opitiion on the fais ness of the financial stateinents.

.\lanagettient helicu s that these policies alul procedures pros ale s easonable assur ance tlat its operations are earned ont with a high staiulant of hosniess coiului t.

g%h ps Wdhain Cas anailch.111 I'u nident and ( kvl Ihecutti r Ol!v er Glenn 1:. Ilanlei Yu e besident and It couver

1 SYS7 DI ENEllGY llEhOl'ItCES, INC, Al'DIT CO\ihil'ITI:E Cll Alll%I AN'S 1.ETI' Ell The Esitergy Corporation floard of Directors' Audit Cormnittee functions as the Audit Committee for System Energy. The Audit Conunittee is comprised of fh e directors. w ho are not officers of Systern Energy or Entergy Corporation: William C Battle (Chairman). James II. Campbell, John A. Cooper, Jr.. Kaneaster llodges, Jr., and Admiral Kimiaird il NieKee, The committee held three meetines during 1990.

The Audit Comrnittee osersees the Enterg> Corporation consolidated financial n porting process.

w hich includes S> stem Energy, on behalf of the Entergy Corporation lioard of Directors. The Audit Conunittee discussed with System Energy's internal auditor and the independent public accountants (Deloitte 6: Touche) the overall scope and plans for their respectise audits, as well as the financial statements and the adequacy of System Energy's internal controls. The conunittee met with the independent public accountants, without inanageinent present, to discow the results of their esainina.

tions, their evaluations of System Energy's internal controls. and the overall quality of financial reportine. The meetings were designed to facilitate and encourage any prnate conununications between the committee and the independent public accountants.

William C. llattle Cisair'unan Audit Commitice 3

9 SYSTEN! F,NEllGY llr.$0UllCES, INC.

DEFINITIONS Certain ahineviations or acronyms used in the test and notes are defined below:

Al.lunianon nr snonun Tnm AFUDC . . Allowance for Funds Used During Construction Al.J . . Administratise Law judge ANO. AP&L's Arkansas Nuclear One Steam Elcetric Generating Station (nuclear)

A P& L Arkansas Power & Light Company A PSC . . .. Arkansas Public Service Commission Capital Funds Agreernent . Agreement. dated as of June 21.1974, as ainended, between Sy stein Energy and Entergy Corporation, and the assignments thereof City of New Orleans or City , New Orleans. Louisiana Council Council of the City of New Orleans. Louisiana D.C. Circuit - United States Court of Appeals for the District of Colunisia Circuit Entergy Operations. Enterg> Operations. Inc.

FASil . . . . Financial Accounting Standards Board February 4 Hesolution . The flesolution (including the Determination; and Order referred to therein) adopted by the Council on February 4,19%

disallowing the recovery by NOPSI of $135 million of previously deferred Grand Gulf 1-related costs FERC .. Federal Energy Hegulatory Commission FERC Settlement Settlement offer filed with the FERC on June 9.1959, by AP&L.

LP&L. AIP&L NOPSI and System Energ) and approved by the FERC m July 21.1959, to settle. among other things, certain then pending Grand Gulf Station-related issues litigation and other rate matters Grand Gulf Station . Grand Gulf Stearn Electric Generating Station (nuclear)

Grand Gulf I Unit No. I of the Grand Gulf Station Grand Gulf 2 Unit No. 2 of the Grand Gulf Station June 13 Decision , An order issued by the FERC on June 13,1955 (Opinion No. 234) relating to the Unit Power Sales Agreement KWil Kilowatt-Hours I.P& L Louisiana Power & Light Company LPSC ... Louisiana Public Service Conunission

.\loney Pool. Entergy Sy stem hioney Pool which allows certain System companies to horrow from, or lend to, certain other System companies SIPAL hiississippi Power & Light Company N!PSC . Niississippi Public Service Commission NOPSI . . ... New Orleans Public Service Inc.

Nmember 30 Order . An order issued by the FERC on Nmember 30.1957 (Opinion No. 292) w hich reaffirmed and reinstated the June 13 Decision NHC Nucicar Regulatory Conunission PCHils . Pollution Conrol Resenue Bonds SEC Securities and E.schange Conunission SFAS. Statement of Financial Accounting Standards promulgated by the FASB SNIEPA South Slississippi Electric Power Association System or Entergy System. Entergy Corporation and its various direct and indirect subsidiaries Splein Energy System Energy Resources. Inc.

System Fuels System Fuels. Inc.

Sptem operating companies . AP&L LP&L, AIP&L and NOPSI. collectively Waterford 3 Unit No. 3 (nuclear) of LP&L's Waterford Steam Electric Generating Station 4

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SYNTE\1 ENEllGY llENOUltGl:S, ING,

\l ANAGE\ LENT'S l'INANGl AI OlhCUS$10N AND ANAL.Y$lS ItENUlJ5 Ol' OPEltN1 IONS Grand Gulf I w as on-line for 2h2 of 365 da in 1990 as (oinpared to 2S1 of 365 days in 1959. Gratul Gulf I returned to power froin its fourth refneling outage on Nosember 26 1990 The outage began <

Septeinher 30.1990 atul required apprmitnately 57 day to coinplete, the secorul shortest refueling i outage since the ultit hegan corninercial operation. Grand Gulf I was shut dow n due to an unplanned outage frorn Deceniher Ib to December 31. !!M)in order to replace two reactor secirculation purnps.

In addition, Gratul Gulf I encountered three brief unplanned outage' during the last half of 1990 The capacity factor, w hich is a measure of the uniti performaner (hased on a ratio of tiet electrical generation to tuasitnuin dependable capacity). was 73.9% for 1990 as cornpared to 75.2% for 1959.

Grand Gulf l's third refueling outage occurred in 19$9.

1.isted below are selected factors affectine results of operations for which changes base occurred Nr the year 1990 as cotupared to 19$9 and for the year 19$9 as compared to 19sh. The principal re. sons for the changes fsom period to period are discussed'following the table.

Imen u 19s9 19s9 u 19%S intreawl Pos t rnt I n( t raw / l'en tral IWM) 19s9 19%s ( Dn i raw) ( bnge ( Drt e raw ) Change t D..llan in stilhon0 Net income (uss) . $ 165.7 $(6Ti5) $ 160 3 $521.2 -

$(8318) ( 163.5)

Operating resennes $501.6 $h373 $9TLS $(317) ( l.3) $ (96.5) ( 10.3)

Fuel expense s 79.0 $ 68.3 $1291 $ (9.3) ( 10.5) $ 011.1) (31.7)

Maintenance expense $ 31.6 $ 29.5 $ bl.1 5 1.5 0.1 $ 117 111,3 Depreciation, amorti/ation and decornmissioning expense $ 71s $ 101.1 5 96.9 $ (27.3) ( 26.3 ) $ 6.2 6. -l Miscellaneous - net . $ 211 $ 11.0 $ 29.2 $ l 1.1 1282 $ (15.2) (62.3 )

Gain on disposition of property _ $ 7.2 - -

$ 7.2 - - -

Total interest espense (excluding AFUDC) . $2 :2.6 $ 219.5 $2s7.3 $ (7.2) ( 2.9) $ (37.5) ( 13,1 )

Total income tases $ 113.9 $ (h9.7) $120 5 $203 6 ~

$ ( 210.5) ( 17.l.3)

Net income The increase in 1990 net incoine was primarily due to the implementation in 1959 of the terrns of the FERC Settlement, including the cancellation and w rite-off of Sptem Energyiinvestment in Grand Gulf 2, the w rite-off of 5-13 inillion of Grand Gulf I AFUD(: and a $30 million one-tiene credit to the Sptem operating companies. Net income was also affected to a h sser estent by a nuinher of other factors < itichuling changes in interest incorne. incorne lases, depreciation expense ami a lower return on System Energyi irnestment in Grand Gulf I. cach of w hich are discussed below.

The decrease in 1959 net income was primarily due to the implementation of the terms of the FERC Settlement discussed ahme. Sptern Energ>'s 1959 sect incorne would base been apprmimately

$156 million absent the impact of the FERG Settlement. 1959 net incorne was also affected to a lesser extent hy a number of other factors. including ch:mges in interest income, interest expense. AFUDG, incorne taxes on other income atul a lower teturn on Systern Energy's unestment in Grand Gulf 1.

Operaling Hevenues hystem Energy's operating resenues reemer operating espenses. depreciation and capital costs attributable to Grand Gulf E The capital costs are cornputed by allowing a return (currently set at a 5

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SYSTENI FNEltGY llESOURCES, INC, NI ANAGENIENT'S FINANCIAL DISCUSSION AND ANALYSIS - (Continued) rate of Il percent) on System Energy's common equity funds allocable to its imestment in Grand Gulf I and adding to such amount System Energy's effectise interest cost for its debt allocable to its im estnient in Grand Gulf 1. System Energy's operating resenues decreased approximately $35.7 mil.

lion during 1990 primarily due to a decrease in System Energy's return on its imestment in Grand Gulf I resulting from (1) a decrease in the equity portion ofits capital structure due to the impact of the write-offs associated with the FERC Settlement and (2) a decrease in net unit investment. Future resenues attributable to the return on investment are expected to decrease by approximately

$15 inillion in 1991 and by declining amounts each year thereafter as a result of the depreciation of System Eneigy's imestment in Grand Gulf 1, System Energy's return on its investment in Grand Gulf I decreased in 19S9 primarily due to a lower net unit investment resulting frotn the 195$ sale and leaschack transactions and a lower equity return during the fourth quarter of 1959 due to the impact of the write ofTs associated with the FERC Settlement on capitalization ratios and n(t unit investment. Consequently,1959 operating resenues decreased primarily as a result of a lower return on System Energy's investment in Grand Gulf 1. and lower fuel and other operating expenses, offset in part by higher maintenance expenses.

Fuel Expeme Fuel expense decreased in 1959 as a result of Grand Gulf l's third refueling outage and certain unplanned outages which occurred during the year, whereas there was no refueling outage in 1955.

Alaintenance Expeme The increase in maintenance expense for 1999 was due primarily to an increase in expenses in connection with Grand Gulf l's third refueling outage and ecrtain unplanned outages w hich occurred during 1959.

Depreciation, Amortization and Decommissioning Expeme Depreciation expense decreased in 1990 due to the deferral of apprmimitely $30 million of depreciation expense related to the sale and leaschack ptoperty, in December 1990, consistent with a recommendation contained in a recent FERC audit report. System Energy recorded as a deferred asset the current and prior year ditTerence between the amounts collected in revenues for lease payments and the amounts expensed for interest and depreciation on the related property. The deferral will increase in the early years of the lease term and will reverse over the later years of the lease term as the revenues associated with the leases exceed the charges for depreciation and lease interest. See Note 9, " Leases "

Decommissioning expense increased in 1990 due to an increase in annual decommissioning espense collections, subject to refund, from $1.1 million per year to $9.7 milhon effective June 1,1990 See Note h, " Commitments and Contingencies - Spent Nuclear Fuel and Decommissioning Costs."

Aliscellaneous - Net

.\liscellaneous - net increased in 1990 primarily as a result of an increase in interest income on System Energy's temporary cash imestments, which were maintained at higher aserage balances during 1990.

Niiscellaneous - net decreased in 1959 primarily as a result of a reduction in interest income due to the return in the last half of 195$ of funds held in escrow to secure certain obligations of System i

Energy, which amounts were used during 195$ to repay outstanding indebtedness.

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SYSTE\1 ENEllGY llESOl'IlCEh, INC.

NI ANAGE\ LENT'S l'IN ANCI Al. DISCL'SSION AND ANAIJslS - (Continued)

Gain on Disposition of Properts Systein Energis gain on disposition of property in 1990 w as due to the sale of certain Gratul Gulf 2 property w hich w as w ritten off in 1959.

Total Interest Expense (culuding AITDC)

Total interest expense (cwluding AFUDC) declined in 1990 due to the irtireinent of approxi-inately $72.2 rnillion of first mortgage bonds during the first half of 1990.

Total intriest expense (excluding AFUDC) declined in 1959 due to the redemption of approxi-mately $157.7 million of System Energy's brst mortgage honds in January 1989 and due to prepayment in full of all amounts remaining outstanding under the domestic and fon ign hank loan agreements in December 195s. This reduction w as partially offset h3 interest expense related to the sales and leaschacks of an approximate !IM aggregate ou nership interest in Grand Gulf 1 in Decendier 195$

and by an increase in interest e.xpense related to two series of PCllifs temarketed in Decendier 1955 and one series remarketed in June 1959 at long-term lhed rates which were slightl) higher than the previous short-term variable rates.

Total Income Taxes Total income taws for 19$9 reflect a tn benefit resultine from the unte-off of Sy stem Energy's imestment in Crimd Culf 2, offset, its part, by the resersal of related deferred income taxes.

FIN ANCI Al. CONDITION 1 iquidity For 1990. System Energis cash requirements, which consisted primarily of ongoing operating expenses. discretionary retirement oflong-term debt and comunon stock disidend pay ments. were met with internally generated funds. Net cash flow prosided by operating artisities totaled approximately

$369.9 million in 1990. As detailed in the Statements of Cash Flow s, cash flow from operating actisities was affected by a number of factors representalise of normal operations. Factors of an unusual non-reenrring nature w ere not significant.

Im esting activities for the y ear resulted in a net utilization of cash of approximately Slh5.0 million due primarily to nuclear fuel expenditures, construction expenditures and the imestment of approxi-mately $125 million in intermediate-term imestments. Imestm(nts in temporary im estments other than cash equis alents are, because of their short term nature, as ailable for cash needs.

Financing actisities in 1990 also resulted in a net utilization of cash of approximately $302.6 million due to the retiretnent of approsimately $72.2 million of first rnortgage honds atul the payrnent of approximately $279.2 million of cash disideinls on conunon stock to Entergy Corporation durmg the period. This net utilization of cash w as partially offset by approximately $15.6 million in proceeds from the sale and leaseback of nuclear fuel.

See Note S. "Comnutments and Contingencies - FEllC Complaint Casr' and "Conunitments and Contmgencies - FEllC Audit ' for information on uncertainties w hich could affect Ss stem Energy 's financial condition.

Capital and llelinancing flequirements Sy stem Energ) estiinates t! .it it will require $29-l million in 1991. $ 115.75 unllion in 1992 and $30 milhon in 1993 to satisfy long-term debt maturities and to meet sinking fund requirements. Construe-7

SYSTEM ENEllGY llESOUllCES, INC.

M ANAGl31ENT'S I INANCIAl, DISCUSSION AND ANAllSIS - (Continued) I tion expenditures are estimated to be approximately $21.3 million in 1991, $26.7 million in 1992 and

$28.0 million in 1993.

Sptem Energy anticipates that usi. on hand at the beginning of the period and its projected internally generated funds for the period 1991-1993 will enable it to satisfy its capital and refmancing requirements, if System Energy does not choose to externally fmance such obhgations.

System Energy has received the necessary regulatory approval and is proceeding with arrange-ments for the possible redemption, purchase or other acquisition of all or a portion of one or more series ofits outstanding first mortgage bonds. See Note 6,"Long-Term Debt," for further information.

Capital Resources Under System Energy's mortgage, the amount of additional first mortgage bonds -that System Energy can issue in the future is contingent upon earnings, the amount of unfunded bondable property available to support the issuance of additional first mortgage bonds and an equity coserage require-ment contained in its Reimbursement Agreement. At December 31,1990, the earnings coverage for System Energy's first mortgage bonds, which must be a minimum of 1.5 times the pro forma annual bond interest requirements for issuance of additional first mortgage bonds (subject to increase to two times coverage in September 1991, two years after abandonment of Grand Gulf 2), was 336. At December 31,1990, based upon the most restrictive of the above tests. System Energy could have issued approximately $93 million of additional first mortgage bonds. In addition System Energy may, subject to meeting certain conditions, issue first mortgage bonds against the retirement of outstanding first mortgage bonds without meeting the earnings or bondable property tests. At December 31,1990, up to $72.2 million of first mortgage bonds could be issued on this basis without the concurrent retiranent of other bonds due to purchases of bonds by System Energy in 1990.

System Energy is authorized by the SEC through November 1992 to effect short-term borrowings in an aggregate amount outst.mding at any one time of up to $125 million, subject to increase to a maximum outstanding at any one time of $090 million with further SEC approval. At December 31,.

1990. System Energy did not have any bank lines of credit System Energy is also authorized by the SEC through November 1992 to effect short-term borrowings through tlm Money Pool, subject to the abose limitations. System Energy's ability to borrow from the Money Pool is subject to the availability of funds, which at any particular time may be limited. At December 31.1990. System Energy had no outstanding borrowings from the Money Pool.

In connection with the financing of Grand Gulf-1, Entergy Corporation has undertaken in the Capital Funds Agreement, in relevant part, to provide or cause to be prosided to System Energy sufficient capital (1) to maintain System Ee 'rgy's equity capital at an amount at least equal to 35 percent of System Energy's total capitalia.ation (excluding short-term debt), (2) to permit the continuation of conunercial operation of Grand Gulf I and (0) to pay in full all indebtedness for borrowed money of System Energy, w hether at maturity, on prepayment, on acceleration or otherwise.

In ad hrt n, Entergy Corporation has aurced in the Capital Funds Agreement to make certain cash capital cuatributions to enable System Energy to make payments when due on specific issues of its

! long-term debt.

ACCOUNTING ISSUES SFAS No. 96 in December 1957, the FASB issued SFAS No. 96, " Accounting for income Taxes." which was i scheduled to be elTective for fiscal years beginning after December 15,19%. The FASB subsequently issued statement numbers 100 and 103, which delay the effectise date of SFAS No. 96 to fiscal years 5

d SYSTI'\1 ENEltGY lli' SOUL (CES, INC, .

,\l ANAGENIENT'S l'INANCI AI. DISCUSSION AND ANAIJSIS - (Concluded) beginning after December 15.1991. The FASil is expected to issue a new exposure draft in the second quarter of 1991. This exposure draft may further delay the effectise date and simplify the implementa-tion of SFAS No. 96.

Ilased upon a preliminary study, System Energy expects that the adoption of SFAS No. 96 in its present form would result in a net increase in accumuluted deferred income taxes with a correspond-ing increase in assets. It is not expected that results of operations for System Energy would be significantl> impacted by the mioption of SFAS No. 96 in its present form. See Note 3," Income Taxes."

SI'AS No.106 In December 1990, the FASil issued 3FAS No_106, " Employers' Accounting for Postretirement llenefits Other Than Pensions," which is generall> elTeetive for fiscal years beginning after Decem.

ber 15.1992. The new standard requires a change in accounting requirements for postretirement benefits other than pensions from a cash method to an accrual method. The impact of this new standard has not been fully determined, but the change likely will result in significantly greater expense being recognized for provision of these benefits. The effect of the increased benefit expense on net income could be reduced to the extent such increased costs are recosered through rates or through the recording of a regulatory asset to be recovered in the future. System Energy expects to recoser such increased costs under the Unit Power Sales Agreement. System Energy plans to adopt this statement in 1993. See Note 10, "Postretirement llenefits."

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INDl'.Pl;NDENT Al'DITOllS' ILEPollT System Energy liesources. Inc.

We base audited the acconipan3 ing balance sheets of Sy stem Energy liesources. Inc. (Systein Energ)) as of December 31,1990 and 1949. and the telated statements cf income (loss), retained earnings and cash flow s for each of the three y ears in the period "nded Decernher 31.1990. These financial statements are the responsibility of System Energy's inanagement. Our responsibility is to espress an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perfotm the audit to obtain reasonable assurance about w hether the finaticial statements are free ofinaterial mintatement. An audit includes exanuning. on a test basis, esidence supporting the amoutits and disclosures in the financial staternents. An audit also includes auessing the accounting principles used and significant estiinates made by inanagernent, as well as esaluating the oserall financial staternent presentation We heliese that our audits provide a reasonable basis for our opinion.

In our opinion, such financial staternents present fairly. in all inaterial respects, the financial position of System Energy at December 31,1990 and 1959, and the results of its operations and its cash flows for each of the three years in the period ended December 31,1990 in conformity with generally accepted accounting principles.

As discussed in Note 5,"Conunitments and Contingencies - FEllC Complaint Case and - FEllC Audit" of Notes to Financial Statements. sescral regulatory proceedines base been initiated against Systern Energy seeking (1) retroactise and prospectise reductions of rates charged by System Energy to the Systent operating companie s and (2) the w rite off of approximately 59'iinillion of costs included in utility plant resulting from System Energ>'s accounting for certain allocated income tax charges.

The ultimate onteorne of these uncertainties cannot piesently be determined. Accordingly, no prosision for any refunds or lowes that tuay result upon resolution of these matters has been made in the accompanying financial statements, b.as + M Deloitte & Touche i New Orleans.1,ouisiana February 15.1991 1

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4 ITitis PAci: 1. Err INTtxrioN A1.1.Y til.ANKI 11

$YST131 l'.NI:llGY llEh0UllCI:h, INC.

II Al.ANCl'. $111'l:T5 ASSETS I)cremher 31. _

1990 1949 (in 'l houwndi)

Utility I'lant (Note 1);

Electric $ 3,011,911 53,010,h5 l Electric plant under leue (Note 9) . 43s 499 435.241 Construction work in progress 26,-191 14,l46 1,125 5,576 Plant held for future use ,

Nuclear fuel utuler capital lease (Note 9) 133,905 150.567 Total 3,615.234 3 616.711

1. css - accuinulated depteciation and aniottization 119,923 323 691 Utility plant - net. 3,195,311 3.29'l.020 Other Insestments:

Decounnissioning trust fuiid (Note 1) 11,255 5 435 11,2%5 5A3%

Total Current Auctu Cash atul cash equis alents:

Cash 5% 169 Trinporary ins estinents:

Associated coinpanies 1,579 12.h50 Other ,

130,361 236.610 Total cash and cash equisalents (Note 12) 131,995 219,659 Other temporary insestments (Note 12) 125,225 -

Accounts receisable:

Associated coinpanies 56,196 69 413 Other 3,671 3.929 hlaterials and supplies - at aserage cost . 76,66% 70 091 Income tax henefits related to Grand Gulf 2 cancellation (Note 3) . 69,600 5S.000 Prepay inctit s 2,554 2,379 Unainortized fuel expense 2,255 1,313 Other 4,542 5A23 Total 173.012 160.247 Deferred Debits:

Future benefits related to AFUDC (Note 3) . -

9.h61 Income tax ht nefits related to Grand Gulf 2 cancellation (Note 3) . 135,859 179.335 Unamortized f ou on reaetpiired delit 15,$66 17.795 Other (Not, 9). 52,21s 21.396 Tote 203,603 228 390 TOTAI. $3,553,241 $3.9h7.0">5 Se e Notes to Financial Statements.

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SYSTEhl ENEltGY llESOUllCES, INC.

IIAl.ANCE SIIEETS cal' ITAL.lZATION AND I.l Allti.lTIES Dmmber 31.

110 0 19 %

(In 't houwnth)

Capitalitation:

Conitnon stock. no par salue, authorized 1,000,000 shares; issued ain) outstaruling 769.350 sliares . . . & 759,350 $ Th9,350 lietained earnings (Note 7) . . 3s6,469 197,022 Total conunon shareholder's equity ,. 1,175,519 1,286,372 Eong terin debt (Note 6) . .. __1,795,991 2.155,455 Total . . . . 2,971,s t o 3.441h27 Other Nonenrrent I.iabilities:

Obligations under capital lease . 53,909 70,567 Total , 53,909 70.567 Current Eiabilities:

Currently maturing lotig-term debt (Note 6) , 291,000 -

Obligations in. der capital lease , 50,000 h0.000 Accounts payable:

Associated conipanies 1,505 176 Other , . , 26,875 51.736 Tases accrued , 20,730 20.256 Interest accrued . 59,553 60,50h Other . . 121 116 Total , . 8%2,651 212.792 Deferred Credits:

Accutnnlated deferred income tases (Note 3) 242,024 236.969 Accinnulated deferred imestment tax credits (Note 3) 69,459 13.i69 Other . , , 23,325 S.731 Total 374,83s 258.569 Commitments and Contingencies (Notes 2 and h)

TOTAL. 83,5S3.2 I $31)s7.or, See Notes to Financial Statements.

13

SYST131 ENEllGY llE50UllCES, INC.

STATENIENTS 01' INCONIE (1.05S) AND HETAINED EARNINGS STATENIENTS Ol' INCONIE (1.05S)

I'ni the Years I:nded Dvember 31, 1990 19s9 19 %

(In 'I housand0 Operating Hevenues . 6501,615 $ 637,307 $933,828 Operating Espemes:

Operation:

Fuel . . . . 78,965 55.350 129,423 Other . . . 97,133 98,647 92,S59 hiaintenance . . . . 31,594 29,769 14.139 Depreciation, amortization, and decommissioning (Note 9) 75,759 103,065 96,851 Taxes other than income taxes . . . 25,s79 24,350 27,571 Income tases (Note 3) . . . . .. ., 110.227 131.225 151,997 Total . . , . 419,590 475.426 512,643 Operating Income . 3s2,025 361 %1 420,955 Other Income (Deductions):

Project Oli e Branch Settlement (Note 2) . ., -

(1.000.932) -

Allowance for equity funds used during construction (Note 1) 442 9S5 1,112 hiiscellaneous - net , . 25,093 11,016 29,215 Income taxes - (debit) credit (Notes 1 and 1) (3,675) 220,937 31,226 Gain on disposition of property 7,ls9 - -

Total . . . . 29,019 (767.992) 61.553 Interest Charges:

Interest on long-term debt 230,G13 239.697 279,470 Other interest - net 11,992 10,116 7,870 Allowance for borrowed funds used during construction (Note 1) ,

(235) (400) 14.654 Total . , 242,400 219.413 30-2,224 Net Income (Ims) , s l6s,677 $ (655,524) $ 150.314 STATE. STENTS OF HE1 AINED EARNINGS l'nr lhe Years Ended December 31, 1990 19s9 I9M (In T housand0 Retained Earnings, January 1. . 8497,022 $1,240.219 $1,359,905 Add - Net income (loss) .

16s,677 (655,524) 180.314 Total . , , . 665,699 5s4.695 1,540.219 Deduct - Cash dividends on conunon stock (Note 7) . 279,230 57.673 300.000 Retained Earnings, December 31 (Note 7) 83s6,469 $ 497.022 $1,240,219 See Notes to Financial Statements.

14

SYSTEM ENEllGY llESOUHCI:S, INC, STATEMENTS OF CASil Fl.OWS  !

rur & Years I:nded I)ciember at, hm 19s9 19ss

" "~"

Operating Activities:

Net income (loss) . . . . ,. $ 16%,677 5(655,524) 5160,314 Noncash items included in net inconne (loss):

Depreciation and atnortization. 69,653 101,952 95,741 Deferred income taxes and irnestment tax credits 109,252 Th,727 (I51,797)

Allowance for equity funds tued during construction (442) (955) (1.112)

Arnortiration of debt discount . 10,532 5.069 6,643 Burnup of nuclear fuel not under lease . - 6,224 2,250 L,oss on Grand Gulf 2 cancellation - 907,93' Writeoff of AFUDC - equity -

43.000 ---

Changes in:

Accounts receis able , ,. 13,175 14.077 6,175 Accounts payable . , (23,632) (7,571) 25.141 Materials and supplies (6,577) (27.776) (4,519)

Taxes and interest accrued . (4st) 1,142 (390)

Other current assets and liabilities , (264) (1,020) (500) locome tax impact of future benefits related to AFUDC (Note 3) m . . .. 9,s61 69.316 255,513 Income tax benefits related to Grand Gulf 2 cancellation (Note 3) , . , , . 32,246 (237,335) -

Cain on disposition of property . (7.159) - -

Change in bonding trust arrangement - -

101.202 Change in deconunissioning trust (5,$17) (1.3 14) (I,320)

Other. . . , 900 13.911 10,565 Net cash flow provided h3 operating actisities 369,594 312,52s 526.906 Investing Actisities:

Construction expenditures (24,633) (25.153) (24,377)

Allowance for equity funds used during construction 412 955 1,112 Nuclear fuel expenditures . (4%,607) (26.672) (103,001)

Expenditures on Grand Gulf 2. - (7,175) (12,191)

Proceeds from sale of assets , , 13,016 - -

Insestinent in other temporary insestments . _(125,225) - -

Net cash flow used by innesting activities , ( I s i,977) _(61.015) (135,460)

Financing Activities:

Proceeds from issuance of long-term debt .

- - 500,000 Proceeds from sale and leaseback of nuclear fuel . , 45,607 41,197 129,627 Retirement of first mortgage hands (Note 6) . (72,231) (457,697) -

Retirement of bank notes and other long term debt - -

(371,319)

Proceeds from letter of credit escrow - -

192,h55

, Letter of credit escrow payments . - -

(64,323)

Change in short-term horrowings - -

(155,000)

Common stock dividend payments (Note 7) (279,230) (57.673)

~

(300 000)

Other. 279 - -

Net cash flow used by financing actisities. p02,578) (531,173) (932160)-

Net change in casti and cash equivalents (117,661) (279,360) 294,456 Cash niid cash equivalents at beginning of period. _2_ t 9,659 529,019 234,533 Cash and cash equivalents at end of period $ 131,995, $ 219.659 $329.019 See Notes to Financial Matements.

15

4 SYSTEAl ENERGY HESOURCES, INC, NOTES TO FINANCIAL STATENIENTS NOTE 1, SUAl%IARY OF SIGNIFICANT ACCOUNTING POLICIES Organi:ntion System Energy, formerly Sliddle South Energy, Inc., is a wholly-owned subsidiary of Entergy Corporation. System Energy, created in 1971, is a generating company providing electricity to the Systern operating companies and has a 90% interest in Grand Gulf 1, a nuclear generating station located near Port Gibson, hiississippi. The Grand Gulf Station was originally designed as two 1250 -

megaw att nuclear generating units.

The NHC issued a full power operating license for Grand Gulf I on August 31,1954 and the unit began conunercial operation on July 1,1955. In September 19S9, System Energy canceled and wrote oft its im estment in Grand Gulf 2, construction on which had been suspended since September 1951 See Note 2. " Rate and Regulatory Statters - Project Olier Branch Sctriement/ On June 6,1990, Entergy Operations assumed responsibility for the operation and maintenance of Grand Gulf 1. See Note 2, " Rate and Regulatory Niatters - Nuclear Management Consolidation." for further information.

System Energy has a combined ownership and leasehold interest of 90% in Grand Gulf 1, and SNIEPA has an undisided ownership interest of 10% in Grand Gulf 1. System Energy records its imestment associated with Grand Gulf 1 to the extent to which it owns and maintains a leasehohl interest in the generating station. Likewise, System-Energy's operating expenses reflected in the accompanying financial statements represent 90% of such Grand Gulf I expenses.

System of Accounts The accounts of System Energy are maintained in accordance with the system of accounts prescribed by the FERC. See " Utility Plant Depreciation and Decomminioning" below for information on the accounting treatment of the sale and leaseback transactions, l'ostrctirement Benefits System Energy participates in a postretirement plan. System Energy's policy is to 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 1956 as amended, and to fund and record other postretirement plan costs on a cash basis. See Note 10. "Postretirement Benefits?

Income Taxes System Energy joins its parent and affiliates in the filing of a consolidated Federal income tax return. Pursuant to an intra. System tax allocation agreement, income taxes are allocated to System

Energy in proportion to its contribution to consolidated taxable income. In accordance with SEC regulations. no System company is required to pay more income tax than it would hase paid had it filed a separate income tax return.

Deferred income taxes are provided for differences between book and taxah!e income to the extent permitted by System Energy's regulatory body for rate-making purposes. Im estment tax credits allocated to System Energy are deferred and amortized based upon the aserage useful life of the related property in a manner consistent with rate-making treatment.

In addition, System Energy files a consolidated Niississippi state income tax return with certain other System companies.

16

(

4 a 3 SYSTEN! ENEllGY llESOUliCEh, INC.

NOTES TO FINANCI AL STATE \lENTS - (Continued)

Allou ance for Funds Used During Countruction In accordance with the regulatory system of accounts, System Energy capitalizes AFUDC as an appropriate cost of utility plant. Under this utility industry practice, construction work in progress on the balance sheet is charged arul the income statement is credited for the approximate net composite interest cost of borrowed fmnis and for a reasonable return on the equity furnis used for construction.

This procedure is intended to remose from the income staternent the effect of the cost of financing the construction program. and results in treating the AFUDC charges in the same manner as construction labor arul material costs. As non-cash items l these credits to the income staternent base no effect on current cash earnings After the property is placed in service. the AFUDC charged to construction costs is recoverable from customers through depreciation provisions included in rates charged for utility service. System Energy's effectis e composite AFUDC rate was 10.2% 10.75i and 10.M for 1990, 1959 and 1955. respectisely.

Utilittj flant, Depreciation and Decomminioning Utility plant is stated at original cost. The cost of additions to utihty plant (including Irasehold impros ements) includes contracted work, direct labor and materials. allocable os erheads and AFUDC.

The costs of units of property retired are remosed from utility plant and such costs plus removal costs, less salvage are charged to accumulated depreciation. h!aintenance and repairs of property, and the replacement ofitems determined to be less than units of property, are charged to operating expenses.

Substantially all of the utility plant owned by System Energy is subject to the lien of System Energy's first mortgage bon-l indenture.

In accordance with SFAS No. 95, " Accounting for Leases / the sales and leasebacks of the undisided portions of Grand Gulf I are required to be reflected for financial reporting purposes a-financing transactions m System Energy's financial statements. For financial reporting purpcses, utilit /

plant includes the portions of Grand Gulf 1 that were sold and are currently under lease. Syden Energy has retired such property from its continuing property records as formerly owned proper y released from and no longer subject to System Energy's mortgage and deed of trust. System Energy is reflecting such property on its books and records for financial reporting purposes as property und 4r kase from others and is depreciating this leased property oser the life of the basic lease term. Such depreciation is being deferred until recoserable from customers in future periods. See Note 9,

" Leases /  ;

Depreciation on Grand Gulf 1 is computed on a straight-line basis. Depreciation provisions on average depreciable property approximated 2,554 in 1990,2.97% in 1959 and 2.55% in 1955, Effectise June 1,1990. System Energy increased ds collections, subject to refund. to $9.7 million per year for nuelcar phmt decommissioning costs in connection with its combined ownership and leasehold interests of 904 in Grand Gulf I and is depositing these monics in a tas qualified external fund held by a trustee. See Note 5, "Conunitments and Contingencies - Spent Nuclear Fncl and Decommissioning Costs:

NOTE 2. IIATE AND llEGULATOllY \lATTEllS Unit Potter Sales Acrerment in jnne 19S2, System Energy and the System operating companies entered into a Unit Power Sales Agreement pursuant to which System Energy agreed to sell all of the capacity and energy available to it from its 90% share of Grand Gulf.I and Grand Gulf 2 to LP&L, h!P&L and NOPSI in accordance uith percentages specified therein, which conformed with the percentages set forth in the lleallocation Agreement described in Note 8. " Commitments and Contingencies - Capital Funds. Availability and ,

1 1

17

~ ,

1 SYSTENI ENERGY RESOURCES, INC, NOTES TO FINANCI AL STATENIENTS - (Continued)

Reallocation Agreements." The Unit Power Sales Agreement w as, with certain modifications (capacity and energy from Grand Gulf I was allocated in the following percentages: AP&L 36%; LP&L 14%

hlP&L 33% and NOPSI,17%), approved by the FERC in its June 13 Decision and ordered to become effective upon the initiation of sei sice of Grand Gulf 1, which occurred on July 1 19% The Unit Power Sales Agreement will remain in effect until terminated by the parties and approved by the FERC, which most likely would occur after Grand Gulf 1 is retired from senice. In its June 13 Decision, the FERC did not rule on the Grand Gulf 2 allocation and ordered System Energy to remove the proposed Grand Gulf 2 percentage allocation from the Unit Power Sales Agreement.

The June 13 Decision was reafErmed by the FERC in the November 30 Order. The challenges to this decision terminated on April 16.1990. when the United States Supreme Court denied a petition for writ of certiorari seeking review of the D.C. Circuit's affirmance of the Nosember 30 Order, thereby ending the appeals process with respect to the June 13 Decision.

The Unit Power Sales Agreement specifies the rates to be charged to the System onerating companies for their respectise entitlements to receise capacity and energy from Grand Gulf 1. Such rates are computed monthly on the basis of System Energy's total cost of ser ice, w hich is based on System Energy's operating expenses, depreciation and capital costs attributable to the unit for the month. These rates are paid in consideration for the respective entitlements of the System operating companies to receise such capacity and energy, and are payable irrespectise of the quantity of energy delivered so long as the unit remains in commercial operation. Generally, operating expenses are computed by reference to allocable amounts chargeable to Sutem Energy's operating expense accounts, and capital costs are computed by allowing a return, currently set at a rate of 14% on System Energy's common equity funds allocable to its insestment in the unit and addmg to such amount the effectise interest and dividend cost to System Energy during the billing period for its respective debt and preferred stock,if any, allocable to its insestment in the unit. The current monthly obligation for payments from the System operating companies to System Energy for Grand Gulf I capacity and energy is approximately $67 million.

On February 1,1990, the APSC, the LPSC, the N1PSC, the hiississippi Attorney General and the City of New Orleans (Complainants) filed a complaint with the FERC against system Energy alleging that the rates currently being charged to the System operating companies by System Energy for capacity and energy from Grand Gulf I are not just and reasonable. See Note 6 "Comm;tments and Contingencies - FEllC Complaint Case" and " Commitments and Contingencies - FEllC Audit /

Grand Gulf 1 - Rate Activity - Sprem Operatina Companies A disallowance by the Councilin the February 4 Resolution of $135 million of NOPSPs previously deferred Grand Gulf I-related costs is still being litigated by NOPSI in both federal and state courts.

NOPSI believes that the February 4 Resolution is contrary to the evidence presented to the Council.

However, NOPSI cannot predict the outcome of the federal and state court proceedings or whether the February 4 Resolution will ultimately be overturned by the courts.

In the meantime, NOPSI is maintaining in effect a series of cash conservation measures to mitigate the negative efTeets upon its cash flow caused by the February i Resolution and to presene its stable financial condition. While the February 4 Resolution continues to base an adserse effect upon NOPSPs financial condition and to constrain NOPSPs ability, over the near term, to raise funds from external sources NOPSI belieses that esen if there were no judicial reversal of the February 4 Resolution, but assuming no catastrophic or other extraordinary esent occurs. NOPSPs projected cash flow will be sulEcient to permit NOPSI to meet its monthly payment obligations to System Energy under the Unit Power Sales Agreement. its projected regularly scheduled debt senice obligations and its continuing preferred stock dividend and sinking fund requirements for the foreseeable future.

16

SYSTENI ENI:llGY lli: sol'ItCES, INC.

NOTES TO FIN ANCI Al, STATI:\1ENTS - (Continued)

On September 16,19% the N!PSC issued an initial order estahhshing Docket No. W1900 for the stated purposes, among other things, of esarnining the prudence of actions of Sy stem Energy relating to the construction and operation of the Grand Gulf Station atal the appropriate regulatot> t reat ment of the associated costs; obtaining FERC review of Sy stein Energ>'s rate of return on common equity; ami perfortning a detailed audit of the hools atal records of Sy stem Energs. This docket has been inactise since Inid.1957. Ilow eser, since the tilne the docket w as opened. ses eral of the issues raised h>

the 51PSC in the initial order either base been settled at the FERC (see "I'roject Oln e Branch Settlement" below ) or are being litigated by the N1PSC azul others at the FERC (see Note S.

" Commitments and Contingencies - IIliC Complamt Ca# atul" Commitments aml Contingencies --

1-EllC Amht"). Sy stem Energy remains a party to Docket No. (M900.

Furthermore, on February 3 1957, the 51PSC issued an order in this dodet directing Ss stem Energ> to show cause w hy its Certificate of Public Coinenience and Necessity relating to the construction and operation of the Grand Gulf Station should not he canceled for the f'ulure of System Energy to allow the N1PSC to audit its hooks and records. Sy stem Energ3 had objected 'o the N!PSC auditing its books aml records on jurisdictional and other grounds In Apul 19% S3 stem Enew sought declaratory and injunctise relief against the N!PSC in the United States District Court for the Southern District of hiississippi in connection with the N1PSC's attempt to conduct a detailed amht of the hooks and records of System Energy. Following the Niississippi District Court's denial of Sy stem Energis N10 tion for Preliminary injunction. System Energy agreed to cooperate with the 51PSC statiin an audit of the books and records of System Energv relating to Graiul Gulf I w holesale rates approsed h> the FERC. System Energy later filed a N1otion for Voluntar3 Dismissal of the N1iss issippi District Court action. w hich motion w as apprm ed on April 6 19% The Niississippi District Court's Aprd 6.1990 order w as not appealed.

I'roject Oln e thanch Settlement In the FERC Settlement, System Energy and the Ss stem operating companies agreed with the FERC staff. state and local regulators and offietals aml other interested parties to resoh e a number of Grand Gulf Station-related and other rate matters that had been aiheisely affectmg the Sy stem im a number of y ears. Implementation of the FERC Settlement in 1959 resulted in among other things, the follow ing; l) a 5900 million pre-tas w rite-off of Sy stem Energ> 's iia cstinent in Grand Gn!f 1

2) a $30 million one-titue credit h) Sy stetn Energy to the Sy stem operating companies (which was substantially refunded to ratepayersh aml

3) a $43 million w rite-off by Sy stem Energy of Grand Gulf 1 AFUDC-eiputy.

The after tas impact on System Energy's 1959 net income w as a reduction of approximately

$503 inillion. flow es er, Sy stem Energ> 's cash poution w as not materially affected.

While all parties to the FERC Settlement agreed not to pursue am prudence disallowance of Grand Gull l construction costs ami operating and n.aintenance expenses recorded through June 9, 1959, the FERC Settlement among other things. does not prejudice any part 3 's right to seek disallowanee of such costs recorded after that date or the right of the parties to seek future changes to the Unit Power Sales Agreement that are not inconsistent with the FEHC Settlement. In addition the FERC Settlement did not prejudice the right of any party to further pursue htigation with respect to the Februar3 1 Resolution. See Note S. "Conunitinents and Contineencies - - 1111C Complaint Casi and "Comnutments and Contingencies -- IIRC Amhtf i

19

a ,e I

i l

SYSTl31 ENI'ItGY 1i1:5001LC1:5 INC, I

NOTI:% 'lO l'INANCI AI %TNil3ti'.N'l% - (Continued)

Nuclem Manacement Csmwhdation in June 19h9. plans were annouticed whereby a nuclear rnanantinent semec coinpany, Entergy Operations would assuine operating responsibility for ANO, Wate ford 3, aml Grand Gulf 1, subjec t, respec tisely, to APal's. LP&L's, and System Energy's os ersight. Uraler the proposal. APhl, LPhl, 5ptem Energy, and the other Grand Gulf I and Wateiford 3 co-ow nerr, would retain their ow nership interests in the respectise nuclear generating units I urther, APNL, LPAL and Sptem Energy would retain their associated capacity and energy entitlernents and would pay directly or reitoburse Entergy Onerations at cost for sersice associated with the operatiori atul inaintenanc e of these units Applications for upptosal of or non opposition to, as applicable, the proposed attat gernents w ere filed with the NitC the tr$C, tr A PSC, the Council, ami the SEC, and all $nt h appios als w cre st ceised by 1...e 5,1990, llowner, the APSC's order is being appealed by the Arkamas Elevtric Energy Consumers, an intenenor in the APSC proceeding. On June 6.1910, an organizational me(ting of the board of directers af Entergy Operations was held to form Entetgy Operatiota as a new subsiditry of Entergy Corporation, aml Entergy Operation, w -d responubility for the operation of ANO, Waterfo;u 3, aval Grand Gulf 1.

.iOTE 3. INCO\ll: TANE%

income tax expense (credit) consistt of the following:

i n, etcJ ean i nded nietember ai, two tus9 19 %

(lh ~i hou wids )

Current:

Federst 5 (4,170) $ (145 012) $264.514

%.796 (23 427) s.054 State 4,620 (165.419) 272.50A Total .

Deferr ed - net; 46,525 43.290 49,195 Liberalized depreciation 1,424 (l.336) (9,491)

Nuclear fuel .

Capitalized in'erest . (721) (13 674) (60.510)

Tases capitalired . (1,154) (672) (2.043)

Tas i;ain on sale and leaseback transactions . - -

(126.243) 2.363 55,h92 -

Grand Gulf 2 cancellation .

(149) 7.507 (20,452)

Alternalise ininimuri tax .

Other, 4,414 1,741 2 055 52,962 91 04% (167,459)

Total . . ,

imestment tax credit adjustments - net. 56.320 (14.321) 15 662 9ecorded incorne tax expense (credif 6113,902 5 (W.712) $120.771

$ 110.227 $ 131.225 $ 31,997 Charged to operations Charged (credited) to other income 3,675 J220,937) ,,31.226) llecoided incorne tax espense (credit) 113,902 (59.712) 120.711 (neame tines applied agalmt the debt component of AITDC (140) (235) (8,h55)

Total income tax expense (credit) $ 113,762 $ (89.950) $ f 11.916 Deferred ileorne taxes are prmided for differences between book and tasable income to the extent permitted by the FEllC for rete-making purposes.

20

9

%)Vil311:NiillGY lil AUUll(:l;%, IN(:

i N(ll 1.h 'I t l .N AN(:l %I. VI111311 NI % - ((:ontinut d)

The balance slu, t account described as ' niconic tas honef ts telated to Giand Gulf 2 eainrllation" represents the tas eticets of the sulatantial t.n low gein rated in 'o ptend.cr UM h3 the Grand Gull .:

w . ste .oll. 'l he low w as tacornize d in MIN 9 and increased sy steni 1 net es i net oper ating lou cati 3f or w anis. to a total of appiosiinatel) $6"l nulhou as of liercinher 11.19u0, w hit h ina) he utditi d in the future to offset tasable ine.une if not utdued to oliset c onsolidated l'edu al t.nable nienine.

ineoine tas benefits related to the net operatnic low (an3f orwants wdl espuc in the scan Jonn throu;h 2004.

SyMein I:nctg3 \ tas honefits reflected in the balaaer sheel ac( ount, "fittiste benefits it lated to AITI)C

• were full > utdited duiing 1994. 'I he future benefits ulated to AITI)C trahted in 1990.1 % 9 '

and !9% ainoonted to approuinately 510 inillion. $b" nulhon, aini 69 nulhon. respreiis elu 1:nestou nt tas credits allocated to N> stein 1:ncrus h.nc been deferred and are beine ainottired based upon the aserate usef ul life of the related property. Unused iinestnient t.n crc <ht s at Deet niher 1!,19% anuninted to 517.3 inillion. These (ietnts nia3 he apphed avainst l'cih ial incorne tas lialnloies in future 3en Il not uw d. they w di espne in the y ean 1w9 through eno2.

T he aher natis e ininonnin t,n i rnht at 1)n cinher 31.1990 win 51s 9 nulhon. The < redit can he canied foiward indefinitely and will ieduce regular ineoine t.n to the future in Deceniher 19s7 the l'Asit inued si'As No. 96. ' Accountme for income T.nes.' u hit h w;n schedni ed to be ellectise for fac al3 can heemning aiter Deccinhet ITt l9ss. The l'Asti subseipientl3 inued tatement numben 100 and 191 w hit h delay the clieetne date of si'As No 96 to fiscal 3 cai s beginning alter Decemhet ITt 1991. The l'A%Ilis espn led to issue e new espoune draf t m the sn ond quarter of 1991. 't his esposure draf t inay f urther delay the efleetne date and sunphly tiu onplementa.

tion of $!'As No 96. 51'As No. 96 esp.uuls the requirements to iccoid deferred income taxes ho all teinpoiary <lllmences i that aic icported m onc 3 ear foi financial reporting purposes and a ddicient y ear foi tas purposes. This udl icquite the iccoemtion of deferred t.n balam es for crit un iteins not pres sously reflected in the financial staternents, such as a deferred tas haluhts n lating to AITDC Under the liabihtv inctluni adoptml by SI'A$ No 96, defened tin balam es w di he heed on en.u ted t.n law s at tax rates that are espn ted to he in effect w hen the tempota 3 thlicieners resesse.

It is espected that rednotiota in deletted tases resulting lium the low er i orpoiate l'edeial ineoine tas iates will he refleetnl as liabilities to customen since the seculaton ina> requae any sm h s; nines to he paued through to ratepa)ert ilow n er, based ovi a prelut itiary stud) . N stein 3 1:ncre) espects that the adoption of SI'As No. 96 iii its present foiin would result in a net ineirase m accumulated deferted incoine tases with a cociespoinling increase *" auets. It is tiot espected that results of operatiotn for $3 stein l'.iiergy w ouhl he sigiuficantly impceted h3 the adoptiori of $1'AS No. 96 in its pr esent form.

ll

l

%) %') l'Al 1;NI;ltGY lll:$0011( 11%, lNC.

NO'l13 '( O l'IN ANCI Al, S ITI13tlNI S -- ((:nntinued) l Total inn oine tases dities froin the ainounts coin;nited h) appl3 ing the statutory I'eder al incoine las tute to incoine or low before tases. The reasotis for the dilleie nces air as follow s (dollais in thomands):

I ni ihe wn i nded in < enihe, :u, nnio 19w he

% nl 9 ni  % of h e- I n hein l'it i m tinnunt h.u.ene i nn.u n t im inniuni in< nnie Coniputed at statutor) eate $ 96,077 34.0 $ ( 251340 ) 310 $102 369 310 inticases (seduttiom) in tas ecsulting fronu

%,:126 2.9 l l A7-1 (2 0) 10.911 5 's

!)cple ciation State incoine lases net of ledetal inconic tas eth et . 10.1 l$ 10 ( 7,69',) 1.0 (3.125) (i.!)

Project Olis e liraig h Setticinceit/1,ou on Giaini 15-l,99') (20A) - --

Goll 2 cance llation . - -

Other. (610) ( 0.2 ) 1 191 (0.2 ) IA99 1.6 lleroided incorne las espeme l 13,902 -40 3 ( $9,712 ) 12.0 120.771 40 l intonie lases applied acalmt debt toinponert 01AITI)C (110) (0 l) (23%) 0l i S A5S) (1 %)

Total incoine tas ememe

( ci edit ) , 6113 ~62 80.2 i (59 450) 12.1 $ 1 i 1.916 3h 'l

= = = == -

=_ -

NO'll: 8. 1.lNIN Ol' ClllCl)lT ANI) hilullT Tl' \1 llOllllOWINGS Sy stein 1:nergy n authoriecd by the SI:C through Nmeinher 1942 to effee'shoitacto hotrowings in an aggregate ainuunt ontstatuling at any one tinie of to to $125 unilion subject to nierrase to a suasiinuin of $290 nullioti with futther SI',C appim al. At Deccinher 31,1990 Ss stein linergy did liot base any hanh 1.nes of credit. Sptein 1:neig> is also authotiicd h3the SICC through Nmeniher 1992 to eticet shoit tetin boirowings through the Money I'ool, subject to the ahme liinitatiom. S otein I:ncig> s alnht) to horrow fron ti.e Money Pool is subject to the avadability of funds, w hic h at any particular tiine inay he linoted At 1)cceinher 31.1990 Sptein 1:ncigy had no outstaialing horiowings froin the Mones Pool.

Sptein 1:nero b.nl no short-terin hoisowino during 1990,19h9 and at 3 ear end 19hs. Ilow es er, duting 19%$ its shoit teiin hor rowings and the interest rate (deterinined 3h tlisidirig applicable iniciest espeme h3 the aserage ainount horion ed) were: niasiinuin horrowing of $15% inillion, as erage horiowing of $10.533 niillion, atul an aserage in'erest rate of 9.'i'4.

NO'l 1: 5. COMMON $'l OCK Theic ucie no changes in the nuinhet of shares of S 3stein 1 iiergs's e.nninon stock during the 3 cars 1940.1959 anal 19$s.

,11==

i . ,

SYS 11:\1 1:N1:lLGY ll1 %Ol* llc 11%,1NC, NO ll:N 'I O l'IN ANCI Al, S I Nil:\ll:N1 h - (Continueil)

N O II; 6, 1 ONGil1:lt\1 l)l:lli The lot.t.teien debt of Spleni Eiseig) at Det eniber 31,1990 and 19%9 was as follow s:

D*'8" JML__

(in 1 hou w ulo l'in st \ lot tgage llundu Due 2(Hlu,11% Seriet. . $ 255,750 $ 300.000 Due 1991,9h% Series 291,000 3001H)0

! Due 1996,10%% 5 cries 250,000 250.000 Due 2016. I14% Sesies 90,319 112,303 Due 1991,141 Series . 200,0(HI 200.000 Due 1992,14.3 4% Series 100 000

_100.tHHi

, - , + .

Pollullon Curitrol llesellue llotids:

Claiborne County, Missisi,ippi-Due 2013 at 9%% , , 49,500 49 f/N)

Due 2011. at 4.25% 27,100 27.100 Due 2014, at 9%% 200,000 200,000 Due 2015 at 12.5% . , 41,000 41,000 Due 20l6, at 9.TM . , 90,000 90 000 Total , 416,600 416,f dHI Othert c Gratul Gulf 11. ease Obligations (Note 9) 500,000 TdW1!HH1 Miscellaneous , ,, , 279 -

Total 500,279 fd >0.000 Unainortired discount on debt ,

_ (16,957) (20.4 is )

Total long.terin debt . . 2,0s9,991 2.155,455 Isen - Aniount d1e within onc ) cat 291,000 --

1,ong terin debt excludirig atuount due within onc y ear &l,705.991 $2,15%.155

=. = -- a ==;w Systein Energy has receised the tierenary regulatory approval and h proceeding with arrange-nients for the possible tedeniption, purchase or other acquisitioti of all of a portion of one or inure series of its outstanding first inortgage bonds up to an aggregate amount of $100 inillion through Decetnher 1992. During 1990, Splein Energy seaerptired in aggregate principal ainuunt $72.234 indlion of its outstanding first inortgage bonds, resulting in approsal to reacquire up to approxiinately

$325 tuillion as of !)eceinher 31,1990.

The PCillh duc 2015 at 12.50% and those due 2016 at 9.f41% are colhterahied by $17.2 inillion and

$916 inillion, !cspectis ely, of non interest I caring first inortgage bonds.

Sinking fund requiternents atul snaturities for the ensuing fhe > cars for Sptem 1:i.ergy's long terin debt at December 31,1990 were as follows:

cash king i und ll.due nies iln ihnusandy 1991. -

$29 t.000 1992, 4 $ 15.750 $ 100.000 1933. , $30,000 -

199I. , $30 000 $200,000 19% . $30,000 -

23

NW1131 IWl'ItGY ll130011L13. IN('

No~11:$ 101 IN W I \l. % i A~li All N I % - Wontinunh I

N(rl1: 7.111:1 \lNED 131LNING%

't he piousions of %ptrin Encre)'s ht st moiteate Inm I nulentuir testin t the annmnt of ietamed eatnine as adahle for casli dnideinh on (oonnon stm l. Under its inuitcaer % sit in l' net ty mas not declare do uleinh. other than sim k dnidt mh; or make othe i datnhutiom on or acipusttmos of its stoc L (cu ept wht te t (memtentiv certain etminhotmm of stot k proceeds ate irceimh unless Sutem Enott) is tiot iti(lefault innlet certain of its haancitig atteetnents and the suin of (t ttatti unh hiedneu doc , not execed hva of adjusted (apitalucon Ihm es et. at Det ember 31 1wn $utt m Encies i imnt e

linuting testiit tion oti dnidt ruls resulted Ironi its triinhuisenu nt autta ment espots emt rate ratio dneuned lulow.

In connec tion with the 19% sale af nl leawha t tr ans u inun srtem 1:neigs aerced ninlei tin prmisions of the letters of credit and tennhuiseinent attersoent to m untain its tsputy at not less than 3Y7, of its adjusted capitalitation. (as defmed in the actet inentI atul to in ut tain its ( ominnn etpiity at tiot lew than 299 of suc h annount. hi Deretnhet, 194!t a t eiinimtwinctit acieement w an t t w as eseented w hi(h reduced 5) stein l'ner gyi requistsi eiput) tatio from 3% to 3W of its adjmtt d capitali/ation (as defined iri the atret inent). Nec Note %. "( ointmt tnt nt s af d (:ontingt tu ies -

llcimhnrvnu nt Attectm nt ' lot tuote itifot tnatiott As of I)c(t inhet 31. Unt %) steni I:netes coul l hase paid a dnidriol oil its coininon stoel of apptoumate l) % lh inillion without s tolatilig its reitnhursernent atrecinetit c<put) em et ate ratm On jatinary 23,1991. $) stern Enot t)'s lloald of Diret f ors det lated a dn ideral of $ 10 nollion w hit h w as paid to Entergy Corporation on February 111%).

N O'l E %. CO\l\llThllNih AND ('ONTINGl'.NCll N II f(C Gmplaini Caw On february 1,199(L the APhC, the 1.Ph(: the hlPSC the bliutuippi Attuttu3 (;eneral atul the City of New Orleans (Coinplainants) filed a t oinphunt with the IT. llc ae.unst $) stem Energ3 aml Entergy Sersites Inc. (as atent for Entt les Corporation atul the % ste in operatmg t ornpanies; alleging that the rates cuttently being thatttui to the $) stein operating coinpaines hs % stem Energy for capacity and energy froin Grand Gulf 1 ate not jmt and reasonable. The mues raised in the complaint im ok e- (1) teducine $ntem Encrevs late of retnin on cononon equits tiom i11 (2) placing a ceilitig for rate-making pulpmt s ois S stem Enertyi coininois e< puts tatio t 1) retho mt 3

Sptem Energ>'s cash w orkint capital allow ance; (4) inn esticatmg the tr amfri of coitam Giatal Gulf 2 assets to Grand Gulf 1; atol (5) imesticating plant costs it lated to inetune las act ountint issues. See "Ill{C Amht" helow for further infot tnation on income tas aet ounting inoes A redm tion in S)stt m Encig)i rate of it tuth on conunon esput) h) l'i w ould came annual res cimes to be reduced by apptmimatch $10 imllion. Sy stt m Enern's cash w m kmt capital allow am e currently prodm es annual toenues of appimimatel) 54 million. linenues t unenth heine collected relatise to c(pnpment deterinined to he useful and tramletred to Giand Gull 1 at the time of the Graini Gulf 2 wtite oll tue apprmiinatel) 53 million annuall) .

On Sta> 1990, the FEllC iuued an order w hic h, atoone other thmes se t these matters for imestigation, ansohdated these issues with Sy stem Encigis decoinnassnount bline bec " Spent Nuclear inel and l)ct ommiumning forts" helow ). and established Apul 2.1990 as the refuml e flectis e date. Am adjustments to Sptem Energis rates found necessar3 h3 the Fl ltC puisuant to this complaint would he effecthe tettoactisel) to the refniul ellectis t date. In adihtion to the iunes mentioned ahme, testimon) has been filed h) the Compi unants and the l'EltC stall proposme evitain modifk atiotis to by stein Eherty's f ate act ountmg for the pot tion of ( rand (;nli l soll ami least d hack

$m h mothficatmns. if adopted h) the FERC would redm e 5ntem Encres s in enues appimimatel>

21

1 1

I sV% I131 INI ItGY III.suritCI:s, IM ^

Mill s 'lO I IN AMI ti. $1 Yli \ll N i s - (( onlinuedi SI A milhon animally A public heanne is si hnlulnl to ( enonence on Septeinher 11. 19'11. $3 stein I:ncio ( annot piedu t the ultunate outt otne of tha caw. Ann.dmeh. no pren nion lon ht en oude in the accompatning finant tal staternenu fot tht poudde clin is of a dr( nion ads t Ise to \s stein Eneln with r espn t to any of tlm nsnes raiwil in the complaint.

I I liC .%It!

()n 1)eren.her 21.1990 the 111M: 1)n nian of A uhls nsoni an .onht ieport for $s stern I:ncro lor the s eats MNe lhtouch 14% 'lhe icport n eotnincink that Sy stetn 1:rmio (l) u nte oil aml not tennet in its lata apptoutiute l) 5% inilhosi of (;t atul (inlf l t osts itu ludi d in utilit) plant telated to the 53 stem's income t.n alha ation ptot edurn Luul 53 stem 1:ru in i accountme tesultine f rom nat.un allo ( ated stu otne tas t hat en) alleged te he incotantent with ITilCT at t anoitttit requitt inents aint t2) (otuluste refninh for the ): als 19h? to date to cotteel fot os cicollectiota of deptenation atul return on rate luse related theteto Itom the $s stem operatine compames $3 stem 1:nero behnes the

$s stem's itu otne las allocation pro ( eduin are t oinntent with the Sl;CT ruin ainl that hy stem 1:neto 's accountific for allocated honefits and costs put snant tht"eto are just ainl trasoluble uinier the I'l: llc's an onntine tuln ami iate-inAint pohnet should thn reconunemlation he adonted 'a stem Eiu rn w onhl Ime a teluini obbeation to the sutem operatine nonpanin w hich .n of !)cecmher 11. Uno w ouhl I .n e been appiournatch 540 unihon (im Indine interest t 'I he ontoine clin t of this (hancen d adopted. u oul I he to tedm e 53 stein 1: rein i 1991 rn ennes bs appununatel> 514 nulhon and sulnequent s eati rn ennes h> a comparable

.unonnt. but demeasing at the rate of appunimatch 50 5 mdhon m each s eat thnraf ter.

hs stern 1:neig) intemls to sigonnnh contest tha nsue thtonth a heatmt. u heduled for Auttnt 11 1991, he fore a IllM: Al.] and behn n that its itmetin tas am ounting ptort dutn are in cornphance with 11 llc aint M;C impmementt llow n er the ultinute inolution of thn nsue n um ettam.

Accordingh. no punision has been ma.le in the accomp.un me hoancial statements ho the pomble a t!cets of a do nion .nh erse to $nti in Encigs nov,nni NOPM Ne wtwte d ihm out awl Otla t Cornuico n tmon tin Matt h 29.19%. the (;oom d pr opowd to Ente im (:otpot ation to dnt uw a siegotiated lui)-out of N()Phl (aint of 1.Phl/s electric datiihution fat ihtin in Altiers) hy the (:its.1:ntete (:orpolation tespoinled h) ituheating a wilhntons to consider an) altettuthm that the Couned tuight propow if they are in the hnt mtetests of its sto(kholdets customers aini etnplo3 ces. In cat h Maich 1940 dacuuions hy the (:it) atul Entelp Corporation cultninated to a conet ptoal propoul wtting forth the terna and cotulitiota of the negotiate d hu3 -out ptoposal. This ptoposal w as the subject of public hearino h3 the Conned in Apol 1940 and at a Conned puhhe meeting hebt on May 17.1940, the Conned ment agamst the adoptmn of a resolution to pioceed with the bu>-out pioposal in July 1940 the (:ouncil adopted a inolutmo that punided a framew ork for further discussions

uni ine.u ch concer ning sn etal iunes of miernt to the (

ouned, NOP51 aml 1. PAL Each of the three memhers of the t tJity Conunittee of the Connul were awiened spenfie areas of study. i.e. rate inattets including rate disparity. deferial collection and coinolidatiote capacits niatters inclmhng least cost plannitig. and the gas disttihution pr opet tin, and socio ceonomic dnelopeient. including industrial dn elopment 1:ach u mLme troup n meetme with NOPsi and 1. Phi, and disenwions are continnine with tee.ud to all tlnee areas of stud).

In addition to the negotiated hn).out. the Council h.n aho consuleted the itnoluntary nununpah nation of N())'\li e leettic ainl gas utility pr oper tiet huch ruumcipah/ation is not under artise coinideiation at this tiinc. Nn erthelns, certain ordniatu n and pernuts utulci w hich N() PSI operata 25

e sWIl Al INI ILGY ll130011013, INC.

NOlI A ~lO l'IN \WI \l. %'l VI13tlNIS - Wimtinued) state ainone other tlunes that the t its has a (ontunnne option to pinchase N()PNI s tirettie atul gas utihty ps opettos As ponided ui N> ste m f ort es 's inorttate ainl deed of trint. the (otulemnation of other un ohmtaiv talnic of subst.mtiall> all of NOl"si s proper t> tmeht cause acech t ation of a substantial portion of ' ptem Encrevs imh htedons. imlns u ais en w ere obt.uned the debt w cie intim tun d or otbei an. met m 'nts w ete m.ufc.

('apital lh ymr en.ents arul linmu me hy stetu LoctR3 estunatn that it will requite $291 thdlioti in 14ul $l15 75 hollion m 1942 atul

$30 tmllion m 190 to satisf3 lonett nn debt matuntin aml to meet smimt fuml tripmements.

(:onstrut tion npeiuhtutt s iue ntiinated to be appiinin;atel) %)l 3 inillion in 1441. $261 indhon tu low aml $2s o milhon in 19m hotem Enries anticipatn that cash t o h.uul at the betinning et % pct hnt aini its projected itserhally ei nt rated fumh for the period 1991 1993 u dl coahh it to s ni r t> capital aml rt finam ing requirements if hotem Enetgy dos not t hoose to mternally funua u 5 ohheat. ant Systein Ent tge has recened the neecuar) tegulatory apptm al and n proceeding with arrance-inents Int the pouthle u deruption. putt h-e.e or other ac<ptisition J all of a portion of one or mote senn of its outstamhne first moitgage bomb. See Note b "Long-Term Debt." for fmther mfonnation.

On O(tober 1 luS9 $ stria fuch enteted inito a thohitig e'ethi atteetnetit with banks that 3

procules foi np to Sli inilhon of botiowints to finance $)stetn Fuelv nutleai inateriah arnt senices nnratot3 In < onnection with thew ananrements Sy stem Encre3. APhL and LPAL as pun hau rs f rom S3 stem Fuch of the um icar matenah ami senien aciced to pun hase fioin Ss stem Fuch the nueLai matriiah amt sert ices fmam ed ui, der the atterment if Srtem fuels shoubt default in its obbeations ther eu nder. 1he purchases umlet thne citemnstances wouhl be of peteentaen agreed upon hetneen the paities hot, m the absence of such aereernent, $ptem Encies. APAL aml LPNL wouhl each he obbeated to poichase oortluni of Sy stem Fuch' nuelcar matenah mni senk n.

slam imider IJticotwo Entere3 Corpor atmn and (citain other $ptem companin (incimhne 5ptem Ener gy ) and itulniduah were defemlants m a < onsohdated puipotted class a(tion suit (dn l in the United $tain Dnttiet Comt for the 1:astein Dntrict of I-ouniana (Dntrit t Comt) m 19% h3 Entetev Corporation shateholders (purportmg to tepinent clawes that panchased Et tergy Corporation rotninon stoeL L On October 51990 the parties to the smt enteted into a settle m nt acrectnent. subject to the approsal of the Distrit t Court. prosidine for, annong other thines pay mt et to the ineinhers of the asserted plamtill clawn froin an interest bearing %IM intllion settlement fund estahhshe d b) Entergy Corpora-tion. On Januai) 31.lo"' the District Couit enteied an onier and final judement appuning the settlement actreinent ami disnuwing the suit with ptejudice. The tune for fding appeah of this order npiled with no sm h appeah being filed.

Ihndimides Intication On September 29.19%9. tw o fonner hohlen of Srtein Enercis Fust Wttgate llonds.169 Series Due 2000 (169 lloruhl, ided a class ;u tion complaint purporting to septesent a class comprised of all fonner holden of the 164 lionds. agaimt Srtem Encres in the United States District Court for the Southerii District of New Yo L. alleong that $ stein 3 Energy's reden.ption of the 164 lionds in January 10h9 siolated the Secuntin Eschante Act of 1931 (Exchange A( t) and New York comioon law. Sptein Energy redeemed the lh9 ltmuh on Janoan 22 1959 at a price equal to the principal amount thereof 26

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%WI1:\l 1:N1:llGY lll:%Ol'll(.l;%, IM L NOIl's 'l O FIN \NCIil. s'l111:\llNI $ - (( onlinued) plus at ( s ued interest, with the proceeds of the sale of a puttion of its interest in (;raini (;ull L Sut h redetoption was inade pulvuant to a prmision in $ssieto Enettsi Alottnate ainl 1)etal of 'I t ust pernutting f edernption of bonds at the special tedernption pner (10n1 of pinn ipal aniount in the case of the IW llotuh) with the proceeds of the sale of piopert) teleased hoin the nau ttate. The coinplaint alletes that the IW lloods were not f edeetnable at the special rederuptnui pnee, tint

$) stein Energy should lune paid the holders of the IW lhunls a tedemp'itm pretnimn of 161 of the principal atuount thereol (aggregating $ 1% inilhon), and that %s stein I:ncrus i f edeinption of the IW lionds at par cotalitutes Iraud utulet the Eschante Act, htem h of hy steni ICnettsi < ontract with the lW hondholders atul unjust enrichnietit of hystern Energy at the espense of the IW botulhohhlt The t ornplaint seeb colnpensatory danuites. interest. emts atul Ices. On Nmenibe r % 19% the plaititilh filed a hiotion for Plaintiff Clau Cettification. (in I)ecen:hos 12.19b4 Ns stein 1:norgs filed an Answer denying the substantis e allegatiom of the rotnplaint. On 1)econhet IN IW1. $ptem Enetts mm ed to transfer the at tion to the United State s District Coutt for the Southern Dnttiet of Niiuimppi (hliniuippi l)istrict Court). System Energyi inotmo to trataler w as tr anted on \latt h 20. UPHL On Februt) 11,1490, one af the two fiained plaititilh willahew froin the ptoct edme ()n (letoher Tr lWI the reinaming plaintill arul S)stetn Energy filed a motion with the Niiuiuipl lhsttu t (:ourt requestme a heating to apprme a propmed settlement. under w hirlo ainone othe; thmet the clau action allegations would he dropped, the reinaining plaintiffs clanm uouhl he dannued and M stem l{neres.

without admitting to aln hahihty, would reunhurse the temauung planitill for ce rtain htitation espetises and attorney fees up to an attretate of $90 000. Plaintill w ould let one notlant on its t laim for datnatet On Nosefuhet I Tt 1990, the Sliwiuippi Dntru t (:ourt. altri a heatine. apptm ed the propmed settleinent. and Sy stein Et ergy has toimhotsed the plaintill lot the atteed to Instation espenses and attorney feet The htig ntion has thus tettiiinated, but without prejmlu e to the ntht of any fortner hondholder not afhhated with the setthot plaintill to hung it( ou o action to chalh nee the tedemptioo in question.

l' nit Vou er haln Agreement See Note 2, "llate and Regulatory Statters - (' nit Tou ct Salm Anterment" for a desoiption of the Utiit Power Sales Agterinent and for further inIotniation with respect to litieation and ptoceedmes it lated to the Unit Power $alea Agret inent, lhe finaticial condition of h stein linetts utmheantly depetuls upon the continued commetrial operation of Gratid (;ull 1 and upon its sereipt of pas mt ots from the S) stein operating cothpanies.

Capital l'urals. At ailability and lleallocatwn Atteetnents Utuler the Capital futuh Atreement, as suppleniented Entergs (:otporation has aerced to supply or cause to be supplied to Sy stem Energy (1) such ainounts of capital as me he requiicd in tuder to mait tain System Energis equity capital at an atuount equal to at least 3W of hy stein Encig)\ total capitali/ation (escluding short-teun debt) and (2) such amounts of capital as shall he inputed in order (a) to permit the continuation of cotuniercial operation of(;iand (;ull 1 aini (h) to p,n ni full all indebtedness for horrowed money of Sy stem Energy w hether at matunits on piepay ment. on acceleration or otherwise. In addition Ente rgy Corporation has attecd to inile cash capital contnhutions to enable Sy stem Energy to inale pay ments u hen due on its long-teon debt. as specified t het eilt System Encre) has, with the consent of Entergy Corpoiation, auiened its rights undet the Capital futuh Agterment to certain creditors.

The System operating companies are seserally obbeated utuler the Asadahihts Atrectnent in accordance with stated percentages ( AP&L 17.1% LPhk M N1PNI 1LM NOPSI, 2171 ) to make pay ments or subordmated ads ances in amounts w hich w hen added to an) .unounts recen ed h 3 Sptem Eneiev under the Unit Power Sales Atteement or otherwise me adequate to em er all of the 27 j l

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%WI1311;NI'llG) It!Mit'llCl.5, IM ;

Nu l13 'l O l'IN \NCITI % I \ ll311N15 - (('ontinunt) opt r atme esgu inn ina hnhne deluenation atal mteent chasers of $)ston 1:ncies. $sste m 1;in iti inn uilli the ( onsent of the h) sletu O}n n ating coinpanies a$ sigtit d its ilthis to lu> n. cots and ads ataca hoto the $s stun oper ating coinpaines utult1 the As ailahihtv Atit einent to celtani ciethton. Pa)intlits to ads ances utuh r the As ailahdit) Atit einevit at e only inputnl to be inade to the estetit 5) stein 1.nery s reciopts froin all soun es. including utulet the Unt' Pow er Sales Atice.nent apprm ed in the t i llG are hss th.m the ainnunt topiited umler the Anulabihty Aun ement in juim 1949. 53 stem Ermrey anal the ss stem opt ratme uunpanies uith tim pino omnent of such

< inhtors. aineinlnl the As ailahihty Aticennent m tlut the (;r uul (;ull 2 w tile oil w onld he amottized foi A s adahiht s Agr ee me nt puipmt s os e 27 p an tatlo t than in the inonth t he w rite-off w as n eogni/cd on $s stern Enertis hools 'l his aineinhnent w as mule m tlut the u nte oll of $ntem I:nngis mmtment in Grand Guli 2 in September 19k4 wmuhl not < ause a iu3 ment h3 the Sptem operatmg (oinjunies to he inpiited uruler the As anlahdits Agtesquent.

Sm(e t onnnenial operatioit of Grand Gull 1 amounts recened In %s stem luneta mula the Unit Pow er Sales Atleelnent (u hi< h include a retur n on equit) ? l.as e imednl the amounts [us able omlet the Auutalohty Aun ement (u bich does imt pimide foi a n turn on eqmts t w hich is expn ted to be the case fm the foreseealde futme Consequently no pas ments under the Awolahdity Agn ement base eser been required. Should there he a shortf all m am nmuth as a result of the nuhdity of atiy Sutem operatint company to make a papnent under the Unit Powii sales Agirement. anumots irceised h3 Sy stt m linctey from ain other sources (includ og finam mes sales of property and the hLe) and anulalde at that time would he credited toward tia obbeatums ou mn under the Awulabiht3 A ti ce me nt.

In Sm ciidu t 1941. the %) stein oper ating compames entered into a 1(callocation Aticcint at w hich w o }l has e allocated the capacits atal e nerg) as ailable to %)stt in linert3 hoin the (;iaini(;ull Station and the iclated emts to 1.Phl.. A1Phl. and NOPSI These nuapanies thus agiced to assume all the responsdulities aint ohhtatmos of APNI. with respect to the Grand Gott Statmo muler the As adahdit>

Agiecment with APAL ielnupmhing its nehts to capacity and i nergs Inun the (;iand Gulf Station.

Eat h of the Sptem opetatme coinpaniet ituludmt Al'hl. wouh' hate temanmd prinunly hable to sy stem Enn g> and its assiences for pay ments on mhances mule the Anulaloht3 Ann ement aint awitmnents theirof. APhl, w as ohhgated to make its share of the ;usine nts ut ads anees unh if the other Sptem opnatme compames were unable to meet then contra'tual ohkeatmns. Iloucu r, the IT.ll(R June 13 lleenion allm ating a por tion of Giaial Gulf I capants , nd encits to APAL supersedes the lleallocation Agreement innofar as it relates to Graint (;ulf 1 Ib.w es er. uinin rettain enruin-staneet responsihihty for (;tatul (;oli 2 amorti/ation ainounts could he ados ated to hPAl.. N1Phl, and Norst muler the teinn of the lleallocation Atteement.

lleonbunement k:n ement on 1)eccinhei 2%. 14s%. S utein 1:ncrt> cotered mto tw o i ntneh si pai ate. but nientical, arrangeinents for the sales ainl le awlu(ks of an appunnuate actretate 1151 eu nn slup intnest in Gr and Gulf 1 (as disemsed in Noti 9. "1. cases"). In connection with the i ymts huelme of the sale aint leaschack arranecments. letters of credit are inpnred to be numtainni to secon certain amounts pa> able for the benefit of the eqmts im estors by sptem Encres onder tim le.ncs. The iintial letters of

( rnht. w hich u ne s(heduled to espur on 1)n emher 2s.1941 w ne replaced on Jannan 11.1991 w ith new letters of nnht that are wheduled to expue on Jainury 13 lout Ciulet the prm nions of the trunhut sement atieement dated 1)n t mlu1 1.14W enter ed into h3 hy stem Energs and s at unn luuk s in connection with the vde aiol leawhat k atlancements Illem.-

hmsement Anieement") ictatnl to the letters of ernht $ntem Ennus has agreed to a number of

( m:1unts n latint to among other things the maintenance of n s tain ( apitah/ation and fised charge 2h

5)%'1131131 ILG Y lll;% O l'il( I A, IN('

NO lI A 1 O l'IN W.I \l. % i VI13tl31 % - (( onlinued)

( m er ate r atim. In thn c onnet tmn. Spte to 1 in t es agreed. durint the tet m of the lleimbutseinent Aerectnent, to inaintaiti its npiity at not leu tlau WI of its adjusted capitalitation (as defitied in the lleirnhurscinetit Atrectnent I atul to in.unt.un its coininon equits at not less flun Ni of such annount.

Ilow tw er, in 1)c( einhet l L NU a lletudmisernefit Attorna nt w an er w on esecutetl w hi( h toduced ss stem 1:nercis reqmied npnts ratio f rom m to m of its .uljmtnl capitahration (as defined m the lleituhursernefit Agreetnent ). In the f ast ameruhnent to the llennhur seinent Act eement. tace'iteti oli januat) ll 1991 in counct tion with tl.c iuuance of the new letters of credit, $3 stem 1:nergy w as aho periniittal to numtain its equit) dtu me the ter tu of the lleunhutsement Atteetnent. at not leu than 3Yi of its adjusted capitalitatime in mhhtion. $ptem linrics inmt nuint.un, with sespect to e.u h incal quartet dormg 'he ter ni of the lleiml ut sement A ;teetnent, a ratio of adjusted tiet incoine to Interest tmpeme (t ah ulated, in ca( h (ase, as slmelfietl m the llennhuisernent Atteement) of at least

] 60 At 1)ct endme 31. HNO. 3$ stein Era seis equity and cononon equity in ca(h case apptmirnated 33 69'i of its adjusted capitahzatmn. aini *ts (ned charge t me iaer ratio w as 2.11. The letters of medit nuy be terminated h) the lunts ninlet certain < m umstatu es as a tesult of any clunee in appheable law m gmetona ntal ac tion w hic h uheru h allec ts the ohheations or aluhts of sptem Eacrey ami certain other partnipants m the ule ami leau h.u k trama tions to nuke icquired pa3 ments or otherw ne perforto utuler the trama tion doeuinents Eaihn e h) $s stein Enore) to perform its em enants usuh r the llcunbutsen.ent Attectnent couhl gne rne to a < haw umler the letters of < ruht amilot an cash teiminution of the letters of cre<ht, ami d sm b letters of einht wcie not teplaced in a tonel3 manner. < ouhl result m a def ault maler. m other erl> ternunation of, system Energs 's lwes. liraus muln the letters of (inht nunt he repaid h>

$) stern Energ) withit 5 day s (alul. ni some cases ou dassi following the date of drawint Nmlrm inuamu r The Pric e- Anderson At t pim nha for a hunt of puhhe haloht3 f or a smele inu lcar incident. b of I)ecember 31.1990 the hnut of puhhe luinht> for sm h ty pe of meident w as appiminutely 57A07 hilhon. hy stem Encit) h.n luotretion willi in[ul t tai tha Indnht) throuth a (omhination of pin ate imurance Iturtently $200 milhoti) and an imlnstry aucument prograun l'tuler the awesunent prograun the Inasianuto atuount hs stem Energ) w ouhl he inpiired to pas . with respe et to each tiuelear incident at a liernsnl nuclear fanht), wouhl he %n lh nulhon por te.u tot (such amount to he imleted n er y fa c 3 cars for inflation ;nul nu hnles a W surc hat te in the m ent the total public hahi'ity daims aml Iccal costs approm h or neced the hnut of protecimo otherwise i stabhshed L pay able at a inte of 510 nulhon per lit ensed wartor per meident pm 3 cat. As a co-licensee of Grand Gulf I with Sptem Energ3, SN11:PA wouhl share m this aurument oblication. $3stein Enct es is an on ner of one licemed reactor. and the Enteres Sy stem lus f our lic ensed reaetms S) stelu Enct e) . on behalf of itsell atul other itamed inte ints (itu ludmg other co ow nors of Grand Gulf 1). is a member of certam imutance proet ann that pon nie em et ar los piopetty damaec, inchuhng decontanniution npeme. foi the Gtand Gulf f acihts . At I)cermhei 31.19no S) stem 1:nerev was insuted ataunt un h loan up to kl%5 bdhon with a 5200 unthou sublunit for premature decononissiomng em eraec. l'mler the propert) damaue naurain e proetanm Sptem 1:nergs couhl be subject to awessinents if lout s escred the an uinulated funds sa adable to the nnuters. At 1)ccelu-her 31.1990, the masinano amount of such posuble aunsments to 5ptem Ener es w as $17.91 million.

l'eder its agreement with sy stem Encres. $N1 EPA w ould sh.oc in hotem Enci es 's awesunent ohh tat mth lhe annount of ptoperts innurance prnently cat tled In %s tem 1:ht res neceds the N!(( Ts minonuin n quaement foi mu lcar power plant bc cmen of si on hidion per ute. liffectis c April 2.

1900. NilC reculatiom prmide th tt the pioceeds of this nauram e innst he med fiist, to place aml 29

A -a SYS'l131 ENI:lLGY lil AOl'ItCI %, INC.

NO'Il % *10 l'INANCI Al, S I AT131EN'I s -- (Continued) maintain the reactor in a safe aval stable cotuhtion and. secotub to (omplete it ipnied dn ontamination operations. Only af ter proceeds are used or deibeated for such use ami appropriate regulatoi>

appim al is obtainni w ouhl the balance of these prou eds. if any. he as adabic for plant ou ners' or their creditori benefit.

. spent Nialcar Iurl aml Dreommusiorone Gmts l'tuler the ternis of its tuulcar fuel lease, S) stern Energ) is respolaible for the disposal of spent nuclear fuel. Sptem Energy has executed a contract with the U S Department of 1:nergy (DOE) wherehy the DOC will furnish dnposal sersite for S) stern Energyi spent nucleat fuel at a omt of one mill per kilowatt. hour of net generation. Sotem Energ) includes this one mill per li!ow att. hour c ost as a component of its nuclear fuel expeme. A 1959 fr detal court ruling ellectisely changed the basis for the fee to one mill per net KWil sold. rather than generated. w hi(h couhlieduce Sptem Energis payments.

UInder the Nucleat' Watte Policy Act of 19$2. the DOE w as to betiti mc epting sperit fuel in tws and to continue accepting spent fuel until the dnposal of all fuel f rom reactor utes is accomplished-llow ever, the DOEi repository program has been dela> cd. liated on the DOCi < urient sc hedule for acceptance of spent nuclear fuel. initial shipments of spent fuel from Graial Gulf 1 to the DOE's storage fuihties wdl occur in 2o16. In the meantime, $ntem Encres will be responuble for storage of spent fuel. Sptem Energy estimates that emtent on-ute spent fuel storage capacits w dl be sufhuent to store fuel frotn norinal operatium until 2004. It is expected thit any additional storage capacity required due to, umong other thing delay of the DOE repository program will hase to be ptmided by Sptem Eneigv. The cost of prmidmg the achhtional on ute spent fuel storage capahdity required at Graed Gulf I by 200t is estimated to be apptoxunately $10 to $15 milhon tin 1900 dollars L in addition.

appimimatel> 6'i to 510 million (in 1990 dollars) w di be requned es er> tw o to tluce y ears subsequent to 200 4 untd DOE's repository begins accepting Graml Gulf I spent fuel.

In addition to the recosery of emt> awociated with the disposal of spent mulcar fuel, Sytt in Energy is seemering nuclear plant deconuniuioning c osts in connection with its combined ow nership and leasehold interest of 90% in Grand Gulf 1. S) stern Energy regularly tesiew s atul updates estiinated deconunissioning costs to reflect inflation and changes in regulatory requuements ami technolog3. An outside engineering firm coinpleted a new decotumissioning emt studs for Grand Gulf 1 in 19$9. liased upon the study, Sptem Energy estimates that the emts of deconunissmning Sptem Energ>'s 90%

interest in Grand Gulf I would approsiinate $245 7 inillion in 19$9 dallart in a petition filed with the FEllC on September 29,19$9, Sptem Energy requested an inescase in annual decouunissioning expense collections from $1.1 nullion per year to $9 7 million per y ear to become ellectise Jr ury 1990. The FEllC accepted System Energ>i proposed iates for filing and suspended the proposed r des for fh e months, to become effectisc June 1,1990. subject to refund. On Stay 21,1940 the FEllC issued an order which consolidated Sptem Energy's deconuniuioning (ding with the 1 EllC Complamt Case.

See the "llllC Complaint Case" discussed ahm e.

Other Commitments and Contincenrics See Note 2. "llate and llegulatory Statters/ for information on the status of eettain other contingencies.

30

r--- -- - _ _ _ _ _ _ ,

4 e

i s)%II;\l 1:Ni~lLGY hl. sol'IRl:%, IN(:

NO ll:% 'l O l IN \NCI \l. S i \ ll.\llNI S - (( ontioned)

NOI1: 9. 1.l: \ %I'h Nsulear Iin I Irasn in l'chroai> Um S3 stein I:ncres enteird into an arianecinent u herein s> stein 1:neig> nus lease up to $lu inillion of notica Incl The hssor finain es its .u ipiiutmo .unt ow nenhip of om icar f uel utnici a eredit agterinent aini through the hsu.nu e of interinetlute teten notet The credit agreernent h.n a totin of fi.e y ears and the ititerine< lute tt rin notes h;n e s an y ing inatuistus of 14 to lo )cas t It h a onteenplated that these ef etht arratigrinents will he estmuled or alteriutne founcuig u dl he secuicd

by the leuor upon the natunty of the cuitent arrangenients losed on sotein I

neren nuclear fuel impotenientt if the lesmr cannot arrance for aheinatne founcing upon the regularly sc heduled nutunty of in tuntowings hsstein 1:ncies mmt punihne nmicai fuel in an anmunt equal to the ainuunt re<pnt<11 hy the lessor to tehte km h hot rowitigs %) stein lCocius lud priot omlear f uel leasing ar rangeinent s that acre effecth el> cam elled with the stait of the new nm lear fuel leaune aliangesnent.

1, case [M)illent s, Ihned upon inticleaf f uel use, are ticated as a crist Ed liit 1 1. case (spenM' oliat ced to operatiom for the years ended December 31 Utoo.19s9 and 19ss w as appimimately 5721 indlion, 57T13 nullion, aini $1173 4 mdhon. respe< in ch. The umeem ered < mt hase of sutem 1:ncigs i leases at December 31.1940 aml 19$9 w as apprmimatel> Sill nullum aml 5151 inilhon. respn tn t 1. 3 Sale awl I.cawba< L 'Is nnw tiom on 1)cecmber 2N 19sk S> stein 1:ner gs entered mto tw o entirely separ ate, but identical arrange ments for the sales atul leaschat ls ol an apptmimate agetegate IllN undh ided ow nerslop inteicst m Graml Gulf I lot an aggregate cash comideration of 5;oo nollum. Spiem icneres k leaung ha(L the uininided interest on a net lease bask mer a 264 s car haue lease ter m. Ssstem Encres has optiom to letinuiate the leases and to tepun hase the mulisided mte rest in (;iaiul Gull l at certani inten als durmg the haue leasr terin. I nether. at tlu enil of the haue lease tot m. N) stem f.nergy has an option to tenew the leases or to repurchase the uminided mtevest in Gi.unt Gulf 1. See Note s "Comnatments ain] Gontmgencies - firimhunement krrrment ' with irspect to ecstain other terms of the trainaction.

In accordance with $13% No. 9s. ' Aerounting for 1.cau" ' clue to "contiiming inn oh einent" h3 System linergy, the sales ainileaschacks of the umlnided portioin of Graini Gulf I. as descithed ahm e, are required to be reflected for liiuncial icporting purposes as financing transactuun m hotein linergsi financial statements. The amounts (harged foi liiuncial repoitisie purposes to espeme include the interest portion of the lease obligatiom ainl depicciation of the plant. Iloweser, operattog res enues include the irem cry of the lease pas ments since the tr ansa (tiom are accounted f or as sales and leaschacks for rate making purpos s The total of intetest . ant depteriatmo espeme esece<h the correspomling res cones reahred thuing the early par t of the lease tenn. In December 1990. consistent with a recoininrodation contamed in a recent flillC amht report Splem Encigs ietorded as a deIctred auet the curient aiul piior year ddference between the reemery of the lease pa> tnents aial the amounts espensed for interest ami depiceution. remhing in an ineicase in net income of appimimately $24 million in 1990. The eth et of the defer ral w as to decrease depreciation espeme aint interest expense by apprminutely $10 nulhon aml 52 milhon. respectneh. and to inercase related tases tw apprminutel> % millmn The defenal will rnesse met the later years of the lease tenn as the inenues asmeiated with the leases neced the elurces for depiccianon and lease interest.

See Note 1. "Sununary of significant Accountint pohcin - l 'tilit y l'la n t . Dept reintion aml Decomminionstd foi f urther inf or riation reganhng the a( cou n n o g for the sale aiul leaschack tramartions.

11

SYS I 1:51 ENI:llGY 111:501'1101:$, INC.

N(Fl ES I O l'IN ANCI Al, stall 3ti:NTS - (Continued)

At De ceinher 'll,1990. 5)stelu Energy had future toinirnuin lease pa> ments (rellectitig an userall istiplicii rate of 9.W4 ) in connection with the sale and leau hael tvanuotions as listed in the following table:

%linimum 1.mc ty_me nts (In limuundi) 1991. $ 19,333 1992. 49,333 1993. 49.333 1991, 51.295 1995. 52,247 For s cars theteatter i ,i 95.573 Total . $ 1.4 47.414

= = = = = = .

NOll: 10. POS11ti!IlitESIENT lil'.N El'Il 5 Sptem Energy participates in a postretirernent plan sponsored h3 Entergy Corporation. The petisioti plan is noncontributory atul prosides pension benefits that are based on ernployees' credited sersice and aserage cornpensation, generally during the last fh e years l+ fore retirernent. System Enern's policy is to fund pension costs iti accordance with contribution guidelines established by the Emplo3ec itetirement locome Security Act of 1974, as amended.

The pension plan is administered by a trustee w ho is responsible for pension payments to retirees.

Various insestrnent managers base responuinlity for management of the plan's assets. In addition, an independent actuary perf orms the necessary actuarial valuations for Sy stem Energy's plan.

Effectis e June 6.1990 all of System Energ>'s employ ees became emplo)ecs of Entergy Operations.

lloweser. the ernploy ees still remain under System Energy's plan and no transfers of related pension liabilities and assets base been made.

The components of S> stem Energy's total 1990,1959 and 19% pension cost (incotne), including a:nounts capitalized, w ere as follow s-nno um um tin 1housantlO Setsice cost henefits earned during the period $ 1,395 $1,073 $ 937 Interest cost on projected benefit obligation ,62 559 421 Actual return on plan assets . 45 (3,992) (1,%3)

(2,402) 1,759 Net amortiration and deferral J6)

Net pension cost (ineoine) . $ (191) $(601) $(561)

The assets of the plan consist primaril) of conunon and prefened stocks, fised income securities and insurance contracts.

32

l l

l l sYs'l131 EN1:ltcY lti: sot'ItC1:$, iNC.

NOTE % 'l O l'IN ANCI Al stall:%lEN'l 5 - (Continued) 31.1990 aini 1954 w as as follow s; The f unded status of Sptern Energ3's pension plan at Deccinber Mem 19w tii,Tiam u nia Attuarial present salue of aceutnulated pension plan bellelitu $ t,036 $ 1356 Vested . j(%2 2.591 Notts ested 6 $ 3 9hy Accuinulated benefit obligation _h_u l $ __ _ . _

$ 10,174 $ h.661 Proir"tod benefit obligation 22,797 22.560 Plan assets at fair salue. 12,119 13.999 Plan assets in escess of projected benefit obligation 156 165 Unrecognized prior sersice cost . ($,%71) (9.167)

Unrecognized transitioti anet jl,667) (2.954)

Unrecoctilted net gain $ 1,743

$ 1,937 Accrued pension asset. _ . . . . _ _ __

Transition aucts are being ainottired mer the aserage teinaining sersite period of artise participants.

The incasuretnent of the iteins listed abuse is hned on the followitig auntnptione up,o niw 19u

% ,75'?< h .5'7< 9.0's Weighted average discount rinte 5,6'7, 5.6% 5 61 llate of increase in future carnpensation . $,51 8.51  %.59 Espe (ted long-terni rate of return on plan aucts Substantiall) all System Energy also prmides certain health care and hfe insurance benefits.

ernployees snay becorne eligible for these benefits if the) reach retirernent age while still working for the Entergy System. These benefits and sitnitar benefits for artise employees are pimided through payments of preiniums to insurance coinpanies, and Systern Energy recognizes the cost of prmtd these benefits b) expensing the atnounts as incurred. S) stern Energs h:ul four retirees as of December 31,1990, three retitees as of December 31,19%9, and one retirer as of December 31,19ss.

The cost of providing these benefits for retitees is not separ able from the cost of prmiding benefits for actis e einployees. The emt of providing these benefits for 19tK),1959. and 19%h was approsimately

$2,545.000, $1,h65,000, atul $1,655.000, respectively, in Deccenber 1990, the FA$ll issued $FAS No.106, "Emplo> cts' Accounting for Postretirement 3 cars beginning after Decem-Ilenefits Other Than Pensions." which is generally clicctise for fiscal ber 15,1992, The new standard icquires a change in accounting recpiirements for postretircinent benefits other than pensions froin a cash tuethod to an accrual method. The impact of this new standard has not been fully deterinined, but the change hkely will result in significantly greater expense being recogni7ed for prmision of these benefits. The elTect of the increased benefit expense on tiet income couhl be reduced to the extent such incteased costs ate reemered through rates or through the recording of a regulatory asset to be icemered in the future. Sy stem Energy espects to reemer such increased costs under the Unit Power Sales Agreen cnt. Sptem Energy plans to adopt this statement in 1991 33

%YNTI Al 1:NI:llGY lll:40l'1101:%, I NC.

NO I1:s 'lO l'INANCI Al. $TA'l1:\ll:N'I s - (Continued)

NOI E 11, 'IllAN% \C'llONN Willi ilTil.l tTI.$

Sy stein Energy sells all of the calueity aval energy froin its sinue of Graiul Gulf I to the S> steni operating cornpanies under rate schedules approsed h> the FEltC in its June il Deciuon regarding the Unit Pow er Sales Agreernent. Accordingl>. all of 5> stern Energ> 's operating res ennes consist of lnllitigs to the S i Jern opetating cornpaniet AlPhl., prosides a ininiinal arnount of techriiral aiul ath nory senices and other inheellaneous wnites to Spiern E icres. In addition. puisuant to a si nice aerceinent, 5ptein Energy recches technical alul advisory serviers itotn Entergy henices. Inc. (:hartes iroin hlPhl, aiul IClitert> Senicet Inc. for tec hnical, adsisor> and iniscellaneous senices ainoontcJ to apprmiinately 510 6 rnillion in 1990. 512.3 nullion in 19W and $12.1 inillion in 19%. Also, pur suant to an operating aceccinent.

effecthe June b,1990. Entesgy Operatiom has been authorized to act a, general agent for Spten.

Energy and has anunied ope ratisig responsihiht> for, but not ou nership of Gratid Gulf I. In return, Sptern Cratid GulfEnergy 1, pap directly or tritnhuises Eritergy Operations for the costs awociated with operating in 1990, direct pa> rnents totaled appro. .ately 5111 O nollion and teiinbursernents totaled apprmiinately $17 6 rnillion.

1 addition. certain inatenals and seniers te<piired for fabricatum of nuclear fuel are acquired and financed h3 Sotein fuels and then sohl to 5ptern Enrig>. as needed Charues fo- these inatenah and senices. w hich represent additions to nuclear fuel, amounted to approumatel> 511.1 niillion in 1990, 50 06 tuillion in 1949 and 591.7 inilhon in 19%%

NO~1 E 12. CAsil AND CAsil I t)t'lVAl.1:N'lN For purpmes of the statements of Cash Flow s. Sptem Energ> generalh (onsulers all unrestorted highly hquid debt iristrutnetits. purchased with a maturit> of three toonths or leu, to be cash equn alents. The supplemental disclounes required h 35FAs No 95. " Statement of Cash Flow s." w er as follow s:

lin 0,e w.u,nuinionenit.n u.

Hm new 19 %

( t n I tunn.nuls l Cash Paid (llcocised) During the Peitod for:

Interest inct of amount capitaheed of S til thousand in 1990,$61$ thousaml ni 19W and 5074 thousand m 19W . 5216,250 $211.129 $110,705 income tases 5(37,3%3) $ 1!.711 5 M il Noncash Irnesting and Fmancing.

Capital lease obligatiorn irieurted (Note 9) -

$1W O00 $ .50,000 Plaint iinpact of future heliefits related to AlTD(: $ 691391 5 h5.172 All ternporar> inn estments are stated at cost. w hi< h approsiinates market.

11

%Yh'l1:%11:Nt:llGY lil: sol'l(CI'$, INC.

NO'l1:5 'l O l'IN ANCITI STATI:511:N~1 h - (Conduded)

NO'l 1: 13. Qt'All'lI:ltlJ lil:Sl* lit h (l'naudited)

Operatnie results for tlie four quarters of 1940 atul 1950 were as follon go.o n r i na,a %h _yee 6,,ynyg g pu ena,cr tin 1 housando 1990; Operating flesetiues $201,660 $197,992 5 204,583 $ 197,3h3 Operating inconic $ hk.9 Y, $ h6.411 $ hh.240 $ 114,362 Net locoine $ 38.457 $ 36,122 5 36.569 $ $7,499" 1959:

Op :ating llesenues $215.567 $2 t h.(A7 $ 200.631 $202,119 Operatint incorne $ 95,831 5 9",.k25 $ NO.624 $ $9,595 Net ineoine (Lou) $ 40,341 $ 42.16% $ ( 771.055)

• i 31052

• See Note 2, "llate aint flegulatory hiatters - l'ro;rrt Olit e thanch Settlernent.'

' %cv Note 9, "l. cases - Sale and 1,raseback Tr ansactions.'

35

i l

SYs1 EN1 13EltGY ItEsoritCES. INC.

111:0 0 111) OF l'ItOGIIEs. s 19s5-I!rio 19%7 19ss 1%5!2) 19 % 19s9 19ss _

(In T8mm.mn&)

Selecteil Financial I)ata $ 501.615 $ s37.307 $ (rns2s $ 962.589 5 959.737 $ 524012 Operating resenues $ 165.677 $ (6~G 524) $ 1s0.314 $ 19s sul 5 i s4 l r, $ 21s.f 67 Net inconne (Ioss) $3.ss3,2 s l $3.957.u55 $~,.160.2 49 $3. 822.329 $ 4.97). l is $4.947.sts Total assets. $1.s t92Mm $2.2?> u22 $2f63JH2 $2,215.155 $2.266 s2 4 $2.317.22'i I;ing-teren of,lications(!)

Capitalization: $ 1.793,'r)l $2. ! ~>s. 855 $2fG3.002 $ 2,215 1.~G $2.2 Mis 24 $2.317.223 leng-terrn <lelit (esclu< ling currently niaturing del >f1 Ts9 :r0 Ts4.3N p 7s9.3Ni Ts9 350 Ts93w f 7s9.350 Coininon Goek anel pai<ldn capital . I c2 80.219 1.T,9J W, l . I61. lH 8 97[9N l 3s6.469 197.022 lietairie<I e arnings .

s2.971.s i n $3 4 s.s27 $ 47,s2.571 s s.39 3. 4 to 5:.217.275 $1o;s.sts Tota! capitali7ation .

M $3.615.234 $3 616.711 $3KG 615 $3fh2.4fdi $3,357.62s $3.3223,0 Utility I'latit I19.918 323 6'al 215 *s 170 sso 95 9ss 37 s ,6 Irss - act utnulate<l <lepreciation .

Net utility plant $3.195JIII 53293020 $140s.201. .$3.131.5%

. _ _ _ _ _ _ 5:!.26]

. . . _ . J.10

. _ $3 2s 4.50 4 Electric lles ennes (1)ollars in Tieonsaruis): s sol.61s $ s37;m7 $ 933.s2s S 962.549 $ 959.737 5 524.0:2 Sales for sesale l Energy Sales (.stillions of KWil): 6.66f, , n# > 4 s.632 69,8 33,96 2.10 3 Sales for resale 4

Nutnleer of Custorners ( At I)ecernlier 31): 4 4 4 $ 3 Sales for resale (I) Inclu<les long-terin delet. esclutling current snaturities. anel non<urrent capital leaw- ol*Iigations.

(2) Corninercial operation of Granci Gulf I conirnenced on July I.19s5

d. ..m.

l)llLEC'l 0115 1:dwin 1.upherger Chairinati of the lloard of Sptein Energy ain! Entergy Operations. loc.

Chairinan of the lioard and Chief Eu cutise Officer of Entergy Corporation William Casanaugh,111 President and Chief Executise OtIner of Sptein Energy and Ente rgy Operations. Inc.

Senior Vice President. Sntern Execo'ise Nuclear of Entergy Corpor ation and Enterey Sersiees. Inc.

Esecutise Vice President and Chief Nuclear Officer of Arkansas Power & Light Company and Louisiana Power & Licht Coinpany James M. Cain Vice Chairruan of Entergy Corporation and Entergy Sersites. Inc.

Jerry L Maulden Chairinan of the lloard and Chief Esecutise Officer of Arkansas Power N Light Company. Mississippi Power & Light Company.

Louisiana Power & Light Company, atul New Orleans Public Sersite Inc.

Group President. System Executise - Distribution / Customer Sersiee of Entergy Corporation arul Entergy Sersiees. Inc.

EXI:CUTIVE OITICEllS l'dwin 1.upherger Chairman of the Board William Cavanuugh,111 President and Chief Esecutise Officer Glenn E. llaider Vice President and Treasurer Dan E. Stapp Secr etary The 1990 Annua. lleport to the Securities arul Eschange Comm ision on Form 10.K (including financial staternent scheduies) is asailable to any interested .arties without charge. Interested parties can obtain a copy by calling or writing to:

Glenn E. Ilarder Vice President and Treasurer Sptem Energy llemurces, Inc.

P.O. Ilos 31995 Jackwn, MS 392s61995 Telephone (601) 9s4 9000 To request a copy of the 1990 Entergy Corporation Annual fleport, call or w rite to; Entergy Corporation Sptem insestor llelations P.O. Ilos 61005 New Orleans, LA 70161 Telephone (s00) 292-9960 37

s FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (Date of earliest event reported): Ipril 4, 1991 SYSTEM ENERGY RESOURCES, INC.

(Exact name of registrant as specified in its charter)

ARKANSAS 1-9067 72-0752777 (State or other jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification Number)

Echelon One, 1340 Echelon Parkway, Jackson, Mississippi 39213 (Address of principal executive offices)

Registrant's telephone number, including area code: (601) 984-9000

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~2-Item 5. Other Eventit.

As discussed on pages 14-16, 76, 236-239 and 270 of the Annual Report on Form 10-K for the fiscal year ended December 31, 1990, on February 4, 1988, after a lengthy prudence investigation that was contested by 11ew Orleans Public Service Inc. ("!iOPSI") ,

the Council of the City of 110w Orleans, Louisiana (" Council")

adopted a resolution (" February 4 Resolution") that required !IOPSI to write off, and not recover from its retail electric customers,

$135 million of its previously deferred costs associated with Unit 11 o . 1 of the Grand Gulf Steam Electric Generating Station (nuclear)

(" Grand Gulf 1"). This write-off,'which was recorded in 1987, was 1.1 addition to $51 million of Grand Gulf 1-related costs originally absorbed and not recovered by 110 PSI. The February 4 Resolution has resulted in extensive litigation.

On February 4, 1988, the Council and other parties filed in the Civil District Court for the Parish of Orleans, Louisiana

(" State Court") a petition for declaratory and injunctive relief seeking a judgment, among other things, declaring that the February 4 Resolution is valid and enf orceable. Furthermore, on February 4, 1988, a suit was filed in the State Court by the Alliance for Affordable Energy, Inc. and others (" Alliance") asking that the February 4 Resolution be amended to order a significantly greater disallowance of Grand Gulf 1-related costs from 110 PSI's electric rates, and 110 PSI subsequently was named a party to this suit. On March 7, 1988, !!OPSI also filed a petition in the State Court seeking reversal of the February 4 Resc Ation. These three cases were consolidated and, on llovember LS, 1989, the State Court r endered a judgment in f avor of the Council, af firming the February 4 Resolution, and against the petitions of !!OPSI and the Alliance.

On appeal, the Fourth Circuit Court of Appeal for the State of Louisiana ("Fcurth Circuit") issued a decision on April 4, 1991 that rejected 110 PSI's federal preemption claims and affirmed tne findings of the Council, embodied in the February 4 Resolution, tnat !!OPSI had imprudently incurred approximately $477 million of Grand Gulf 1-related costs. However,-the Fourth Circuit concluded t hat the Council acted contrary to law and public policy when, in W.9hing the ef fect of its ruling upon liOPSI's financial condition, it decided to disallow only a portion of the Grand Gulf 1-related costs found imprudent. The Fourth Circuit purported to amend the February 4 Resolution to disallow the recovery by IIOPSI frombeen its retail electric customers of any costs found to have imprudently incurred, including an additional $290 million not previously disallowed.

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-3 110NI intends to vigorously content the Fourth Circuit's decision. The ruling is subject to further discretionary review in the Louisiana courts. In related proceedings before federal courts, 110 PSI has petitioned the United States Supreme Court for a writ of cortiorari seeking a review of lower federal court rulings rejecting 140 PSI's facial preemption claims and staying the i remaining Dortions of the federal proceedings. A ruling from the United St.stes Supreme Court on whether to review the decisions staying federal court proceedings is o>:poeted as early as the middle of April 1991.

The ultimate outcome of these various federal and stato court proceedings cannot be predicted. Entergy Corporation and ,

!!OPSI are in the process of assessing the potential impact of the Fourth Circuit decision upon NOPSI and the Entergy System - as a whole. However, if the Fourth Circuit decision were ultimately sustained, 110 PSI's earnings, liquidity and financial condition would be materially adversely af fected and 110 PSI could be rendered insolvent.

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_ _4 NNF"* * . mM- sese.c. _m%, , _ , ,g,.g . _

SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EY_E.EM T ENERGY RESOURCES, INC.

(REGISTRANT)

By /s/ C. J. Dudenhefer C. J. Dudenhefer Assistant Secretary Date: Igril 8, 1991

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