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July 15, 2008 Via EDGAR and Federal Express Dear Mr. Owings: Following are Entergy Texas' responses to the comments of the Staff of the United States Securities and Exchange Commission set forth in your letter to Mr. Joseph Domino dated April 11, 2008. For the convenience of the Staff, each of the Staff's comments is reproduced and is followed by the corresponding response of Entergy Texas. Capitalized terms used but not defined in this letter shall have the meanings given to such terms in the Form 10. General
H. Christopher Owings
Assistant Director
Division of Corporation Finance
United States Securities and Exchange Commission
Mail Stop 3561
100 F Street, N.E.
Washington, D.C. 20549
Re: Entergy Texas, Inc.
Form 10
Filed March 14, 2008
File No. 000-53134
Response: We note the Staff's comment.
Response: We have revised the Form 10 to disclose the websites for Entergy Texas and Entergy Corporation. Please see page 18 of Amendment no. 1 to the Form 10.
Forward-Looking Information
Response: We have deleted the reference to the Private Securities Litigation Reform Act.
Definitions, page i
Response: We have revised the "Definitions" section to define the term "AEEC." We have replaced the acronym "CAA" with "Clean Air Act" because that acronym was only used in one place in the Form 10. Please see pages i and 22 of Amendment no. 1 to the Form 10.
Item 1. Entergy Texas' Business, page 1
Response: We note the Staff's comment and have removed all references to Entergy's business that would call for independent supporting materials.
Jurisdictional Separation. . .page1
Response: We have added the following disclosure to the discussion on page 1 of Amendment no. 1 to the Form 10:
Management believes that the jurisdictional separation will better align Entergy Gulf States, Inc.'s Louisiana and Texas operations to serve customers in those states and to operate consistent with state-specific regulatory requirements as the utility regulatory environments in those jurisdictions evolve. The jurisdictional separation provides for regulation of each separated company by a single retail regulator, which should reduce regulatory complexity.
Response: We have revised the disclosure on page 1 of Amendment no. 1 to the Form 10 to clarify that we assumed $1.079 billion of long-term debt. We have also added a cross-reference on page 2 of Amendment no. 1 to the Form 10 to Note 5 of our financial statements.
Litigation, page 17
Ratepayer Lawsuit, page 17
Texas Power Price Lawsuit, page 17
Response: Neither Entergy Gulf States, Inc. or Entergy Texas are named as a defendant in this lawsuit. This is explicitly disclosed in the case of Entergy Gulf States, Inc. and implicitly disclosed in the case of Entergy Texas. Disclosure regarding the lawsuit is provided because the outcome of the litigation could have an effect on Entergy Texas' business, although at this time it is not expected to have a material effect on its financial position, results of operation, or cash flows. We believe that the current disclosure complies with the requirements of Regulation S-K Item 103.
Item 1A. Risk Factors, page 18
Response: We have revised the risk factor heading on page 21 to more fully reflect the risk discussed underneath the heading.
Item 2. Financial Information, page 23
Entergy Texas, Inc. - Management's Financial Discussion and Analysis, page 23
Results of Operations, page 25
Net Revenue, page 25
Response: Management uses net revenue to analyze Entergy Texas' results of operations. This is because fuel and purchased power costs are pass-through items recovered in revenue through fuel factors and surcharges and typically do not affect net income, and regulatory charges (or credits) offset specific revenue items (or expenses) and likewise typically do not affect net income. Therefore, the discussion of net revenue is detailed and has prominence in management's discussion and analysis of results of operations.
The users of our financial information have on occasion, however, inquired about the large-scale causes of the fluctuations in gross operating revenues and fuel and purchased power expenses. We therefore provide as a supplement to the net revenue analysis explanations of the fluctuations in these line items on a less-detailed basis. We believe that the definition of net revenue establishes the relationship between net revenue and gross operating revenues, fuel and purchased power expenses, and other regulatory charges, but we will revise the discussion of the latter to make it clear that the factors affecting net revenue also affected gross operating revenues.
The increase in wholesale revenues was $44 million, which we did not quantify in the discussion because it can be derived from the sales for resale data on the selected financial data page. We have revised the discussion to add this quantification to make it easier for the reader to follow. With the addition of the quantification of the increases in wholesale revenue and net revenue, which was $39 million, it is now presented more clearly that $96 million of the $97.3 million decrease in gross operating revenues is explained in the discussion.
In future periods we will continue to consider methods of explaining clearly the significant factors affecting gross operating revenues, fuel and purchased power expenses, and other regulatory charges without detracting from the prominence of the net revenue discussion.
Other Income Statement Variances, page 27
Response: The credit resulted from going from a market-based rate authority to a cost-based rate authority for the wholesale business, not the retail business, and resulted in reinstating the application of regulatory accounting principles to the wholesale business. We have revised the disclosure on page 27 of Amendment no. 1 to the Form 10 to indicate that the explanation relates to the wholesale business.
We supplementally advise the Staff that during 2005 and 2006 Entergy filed notices with the FERC to withdraw its market-based rate authority for wholesale transactions in the Entergy control area and submitted new cost-based rates to the FERC for approval. During the second quarter 2006, the FERC issued an order accepting the cost-based rates filed by Entergy. Entergy's utility companies apply the provisions of SFAS 71 to operations that meet three criteria: rates that are approved by a regulator, are cost-based, and can be charged to and collected from customers. Prior to the FERC decision, Entergy Gulf States, Inc. did not apply regulatory accounting principles to its wholesale jurisdiction. The FERC decision in the second quarter of 2006 resulted in Entergy Gulf States, Inc. meeting the SFAS 71 criteria for its wholesale jurisdiction and, therefore, Entergy Gulf States, Inc. reinstated the application of regulatory accounting principles to its wholesale business which resulted in a credit to income during the second quarter of 2006.
Because of the small size of this credit in relation to Entergy Texas' income before any potential extraordinary items, its results of operations activity in 2006, including its net income, and the trend of Entergy Texas' earnings, we did not believe that additional disclosure regarding this item was necessary in the Form 10, other than the clarification we are adding that the change in rate authority related to the wholesale business. In addition, in accordance with the provisions of APB 30 paragraph 24, because of the insignificance of this item we concluded that it was not necessary to separately classify it as an extraordinary item.
Liquidity and Capital Resources, page 28
Operating Activities, page 28
Response: We have revised the disclosure beginning on page 29 to provide more detail as appropriate.
Consolidated Statements of Cash Flows, page 51
Response: SFAS 95 paragraph 28 requires entities preparing an indirect method cash flow statement to adjust net income to reconcile it to net cash flow from operating activities by removing "(a) the effects of past operating receipts and payments" and "all accruals of expected future operating cash receipts and payments, such as changes during the period in receivables and payables" and "(b) the effects of all items whose cash effects are investing or financing cash flows, such as depreciation...." SFAS 95 paragraph 29 requires that the reconciliation report the major classes of reconciling items, including at a minimum changes during the period in receivables, inventory, and payables pertaining to operating activities. In our judgment the items presented as "Other" in the operating activities section of the cash flow statement are not individually major classes of the reconciling items described and their individual presentation would not provide significantly useful info rmation to the readers of our financial statements. Included in "Other" are changes in certain non-current balance sheet items, including other deferred debits and other non-current liabilities and pension and postretirement liabilities, as well as non-cash charges or credits to current income tax expense associated with certain settlements under the Entergy Gulf States, Inc. separation agreement. In 2005 and 2006 it also includes the effects of Hurricane Rita storm damage costs on certain utility plant and regulatory asset accounts.
We monitor the composition of the "Other" category whenever we issue a statement of cash flows, and attempt to ensure that individually meaningful reconciling items are separately disclosed. We will continue these efforts in the future, with the goal of continuing to improve our cash flow presentation
Response: The changes in working capital items are part of the adjustments to reconcile net income to net cash provided by operating activities. This follows the example format provided in SFAS 95 paragraph 132. The adjustment items below the changes in working capital adjustment items were placed there because they relate to items that are below the working capital items on the balance sheet.
Note 3. Income Taxes, page 64
Response: Following is a reconciliation of changes in "accumulated deferred income taxes and taxes accrued" and "accumulated deferred income tax credits" on the balance sheet to "Deferred income taxes, investment tax credits, and non-current taxes accrued" on the cash flow statement:
Balance Sheet line items |
12/31/2007 |
12/31/2006 |
12/31/2005 |
12/31/2004 |
Accumulated deferred income taxes - current |
(24,507) |
(23,184) |
49,055 |
20,667 |
Accumulated deferred income taxes and taxes |
697,693 |
501,941 |
369,223 |
229,075 |
Accumulated deferred investment tax credits |
25,724 |
27,295 |
28,889 |
30,496 |
698,910 |
506,052 |
447,167 |
280,238 |
|
Change in balance sheet accounts |
192,858 |
58,885 |
166,929 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued on Cash Flow Statement |
218,873 |
52,784 |
174,037 |
|
Difference |
(26,015) |
6,101 |
(7,108) |
|
Reconciling Items: |
||||
FIN 48 (1) |
1,333 |
- |
- |
|
SFAS 109 (2) |
(2,016) |
(1,126) |
(2,635) |
|
SFAS 158/Minimum pension liability adjustment (3) |
(3,834) |
7,736 |
(52) |
|
Deferred taxes on independent power project |
31,162 |
(10,384) |
8,647 |
|
Intercompany billed taxes from service companies (5) |
(630) |
(2,327) |
1,148 |
|
26,015 |
(6,101) |
7,108 |
Notes:
Following is a reconciliation of "Deferred income taxes, investment tax credits, and non-current taxes accrued" on the cash flow statement to "Deferred - net" in Note 3 to the financial statements:
2007 |
2006 |
2005 |
|
Deferred income taxes, investment tax credits, and non-current taxes accrued on Cash Flow Statement |
218,873 |
52,784 |
174,037 |
Deferred income tax expense per F. S. Note 3 |
311,863 |
90,416 |
300,028 |
Reconciling items: |
|||
Change in long-term taxes accrued |
(91,409) |
(36,028) |
(124,384) |
Change in accumulated deferred investment tax credits |
(1,571) |
(1,594) |
(1,607) |
218,883 |
52,794 |
174,037 |
|
Difference |
(10) |
(10) |
- |
Finally, because income taxes paid or received represented a small percentage of the total operating cash flow activity for Entergy Texas for the years 2007, 2006, and 2005, the discussion of income taxes paid or received in Liquidity and Capital Resources is brief. If that relationship changes, or if management becomes aware of trends or factors that will cause that relationship to change, appropriate disclosures will be included in future filings.
Note 8. Retirement, Other Postretirement Benefits, and Defined Contribution Plans, page 72
Response: We will revise our disclosure in Critical Accounting Estimates on page 45 of Amendment no. 1 to the Form 10 to include the following disclosure:
Entergy Texas calculates the expected return on pension and other postretirement benefit plan assets by multiplying the long-term expected rate of return on assets by the market-related value (MRV) of plan assets. Entergy Texas determines the MRV of pension plan assets by calculating a value that uses a 20-quarter phase-in of the difference between actual and expected returns. For other postretirement benefit plan assets Entergy Texas uses fair value when determining MRV.
In future annual filings, we will also include this disclosure in the footnotes to the financial statements.
* * * * * * * * * * * * * * * * * * * * * * * * * * * *
In making this response, Entergy Texas acknowledges that:
If you would like to discuss any of Entergy's responses to the Staff's comments or if you would like to discuss any other matters, please contact the undersigned at (504) 576-2517 or Paul Ory at (504) 576-4482.
Sincerely,
/s/ Theodore H. Bunting, Jr.
Theodore H. Bunting, Jr.
Senior Vice President and Chief Accounting Officer
Cc: Joseph Domino
Steven V. Wilkinson
William P. Graf (Deloitte & Touche)
Ronald E. Alper, Esq.
Sarah Goldberg
James Allegretto